UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 10-K

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

     For  the fiscal year ended December 31, 2002

                                       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.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)
--------------------------------------------------------------------------------

                Florida                                  59-2492929
-----------------------------------          -----------------------------------
   (State or other jurisdiction                      (I.R.S. Employer
           organization)                            Identification No.)

    4312 Woodman Avenue, Third Floor
        Sherman Oaks, California                           91423
-----------------------------------          -----------------------------------
   (Address of principal                                 (Zip Code)
     executive offices)

       Registrant's telephone number, including area code: (818) 953-9995

        Securities to be registered pursuant to Section 12(b) of the Act:

               None                                          None
-----------------------------------          -----------------------------------
   Title of each class to                       Name of each exchange on which
      be so registered                          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
--------------------------------------------------------------------------------
                                (Title of Class)

                                 Not Applicable
--------------------------------------------------------------------------------
                                (Title of Class)

     Indicate by check mark  whether the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes  X   No
                                              ---     ---


<PAGE>


     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K. ______

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes     No  X
                                       ---    ---

     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 on National  Association  of Securities  Dealers  over-the-counter
bulletin  board as of the last  business day of the  registrant's  most recently
completed second fiscal quarter, which was June 30, 2002: $4,013,821.

     The number of shares of the  Registrant's  Common Shares  outstanding as of
April 7, 2003 was 4,651,332.

                       DOCUMENTS INCORPORATED BY REFERENCE

A description of "Documents  Incorporated  by Reference" is contained in Item 15
of this Report.


<PAGE>


                                TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS.....................................................1

ITEM 1.   BUSINESS.............................................................2

ITEM 2.   PROPERTIES..........................................................13

ITEM 3.   LEGAL PROCEEDINGS...................................................14

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................14

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY
          AND RELATED STOCKHOLDER MATTERS.....................................14

ITEM 6.   SELECTED FINANCIAL DATA.............................................16

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATION..................................18

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........28

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................28

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE.................................29

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
          SECTION 16(a) COMPLIANCE............................................30

ITEM 11.  EXECUTIVE COMPENSATION..............................................33

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS......................41

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................43

ITEM 14.  CONTROLS AND PROCEDURES.............................................44

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
          AND REPORTS ON FORM 8-K.............................................44

SIGNATURES....................................................................48


<PAGE>


     This  Report  contains   forward-looking   statements,   including  without
limitation,   statements  that  include  the  words  "anticipates,"  "believes,"
"estimates" and "expects" and similar expressions and statements relating to our
strategic  plans,  capital  expenditures,  industry  trends  and  our  financial
position. 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    state and federal regulations,

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

     o    availability and cost of capital,

     o    our ability to meet our obligations as they become due, and

     o    general industry and economic conditions.

     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 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 its competitors with the Securities and Exchange
Commission.

     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.


                                       1
<PAGE>


ITEM 1. BUSINESS

Overview

     The Registrant was  incorporated in the State of Florida on January 4, 1985
under the name "L R  Associates,  Inc.",  and  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 the name "Neptune Society." See
"Neptune Society Acquisitions" On April 26, 1999, Lari Corp. changed its name to
"Neptune Society, Inc."

     The Neptune  Society,  Inc., is 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, Iowa, New York, Oregon and Washington. See "Properties" for a
list of our  locations and a description  of their  operations.  We also operate
three  crematories and licensed holding  facilities in Los Angeles,  California;
one licensed holding facility in Ventura, California; one crematory and licensed
holding  facility in Ankeny,  Iowa;  and one  crematory  and a licensed  holding
facility in Spokane,  Washington.  We provide cremation services in the areas we
own  crematories.  We use the  services of qualified  and  licensed  third-party
crematories and holding facilities in locations that we do not own crematories.

     Unless the  context  otherwise  requires,  (i)  "Neptune  Society"  and the
"Registrant"  refers to The Neptune  Society,  Inc.,  (ii)  "Neptune of America"
refers to Neptune Society of America, Inc., (iii) "Neptune Management" refers to
Neptune Management Corp., Inc. (iv) "Heritage  Alternatives"  refers to Heritage
Alternatives,  Inc. and (v) "Trident  Society" refers to Trident  Society,  Inc.
"We,"  "us," and "our"  refers to  Neptune  Society,  and its  subsidiaries  and
associated entities.

     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. All dollar amounts are in United States dollars unless otherwise
indicated.

The Neptune Society Business

     Our business strategy is to pursue revenue and growth  opportunities in the
cremation  sector  of the  death  care  service  industry.  We  operate  all our
locations under one nationally  branded name,  "The Neptune  Society," and offer
only cremation  services and products related to cremation  services.  We do not
intend to evolve into a traditional funeral burial services company.

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, Iowa, New York, Oregon and Washington.

     The Neptune Society Pre-Need Program
     ------------------------------------

     The  Neptune  Group  started our  Pre-Need  program in 1988.  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 the same standard Pre-Need Plan in all the
states that we conduct business.

     A Neptune Society Pre-Need Plan consists of the following:

     o    Merchandise:  At the time of sale,  we  deliver a Neptune  Information
          Book, personalized Neptune registration portfolio, membership card and
          specially designed Neptune urn.

     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.


                                       2
<PAGE>


     o    Cremation  Services:  At the  time of  death,  we  provide  the  basic
          professional  services of a funeral  director and staff, the cremation
          and related items required for the cremation.

     The  Neptune  Pre-Need  Plan is a  guaranteed  price  plan,  which means we
guarantee  that  we will  provide  the  services  at the  time  of need  without
additional  payment for the service.  The purchase  price of a Pre-Need  Plan is
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."

The Neptune Society At-Need Programs
------------------------------------

     We also  provide  cremation  services  on an At-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 burials.

The Neptune Society Registration Service
----------------------------------------

     We offer a  registration  service  that  allows  individuals  to record and
register  their request to be cremated,  and we maintain a record of information
necessary  for us to provide  cremation  services at the time of death,  however
these  registration  services do not  provide  for a  guarantee  of price to the
individual unless such services are paid for in advance.

Other Services and Products
---------------------------

     We offer premium, upgraded services and products,  including higher quality
urns, and  memorialization  options.  These options include  upgraded  permanent
memorial urns or keepsakes,  memorial  record books,  memorial life  celebration
videos,  assistance  in  arranging  for  private  or public  memorial  services,
arranging for disposition of the ashes other than common  scattering at sea such
as delivery to cemeteries or other points of permanent disposition.  Our offices
in Arizona,  Fort  Lauderdale,  Ankeny,  Portland,  and Spokane have chapels for
cremation memorial 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.

     We charge a one time $50 non-refundable  registration fee for customers who
chose only to register  their  cremation  wishes.  A customer  may remove  their
cremation wishes from the register at no charge.

     We offer a worldwide  guaranteed  travel plan to Pre-Need members for $329,
which guarantees  service  coverage  throughout the world if a member dies while
away from home.  Under our travel plan,  the travel plan provider will provide a
member  cremation  services at any place in the world,  regardless  of where the
Pre-Need Plan is purchased.

     The price of our basic  Pre-Need Plan  currently  ranges between $1,070 and
$1,499.  We price our  Pre-Need  Plans to enable us to provide  the  purchaser a
future fixed price  guarantee at our Neptune level of service and 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.

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 currently charge interest of 8% 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


                                       3
<PAGE>


currently  have  locations  in the  states  of  Arizona,  California,  Colorado,
Florida,   Illinois,  Iowa,  New  York,  Oregon  and  Washington,   representing
approximately  40 major  metropolitan  market  areas.  We also  have a  national
telemarketing center located in Tempe, Arizona. See "Properties."

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 Illinois,  Arizona, Colorado,
Iowa, Oregon,  Washington and Florida. We are currently exploring new "start-up"
opportunities  in Missouri,  Minnesota and Michigan,  and we have  identified 26
additional  states  which  have  demographic  characteristics  that may  provide
opportunities for future expansion.

     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:

     population demographics;

     death and cremation rates for the area;

     competition in the market;

     forecasted growth in cremation rates for the area; and

     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 the name "The  Neptune
Society", except for San Diego, San Bernardino,  Riverside and Imperial Counties
in California,  where we market our services  under the name "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  services  and  products  using  targeted  advertising
campaigns,  including  Yellow  Pages  advertising,  local  television  and radio
advertising, our website and direct marketing campaigns.

     We market  our  Pre-Need  programs  using a  combination  of  direct  mail,
telemarketing and personal sales programs.

     Direct Mail
     -----------

     We use a monthly direct mail campaign to generate sales leads. We presently
mail a total of  approximately  6.6  million  pieces  of direct  mail  marketing
materials per year in the  geographic  areas we serve.  Our marketing  materials
provide information related to our Pre-Need programs, including a description of
the services,  pricing  information,  our toll free phone number, and a business
reply card to obtain  additional  information or to make an appointment with one
of our area sales representatives.

     Telemarketing
     -------------

     We have established a Predictive Dialing  Telemarketing Center (PDS Center)
in Tempe,  Arizona. Our current  telemarketing  program is primarily designed to
generate  leads from people who have not responded to our direct mail  marketing
campaigns.  Our call  center is  designed to provide  information  to  potential
customers  about  Neptune  Society  products  and services and to allow leads to
schedule appointments with our area sales


                                       4
<PAGE>


representatives.  Our call center is designed to consolidate  our  telemarketing
efforts  in one  centralized  location  and  allow  us to  implement  a  uniform
telemarketing and promotional strategy using professional telemarketers.

     Personal Sales
     --------------

     We use  commissioned  independent  contractors to provide  services as area
sales  representatives  to sell our Pre-Need Plans. As of March 31, 2003, we had
approximately 115 commissioned area sales  representatives.  We provide our area
sales  representatives  with leads  generated from our direct mail campaigns and
telemarketing efforts, 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. Each of our Pre-Need sales offices has
a sales  manager  who  recruits,  trains and  engages  commissioned  independent
contractors  to  provide  services  as area  sales  representatives  to sell our
Pre-Need Plans.

     Internet Web Site
     -----------------

     We  maintain  a fully  integrated  and  comprehensive  web site  located at
www.neptunesociety.com.  Visitors to our website may access information  related
to our services and  products.  Our website also  provides  general  information
related to cremation services and related topics.

Death Care Industry

     According to Johnson Rice & Company,  L.L.C., in an April 15, 2002 research
report,  four publicly traded companies hold  approximately  22% of the domestic
death care market and private  independent  operators  control nearly 80% of the
domestic  death care  industry's  revenue.  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).

     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 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.



                                       5
<PAGE>


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
2002, while we operated in only 11 states.  Approximately  53% of our cremations
in 2002 were prearranged.

     Our  competitors  range from  nation-wide  large 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 marketing and operations  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, embalming services, plots, caskets,  tombstones and markers,  cremation,
plaques and urns, and pre-need arrangements.

     We intend to compete by focusing on the Pre-Need  cremation  segment of the
death  care  industry.  We  believe  that we can  effectively  market  cremation
services  on a Pre-Need  basis by  offering a lower cost  alternative  to burial
funerals.  In addition,  we believe that by marketing  our company as "America's
Cremation Specialist"(R), we can differentiate ourselves from our competitors.

     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.

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.

     Pre-Need Trust Fund Regulation and Pre-Need Contract Cancellation
     -----------------------------------------------------------------

     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 consists 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.

     All states in which we currently operate require us to place into trust all
or a portion of the funds related the cremation  services we will perform at the
time of death. In all states in which we offer Pre-Need plans, except California
and New York,  we are  allowed to retain a  percentage  of the future  cremation
service price related to


                                       6
<PAGE>


the sale of the  Pre-Need  Plan.  The amount we are required to place into trust
ranges from state-to-state:  70% of the cost in Florida, 75% in Colorado, 80% in
Iowa and 90% in Oregon and  Washington.  These  trust  funds are  maintained  by
financial  institutions  in  accordance  with the laws of the state in which the
Pre-Need Plan is sold.

     In all of the states that we currently sell our Pre-Need Plans,  except for
New York and  Florida,  we are  generally  not  required to place into trust the
funds received for merchandise  that is delivered to the customer at the time of
the  sale.  Florida  requires  us to place the  greater  of 30% of the price for
merchandise or 110% of the wholesale cost into trust and New York requires us to
place  100% of the price for  merchandise  into  trust.  The  rules  related  to
merchandise  stored for customers in connection with Pre-Need Plans differs from
state-to-state, but generally, merchandise is deemed to be delivered at the time
of sale if it is  stored  for the  customer  by a  third-party  or stored by the
customer.  Effective January 1, 2003, we began delivering all merchandise to our
customers at the time of sale, except Florida, Illinois and New York.

     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  (3 days in Iowa and  Oregon)  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 in most cases, we are required to refund the funds
held in trust for the benefit of the purchaser.  In most states, we can cancel a
Pre-Need  contract  where the  purchaser  is in  arrears in making  payments  on
Pre-Need Plans purchased on an installment  basis with proper notice and time to
cure the arrears.

     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.

     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.

     Trust Fund Administration
     -------------------------

     We administer our Pre-Need trust funds in accordance with applicable  state
regulation.  Generally, the funds related to each Pre-Need contract are released
to us when we perform the  crematory  service or the contract is  cancelled.  In
Oregon,  Washington,  Iowa, Colorado,  New York, Illinois and Arizona, we engage
the services of a third party trust  administrator,  American Funeral & Cemetery
Trust Services  (AFCTS) to administer such trust funds.  AFCTS also  administers
the California  Trust fund on a limited  basis,  providing year end auditing and
mailing  of  required  annual  statements  to trust fund  beneficiaries.  In the
Florida,  we engage the services of SunTrust to  administer  our Pre-Need  Trust
Funds.

     Approximately  108,000  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  1.0% on an annual basis. At December 31, 2002, the balance of our
Pre-Need  trust  funds were  approximately  $42  million  and we had over 78,000
active members.

Personnel

     At December  31,  2002,  we employed 56 full time  counselors  and mortuary
personnel,  20 telemarketers,  and 35 administrative  personnel. In addition, we
had contracts with 115 independent  contractors to serve as  commissioned  sales
representatives, including 20 in California, 21 in Florida, 7 in Colorado, 13 in
Oregon, 5 in Iowa, 34 in Washington, 6 in Illinois and 9 in Arizona.  Management
believes that our relationships  with our employees and independent  contractors
are good. None of our employees are members of collective bargaining units.

     We  anticipate  that we will  hire 15  additional  personnel  during  2003,
including  3  at-need  and  mortuary  personnel,  5  telemarketers,  4  pre-need
administrative  personnel  and 3  corporate  administrative  personnel.  We also
intend to engage approximately 20 additional independent contractors to serve as
commissioned sales representatives during 2003.


                                       7
<PAGE>


Neptune Society Acquisitions

Neptune Group Acquisition

     On March 31, 1999, we acquired a group of privately-held  companies engaged
in the business of marketing and  administering  Pre-Need and At-Need  cremation
services  in  California,  Florida  and New York  under  the  name the  "Neptune
Society." We paid the owners of the Neptune Group $1,000,000 in cash, a total of
125,000  common  shares  and  issued  two  promissory  notes in the  amounts  of
$2,000,000 (the "$2 Million Note") and $19,000,000 (the "$19 Million Note"). The
notes were  guaranteed  by the  Neptune  Society  and  secured by the assets and
business of Neptune Management and Heritage Alternatives.  We have satisfied our
obligations  under the $2 Million Note, and entered a series of  transactions to
restructure our obligations  under the $19 Million Note as previously  described
under the heading "Item 1.  Business - Neptune  Society  Acquisitions  - Neptune
Group 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. In
December  2001, we negotiated a  restructuring  of the $2.7 million  balance due
January 2, 2002 under the $19 Million Note, under which we paid $333,000 towards
the  principal,  and agreed to amortize  $963,000 at an interest rate of 13% per
annum over 18 months and make a lump sum payment of $1,368,000 in July, 2003.

Spokane, Washington Acquisition

     On December  31,  1999,  we acquired  all of the assets of the  business of
Cremation Society of Washington,  Inc. in Spokane,  Washington,  pursuant to the
terms of an asset purchase  agreement.  See "Item 1. Business - Neptune  Society
Acquisitions  - Spokane,  Washington  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 for a complete  description of this transaction.  In
connection  with  this  acquisition,  we  agreed  to pay  Cremation  Society  of
Washington a percentage of the gross  revenues (1% for 2003) and a percentage of
earnings before income tax,  depreciation and amortization  ("EBITDA") (7.5% for
2003) from our Spokane,  Washington  operations.  Our obligations to make future
payments ends after the year ending  December 31, 2003. We also agreed to pay an
earn out payment  equal to 10% of EBITDA of our Spokane,  Washington  operations
for so long as Charles S.  Wetmore,  the general  business  manager of Cremation
Society of Washington, continues to be employed by us.

Iowa Acquisition

     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, 2002, we had no further payment obligations in
connection with our acquisition of Cremation Society of Iowa, Inc.

Oregon Acquisition and Disposition

     Effective July 17, 2000, we, through a wholly-owned subsidiary,  acquired a
funeral,  burial  and  cremation  business  in  Portland,  Oregon in a series of
transactions  from a group of companies owned and controlled by David Schroeder,
our former President and director, and Michael Ashe, a former Vice President. We
also entered into  employment  agreements with David Schroeder and Michael Ashe.
See "Item 1. Business - Neptune  Society  Acquisitions - Oregon  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  for a  complete
description of this transaction.

     During the fourth quarter 2001 as part of our overall business  strategy to
focus on our pre-need  marketing  and sales  operations,  we disposed of certain
physical  assets  related to the Portland  business in a series of  transactions
previously  described under "Item 1. Business - Neptune  Society  Acquisitions -
Disposition of Portland Assets and Related Transactions" 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.  Under  these  transactions,  effective
December  31,  2001,  we sold  substantially  all of the  assets  related to the
Portland  business and  crematory to Western  Management  Services,  L.L.C.,  an
Oregon limited  liability  company managed by Michael Ashe, in consideration of,
among other things, the assumption of a $1,500,000 promissory note issued by our
Oregon  subsidiary and the assumption of the  $1,000,000  convertible  debenture
issued in connection  with the original  acquisition and entering into a service
agreement  to provide  Neptune  Society  at-need  services  in  connection  with
pre-need  services sold within 100 miles of Portland,  Oregon. We also agreed to
terminate Mr. Ashe's employment agreement with the Neptune Society.


                                       8
<PAGE>


                                  RISK FACTORS

     We have included  information in this 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  anticipate  that we may continue to  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 $1,890,000 during the nine-month period
ended December 31, 1999 and $8,839,166, $10,151,168 and $6,705,576 respectively,
during the years ended December 31, 2000, 2001 and 2002. At December 31, 2002 we
had an  accumulated  deficit of  $27,585,544.  We anticipate  that we will incur
losses for the  foreseeable  future  until we are able to increase our sales and
reduce  our level of debt.  See  "Selected  Financial  Data"  and  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations."  We
cannot assure you that we will ever  successfully  achieve a sufficient level of
sales or reduce our level of debt to attain profitable operations.

     Failure to achieve  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
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 of Financial
Condition and Results of Operations."

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
("start-ups") and selective acquisitions of existing cremation service providers
and to increase the  performance  of our existing  operations.  To date, we have
financed the  acquisitions  of the Neptune  Group of companies  and our Spokane,
Washington and Ankeny, Iowa,  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  offices
("start-ups") 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.


                                       9
<PAGE>


     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 us 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-ups"  or  acquired  facilities  and  integrate  them  into  our
operations,  such failure could  materially  and adversely  affect our business,
financial condition and results of operations.

We will not become a profitable  business  until 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 become  profitable  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
increased losses and we may never achieve profitability.

A decline in the choice of cremation  rather than burial services may impair our
ability to be profitable 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 increase losses and
decrease the likelihood we will achieve 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
Marco Markin, our Chief Executive Officer and a director and Douglas Irving, our
Chief  Operating  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


                                       10
<PAGE>


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 we achieve.

     Currently  Neptune has a telemarketing  center in Arizona that schedules in
excess of 1,100  appointments  per month for our sales  force.  This  represents
approximately  35% of the monthly  leads  currently  obtained  by  Neptune,  the
remainder are generated from direct mail, web site and advertising. In 2002, the
State of Colorado  initiated a Statewide  "Do Not Call" list. On March 11, 2003,
President  Bush signed into law a national  "Do Not Call" list that is scheduled
for  implementation  in the summer of 2003.  This  legislation  will  reduce the
number of potential pre-need purchasers  available to us to contact by telephone
for sales appointments.

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  trust  funds,  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 the conversion of convertible debentures.

     In connection with our debt  financings,  we issued warrants and conversion
rights  exercisable  to  acquire  up to  2,617,211  shares of our  common  stock
(893,044  shares at $1.20 per share,  1,724,167  shares at $3.00 per share).  At
December 31, 2002, we have granted  options  exercisable to acquire up to 86,000
shares of our common stock at prices  ranging from $10.00 to $55.72 per share to
our employees, officers, directors, and area sales representatives. We have also
granted  options  exercisable  to acquire  522,728 shares of our common stock at
$4.40  under   certain   executive   employment   agreements.   See   "Executive
Compensation".  We have agreed to issue  512,002  shares of our common stock for
payment of deferred executive compensation.

     Subsequent  to December 31, 2002 we granted  options to certain  executives
and  consultants  to acquire up to 180,000 shares at a price of $0.70 per share.
The  Company  also  issued  307,962  Units in  February,  2003  under a  private
placement funding  agreement.  Each unit comprises one share and one warrant for
the  purchase of an  additional  share at $0.72 per share for the first year and
$0.79 per share in the second year.

     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 agreed to pay certain  persons a  percentage  of the  revenues  from the
operations  of  our  Spokane,   Washington  business,   which  will  affect  the
profitability of these operations.

     In connection with our acquisition of Spokane, Washington, we agreed to pay
the former owners of this business 1% percent of the gross  revenues and 7.5% of
EBITDA from our Spokane,  Washington  operations,  and for so long as Charles S.
Wetmore  continues  to be employed by us, 10% of EBITDA  during each year ending
December 31 commencing after January 1, 2005.


                                       11
<PAGE>


     In the future, we may negotiate  additional  acquisitions where we agree to
share our revenues  and/or  profits.  We cannot assure you that we will generate
sufficient  profits from our  operations to meet these  obligations  and achieve
profitability.

We have substantial debt obligations that may affect our future profitability

     At  December  31,  2002,  we  had   approximately   $9.1  million  of  debt
outstanding,  at an average cost of 19% per annum. Of our total debt at December
31, 2002, approximately $2.3 million becomes due in the year ending December 31,
2003; and approximately $5.8 million becomes due in the year ending December 31,
2005.  Debt  becoming  due in fiscal 2005 is  convertible  in nature into common
stock of the Company at the option of the debt holders.  It is  unforeseeable as
to whether debt holders will opt for conversion. During the years ended December
31, 2002, 2001 and 2000,  total interest and finance  expense was  approximately
$2,579,000, $2,515,000, and $2,485,000, respectively.

     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.

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.  At that time, we are
able to recognize revenue from the sale of the Pre-Need service.  Currently,  we
manage  approximately $42 million in trust funds for the benefit of our members.
Although each state has different  regulatory  requirements  regarding the trust
funds,  the states in which we conduct  business,  California,  Colorado,  Iowa,
Florida,  Oregon,  New York,  Illinois,  Arizona and  Washington,  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 has been approximately .01% on an annual basis. Any substantial increase in
cancellations  may have a material  adverse  affect on our future  revenues  and
results of operations.

In the event that your  investment  in our shares is for the purpose of deriving
dividend  income or in  expectation of an increase in market price of our shares
from  the  declaration  and  payment  of  dividends,  your  investment  will  be
compromised because we do not intend to pay dividends.

     We have never paid a dividend to our  shareholders  and we intend to retain
our cash for the continued  development of our business. We do not intend to pay
cash dividends on our common stock in the foreseeable  future. As a result, your
return on  investment  will be solely  determined  by your  ability to sell your
shares in a secondary market.

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 $0.55 (low) to $3.10 (high)
during the year ended  December  31, 2002 and from $1.60 (low) to $36.50  (high)
during the year ended  December  31,  2001.  The closing  price of our shares on
March 31,  2003 was  $0.80.  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,


                                       12
<PAGE>


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  Commission  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.

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,  including  Carriage Services which owns or
operates  more than 176  funeral  homes  and over 38  cemeteries  in the  United
States,  Service  Corporation  International,  which  operates  more than  3,700
funeral service locations worldwide,  and Stewart Enterprises,  Inc., which owns
and operates over 700 funeral homes and cemeteries worldwide.  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. PROPERTIES

     We lease properties in eighteen locations in Arizona, California, Colorado,
Florida, Illinois, Iowa, New York, Oregon and Washington.  There are three sales
offices in  California,  three in Florida,  one in Iowa, two in New York, one in
Oregon and two in  Washington.  Two of the  offices in Florida and the office in
Iowa have  chapels for funeral  services.  We lease two  properties  for holding
facilities, one of which also stores merchandise inventory and the other has the
crematory.  We also lease our corporate offices in Florida and Los Angeles.  All
of our leases are on standard  terms and  conditions,  and we do not rely on any
one  lease  for  its  continuing   operations.   The  operations  are  currently
concentrated at the following locations:

                                           Summary of our operational locations
<TABLE>
-----------------------------------------------------------------------------------------------------------------------
|       Location          |                       Operation                        | Term of Lease  |  Expiration Date |
|-------------------------|--------------------------------------------------------|----------------|------------------|
|Arizona                  |                                                        |                |                  |
<S>                          <C>                                                      <C>             <C>
|     Tempe               |  Pre-Need/At-Need sales and administrative office and  |  5 years       | 9/30/2007        |
|                         |  Telemarketing Center                                  |                |                  |
|-------------------------|--------------------------------------------------------|----------------|------------------|
|California               |                                                        |                |                  |
|     Sherman Oaks -      |  Administration and operations headquarters            |  7 years       | 7/31/2009        |
|Corporate                |  Pre-Need/At-Need sales and administrative office      |                |                  |
|                         |                                                        |                |                  |
|     San Pedro           |  Pre-Need/At-Need sales and administrative office      |  5 years       | 3/31/2007        |
|     Santa Barbara       |  Pre-Need/At-Need sales and administrative office      |  1 year        | 7/31/2003        |
|     Los Angeles -       |  Holding facility, crematory and viewing room          |  5 years       | 1/31/2007        |
|Heritage                 |                                                        |                |                  |
|     Santa               |  Holding facility and inventory warehouse              |  Monthly       |                  |
|Barbara/Ventura          |                                                        |                |                  |
|     Canoga Park         |  Inventory warehouse                                   |  Monthly       |                  |
|-------------------------|--------------------------------------------------------|----------------|------------------|
|Colorado                 |                                                        |                |                  |
|     Arvada              |  Pre-Need/At-Need sales and administrative office      |  4 Years       | 9/1/2005         |
|-------------------------|--------------------------------------------------------|----------------|------------------|
|Florida                  |                                                        |                |                  |
|                         |                                                        |                |                  |
|     Fort Lauderdale     |  Pre-Need/At-Need sales and administrative office and  |  10 years      | 9/3/2006         |
|                         |  chapel                                                |                |                  |
|     St. Petersburg      |  Pre-Need/At-Need sales and administrative office      |  5 years       | 8/31/2006        |
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       13
<PAGE>


<TABLE>
-----------------------------------------------------------------------------------------------------------------------
|Iowa                     |                                                        |                |                  |
 <S>                         <C>                                                      <C>             <C>
|     Ankeny              |  Pre-Need/At-Need sales and administrative office, and |  1 year        | 05/31/2003       |
|                         |  chapel                                                |                |                  |
|                         |                                                        |                |                  |
|     Ankeny              |  Crematory                                             |  5 years       | 10/14/2003       |
|-------------------------|--------------------------------------------------------|----------------|------------------|
|Illinois                 |                                                        |                |                  |
|     Chicago             |  Pre-Need/At-Need sales and administrative office      |  4 years       | 5/31/2006        |
|-------------------------|--------------------------------------------------------|----------------|------------------|
|Oregon                   |                                                        |                |                  |
|      Portland           |  Pre-Need sales and administrative office              |  5 Years       | 1/31/2008        |
|                         |                                                        |                |                  |
|-------------------------|--------------------------------------------------------|----------------|------------------|
|New York                 |                                                        |                |                  |
|-------------------------|--------------------------------------------------------|----------------|------------------|
|     Long Island         |  At-Need sales and administrative office               |  Monthly       |                  |
|     Yonkers             |  At-Need sales and administrative office               |  Monthly       |                  |
|-------------------------|--------------------------------------------------------|----------------|------------------|
|Washington               |                                                        |                |                  |
|     Spokane             |  Pre-Need/At-Need sales and administrative office,     |  6 years       | 1/01/2005        |
|                         |  holding facility, crematory and viewing room          |                |                  |
|                         |                                                        |                |                  |
|    Lynnwood             |  Pre-Need/At-Need sales and administrative office      |  3 years       | 4/30/2005        |
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

     There  are no  material  litigation  proceedings  current  pending,  and no
material litigation  proceedings were terminated during the fourth quarter ended
December 31, 2002.

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

     No matters were submitted to a vote of the Registrant's  securities holders
during the fourth quarter ended December 31, 2002.

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

     On August 26, 1998,  the common  shares of the Neptune  Society were listed
under its former name Lari Corp. on the NASD OTC Bulletin Board under the symbol
"LREE".  On May 3, 1999,  Lari Corp.  changed its name to Neptune Society and on
May 4, 1999, the symbol was changed to "NPTN". In March,  2000, the common stock
of the Neptune Society 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 Neptune  Society's common stock was changed
to "NTUN".  On August 2, 2001, our common stock began quotation on the OTCBB. On
March 22,  2002,  Neptune  Society  effected a 4:1  reverse  stock split and the
symbol for its common  stock was changed to "NPTI".  Information  in this report
gives  retroactive  effect to the reverse stock splits  effected on May 19, 2000
and March 22, 2002.

     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(1)         Low(1)
        ------                          -------         ------

        2003
        First Quarter                   $1.01           $0.68

        2002


                                       14
<PAGE>


        Period                          High(1)         Low(1)
        ------                          -------         ------

        First Quarter                   $2.15           $1.28
        Second Quarter                  $3.15           $1.01
        Third Quarter                   $1.08           $0.55
        Fourth Quarter                  $1.08           $0.60

        2001
        First Quarter(2)               $36.50           $6.40
        Second Quarter(2)              $24.80           $8.50
        Third Quarter(2)               $24.72           $5.60
        Fourth Quarter                  $6.72           $1.60

     (1)  Gives effect to the two for one reverse  stock split that  occurred on
          May 19, 2000, and the four for one reverse split effected on March 22,
          2002.

     (2)  Based on National Quotation Bureau pink sheet quotation.

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

     As of March 31, 2003,  the closing bid  quotation for our common shares was
$0.80 per share as quoted by the NASD OTCBB.

     As of April 7, 2003,  we had  4,651,332  shares of common  stock issued and
outstanding, held by 103 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

     Set forth below is a description of  unregistered  securities  issued by us
during the quarter ended  December 31, 2002 and for prior periods not previously
reported on Form 10-Q.

     In September,  2002, we issued 40,000 shares to two Directors in payment of
Directors fees. The shares 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.

     Subsequent Events

     In February,  2003, we granted  options under the 2002 Stock Option Plan to
certain senior executives to acquire up to 80,000 shares at a price of $0.70 per
share, expiring February 1, 2006. The options vest on February 1, 2004. In March
2003,  we granted  options  under the 2002 Stock  Option Plan to certain  senior
executives  to  acquire  up to  100,000  shares at a price of $0.70  per  share,
expiring on March 1, 2006. The options vest on March 1, 2004.  These  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.

     In February,  2003,  we issued  83,118 shares of common shares at $0.65 per
share in settlement of deferred  compensation to three senior executives.  These
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.

     In February  2003,  we issued  39,622  shares of common  stock at $0.65 per
share pursuant to the exercise of preemptive  rights.  The consideration for the
shares was paid by canceling  deferred  interest payable to the holders of these
preemptive rights in the amount of $25,728.30. These 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.


                                       15
<PAGE>


     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 family 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.  These
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.

     In  February  2003,  we issued  23,810  units 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 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.
These 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.

ITEM 6. SELECTED FINANCIAL DATA

     The selected financial  information presented below as of and for the years
ended  December  31,  2002,  2001  and 2000 are  derived  from the  consolidated
financial  statements of the Neptune Society.  See Item 8 "Financial  Statements
and Supplementary Data".

     On March 31, 1999, the Registrant, Neptune Society (formerly known as, Lari
Corp.),  acquired a group of corporations  and limited  liability  partnerships,
which marketed and administered  Pre-Need and At-Need  cremation  services under
the  name  "Neptune  Society"  (the  "Neptune   Group").   See  "Description  of
Business--Neptune   Society   Acquisitions--Neptune   Group  Acquisitions."  The
business  combination was accounted for using the purchase method of accounting,
and the excess of the  purchase  price over the fair value of  identifiable  net
tangible  assets  acquired  has been  recorded  as names  and  reputations.  The
financial  information  for Neptune  Society prior to April 1, 1999 has not been
included as it is not material to the Neptune Group  financial  statements.  The
financial  data as of and  prior to March  31,  1999 is the  combined  financial
information of the Neptune Group. Since purchase accounting was reflected on the
opening  balance sheet of the Successor  Company on April 1, 1999, the financial
information  of the  Successor  Company  are  not  comparable  to the  financial
information of the Predecessor  Company.  Accordingly,  a vertical black line is
shown to separate  Successor  Company  financial  information  from those of the
Predecessor Company for periods ended prior to April 1, 1999.

     The pro forma information for the year ended December 31, 1999 reflects the
combined  results of the  Predecessor and Successor as if the acquisition of the
Predecessor had occurred on January 1, 1999, subject to certain  assumptions and
adjustments.  The pro forma  information  has been derived  from the  historical
consolidated  financial  statements  of the  Predecessor  and  Successor and are
qualified in their  entirety by reference to, and should be read in  conjunction
with,  such  historical  consolidated  financial  statements  and related  notes
thereto. The pro forma information are presented for illustrative  purposes only
and do not  purport to be  indicative  of the  operating  results  or  financial
position that would have actually  occurred if the  acquisition  had occurred on
the date  indicated,  nor are they  necessarily  indicative of future  operating
results or financial position of the combined company. The pro forma information
gives  effect  to any cost  savings  or  synergies  which  may  result  from the
integration of the Predecessor and Successor operations.


                                       16
<PAGE>


<TABLE>
                                         Predecessor Company          |                   Successor Company
                                                      Three           |  Nine
                                         Year         Months          |  Months     Pro forma   Year
                                         Ended        Ended           |  Ended     Year Ended   Ended      Year Ended   Year Ended
                                         December     March           | December    December    December   December     December
                                         31, 1998    31, 1999         | 31, 1999    31, 1999    31, 2000   31, 2001     31, 2002
----------------------------------------------------------------------|-------------------------------------------------------------
                                     (000's, except per share amount) | (000's, except per share amount)
INCOME STATEMENT DATA:                                                |
<S>                                        <C>         <C>                <C>         <C>        <C>         <C>          <C>
Total Revenue                              7,865       2,962          |   5,688       8,650      7,689       13,030       11,767
Gross Profit                               4,107       1,763          |   3,436       5,199      3,237        6,767        5,348
General and Administrative                                            |
  Expenses                                 2,847         748          |   3,032       3,780      6,003        7,798        8,709
Compensation to Principal                                             |
  Shareholder                              2,200         430          |       -           -          -            -            -
Professional Fees                            669         536          |     340         959      1,245        1,765          677
Amortization and                                                      |
 Depreciation Expense                          -           -          |   1,024       1,365      1,685        2,082          253
Interest Expense (income)                      -           -          |   1,184      (1,690)     2,485        2,515        2,579
Income (loss) before cumulative effect                                |
  of change in accounting principle       (1,609)         49          |  (1,890)     (2,297)    (8,435)     (10,151)      (6,706)
Net Income/(loss)                         (1,609)         49          |  (1,890)     (2,297)    (8,839)     (10,151)      (6,706)
(Loss) per share before cumulative                                    |
 effect of change in accounting                                       |
 accounting  principle per share               -           -          |   (1.23)      (1.52)     (4.75)       (5.09)       (1.88)
Loss per share                                 -           -          |   (1.23)      (1.52)     (4.98)       (5.09)       (1.88)
                                                                      |
BALANCE SHEET DATA:                                                   |
                                                                      |
Current Assets                               835       1,172          |   7,046           -      1,421        2,078        2,701
Current Liabilities                          647         916          |  11,730           -      8,281        5,273        5,046
Long Term Debt                                 -           -          |   5,722           -        101          198          389
Convertible Debentures                         -           -          |   4,438           -      5,937        7,942        6,754
Shareholders Equity                          808         792          |  12,385           -     16,108        7,023        3,492
                                                                      |
OTHER FINANCIAL DATA:                                                 |
Number of Offices                             10          10          |      13           -         18           18           19

</TABLE>

Quarterly Results of Operations

     The following  table sets forth certain  unaudited  statement of operations
data for  each of the  eight  quarters  beginning  January  1,  2001 and  ending
December 31, 2002. The unaudited financial  statements have been prepared on the
same basis as the audited financial  statements contained herein and include all
adjustments,  consisting only of normal recurring adjustments,  that the Company
considers  necessary to present fairly this information when read in conjunction
with the Company's audited financial  statements and the notes thereto appearing
elsewhere in this report.  In view of the Company's  recent  growth,  its recent
acquisitions and other factors, the Company believes that quarterly  comparisons
of its financial results are not necessarily meaningful and should not be relied
upon as an indication of future performance.


                                       17
<PAGE>


<TABLE>
                                    First          Second          Third          Fourth
(000's except per share amount)    Quarter         Quarter        Quarter         Quarter
                                   -------         -------        -------         -------
FISCAL 2001:

<S>                              <C>                <C>            <C>             <C>
Net revenues                     $  2,689           3,184          3,854           3,302
Gross profit                        1,304           1,797          2,250           1,416
Operating loss                     (1,172)         (1,243)          (412)         (4,809)
Loss per share before cumulative
  effect of change in accounting
  principle                        (1,791)         (1,669)        (1,083)         (5,608)
Net loss                           (1,791)         (1,669)        (1,083)         (5,608)
Loss before cumulative effect
  of change in accounting
  principle per share               (0.92)          (0.88)         (0.52)          (2.68)
Basic net loss per share    (1)  $  (0.92)          (0.88)         (0.52)          (2.68)
</TABLE>

<TABLE>
                                    First          Second          Third          Fourth
(000's except per share amount)    Quarter         Quarter        Quarter         Quarter
                                   -------         -------        -------         -------
FISCAL 2002:

<S>                              <C>                <C>            <C>             <C>
Net revenues                     $  2,777           3,115          2,778           3,112
Gross profit                        1,388           1,687          1,258           1,075
Operating loss                       (689)           (755)        (1,301)         (1,309)
Loss before cumulative effect
  of change in accounting
  principle                        (1,188)         (1,371)        (1,833)         (2,314)
Net loss                           (1,188)         (1,371)        (1,833)         (2,314)
Loss per share before
  cumulative effect of change
  in accounting principle
  per share                         (0.54)          (0.35)         (0.45)          (0.66)
Basic net loss per share     (1)  $ (0.54)          (0.35)         (0.45)          (0.66)
</TABLE>

1)   Net income per share  amounts for each  quarter are required to be computed
     independently  and may not equal the amount  computed  for the total  year.
     Gives effect to the 4:1 reverse split effected on March 22, 2002.

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        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 a provider of pure cremation services in the United States. We operate 19
locations  serving  Arizona,  California,  Colorado,  Florida,  Illinois,  Iowa,
Oregon, New York, and Washington.

Critical Accounting Policies:

Revenue Recognition

Since January 1, 2000 when we adopted our current revenue  recognition policy in
response to the Securities  Exchange  Commission SAB No. 101, we account for our
various revenue sources as follows:

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

Pre-need  cremation  arrangements-  Revenue  related to  cremation  services  is
deferred at the time of sale of the arrangement,  and is recognized as operating
revenue only when the services are actually performed.  Administrative  services
revenue is recognized when the administrative  services are provided,  generally
at the point of sale. Prior to 2003 we generally did not deliver  merchandise to
the  customer,  but rather  stored such on the  customer's  behalf.  Merchandise
revenue may be recognized at the point of sale of the arrangement so long as all
of the following


                                       18
<PAGE>


conditions  are met; the goods are  segregated  and  specifically  identified by
customer, the goods are individually labeled and may not be used to fill another
order,  the possibility of future exchange is remote,  the goods are not subject
to the claims of our creditors,  custodial risks are insured,  and generally the
risks and rewards of their ownership is transferred to the customer.

With the  exception  of a four  month  period in 2001 (June 1 to  September  30,
2001), our pre-need  merchandise  handling procedures in virtually 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  has
generally  been recorded as deferred  pre-need  revenue.  Commissions  paid with
respect to obtaining pre-need  arrangements have been matched with revenue,  and
with the exception  noted above have been recorded as deferred  costs.  Both the
deferred revenue and deferred costs related to merchandise sales, as well as the
services  revenue have been  transferred and recognized as operating  revenue at
the time the cremation services are performed.

During the four month  period June 1 to  September  30,  2001,  our  merchandise
handling  procedures  were  such  that  all  of  the  necessary  conditions  for
merchandise revenue recognition at the time of sale were met. The effect of this
on the  comparability  of operating  revenue  between 2002 and 2001 is discussed
below.

Installment sales- commencing January 1, 2001 we recognize an account receivable
for the unpaid  amount of the pre-need  arrangement  at the time of sale, to the
extent  installment  payments will not be required to be trusted.  Prior to that
date, we recorded installment sales only as payment was received.

Worldwide 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 who is obligated to perform the services if required.

Commencing  January 1, 2003 we began delivering all merchandise  purchased under
pre-need  arrangements to the customer at the time of sale, except in the States
of Florida,  New York and  Illinois,  where this is not allowed by  regulations.
Accordingly,  under generally accepted accounting  principles,  we will begin to
recognize  revenue  from  merchandise  sales at the time of  delivery,  which is
usually the time of sale of the pre-need  arrangement.  On a pro forma basis, if
this delivery policy had been in effect from January 1, 2002, gross profit would
have  increased and net loss  decreased by  approximately  $ 5.5 million for the
2002 year. There would have been no effect on cash flow from operations.

Deferred Costs

We  defer  sales  commissions  applicable  to  pre-need  cremation  service  and
merchandise  sales which do not meet our  revenue  recognition  criteria.  These
deferred  costs are  expensed in the period of  performance  of the services and
delivery  of  merchandise   covered  by  the  related   pre-need   arrangements.

New 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, 2002, 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. An analysis of its current carrying value
is as follows:


                                       19
<PAGE>


                                                          2002              2001
                                                          ----              ----

Cost
  Names and Reputations recorded
    on acquisition of:
  Predecessor Companies                          $ 26,809,237     $  26,809,237
  Washington crematory                                732,968           699,744
  Iowa crematory                                      816,390           816,390
                                                 -------------    --------------
                                                   28,358,595        28,325,371

Less:
  Accumulated amortization (1999 to 2001)          (3,960,899)       (3,960,899)
                                                 ------------     -------------
       Net book Value                            $ 24,397,696     $  24,364,472
                                                 =============    ==============

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 2002
as the implied value of goodwill exceeds 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.

The following table provides a reconciliation between the loss for the years for
each of 2002, 2001 and 2000 adjusted for the exclusion of  amortization  expense
on goodwill (names and reputations);

<TABLE>
                                                  2002              2001               2000

Loss before extraordinary items

<S>                                            <C>             <C>                 <C>
     as previously reported                    ($6,705,576)    ($10,151,168)       ($8,839,166)

     Extraordinary items                           -                 -                  -
                                             ---------------------------------------------------
Loss for the year                               (6,705,576)     (10,151,168)        (8,839,166)
                                                -----------     ------------        -----------

Add back:

   Amortization on Names and Reputations           -              1,574,992          1,627,263
   no longer subject to amortization
   effective January 1, 2002
                                             ---------------------------------------------------
Adjusted loss for the year                     ($6,705,576)     ($8,576,176)       ($7,211,903)
                                               ============     ============       ============

Adjusted loss per share-basic and diluted            $1.88            $4.29              $4.06
                                                     =====            =====              =====
</TABLE>


Other accounting pronouncements
-------------------------------

     In October  2001,  the FASB  issued  SFAS No.  143,  "Accounting  for Asset
     Retirement  Obligations," which requires companies to record the fair value
     of a liability for asset retirement obligations in the period in


                                       20
<PAGE>


     which  they are  incurred.  The  statement  applies  to a  company's  legal
     obligations  associated with the retirement of a tangible  long-lived asset
     that results from the acquisition, construction, and development or through
     the normal operation of a long-lived  asset.  When a liability is initially
     recorded,  the company would  capitalize the cost,  thereby  increasing the
     carrying amount of the related asset. The capitalized asset retirement cost
     is depreciated over the life of the respective asset while the liability is
     accreted  to its present  value.  Upon  settlement  of the  liability,  the
     obligation is settled at its recorded  amount or the company  incurs a gain
     or loss. The statement is effective for fiscal years  beginning  after June
     30, 2002.  We do not expect the  adoption to have a material  impact on our
     financial position or results of operations.

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

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
     No.  4, 44 and 64,  Amendment  of FASB  Statement  No.  13,  and  Technical
     Corrections  (Issued 4/02)" which we do not believe will materially  affect
     our financial statements.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
     Associated  with  Exit or  Disposal  Activities."  SFAS  No.  146  requires
     companies to recognize costs  associated  with exit or disposal  activities
     when they are incurred  rather than at the date of a commitment  to an exit
     or disposal plan, as previously  required under Emerging  Issues Task Force
     ("EITF") Issue 94-3. A fundamental  conclusion  reached by the FASB in this
     statement is that an entity's  commitment  to a plan,  by itself,  does not
     create a present  obligation  to others  that  meets  the  definition  of a
     liability.  SFAS No. 146 also  establishes that fair value is the objective
     for initial measurement of the liability.  The provisions of this statement
     are effective  for exit or disposal  activities  that are  initiated  after
     December 31, 2002. We do not believe that this SFAS will have a significant
     impact on our results of operations or financial position.

     In October  2002,  the FASB  issued  Statement  No. 147,  "Acquisitions  of
     Certain Financial  Institutions--an amendment of FASB Statements No. 72 and
     144 and FASB  Interpretation  No.  9. In  January  2003,  the  FASB  issued
     Interpretation No. 46, "Consolidation of Variable Interest Entities." We do
     not believe that these  pronouncements  will affect us because  either they
     are not  relevant  to our  business  or we will not  adopt  their  elective
     provisions.

     In December  2002,  the FASB issued  Statement  No.  148,  "Accounting  for
     Stock-Based  Compensation--Transition  and  Disclosure",  which amends FASB
     Statement No. 123,  Accounting  for  Stock-Based  Compensation,  to provide
     alternative  methods of transition for a voluntary change to the fair value
     based  method of  accounting  for  stock-based  employee  compensation.  In
     addition,  this Statement  amends the disclosure  requirements of Statement
     123 to require  prominent  disclosures in both annual and interim financial
     statements  about  the  method  of  accounting  for  stock-based   employee
     compensation  and the effect of the method  used on reported  results.  The
     transition  guidance and annual disclosure  provisions of Statement 148 are
     effective  for fiscal years ending  after  December 15, 2002,  with earlier
     application  permitted  in certain  circumstances.  The interim  disclosure
     provisions  are  effective  for  financial  reports  containing   financial
     statements  for interim  periods  beginning  after  December 15, 2002.  The
     adoption of this statement did not have a material  impact on our financial
     position or results of  operations  as we have not elected to change to the
     fair  value  based   method  of   accounting   for   stock-based   employee
     compensation.

     In November  2002,  the FASB  issued  Interpretation  No. 45,  "Guarantor's
     Accounting and Disclosure  requirements for Guarantees,  Including Indirect
     Guarantees of Indebtedness of Others." Among other


                                       21
<PAGE>


     things, the Interpretation requires guarantors to recognize, at fair value,
     their  obligations  to stand  ready to perform  under  certain  guarantees.
     Interpretation  45 is  effective  for  guarantees  issued or modified on or
     after January 1, 2003. The adoption of this  pronouncement  is not expected
     to  have a  material  impact  on  our  financial  position  or  results  of
     operations.

     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.  The consolidation  requirements of Interpretation 46 apply
     immediately to variable  interest  entities created after January 31, 2003.
     The consolidation  requirements apply to older entities in the first fiscal
     year or  interim  period  beginning  after  June 15,  2003.  Certain of the
     disclosure  requirements  apply in all  financial  statements  issued after
     January 31,  2003,  regardless  of when the  variable  interest  entity was
     established.  The adoption of this interpretation is not expected to have a
     material impact on our financial position or results of operations.

Results of Operations

Year Ended December 31, 2002 Compared with the Year Ended December 31, 2001

The following  discussion  compares the financial  results of our operations for
the year ended December 31, 2002 to the financial  results of our operations for
the year ended December 31, 2001.

Revenue
-------

Service and Merchandise  Revenue:  Overall, our services and merchandise revenue
decreased  from  $11,775,109  in 2001 to  $10,899,026  in 2002,  a  decrease  of
$876,000  or 7.5%.  Services  and  merchandise  revenue  consists  of  cremation
service,  at-need merchandise revenue,  pre-need merchandise revenue recognized,
and travel  plan  revenue.  The  decrease in services  and  merchandise  revenue
resulted  from an increase of  $1,244,000  in Travel  Plan  revenue  offset by a
decrease of $844,000 in  cremation  services  and at need  merchandise  revenue,
largely due to the sale of our Portland  cremation  business at the end of 2001,
and a decrease of $1,276,000 in pre-need  merchandise revenue recognized because
of our  decision  to change our  inventory  management  procedures  in the third
quarter of 2001.  Cremation services revenue and at-need  merchandise sales from
the  two new  locations  opened  in  2002  did not  have a  material  impact  on
consolidated revenue.

Travel plan revenue  increased by  $1,244,000  (65%) from  $1,904,000 in 2001 to
$3,149,000  in 2002.  Travel plan  contracts  are sold in  combination  with our
pre-need  cremation  plans,   however  all  revenue  from  travel  contracts  is
recognized at the point of sale, as we  concurrently  arrange with a third party
to provide the service on an individual  contract basis. This was the first year
that  this  popular  feature  was sold  company  wide  for the  full 12  months,
accordingly  travel  plan  growth as an annual  percentage  is  expected to more
closely track the rate of pre-need cremation plan sales in future years.

Pre-Need  merchandise  revenue  recognized  decreased from $2,407,000 in 2001 to
$1,390,000  in 2002, a decrease of  $1,017,000  or 42%. Our revenue  recognition
policy  requires us to  specifically  identify  and  physically  segregate  each
individual's  merchandise  until  the time of  death  to  allow us to  recognize
revenue.  From June through  September  2001,  we  specifically  identified  and
segregated  for each  individual  sold a pre-need  plan allowing us to recognize
$1,804,000  in revenue in accordance  with our revenue  recognition  policy.  In
October 2001,  we changed our inventory  management  policy to  discontinue  our
practice  of  individually  identifying  merchandise  in  an  effort  to  reduce
operating costs. As a consequence,  with the exception of $514,000, all receipts
for merchandise  sold in 2002 under pre-need  plans,  which were still active at
year end, were deferred and not included in the revenue that we  recognized.  We
currently maintain only a general inventory  sufficient to meet our requirements
in the  normal  course  of  business,  except  where  required  by State  law to
segregate purchased merchandise for past or new sales.


                                       22
<PAGE>


Pre-need  contracts  funded and deferred in the accounts in 2002 were 25% higher
than in 2001,  however except for the small number of those contracts which were
also fulfilled in 2002,  substantially  all of the contract proceeds relating to
merchandise revenue has been deferred to future years.

Management  and  finance  fees:  Management  and  finance  fees  decreased  from
$1,255,187  in 2001 to  $867,583 in 2002,  a decrease  of  $387,604 or 31%.  The
management fees we earn for administering pre-need trusts declined from $756,769
in 2001 to $608,708 in 2002, as a result of reduced yields on investments  being
reinvested at current lower market rates of interest.

Finance fees  declined  from  $498,418 in 2001 to $258,875 in 2002, a decline of
$239,503 or 48%,  due in part to the  transitional  adjustment  in 2001 when the
company began recognizing  finance income on pre-need contracts over the life of
the contract.  Previously  this income was recognized only on fulfillment of the
contract.

Costs and expenses and gross profit
-----------------------------------

Direct  costs and  expenses  include  all costs  related to  cremation,  at need
merchandise  services,  previously  deferred  merchandise  and  obtaining  costs
recognized on  fulfillment of services for pre-need  customers,  and travel plan
premiums paid.  Direct costs were $6,419,000 or 55% of revenues in 2002 compared
with $6,263,000 or 48% of revenues for 2001. The number of services we performed
in 2002 was  approximately  9% higher in 2002 than in 2001. Our gross profit was
$5,348,000 or 45% in 2002 compared with $6,767,223 or 52% in 2001. The reduction
of  7% in  our  gross  profit  was  primarily  due  to  2001  revenue  including
merchandise  revenue on pre-need sales for a 4 month period due to the inventory
management decision discussed under services and merchandise revenue above.

General, administrative and selling expenses
--------------------------------------------

General,  administrative and selling expenses for 2002 were $8,709,000  compared
with $7,798,000 in 2001. The increase of $911,000 in 2002 over 2001 was due to a
number of factors.  Advertising costs in 2002 were $300,000 higher than in 2001.
We increased  our  provision for  uncollectible  at need accounts  receivable by
$276,000 in 2002.  The  remainder of the increase in general and  administrative
expenses  were  attributable  to the addition of 2 locations in 2002,  increased
insurance  costs, and costs associated with seeking  additional  financing.  The
increases were partially offset by reduced overhead expense  associated with the
Portland business which was sold effective December 31, 2001.

Amortization and depreciation expense
-------------------------------------

Amortization  and  depreciation  expense was  $253,000  for 2002  compared  with
$2,082,000  for 2001, a decrease of $1,829,000 in 2002.  The decrease was due to
the  adoption of FASB 142  effective  January 31, 2002.  FASB 142 requires  that
goodwill  and  intangibles  of an  indefinite  life  (such  as  the  "Names  and
Reputations"  recorded by the company on the  acquisition  of the Neptune  Group
business) no longer be amortized,  but instead be tested for impairment at least
annually.   The  Company's  acquired  Goodwill  was  tested  for  impairment  in
accordance  with  FASB  142  and  is not  considered  impaired,  accordingly  no
reduction of its value is necessary,  or permitted by way of amortization  under
FASB 142.

Professional fees
-----------------

Professional  fees  expense  comprises  legal and audit  fees,  and fees paid to
consultants for business and financial consulting. Professional fees expense was
$677,000 in 2002 compared with $1,765,000 in 2001, for a decrease of $1,088,000.
Fiscal 2001 expenses were higher than 2002 expenses due to significant legal and
audit  fees in 2001  associated  with the  registration  of our  stock  with the
Securities  Exchange  Commission,  and  consulting  fees of $430,000 paid to the
former  principal  owner of the  Neptune  Group.  The  consulting  contract  was
terminated in 2001.

Loss on disposal of assets
--------------------------

In  2001  we  sold  substantially  all of the  assets  of our  Portland,  Oregon
businesses.  We had purchased those assets in 2000 for $5.7 million,  comprising
$500,000 cash, a $1,000,000 convertible debenture, and $4.2 million in stock. We


                                       23
<PAGE>


sold those assets in 2001 for total  consideration  of $2.5 million,  comprising
assumption of a $1.5 million  promissory  note and the $1.0 million  convertible
debenture.  We guaranteed  repayment of the $ 1.5 million  promissory  note as a
term  of the  sale,  which  note  has  now  been  repaid.  As a  result  of this
disposition, we recognized a $2.7 million loss in 2001. We sold no businesses in
2002.

Interest and finance expense
----------------------------

This expense item comprises interest on notes payable  originally  classified as
long term,  amortization of fees and expenses directly associated with procuring
such financing which are initially  deferred,  and accretion of discount on debt
charged to operations  over the life of the debt. In 2002,  interest and finance
expense was $2,579,000  compared with $2,515,000 in 2001. We reduced our related
debt by a net amount of $1,755,000 in 2002. Fees and expenses  incurred with the
fourth  restructuring  of our  acquisition  debt in  2001,  which  added to 2002
amortization,  and  restructuring  fees on the  conversion  of an $800,000  note
payable to a convertible  debenture in 2002 increased this expense item in 2002.
This was offset by interest charges saved as a consequence of the debt reduction
referred to above and the sale of the Portland businesses.

Other income - lawsuit of settlement proceeds.
----------------------------------------------

In 2002 the Company  received  $165,000  to settle a lawsuit  for  service  mark
infringement (2001-nil)

Net loss
--------

Net loss for 2002 was  $6,705,000  compared with  $10,151,000  for 2001. The net
loss related to the reasons described above.

Year Ended December 31, 2001 Compared With Year Ended December 31, 2000:

The following  discussion  compares the financial  results of our operations for
the year ended December 31, 2001 to the financial  results of our operations for
the year ended December 31, 2000.

Revenues
--------

In May 2001, we changed our inventory  procedures and sales contracts to conform
to our revised revenue recognition policy. Under our revised revenue recognition
policy,  we recognize  certain  pre-need  merchandise  revenues from the sale of
pre-need contracts prior to the performance of the related cremation service.

Cremation  service and merchandise  revenues were $11,775,000 for the year ended
December 31, 2001 compared to $6,188,000  for the same period in 2000.  Revenues
increased  $4,195,000  or 90% due to the  recognition  of  pre-need  merchandise
revenue,  increased  at-need  revenues and travel  assurance  product  offering.
During the four month period  beginning  June 1, 2001 and ending  September  30,
2001, we  recognized  pre-need  merchandise  revenues of  $1,804,000.  Effective
October  1, 2001,  we  changed  our  inventory  management  policy and no longer
recognized revenue on the sale of pre-need merchandise.  The introduction of our
worldwide  travel  plan,  which was  introduced  company-wide  during  the first
quarter of 2001, contributed $1,905,000 to the increase in revenues.

During  the  year  ended  December  31,  2001  and  2000,  merchandise  sales of
$5,097,000 and  $4,326,000,  respectively,  were deferred as we did not meet our
revenue  recognition  criteria.  Although such revenues were deferred,  pre-need
cremation  arrangement  sales contract volume increased 18% over the same period
in 2000.

During the year ended  December  31, 2001,  we  recognized  previously  deferred
pre-need  merchandise  revenues and costs of approximately  $34,000 and $14,000,
respectively,  related to the fiscal  year 2000  cumulative  effect of change in
accounting principle adjustment.

We believe that revenues were also lower during the year ended December 31, 2001
as we suspended marketing activities in Riverside,  Imperial, San Bernardino and
San Diego Counties pending resolution of resulting from litigation for trademark
infringement  resulting  from  our use of the  "Neptune  Society"  name in those
counties. We suspended sales in these areas, and we estimate that the litigation
caused our revenues to decline by  approximately  $350,000 or 3% during the year
ended  December  31,  2001.  In  October,  2001,  we entered  into a  settlement
agreement  to  resolve  the  litigation.  Under  the  terms  of  the  settlement
agreement, we are permitted to market pre-


                                       24
<PAGE>


need  arrangement  contracts  under the name  "Trident  Society." We believe the
settlement will not have a material financial impact on operations;  however, we
can not predict when, or if, revenues  related to the affected areas will return
to historical levels.

During 2000,  we acquired  businesses in Ankeny,  Iowa and Portland,  Oregon and
opened two new offices.  Cremation  service and merchandise  revenues related to
acquisitions and new office openings after December 31, 1999 were $2,800,000 and
$1,077,000 for the year ended December 31, 2001 and 2000,  respectively.  We did
not  acquire  any new  business or open any new  offices  during  2001.  We sold
substantially  all  the  assets  related  to  our  Portland,   Oregon  cremation
businesses in December 2001.

Revenues  earned for the year ended  December  31, 2001 and 2000 from trust fund
management and finance fees were  $1,255,000 and $1,501,000,  respectively.  The
$246,000 or 16% decrease was  attributable  to decreased  management fees due to
reduced investment  yields,  which was partially offset by increased finance fee
income.  Finance fees increased due to our current  ability to recognize  income
over the life of the pre-need  contract  versus at the end of the  contract,  as
previously recognized.

Costs and Expenses and Gross Profit
-----------------------------------

Direct costs and expenses were  $6,263,000 or 48% of revenues for the year ended
December 31, 2001 compared to  $4,451,000 or 58% of revenues for the  comparable
period in 2000. The $1,812,000 or 41% increase was  attributable  to fiscal 2000
acquisitions and new office openings, and increases in costs related to sales of
our travel plans.  The gross profit during the year ended  December 31, 2001 was
$6,767,000, a $3,530,000 or 109% increase over the comparable period in 2000.

General and Administrative Expenses
-----------------------------------

General and  administrative  expenses for the year ended  December 31, 2001 were
$7,798,000 or 60% of revenues.  General and administrative expenses for the year
ended  December 31, 2000 were  $5,802,000 or 75% of revenues.  The $1,995,000 or
34% increase in general and administrative  expenses in 2001 compared to 2000 is
related to additional  costs  associated with the increased number of management
level personnel,  non-cash  compensation costs related to employment  agreements
entered  into  with  certain   executive   management  staff  members,   accrued
performance  bonuses and  incentives and the additional  costs  associated  with
supporting an increased number of geographic locations.

Amortization and Depreciation Expenses
--------------------------------------

Amortization and depreciation  expenses were $2,082,000 and $1,886,000,  for the
years  ended  December  31,  2001  and  2000,  respectively.   The  increase  in
amortization and  depreciation  expenses during 2001 was primarily the result of
our acquisitions of business in Iowa and Oregon.

Professional Fees
-----------------

Professional fees were $1,765,000 or 14% of revenues for the year ended December
31, 2001 compared to  $1,245,000 or 16% of revenues for the year ended  December
31,  2000.  The  increase  in  professional  fees during 2001 was related to the
completion of  registration of our common stock with the Securities and Exchange
Commission  under the  Securities  Exchange Act of 1934 in the second quarter of
2001 and  reporting  and  auditing  expenses.  We also  paid  $120,000  in legal
expenses  of  the  former  principal   shareholder  as  part  of  our  trademark
infringement  settlement in 2001 by issuing a promissory note. Professional fees
also included  $443,000 and $333,000 of consulting fees paid by us to the former
principal  shareholder in 2001 and 2000,  respectively,  for marketing and sales
consultation. The consulting agreement with the former principal shareholder was
terminated  in  December  2001.  A lump-sum  payment of  $335,000  was paid upon
termination.

Loss on Disposal of Assets
--------------------------

In  December  2001,  we sold  substantially  all of the  assets  related  to our
Portland, Oregon businesses. We had purchased those assets in July 2000 for $5.7
million,  consisting of $500,000 in cash, a $1 million convertible debenture and
$4.2 million in stock.  We sold those assets as part of our efforts to focus our
strategy on our marketing and selling pre-need operations and to reduce debt. We
sold the assets for total  consideration  of $2.5  million.  Such  consideration
consisted of assumption of a $1.5 million promissory note and the forgiveness of
the $1


                                       25
<PAGE>


million  convertible  debenture  previously  due July 2003. We remain  obligated
under our  guarantee of the $1.5  million  promissory  note.  As a result of the
disposal of those assets, we recognized a $2.7 million loss.

Interest Expense
----------------

Interest  expense was  $2,515,000 or 19% of revenues for the year ended December
31, 2001 compared to  $2,485,000 or 32% of revenues for the year ended  December
31, 2000. The increase in interest  expense in 2001 was a result of certain debt
restructuring and refinancing to partially extinguish and extend the due date of
the current portion of acquisition debt previously due January 2, 2002.

Loss before Cumulative Effect of Change in Accounting Principle
---------------------------------------------------------------

Loss  before  cumulative  effect  of  a  change  in  accounting   principle  was
$10,151,000  and  $8,435,000,  for the year ended  December  31,  2001 and 2000,
respectively.  The loss  related  to each  respective  period  differed  for the
reasons described above.

Cumulative Effect of Change in Accounting Principle
---------------------------------------------------

In  response  to the  Securities  and  Exchange  Commission's  issuance of Staff
Accounting Bulletin No. 101 "Revenue  Recognition in Financial  Statements" (SAB
No.  101),  effective  January  1,  2000,  we changed  our  accounting  policies
applicable to pre-need  merchandise sales. The implementation of SAB No. 101 had
no effect on our consolidated cash flows.

Prior to 2000,  revenue  related to merchandise  sold with a pre-need  cremation
service  arrangement was recognized upon physical delivery of merchandise to the
customer  or upon  satisfying  certain  state  regulatory  criteria,  which,  in
California,  Iowa,  Washington and Oregon may occur prior to the  performance of
cremation services. We considered the criteria to be satisfied when:

     o    we were permitted to receive one hundred  percent of the  unrestricted
          funds associated with the merchandise sale,

     o    the merchandise was in a condition for its intended use

     o    we  had  no  specific   performance   obligations   essential  to  the
          functionality of the merchandise; and

     o    the customer accepted title of the merchandise, evidenced by a written
          transfer of title to the customer and certificate of ownership.

At the request of the customer,  we arranged for the storage of the  merchandise
on the customer's behalf in an insured location until the customer picked up the
merchandise  or at the time of need,  but no later  than the  customer's  death.
Customers that purchase  pre-need  cremation  arrangements in California,  Iowa,
Washington  and  Oregon do not have  cancellation  rights  with  respect  to the
purchase of merchandise.

In response to SAB No. 101, we changed our revenue recognition accounting policy
with respect to merchandise  sold in a pre-need  arrangement to include  certain
conditions beyond current state regulations. As of January 1, 2000, we added the
following   criteria  to  our  revenue   recognition  policy  for  the  sale  of
merchandise:

     o    a definitive delivery date,

     o    stored  merchandise  is required  to be  segregated  and  specifically
          identified by customer, and

     o    a customer's  merchandise  is labeled or marked for such  customer and
          may not be used to fill another  customer's  order, and exchange for a
          different piece of merchandise in the future is remote.

In addition, the merchandise must not be subject to claims of our creditors, the
risks  and  rewards  of  merchandise  ownership  must  have  transferred  to the
customer,  and our  custodial  risks are  insurable  and  insured.  We  deferred
revenues and costs of $5,097,000 and $1,771,000,  respectively,  during the year
ended December 31, 2001,  until such time as the merchandise has been physically
delivered or upon  satisfaction  of the additional  criteria noted. We recognize
revenue  on the sale of future  pre-need  merchandise  sales  upon the  physical
delivery of the merchandise or


                                       26
<PAGE>

upon  the  satisfaction  of our  current  revenue  recognition  policy  criteria
outlined above.

The  cumulative  effect  adjustment  represents  revenue and cost  deferrals  of
$488,000  and  $84,000,  respectively,  related to  pre-need  merchandise  sales
transactions  previously  recognized  in 1999.  For the year ended  December 31,
2000,  the effect of this  change on loss  before the  cumulative  effect of the
accounting  change was to increase  such loss by $404,000,  or $0.23 per diluted
share.

     Net Loss
     --------

Net loss was $10,151,000 and $8,839,000 for the year ended December 31, 2001 and
2000, respectively. The net loss related to the reasons described above.

Liquidity and Capital Resources

This section should be read in conjunction with our audited financial statements
included  under Item 8.  Financial  Statements  and  Supplementary  Data, and in
particular the  Consolidated  Statements of Cash Flows.  The section titled Cash
Flows From (Used In) Operations for 2002 reconciles the net loss of $(6,705,576)
to the net cash provided by operating activities of a positive $734,238. This is
primarily  due  to net  pre-need  cash  revenues  of  $8,013,790  that  are  not
recognized in current year  results,  but deferred as to  recognition  until the
underlying cremations are performed. Conversely, net commissions with respect to
pre need contracts  deferred of $(2,620,579) have been capitalized and are to be
charged against contracts on fulfillment. This meets the requirement of matching
revenues  and  expenses  with the period in which they are earned as required by
generally accepted accounting principles in the United States.

At December 31, 2002, we had current  assets of  $2,700,000,  offset by accounts
payable and accrued  liabilities  of  approximately  $(2,689,000),  resulting in
substantially no excess working capital in reserve.

In February 2003, we raised $200,000 in a private placement of units, consisting
of one share of common stock and one stock purchase warrant.

Our only internal  sources of liquid assets are cash flows from  operations.  We
have no standby line of credit,  nor have we been able to make  arrangements for
such line of credit. We have no external sources of liquid assets.

The principal  amount of $2,357,000 in debt payments fall due in the upcoming 12
months is relatively evenly  distributed  throughout the year with the exception
of  $1,780,000  that is due July 31, 2003 under the terms of a  promissory  note
issued in connection  with our  acquisition of the Neptune  Group.  See "Item 1.
Business - Neptune Society Acquisitions - Neptune Group Acquisition."  Repayment
of the promissory note is secured by our assets.

We project that we will have working capital in the amount of $1,000,000 at July
31, 2003, and that we will be required to raise $800,000 in additional financing
to make the final payment under the promissory note due July 31, 2003. We are in
the process of attempting to secure  financing to meet this  obligation  and may
seek a restructuring of the remaining  balance of the promissory note. There can
be no assurance that management will be able to raise the financing  required to
satisfy  our   obligations   under  the  promissory   note  or  to  negotiate  a
restructuring  of the  remaining  balance of the  promissory  note on acceptable
terms, if at all.

In addition to the promissory  note due on July 31, 2003, we have long term debt
with a fair value and book value of $6.8 million due in 2004 and 2005. This long
term debt consists of the following:

     o    Convertible  Debentures in the principal amount of $1.1 million, which
          are mandatorily  convertible  into shares of our common stock on March
          31, 2004 at the price of $1.20 per share, unless we exercise our right
          to retire the debenture for cash with a premium payment of 50%; and

     o    13% Convertible  Debentures in the aggregated principal amount of $5.8
          million,  due  February 24, 2005.  We have an  obligation  under these
          Convertible  Debentures to maintain a specified  fixed charge coverage
          ratio  (requiring us to maintain certain levels of cash flow in excess
          of debt  obligations).  Although  we are current in respect of all our
          payment obligations under the 13% Convertible  Debentures,  we did not
          maintain the Coverage Ratio for the quarters ended  September


                                       27
<PAGE>


          30, 2002 and December 31, 2002. If the lenders provide us with written
          notice,  we  would  have 30 days to meet  the  Coverage  Ratio  or the
          holders  could   accelerate  the  due  date  of  the  13%  Convertible
          Debentures, which would have a material adverse effect on our business
          and  results of  operations.  The  lenders  have not  provided us with
          written  notice.  A default  under the  debentures  could  cause us to
          default under other obligations.

We intend to finance any acquisitions or start ups in 2003 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.

As at December  31,  2002,  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   |
            |                       |                |        Year      |               |               |    Years    |
            | ----------------------|----------------|------------------|---------------|---------------|-------------|
                <S>                     <C>               <C>               <C>             <C>               <C>
            |      Long-Term Debt   |   $ 9,112,230  |    $ 2,357,265   |   $ 6,754,965 |      Nil      |     Nil     |
            |      Obligations      |                |                  |               |               |             |
            | ----------------------|----------------|------------------|---------------|---------------|-------------|
            |     Capital Lease     |       Nil      |        Nil       |       Nil     |      Nil      |     Nil     |
            |      Obligations      |                |                  |               |               |             |
            | ----------------------|----------------|------------------|---------------|---------------|-------------|
            |    Operating Leases   |   $ 3,301,879  |     $  736,890   |   $ 2,048,483 |   $ 516,506   |     Nil     |
            | ----------------------|----------------|------------------|---------------|---------------|-------------|
            |  Employment Contracts |     2,550,200  |        913,200   |     1,637,000 |      Nil      |     Nil     |
            | ----------------------|----------------|------------------|---------------|---------------|-------------|
            |   Total Contractual   |  $ 14,964,309  |    $ 4,007,355   |   $10,440,448 |   $ 516,506   |     Nil     |
            |     Obligations       |                |                  |               |               |             |
             ---------------------------------------------------------------------------------------------------------
</TABLE>

We anticipate  that we will have to raise  capital  during the next 12 months to
meet our  obligations  under the  portions of  long-term  debt due. We intend to
raise the capital  required to fund our financing  needs by issuance of debt and
equity.  There can be no assurance  financing will be available or accessible on
reasonable terms.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The market  risk  inherent  in our market risk  sensitive  instruments  and
positions  is the  potential  change  arising  from  increases  or  decreases in
interest  rates as  discussed  below.  Our  exposure to market risk as discussed
below  includes  "Forward-Looking  Statements"  and  represents  an  estimate of
possible  changes in fair value or future  earnings  that would  occur  assuming
hypothetical  future  movements in interest rates.  Our views on market risk are
not necessarily indicative of actual results that may occur and do not represent
the maximum  possible  gains and losses that may occur,  since  actual gains and
losses will  differ from those  estimated,  based upon  actual  fluctuations  in
interest rates and the timing of transactions.

     We entered into various fixed rate debt obligations,  which are detailed in
Note 5 to our consolidated financial statements included in Item 8.

     As of December  31, 2002,  the  carrying  value of our long term fixed rate
debt was approximately  $9.1 million,  which approximated fair value. Fair value
was  determined  using  discounted  future  cash  flows  based  on  our  current
incremental borrowing rates for similar types of borrowing arrangements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements listed under the heading "(a)(1) Financial  Statements"
of Item 14 herein, are included immediately following this page.


                                       28
<PAGE>








                            THE NEPTUNE SOCIETY, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2001 and 2000






                                    CONTENTS

                                                                            Page
                                                                            ----

Independent Auditors' Report for 2002 and 2001                               F-1
Independent Auditors' Report for 2000                                        F-2

Consolidated Financial Statements:
  Consolidated Balance Sheets                                                F-3
  Consolidated Statements of Operations                                      F-4
  Consolidated Statements of Stockholders' Equity                          F-5-6
  Consolidated Statements of Cash Flows                                    F-7-8
  Notes to Consolidated Financial Statements                              F-9-36







<PAGE>


Stonefield Josephson, Inc.
Certified Public  Accountants/Business & Personal Advisors Member of DFK and The
Leading Edge Alliance



INDEPENDENT AUDITORS' REPORT

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

We have  audited the  accompanying  consolidated  balance  sheets of The Neptune
Society, Inc. and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
the years then ended.  These financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial  statements based on our audit.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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  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 provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of The Neptune Society,  Inc. and
subsidiaries  as of  December  31,  2002  and  2001,  and the  results  of their
operations  and their cash flows for the year then  ended,  in  conformity  with
accounting principles generally accepted in the United States of America.

CERTIFIED PUBLIC ACCOUNTANTS

/s/ Stonefield Josephson, Inc.
Santa Monica, California
March 21, 2003

Santa Monica            1620 26th Street/Suite 400 South/Santa Monica/
                        California 90404-4041/Tel 310.453.9400/Fax 310.453.1187
Irvine                  18500 Von Karman Avenue/Suite 560/Irvine/California
                        92612-0540/Tel 949.653.9400/Fax 949.833.3582
San Francisco           655 Montgomery Street/Suite 1220/San Francisco/
                        California 94111-2630/Tel 415.981.9400/Fax 415.391.2310
Walnut Creek            2121 North California Blvd./Suite 900/Walnut Creek/
                        California 94596-7306/Tel 925.938.9400/Fax 925.930-0107


                                      F-1
<PAGE>


                         Independent Auditors' Report



The Board of Directors
The Neptune Society, Inc.:


We  have  audited  the  accompanying   consolidated  statements  of  operations,
shareholders'  equity and cash flows of Neptune  Society,  Inc. and Subsidiaries
for the year ended December 31, 2000. These  consolidated  financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  financial  statements  based on our
audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the results of operations and cash flows of
Neptune  Society,  Inc. and Subsidiaries for the year ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America.

As discussed in note 3 to the  consolidated  financial  statements,  the Company
changed its method of revenue recognition in 2000.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  note 1 to the
financial statements,  the Company has suffered recurring losses from operations
and has a net working capital  deficiency that raise substantial doubt about its
ability to continue as a going  concern.  Management's  plans in regard to these
matters are also  described in note 1. The  financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.


/s/ KPMG LLP
March 16, 2001
Los Angeles, California


                                      F-2
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

                           CONSOLIDATED BALANCE SHEETS


<TABLE>

<S>                                                                  <C>                   <C>
                       ASSETS
Current assets:
  Cash                                                               $     775,966         $    213,219
  Accounts receivable, net                                               1,818,162            1,751,276
  Prepaid expenses and other current assets                                106,642              113,644
                                                                     --------------        --------------
          Total current assets                                           2,700,770            2,078,139

Accounts receivable, net - non current                                     252,305                    -

Property and equipment, net                                                520,759              548,469

Names and reputation                                                    24,397,696           24,364,472

Non compete agreement, net                                                       -               48,333

Deferred financing costs                                                   810,347            1,539,132

Deferred charges and other assets                                        6,963,738            4,343,159
                                                                     --------------        --------------
                                                                     $  35,645,615         $ 32,921,704
                                                                     ==============        ==============
        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                   $   1,005,139         $  1,700,487
  Accrued and other current liabilities                                  1,683,700              681,846
  Current portion of long-term debt                                      2,357,265            2,890,215
                                                                     --------------        --------------
          Total current liabilities                                      5,046,104            5,272,548
                                                                     --------------        --------------
Notes payable                                                            6,754,965            7,942,465
                                                                     --------------        --------------
Other long-term liabilities                                                389,662              197,971
                                                                     --------------        --------------
Deferred pre-need revenues                                              19,702,742           11,688,952
                                                                     --------------        --------------
Liabilities to be settled by issue of shares                               260,525              796,342
                                                                     --------------        --------------
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,
    4,280,423 and 2,154,400 shares issued and outstanding at
    December 31, 2002 and 2001, respectively                                 4,280                2,153
  Additional paid-in capital                                            31,072,881           27,901,241
  Accumulated deficit                                                  (27,585,544)         (20,879,968)
                                                                     --------------        --------------
          Total stockholders' equity                                     3,491,617            7,023,426
                                                                     --------------        --------------
                                                                     $  35,645,615         $ 32,921,704
                                                                     ==============        ==============
</TABLE>

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


                                      F-3
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
                                                           Year ended            Year ended           Year ended
                                                          December 31,          December 31,         December 31,
                                                              2002                  2001                 2000
                                                       ---------------        ---------------       --------------
<S>                                                    <C>                    <C>                   <C>
Revenue:
  Services and merchandise                             $    10,899,026        $   11,775,109        $   6,187,708
  Management and finance fees                                  867,583             1,255,187            1,500,996
                                                       ---------------        ---------------       --------------
          Total revenues                                    11,766,609            13,030,296            7,688,704
                                                       ---------------        ---------------       --------------
Costs and expenses                                           6,418,544             6,263,073            4,451,463
                                                       ---------------        ---------------       --------------
          Gross profit                                       5,348,065             6,767,223            3,237,241
                                                       ---------------        ---------------       --------------
General, administrative and selling expenses                 8,708,742             7,797,567            5,802,283

Amortization and depreciation expense                          253,428             2,081,585            1,886,203

Professional fees                                              677,009             1,765,289            1,244,836

Loss on disposal of assets, net                                      -             2,759,380                    -
                                                       ---------------        ---------------       --------------
          Total general, administrative, selling
            and other expenses                               9,639,179            14,403,821            8,933,322
                                                       ---------------        ---------------       --------------
Other income - lawsuit settlement proceeds                     165,000                     -                    -

Loss from operations                                        (4,126,114)           (7,636,598)          (5,696,081)

Interest and finance expense                                 2,579,462             2,514,570            2,485,030
                                                       ---------------        ---------------       --------------
Loss before income taxes                                    (6,705,576)          (10,151,168)          (8,181,111)

Income tax expense                                                   -                     -              254,128
                                                       ---------------        ---------------       --------------
Loss before cumulative effect of change in
  accounting principle                                      (6,705,576)          (10,151,168)          (8,435,239)

Cumulative effect of a change in accounting
  principle                                                          -                     -             (403,927)
                                                       ---------------        ---------------       --------------
Net loss                                               $    (6,705,576)       $  (10,151,168)       $  (8,839,166)
                                                       ---------------        ---------------       --------------
Loss per share - basic and diluted
 Loss before cumulative effect of
  change in accounting principle                       $         (1.88)       $        (5.09)       $       (4.75)
                                                       ---------------        ---------------       --------------
 Cumulative effect on prior years of
  change in accounting principle                       $             -        $            -        $       (0.23)
                                                       ---------------        ---------------       --------------
 Loss per share - basic and diluted                    $         (1.88)       $        (5.09)       $       (4.98)
                                                       ---------------        ---------------       --------------

Weighted average number of shares -
  basic and diluted                                          3,576,100             1,994,991            1,776,119
                                                       ---------------        ---------------       --------------
</TABLE>

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


                                      F-4
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY



<TABLE>


                                                                            Additional          Accum-           Total
                                                 Common Stock                 paid-in           ulated       Stockholders'
                                             Shares          Amount           capital           deficit          equity
                                           --------------------------------------------------------------------------------
<S>                                       <C>               <C>            <C>               <C>             <C>
Balance at December 31, 1999                1,649,432         1,649          14,272,908        (1,889,634)     12,384,923

Net loss                                            -             -                   -        (8,839,166)     (8,839,166)

Shares issued:

  For cash net of $82,500 of
    offering costs                            164,584           165           7,007,330                 -       7,007,495

  In connection with long-term
    Debt                                        8,000             8             400,003                 -         400,011

  For acquisitions                             93,327            93           4,988,326                 -       4,988,419

Discount on convertible
  debentures                                        -             -             115,000                 -         115,000

Compensation related to stock
  Options                                           -             -              51,081                 -          51,081
                                           -----------     -----------      ------------     -------------    -------------
Balance at December 31, 2000                1,915,343         1,915          26,834,648       (10,728,800)     16,107,763

Net loss                                            -             -                   -       (10,151,168)    (10,151,168)

Shares issued:

  In connection with long and
    short-term debt                            96,447            97             476,112                 -         476,209

  For acquisition activities                  141,162           141                (141)                -               -

Discount on convertible
  Debentures                                        -             -              60,090                 -          60,090

Compensation related to stock
  Options                                           -             -             530,532                 -         530,532
                                           -----------     -----------      ------------     -------------    -------------
Balance at December 31, 2001                2,152,952         2,153          27,901,241       (20,879,968)      7,023,426

</TABLE>
                                  (Continued)

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


                                      F-5
<PAGE>


<TABLE>
                                                    THE NEPTUNE SOCIETY, INC.

                                        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)


                                                                        Additional        Accum-          Total
                                              Common stock               paid-in          ulated       Stockholders'
                                          Shares         Amount           capital         deficit         equity
                                         ------------------------------------------------------------------------------
<S>                                       <C>               <C>           <C>           <C>            <C>
Net loss                                                                                (6,705,576)     (6,705,576)

Shares issued for:

  Settlement of accrued
    liabilities                           21,250            21            406,321                -         406,342

  Restructuring fees on long term
    debt                                 327,083           327            389,673                -         390,000

  Cash                                 1,388,889         1,389          1,498,611                -       1,500,000

  Conversion of debenture                225,000           225             74,775                -          75,000

  Acquisitions and other                   6,559             7              2,282                -           2,289

  Compensation - shares issued            51,250            51             59,050                -          59,101

  Settlement of debenture interest       107,440           107            115,928                -         116,035

Compensation related to stock
  options                                      -             -            345,000                -         345,000

Beneficial conversion feature on
  convertible debt                             -             -            280,000                -         280,000
                                       ----------       -------        -----------     ------------     -----------
Balance at December 31, 2002           4,280,423         4,280         31,072,881      (27,585,544)      3,491,617
                                       ==========       =======        ===========     ============     ===========
</TABLE>

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


                                      F-6
<PAGE>


                                             THE NEPTUNE SOCIETY, INC.

                                        CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
                                                                          Year ended            Year ended           Year ended
                                                                         December 31,          December 31,         December 31,
                                                                             2002                  2001                 2000
                                                                       ---------------        --------------        -------------
<S>                                                                     <C>                  <C>                    <C>
Cash flows provided by (used for) operating activities:
  Net loss                                                              $ (6,705,576)         $(10,151,168)         $ (8,839,166)

  Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities:
      Depreciation and amortization                                          253,428             2,081,585             1,886,203
      Accretion of discount on notes payable                                 135,239                67,605               697,783
      Non-cash interest & amortization of deferred
        finance costs                                                      1,098,993             1,315,279             1,126,306
      Stock issued for professional services                                       -                31,658                     -
      Stock compensation                                                     404,101               530,532                51,081
      Loss on disposal of assets                                                   -             2,759,380                     -
      Deferred tax benefit                                                         -                     -               254,128
      Compensation expense to be settled by stock                            160,525                     -                     -

Change in operating assets and liabilities:
      Accounts receivable, net                                              (319,191)           (1,516,906)              (56,060)
      Prepaid expenses and other current assets                                7,002                 7,417               (12,710)
      Deferred charges and other assets                                   (2,620,579)             (320,915)           (2,481,375)
      Accounts payable                                                      (695,348)              300,949               901,531
      Accrued and other liabilities                                        1,001,854              (931,133)              823,561
      Deferred pre need revenues                                           8,013,790             5,090,705             4,916,233
                                                                       ---------------        --------------        -------------
          Net cash provided by (used for) operating activities               734,238              (735,012)             (732,485)
                                                                       ---------------        --------------        -------------
Cash flows used for investing activities:
  Purchases of property and equipment, net                                  (175,096)               (4,404)             (216,803)
  Acquisitions, net of cash acquired                                         (33,224)                    -              (703,620)
                                                                       ---------------        --------------        -------------
          Net cash used for investing activities                            (208,320)               (4,404)             (920,423)
                                                                       ---------------        --------------        -------------
Cash flows provided by (used for) financing activities:
  Payments on notes payable                                               (1,954,862)           (2,412,704)          (11,864,781)
  Proceeds from issuance of debt, net                                        200,000             2,300,000               750,000
  Net proceeds of common stock issued                                      1,500,000                     -             7,007,495
  Increase in long term liabilities                                          291,691                     -                     -
                                                                       ---------------        --------------        -------------
          Net cash provided by (used for) financing activities                36,829              (112,704)           (4,107,286)
                                                                       ---------------        --------------        -------------
Net increase (decrease) in cash                                              562,747              (852,120)           (5,760,194)
Cash, beginning of year                                                      213,219             1,065,339             6,825,533
                                                                       ---------------        --------------        -------------
Cash, end of year                                                       $    775,966          $    213,219          $  1,065,339
                                                                       ===============        ==============        =============
</TABLE>

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


                                      F-7
<PAGE>


<TABLE>
                            THE NEPTUNE SOCIETY, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                        Year ended              Year ended           Year ended
                                                                       December 31,            December 31,         December 31,
                                                                           2002                    2001                 2000
                                                                     ---------------          --------------        -------------
<S>                                                                   <C>                  <C>               <C>

Supplemental disclosure of cash flow information -
  cash paid during the period for interest                             $ 1,147,469            $   1,132,000         $    659,000
                                                                     ===============          ==============        =============
Supplemental disclosure of noncash investing
 and financing activities:

  Debt assumed by third party resulting from asset sale                $         -            $   1,500,000         $          -
                                                                     ===============          ==============        =============
  Debt forgiveness related to asset sale                               $         -            $   1,000,000         $          -
                                                                     ===============          ==============        =============
  Discount on debenture payable                                        $   280,000            $      60,090         $    115,000
                                                                     ===============          ==============        =============
  Common stock issued for acquisitions                                 $     2,289            $           -         $  4,988,419
                                                                     ===============          ==============        =============
  Notes issued for acquisition                                         $         -            $           -         $  1,000,000
                                                                     ===============          ==============        =============
  Accrued interest settled by issue of stock                           $   116,035            $           -         $           -
                                                                     ===============          ==============        =============
  Accrued liabilities settled by issue of stock                        $   796,342            $           -         $           -
                                                                     ===============          ==============        =============
  Deferred compensation to be settled by stock                         $   100,000            $           -         $           -
                                                                     ===============          ==============        =============
  Conversion of debentures by issue of stock                           $    75,000            $           -         $           -
                                                                     ===============          ==============        =============
</TABLE>

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


                                      F-8
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(1)  The Business, Basis of Presentation and Liquidity:

          The  Neptune  Society,  Inc.,  a Florida  Corporation,  is the holding
          company for Neptune America, Inc., a California  Corporation.  Neptune
          Management  Corporation,  Heritage  Alternatives,  Inc.,  and  Trident
          Society,  Inc. are wholly owned subsidiaries of Neptune America,  Inc.
          and engage in marketing  and  administering  pre-need  and/or  at-need
          cremation  services  in  California,   Colorado,  Florida,  New  York,
          Arizona,  Illinois, Iowa, Oregon and Washington.  The Neptune Society,
          Inc. operates crematories in California, Washington, Oregon and Iowa.

          On March 31, 1999,  The Neptune  Society,  Inc.  (formerly  Lari Corp.
          "Lari") 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  all  of  the  outstanding  shares  and  the
          partnership interests of the following entities (collectively referred
          to as the Predecessor Companies):

          Neptune Management Corporation

                           Neptune Pre-Need Plan, Inc.
                           Heritage Alternatives, Inc.
                           Heritage Alternatives, L.P.
                         Neptune Funeral Services, Inc.

          Neptune Funeral Services of Westchester, Inc.

                            Neptune-Los Angeles, Ltd.
                           Neptune-Santa Barbara, Ltd.
                          Neptune-Ft. Lauderdale, Ltd.
                          Neptune-St. Petersburg, Ltd.
                               Neptune-Miami, Ltd.
                            Neptune-Westchester, Ltd.
                              Neptune-Nassau, Ltd.

          The business  combination  was accounted for using the purchase method
          of  accounting,  and the  excess of the  purchase  price over the fair
          value  of   identifiable   net   assets  and   liabilities   acquired,
          ($26,809,237) was recorded as goodwill ("Names and  Reputations").  In
          addition,  the Company entered into a three-year $1,000,000 consulting
          agreement  with  the  former  controlling  owner  of  the  Predecessor
          Companies. In January 1999, Lari Corp. issued 250,000 shares of common
          stock  and  1,000,000  warrants  to  purchase  common  stock for total
          consideration of $200,000.  The warrants were fully exercised in April
          1999 for $800,000  and, with the proceeds from the sale of the 250,000
          shares for $200,000, used to fund the acquisition.  On April 26, 1999,
          Lari  Corp.  changed  its  name  to The  Neptune  Society,  Inc.  (the
          "Successor  Company").  Collectively,  the  Predecessor  Companies and
          Successor Company are herein referred to as ("the Company").


                                      F-9
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(1)  The Business, Basis of Presentation and Liquidity, Continued:

          As of December 31, 2002, the Company has a working  capital deficit of
          approximately  $2.3 million.  Management  believes it will obtain,  on
          acceptable  terms, a fifth  restructuring of the remaining  balance of
          the acquisition debt, which at December 31, 2002 is approximately $2.1
          million and is currently due in the upcoming year. In fiscal 2002, the
          Company  achieved  positive   operating  cash  flow  of  approximately
          $700,000  after several  years of negative  operating  cash flow.  The
          company  believes that it has  sufficient  liquidity  from  continuing
          positive cash flow to maintain  operations  and to allow it to build a
          cash  reserve to partially  retire and  successfully  renegotiate  the
          current portion of its acquisition debt.


(2)  Summary of Significant Accounting Policies:

     Principles of Consolidation:

          The consolidated financial statements as of December 31, 2002 and 2001
          and for the years ended  December 31, 2002,  2001 and 2000 present the
          consolidated  accounts of The Neptune Society,  Inc. and subsidiaries.
          All  significant  intercompany  balances  and  transactions  have been
          eliminated in consolidation.

     Revenue Recognition:

          Prior to 2000,  revenue  related to  merchandise  sold with a pre-need
          cremation  service  arrangement  was recognized  upon meeting  certain
          state  regulatory  criteria,  which,  in California,  Colorado,  Iowa,
          Washington  and Oregon may be prior to the  performance  of  cremation
          services.  The Company  considered  such criteria met when the Company
          was permitted to receive one hundred percent of the unrestricted funds
          associated  with  the  merchandise  sale,  the  merchandise  was  in a
          condition  for its  intended  use and the  Company  did not retain any
          specific performance obligations essential to the functionality of the
          merchandise,  the customer  accepted the merchandise as evidenced by a
          written   transfer  of  title  to  the  customer  and  certificate  of
          ownership,  and, if the customer so requested,  the Company stored the
          merchandise  in an insured  location on the  customer's  behalf  until
          customer pick-up or the time of need, but no later than the customer's
          death.  Customers that purchase pre-need cremation arrangements do not
          have cancellation rights with respect to the purchase of merchandise.


                                      F-10
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(2)  Summary of Significant Accounting Policies, Continued:

     Revenue Recognition, Continued:

          In  response  to  SAB  No.  101,  the  Company   changed  its  revenue
          recognition  accounting  policy with respect to merchandise  sold in a
          pre-need  arrangement  to include  certain  conditions  beyond current
          state  regulations.  As of  January  1, 2000,  the  Company  added the
          following  criteria related to its revenue  recognition policy for the
          sale of  merchandise:  (i) a  definitive  delivery  date,  (ii) stored
          merchandise is required to be segregated and  specifically  identified
          by customer,  (iii) a customer's  merchandise is labeled or marked for
          such  customer and may not be used to fill another  customer's  order,
          and exchange  for a different  piece of  merchandise  in the future is
          remote. In addition,  the merchandise must not be subject to claims of
          the  Company's  creditors,   the  risks  and  rewards  of  merchandise
          ownership  must have  transferred  to the customer,  and the Company's
          custodial  risks are  insurable  and insured.  The Company shall defer
          pre-need merchandise sales until such time as the merchandise has been
          physically  delivered or upon satisfaction of the additional  criteria
          noted. The Company  recognizes  revenue on the sale of future pre-need
          merchandise  sales upon the physical  delivery of the  merchandise  or
          upon the  satisfaction of the Company's  current  revenue  recognition
          policy criteria outlined above.

          Florida  and New York do not allow the  Company to  deliver  cremation
          merchandise prior to the provision of cremation services, and as such,
          revenue  related  to  merchandise  sold  with  a  pre-need   cremation
          arrangement in these states is not recognized until the merchandise is
          delivered,  which is generally concurrent with the period services are
          performed.

          The Company is allowed  under state  regulations  in  Colorado,  Iowa,
          Washington,  Oregon  and  Florida  to  retain  certain  cash  receipts
          received related to services to be performed in the future. These cash
          receipts are recorded as deferred revenue and recognized when services
          are provided.

          At-need cremation  services--The Company recognizes revenue on at-need
          cremation  services and merchandise sales at the time the services are
          provided and the merchandise is delivered.

          Pre-need cremation  arrangements--The Company sells pre-need cremation
          services and merchandise  under contracts that provide for delivery of
          the services at the time of need.  Services and  merchandise  revenues
          related to pre-need  cremation services are recorded as revenue in the
          period the services are  performed.  Until the services are performed,
          the proceeds  received from the sale of pre-need  cremation  contracts
          are  recorded  as  deferred  pre-need  revenue to the extent that such
          proceeds are not required to be trusted.


                                      F-11
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(2)  Summary of Significant Accounting Policies, Continued:

     Revenue Recognition, Continued:

          Pre-need installment  sales--The Company also sells pre-need cremation
          arrangements  under installment  plans. Under such plans, the customer
          makes  an  initial  down-payment  and  pays  the  balance  in  monthly
          installments  plus  interest.  To the extent that cash received is not
          trusted,  the  Company  accounts  for this cash as  deferred  pre-need
          revenue until the transaction  qualifies for revenue recognition under
          the Company's accounting policies.

          Prior to January 1, 2001,  due to the  uncertainty  of  collections of
          these accounts,  the Company recorded these transactions in accordance
          with the Company's revenue recognition accounting policies as cash was
          received.

          Worldwide travel sales--The Company sells a worldwide travel assurance
          plan which guarantees the provision of cremation  services anywhere in
          the world to the  extent  the plan  holder is more than 75 miles  away
          from  their  legal  residence  at the  time  of  death.  The  plan  is
          underwritten  by a third party carrier who receives a premium  payment
          and is obligated to perform services if the above criteria is met. The
          Company  recognizes revenue related to the sale of travel plans at the
          time of sale.

          Commission  income--Under  pre-need cremation services and merchandise
          arrangements  funded  through  insurance  purchased by customers  from
          third party insurance companies, the Company earns a commission on the
          sale of the policies.  Commission income, net of related expenses, are
          recognized at the point at which the  commission is no longer  subject
          to refund,  generally 3 to 5 days after the  contract is sold.  Policy
          proceeds are paid to the Company as cremation services and merchandise
          are delivered.

          Direct and indirect  costs--The  Company  expenses direct and indirect
          costs in the period incurred, with the exception of sales commissions,
          which are specifically  identifiable to individual  pre-need cremation
          arrangements.  Sales  commissions  are initially  recorded as deferred
          charges and other  assets.  When the  related  pre-need  services  are
          performed, such deferred charges are recorded to operations.


                                      F-12
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(2)  Summary of Significant Accounting Policies, Continued:

     Trust Funds:

          Depending  upon the  jurisdiction  in which a pre-need  arrangement is
          sold, the Company is required to place in trust or escrow certain,  if
          not  all,  of the  proceeds  received  from  the  sale  of a  pre-need
          arrangement.  The  trustors of such trusts are the  purchasers  of the
          pre-need arrangements.  The Company does not have access to or 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 Florida  allow the Company to withdraw  non-refundable
          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 Company records  deferred revenue to the extent it is not required
          to place in trust or escrow  funds  received  with respect to pre-need
          cremation  services and merchandise  upon which the Company's  revenue
          recognition criteria have not been met. Where revenue is deferred, the
          related commission costs are deferred until the pre-need contracts are
          fulfilled (see Note 2 - Deferred  Obtaining Costs).  Indirect costs of
          marketing  pre-need  cremation  services  are  expensed  in the period
          incurred.

          The fair value of the pre-need  funeral trust assets  summarized below
          were  $41,944,000  and  $36,328,000  at  December  31,  2002 and 2001,
          respectively,  which, in the opinion of management, exceeds the future
          obligations under such arrangements.

<TABLE>
                                                                         2002                2001
                                                                         ----                ----

          <S>                                                     <C>                <C>
          Cash and cash equivalents                               $   26,728,000       $   2,235,000
          Fixed income investment contracts                            1,171,000           3,140,000
          Mutual funds, stocks and treasury bills                     14,045,000           2,072,000
          U.S. Government investments                                          -          28,881,000
                                                                  ---------------      --------------
                    Total                                         $   41,944,000       $  36,328,000
                                                                  ===============      ==============
</TABLE>


                                      F-13
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(2)  Summary of Significant Accounting Policies, Continued:

     Cash and Cash Equivalents:

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

     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
          Nautical 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.

     Non-Compete Agreements:

          The Company  amortizes its  non-compete  agreements  over the expected
          period  of  benefit,  not  to  exceed  the  contractual  term  of  the
          agreements, generally 3 years. The Company monitors the recoverability
          of its  non-compete  agreements  based  on the  projection  of  future
          undiscounted   cash  flows  of  the  geographic   area  to  which  the
          non-compete agreement relates. If an impairment is indicated,  then an
          adjustment  is made to reduce the  carrying  amount of the  intangible
          asset to its fair value.

          At December 31, 2002, the unamortized carrying value of this asset was
          nil (2001: $48,333). Accumulated amortization at December 31, 2002 and
          2001 was $145,333 and $97,000 respectively.


                                      F-14
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(2)  Summary of Significant Accounting Policies, Continued:

     Advertising

          Costs of advertising are expensed as incurred. Advertising expense was
          approximately  $1,877,078,  $1,577,213  and  $1,167,294  for the years
          ended December 31, 2002, 2001 and 2000, respectively.

     Income Taxes

          Income taxes are accounted  for under the asset and liability  method.
          Deferred tax assets and  liabilities are recognized for the future tax
          consequences   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.

          As a result of the Company's  continuing losses during the years ended
          December 31, 2002 and 2001, the Company recorded a valuation allowance
          of 100% against all of its deferred tax assets.

     Stock Option Plan

          The Company has adopted the disclosure-only provisions of Statement of
          Financial  Accounting  Standards  ("SFAS")  No. 123,  "Accounting  for
          Stock-Based   Compensation,"   and   continues  to  apply   Accounting
          Principles Board ("APB") Opinion No. 25,  "Accounting for Stock Issued
          to  Employees,"  and related  interpretations  in  accounting  for its
          stock-based  compensation  plans.  The Company has adopted the amended
          disclosure  provisions of SFAS No. 148,  "Accounting  for  Stock Based
          Compensation - Transitional  Disclosure" with respect to the effect of
          its use of the  disclosure-only  provisions  of FASB 123 in accounting
          for  stock-based  compensation,  and the effect of the method  used on
          reported results.

     Deferred Obtaining Costs

          Deferred  obtaining  costs  (included  in  deferred  charges and other
          assets) consist of sales commissions  applicable to pre-need cremation
          service and merchandise  sales.  These costs are deferred and expensed
          in  the  period  of  performance  of  the  services  and  delivery  of
          merchandise covered by pre-need arrangements.

     Deferred Financing Costs

          These costs are  deferred  and  expensed as interest  and finance cost
          over  the  life of the  respective  debt  instrument.  The  amount  so
          classified  comprises  fees and direct costs incurred on the obtaining
          and restructuring of long term debt.


                                      F-15
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(2)  Summary of Significant Accounting Policies, Continued:

     Computation of Earnings (Loss) Per Common Share:

          Basic and diluted  loss per share is computed by dividing  net loss by
          the weighted  average number of common shares  outstanding  during the
          year. For the years ended December 31, 2002, 2001 and 2000, options to
          purchase 608,728, 607,296 and 158,438 shares, respectively,  of common
          stock at  prices  ranging  from  $4.40 to $57.00  per  share  were not
          included  in the  computation  of diluted  loss per share  because the
          effect would be anti-dilutive.

          Additionally,  warrants  and  conversion  rights to  purchase  84,375,
          1,724,167  and  2,617,211  shares at December 31, 2000,  2001 and 2002
          respectively at prices ranging from $1.20 to $57.00 per share were not
          included  in the  computation  of diluted  loss per share  because the
          effect would be anti-dilutive.

     Fair Value of Financial Instruments

          The  carrying  amounts  of  cash,  current  receivables  and  payables
          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)

          Except for net loss,  the Company  does not have any  transactions  or
          other economic events that enter into other  comprehensive loss during
          the years presented.

(3)  Changes in Accounting Principles

     Revenue Recognition:

          In response to the  Securities and Exchange  Commission's  issuance of
          Staff  Accounting  Bulletin No. 101 "Revenue  Recognition in Financial
          Statements"  (SAB No.  101),  effective  January 1, 2000,  the Company
          changed its  accounting  policies  applicable to pre-need  merchandise
          sales.  The  implementation  of  SAB  No.  101  had no  effect  on the
          consolidated cash flows of the Company.


                                      F-16
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(3)  Changes in Accounting Principles, Continued:

     Revenue Recognition, Continued:

          In  response  to  SAB  No.  101,  the  Company   changed  its  revenue
          recognition  accounting  policy with  respect to  merchandise  sold in
          pre-need  arrangements  to include  conditions  beyond  current  state
          regulations.  As of January 1, 2000, the Company included a definitive
          delivery date, the requirement  that stored  merchandise be segregated
          and specifically  identified by customer, not subject to being used to
          fill other orders, and the test that exchange for a different piece of
          merchandise at a later date is remote.  In addition,  the  merchandise
          must not be subject to claims of the  Company's  creditors,  the risks
          and rewards of  merchandise  ownership  must have  transferred  to the
          customer, and the Company's custodial risks are insurable and insured.
          Since  the   additional   criteria  had  not  been  met  for  pre-need
          merchandise  sales  for the nine  months  ended  December  31,  1999 a
          cumulative  effect  adjustment of $404,000 or $0.23 per diluted share,
          was recorded at January 1, 2000  representing the cumulative effect of
          deferring  revenues of  $488,000  on those sales for which  additional
          revenue  recognition  criteria  had not  been  met.  The  Company  has
          deferred   revenues   of   $4,326,000,   $5,097,000   and   $8,224,013
          respectively,  for the years ended December 31, 2000, 2001 and 2002 as
          the additional criteria noted above had not been satisfied.

     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.

          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 evaluation of the implied value
          of its goodwill, and determined that there is no impairment in value.

          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 2002 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
          goodwill is impaired,  the carrying value will be adjusted by a charge
          to operations in the year that such determination is made.


                                      F-17
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(3)  Changes in Accounting Policies, Continued:

     Goodwill (Names and Reputations), Continued:

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

<TABLE>
                                                                            2002                   2001
                                                                            ----                   ----
          Cost
            Names and Reputations recorded on acquisition of:
          <S>                                                         <C>                    <C>
            Predecessor Companies                                     $   26,809,237         $  26,809,237
            Washington crematory                                             732,968               699,744
            Iowa crematory                                                   816,390               816,390
                                                                      ---------------        --------------
                                                                          28,358,595            28,325,371
          Less:
            Accumulated amortization (1999 to 2001)                       (3,960,899)           (3,960,899)
                                                                      ---------------        --------------
                    Net book Value                                    $   24,397,696         $  24,364,472
                                                                      ===============        ==============
</TABLE>

(4)  Property and Equipment

     Property and equipment is summarized as follows:

<TABLE>
                                                                            2002                   2001
                                                                            ----                   ----
          <S>                                                         <C>                    <C>
          Furniture and fixtures                                      $      195,344         $     143,606
          Nautical equipment                                                       -               110,000
          Automobiles                                                        154,208                97,611
          Equipment                                                          496,532               416,971
          Leasehold improvements                                             194,931               191,882
                                                                      ---------------        --------------
          Total property and equipment                                     1,041,015               960,070
          Less accumulated depreciation and amortization                     520,256               411,601
                                                                       ---------------        --------------
                    Property and equipment, net                       $      520,759         $     548,469
                                                                       ===============        ==============
</TABLE>

(5)  Notes Payable

<TABLE>
                                                                            2002                2001
                                                                            ----                ----
     <S>                                                              <C>               <C>
     13% Convertible debentures
     Non-amortizing,  interest  accruing at 13% per annum payable
     (with interest at 6.5% per annum deferred as to payment
     until June 2003), due February 24, 2005.  Includes  accrued
     interest of $788,202  (2001:  $650,890).  See (a) below.         $  5,788,202      $  5,650,890
</TABLE>


                                      F-18
<PAGE>

                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(5)  Notes Payable, Continued:

<TABLE>
                                                                            2002                2001
                                                                            ----                ----
     <S>                                                              <C>               <C>
     Acquisition debt
     Promissory  notes  bearing  interest  at 13% per annum,
     payable in monthly installments of $78,471, including interest
     due July 31, 2003. Secured by a first trust deed on all assets
     of the Company.  See (b) below.                                     1,782,057         2,391,940

     Acquisition debt - 2001
     Promissory  note,  non-amortizing,  13%  interest  due July 2003.
     Includes accrued interest of $45,208 (December 31, 2001: nil).
     See (b) below.                                                        395,208           350,000

     13.75% mandatory convertible debentures
     Interest only payable monthly. See (c) below.                         896,653                 -

     Professional services debt
     Notes payable,  non-interest  bearing,  payable in monthly
     installments of $15,000, due November 2003 and February 2004.
     See (d) below.                                                        250,110           369,872

     12% Convertible debentures
     Non-amortizing, interest accruing at 12% per year payable
     monthly, due July 31, 2003. See (e) below.                                  -            75,000

     Other
     Note payable, non-amortizing,  interest accruing at 19.98%
     payable monthly, due December 2002. See (f) below.                          -           800,000

     Note payable to a private investor,  non-interest bearing,
     non- amortizing, due on September 30, 2001. See (g) below.                  -         1,000,000

     Note  payable,  interest  accruing  at 10% per  annum,
     payable  in monthly installments of $14,000, due July 2002.
     See (h) below.                                                              -            94,102

     Notes payable,  interest accruing at 9%, payable in monthly
     installments of $1,244 and $980, respectively, both notes
     due May 31, 2002.                                                           -            10,876
</TABLE>


                                      F-19
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(5)  Notes Payable, Continued:

<TABLE>
                                                                            2002                2001
                                                                            ----                ----
     <S>                                                              <C>               <C>
     Line of credit,  interest  accruing at 9%,  interest only
     payable  monthly, maximum limit $100,000, principal due
     April 1, 2002. (not renewed)                                                -            90,000
                                                                     -------------      ------------
                                                                         9,112,230        10,832,680
         Less current portion                                            2,357,265         2,890,215
                                                                     -------------      ------------
                                                                      $  6,754,965       $ 7,942,465
                                                                      =============      ============
</TABLE>

     (a)  13% Convertible debentures

          On December 30, 1999, the Company issued $5,000,000 of 13% convertible
          debentures  due  February 24, 2005.  The  debentures  were issued with
          detachable  warrants  to acquire  25,000  common  shares at $41.68 per
          share and 25,000 common shares at $50.00 per share.  The fair value of
          the warrants,  $670,409, was recorded as a deferred financing cost and
          a credit to additional paid-in-capital. The following assumptions were
          used in the Black-Scholes  pricing model:  expected volatility of 20%,
          risk  free  interest  rate  of  5.11%,  and the  expected  life of the
          warrants of 4 years. The amortization of this deferred  financing cost
          results in an  effective  interest  rate of 15.8%.  In  addition,  the
          debentures were  convertible to common stock at an initial  conversion
          ratio of 40:1 (adjustable based on certain anti-dilution rights), or a
          total of 125,000 common shares.  The intrinsic value of the beneficial
          conversion feature,  $562,000,  was recorded as a credit to additional
          paid-in-capital  and a discount to the related debt. The fair value of
          the Company's  common stock was based on its quoted market price.  The
          discount was recognized as interest  expense over the period up to the
          initial  conversion  date,  September 30, 2000. Under the terms of the
          debenture   purchase   agreement,   the  Company  granted  demand  and
          piggy-back  registration  rights,  at the Company's  expense,  for the
          resale of any shares  received  upon  conversion  or  exercise  of the
          debentures or warrants.  The Company was also  obligated to adjust the
          number  of  shares  issuable  under  the  convertible  debentures  and
          warrants  if it issued  additional  shares of common  stock  under the
          following  scenarios:  (i) for less than $40.00 in cash, in which case
          the  debenture  was to be  convertible  at the lower price or (ii) the
          Company  issued shares  without  consideration  in a transaction  that
          resulted  in the  issuance  of shares for  consideration  of less than
          $40.00 per share,  in which case the  debenture was  convertible  at a
          price  adjusted  to  give  effect  to the  lower  value  of the  share
          issuance.

          In December  2001,  in exchange for the  amendment of certain terms in
          the  debenture  agreements,  the Company  agreed to (i) issue  168,750
          shares of the Company's  common stock to the holders,  (ii) reduce the
          conversion  price to $3.00 per  share,  (iii)  accelerate  payment  of
          certain deferred interest  payments,  (iv) reduce the warrant exercise
          price to $12.00,  (v) effect a 4:1  reverse  stock  split on or before
          June 30,  2002,  and (vi)  restrict  the  amount of equity  securities
          issued by the Company.  The  debenture  holder agreed to (i) eliminate
          the "full ratchet" anti-dilution provision and (ii) amend certain debt
          coverage ratios.  The debenture holder retained certain  anti-dilution
          rights  that  allow  it  to  maintain  its   proportionate   ownership
          percentage in the Company.


                                      F-20
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(5)  Notes Payable, Continued

     (a)  13% Convertible debentures, Continued

          Under the terms of the  debentures,  interest  at the rate of 6.5% per
          annum is deferred as to payment until May 31, 2003. Commencing June 1,
          2003,  monthly interest  payments  increase to 13% per annum,  accrued
          interest  representing  the 6.5% per annum interest  deferred in prior
          years becomes  payable  commencing June 1, 2003 at the rate of $15,000
          per month, unless the Company provides written notice of its inability
          to do so due to insufficient cash flow.

          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. The acquisition of the shares and the convertible debentures
          by the note holders effectively reduced accrued interest owed to them.

          The Company has an  obligation  under the  Convertible  debentures  to
          maintain a  specified  fixed  charge  coverage  ratio  (the  "Coverage
          Ratio").  Although  the  Company  is  current in respect to all of its
          payment obligations under the debentures, the Company did not maintain
          the  Coverage  Ratio for the  quarters  ended  September  30, 2002 and
          December  31,  2002.  If the holders  provide the Company with written
          notice,  the Company would have 30 days to meet the Coverage  Ratio or
          the holders could  accelerate  the due date of the  debentures,  which
          would have a material  adverse  affect on the  Company's  business and
          results of operations.  The holders have not provided the Company with
          written notice.  A default under the debenture could cause the Company
          to default under other obligations.

     (b)  Acquisition debt

          Acquisition  debt is comprised  of two  ($19,000,000  and  $2,000,000)
          promissory notes to the owners of the Predecessor Companies.

          First restructuring

          On August 1, 1999, a $19,000,000  note issued in  connection  with the
          acquisition  was amended as follows:  i) $9,625,088 of the note became
          interest  free in exchange  for $76,000  cash,  34,375  warrants  were
          issued to acquire common shares at $48 per share and payment due dates
          were amended to $386,776 on August 11, 1999,  $4,172,476 on January 3,
          2000 and $5,065,836 on July 31, 2000, and ii) $9,374,912  retained its
          9% interest  rate and became due as follows:  $3,739,008 on August 11,
          1999, $701,740 on January 3, 2000 and $4,934,164 on July 31, 2000. The
          costs associated with the amendment and the fair value of the warrants
          issued were  deferred and  recognized  as an  adjustment to the notes'
          interest  rate on a  prospective  basis from August 1, 1999.  The fair
          value of the warrants issued was estimated to be $401,324 based on the
          Black-Scholes  option  pricing model using the following  assumptions:
          dividends yield of zero;  expected  volatility 20%; risk free interest
          rate 4.61%; and expected life of 4 years.


                                      F-21
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(5)  Notes Payable, Continued

     (b)  Acquisition debt, Continued

          Second restructuring

          On July 31, 2000, the Company  restructured  both the  $19,000,000 and
          $2,000,000  notes.  The  Company  i)  repaid  $1,297,778   ($1,024,000
          carrying value) outstanding under its $2,000,000 acquisition note, ii)
          repaid $341,396 under its $19,000,000  acquisition note resulting in a
          remaining balance of $4,724,440  outstanding and extended the due date
          on this amount to July 31, 2001. In consideration for the extension of
          the due date, the Company  guaranteed the difference  between  $47,250
          and the aggregate cash to be received on the sale of 844 shares of the
          Company's common stock held by the creditor monthly over the extension
          term (a total of 10,125  shares).  As a result of the  guarantee,  the
          Company has paid and  expensed  $254,000  and  $16,676,  respectively,
          through  December  31,  2001 and 2000.  The  Company  has  recorded  a
          liability  and  deferred  financing  costs  for the fair  value of the
          guarantee  and  adjustments  to the  liability  are  recorded  through
          interest expense.

          Third restructuring

          In August  2001,  the Company paid $2 million of its $4.7 million note
          payable and  restructured  the remaining  $2.7 million of its original
          acquisition debt. The remaining $2.7 million became due and payable on
          January  2,  2002,  along  with  a cash  loan  fee  of  $168,000.  The
          restructured  amount  accrued  interest  at  12%  per  annum,  payable
          monthly. The Company also issued 13,750 shares of the Company's common
          stock  valued at  $224,000.  The value of the shares and the cash loan
          fees were amortized to interest expense over the life of the note.

          Fourth restructuring

          In December 2001, the Company executed an agreement to restructure the
          remaining  $2.7 million of  acquisition  debt,  previously due January
          2002.  On  December  28,  2001,  the  Company  paid  $333,000  of note
          principal,  and agreed to amortize  $963,000 over 18 months and make a
          lump-sum  payment of  $1,429,000  on July 31,  2003.  As a part of the
          agreement,  the Company paid $168,000 in loan fees related to previous
          loan  restructurings,  issued a 13%  non-amortizing  note  payable  of
          $350,000  due July 31, 2003 for  additional  loan fees related to this
          restructuring  ("Acquisition  debt - 2001") and  issued the  creditors
          75,000  shares of the Company's  common stock valued at $126,000.  The
          value of the  shares  and the cash  loan  fees is being  amortized  to
          interest expense over the life of the note. The Company also agreed to
          release  the  creditors  with  respect to  liability  under the Leneda
          litigation,  which was  settled  during  the year.  The  Company  also
          paid-out  the  remainder  of all  payments  due under  the  creditor's
          consulting  agreement  in the amount of $355,000  and  terminated  the
          agreement.


                                      F-22
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(5)  Notes Payable, Continued

     (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.

          The  debenture  holders may exercise  their  rights to acquire  common
          shares at the price of $1.20 per share at any time  prior to March 31,
          2004,  at which date the  debentures  automatically  convert to common
          shares.

          The Company may retire the  debentures for cash prior to conversion by
          paying the debenture holders a premium of 50% on the face value of the
          debt.

          The  Company  is to  issue  83,333  shares  as a loan  fee  valued  at
          $107,000. The loan fee, together with the amount of $173,000 allocated
          to the conversion feature,  are being accreted as interest and finance
          expense on a straight  line  basis  over the term to  maturity  of the
          debenture. At December 31, 2002, the unaccreted amount of $175,000 has
          been recorded as a reduction of the carrying value of the debt.

     (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
          is  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  is being  amortized  to
          interest expense over the respective lives of the notes. To the extent
          the Company  complies with the terms of the notes, the note holder has
          agreed to forgive the $70,000 obligation. The notes are collateralized
          by certain assets of the Company.

          At  December  31,  2002,  the  carrying  value  of the  debt is net of
          unamortized discount of $30,658 (2001: $60,090).


                                      F-23
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(5)  Notes Payable, Continued

     (e)  12% convertible debenture

          In August 2001,  the Company  borrowed  $1,575,000 at 12% interest per
          annum,  payable  monthly,  maturing  January 2, 2002. Of the principal
          amount,  $75,000 represented a loan fee. The Company also issued 3,947
          shares of the  Company's  common stock valued at $41,000 and a warrant
          to purchase up to 7,500 shares of the Company's common stock at $41.68
          per share (subsequently adjusted to $3.00 per share). The value of the
          shares,  warrants and cash loan fees was amortized to interest expense
          over the life of the  note.  The debt was  collateralized  by  certain
          assets of the Company's Portland, Oregon business.

          In December  2001,  as a condition  of the sale of these  assets,  the
          Company  entered into an agreement to  restructure  and extend the due
          date of the debt to July, 2002. Under the agreement, $1,500,000 of the
          $1,575,000 note payable and a $1,000,000 convertible  debenture,  were
          assumed  by the  purchaser  of the  Oregon  Assets.  The  debt  holder
          exchanged  the  remaining  $75,000  of the  note  for a 13%  debenture
          convertible at $0.33 per share  maturing July 2002.  Also, the Company
          issued the debt holder  75,000  shares of the  Company's  common stock
          valued at  $120,000  and  guaranteed  the  payment  of the  $1,500,000
          assumed  note.  The value of the  shares  was  amortized  to  interest
          expense over the life of the debenture. The debenture was converted to
          225,000 shares on maturity.

     (f)  On December 28, 2001, the Company issued a 19.98%  non-amortizing note
          payable of  $800,000  due  December  28,  2002.  The note  payable was
          retired  during the year by the  issuance of $800,000 in face value of
          13.75% mandatory convertible debentures (See c above).

     (g)  On March 31, 2002,  financing  costs of 3,000 common  shares valued at
          $150,000 were paid in connection  with this loan and were amortized to
          interest  expense  over the life of the loan.  This loan was repaid in
          2002.

     (h)  In November 2001, the Company issued a 10% interest,  amortizing  note
          payable  for  $120,000  due July 31,  2002 for  professional  services
          rendered.  The  debt  was  collateralized  by  certain  assets  of the
          Company.

     (i)  The aggregate maturities of long-term debt at December 31, 2002 are as
          follows:

            Year Ended December 31,
                2003                                          $  2,357,265
                2004                                               966,763
                2005                                             5,788,202
                                                            ----------------
                                                              $  9,112,230


                                      F-24
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(6)  Stockholders' Equity, Continued

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

     Effective  March 22,  2002,  the Company  completed a reverse  split of its
     common  stock on the basis of one share  for each  four  shares  previously
     issued.  All references in these financial  statements to share numbers and
     per share amounts give retroactive effect to the reverse stock split.

     In January  2000,  the Company  sold the  remaining  2,084 shares of common
     stock under its private  placement  agency  agreement  entered into in July
     1999 for gross proceeds of $100,000.

     In July 2000, the Company entered into a private placement Agency Agreement
     for the sale of 125,000 shares of the Company's  common stock at $56.00 per
     share.  On August 9,  2000,  the  private  placement  was  closed for gross
     proceeds of  $7,000,000.  The Company paid an agency fee of $75,000,  legal
     fees of $7,500 and a finder's fee of 37,500 of the Company's  common shares
     valued at $2,100,000 in connection with such private placement.

     On May 31, 2002,  the  authorized  capital of the Company was  increased to
     75,000,000 shares of common stock,  $0.001 par value, and 10,000,000 shares
     of preferred stock, $0.001 par value.

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

<TABLE>
                                                       December 31, 2002                  December 31, 2001
                                               ---------------------------------   ----------------------------
                                                 Number of                          Number of
                                                   Shares              Amount          Shares          Amount
                                               ------------          -----------    ------------    -----------
     <S>                                        <C>                <C>              <C>             <C>
     Deferred compensation to executives           400,807           $ 260,525               -       $       -

     Restructuring fees on long-term debt                -                   -         327,083         390,000

     Settlement of accrued liabilities                   -                   -          21,250         406,342
                                               ------------          -----------    ------------    -----------
                                                   400,807           $ 260,525         348,333      $  796,342
                                               ============          ===========    ============    ===========
</TABLE>

     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.

     During the year ended December 31, 2001,  484,296 options to acquire common
     stock were granted at an exercise price of $3.64 to $56.08 per share, which
     was equal to the market value on such date.  The options vest one year from
     the date of grant and expire  three  years  from the date of grant.  35,438
     options were canceled during 2001. At December 31, 2001 and 2000, 9,750 and
     66,563 options, respectively, were available for grant.

     During the year ended  December 31, 2000,  87,500 options to acquire common
     stock were  granted at exercise  prices  ranging  from $48.48 to $57.00 per
     share.  The options  vest one year from the date of grant and expire  three
     years from the date of grant.  In addition,  35,750  options were  canceled
     during the year.

     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.

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

     Under the terms of five year employment  agreements  commencing  January 1,
     2001,  each of three  Executive  officers  were granted  options to acquire
     130,682 shares at a price of $4.40 per share annually for the term of their
     contracts.  One  executive  terminated  his  employment in 2002 and options
     granted to him in 2001 and 2002 were cancelled. At December 31, 2002, stock
     options  representing 522,728 shares have vested and are unexercised (2001:
     392,046), all at the exercise price of $4.40 per share.


                                      F-25
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(6)  Stockholders' Equity

     Stock Compensation
     ------------------

     The following table is a summary of the Company's stock options outstanding
     as of December  31,  2002,  2001 and 2000 and the changes  during the years
     then ended.

<TABLE>
                                                      2002                        2001                       2000
                                           ---------------------------------------------------------------------------------
                                                             Average                      Average                   Average
                                                            Exercise                     Exercise                  Exercise
                                            Number            Price       Number           Price      Number         Price

     <S>                                   <C>              <C>           <C>            <C>          <C>           <C>
     Outstanding, beginning of year         607,296         $  14.52      158,438        $ 39.08      106,688       $  47.00
     Granted                                392,046         $   4.40      484,296        $  5.40       87,500       $  51.28
     Cancelled and expired                 (390,614)        $      -      (35,438)       $     -      (35,750)      $      -
                                           ---------------------------------------------------------------------------------
     Outstanding, end of year               608,728         $   7.19      607,296        $ 14.52      158,438       $  49.28
                                           ---------------------------------------------------------------------------------
     Exercisable end of year                608,728         $   7.19      275,256        $ 24.20       64,438       $  47.00
                                           =================================================================================
</TABLE>


     The  following   table  further   describes  the  Company's  stock  options
     outstanding as of December 31, 2002:

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

            56,875             1.5           $    10.00              56,875
             9,125             0.2           $    48.50               9,125
            18,750             0.5           $    53.00              18,750
             1,250             0.5           $    55.72               1,250
           522,728             3.0           $     4.40             522,728
        ------------                                            -------------
           608,728                                                  608,728
        ============                                            =============

     The Company has adopted  the  disclosure-only  provisions  of SFAS No. 123,
     "Accounting  for   Stock-Based   Compensation,"   and  applies   Accounting
     Principles Board Opinion No. 25 and related  interpretations  in accounting
     for its stock based compensation plans.


                                      F-26
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(6)  Stockholders' Equity, Continued

     Stock Compensation, Continued
     -----------------------------

     No expense was recorded under the intrinsic  value method during any of the
     reporting  periods.  If the Company had elected to  recognize  compensation
     cost for its stock  options  based on the fair value at the grant dates for
     awards under those  plans,  in  accordance  with SFAS 123, net earnings and
     earnings per share for the years ended  December  31,  2002,  2001 and 2000
     would have been as follows:


<TABLE>
                                                          2002                 2001                2000
                                                          ----                 ----                ----
<S>                                                  <C>                <C>                 <C>
       Net loss as reported                          $  (6,705,576)     $ (10,151,168)      $  (8,839,166)
       Compensation cost measured by fair
        value method                                       447,775            635,998           1,556,834
                                                     --------------     --------------      --------------
                  Pro-forma net loss                 $  (7,150,351)     $ (10,787,166)      $ (10,396,000)
                                                     ==============     ==============      ==============

       Basic and diluted loss per common share:
                  as reported                        $       (1.88)     $       (5.09)      $       (4.98)
                                                     ==============     ==============      ==============
                  pro forma                          $       (2.00)     $       (5.41)      $       (5.85)
                                                     ==============     ==============      ==============
</TABLE>

     Stock Compensation
     ------------------

     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  32%, risk free  interest  rate 6.0%,  and
     expected life of 3 years.

     The  weighted-average  fair value of options  granted  during  December 31,
     2002, 2001 and 2000 was $4.40, $5.00 and $11.36 per share, respectively.

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

     The following stock purchase warrants and conversion rights are outstanding
     at December 31, 2002:

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

    <S>                                            <C>                      <C>                    <C>
     13.0% Convertible Debenture                   February 24, 2005         $3.00                 1,666,667

     13.0% Convertible Debenture                   December 24, 2004         $3.00                    50,000

     13.75% Mandatory Convertible Debenture        March 31, 2004            $1.20                   893,044

     12.0% Convertible Debenture                   December 21, 2005         $3.00                     7,500
                                                                                                 ------------
                                                                                                   2,617,211
                                                                                                 ============
</TABLE>


                                      F-27
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(7)  Commitments and Contingencies

     Employment Agreements
     ---------------------

     The Company entered into employment  agreements with both its President and
     its Chief Financial  Officer in 2001 for a five year period ending December
     31,  2005.  Each  officer  receives an annual base  salary of  $200,000,  a
     minimum annual bonus of $100,000,  stock options to purchase 130,682 shares
     at a price of $4.40 annually,  and automobile,  business and  entertainment
     allowances of a minimum of $24,000  annually.  The agreements  also provide
     that where one executive receives benefits in excess of the base salary the
     other executive will receive payment to equalize.

     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.

     Consultants Agreements
     ----------------------

     The services of the Chief Operating Officer are retained under a consulting
     agreement entered into during 2002,  expiring June 30, 2005. The Company is
     obligated to pay $144,000 annually and issue stock options for the purchase
     of 50,000 shares.

     The Company has  retained the  services of its former  President  and Chief
     Operating  Officer  under an agreement  dated 2002 expiring no earlier than
     January 31, 2004, in consideration for annual fees of $85,200.

     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.
     Rent  expense for the years ended  December  31,  2002,  2001 and 2000 were
     $710,000, $645,000, and $515,000 respectively.

     Future   minimum   lease   payments  for  the  upcoming  five  years  under
     non-cancelable operating leases in effect December 31, 2002 are as follows:

          Year ending December 31,
              2003                                        $     736,890
              2004                                              739,042
              2005                                              689,257
              2006                                              620,184
              2007                                              516,506


                                      F-28
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(7)  Commitments and Contingencies, Continued:

     Earn out Provisions
     -------------------

     In connection  with the  acquisition  of a business in Washington  State in
     1999, the Company is required to pay additional  purchase  consideration of
     1% of  gross  revenue  and  7.5%  of net  income  related  to the  acquired
     business, annually, to December 31, 2003.

     Leneda Litigation
     -----------------

     On May 15, 2000, Leneda,  Inc. dba Neptune Society of San Diego County, San
     Bernardino County,  Riverside County, and Imperial County filed a Complaint
     for  service  mark  infringement,   breach  of  contract,  unfair  business
     practices,  and  interference  with prospective  economic  advantage in the
     United States District Court in and for the Central District of California.
     Both  Leneda  and the  Company  operate  under the  service  mark  "Neptune
     Society," and the  concurrent use of that mark was the subject of a lawsuit
     before the U.S Patent and Trademark  Office,  which  stretched from 1986 to
     1995.  The  Company  and Leneda  were  parties to that  lawsuit,  which was
     resolved  through a settlement  agreement that, in essence,  divided up the
     territories  in which  the  parties  could use the  mark.  Leneda  received
     exclusive  rights in four  southern  California  counties  and the  Company
     received  rights  for  use  in  some  limited  areas  in the  Los  Angeles,
     California  area and outside of California.  Subsequent to the  settlement,
     the Company  entered into an  arrangement  with Leneda whereby Leneda would
     perform at-need services for certain of the pre-need  contracts sold within
     Leneda's  territories  by the Company.  Leneda's  lawsuit  alleges that the
     Company  unlawfully  used  a  trademark,  "Neptune  Society",  for  certain
     services  in  a  prohibited  geographic  area  defined  by  the  settlement
     agreement.

     On  October  22,  2001,   the  Company   entered  into  a  settlement   and
     confidentiality  agreement,  effective  August  8,  2001  (the  "Settlement
     Agreement"),  by and among Leneda,  Inc., a California  corporation,  doing
     business as Neptune  Society of San Diego  County,  Neptune  Society of San
     Bernardino County,  Neptune Society of Riverside County and Neptune Society
     of  Imperial  County   ("Leneda");   the  Registrant,   Neptune  Management
     Corporation, a California corporation,  Neptune Society of Florida, Inc., a
     Florida corporation, Heritage Alternatives, Inc., a California corporation,
     Heritage  Alternative,   L.P.,  Neptune-Los  Angeles,  Ltd.,  Neptune-Santa
     Barbara, Ltd., Neptune-St. Petersburg, Ltd., Neptune-Fort Lauderdale, Ltd.,
     and Neptune-Miami,  Ltd.  (collectively,  "Neptune  Society"),  and Emanuel
     Weintraub,  individually  ("Weintraub").  The Settlement Agreement provided
     for dismissal of the lawsuit filed by Leneda (the "Leneda Litigation"). The
     "Neptune  Society"  service mark is the subject of the United States Patent
     and Trademark  Office's  Trademark  Trial and Appeals Board  Concurrent Use
     Order No. 871 and a 1995 Settlement Agreement pertaining thereto.


                                      F-29
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(7)  Commitments and Contingencies, Continued:

     Leneda Litigation, Continued
     ----------------------------

     Under the terms of the  Settlement  Agreement,  Neptune  Society and Leneda
     entered into a Service  Agreement  under which Leneda agreed to be the sole
     service  provider of  fulfillment  cremation  services for a total of 7,300
     existing pre-need contracts (the "Relevant  Contracts"),  which were either
     executed in or otherwise  indicate that the contract  holder resided within
     the counties of San Diego,  San  Bernardino,  Riverside and  Imperial,  all
     located in the State of California.  These Fulfillment services under these
     contracts will be provided by Leneda for a specified  price,  which will be
     paid from the  proceeds of the amount  trusted for the  beneficiary  of the
     Relevant  Contract with the remaining balance in the trust, if any, paid to
     the  Neptune  Society in  accordance  with the terms of the trust.  Neptune
     Society  also  granted  to  Leneda  a  security  interest  in the  Relevant
     Contracts to secure performance of Neptune Society's  obligations under the
     Services Agreement and the Settlement Agreement. Leneda and Neptune Society
     each agreed to implement appropriate  procedures to ensure that the service
     mark would be used in a manner consistent with the United States Patent and
     Trademark  Office's  Trademark Trial and Appeals Board Concurrent Use Order
     No. 871 and a 1995 Settlement Agreement.  Neptune Society's insurers agreed
     to pay Leneda $900,000 under the terms of the Settlement Agreement.

     In connection  with the  Settlement  Agreement,  Neptune  Society agreed to
     release any and all claims for indemnification  against Weintraub under the
     terms of the Share  Purchase  Agreement  dated  March 26,  1999.  Weintraub
     agreed to  subordinate  a security  interest in the  Relevant  Contracts to
     Leneda.

     Other 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)  Comparative Figures:

     Certain of the amounts for the 2001 comparative year have been reclassified
     to conform to the presentation adopted for 2002.


                                      F-30
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(9)  Income Taxes:

     Income tax expense for the years ended December 31, 2002,  2001 and 2000 is
     summarized below.

<TABLE>
                                                      2002             2001              2000
                                                      ----             ----              ----
       <S>                                      <C>               <C>              <C>
        Current expense:
          Federal                                $            -    $           -    $            -
          State                                               -                -               800
                                                 --------------    -------------    --------------

        Total current                                         -                -               800
                                                 --------------    -------------    --------------

        Deferred expense:
          Federal                                             -                -           217,629
          State                                               -                -            35,699
                                                 --------------    -------------    --------------

        Total deferred                                        -                -           253,328
                                                 --------------    -------------    --------------

        Income tax expense                       $            -    $           -    $      254,128
                                                 ==============    =============    ==============
</TABLE>

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

<TABLE>
                                                               2002             2001              2000
                                                               ----             ----              ----
         <S>                                             <C>                <C>               <C>
          Expected income tax expense
            (benefit)                                    $ (2,347,000)      $ (3,451,937)     $ (2,781,578)
          State income tax, net of federal benefit           (382,000)          (600,701)         (477,319)
          Nondeductible goodwill                                    -            832,602           592,632
          Change in valuation allowance                     2,136,000          2,780,000         2,822,093
          Other                                               593,000            440,036            98,300
                                                         -------------      -------------     -------------
                                                         $          -       $          -      $    254,128
                                                         =============      =============     =============
</TABLE>


                                      F-31
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(9)  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:

<TABLE>
                                                                     2002                   2001
                                                                     ----                   ----
         <S>                                                    <C>                    <C>
         Deferred tax assets:
           Deferred revenue                                     $  6,896,000           $  3,976,400
           Net operating loss                                      3,764,000              3,350,600
           Other                                                      64,000                 84,600
                                                                -------------          -------------
         Total gross deferred tax assets                          10,724,000              7,411,600

         Valuation allowance                                      (7,939,000)            (5,802,600)
                                                                -------------          -------------
         Net deferred tax assets                                   2,785,000              1,609,000

         Deferred tax liability -
           deferred commissions                                   (2,785,000)            (1,609,000)
                                                                -------------          -------------
         Net deferred taxes                                     $          -           $          -
                                                                =============          =============
</TABLE>

     The  Company's  deferred  tax  asset is  partially  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 $9,410,000 start to expire in the year 2019. State income tax
     loss carryforwards of approximately  $6,762,000 start to expire in the year
     2006.


                                      F-32
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(10) Selected Quarterly Financial Data (Unaudited)

     The  quarterly  results  of  operations  for  fiscal  2002 and 2001 were as
     follows:

<TABLE>
                                                                   In Thousands, Except Per Share Data
                                                                   -----------------------------------
                                                      First           Second             Third           Fourth
                                                     Quarter          Quarter           Quarter          Quarter
                                                   ----------------------------------------------------------------
     Fiscal 2002:
     <S>                                           <C>               <C>              <C>               <C>
       Net revenues                                $   2,777         $   3,115        $   2,778          $  3,112
       Gross profit                                    1,388             1,687            1,258             1,075
       Operating loss                                   (689)             (755)          (1,301)           (1,309)
       Loss before cumulative effect of
         change in accounting principle               (1,188)           (1,371)          (1,833)           (2,314)
       Net loss                                       (1,188)           (1,371)          (1,833)           (2,314)

       Basic loss per share before
         cumulative effect of change in
         accounting principle                      $   (0.54)            (0.35)           (0.45)            (0.66)
       Basic net loss per share (1)                $   (0.54)            (0.35)           (0.45)            (0.66)

     Fiscal 2001:

       Net revenues                                $   2,689         $   3,184        $   3,854          $  3,302
       Gross profit                                    1,304             1,797            2,250             1,416
       Operating loss                                 (1,172)           (1,243)            (412)           (4,809)
       Loss before cumulative effect of
       change in accounting principle                 (1,791)           (1,669)          (1,083)           (5,608)
       Net loss                                       (1,791)           (1,669)          (1,083)           (5,608)

       Basic loss per share before
         cumulative effect of change in
         accounting principle                      $   (0.92)            (0.88)           (0.52)            (2.68)
       Basic net loss per share (1)                $   (0.92)            (0.88)           (0.52)            (2.68)
</TABLE>


                                      F-33
<PAGE>

                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(11) Subsequent Events:

     New Sales Policy For Merchandise
     --------------------------------

     On January 1, 2003 the  Company  implemented  a full  merchandise  delivery
     policy under all new pre-need  contracts sold in all locations  except in 3
     states  where  merchandise   delivery  under  pre-need   contracts  is  not
     permitted.  The  effect  of this  revised  business  practice  is that  all
     merchandise  sold and  delivered  and  administrative  fees charged will be
     recognized  as revenue  at the time the  pre-need  contract  is sold in all
     locations  except in 3 states where  merchandise  delivery  under  pre-need
     contracts  is not  permitted.  For the 2002 and 2000 years,  as well as for
     most of the 2001 year,  the  Company's  merchandise  sales did not meet the
     revenue   recognition   criteria  under   generally   accepted   accounting
     principles, and accordingly merchandise sales revenue was deferred together
     with the related sales commission until the cremation service was provided.

     Revenue for pre-need cremation services  ("fulfillments")  will continue to
     be received from trusted  funds.  Trusted  funds are not  recognized in the
     Company's accounts until released to the Company on provision of services.

     Private Placement
     -----------------

     In  February,  2003 the Company  completed a private  placement  of 307,692
     units at a price of $0.65  per unit for  proceeds  of  $200,000.  Each unit
     comprises one share and a warrant for the purchase of an  additional  share
     at a price of $0.72 per share  within one year,  and $0.79 per share in the
     second year.


                                      F-34
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(12) New Accounting Pronouncements

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

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

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
     No.  4, 44 and 64,  Amendment  of FASB  Statement  No.  13,  and  Technical
     Corrections  (Issued  4/02)"  which  the  Company  does  not  believe  will
     materially affect the financial statements of the Company.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
     Associated  with  Exit or  Disposal  Activities."  SFAS  No.  146  requires
     companies to recognize costs  associated  with exit or disposal  activities
     when they are incurred  rather than at the date of a commitment  to an exit
     or disposal plan, as previously  required under Emerging  Issues Task Force
     ("EITF") Issue 94-3. A fundamental  conclusion  reached by the FASB in this
     statement is that an entity's  commitment  to a plan,  by itself,  does not
     create a present  obligation  to others  that  meets  the  definition  of a
     liability.  SFAS No. 146 also  establishes that fair value is the objective
     for initial measurement of the liability.  The provisions of this statement
     are effective  for exit or disposal  activities  that are  initiated  after
     December  31,  2002.  The Company  believes  that this SFAS will not have a
     significant  impact on the results of operations  or financial  position of
     the Company.

     In October  2002,  the FASB  issued  Statement  No. 147,  "Acquisitions  of
     Certain Financial  Institutions--an amendment of FASB Statements No. 72 and
     144 and FASB  Interpretation  No.  9. In  January  2003,  the  FASB  issued
     Interpretation No. 46, "Consolidation of Variable Interest Entities." These
     pronouncements  will not affect  the  Company  because  they are either not
     relevant  to the  business,  or the Company  will not adopt their  elective
     provisions.


                                      F-35
<PAGE>


                            THE NEPTUNE SOCIETY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



(12)  New Accounting Pronouncements, Continued:

     In December  2002,  the FASB issued  Statement  No.  148,  "Accounting  for
     Stock-Based  Compensation--Transition  and  Disclosure",  which amends FASB
     Statement No. 123,  Accounting  for  Stock-Based  Compensation,  to provide
     alternative  methods of transition for a voluntary change to the fair value
     based  method of  accounting  for  stock-based  employee  compensation.  In
     addition,  this Statement  amends the disclosure  requirements of Statement
     123 to require  prominent  disclosures in both annual and interim financial
     statements  about  the  method  of  accounting  for  stock-based   employee
     compensation  and the effect of the method  used on reported  results.  The
     transition  guidance and annual disclosure  provisions of Statement 148 are
     effective  for fiscal years ending  after  December 15, 2002,  with earlier
     application  permitted  in certain  circumstances.  The interim  disclosure
     provisions  are  effective  for  financial  reports  containing   financial
     statements  for interim  periods  beginning  after  December 15, 2002.  The
     adoption of this statement did not have a material  impact on the Company's
     financial  position or results of operations as the Company has not elected
     to change to the fair value  based  method of  accounting  for  stock-based
     employee compensation.

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

     In 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.  The consolidation  requirements of Interpretation 46 apply
     immediately to variable  interest  entities created after January 31, 2003.
     The consolidation  requirements apply to older entities in the first fiscal
     year or  interim  period  beginning  after  June 15,  2003.  Certain of the
     disclosure  requirements  apply in all  financial  statements  issued after
     January 31,  2003,  regardless  of when the  variable  interest  entity was
     established.  The Company  does not expect the  adoption to have a material
     impact to the Company's financial position or results of operations.


                                      F-36
<PAGE>


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

     As  previously  reported on Form 8-K filed on February 12, 2002, as amended
March 5, 2002,  on January 25,  2002,  KPMG LLP (the "Former  Accountant"),  was
dismissed as independent certified public accountant and independent auditor for
Neptune Society.

     The  consolidated  reports of the Former  Accountant on Neptune Society and
its subsidiaries'  financial statements for either of the past two years did not
contain any adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty,  audit scope, or accounting  principles  except that
the Former  Accountant's  report on the  December 31, 2000  financial  statement
contained  a  separate  paragraph  stating  that:  "The  accompanying  financial
statements have been prepared assuming that the Company will continue as a going
concern.  As discussed in Note 1 to the  financial  statements,  the Company had
suffered  recurring  losses  from  operations  and  has  a net  working  capital
deficiency  that  raises  substantial  doubt  about its ability to continue as a
going concern.  Management's plans in regard to these matters are also described
in Note 1. The financial  statements do not include any  adjustments  that might
result from the outcome of this uncertainty."

     In a letter dated December 18, 2001, the Former Accountant informed Neptune
Society that they noted certain matters  involving  Neptune  Society's  internal
controls and its  operations  that they  considered to be reportable  conditions
under  standards  established  by the American  Institute  of  Certified  Public
Accountants ("AICPA"). The reportable conditions are related to:

     (a) the design and  operation  of  internal  controls  over the systems and
processes for recording deferred revenue and related deferred costs; and

     (b)  information   technology  to  track,  account,  and  monitor  accounts
receivable  detail by customer for pre-need,  at-need,  and travel  receivables,
which the Former Accountant advised Neptune Society that if not addressed in the
near term, will likely become a material weakness to Neptune Society.

     Management has discussed the above matters with Neptune  Society's board of
directors  and Neptune  Society has  authorized  the Former  Accountant to fully
respond to the inquiries of Stonefield Josephson, Inc., regarding these matters.
Neither  Neptune  Society's Board of Directors nor any committee of the Board of
Directors has discussed the subject matter of the reportable conditions with the
Former Accountant.  However, the letter containing the reportable conditions was
addressed  to the Board of  Directors.  These  conditions  did not result in any
disagreement  or difference in opinion  between  Neptune  Society and the Former
Accountant.

     During  Neptune  Society's two most recent fiscal years and the  subsequent
interim period through January 25, 2002,  there were no  disagreements  with the
Former Accountant on any matter of accounting principles or practices, financial
statement disclosure,  or auditing scope or procedure,  which disagreements,  if
not resolved to the  satisfaction of the Former  Accountant would have caused it
to make reference to the subject matter of the  disagreement  in connection with
its report.

     On January 25, 2002 Neptune Society engaged Stonefield Josephson,  Inc., as
its  independent  auditor  and  independent  certified  public  accountant.  The
decision  to  change  accountants  from  the  Former  Accountant  to  Stonefield
Josephson,  Inc.,  was  approved  by the  board  of  directors.  During  Neptune
Society's two most recent fiscal years, and any subsequent  interim period prior
to engaging  Stonefield  Josephson,  Inc.,  Neptune  Society  has not  consulted
Stonefield  Josephson,  Inc.,  regarding:  (i)  either  (a) the  application  of
accounting principles to a specified transaction,  either completed or proposed;
or (b) the type of audit  opinion  that might be rendered  on Neptune  Society's
financial  statements,  and  neither a written  report was  provided  to Neptune
Society or oral advice was provided that Stonefield  Josephson,  Inc., concluded
was an important factor  considered by Neptune Society in reaching a decision as
to the accounting,  auditing,  or financial  reporting issue; or (ii) any matter
that was either the


                                       29
<PAGE>


subject of a disagreement (as defined in paragraph 304(a) (1) (iv) of Regulation
S-K)  or a  reportable  event  (as  described  in  paragraph  304  (a)(1)(v)  of
Regulation S-K).

     Neptune  Society filed a current report on Form 8-K, as amended on March 5,
2002, in  substantially  the form as this set forth in this Item 9, provided the
Former  Accountant  with a copy of the  disclosure and requested in writing that
the Former  Accountant  furnish it with a letter addressed to the Securities and
Exchange Commission stating whether it agrees with the foregoing statements made
by  Neptune  Society.  A copy of the  letter  of the  Former  Accountant  to the
Securities and Exchange Commission,  dated February 1, 2002 was filed as Exhibit
16.1 to the Form 8-K.

ITEM 10.  DIRECTORS  AND  EXECUTIVE  OFFICERS OF THE  REGISTRANT;  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, 2002.

<TABLE>
-------------------------------------------------------------------------------------------------------------------
|                              |                                               | Director/            |    Age     |
|Name                          | Position                                      | Officer Since        |            |
|------------------------------|-----------------------------------------------|----------------------|------------|
 <S>                             <C>                                             <C>                        <C>
|Marco P. Markin               | CEO and Director of each of Neptune Society,  | June 1999            |     38     |
|                              | Neptune of America, (since October), Neptune  |                      |            |
|                              | Management (since June 1999) President of     |                      |            |
|                              | Heritage Alternatives, Inc. (since October    |                      |            |
|                              | 2002)                                         |                      |            |
|------------------------------|-----------------------------------------------|----------------------|------------|
|Douglas J. Irving             | COO of each of Neptune Society, Neptune of    | May 2002             |     52     |
|                              | America and Neptune Management                |                      |            |
|------------------------------|-----------------------------------------------|----------------------|------------|
|Rodney M. Bagley (1)          | Chief Financial Officer, Treasurer,           | November 2000        |     42     |
|                              | Secretary and Director of each of Neptune     |                      |            |
|                              | Society, Neptune of America, Neptune          |                      |            |
|                              | Management and Heritage Alternatives          |                      |            |
|------------------------------|-----------------------------------------------|----------------------|------------|
|Matthew J. Hoogendoorn        | Senior Vice President - Finance of Neptune    | February 2003        |     50     |
|                              | Society, Inc.                                 |                      |            |
|                              |                                               |                      |            |
|                              | Acting Chief Financial Officer                |                      |            |
|------------------------------|-----------------------------------------------|----------------------|------------|
|Gary I. Harris                | National Sales Manager                        |                      |     62     |
|------------------------------|-----------------------------------------------|----------------------|------------|
|David Schroeder (2)           | Consultant, Senior Vice President of          | November 2000        |     55     |
|                              | Operations and Development                    |                      |            |
|------------------------------|-----------------------------------------------|----------------------|------------|
|Barry Maynes                  | Chief Information Officer                     | March 2003           |     49     |
|------------------------------|-----------------------------------------------|----------------------|------------|
|Bryan G. Symington Smith      | Director of Neptune Society                   | March, 2002          |     61     |
|                              |                                               |                      |            |
|------------------------------|-----------------------------------------------|----------------------|------------|
|Anthony George                | Director of Neptune Society                   | March, 2002          |     38     |
-------------------------------------------------------------------------------------------------------------------
</TABLE>

     (1)  Mr.  Bagley was on medical  leave from November 2002 to March 2003. On
          February 1, 2003, we appointed Matthew  Hoogendoorn as our Senior Vice
          President of Finance to handle Mr.  Bagley's  responsibilities  as our
          principal financial officer during his absence. Mr. Bagley resigned as
          a director and our Chief Financial Officer in April 2003.

     (2)  Mr.  Schroeder  served  as  the  President,  Chief  Operating  Officer
          Secretary and Director of each of Neptune Society,  Neptune of America
          and Neptune  Management and President of Heritage  Alternatives  until
          October 1, 2002.

     Marco P.  Markin - Mr.  Markin  joined  Neptune  Society  full  time as our
Chairman  of the Board and Chief  Executive  Officer  in  September  1999.  From
November 1994 to September 1999, Mr. Markin was the Executive


                                       30
<PAGE>


Vice President of TPP Management Inc., a private  investment  company,  having a
diverse portfolio  consisting of  residential/commercial  real estate,  merchant
banking, and securities.  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.

     Douglas  J.  Irving - Mr.  Irving  joined  Neptune  as its Chief  Operating
Officer in May 2002. Prior to joining Neptune, Mr. Irving had his own management
consulting business.  From 1997-1998,  he served as Vice President of Operations
for Service Corporation International, and from 1988-1996 Mr. Irving had several
positions including Operations  Controller for The Loewen Group, Inc. Mr. Irving
is also a Licensed  Funeral  Director,  holds a Bachelor of Commerce Degree from
the University of British Columbia and is a Professional Accountant.

     Rodney M.  Bagley - Mr.  Bagley has  served as  Director,  Chief  Financial
Officer and Treasurer of Neptune Society, Neptune of America, Neptune Management
and Heritage  Alternatives  since  November  2000.  Prior to his  appointment at
Neptune  Society,  Mr.  Bagley  served  as Chief  Financial  Officer  of  Avalon
Pictures, Inc., a subsidiary of Black Entertainment Television from 1993 to 1998
and was President of RMB Consulting  from 1999 to September 2000. He also served
as Assistant  General  Manager and Controller of District  Cablevision,  L.P., a
subsidiary of  Telecommunication,  Inc. from 1988 to 1992. Mr. Bagley  graduated
from the  University  of Maryland at College Park with a B.S. in  Accounting  in
1986. Mr. Bagley resigned as a director and our Chief Financial Officer in April
2003.

     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.

     David L. Schroeder - Mr.  Schroeder  served as Chief  Operating  Officer of
Neptune  Society  from June 2000 to May 2002,  as a Director  and  Secretary  of
Neptune  Society from November 2000 to September  2002,  and as President of all
Neptune companies from January 2001 to September 2002. On October 1, 2002, David
Schroeder resigned as a director of The Neptune Society, Inc. and on October 21,
2002,  Mr.  Schroeder  resigned as  president of The Neptune  Society,  Inc. and
entered  into a  consulting  agreement  to provide  services  as our Senior Vice
President of Operations  and  Development.  Prior to his work with Neptune,  Mr.
Schroeder  worked  as the CEO of  Community  Memorial  Centers,  LLC,  an Oregon
cremation  services  company  from May 1998 to July  2000.  He has served on the
board of directors  for The Loewen Group,  Inc.,  from August 15, 1990 to May 1,
1993,  he was  president  of  Universal  Memorial  Centers  from  1984 to  1993,
president and COO of Skyline Memorial  Gardens & Crematory,  and he worked for 7
years as a licensed funeral  director and embalmer.  Mr. Schroeder has served on
the board and as an officer of the Oregon State  Funeral  Directors  Association
and as Chairman of the Oregon State Mortuary-Cemetery Licensing Board.

     Bryan G. Symington Smith - Mr. Smith is currently serving as a Director for
Neptune.  He started  his career in 1967 with  Nesbitt  Thomson,  served as Vice
President and Director of Draper Dobie Limited from  1973-1977,  as Senior VP of
Gardiner Watson Limited from 1977-1987.  In 1990 Mr. Smith  co-founded  Burgundy
Asset Management. Although Mr. Smith retired in 1998, he is currently serving as
a director of several companies and non-profit organizations.

     Anthony George - Mr. George is currently serving as a Director for Neptune.
Since 2000 he has been a Head Trader at Yorkton Capital in Ontario  Canada,  and
is currently awaiting his approval to become a Senior VP with Yorkton. From 1986
- 2000 Mr.  George was a Trader with  Midland/Merrill  Lynch in Canada,  and was
also nominated as the Vice President.

     Subsequent to December 31, 2002, the following officers were appointed:

     Barry Maynes - Mr. Maynes was appointed as Chief Information  Officer (CIO)
of Neptune on March 1, 2003.  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


                                       31
<PAGE>


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.

     Matthew  Hoogendoorn  -  Mr.  Hoogendoorn  was  appointed  as  Senior  Vice
President  of Finance  on  February  1, 2003.  Mr.  Hoogendoorn  is a  Chartered
Accountant  in Canada and a Certified  Public  Accountant  in the United  States
(Illinois).  He has operated his own Chartered  Accountancy practice continually
from 1980  through the  present.  Mr.  Hoogendoorn  graduated  from Simon Fraser
University in Burnaby, BC in 1976.

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

Board Committees
----------------

     Our board of directors has established the following committees:

     Audit  Committee.  The  Company is in the process of  appointing  the Audit
Committee.  The Audit  Committee will be responsible for reviewing our financial
reporting procedures and internal controls,  the scope of annual and any special
audit examinations carried out by our auditors, the performance of our auditors,
systems  and  controls   established   to  comply  with   financial   regulatory
requirements  and our annual financial  statements  before they are reviewed and
approved by the Board.  Such reviews will be carried out with the  assistance of
our auditors and our senior financial management.

     Compensation  Committee.  The  Compensation  Committee  consists  of  three
members:  Marco Markin  (director),  Bryan G.  Symington  Smith  (director)  and
Kathryn Witter. The Compensation  Committee is responsible for the establishment
and  revision  of our  compensation  policy,  the  review  of  the  compensation
(including stock options) of our senior management and its subsidiaries,  and to
make  recommendations  to the Board for  adjustments to such  compensation.  The
Committee is also  responsible for the  administration  of our stock option plan
and its benefit plans.

     Our compensation  committee  submits  compensation  recommendations  to our
board of  directors  for its  approval.  Compensation  for our  chief  executive
officer was determined  considering  his efforts in assisting in the development
of our business strategy,  the salaries of executives in similar positions,  the
development  of  business,  and our general  financial  condition.  Our Board of
Directors  believes that the use of direct stock awards is at times  appropriate
for  employees,  and in the future  intends to use direct stock awards to reward
outstanding service or to attract and retain individuals with exceptional talent
and  credentials.  The use of stock  options  and other  awards is  intended  to
strengthen  the  alignment  of  interests  of  executive  officers and other key
employees with those of our stockholders.

     Board and Committee Meetings

     During 2002, the Board of Directors met 2 times  including  participants by
telephone, and approved actions by written consent 11 times.

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

     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,  except that Douglas J.
Irving,  Bryan G. Symington  Smith,  Anthony George and Matthew Markin failed to
file their initial reports on Form 3.


                                       32
<PAGE>


ITEM 11. 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 other most highly  compensated
executive officers (the "named executives  officers") for the fiscal years ended
December  31,  2000,  2001 and 2002.  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              |         |              |
|         Name &          |  Year | Salary  |  Bonus |      Other    |    Deferred    |   Securities   |  LTIP   |      All     |
|       Principal         |       |         |        |     Annual    |  Compensation  |   Underlying   | Payouts |     Other    |
|        Position         |       |         |        |  Compensation |                | Options/SAR's  |         | Compensation |
|                         |       |   ($)   |   ($)  |       ($)     |       ($)      |      (#)       |         |      ($)     |
|-------------------------|-------|---------|--------|---------------|----------------|----------------|---------|--------------|
<S>                           <C>   <C>                    <C>             <C>              <C>
|Marco Markin (1)         |   2002| 174,616 |        |     105,750   |     125,384    |     130,682    |         |              |
|President, CEO and       |       |         |        |               |                |                |         |              |
|Director of Neptune      |   2001| 145,233 |        |      98,287   |     154,767    |     130,682    |         |              |
|Society                  |       |         |        |               |                |                |         |              |
|                         |   2000| 120,000 |        |      83,000   |                |      28,750    |         |              |
|                         |       |         |        |               |                |                |         |              |
|-------------------------|-------|---------|--------|---------------|----------------|----------------|---------|--------------|
|David Schroeder (2)      |   2002| 128,738 |        |               |                |                |         |              |
|Consultant, Senior Vice  |       |         |        |               |                |                |         |              |
|President of Operations  |   2001| 134,616 |        |      21,355   |     138,263    |     149,432    |         |              |
|and Development          |       |         |        |               |                |                |         |              |
|                         |   2000| 120,000 |        |               |                |      18,750    |         |              |
|                         |       |         |        |               |                |                |         |              |
|-------------------------|-------|---------|--------|---------------|----------------|----------------|---------|--------------|
|Gary Harris (3)          |   2002|  75,000 |        |     140,769   |      15,000    |      11,250    |         |              |
|National Sales Manager   |       |         |        |               |                |                |         |              |
|Neptune Management       |   2001|  75,000 |        |     134,619   |                |       7,500    |         |              |
|                         |       |         |        |               |                |                |         |              |
|                         |   2000|  75,000 |        |      78,000   |                |       3,125    |         |              |
|                         |       |         |        |               |                |                |         |              |
|-------------------------|-------|---------|--------|---------------|----------------|----------------|---------|--------------|
|Rodney Bagley (4)        |   2002| 175,270 |        |      24,000         124,730    |     130,682    |         |              |
|Chief Financial Officer, |       |         |        |               |                |                |         |              |
|Secretary and Director   |   2001| 161,737 |        |      23,355   |     138,263    |     149,432    |         |              |
|of Neptune Society       |       |         |        |               |                |                |         |              |
|                         |   2000|  51,000 |        |               |                |      18,750    |         |              |
|                         |       |         |        |               |                |                |         |              |
|-------------------------|-------|---------|--------|---------------|----------------|----------------|---------|--------------|
|Douglas J. Irving        |   2002|  74,160 |        |               |      26,125    |                |         |              |
|Chief Operating Officer  |       |         |        |               |                |                |         |              |
|of Neptune Society       |       |         |        |               |                |                |         |              |
================================================================================================================================
</TABLE>

     (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


                                       33
<PAGE>


          payments on Mr.  Markin's home and for personal use of an  automobile.
          (See "Employment Arrangements," section).

     (2)  Mr.  Schroeder has served as our Chief Operating  Officer from June 1,
          2000 to  October  2002.  In 2002,  we paid  Mr.  Schroeder  for  lease
          payments for personal use of an automobile. Effective October 2002, he
          entered into a Consulting  Agreement to provide services as our Senior
          Vice  President  of  Operations  and  Development.   (See  "Employment
          Arrangements").

     (3)  Messrs.  Markin,  Harris and Irving have  agreed to accept  payment of
          this deferred compensation in stock.

     (4)  Mr. Bagley was appointed Chief Financial Officer of Neptune Society in
          November  2000.  Mr.  Bagley  resigned  as a  director  and our  Chief
          Financial Officer in 2003.

     (5)  The services of Mr. Irving are provided through DSI Holdings Ltd., his
          private company.

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

The following table sets forth information  regarding stock option grants to our
officers and directors as of December 31, 2002:

<TABLE>
                                                                                                Potential Realized
                                                                                                 Value at Assumed
                                                                                              Annual Rates of Stock
                                                                                                Price Appreciation
Individual Grants                                                                                for Option Term
----------------------------------------------------------------------------------------------------------------------
            (a)                    (b)            (c)           (d)              (e)              (f)         (g)
                                Number of     % of Total
                                Securities      Options     Exercise or
                                Underlying    Granted (1)   Base Price
                                 Options                     ($/Sh)(2)     Expiration Date
            Name               Granted (#)                                                        5%($)       10%($)
----------------------------------------------------------------------------------------------------------------------
<S>                              <C>              <C>         <C>           <C>                  <C>         <C>
Marco Markin                     130,682          50%         $4.40         Dec. 31, 2005        $195,555    $351,043
Rodney Bagley(3)                 130,682          50%         $4.40         Dec. 31, 2005        $195,555    $351,043
</TABLE>

     (1)  Based on options  exercisable  to acquire a total  shares to executive
          officers,  directors and employees  during the year ended December 31,
          2002.

     (2)  Under the  terms of  Employment  Agreements  with Mr.  Markin  and Mr.
          Bagley,  we granted to each officer  options to acquire 130,682 shares
          at a price of $4.40 per share expiring December 31, 2005.

     (3)  Mr. Bagley resigned as a director and our Chief  Financial  Officer in
          April 2003.

The potential  realizable  value 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.


                                       34
<PAGE>


     Subsequent  to December 31,  2002,  we granted  options to named  executive
officers  under  the  terms  of their  employment  agreements.  See  "Employment
Agreements Subsequent to December 31, 2002," below.


                                       35
<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 end December 31, 2002 and  option/SAR  values  related to
options/SARS outstanding as of December 31, 2002.

<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
|                            |                   |                  |  Unexercised Options    |                                |
|                            |                   |                  |     At FY-End (#)       |  Value of Unexercised in the   |
|                            |     Securities    |     Aggregate    |      Exercisable/       |    Money-Options at FY-End     |
|                            |     Acquired on   |  Value Realized  |     Unexercisable       |       ($) Exercisable/         |
|              Name          |     Exercise (#)  |        ($)       |                         |       Unexercisable (1)        |
|============================|===================|==================|=========================|================================|
<S>                                 <C>              <C>                <C>                     <C>
|Marco Markin                |      Nil          |   Nil            |   290,114 (exercisable) | $ nil (exercisable)            |
|CEO and                     |                   |                  |   nil (unexercisable)   | $ nil (unexercisable)          |
|Director of Neptune         |                   |                  |                         |                                |
|Society                     |                   |                  |                         |                                |
|----------------------------|-------------------|------------------|-------------------------|--------------------------------|
|David Schroeder             |      Nil          |   Nil            |   nil (exercisable)     | $ nil(exercisable)             |
|Consultant, Senior Vice     |                   |                  |   nil (unexercisable)   | $ nil (unexercisable)          |
|President of Operations     |                   |                  |                         |                                |
|and Development             |                   |                  |                         |                                |
|----------------------------|-------------------|------------------|-------------------------|--------------------------------|
|Gary Harris                 |      Nil          |   Nil            |   11,250 (exercisable)  | $ nil (exercisable)            |
|National Sales Manager      |                   |                  |   nil (unexercisable)   | $ nil (unexercisable)          |
|Neptune Management          |                   |                  |                         |                                |
|----------------------------|-------------------|------------------|-------------------------|--------------------------------|
|Rodney Bagley (1)           |      Nil          |   Nil            |   298,864 (exercisable) | $ nil (exercisable)            |
|Chief Financial Officer,    |                   |                  |   nil (unexercisable)   | $ nil (unexercisable)          |
|Secretary and Director      |                   |                  |                         |                                |
|of Neptune Society          |                   |                  |                         |                                |
|----------------------------|-------------------|------------------|-------------------------|--------------------------------|
|Douglas J. Irving (2)       |      Nil          |   Nil            |   nil (exercisable)     | $ nil (exercisable)            |
|Chief Operating Officer     |                   |                  |   nil (unexercisable)   | $ nil (unexercisable)          |
|of Neptune Society          |                   |                  |                         |                                |
|----------------------------|-------------------|------------------|-------------------------|--------------------------------|
===============================================================================================================================
</TABLE>

     (1)  Mr. Bagley resigned as a director and our Chief  Financial  Officer in
          April 2003.

     (2)  Under an employment  agreement  dated July 1, 2002, we agreed to grant
          Mr. Irving  options  exercisable  to purchase  50,000 shares of common
          stock. No options were granted under the agreement,  and the agreement
          was superceded by an employment agreement dated March 1, 2003.

Long Term Incentive Plans

     No long-term incentive awards have been made by the Company 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,  2002,  except for our  independent
directors:  Mr. Smith who received  30,000 shares for Directors fees in 2002 and
Mr. George who received 10,000 shares for Directors fees in 2002.

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

     We have the  following  employment  and  consulting  arrangements  with our
executive officers:

     Executive Employment Agreements

     On  June  6,  2001,  the  Company   entered  into   employment   agreements
("Agreement(s)")  with Mr.  Marco  Markin,  the  Chairman of the Board and Chief
Executive Officer, Mr. Rodney M. Bagley,  Executive Vice  President-Finance  and
Chief  Financial  Officer,  and Mr. David  Schroeder,  Chief  Operating  Officer
(collectively  "Officers").  The  Agreements  are  substantially  the same.  The
Agreements provide for each respective  Officer's employment at their respective
position or higher.  The Agreements  provide for employment through December 31,
2005.


                                       36
<PAGE>


     Under the terms of the  Agreements,  each  respective  Officer  receives an
annual base salary of $200,000  ($30,000  deferred  subject to the  Compensation
Committee), 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.

     During the employment  period,  the Officers receive  employee  benefits no
less favorable than those provided to our other senior managers.  The Agreements
provide that if any 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

They will also receive  continued  benefits for the longer of three years or the
remainder of the employment  period.  If any Officers'  employment is terminated
due to disability,  or in the event of death,  the Officer(s) 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 any Officers' 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. The Company agreed to issue each of the Officers a signing bonus of
up to 17,000  options to  purchase  shares of the  Company's  common  stock at a
discount.

     Under the  Agreement,  the  respective  Officer can not compete with us, or
solicit our employees,  during his employment  term. In addition,  if an Officer
terminates  employment  without good reason during the  employment  period or is
terminated by us for cause, the  non-competition and  non-solicitation  continue
for one year after the termination of employment.

     On October 1, 2002 the Company and Mr.  Schroeder  agreed to terminate  the
Employment  Agreement and the services of Mr.  Schroeder  were retained  under a
Consultant Agreement as described under "Consulting Agreements" below.

     On April 18, 2003, we entered into a separation  agreement with Mr. Bagley,
under which his employment  agreement was canceled.  Mr. Bagley  resigned as our
Chief Financial Officer and as a director. We agreed to pay Mr. Bagley severance
pay in the amount of $600,000, payable in equal monthly installments over a five
year period  beginning  on April 18,  2003.  We also agreed to pay Mr.  Bagley a
final  conditional  payment  of  $100,000  if we have net free  cash of at least
$1,000,000  after all of our normal  operating  expenses for the final year.  We
agreed to pay Mr. Bagley for certain  insurance  costs until Mr. Bagley  becomes
covered under another  health  insurance  program or our  obligations  under the
separation agreement are satisfied.  The separation agreement contains provision
for the acceleration of payments in the event of certain specified events,  such
as a change of  control,  sale of  substantially  all of our  assets,  sale of a
location,  or payment of dividends to  stockholders.  We will make provision for
this  settlement  by a charge to  operations  of $195,000 in the fiscal  quarter
ended  March 31,  2003.  The  balance  of the  settlement,  being  approximately
$405,000,  will be  allocated  to payment of  deferred  remuneration  previously
recorded for the 2001 and 2002 years.

     In  February,  2003,  our board of  directors  approved  amendments  to Mr.
Markin's  Agreement that extended his employment  through  December 31, 2007. In
addition,  the board of directors  approved a deferred  compensation  plan under
which Mr.  Markin could elect to convert  deferred  compensation  into shares of
common stock at a price equal to fair market value less 10%.

     On July 1, 2002, we entered into an agreement for Doug Irving to act as our
Chief Operating  Officer.  Mr. Irving's annual base compensation is $144,000 per
annum,  and a bonus of no less  than 25% of base  compensation  upon  successful
performance  as  defined  by us. We are  obligated  to grant  stock  options  to
purchase  50,000  shares of our  common  share at $2.00 per  share.  Such  stock
options shall vest June 30, 2003. The term of the agreement  extends to June 30,
2005,  unless terminated prior to that date. We may terminate the agreement upon
written notice


                                       37
<PAGE>


and payment of any and all balances  due. Mr. Irving may terminate the agreement
upon four weeks written  notice.  This  Agreement was superceded by an agreement
dated March 1, 2003.  See  "Employment  Agreements  Subsequent  to December  31,
2002."

     Consulting Agreements

     By an Agreement  dated October 1, 2002,  David  Schroeder,  the Company and
Western  Management  Services,  LLC entered into a Consultant  Agreement for the
services of Mr.  Schroeder  for the period  from  October 1, 2002 to November 1,
2004.  Mr.  Schroeder  is  retained to assist the  Company  with the  continuing
development of suitable operating, administrative, industry compliance reporting
systems and new market research. Consulting fees of $7,100 per month are payable
under the Agreement.  Mr. Schroeder and the Company also agreed to terminate the
June 6,  2001  Employment  Agreement,  and the  Company  was  released  from all
obligations to pay previously  deferred  compensation.  Stock options previously
granted under the terms of the Employment Agreement were cancelled.

     Employment and Consulting Agreements Subsequent to December 31, 2002

     Subsequent to December 31, 2002,  we entered into the following  employment
and consulting agreements with executive officers:

     On March 1, 2003,  we entered into an agreement  with Doug Irving to act as
our Chief Operating  Officer.  Mr. Irving's annual base compensation is $146,000
per annum, subject to annual adjustment, and an annual bonus of no less than 25%
of base  compensation,  payable  in cash  or  shares  of our  common  stock,  as
determined  by the board of  directors.  Mr.  Irving will have a car and expense
allowance and standard employee benefits.  We also agreed to issue 30,000 shares
of our  common  share as a  signing  bonus and to grant Mr.  Irving  options  to
acquire 50,000 shares of common stock at $0.70 per share, subject to adjustment,
vesting March 1, 2004. Mr. Irving 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
or shares of our common stock, as determined by the board of directors. 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  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. Irving may have under the agreement.  Mr. Irving may terminate
the agreement  upon four weeks written  notice.  This  agreement  supercedes the
employment agreement dated July 1, 2002.

     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. Mr. Maynes will have a car and expense allowance
and standard employee  benefits.  We agreed to issue 15,000 shares of our common
share 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,  subject  to certain
performance  criteria.  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 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.

     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 share 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,  upon  satisfaction of certain
performance  criteria,  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  under August 31,  2003,  at which time the deferred  salary
shall be paid in cash or shares of our common stock,  as determined by the board
of  directors.  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 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


                                       38
<PAGE>


claims Mr.  Harris may have under the  agreement.  Mr.  Harris may terminate the
agreement upon four weeks written notice.

     On March 1, 2003, we entered into an agreement  with Matthew  Markin to act
as our Vice President of Operations  and Real Estate.  Mr. Markin is the brother
of  Marco  Markin,  our  Chief  Executive  Officer.  Mr.  Markin's  annual  base
compensation is $116,000 per annum for the first twelve months,  $124,000 during
the second year and $132,000  during the third year.  Mr. Markin will have a car
and expense allowance and standard employee benefits.  We agreed to issue 20,000
shares of our common share 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 March 1, 2004. Mr. Markin will be
entitled to a yearly bonus of no less than 25% of his annual salary,  payable in
cash or shares of our common stock, as determined by the board of directors. Mr.
Markin  agreed to defer $2,666 per month of his salary until August 31, 2003, at
which  time the  deferred  salary  shall be paid 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 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.
Markin may have under the agreement. Mr. Markin may terminate the agreement upon
four weeks written notice.

     On February1,  2003, we entered into an agreement with Matthew  Hoogendoorn
to act as our Senior Vice President of Finance.  Mr.  Hoogendoorn's  annual base
compensation is $146,000 per annum. Mr.  Hoogendoorn will have a car and expense
allowance and standard  employee  benefits.  We agreed to issue 30,000 shares of
our common share as a signing  bonus.  We also agreed to grant options under our
stock option plan to purchase  50,000 shares of common stock at $0.70 per share,
subject to  adjustment,  vesting on February 1, 2004.  Mr.  Hoogendoorn  will be
entitled to a yearly bonus of no less than 25% 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 January 31, 2006,  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 months
salary in full  satisfaction  of all claims Mr.  Hoogendoorn  may have under the
agreement.  Mr.  Hoogendoorn may terminate the agreement upon four weeks written
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, 2002.

Additional  Information  with Respect to Compensation  Committee  Interlocks and
Insider Participation in Compensation Decisions

     The  Compensation   Committee  consists  of  three  members:  Marco  Markin
(director),  Bryan  G.  Symington  Smith  (director)  and  Kathryn  Witter.  The
Compensation  Committee is responsible for the establishment and revision of our
compensation policy, the review of the compensation (including stock options) of
our senior management and its subsidiaries,  and to make  recommendations to the
Board for adjustments to such  compensation.  The Committee is also  responsible
for the administration of our stock option plan and its benefit plans.

     Except as otherwise  disclosed under Item 14, below, none of the members of
our Compensation  Committee had any relationship requiring disclosure under Item
404 of Regulation S-K.

     Board Compensation Committee Report on Executive Compensation

     The primary objectives of the Company's executive  compensation program are
to enable the Company to attract,  motivate and retain  outstanding  individuals
and to align their success with that of the Company's  shareholders  through the
achievement of strategic corporate objectives and creation of shareholder value.
The level of  compensation  paid to an individual  is based on the  individual's
overall  experience,  responsibility  and performance.  The Company's  executive
compensation  program consists of a base salary,  performance  bonuses and stock
options.  The Company  furnishes  other  benefits to certain of its officers and
other employees.

     The  Compensation   Committee  determined  the  compensation  paid  to  its
executive officers based on several factors,  including the compensation paid to
executive  officers of  similarly  situated  companies,  our revenue  growth and
expansion  growth over the past  twelve  months,  our  financial  position,  our
success  raising  financing to meet our capital  obligations  and our  financial
performance. The Compensation Committee determined the compensation paid


                                       39
<PAGE>


to Marco Markin, our Chief Executive Officer.  Mr. Markin did not participate in
the determination of his compensation.

Incentive Stock Option Plans

     On October 8, 1999, shareholders of Neptune Society approved the 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 the 2002 Stock
Plan of The Neptune  Society (the "2002  Plan").  The 2002 Plan provides for the
grant of incentive and non-qualified options to purchase up to 750,000 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 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.  The 2002 Plan was
ratified by our Board of Directors 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: (i) 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 (ii) the expiration of ninety (90) days from the date
of an employee  epitome'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.

Performance Graph

Set forth below is a graph comparing the cumulative total return to stockholders
on the  Company's  common stock with the  cumulative  total return of the Nasdaq
Composite Index for the period beginning on March 31, 2000 (the date the Company
began to be actively traded on the Pink Sheets), and the years ended on December
31, 2000, 2001 and 2002.

<TABLE>
                                                          [Performance Graph]

                                      March 31,        December 31,        December 31,        December 31,
                                        2000               2000                2001                2002

<S>                                      <C>              <C>                  <C>                 <C>
The Neptune Society, Inc.                $100             $84.11               $1.60               $0.35
Nasdaq Composite Index                   $100             $87.24              $76.01              $58.67
</TABLE>

The total return on the common stock and the Nasdaq  Composite Index assumes the
value of the  investment was $100 on March 31, 2000, and that all dividends were
reinvested,  although  dividends have not been declared on the Company's  common
stock. Return information is historical and not necessarily indicative of future
performance.


                                       40
<PAGE>


ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

     We are not, to the best of our knowledge,  directly or indirectly  owned or
controlled by another corporation or foreign government.

     The following table sets forth the ownership interest, direct and indirect,
of our directors,  named executive  officers and beneficial owners of 5% of more
of our common stock as of March 31, 2003:

<TABLE>
----------------------------------------------------------------------------------------------------------------------
|                               |                                       | Number of            |                      |
|                               |                                       | Common               |                      |
|Name of Shareholder            | Address                               | Shares Owned         | Percent of Class (1) |
|---------------------------------------------------------------------------------------------------------------------|
|5% or greater shareholders                                                                                           |
|---------------------------------------------------------------------------------------------------------------------|
<S>                               <C>                                       <C>                      <C>
|CapEx, L.P.                    | 518 17th Street, Suite 1700           |   1,238,910(2)       |     21.62%(2)        |
|                               | Denver, CO 80202                      |                      |                      |
|-------------------------------|---------------------------------------|----------------------|----------------------|
|D.H. Blair Investment Banking  | 44 Wall Street, 2nd Floor             |     858,690(3)       |     15.99%(3)        |
|Corp.                          | New York, NY 10005                    |                      |                      |
|-------------------------------|---------------------------------------|----------------------|----------------------|
|Greenleaf Investors I, L.L.C.  | c/o The Apogee Companies              |     311,448(4)       |      6.69%(4)        |
|                               | 4444 Lakeside Drive, Suite 340,       |                      |                      |
|                               | Burbank, California 91505             |                      |                      |
|-------------------------------|---------------------------------------|----------------------|----------------------|
|The Apogee Companies, Inc.     | c/o The Apogee Companies              |     485,750(4)       |     10.34%(4)        |
|                               | 4444  Lakeside   Drive,   Suite  340, |                      |                      |
|                               | Burbank, California 91505             |                      |                      |
|-------------------------------|---------------------------------------|----------------------|----------------------|
|CCD Consulting Commerce        | Glockengasse 4, Postfach 1220         |   1,091,203(5)       |     19.90%(5)        |
|Distribution AG                | CH-4001 Basel, Switzerland            |                      |                      |
|-------------------------------|---------------------------------------|----------------------|----------------------|
|                               |                                       |                      |                      |
|-------------------------------|---------------------------------------|----------------------|----------------------|
|                               |                                       |                      |                      |
|---------------------------------------------------------------------------------------------------------------------|
|Directors and Named Executive Officers                                                                               |
|---------------------------------------------------------------------------------------------------------------------|
|Marco P. Markin                | 4312 Woodman Avenue, 3rd Floor        |   1,337,040(6)       |     23.36%(6)        |
|                               | Sherman Oaks, CA 91423                |                      |                      |
|-------------------------------|---------------------------------------|----------------------|----------------------|
|Douglas J. Irving              | 4312 Woodman Avenue, 3rd Floor        |     120,305(7)       |      2.52%(7)        |
|                               | Sherman Oaks, CA 91423                |                      |                      |
|-------------------------------|---------------------------------------|----------------------|----------------------|
|Rodney M. Bagley               | 4312 Woodman Avenue, 3rd Floor        |     298,864(8)       |      6.04%(8)        |
|                               | Sherman Oaks, CA 91423                |                      |                      |
|-------------------------------|---------------------------------------|----------------------|----------------------|
|Gary Harris                    | 4312 Woodman Avenue, 3rd Floor        |      94,327(9)       |      1.99%(9)        |
|                               | Sherman Oaks, CA 91423                |                      |                      |
|-------------------------------|---------------------------------------|----------------------|----------------------|
|Bryan G. Symington Smith       | 4312 Woodman Avenue, 3rd Floor        |      30,000          |         *            |
|                               | Sherman Oaks, CA 91423                |                      |                      |
|-------------------------------|---------------------------------------|----------------------|----------------------|
|Anthony George                 | 4312 Woodman Avenue, 3rd Floor        |      10,000          |         *            |
|                               | Sherman Oaks, CA 91423                |                      |                      |
|-------------------------------|---------------------------------------|----------------------|----------------------|
|Officers and Directors         |                                       |    1,830,616(10)     |                      |
| as a group                    |                                       |                      |                      |
|(includes 6 persons)           |                                       |                      |                      |
|                               |                                       |                      |                      |
----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       41
<PAGE>


*Less than one percent (1%).

     (1)  Based on 4,651,332 shares issued and outstanding as of April 7, 2003.

     (2)  Includes  (i)  203,797  shares of common  stock owned  directly,  (ii)
          44,286 shares underlying  warrants which are immediately  exercisable,
          and (ii) 1,035,827  shares  issuable upon  conversion of a convertible
          debenture which is immediately convertible.

     (3)  Includes  (i) 138,615  Shares of common  stock  owned  directly by the
          Reporting  Person,  (ii) 29,525 shares  underlying  Warrants which are
          immediately exercisable,  (iii) 23,884 shares issuable upon conversion
          of a debenture  which is  immediately  convertible,  and (iv)  666,666
          shares  issuable upon  conversion of a convertible  debenture which is
          immediately  convertible  (although the debenture  provides that until
          the occurence of certain  events,  in no event will the person convert
          in one or more  transactions  which would cause the issuer to issue to
          the reporting  person an aggregate  number of shares that would exceed
          8% of the outstanding shares after such conversion).

     (4)  The  Apogee  Management  Company,  Inc.,  the  manager  of Green  Leaf
          Investors  I, LLC,  has  ultimate  voting power and control over these
          shares.  Includes of 303,948  shares of common  stock and 7,500 shares
          acquirable  upon the  exercise  of  warrants.  The  Apogee  Management
          Company,   Inc.  owns  174,302   share   directly  and  is  deemed  to
          beneficially own the shares beneficially owned by Green Leaf Investors
          I, LLC.

     (5)  Includes  of  257,870  shares of common  stock and  833,333  shares of
          common stock  acquirable  upon  conversion of  convertible  debentures
          which is immediately convertible.

     (6)  Consists of 28,750 shares of common stock immediately  acquirable upon
          exercise  of options  under 1999 Stock  Option  Plan,  261,364  shares
          immediately  acquirable  upon exercise of options  granted to December
          31,  2002  under  employment  agreement,  431,002  shares to be issued
          pursuant to an election to convert deferred  compensation  into shares
          of common stock under a deferred  compensation  stock plan approved by
          the board of directors in February 2003. Also includes  307,962 shares
          and 307,962 shares  immediately  acquirable  upon exercise of warrants
          held by 570421 B.C Ltd., a company controlled by his family.

     (7)  Includes of 40,385 shares of common stock to be issued  pursuant to an
          election to convert deferred  compensation into shares of common stock
          under a  deferred  compensation  stock plan  approved  by the board of
          directors in February 2003,  50,000 shares of common stock  acquirable
          upon exercise of stock options that are  immediately  exercisable  and
          30,000  shares of common  stock to be issued as a signing  bonus under
          his employment agreement.

     (8)  Includes of 37,500 shares of common stock immediately  acquirable upon
          exercise of options  under 1999 Stock  Option Plan and 261,364  shares
          immediately  acquirable  upon exercise of options  granted to December
          31, 2002 under employment agreement.  Mr. Bagley resigned as our Chief
          Financial Officer and a director in April 2003.

     (9)  Includes of 23,077 shares of common stock to be issued  pursuant to an
          election to convert deferred  compensation into shares of common stock
          under a  deferred  compensation  stock plan  approved  by the board of
          directors  in  February  2003,  and  41,250  shares  of  common  stock
          acquirable  upon  exercise  of  stock  options  that  are  immediately
          exercisable  and  30,000  shares  of  common  stock to be  issued as a
          signing bonus under his employment agreement.

     (10) Includes  of  336,712  shares of common  stock,  494,464  shares to be
          issued pursuant to an election to convert deferred  compensation  into
          shares  of common  stock  under a  deferred  compensation  stock  plan
          approved by the board of directors in February 2003, 680,228 shares of
          common  stock  acquirable  upon  exercise  of stock  options  that are
          immediately exercisable and 307,962 shares of common stock immediately
          acquirable upon exercise of warrants.


                                       42
<PAGE>


     We have no  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.

Equity Compensation Plan Information

     The  following  table  sets  forth   information   related  to  our  equity
compensation plans as of December 31, 2002.

<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>                        <C>                            <C>
|Equity Compensation       |        86,000(1)       |          $24.12         |               889,000              |
|Plans approved by         |                        |                         |                                    |
|security holders          |                        |                         |                                    |
|--------------------------|------------------------|-------------------------|------------------------------------|
|Equity Compensation       |        8(2)            |          $4.40          |                  -                 |
|Plans  not   approved  by |                        |                         |                                    |
|Security Holders          |                        |                         |                                    |
|--------------------------|------------------------|-------------------------|------------------------------------|
|Total                     |        975             |                         |               889,000              |
--------------------------------------------------------------------------------------------------------------------
</TABLE>

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

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Except for the  transactions  described below and under "Item 11. Executive
Compensation," none of our directors, senior officers or principal shareholders,
nor any  associate or affiliate of the foregoing  have any  interest,  direct or
indirect, in any transaction, since the beginning the fiscal year ended December
31, 2002, or in any proposed  transaction which has materially  affected or will
materially affect us.

     In  connection  with our sale of our Portland  business,  we entered into a
note  extension and  assumption  agreement  with Green Leaf Investors I, L.L.C.,
under  which (i) we agreed to pay Green  Leaf a fee of 75,000  shares of Neptune
Society common stock; (ii) we granted Green Leaf piggy-back  registration rights
and preemptive rights related to the Green Leaf Consideration  Shares; and (iii)
we agreed  to pay  $75,000  of the  principal  due under the Green  Leaf Note by
Neptune  Society  issuing  Green Leaf a  convertible  debenture in the principal
amount of $75,000, due July 31, 2002, convertible into shares of common stock of
Neptune  Society  at  $0.333333  per  share,   subject  to  anti-dilution  price
protection.  This  debenture was converted into 225,000 shares of the Company in
the year ended December 31, 2002.

     CapEx, L.P. received 101,250 shares as a debt  restructuring fee, exercised
its  pre-emptive  rights to acquire 64,448 shares at a price of $1.08 per share,
and  exercised  its  pre-emptive  rights to  purchase a $35,826  in  convertible
debentures.

     D.H.  Blair  Investment  Banking  Corp.  received  67,500  shares as a debt
restructuring  fee, exercised its pre-emptive rights to acquire 42,992 shares at
a price of $1.08 per share,  and exercised its pre-emptive  rights to purchase a
$23,884 in convertible debentures.


                                       43
<PAGE>


     CCD  Consulting  Commerce  Distribution  AG  converted  debt of $800,000 to
13.75% convertible  debentures.  In connection with the conversion,  the company
agreed to issue 83,333 shares as a loan conversion fee.

     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.

ITEM 14. CONTROLS AND PROCEDURES

Under the supervision and with the  participation  of the Company's  management,
including its Chief Executive Officer and Chief Financial  Officer,  the Company
evaluated  the  effectiveness  of the design  and  operation  of its  disclosure
controls and procedures (as defined in Rule 13a-14(c)  under the Exchange Act as
of a date (the  "Evaluation  Date")  within 90 days prior to the filing  date of
this report.  Based upon that evaluation,  the Chief Executive Officer and Chief
Financial  Officer  concluded  that, as of the  Evaluation  Date,  the Company's
disclosure controls and procedures were effective in timely alerting them to the
material information relating to the Company (or its consolidated  subsidiaries)
required  to be  included  in the  Company's  periodic  SEC filings and Form 8-K
reports.

There were no significant changes made in the Company's internal controls during
the  period  covered  by this  Annual  Report on Form 10-K or, to the  Company's
knowledge,  in other  factors that could  significantly  affect  these  controls
subsequent to the date of their execution.

The  Company's  management,  including  the Chief  Executive  Officer  and Chief
Financial Officer,  does not expect that its disclosure  controls and procedures
or internal  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.

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

Documents Incorporated by Reference

The following  items are hereby  incorporated by reference in this annual report
on Form 10-K in the sections specifically referencing such items.

     "Item  1.  Business  -  Neptune   Society   Acquisitions  -  Neptune  Group
     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.

     "Item 1.  Business - Neptune  Society  Acquisitions  - Spokane,  Washington
     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.


                                       44
<PAGE>


     "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.

     "Item 1. Business - Neptune Society  Acquisitions - Oregon  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.

     "Item 1. Business - Neptune Society  Acquisitions - Disposition of Portland
     Assets and Related  Transactions" 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.

     "Item 7.  Management's  Discussion and Analysis of Financial  Condition and
     Results of  Operations - Year Ended  December 31, 2001  Compared  with Year
     Ended  December 31, 2000" in our annual  report on Form 10-K/A for the year
     ended December 31, 2001 filed with the  Securities and Exchange  Commission
     on September 9, 2002.

(a)  Exhibits

<TABLE>
        Exhibit
        Number     Description
        --------------------------------------------------------------------------------------------------------
        <S>        <C>
        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(1)    Form of Stock Option Plan
        10.2(1)    Share Purchase Agreement dated for reference March 26, 1999 by and between Lari
                   Acquisition Company, Inc., Emanuel Weintraub Inter Vivos Trust, Emanuel Weintraub,
                   Neptune Management Corp., Heritage Alternatives, Inc., Neptune Pre-Need Plan, Inc. and
                   Lari Corp.
        10.3(1)    Share Purchase Agreement dated March 31, 1999 by and between Lari Acquisition Company,
                   Inc., Lari Corp. and Stanley Zicklin
        10.4(1)    Share Purchase Agreement dated March 31, 1999 by and between Lari Acquisition Company,
                   Inc., Lari Corp. and Jill Schulman
        10.5(1)    Agreement dated August 1, 1999 by and between Lari Acquisition Company, Inc., Neptune
                   Society and Stanley Zicklin
        10.6(1)    Agreement dated August 1, 1999 by and between Lari Acquisition Company, Inc., Neptune
                   Society, Emmanuel Weintraub and Emmanuel Weintraub Inter Vivos Trust
        10.7(1)    Interest Purchase Agreement dated for reference March 31, 1999 by and between Neptune
                   Management Corp. Lari Corp., Lari Acquisition Company, Inc. and the limited partners of
                   Neptune-Los Angeles, Ltd., Neptune-Santa Barbara, Ltd., Neptune-Miami, Ltd., Neptune-St.
                   Petersburg, Ltd., Neptune-Ft. Lauderdale, Ltd., Neptune-Nassau, Ltd., Neptune-Yonkers,
                   Ltd.
        10.8(1)    Interest Purchase Agreement dated for reference March 31, 1999 by and between Heritage
                   Alternatives, Inc., Lari Corp., Lari Acquisition Company, Inc. and the limited partners
                   of Heritage Alternatives, L.P.
</TABLE>


                                       45
<PAGE>


<TABLE>
        Exhibit
        Number     Description
        --------------------------------------------------------------------------------------------------------
        <S>        <C>
        10.9(1)    Consulting Agreement dated March 31, 1999 by and between Lari Acquisition Company, Inc.
                   and Emanuel Weintraub
        10.10(1)   Amendment to Consulting Agreement dated August 1, 1999 by and between Lari Acquisition
                   Company, Inc. and Emanuel Weintraub
        10.11(1)   $19,000,000 Promissory Note dated March 31, 1999 by Lari Acquisition Company, Inc.
        10.12(1)   Amendment to $19,000,000 Promissory Note dated August 1, 1999 by Lari Acquisition
                   Company, Inc. in favor of Emanuel Weintraub Inter Vivos Trust
        10.13(1)   $2,000,000 Promissory Note dated March 31, 1999 by Lari Acquisition Company, Inc.
        10.14(1)   Amendment to $2,000,000 Promissory Note dated August 1, 1999 by Lari Acquisition
                   Company, Inc. in favor of Emanuel Weintraub Inter Vivos Trust
        10.15(1)   Pre-Need Trust Agreement dated October 1, 1993 by and between Neptune Management Corp.
                   and Sunbank/South Florida, N.A.
        10.16(1)   Asset Purchase Agreement dated March 31, 1992 by and between Heritage Cremation
                   Services, Inc., Joseph Estephan, Elie Estephan and Emanuel Weintraub
        10.17(1)   Form of Commissioned Contractor Agreement
        10.18(1)   Agency Agreement dated for reference July 22, 1999 by and between Neptune Society and
                   Standard Securities Capital Corporation
        10.19(1)   Amendment to Agency Agreement dated August 5, 1999 by and between Neptune Society and
                   Standard Securities Capital Corporation
        10.20(1)   Form of Subscription Agreement
        10.21(1)   Form of Registration Rights Agreement
        10.22(1)   Debenture and Warrant Purchase Agreement dated November 24, 1999.
        10.23(1)   Form of Convertible Debenture
        10.24(1)   Asset  Purchase  Agreement  dated  December 31,  1999,  by  and  among  Neptune  Society,
                   Crematory Society of Washington, Inc., and John C. Ayres.
        10.25(1)   Asset Purchase  Agreement dated March 15, 2000, by and among Neptune  Society,  Cremation
                   Society of Iowa, Inc., Dave Noftsger, and John Bethel
        10.26(1)   Asset Purchase  Agreements and Merger  Agreement dated July 5, 2000, by and among Neptune
                   Society, Heritage Memorial, Community Memorial Centers, David Schroeder, and Michael Ashe
        10.27(1)   Agency  Agreement  dated for reference July 31, 2000 by and between  Neptune  Society and
                   Standard Securities Capital Corporation
        10.28(2)   Employment Agreement by and between the Company and Marco Markin
        10.29(2)   Employment Agreement by and between the Company and David Schroeder
        10.30(2)   Employment Agreement by and between the Company and Rodney M. Bagley
        10.31(2)   Memorandum of Understanding by and between the Company and Private Investment Company
        10.32(2)   Loan  Agreement  dated  August 8, 2001 with Green  Leaf  Investors  I, LLC, a  California
                   limited liability company
        10.33(2)   Warrant issued to Green Leaf
        10.34(2)   Guaranty issued to Green Leaf
        10.35(3)   Second Debt Restructuring Agreement
        10.36(3)   Third Debt Restructuring Agreement
        10.37(4)   Asset  Purchase  Agreement  effective  as of  January  31,  2002 by and  between  Western
                   Management  Services,  L.L.C.,  an Oregon limited  liability  company,  Wilhelm Mortuary,
                   Inc., a corporation  incorporated  under the laws of the State of Oregon, and The Neptune
                   Society, Inc., a Florida corporation,  and Neptune Society of America, Inc., a California
                   corporation.
        10.38(4)   Service  Agreement  effective  as of March 8,  2002,  by and between  Western  Management
                   Services,  L.L.C., an Oregon limited liability company, and The Neptune Society,  Inc., a
                   Florida Corporation.
</TABLE>


                                       46
<PAGE>


<TABLE>
        Exhibit
        Number     Description
        --------------------------------------------------------------------------------------------------------
        <S>        <C>
        10.39(4)   Note Extension And Assumption  Agreement effective as of January 31, 2002, and is made by
                   and between Western  Management  Services,  L.L.C., an Oregon limited liability  company,
                   Wilhelm  Mortuary,  Inc., an Oregon  corporation,  The Neptune  Society,  Inc., a Florida
                   corporation,  Neptune Society of America, Inc., a California corporation,  and Green Leaf
                   Investors I, LLC, a California limited liability company.
        10.40(4)   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.
        10.41(4)   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.
        10.42(4)   Form of CapEx, L.P. Debenture Amendment
        10.43(4)   Form of D.H. Blair Investment Banking Corp. Debenture Amendment
        10.44(4)   Form of Warrant Amendment
        10.45(5)   Form of Debenture
        10.46(7)   Employment Agreement by and between the Company and Douglas Irving
        10.47      Employment Agreement by and between the Company and Doug Irving
        10.48      Employment Agreement by and between the Company and Barry Maynes
        10.49      Employment Agreement by and between the Company and Gary Harris
        10.50      Employment Agreement by and between the Company and Matthew Markin
        10.51      Employment Agreement by and between the Company and Matthew Hoogendoorn
        10.52      Amendment to Employment Agreement by and between the Company and Marco Markin
        99.1       Section 906 Certificate of Chief Executive Officer
        99.2       Section 906 Certificate of Chief Financial Officer
</TABLE>

_____________________

(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-Q/A  (for the Period  ended June
     30, 2001) on August 20, 2001.
(4)  Previously  filed as an exhibit to Form 10-K (for the period ended December
     31, 2001) on April 2, 2002.
(5)  Previously  filed on Form 10-Q (for the period ended March 31, 2002) on May
     15, 2002.
(6)  Previously filed on Form 8-K on June 3, 2002.
(7)  Previously  filed on Form 10-Q (for the period ended September 30, 2002) on
     November 14, 2002
_____________________

(b)  Reports on Form 8-K

     None


                                       47
<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 and
                             Director
/s/ Marco Markin             (principal executive officer)      April 30, 2003
-------------------------
Marco Markin

                             Chief Operating Officer
/s/ Douglas J. Irving                                           April 30, 2003
-------------------------
Douglas J. Irving

                             Senior Vice President of
                             Finance and Secretary
/s/ Matthew Hoogendoorn      (Acting Chief Financial Officer)   April 30, 2003
-------------------------
Matthew Hoogendoorn

                             Director
/s/ Bryan G. Symington Smith                                    April 30, 2003
----------------------------
Bryan G. Symington Smith

                             Director
/s/ Anthony George                                              April 30, 2003
-------------------------
Anthony George


                                       48
<PAGE>


                            SECTION 302 CERTIFICATION

I, Marco Markin, certify that:

     1. I have reviewed this annual report on Form 10-K of THE NEPTUNE  SOCIETY,
INC.;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the  financial  statement,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities, particularly during the period in which the annual report is
          being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation of the Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified  for the  registrant's  auditors any  material  weakness in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

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



/s/  Marco Markin                                          Date:  April 30, 2003
--------------------------
Marco Markin
Chief Executive Officer


                                       49
<PAGE>


                            SECTION 302 CERTIFICATION

I, Matthew Hoogendoorn, certify that:

     1. I have reviewed this annual report on Form 10-K of THE NEPTUNE  SOCIETY,
INC.;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the  financial  statement,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities, particularly during the period in which the annual report is
          being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation of the Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified  for the  registrant's  auditors any  material  weakness in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

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



/s/  Matthew Hoogendoorn                                   Date:  April 30, 2003
-------------------------------
Matthew Hoogendoorn
Acting Chief Financial Officer


                                       50