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


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                                    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, 2001

                                       OR

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

For the transition period from ______________ to ______________

                        Commission file number: 000-31182


                            The Neptune Society, Inc.
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             (Exact name of registrant as specified in its charter)


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


      3500 W. Olive, Suite 1430,                           91505
          Burbank, California
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(Address of principal executive offices)                 (Zip Code)


       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 be so registered        Name of each exchange on which
                                               each class is to be registered

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

                  Common Shares, Par Value of $0.008 per Share
--------------------------------------------------------------------------------
                                (Title of Class)

                                 Not Applicable
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                                (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 [ ]

     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. ______

     Aggregate  market  value  of  the   Registrant's   Common  Shares  held  by
non-affiliates as of March 28, 2002 was approximately  $5,121,500,  based on the
closing  price of the  Registrant's  commons  stock on the NASD Over the Counter
Bulletin  Board of $2.15 per  share.  The  number of shares of the  Registrant's
Common Shares outstanding as of March 28, 2002 was 2,424,401.

     On March 22,  2002,  the  Registrant  effected a 4:1 reverse  stock  split.
Information contained in this annual report gives effect to such reverse split.

<PAGE>

                                TABLE OF CONTENTS

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

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

ITEM 2.   PROPERTIES..........................................................36

ITEM 3.   LEGAL PROCEEDINGS...................................................36

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................37

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS.................................................38

ITEM 6.   SELECTED FINANCIAL DATA.............................................40

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATION............................................42

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........58

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................59

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
          AND FINANCIAL DISCLOSURE............................................87

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
          SECTION 16(a) COMPLIANCE............................................88

ITEM 11.  EXECUTIVE COMPENSATION..............................................93

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
          AND RELATED STOCKHOLDER MATTERS.....................................99

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................100

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K...102

SIGNATURES...................................................................107




                                       i
<PAGE>

                           FORWARD-LOOKING STATEMENTS

     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   competition   for  and   availability   of  crematory
acquisitions,  our ability to manage an  increasing  number of sales offices and
crematories,  our ability to retain key management  personnel and to continue to
attract and retain  skilled  funeral home and  crematory  management  personnel,
state and federal regulations,  changes in the death rate or deceleration of the
trend towards  cremation,  availability and cost of capital and 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. We
do not intend to update these forward-looking statements and information.

     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.  Investors  are cautioned  against  attributing  undue  certainty to
management's projections.

     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 contained in
this report gives effect to the reverse stock split effected on March 22, 2002.


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 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  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  "History  of  the  Neptune  Society  -  Neptune  Group
Acquisition."  At the time of the  acquisition,  Lari Corp.  was  engaged in the
business of acquiring the group of privately  held  companies for the purpose of
engaging in the business of  marketing  and  administering  Pre-Need and At-Need
cremation  services.  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.  and Heritage  Alternatives,
Inc.,  which are engaged in  marketing  and  administering  Pre-Need and At-Need
cremation services in California,  Florida,  Iowa, New York, Oregon,  Washington
and Colorado.  See "Properties" for a list of our locations and a description of
their  operations.  Neptune Society also operates 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,  three  crematories  and one licensed  holding  facility in Oregon and one
crematory and licensed holding facility in Spokane,  Washington. Our crematories
and holding facilities service our pre-need fulfilled  contracts in the areas in
which Neptune society owned  crematories are located.  In geographic areas where
Neptune  Society  does  not own and  operate  its own  crematories  and  holding
facilities,  the Neptune  Society uses the  services of  qualified  and licensed
third-party  crematories and holding facilities in those particular areas of the
United States. See "History of the Neptune Society."

     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. The Neptune Group or Predecessor refers to the privately held
group of companies acquired by the Registrant on March 31, 1999. "We," "us," and
"our" refers to Neptune Society, and its subsidiaries and associated entities.


                                       1
<PAGE>

     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 effect to the reverse stock split effected on March 22, 2002.

     Our principal corporate and executive offices are located at 3500 W. Olive,
Suite 1430,  Burbank,  California 91505. 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 and do not
intend to compete directly with the larger corporate  consolidators in the death
care service industry by providing traditional funeral and burial services.


Neptune Society Services

     Our primary  business is marketing and  administering  Pre-Need and At-Need
cremation services in the states of California, Florida, Iowa, New York, Oregon,
Colorado  and  Washington.  We also  operate  a  telemarketing  center in Tempe,
Arizona.

     The Neptune Society Pre-Need Program

     The Neptune Group started our Pre-Need program in 1988. Our simple Pre-Need
program is designed to eliminate as much of the emotional  and financial  burden
as possible for the  individuals'  heirs and  Successors.  Our Pre-Need  Program
allows  individuals  to  pre-arrange  simple and basic  cremation  services at a
guaranteed fixed price by entering into a Pre-Need contract.

     Regulations  governing  the sale of Pre-Need  contracts  vary from state to
state.  The  following is a brief  description  of the  regulatory  requirements
related  to the sale of  Pre-Need  contracts  in the states  where we  currently
operate:

     California

     Licensing: We are a licensed provider of Pre-Need cremation services in the
State of  California.  Our California  Pre-Need  cremation  service  business is
subject  to  the  regulatory   requirements  of  the  California   Business  and
Professions  Code and the  Federal  Trade  Commission.  We are  required to file
reports on an annual basis with the  California  Department of Consumer  Affairs
Cemetery  Board. We were also required to obtain Cemetery Board approval for our
California  Pre-Need  contracts.  Our California Pre-Need contracts must contain
certain disclosures and terms to comply with state regulatory requirements.  Our
California Pre-Need contract has been approved for use in California.

     California Pre-Need Contracts:  Our California Pre-Need Plans consist of an
agreement related to the Pre-Need cremation service and an agreement to purchase
merchandise, including an urn, a memorial plaque, a Neptune Society Registration
Package and a Neptune Society Information Booklet and Estate Planning Guide. The
Pre-Need Plan is a guaranteed  price plan, which means we guarantee that we will
provide the cremation service at the time of need without additional payment for
the service.

     Price for  Pre-Need  Plan:  We  currently  charge  $1,299 for a  California
     Pre-Need Plan,  including $529 for the Pre-Need  cremation service and $770
     for  merchandise  that is delivered at the point of sale. We also offer two
     installment  payment  plans,  which  allows a client to purchase a Pre-Need
     Plan by paying us a down payment and making monthly  installment  payments.
     We charge interest at the rate of 8% per annum on the  outstanding  balance
     of the amount due under the  installment  plan.  See  "Installment  Payment
     Plans."

     California   Trust  Fund  Deposits   Requirements:   Under  the  California
     regulatory  requirements,  we are  required  to hold or put  the  money  we
     receive for the future  cremation  services in trust until the  contract is
     fulfilled and the cremation  services are delivered.  We place the funds we
     receive for the pre need cremation service portion of


                                       2
<PAGE>

     our Pre-Need Plan (approximately 45% of the total funds related to the cost
     of a  Pre-Need  Plan) into a Pre-Need  trust  fund in  accordance  with our
     standard  California  Pre-Need services contract and California  regulatory
     requirements.

     The purchase price for merchandise that is delivered at the time a Pre-Need
     Plan is sold is excluded from the  requirement  to hold funds in trust.  We
     deliver  merchandise  related  to the  Pre-Need  Plan as soon as payment is
     received under the agreement.  A purchaser may, at their option,  ask us to
     deliver the  merchandise  to a third-party  insured  warehouse to store the
     merchandise until the time of need. We contract with an insured third-party
     warehouse  to store the  merchandise,  which  stores such  merchandise  for
     approximately 95% of our California Pre-Need Plan members.

     Under California law, we are entitled to an annual maintenance fee of up to
     4% of the California Pre Need Trust fund balance for  maintenance  expenses
     associated with  administering  and managing the trust fund. The trust fund
     has three trustees,  one of which is an employee of Neptune Society and the
     other two are  independent,  third  party  trustees.  A third  party  trust
     administrator provides administrative services for such trust deposits

     Cancellation: A purchaser of a California Pre-Need Plan may cancel the plan
     by providing us with written  notice prior to midnight on the 30th calendar
     day after the date of the  contract and receive a full refund of all monies
     paid,  provided that the  merchandise is returned and no services have been
     provided under the contract. After the 30th day, a purchaser may cancel the
     contract and receive the funds (with accrued  interest) we have placed into
     trust on their behalf, less a revocation fee equal to 10% of the trust fund
     balance  related to such plan,  which may be collected only from the income
     earned by the trust, if any.

     We may cancel a  California  Pre-Need  Plan if the purchase is more than 90
     days in arrears on installment  payments due under an  installment  payment
     plan by providing  two written  notices 30 days apart and by refunding  the
     funds  held in trust for the  benefit  of the  purchaser.  We may  revoke a
     California Pre-Need Plan if we are unable to perform the cremation services
     under the plan by providing  notice to the  beneficiary  of the plan of our
     inability to perform such  services and by refunding the trust fund balance
     related to such plan to the beneficiary.

     Colorado

     Licensing: We are a licensed provider of Pre-Need cremation services in the
State of Colorado.  Our Colorado Pre-Need  cremation service business is subject
to the regulatory requirements of the Colorado Business and Professions Code and
the Federal Trade Commission. We are required to file reports on an annual basis
with the Insurance and Banking  Departments  of Consumer  Affairs.  We were also
required  to  submit  a  $10,000  Bond  running  to the  Banking  and  Insurance
Department of Colorado.  Our Colorado  Pre-Need  contracts must contain  certain
disclosures and terms to comply with state regulatory requirements. Our Colorado
Pre-Need contract has been approved for use in Colorado.


                                       3
<PAGE>

     Colorado  Pre-Need  Contracts:  Our Colorado  Pre-Need  Plans consist of an
agreement related to the Pre-Need cremation service and an agreement to purchase
merchandise, including an urn, a memorial plaque, a Neptune Society Registration
Package and a Neptune Society Information Booklet and Estate Planning Guide. The
Pre-Need Plan is a guaranteed  price plan, which means we guarantee that we will
provide the cremation service at the time of need without additional payment for
the service.

     Price for Pre-Need Plan: We currently  charge $999 for a Colorado  Pre-Need
     Plan,  including  $610  for the  Pre-Need  cremation  service  and $389 for
     merchandise  and sales tax that is delivered at the point of sale.  We also
     offer two  installment  payment plans,  which allows a client to purchase a
     Pre-Need  Plan by paying us a down payment and making  monthly  installment
     payments.  We  charge  an  average  interest  rate of 8% per  annum  on the
     outstanding  balance  of the  amount due under the  installment  plan.  See
     "Installment Payment Plans."

     Colorado Trust Fund Deposits  Requirements:  Under the Colorado  regulatory
     requirements,  we are  required  to hold or put 75% of the money we receive
     for the future cremation  services in trust until the contract is fulfilled
     and the cremation services are delivered. We place the funds we receive for
     the pre need cremation service portion of our Pre-Need Plan  (approximately
     60% of the total  funds  related  to the cost of a  Pre-Need  Plan)  into a
     Pre-Need  trust fund in  accordance  with our  standard  Colorado  Pre-Need
     services contract and Colorado regulatory requirements. A third party trust
     administrator provides administrative services for such trust deposits

     The purchase price for merchandise that is delivered at the time a Pre-Need
     Plan is sold is excluded from the  requirement  to hold funds in trust.  We
     deliver  merchandise  related  to the  Pre-Need  Plan as soon as payment is
     received under the agreement.  A purchaser may, at their option,  ask us to
     deliver the  merchandise  to a third-party  insured  warehouse to store the
     merchandise until the time of need. We contract with an insured third-party
     warehouse  to store the  merchandise,  which  stores such  merchandise  for
     approximately 95% of our Colorado Pre-Need Plan members.

     Cancellation:  A purchaser of a Colorado  Pre-Need Plan may cancel the plan
     by providing us with written  notice prior to midnight on the 30th calendar
     day after the date of the  contract and receive a full refund of all monies
     paid,  provided that the  merchandise is returned and no services have been
     provided under the contract. After the 30th day, a purchaser may cancel the
     contract and receive the funds (with accrued  interest) we have placed into
     trust on  their  behalf.  We may  cancel a  Colorado  Pre-Need  Plan if the
     purchase is more than 90 days in arrears on installment  payments due under
     an installment  payment plan by providing two written notices 30 days apart
     and by refunding the funds held in trust for the benefit of the  purchaser.
     We may revoke a  Colorado  Pre-Need  Plan if we are  unable to perform  the
     cremation services under the plan by providing notice to the beneficiary of
     the plan of our  inability  to perform such  services and by refunding  the
     trust fund balance related to such plan to the beneficiary or providing the
     beneficiary of such plan notice that another general  service  provider has
     agreed to provide such services in place of the Neptune Society.



                                       4
<PAGE>

     Florida

     Licensing: We are a licensed provider of Pre-Need cremation services in the
State of Florida.  Our Florida Pre-Need cremation service business is subject to
the regulatory requirements of Florida Funeral and Cemetery Services Act. We are
required to file  reports on an annual  basis with the Florida  Cemetery  Board.
Florida  Cemetery Board approval is required for our Pre-Need  contracts,  which
must contain certain  disclosures and terms. Our Florida Pre-Need  contracts are
approved for use in Florida.

     Florida  Pre-Need  Contracts:  Our  Florida  Pre-Need  Plans  consist  of a
contract related to the Pre-Need  cremation service and an agreement to purchase
merchandise, including an urn, a memorial plaque, a Neptune Society Registration
Package  and a Neptune  Society  Information  Booklet.  The  Pre-Need  Plan is a
guaranteed  price  plan,  which  means we  guarantee  that we will  provide  the
cremation  service  at the  time  of need  without  additional  payment  for the
service.

     Price for Pre-Need Plan: We currently  charge $1,199 for a Florida Pre-Need
     Plan,  including  $625  for the  Pre-Need  cremation  service  and $574 for
     merchandise. We also offer installment payment plans, which allows a client
     to purchase a Pre-Need Plan by paying us a down payment and making  monthly
     installment payments. See "Installment Payment Plans."

     Trust Fund Deposits: The Florida Funeral and Cemetery Services Act requires
     us to place into a trust fund an amount at least equal to the sum of 70% of
     the purchase price  collected for all future  cremation  services sold into
     trust  for the  benefit  of the  member.  Under  the  terms of our  Florida
     Pre-Need  contracts,  we deposit 70% of the funds we receive  for  Pre-Need
     services into trust for each Pre-Need Plan we sell in Florida.

     We are required to place 30% of the purchase price collected or 110% of the
     wholesale  cost,  whichever is greater,  for the  merchandise  sold under a
     Pre-Need contract.  Under the terms of our Florida Pre-Need  contracts,  we
     deposit 30% of the funds we receive for merchandise into trust.

     Cancellation:  Under the  Florida  Funeral  and  Cemetery  Services  Act, a
     purchaser may, in writing, cancel a Pre-Need Plan as follows:

     o    within 30 days of the date the contract is entered into, the purchaser
          may cancel the  entire  contract  receive  all of the  payments  made,
          provided that the services have not been provided;

     o    anytime after 30 days,  the purchaser may cancel the services  portion
          of the contract provided that the services have not been provided, and
          receive a full refund of all of the amounts  deposited into trust that
          are related to the services; and

     o    anytime after 30 days, a purchaser may cancel the merchandise  portion
          of a  Pre-Need  plan and  shall be  entitled  to a full  refund of the
          purchase price  allocable to the specific item or items of merchandise
          that we cannot or do not deliver in accordance with the agreement.

     We may cancel a Florida  Pre-Need Plan if the purchase is more than 90 days
     in arrears on installment payments due under an installment payment plan by
     providing  a written  notice of our  intent to cancel 30 days  prior to the
     date of the cancellation and by refunding the funds



                                       5
<PAGE>

     related  to the  cremation  services  held in trust for the  benefit of the
     purchaser.  Upon such cancellation,  the funds held in trust related to the
     merchandise  are  retained  by us as  liquidated  damages for breach of the
     agreement.

     Iowa

     Licensing: In the State of Iowa, we have separate establishment permits for
our crematory, our at-need funeral/cremation service and our pre-need sales. Our
crematory  and at-need  business  are  subject to the Code of Iowa,  the Federal
Trade  Commission  and  regulated  by the Iowa  Department  of Health,  Board of
Mortuary  Science.  Pre-need sales are subject to the Code of Iowa and regulated
by the Iowa Insurance  Division,  Regulated  Industries  Unit. We file an annual
report of pre-need  sales  including a copy of our contract  with the  Insurance
Division each year.

     Iowa  Pre-Need  Contracts:  Our Iowa  Pre-Need  Plans consist of a contract
related  to  the  Pre-Need  cremation  service  and  an  agreement  to  purchase
merchandise, including an urn, a memorial plaque, a Neptune Society Registration
Package and a Neptune Society Information Booklet and Estate Planning Guide. The
contract related to the Pre-Need  cremation  service accounts for  approximately
50% of the cost of a Pre-Need Plan, and the contract  related to the purchase of
the  merchandise  accounts  for the  remaining  cost of the Pre-Need  Plan.  The
Pre-Need Plan is a guaranteed  price plan, which means we guarantee that we will
provide the cremation service at the time of need without additional payment for
the service.

     Price of Pre-Need  Plan:  We currently  charge  $1,199 for an Iowa Pre-Need
     Plan,  including  approximately $592 for the Pre-Need cremation service and
     $607 for  merchandise  and State taxes.  We offer two  installment  payment
     plans,  which  allows a client to  purchase a Pre-Need  Plan by paying us a
     down payment and making  monthly  installment  payments.  See  "Installment
     Payment Plans."

     Trust Fund  Deposits:  The Code of Iowa,  Chapter 523 requires us to comply
     with trusting requirements by:

     o    placing 80% of the purchase  price  related to the pre need  cremation
          service into a pre need trust fund or purchasing  an insurance  policy
          to fund the pre need cremation service obligation; and

     o    delivering the merchandise or post a surety bond to insure delivery of
          the  merchandise  in  lieu  of  placing  the  purchase  price  of  the
          merchandise into trust.

     Under the Iowa law, the purchase price for merchandise that is delivered at
     the time a Pre-Need  Plan is sold,  including  merchandise  delivered  into
     storage in a warehouse or separate  facility  approved by the Iowa Mortuary
     Board, is excluded from the  requirement to hold funds in trust.  Under the
     terms of our Iowa pre-need contracts,  we place $474 or 80% of the purchase
     price related to the pre-need  cremation service into a pre need trust fund
     and deliver the  merchandise  at the time of sale.  We deliver  merchandise
     related to the Pre-Need Plan upon receipt of payment.  A purchaser  may, at
     their option, ask us to deliver the merchandise to a third-party warehouse,
     approved  by the State of Iowa to store the  merchandise  until the time of
     need.  We contract on behalf of the purchaser  with an insured  third-party
     warehouse to store the merchandise.



                                       6
<PAGE>

     Cancellation:  A  purchaser  of Iowa  Pre-Need  Plan may cancel the plan by
     providing  us with written  notice prior to midnight on the third  calendar
     day after the date of the contract and receive a full refund, provided that
     the  merchandise  is returned and no services have been provided  under the
     contract.  After the third  calendar  day, a  purchaser  may cancel an Iowa
     Pre-Need Plan by providing us written notice, and we are required to refund
     all monies  held in trust for the  benefit of the  member  without  penalty
     within 10 days after cancellation.

     We may cancel an Iowa Pre-Need Plan if the purchase is more than 60 days in
     arrears on installment  payments due under an  installment  payment plan by
     providing  a written  notice of our intent to cancel at least 10 days prior
     to such  cancellation.  The  funds  held in trust  for the  benefit  of the
     purchaser  are  retained  by us as  liquidated  damages  for  breach of the
     agreement.

     Oregon

     Licensing: We are a licensed provider of Pre-Need cremation services in the
State of Oregon.  Our  Pre-Need  cremation  service  business  is subject to the
regulatory requirements of the Oregon Revised Statute - Funerals, Cemeteries and
Crematoriums  Act and the Uniform  Trustees'  Powers Act and the  Federal  Trade
Commission.  We are  required to file reports on an annual basis with the Oregon
Cemetery  Board.  Oregon  Cemetery  Board  approval is  required  for our Oregon
Pre-Need contracts, which must contain certain disclosures and terms. Our Oregon
Pre-Need   contracts  are  approved  for  use  in  Oregon.  All  pre-need  sales
representatives are required to be licensed in Oregon.

     Oregon Pre-Need Contracts:  Our Oregon Pre-Need Plans consist of a contract
related  to  the  Pre-Need  cremation  service  and  an  agreement  to  purchase
merchandise, including an urn, a memorial plaque, a Neptune Society Registration
Package and a Neptune Society Information Booklet and Estate Planning Guide. The
Pre-Need Plan is a guaranteed  price plan, which means we guarantee that we will
provide the cremation service at the time of need without additional payment for
the service.

     Price of Pre-Need Plan: We currently  charge $1,099 for an Oregon  Pre-Need
     Plan,  including  $515  for the  Pre-Need  cremation  service  and $584 for
     merchandise  delivered  at the  point of sale.  We  offer  two  installment
     payment plans,  which allows a client to purchase a Pre-Need Plan by paying
     us a down payment and making monthly installment payments. See "Installment
     Payment Plans."

     Trust Fund Deposits: The Oregon Uniform Trustees' Powers Act requires us to
     place at least 90% of the purchase  price  collected for Pre-Need  services
     into a trust fund.  Under the terms of our Oregon  Pre-Need  contracts,  we
     place 90% of the amount  collected for the Pre-Need  services into trust. A
     third party trust administrator administers such trust funds.

     Under  the  Oregon   regulatory   requirements,   the  purchase  price  for
     merchandise  that is  delivered  at the time a  Pre-Need  Plan is sold,  is
     excluded  from  the   requirement  to  hold  funds  in  trust.  We  deliver
     merchandise  related  to the  Pre-Need  Plan upon  receipt  of  payment.  A
     purchaser  may, at their  option,  ask us to deliver the  merchandise  to a
     third-party  warehouse to store the merchandise  until the time of need. We
     contract with an



                                       7
<PAGE>

     insured third-party  warehouse to store the merchandise,  which stores such
     merchandise for approximately 95% of our Oregon Pre-Need Plan members.

     Cancellation:  A purchaser of Oregon  Pre-Need  Plan may cancel the plan by
     providing  us with written  notice prior to midnight on the third  calendar
     day after the date of the contract and receive a full refund, provided that
     the  merchandise  is returned and no services have been provided  under the
     contract. After the three day period, if the guaranteed price Pre-Need plan
     is cancelled,  we are  permitted to retain 10% of the amount  collected for
     Pre-Need  services  and are not  required to refund any amounts  related to
     merchandise sold.

     We may cancel a Oregon  Pre-Need  Plan if the purchase is more than 90 days
     in arrears on installment payments due under an installment payment plan by
     providing two written notices 30 days apart and by refunding the funds held
     in trust for the benefit of the purchaser.

     Washington

     Licensing: We are a licensed provider of Pre-Need cremation services in the
State of  Washington.  Our Washington  Pre-Need  cremation  service  business is
subject  to the  regulatory  requirements  of the  Revised  Code  of  Washington
regulating  embalmer and funeral directors and the Federal Trade Commission.  We
are  required to file reports on an annual  basis with the  Washington  Cemetery
Board.  Washington  Cemetery  Board  approval  is  required  for our  Washington
Pre-Need  contracts,  which must  contain  certain  disclosures  and terms.  Our
Washington Pre-Need contracts are approved for use in Washington.

     Washington Pre-Need  Contracts:  Our Washington Pre-Need Plans consist of a
contract related to the Pre-Need  cremation service and an agreement to purchase
merchandise, including an urn, a memorial plaque, a Neptune Society Registration
Package and a Neptune Society Information Booklet and Estate Planning Guide.

     Price of Pre-Need Plan: We currently charge $999 for a Spokane,  Washington
     Pre-Need Plan,  including $510 for the Pre-Need  cremation service and $489
     for merchandise  delivered at the point of sale. For a Everett,  Washington
     Pre-Need  Plan, we currently  charge  $1,099,  including  $556 for Pre-Need
     cremation service and $543 for merchandise  delivered at the point of sale.
     We also offer installment  payment plans, which allows a client to purchase
     a Pre-Need Plan by paying us a down payment and making monthly  installment
     payments. See "Installment Payment Plans."

     Trust Fund  Deposits:  Washington  law requires us to place at least 90% of
     the purchase price collected for Pre-Need services into a trust fund. Under
     the terms of our Washington Pre-Need contracts,  we place 90% of the amount
     collected  for  the  Pre-Need  services  into  trust A  third  party  trust
     administrator administers such trust funds.

     Under  Washington law, the purchase price for merchandise that is delivered
     at the time a Pre-Need  Plan is sold is excluded  from the  requirement  to
     hold funds in trust.  We deliver  merchandise  related to the Pre-Need Plan
     upon  receipt of payment.  A  purchaser  may,  at their  option,  ask us to
     deliver the merchandise to a third-party warehouse to store the merchandise
     until the time of need. We contract with an insured  third-party  warehouse
     to store the merchandise,  which stores such merchandise for  approximately
     95% of our Washington Pre-Need Plan members.



                                       8
<PAGE>

     Cancellation:  Under Washington law, a purchaser may, in writing,  cancel a
     Pre-Need plan as follows:

     o    within 30 days of the date the  contract  is entered  into and receive
          all of the payments  made,  provided  that the services  have not been
          used; and

     o    anytime  after 30 days,  if  cancelled in writing,  provided  that the
          services  have not been  provided,  and  receive a full  refund of all
          amounts  deposited  into trust that are related to services,  less 10%
          for costs associated with selling and setting up the contract.

     We may cancel a  Washington  Pre-Need  Plan if the purchase is more than 60
     days in arrears on installment  payments due under an  installment  payment
     plan by providing a written notice of our intent to cancel at least 10 days
     prior to such cancellation.

     We refund 90% of the funds held in trust for the  benefit of the  purchaser
     upon  cancellation.  We may  revoke a  Washington  Pre-Need  Plan if we are
     unable to perform the cremation services under the plan by providing notice
     to the  beneficiary  of the plan of our  inability to perform such services
     and by  refunding  the  trust  fund  balance  related  to such  plan to the
     beneficiary.

     New York

     Licensing:  We  are a  licensed  provider  of  both  pre-need  and  at-need
cremation  services in the State of New York. Our cremation  service business is
subject to the regulatory  requirements  of the  Consolidated  Laws of New York,
Chapter 20, Article 28-A - Cemetery Property and Funeral  Services,  and Chapter
45,  Article 34 - Funeral  Directing  and the Federal Trade  Commission.  We are
licensed to offer cremation services in the State of New York.

     New York  Pre-Need  Contracts:  Our New York  Pre-Need  Plans  consist of a
contract  related  to  the  Pre-Need  cremation  service  and  the  purchase  of
merchandise, including an urn, a memorial plaque, a Neptune Society Registration
Package and a Neptune Society Information Booklet and Estate Planning Guide. The
Pre-Need Plan is a guaranteed  price plan, which means we guarantee that we will
provide  the  cremation  service  and  merchandise  at the time of need  without
additional payment for the service.

     Price of Pre-Need Plan: We currently charge $ 1,499 for a New York Pre-Need
     Plan. We offer only plans which are paid in full at the point of sale.

     Trust Fund Deposits: 100% of the funds we receive for the purchase of a New
     York  Pre-Need Plan are  deposited  into trust for the purchaser  until the
     time of  need.  Under  the New  York  regulatory  requirements,  the  funds
     received for  merchandise  that is not to be delivered or services that are
     not to be rendered  until the occurrence of the death of the person for who
     the contract is  purchased  remains the money of the  purchaser  making the
     payment and is required to be held in trust for the benefit of such person.
     The funds are not permitted to be commingled. Consequently, we establish an
     individual  trust  for each  purchaser  of a New York  Pre-Need  Plan in an
     interest bearing account in a bank,  national bank, federal savings bank or
     other such institution authorized to accept such trust by the



                                       9
<PAGE>

     State of New York.  These  funds are  administered  by a third  party trust
     administration  company  licensed  to conduct  business in the State of new
     York.

     Cancellation:  A purchaser of New York Pre-Need Plan may cancel the plan by
     providing  us with  written  notice at any time and receive a full  refund,
     together with accrued  interest,  if any, provided that the merchandise has
     not been delivered and no services have been provided under the contract. A
     New York  Pre-Need  Plan may not be  cancelled  by the  purchaser  when the
     purchaser has received supplemental security benefits from the State of New
     York assisting them in paying for such plan.

     No  administrative,  consultation or other fee may be assessed  against the
     person in connection with the sale of the Pre-Need Plan.


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.  See
"Industry  Regulation  - Pre-Need  Trust  Fund." In  addition,  in the States of
Oregon,  Washington,  Iowa,  Colorado and New York,  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.

     Approximately  94,000  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%  on  an  annual  basis.  As  of  December  31,  2001,  we  had
approximately 67,000 active Pre-Need members.


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.


Crematory Services

     We  own  and  operate   crematories  and  licensed  holding  facilities  in
California,  Iowa,  Oregon and Washington.  Our crematories and licensed holding
facilities  provide  cremation  services  in  the  areas  where  we  market  and
administer Pre-Need programs. We also use the services of licensed and qualified
third-party  crematories  and holding  facilities  to service our  Pre-Need  and
At-Need programs in those areas where we do not own and operate crematories.



                                       10
<PAGE>

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 Miami,  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  product  and  pricing   structure  to  assist  customer
decision-making. For example:

     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 $300,
     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 from any place in world,  regardless of
     where the Pre-Need Plan is purchased.

     The current  price of our basic  Pre-Need  Plan sells for between  $999 and
     $1,299.  Our goal is to create a standardized  Pre-Need Plan that is priced
     according to the market  price for similar  plans in each  geographic  area
     that we  serve.  The  purchase  price  allocated  towards  the  cost of the
     cremation  services and the costs for the merchandise  varies from state to
     state  depending on market  conditions and the laws and  regulations of the
     state.  See  "Neptune  Society  Services  - The  Neptune  Society  Pre-Need
     Program."

     Our standard Pre-Need service program includes services,  such as burial at
     sea, rose garden scattering and 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:

     o    A client may  purchase a Pre-Need  Plan by paying us a down payment of
          $299 and making  monthly  payments of $25 until the  Pre-Need  Plan is
          paid in full; or

     o    A client may  purchase a Pre-Need  Plan by paying us a down payment of
          $449 and making  monthly  payments of $25 until the  Pre-Need  Plan is
          paid in full.

     We do not charge interest on the balance due under our installment  payment
programs in Florida,  Iowa or Washington.  We charge interest of 8% per annum on
balances due under our installment  payment  programs in California,  Oregon and
Colorado.



                                       11
<PAGE>

Existing Facilities

     Our  offices  are  generally  located  within  or near  major  metropolitan
geographic  areas.  We believe that by locating  our offices in these areas,  it
provides us with future  opportunities  to share  personnel,  vehicles and other
resources, reduce per location operating and administrative costs, and implement
integrated  marketing  programs with additional offices that we may open in that
particular market area in the future.

     We currently have locations in the states of California, Colorado, Florida,
Iowa, New York,  Oregon,  and Washington,  representing  approximately  35 major
metropolitan  market  areas.  Our  national  telemarketing  center is located in
Tempe, Arizona. See "Properties."


Expansion

     Our  present  growth   strategy  is  to  expand  our   operations   through
establishing  new  "start-up"  offices in major  metropolitan  market areas with
reasonable operating laws and attractive  demographics relating to our business.
In addition, we will selectively review strategic acquisitions  opportunities of
existing cremation service providers with established market presence in certain
geographic  areas.  Since March 31, 1999,  we have acquired  existing  cremation
service  providers or  established  new  "start-up"  offices in Colorado,  Iowa,
Oregon,  Washington  and Florida.  We are  currently  exploring  new  "start-up"
opportunities in Arizona,  Illinois,  Ohio, Minnesota and Michigan.  To date, we
have  targeted   approximately  26  additional   states  which  have  attractive
demographics  for our  business  and will  continue to review  these  particular
market areas for further expansion.

     The cremation segment within the death care industry is highly  fragmented,
and we  believe  there  may be many  small  owner-manager  cremation  operations
throughout North America that are possible  acquisition targets. 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. Based on our experience, we anticipate that most new targeted
market areas will not have  established  effective  prearranged  cremation sales
programs,  thus enabling us to implement our Pre-Need  cremation program quickly
and  successfully.  We apply  specific  selection  criteria when  evaluating new
geographic locations for expansion, including:

     o    death and cremation rates for the area;

     o    existing market area competition;

     o    forecasted growth in cremation rates for the area; and

     o    operating regulatory requirements.

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

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



                                       12
<PAGE>

Marketing

     We currently  market our services in all our locations  under the name "The
Neptune  Society." Our marketing  strategy is focused on maintaining and further
developing the strength of our brand name and creating consumer awareness of our
death care  services  and  products.  We promote  our death  care  services  and
products using targeted advertising campaigns, including, for example:

     o    advertisements in the Yellow Pages;

     o    local  television  and radio  advertisements;

     o    a Web site providing  up-to-date,  on-line  information related to our
          death care services and products;

     o    direct marketing campaigns

     We market our Pre-Need  programs  using a  combination  of sales and direct
marketing programs to generate sales.

     Direct Mail

     We  use  a  monthly  direct  mail  campaign  to  generate  leads.  We  have
historically  mailed a total of  approximately  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.  We received a response
rate of  approximately  0.54%  from  our  direct  mail  campaigns,  representing
approximately  32,000 leads and we have  historically sold  approximately  9,000
pre-need  contracts  as a  result  of these  direct  mail  leads  per  year.  We
anticipate  we can sell  Pre-Need  plans  to  approximately  28% of these  leads
through our direct sales efforts.

     Telemarketing

     On November 15, 1999, we  established a Predictive  Dialling  Telemarketing
Center (PDS Center) in Tempe,  Arizona.  As of December 31, 2001, we employed 22
telemarketers.  Our  current  telemarketing  program is  primarily  designed  to
generate  leads from people who have not responded to our direct mail  marketing
campaigns. We anticipate that telemarketing will allow us to increase the number
of  Pre-Need  plans we sell to leads  generated  by our  direct  mail  marketing
campaign.

     During the year ended  December  31, 2001,  our Tempe call center  produced
approximately 12,000 prospective  customer  appointments in the states we serve.
We estimate that approximately  3,000 Pre-Need contract sales have resulted from
these leads representing approximately a 25% conversion rate of these PDS leads.
The goal of our telemarketing  strategy is to increase the sales of our Pre-Need
plans  resulting  from  direct  mail  leads.   Based  on  our  research  of  the
telemarketing  industry,  we believe we can achieve  this goal by using our call
center as a convenient forum for providing  information to potential members and
for setting appointments for our area sales representatives.  Our call center is
anticipated to allow us to consolidate our telemarketing efforts and to schedule
appointments for our area sales



                                       13
<PAGE>

representatives  in one centralized  location.  We believe this will allow us to
implement a uniform  telemarketing and promotional  strategy using  professional
telemarketers. We anticipate this will relieve our area sales representatives of
some of their prior  administrative  duties,  which may  facilitate an increased
number of sales calls and increase our sales productivity.  We cannot assure you
that we will  successfully  implement  our  telemarketing  programs  or that the
number of Pre-Need plans we sell or leads generated by our direct mail marketing
campaign will increase as a result of our call center.

     Personal Sales

     We use  commissioned  independent  contractors to provide  services as area
sales  representatives  to sell our Pre-Need  Plans. As of December 31, 2001, we
had approximately 133 commissioned area sales  representatives,  including 30 in
California,  7 in Colorado,  12 in Oregon,  36 in Florida,  8 in Iowa, and 40 in
Washington.  These area sales  representatives are provided leads generated from
our  direct  mail  campaigns  and  telemarketing  efforts,  and they  meet  with
potential clients individually to determine the service needs of the individual.
The area sales  representatives  are paid on a commission basis according to the
type of plan sold,  and the conversion  percentage  from lead to sales ratio and
the method of payment  selected  by the  customer.  A majority of our area sales
representatives  are  in  California  and  Florida  and  have  worked  with  our
subsidiaries for over four years. 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 developed  and operate a fully  integrated  and  comprehensive  web site
located at  www.neptunesociety.com,  targeted at the baby boomer generation.  We
believe that the aging of the baby boomers,  represents an opportunity to expand
our business by marketing our Pre-Need  Programs on the  Internet.  Baby boomers
represent one of the fasting growing  segments of Internet users.  Consumers may
inquire  on how to  purchase  Pre-Need  plans  on-line  at our web site.  As our
website matures,  we believe it will lead to increased education of the consumer
and potential future customers.


Death Care Industry

     According to statistics  provided in the National Vital Statistics Reports,
Vol. 48, No. 11, the number of deaths in North  America has risen by 1% annually
between  1980 and 1998,  and is expected  to continue to grow at a similar  rate
over the next 10-15  years.  The growth in death rates  results not only from an
increase in the overall  population,  but also from the demographics of an aging
population as the baby boomer generation matures.

     According  to  information  available  on the  National  Funeral  Directors
Association's web site located at www.nfda.org:

     o    There  are  more  than  22,100  funeral  homes  in the  United  States
          employing  approximately  35,000 licensed funeral  directors/embalmers
          and 89,000 additional funeral service and crematory personnel;
     o    There were  2,345,702  deaths in the United States during the 12-month
          period ending  December  1999, or 8.6 deaths per thousand  population.
          (source: U.S. Department of Health & Human Services, 1999);



                                       14
<PAGE>

In 1999, the average cost of an adult funeral,  not including cemetery expenses,
was approximately $5,020; and

Death rates are projected to rise to:

     o    9.32 deaths per thousand in 2010; and

     o    10.24 deaths per thousand in 2020.

     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
crematory operations  conducted by Smith, Bucklin & Associates,  Market Research
and Statistics Division in 2000 on behalf of the Cremation  Association of North
America:

     o    The  popularity  of  cremation  varies by  geographic  location in the
          United States, ranging from a low of 4.45% in Mississippi to a high of
          59.83% in Hawaii;

     o    In 2000,  cremation  services were chosen for approximately  25.48% of
          total deaths in the United States,  representing approximately 603,092
          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; and

     o    Cremation services are expected to account for approximately  26.2% of
          all  death  services  in 2001 and  approximately  39.38%  of all death
          services in 2010 and 48% in 2025.

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


Competition

     The death  care  industry  in general is  fragmented,  comprised  of mostly
family-owned  businesses  and small  independently  owned  chains of death  care
service providers.  Currently,  there are publicly traded companies in the death
care  services  industry  that  in  the  past  have  pursued  consolidation  and
aggressive growth strategies.  The major corporate competitors in the death care
industry  include Service  Corporation  International,  Alderwoods  Group,  Inc.
(formerly The Loewen Group), Stewart Enterprises, Inc., Carriage Services, Inc.,
Hamilton Group and Keystone Group. The large corporate competitors offer a broad
range of traditional funeral and burial products and services, including:

        burial services                            tombstones and markers

        embalming services                         plaques and urns

        burial plots                               Pre-Need burial services

        memorial/funeral services                  Pre-Need cremation services

        caskets



                                       15
<PAGE>

     Based on information contained in the public filings of Service Corporation
International,  Loewen  Group Inc.,  Stewart  Enterprises,  Inc.,  and  Carriage
Services,  Inc., we believe that  corporate  competitors  generally  focus their
marketing  efforts on providing  traditional  at-need  burial  services,  burial
plots, caskets, memorial/funeral services and burial merchandise.

     We believe that the competitive  factors in the death care service industry
generally include:

     o    inter-family   loyalty  to  established,   local  death  care  service
          providers;

     o    consumer price sensitivity for death care services;

     o    consumer  demand  for   personalized   service  and   memorial/funeral
          services;

     o    the availability of qualified personnel and management;

     o    high fixed costs for facilities and cemeteries; and

     o    regulatory compliance costs.

     Generally,  existing death care service providers may, on a local community
level, have competitive advantages based on established local reputations, local
ownership and management,  brand loyalty and existing  capital  facilities.  The
larger publicly  traded death care service  providers  generally  compete on the
basis of price and service, and dedicate a significant amount of their resources
to  acquiring  established  death care  service  providers in local and regional
markets.   They  are  generally  well   capitalized   and  can  achieve  certain
efficiencies through their integrated  marketing,  management and administration
structures.

     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 hope to capture the market as the only company that
is not owned by a traditional funeral company specializing in cremation.

     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

Death Care Service Industry 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. All jurisdictions also regulate the sale
of Pre-Need  services and the  administration  of any  resulting  trust funds or
insurance  contracts.  See "Business - The Neptune Society Pre-Need Program." 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.



                                       16
<PAGE>

     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.

     On February 25, 1998, the State of California issued an interim  suspension
order  against the Neptune  Group's  California  operations  under  California's
Business  and  Profession  Code for failure to comply with  appropriate  storage
procedures.  On May 6, 1998,  the Neptune Group  entered into a Stipulation  and
Settlement  and  Decision,   which  required  the  Neptune  Group's  controlling
shareholder,  Emanuel Weintraub,  to sell his interests in the Neptune Group and
cease all  management  or  control,  directly or  indirectly,  of any funeral or
cremation  activities licensed by the State. In addition,  the Neptune Group was
ordered to demonstrate  compliance with the requirements for storage  facilities
under the  State's  Business  and  Professions  Code and to be subject to random
inspections.

     In compliance with the stipulation,  Mr. Weintraub,  among others, sold the
Neptune Group of companies to Neptune of America,  the Registrant's wholly owned
subsidiary, and on April 9, 1999, we entered into an agreement with the State of
California  and applied for an  assignment  of licenses in  connection  with the
closing of the sale of the business. California approved the assignment, subject
to amending  the  Stipulation  and  Settlement  and  Decision to  incorporate  a
requirement  for us to  complete  audits of the  Pre-Need  trust funds under the
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. On July 21,
2000, the State of California  officially  assigned all three California funeral
establishment licenses to us after we submitted a zoning letter from the City of
Los Angeles 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  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 Funds

     We are  required to deposit a portion of the funds we receive from the sale
of a Pre-Need  plan into trust for the  benefit of the  subscriber.  See Item 1.
"Business - The  Neptune  Society  Business - Neptune  Society  Services."  Each
Pre-Need  Plan is a contract for the sale of  cremation  services at the time of
death and for  merchandise  delivered  at the  point of sale.  The  payments  we
receive for the services  portion of Pre-Need Plans are generally held in trust.
The trust funds are maintained by financial  institutions in accordance with the
laws of the state in which the Pre-Need Plan is sold.  In addition,  the Neptune
Society utilizes the services of a third party administrator  (AFCTS) in certain
states.  At  December  31,  2001,  the  balance of the  Pre-Need  trust fund was
approximately  $40 million and we had over 67,000 active members.  We anticipate
that the size of the  Pre-Need  trust funds will  increase  if the trend  toward
cremation services  continues and we successfully  implement our growth strategy
as planned. We cannot assure you that we will successfully increase our Pre-Need
membership to levels that would



                                       17
<PAGE>

result in growth  of the  Pre-Need  trust or that the  Pre-Need  trust  will not
decline as a result of increased death rates of our membership.  In most states,
we are not permitted to withdraw principal or investment income from trust funds
until the time the cremation  service is performed.  Earnings on the trust funds
increase the amount of cash received by us at the time the cremation  service is
performed  and,   historically,   have  allowed  us  to  adequately   cover  the
inflationary increase in costs of performing cremation services.

     Although  applicable  laws vary from state to state,  typically  we are not
required to place money we receive for  merchandise in connection  with the sale
of a Pre-Need Plan into trust if we immediately  deliver at the time of sale. In
all states in which we offer Pre-Need plans except California, we are allowed to
retain a percentage of the future cremation service costs related to the sale of
the  Pre-Need  Plan.  See  "Business-Overview  - The  Neptune  Society  Pre-Need
Program."

     Sales commissions  applicable to pre-need cremation service and merchandise
sales are deferred and amortized over the expected  timing of the performance of
the services covered by pre-need arrangements.


Personnel

     At December  31,  2001,  we employed 55 full time  counselors  and mortuary
personnel,  22 telemarketers,  and 19 administrative  personnel. In addition, we
had contracts with 133 independent  contractors to serve as  commissioned  sales
representatives, including 30 in California, 36 in Florida, 7 in Colorado, 12 in
Oregon,  8  in  Iowa,  and  40  in  Washington.  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 17  additional  personnel  during  2002,
including  6  at-need  and  mortuary  personnel,  4  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 2002.


Neptune Society Acquisitions

Neptune Group Acquisition

     On March 31,  1999,  the  Neptune  Society,  through  Neptune  of  America,
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." Neptune
Society paid the owners of the Neptune  Group a total of  $1,000,000 in cash and
issued them a total of 125,000  shares of its common stock valued at $5,000,000.
In addition, Neptune of America issued the former owners two promissory notes in
the amounts of  $19,000,000  (the "$19 Million  Note") and  $2,000,000  (the "$2
Million Note").  The notes were guaranteed by the Neptune Society and secured by
the assets and business of Neptune  Management  and Heritage  Alternatives.  The
$19,000,000 note was interest free until July 31, 1999 when interest at the rate
of 9% per  annum  was to accrue  until  the note was  fully  paid.  The note was
originally due as follows:  $19,000,000 on or before July 31, 1999 or $9,000,000
on or before July 31, 1999 and $10,000,000, together with all accrued and unpaid
interest,  payable on or before July 31, 2000. The $2,000,000  note was interest
free and was



                                       18
<PAGE>

payable in equal monthly installments commencing April 30, 1999 until fully paid
with the last payment due March 31, 2002.

     In July 1999,  the  monthly  payments  due under the $2  Million  Note were
reduced from $55,555 per month to $40,000 per month with the $15,555 of deferred
principal  earning 9% simple  interest  due on a monthly  basis  until March 31,
2001, at which time the final payment of $596,742 is due.

     In August 1999,  the $19 Million  Note was amended as follows:  in exchange
for $76,000 in cash and 34,375  warrants to acquire  common shares at $48.00 per
share,  $9,625,088 of the note due to Emanuel Weintraub  Intervivos Trust became
interest  free with  payments  and due dates of  $386,776  on August  11,  1999,
$4,172,476 on January 3, 2000,  and  $5,065,836 on July 31, 2000.  The remaining
$9,374,912  due under the  $19,000,000  note  retained a 9%  interest  rate with
maturities  of  $3,739,008  due on August 11,  1999,  $701,740 due on January 3,
2000, and $4,934,164 due on July 31, 2000.

     In July 2000,  the balance due under the $19 Million Note to the  Weintraub
Trust was $5,065,836. We paid $341,396 on the principal balance. In exchange for
releasing  the  Weintraub  Trust from  liability  for loss of revenue or loss of
projected revenue as a result of the pending Leneda legal proceeding (See "Legal
Proceedings - Leneda Litigation"),  the due date on the remaining $4,724,440 was
extended for twelve months to July 31, 2001. In connection with the extension of
the due date on the $19 Million Note,  Neptune Society guaranteed the difference
between  the  aggregate  cash  received  and  $47,250  on the sale of 844 shares
monthly of Neptune  Society's  common stock held by the Weintraub Trust over the
extension  term. As a result of the guarantee,  the Company paid Weintraub Trust
$254,000 through December 31, 2001.

     On January 1, 2001,  Neptune America owed a remaining balance of $4,724,440
under the  $19,000,000  promissory  note,  due July 31,  2001 (the "$19  Million
Note").


2001 Neptune Group Debt Restructurings

     August 2001 Debt Restructuring

     In August, 2001, we negotiated a restructuring of our obligations under the
$19 Million  Note (the  "August  Restructuring").  Under the terms of the August
Restructuring, we agreed to pay $2 million of the $4.7 million balance due under
the $19 Million  Note and to defer the  payment of the  remaining  $2.7  million
until  January 2, 2002,  in  consideration  of a cash loan fee of $168,000,  due
January 2, 2002,  and the issuance of 13,750  shares of Neptune  Society  common
stock.  The  restructured  amount  accrued  interest  at 12% per annum,  payable
monthly. We also released Mr. Weintraub from liability for loss of, or projected
loss  of,  revenue  as a result  of the  Leneda  legal  proceeding.  See  "Legal
Proceedings".  We  financed  the  payment  under  the  August  Restructuring  by
obtaining  a loan  through  Wilhelm  Mortuary,  Inc.,  our  wholly-owned  Oregon
subsidiary, in the amount of $1.5 million from Green Leaf Investors II, LLC. See
"Oregon Acquisition - Disposition of Portland Assets and Related  Transactions -
Green Leaf Bridge Loan."

     December 2001 Debt Restructuring

     In December  2001,  Neptune  America and Emanuel  Weintraub and the Emanuel
Weintraub  Inter  Vivos  Trust  (collectively,   "Weintraub")  entered  into  an
agreement to restructure



                                       19
<PAGE>

the $2.7  million  balance due  January 2, 2002 under the $19 Million  Note (the
"December Debt  Restructuring").  Under the terms of the agreement,  Neptune has
America had the option to  restructure  the payment of the balance due under the
$19 Million  Note as follows:  (i) $500,000 on or before  January 2, 2002,  (ii)
eighteen monthly  installments of $78,471  beginning  January 2002 and (iii) the
remaining  principal  balance of approximately  $1,400,000 due on July 31, 2003.
Neptune America agreed to pay interest on the principal  amount  restructured at
the rate of 13% per annum.  Neptune  America  exercised its right to restructure
the $19 Million Note on December 28, 2001.

     Under the terms of the December  Debt  Restructuring,  Neptune  America and
Neptune  Society  agreed to pay Weintraub a loan fee consisting of (i) $350,000,
in the form of a note payable and (ii) 75,000 shares of Neptune  Society  common
stock,  issuable to Weintraub's  nominees.  Neptune  America and Neptune Society
also ratified its obligations under its consulting  agreement with Mr. Weintraub
and agreed to pay Mr.  Weintraub all  consulting  fees due under the  consulting
agreement and to reimburse  certain  expenses  under the agreement on January 2,
2002. On December 28, 2001,  the Company  paid-out the remainder of all payments
due  over  Weintraub's  consulting  agreement  in the  amount  of  $335,000  and
terminated the agreement. Neptune Society also agreed to reimburse Mr. Weintraub
for attorneys' fees in the amount of $120,000 incurred by him in connection with
the  Leneda  litigation  in  consideration  of an  agreement  to  forebear  from
asserting  claims  against  Neptune  Society's  insurers or settling such claims
arising out of the Leneda litigation. See "Legal Proceedings."


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.  Under the terms of the agreement, we paid
Cremation Society of Washington,  $500,000 in cash and issued it 5,682 shares of
Neptune Society common stock valued at $250,000.  In addition,  we agreed to pay
Cremation Society of Washington the following amounts:

     o    on or before March 2, 2001, (i) 3% of gross revenues and (ii) 12.5% of
          the  earnings  before  income  tax,   depreciation   and  amortization
          ("EBITDA")  of the Cremation  Society of Washington  during the twelve
          month period ending December 31, 2000;

     o    on or before March 2, 2002, (i) 2.75% of gross revenues and (ii) 12.5%
          of EBITDA of the  business  operations  of the  Cremation  Society  of
          Washington during the twelve month period ending December 31, 2001;

     o    on or before March 2, 2003,  (i) 1% of gross revenues and (ii) 7.5% of
          EBITDA  of  the  business  operations  of  the  Cremation  Society  of
          Washington  during the twelve month period  ending  December 31, 2002;
          and

     o    on or before March 1, 2004,  (i) 1% of gross revenues and (ii) 7.5% of
          EBITDA  of  the  business  operations  of  the  Cremation  Society  of
          Washington during the twelve month period ending December 31, 2003.

     We agreed to pay an  additional  $125,000 in cash or  additional  shares of
Neptune Society common stock, at our option, if the average trading price of our
shares for the 30 day period from December 1 to December 31, 2000 declines below
$44.00 per share. For periods subsequent to



                                       20
<PAGE>

December  31,  2004,  we have agreed to pay an earn out payment  equal to 10% of
EBITDA of  Cremation  Society of  Washington  provided  that John C. Ayres,  the
founder and sole shareholder of Cremation Society of Washington,  and/or Charles
S. Wetmore,  the general  business  manager of Cremation  Society of Washington,
continue  to be employed by us. In May 2001,  we issued  1,168  shares of common
stock to the former owner's under this obligation.

     In connection with our acquisition of the Spokane,  Washington  operations,
we  entered  into a  consulting  agreement  with John  Ayres  and an  employment
agreement  with Charles  Wetmore.  The  consulting  agreement  was  subsequently
terminated  upon agreement of the parties and we have no further  obligations to
Mr. Ayres under the  consulting  agreement.  Mr. Ayres  remains  bound under the
terms of the non-compete  clause of the consulting  agreement and cannot provide
funeral,  burial or cremation  services,  including the sale pre-need  cremation
services in the states of Washington and Idaho for a period of 3 years, expiring
December 31, 2002.

     Under the terms of our employment  agreement with Mr. Wetmore, we agreed to
pay Mr.  Wetmore an annual salary of $75,000,  subject to annual  adjustments at
the discretion of our board,  for his services as General  Manager.  Mr. Wetmore
shall also be granted  1,250  options to purchase our common stock for each year
the agreement is in effect. Mr. Wetmore's options vest one year from the date of
grant.  The agreement is for a term of 3 years and expires on December 31, 2002.
The agreement  contains  non-compete  provisions  that restrict Mr. Wetmore from
providing funeral, burial and cremation services, including the sale of pre-need
cremation  services  in the  states  of  Washington  and Idaho for a period of 3
years,  expiring  December  31,  2002.  We paid  Mr.  Wetmore  consideration  of
$145,000,  in the form of  $20,000  cash and 2,841  shares of our  common  stock
valued at $120,000 (at the deemed value of $44.00 per share), for his promise to
not compete with 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 pursuant to the terms
of a share purchase  agreement.  Under the terms of the agreement,  we agreed to
pay John  Bethel  and  David  Noftsger,  the  co-founders  and  shareholders  of
Cremation  Society of Iowa,  $110,000 cash and to issue 20,129 shares of Neptune
Society common stock valued at $1,000,000.  In addition,  we agreed to make earn
out payments to Mr. Bethel and Mr.  Noftsger  equal to 3% of the gross  revenues
and 10% of EBITDA from the  operations  of the  Cremation  Society of Iowa for a
period of three  years  ending on March 15,  2003,  payable  on March 15 of each
year.

     Renegotiation of Iowa Acquisition

     On August 1, 2000,  we and Mr.  Bethel and Mr.  Noftsger  amended the share
purchase  agreement.  Under the  amended  terms,  Mr.  Bethel  and Mr.  Noftsger
retained the $110,000  cash payment made to them under the terms of the original
agreement.  The remaining  consideration  we were obligated to pay to Mr. Bethel
and Mr. Noftsger was adjusted as follows:

     o    The  20,129  shares  of  Neptune  Society  common  stock  that we were
          originally  obligated to issue was reduced to 15,000 shares. We issued
          these  shares in  February  2001.  We also  agreed that if the average
          closing price of Neptune Society common stock was less than $32.00 per
          share for the 5 day period preceding the 120th day following August 1,
          2000, we would issue additional


                                       21
<PAGE>

          shares or pay in cash to Mr. Bethel and Mr. Noftsger,  an amount equal
          to the  difference  between  $600,000  and the value of 15,000  shares
          (based on the  trading  price of Neptune  Society  shares on August 1,
          2000).  The trading price exceeded  $32.00 per share and no additional
          payment was made.

     o    The earn  out  payments  we were  originally  required  to make to Mr.
          Bethel and Mr.  Noftsger were  replaced  with the  following  earn out
          payment obligations:

          o    Within 60 days of August 1, 2001, we agreed to pay Mr. Bethel and
               Mr. Noftsger,  $200,000 in cash plus 3% of the gross revenues and
               19% of EBITDA from the business  operations of Cremation  Society
               of Iowa during the twelve month period ending August 1, 2001; and

          o    Within 60 days of August 1, 2002, we agreed to pay Mr. Bethel and
               Mr. Noftsger,  $100,000 in cash plus 3% of the gross revenues and
               19% of EBITDA from the business  operations of Cremation  Society
               of Iowa during the twelve month period ending August 1, 2002.

     The earn out payments are  contingent  on the  Cremation  Society of Iowa's
     gross  revenues  equaling  or  exceeding  $750,000  and EBITDA  equaling or
     exceeding $175,000 for each twelve month period of time.

     In connection with our acquisition of Cremation Society of Iowa, we entered
into employment and non-competition agreements with Mr. Noftsger and Mr. Bethel.

     Second Amendment of Iowa Acquisition

     In March 2001,  Neptune Society entered into an Amended Agreement with both
Noftsger and Bethel. In exchange for deletion of the "Contingent Purchase Price"
provisions of the Cremation  Society of Iowa,  Inc.  Share  Purchase  Agreement,
Neptune  Society  agreed to issue up to 10,000  additional  shares of its common
stock to  Noftsger  and  Bethel.  Any  shares  issued  under  the  terms of this
Agreement are subject to trading restrictions for a 12 month period. On December
1, 2001, David Noftsger's Employment Agreement was renegotiated whereby Noftsger
was  released  from daily  general  management  responsibilities  of the Neptune
Society of Iowa in order for him to become the  Pre-Need  Sales  Manager of that
location.  Noftsger's base salary requirements under the terms of the Employment
Agreement were terminated and replaced with commissioned compensation based upon
meeting certain  pre-need sales goals as established by the Company.  On May 25,
2001,  John Bethel  resigned as an  employee of the Neptune  Society,  effective
April  1,  2001.  Under  the  terms of his  resignation,  Bethel  received  cash
consideration in the amount of $2,500, in addition to the accrued salary due.


Oregon  Acquisition

     Effective July 17, 2000, we, through our wholly-owned subsidiary,  acquired
a funeral,  burial and  cremation  business in  Portland,  Oregon in a series of
transactions.  Heritage Memorial Society, L.L.C. and Community Memorial Centers,
L.L.C.  operated  businesses under the trade names Heritage  Memorial,  Heritage
Memorial Society,  Heritage Memorial  Cremation  Society,  The Heritage Society,
Wilhelm  Funeral Home,  Wilhelm  Crematory,  Oregon  Cremation  Company,  Oregon
Cremation & Burial Company and AAA Cremation  Company (the "Portland  Business")
and certain real  property used in  connection  with the Portland  Business (the
"Portland  Property").  David Schroeder and Michael Ashe, the owners of Heritage
Memorial Society,



                                       22
<PAGE>

L.L.C. and Community Memorial Centers,  L.L.C.  ("CMC") formed Wilhelm Mortuary,
Inc.,  which  acquired  the  assets of CMC and  Heritage  Memorial  Society.  We
acquired  Wilhelm  Mortuary,  Inc.  under the terms of an agreement  under which
Wilhelm  Mortuary,  Inc.  merged with and into Neptune  Acquisition,  Inc.,  our
wholly-owned subsidiary.

     Under the terms of the agreement, we paid the former owners of the Portland
Business the following consideration:

     o    $500,000 in cash,

     o    a three  year  $1,000,000  convertible  debenture  issued  by  Neptune
          Society to CMC with a  conversion  rate at $48.00 per share  issued to
          CMC (the "CMC Debenture"); and

     o    78,327 shares of Neptune Society common stock.

     We also agreed that if the value of the common  stock (based on the average
trading  price for the 60 day period  preceding  the first trading day following
July 17,  2001) issued to the former  owners of the  Portland  Business was less
than $3,885,000,  we would pay the owners the difference  between $3,885,000 and
the value of the  shares  in cash or, at our  option,  common  stock of  Neptune
Society.  In August 2001, we issued 140,424 shares of common stock to the former
owners of the Portland Business under this agreement.

     In connection  with the acquisition of the Oregon  businesses,  on July 17,
2000, we, through our subsidiary Neptune Management,  entered into an employment
agreement with Michael Ashe:

     Michael Ashe Employment Agreement: Under the terms of Mr. Ashe's employment
     agreement,  Mr.  Ashe  agreed  to  serve as our Vice  President  of  Oregon
     Operations.  The agreement is for a term of 3 years, expiring in July 2003.
     Mr. Ashe is paid a salary of $82,000 per year,  subject to  adjustments  at
     the  discretion  of our board of  directors,  and is  entitled  to benefits
     offered to our officers,  including health  insurance,  a vehicle allowance
     and  participation  in our Stock Option  Plan.  The  agreement  contains an
     agreement not to compete with the Neptune  Society in the Portland,  Oregon
     area for a period of 3 years in the event Mr. Ashe ceases to be an employee
     of the Neptune Society for any reason other than termination without cause.
     We granted Mr. Ashe options exercisable to purchase a total of 2,500 shares
     of Neptune Society,  at an exercise price of $49.60,  vesting one year from
     the date of the option grant, July 1, 2000.

     We appointed  David  Schroeder as our Chief  Operating  Officer and Michael
Ashe as our Vice  President  of Oregon  Operations  on June 1, 2000 prior to the
closing of the  acquisition  of our the  Portland  Business.  In January  2001 ,
Michael Ashe  accepted the  position as our National  Vice  President of At-Need
Operations,  and in August 2001 we appointed Mr. Schroeder as our President. See
"Directors   and  Executive   Officers  of  the   Registrant"   and   "Executive
Compensation."

     Disposition of Portland Assets and Related Transactions

          Green Leaf Bridge Loan

     In August  2001,  Wilhelm  Mortuary,  Inc.  obtained  a bridge  loan in the
principal amount of $1,575,000 from Green Leaf Investors II, LLC ("Green Leaf"),
evidenced by a promissory



                                       23
<PAGE>

note due January 31,  2002 (the  "Green  Leaf  Note"),  and secured by a deed of
trust on the Portland Property and a security interest in assets of the Portland
Business  (the "Green Leaf Bridge  Loan").  Green Leaf is a  California  limited
liability company managed by Tom Camp, a former director of Neptune Society, who
resigned on February 28, 2002. Under the terms of the Green Leaf Bridge Loan, we
agreed  (i)  Wilhelm  would pay Green  Leaf  interest  in the  amount of 13% per
annual, payable monthly in arrears, (ii) Wilhelm would pay Green Leaf a loan fee
in the amount of $75,000,  which was added to the principal  amount of the note,
(iii) Neptune  Society would issue Green Leaf a warrant  exercisable  to acquire
7,500 shares of common stock at $24.00 per share for a period of one year;  (iv)
Neptune  Society  would  issue  Green  Leaf 3,948  shares of common  stock as an
additional  loan fee; (v) Neptune  Society would grant  piggy-back  registration
rights on any shares of Neptune  Society  common  stock held by Green Leaf;  and
(vi) Neptune Society and Neptune America would guarantee  Wilhlem's  obligations
to Green Leaf.  The  proceeds of the bridge loan was used to meet certain of our
obligations to Weintraub.  See "August 2001 Debt  Restructuring." The Green Leaf
Bridge Loan was  restructured in connection with the disposition of the Portland
Business.   See,  "Sale  of  Portland   Assets"  and  "Green  Leaf  Bridge  Loan
Restructuring."

          Sale of Portland Assets

     During the fourth quarter 2001 as part of our overall business  strategy to
focus on our pre-need marketing and sales operations,  we determined that it was
in the company's best interest to restructure  our Oregon  operations to dispose
of certain  physical  assets  related to the Portland  Business and the Portland
Property for the purposes of (i) reducing the liabilities  owed to CMC and Green
Leaf;  and (ii)  focusing  our  resources  on  marketing  and  selling  pre-need
contracts  on  a  national   basis.   Effective   December  31,  2001,  we  sold
substantially  all of the  assets  related  to the  Portland  Business  and  the
Portland  Property to Western  Management  Services,  L.L.C.,  an Oregon limited
liability  company  managed by Michael Ashe  ("Western"),  under the terms of an
asset purchase agreement (the "Portland Purchase Agreement"). In connection with
the sale of the Portland Business and the Portland Property  (collectively,  the
"Portland  Assets"),  Mr. Ashe's  employment  agreement with Neptune Society was
terminated in its entirety and Mr. Ashe entered into a consulting agreement with
Neptune Management to provide consulting services to us.

     Under the terms of the Portland Purchase Agreement, we agreed as follows:

     (i) Western would purchase the assets related to the Portland  Business and
the Portland  Property in consideration of (a) assuming  $1,500,000 of Wilhelm's
obligations   under  the  Green  Leaf  Note,  (b)  assuming  Neptune   Society's
obligations  under  the CMC  Debenture  in the  amount  of  $1,000,000,  and (c)
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;

     (ii) Wilhelm would (a) pay $75,000 of the  principal  balance due under the
Green Leaf Note,  (b)  arrange  to  restructure  terms of the Green Leaf Note to
extend the due date to July 31,  2002,  and (c) obtain the consent of Green Leaf
related to Western's assumption of the obligations under the Green Leaf Note and
purchase of the Portland Assets;

     (iii) Neptune  Society and CMC would amend and restate the CMC Debenture to
delete the  conversion  features of the CMC  Debenture and obtain the consent of
CMC related to Western's  assumption of the obligations under the CMC Debenture;
and



                                       24
<PAGE>

     (iv) Western's obligations are secured by a security interest in the assets
of the Portland  Business granted to Wilhelm and a deed of trust on the Portland
Property,  each of which is  subordinate to Green Leaf's  security  interest and
deed of trust and to CMC's deed of trust.

     The sale of the Portland Assets was closed on March 12, 2002.

          Restructuring of Green Leaf Bridge Loan

     In connection with our sale of the Portland Assets,  we entered into a note
extension  and  assumption  agreement  with  Green Leaf and  Western  (the "Note
Extension  Agreement").  Under the  terms of the Note  Extension  Agreement,  we
agreed as follows:

     (i) we agreed to pay Green Leaf a fee of 75,000  shares of Neptune  Society
common stock with piggy-back  registration rights (the "Green Leaf Consideration
Shares") in  consideration  of (a) extending the due date of the Green Leaf Note
until July 31, 2002,  (b) consenting to the assumption of the Green Leaf Note by
Western,  and (c)  consenting  to the sale of the Portland  Assets by Wilhelm to
Western;

     (ii) we granted  preemptive rights related to the Green Leaf  Consideration
Shares,  under which Green Leaf may  purchase  its pro rata share  (based on the
percentage  interest  represented by the Green Leaf Consideration  Shares to the
issued and  outstanding  share of common stock of Neptune Society at closing) of
any equity offering by Neptune Society; 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,  which in the event that the Neptune Society effects a reverse
split of its common  stock the  conversion  price of the  convertible  debenture
would not exceed $0.333333 per share (post split).

     The  transactions  under the Note Extension  Agreement  closed on March 12,
2002. On March 22, 2002, we effected a 4:1 reverse split of our capital stock.

     Other Events

     Effective  December  31,  2001,  Neptune  Society  amended the terms of (i)
Convertible  Debentures  dated  December  24,  1999,  due February 24, 2005 (the
"Debentures"),  in the initial  principal amounts of $3,000,000 issued to CapEx,
L.P., a Delaware limited  partnership  ("CapEx"),  and $2,000,000 issued to D.H.
Blair Investment Banking Corp., a New York corporation ("DHB") and (ii) warrants
issued to CapEx  exercisable  to  purchase  30,000  shares  of Common  Stock and
warrants  issued to DHB  exercisable to purchase  20,000 shares of Common Stock.
The Debentures contained a "full ratchet" anti-dilution provision that reset the
conversion  price of the  Debenture in the event Neptune  Society  issued equity
securities  at a  price  lower  than  the  effective  conversion  price  of  the
Debenture. The Debentures also contained certain debt coverage ratios (requiring
Neptune  Society  to  maintain  certain  levels  of cash  flow in excess of debt
obligations),  which were in material default and constituted  events of default
under the terms of the  Debentures  (the  "Coverage  Ratios").  Neptune  Society
determined  that it was in the best  interest  of the  corporation  to amend the
Debentures to delete the "full ratchet"  anti-dilution  to allow the corporation
flexibility in future equity financings and to adjust the Coverage Ratios



                                       25
<PAGE>

to achievable  levels. The closing price for Neptune Society common stock on the
NASD  OTCBB was $1.60 per share on  December  31,  2001,  and $2.15 per share on
March 28, 2002.

     In connection with the Debenture and Warrant  amendments,  Neptune Society,
CapEx and DHB entered  into a Debenture  and Warrant  Amendment  Agreement  (the
"Debenture Amendment Agreement") in of December, 2001.

     Under the terms of the Debenture  Amendment  Agreement,  the parties agreed
that:

     (a)  the terms of the  Debentures  and  Warrants  would be amended to among
          other things:

          (i)  adjust the conversion  ratio of the Debentures  (the  "Conversion
               Ratio")  to provide an  effective  conversion  price of $3.00 per
               share, subject to future adjustments;

          (ii) eliminate the "full ratchet" anti-dilution provision;

          (iii)amend the  Debentures  to  provide  that,  in the  event  Neptune
               Society  effected  a  reverse  split  of its  Common  Stock,  the
               Conversion  Ratio would not be adjusted  below a ratio that would
               increase  the  effective  conversion  price above $3.00 per share
               (after  giving  effect  to the  adjustment)  subject  to  certain
               limitations on conversion;

          (iv) amend  the  Debentures  to  accelerate  the  payment  of  certain
               deferred interest payments under the Debentures;

          (v)  amend the Coverage Ratio; and

          (vi) amend the Warrants to decrease  the  exercise  price to $3.00 per
               share, subject to future adjustments under the terms thereof.

     (b)  Neptune  Society  would (i) issue  CapEx and DHB,  a total of  168,750
          shares  of  Neptune  Society  Common  Stock  as  a  restructuring  fee
          ("CapEx/DHB  Shares"),   (ii)  provide  CapEx  and  DHB  with  certain
          preemptive  rights to  maintain  their pro rata  interest  in  Neptune
          Society (based on the percentage interest represented by the CapEx/DHB
          Shares) in the event the Company offers to sell common stock or equity
          securities,  and (iii) provide CapEx and DHB registration  rights with
          respect to the CapEx/DHB Shares;

     (c)  Neptune  Society  would effect a 4:1 reverse  stock split on or before
          June 30, 2002 (the "Reverse Split");

     (d)  CapEx would not convert Debentures,  which after giving effect to such
          conversion,  would  cause  Neptune  Society to issue  shares of common
          stock  representing  more than  11.99% of the issued  and  outstanding
          shares of common  stock of Neptune  Society  and DHB would not convert
          Debentures,  which after giving effect to such conversion, would cause
          Neptune Society to issue shares of common stock representing more than
          7.99% of the issued and outstanding  shares of common stock of Neptune
          Society until the earlier of: (i) Neptune  Society  issuing  shares of
          common   stock  or  equity   securities   ("Equity   Securities")   in
          satisfaction  of  $750,000  or  more  of its  present  aggregate  debt
          liabilities  owed to  either  (ii)  Consulting  Commerce  Distribution
          AG/SA/LTD in the amount of



                                       26
<PAGE>

          $800,000 and/or (ii) Private Investment Company, Ltd. in the amount of
          $1,000,000;  (b) Neptune Society issuing new shares of common stock or
          equity securities for gross cash consideration of at least $1,000,000;
          (iii) Neptune  Society issuing at least 250,000 shares (as adjusted to
          give  effect  to  any  capital   reclassification,   stock   dividend,
          subdivision,   split   up,   combination,   consolidation   or   other
          reorganization of Common Stock) of common stock or equity  securities;
          (iv) 120 days after the  Company  effects the  Reverse  Split;  or (v)
          September 15, 2002; and

     (e)  Neptune  Society  would not,  so long as: (i) CapEx or its  affiliates
          holds  Debentures  in the  aggregate  principal  amount of $300,000 or
          more,  without the prior written consent of CapEx,  and/or (ii) DHB or
          its affiliates holds  Debentures in the aggregate  principal amount of
          $200,000 or more,  without the prior written consent of DHB: (A) issue
          Equity  Securities to cause the fully  diluted  capital of the Company
          (after giving effect to the conversion of options,  warrants and other
          convertible securities, other than the Debentures) to exceed 6,250,000
          shares of Common  Stock,  after  giving  effect to the Reverse  Split,
          unless such Equity  Securities are issued for consideration in cash or
          with a Fair Market  Value in excess of $2.00 per share of common stock
          (as  calculated on a post Reverse  Split  basis);  or (B) issue Equity
          Securities to cause the fully diluted capital of the Company to exceed
          7,500,000  shares of common stock,  after giving effect to the Reverse
          Split.

     The Debenture Amendment Agreement was closed on March 15, 2002.

     Effective at 5:00 p.m.  (Eastern time) on March 22, 2002,  Neptune  Society
effected the 4:1 Reverse Split. On March 22, 2002, Neptune Society had 9,697,601
shares of common stock issued and  outstanding  and 25,000,000  shares of common
stock authorized for issuance. As a result of the Reverse Split, Neptune Society
had  approximately  2,424,401  shares of common stock issued and outstanding and
6,250,000 shares of common stock authorized for issuance.  Neptune Society filed
a current  report on Form 8-K to report the Reverse Split on March 25, 2002. All
information contained in this report gives effect to the Reverse Split.


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.



                                       27
<PAGE>

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 $8,839,000 and $10,304,000,respectively,  during the
years  ended  December  31,  2000 and 2001.  We had an  accumulated  deficit  of
$1,890,000  at  December  31,  1999,   $10,729,000  at  December  31,  2000  and
$21,032,000 at December 31, 2001, respectively. We anticipate that we will incur
losses for the foreseeable  future until we successfully  integrate our Spokane,
Washington,  and Ankeny,  Iowa operations and achieve operating  efficiencies in
our business.  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  integrate our Spokane,  Washington,  and Ankeny,
Iowa  operations or that we will achieve any operating  efficiencies as a result
of our acquisitions.

     In  addition,  the  operations  that  we  acquire  in the  future,  even if
profitable when acquired,  may incur operating losses pending their  integration
into our  business.  Accordingly,  there  can be no  assurance  that we will not
continue to incur losses. 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
integrate  and oversee  the Neptune  Group of  companies  and our  acquisitions.
Failure to  successfully  integrate the  operations of our offices and cremation
facilities  and to 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,   Ankeny,   Iowa,  and  Portland,   Oregon  acquisitions  through  a
combination  of $2,110,000 in cash,  458,921  shares of Neptune  Society  common
stock,  $21,000,000  in  promissory  notes,  and  $1,000,000  in  a  convertible
debenture.  We may finance future acquisitions  through bank indebtedness,  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



                                       28
<PAGE>

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.

     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. 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



                                       29
<PAGE>

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


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



                                       30
<PAGE>

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.

     As at December 31, 2001, we had issued  warrants  exercisable to acquire up
to 88,750  shares of our common  stock at prices  between  $12.00 and $50.00 per
share.  We have an aggregate of 225,000  shares of our common stock reserved for
issuance  to our  employees,  directors  and  consultants  under our 1999  Stock
Incentive  Plan. We have granted  options  exercisable  to acquire up to 106,688
shares of our  common  stock at $47.00 per  share,  38,500  shares of our common
stock at $48.48 per share, 3,750 shares of our common stock at $56.00 per share,
21,250 shares of our common stock at $53.00 per share,  250 shares of our common
stock at $57.00 per share, 89,750 shares of our common stock at $10.00 per share
and 2,500  shares  of our  common  stock at $3.64  per  share to our  employees,
officers,  directors,  trustees,  and area sales  representatives.  We have also
granted  options  exercisable  to acquire  392,046 shares of our common stock at
$4.40  under   certain   executive   employment   agreements.   See   "Executive
Compensation".

     As at March 15, 2002, we had issued convertible debentures in the aggregate
principal  amount of $5,000,000,  which were convertible at $3.00 per share, and
$75,000, which were convertible at $0.333333 per share. Each of these debentures
had certain anti-dilution rights in the event we effected a reverse stock split.
On March 22,  2002,  we  effected  a 4:1  reverse  split,  which  triggered  the
anti-dilution rights.

     Subsequent  to December  31,  2001,  we also issued  243,750  shares of our
common stock in connection with restructuring debt agreements and extending debt
payments.  See "Oregon  Acquisition - Disposition of Portland Assets and Related
Transactions  - Green Leaf  Bridge  Loan" and  "Description  of Business - Other
Events." The Company issued 6,250 shares of its common stock in connection  with
the employment of certain senior staff.

     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 issued securities that have certain  anti-dilution  rights,  which could
require us to issue the holders of such securities  additional  shares,  causing
dilution to shares held by you.

     We provided  anti-dilution  rights in  connection  with the issuance of 13%
convertible  debentures issued to CapEx and DHB on December 30, 1999, which were
amended to provide certain  anti-dilution  protection in the event we effected a
reverse split of our common stock. See



                                       31
<PAGE>

"Description  of  Business  - Other  Events".  On March  21,  2002,  we issued a
convertible debenture in the principle amount of $75,000 convertible into shares
of common stock at $0.333333 per share with certain anti-dilution rights, in the
event Neptune Society  effects a reverse split of its common stock.  See "Oregon
Acquisition - Disposition  of Portland  Assets and Related  Transactions - Green
Leaf Bridge  Loan." On March 22, 2002 we  effected a 4:1  reverse  split,  which
triggered the anti-dilution  rights granted to CapEx , DHB and Green Leaf. After
giving  effect to the 4:1  reverse  split,  the  holders of the  debentures  may
acquire a total of 1,891,667  (post-split)  shares of our common  stock.  To the
extent we are required to issue  additional  securities  as a result of these or
similar  rights,  it will increase the number of issued and  outstanding  common
stock and dilute your investment in our shares.


We have agreed to pay certain  persons a  percentage  of the  revenues  from the
operations of our Spokane,  Washington and Ankeny,  Iowa operations,  which will
affect the profitability of these operations.

     In connection  with our  acquisitions of Spokane,  Washington,  and Ankeny,
Iowa  operations,  we agreed to pay the  former  owners  of these  businesses  a
percentage of the gross revenues and/or earnings before income tax, depreciation
and amortization ("EBITDA") as follows:

     o    to the former owners of our Spokane, Washington operations 3% of gross
          revenues and 12.5% of the EBITDA for the twelve  month  period  ending
          December 31, 2000; 2.75% of gross revenues and 12.5% of EBITDA for the
          twelve month period ending December 31, 2001; 1% of gross revenues and
          7.5% of EBITDA for the twelve month periods  ending  December 31, 2002
          and 2003, from our Spokane,  Washington operations;  and provided that
          John C. Ayres and/or Charles S. Wetmore continue to be employed by us,
          10% of EBITDA  during each year ending  December 31  commencing  after
          January 1, 2005; and

     o    to the former owners of our Iowa  operations 3% of gross  revenues for
          the twelve month period ending August 1, 2001;  19% of gross  revenues
          for the twelve month period ending August 1, 2002, provided that gross
          revenues  equal or  exceed  $750,000  and  EBITDA  equals  or  exceeds
          $175,000 for each twelve month period of time.

     Our agreements to pay a percentage of our revenues  and/or profits from our
Spokane, Washington and Ankeny, Iowa operations to the former owners will have a
material affect on our profitability. 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,  2001,  we  had  outstanding   approximately  $10,182,000
principal amount of debt, excluding accrued interest of $673,000,  at an average
interest  rate of 19.4% per annum.  Of the  principal  amount of our total debt,
$2,890,000  (considering  discount)  becomes due in the year ending December 31,
2002; $2,223,000  (considering discount) becomes due in the year ending December
31, 2003; $69,000 (considering discount) becomes due in the year ending December
31, 2004 and $5,000,000  becomes due in the year ending  December 31, 2005. Debt
becoming due in fiscal years 2003 and 2005,  respectively,  are  convertible  in
nature and can be



                                       32
<PAGE>

redeemed  for  common  stock  of the  Company.  Certain  convertible  debt has a
discount  recorded that reduces its carrying  value. It is  unforeseeable  as to
whether debt holders will opt for  redemption.  During the years ended  December
31, 2001,  December 31, 2000 and the nine months ended December 31, 1999,  total
interest  expense  was  approximately  $2,515,000,  $2,485,000  and  $1,184,000,
respectively.

     On December  31,  2001,  under the terms of a series of debt  restructuring
agreements with the Weintraub Trust,  the outstanding  balance due under the $19
Million Note due to the Weintraub Trust was  $2,392,000.  Under the terms of the
debt  restructuring  effective as of November 22, 2001,  the $19 Million Note as
follows: (i) $500,000 on or before January 2, 2002 (paid), (ii) eighteen monthly
installments  of  $78,471  beginning  January  2002,  and  (iii)  the  remaining
principal  balance  of  approximately  $1,429,000  due  on  July  31,  2003.  We
anticipate  that we may  increase our debt as we acquire  additional  death care
service operations and open new offices.  In the future, we may 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 $40 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 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 1% 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 the 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



                                       33
<PAGE>

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 $1.60 (low) to $36.50  (high) during the year ended  December
31, 2001 and from $1.60  (low) to $6.72  (high)  during the three  month  period
ended  December 31, 2001.  The closing price of our shares on March 28, 2002 was
$2.15.  Purchases  and sales of our shares  are  generally  facilitated  by NASD
broker-dealers  who act as market makers for our shares.  The  additional  sales
practice and disclosure requirements imposed upon brokers-dealers may discourage
broker-dealers from effecting  transactions in our shares,  which could severely
limit the  market  liquidity  of the shares and impede the sale of our shares in
the secondary market.

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

     In  addition,  the penny stock  regulations  require the  broker-dealer  to
deliver, prior to any transaction involving a penny stock, a disclosure schedule
prepared  by the  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,  Florida,
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



                                       34
<PAGE>

also lease our  corporate  offices in Florida and Los  Angeles.  We lease a call
center  in  Tempe,  Arizona.  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:

<TABLE>
                                  Summary of our operational locations
                                  ------------------------------------

   Location                               Operation                            Term of Lease    Expiration Date
   --------                               ---------                            -------------    ---------------
<S>                        <C>                                                 <C>               <C>
Arizona
     Tempe                 Telemarketing center                                    3 years        10/31/2002

California
     Burbank-Corporate     Administration and operations headquarters              2 years        10/14/2002
     Burbank               Sales and administrative office                         6 years         8/31/2005
     San Pedro             Pre-Need/At-Need sales and administrative office       10 years         3/31/2002
     Santa Barbara         Pre-Need/At-Need sales and administrative office        2 years         7/31/2002
     Los Angeles -         Holding facility, crematory and viewing room           10 years         1/31/2002
     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
     Miami                 Pre-Need/At-Need sales and administrative office and    5 years         9/12/2003
                             chapel
     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

Iowa
     Ankeny                Pre-Need/At-Need sales and administrative office,       5 years        10/14/2003
                             crematory and chapel

Oregon
      Portland             Pre-Need sales and administrative office                1 Year          8/31/2002

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

     Everett               Pre-Need/At-Need sales and administrative office        1 year         5/31/2002


    Denver                 Pre-Need/At-Need sales and administrative               3 years        8/1/2006
</TABLE>



                                       35
<PAGE>

ITEM 3.           LEGAL PROCEEDINGS

     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  (Honorable  Gary A. Fees).
Both Leneda and we 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. We 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 we
received  rights for use in some limited  areas in the Los  Angeles,  California
area  and  outside  of  California.  Subsequent  to  the  settlement,  we had an
arrangement  with Leneda  whereby  Leneda  would  perform  at-need  services for
certain of the pre-need  contracts sold within  Leneda's  territories.  Leneda's
lawsuit  alleges that we 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  Alternatives,  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 the 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.

     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  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 the Neptune Society's  obligations
under the Service  Agreement and the  Settlement  Agreement.  Leneda and Neptune
Society each agreed to implement appropriate procedures to ensure that the



                                       36
<PAGE>

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.

     Except as set forth above,  there is no other material  litigation  pending
against us. From time to time,  we may become a party to  litigation  and claims
incident to the ordinary course of its business. While the results of litigation
and claims cannot be predicted with certainty, we believe that the final outcome
of such  matters  will not  have a  material  adverse  effect  on our  business,
financial condition, operating results and cash flows.

     California Administrative Proceeding

     During March 1998, the Department of Consumer Affairs, Funeral and Cemetery
Division (the  "Department")  commenced an  administrative  proceeding  alleging
various statutory and regulatory  violations  arising from an incident occurring
at the  Heritage  Crematory.  This  proceeding  was  settled by the  Predecessor
Company agreeing to sell its business by a date certain or surrender its funeral
director's  license.  A sale of the Predecessor  Company to Lari Corp, Inc. (see
Note 1 to the  Consolidated  Financial  Statements) was concluded in March 1999.
The  Department  granted us a transfer of the funeral  establishment  license on
July 22, 2000, with the same probationary terms and conditions applicable to the
Neptune  Group.  These  conditions  require  us to  comply  with the  California
regulatory  requirements related to our business of providing cremation services
and marketing pre-need plans for one year, or as long as Mr. Weintraub continues
to be a shareholder of the Company.

     We may become a party to other legal  proceedings in the ordinary course of
our  business.  We do not  expect  the  outcome  of any of the  above  or  other
proceedings, individually or in the aggregate, to have a material adverse effect
on our financial statements taken as a whole or our liquidity.


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, 2001, or any subsequent  period to
the date of this report.



                                       37
<PAGE>

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, 1999,  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 effect to the reverse stock split effected on March 22, 2002.

     The  high  and low bid  quotations  of our  common  stock  on the  NASD OTC
Bulletin  Board as reported by the NASD for each of the  quarterly  periods from
January 1, 2002 through March 31, 2000, and the National Quotation Bureau's pink
sheets for period beginning April 1 through December 31, 2001 were as follows:

Period                                     High(1)                 Low(1)
------                                     -------                 ------
2000
First Quarter                              $53.00                 $41.00
Second Quarter(2)                          $57.00                 $53.50
Third Quarter(2)                           $56.50                 $49.75
Fourth Quarter(2)                          $53.50                 $30.00


2001
First Quarter(2)                           $36.50                  $6.40
Second Quarter(2)                          $24.80                  $8.50
Third Quarter(2)                           $24.72                  $5.60
Fourth Quarter(2)                           $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 28, 2002,  the closing bid  quotation for our common shares was
$2.15.

     As of March 28, 2002, we had 107 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.



                                       38
<PAGE>

Recent Sales of Unregistered Securities

     In March 2001,  Neptune Society agreed to issue 10,000 additional shares of
its  common  stock to John  Bethel  and  David  Noftsger,  the  co-founders  and
shareholders of Cremation  Society of Iowa, in consideration for deletion of the
"Contingent  Purchase Price"  provisions of the Cremation  Society of Iowa, Inc.
See "Description of Business - Neptune Society Acquisitions - Iowa Acquisition -
Second  Amendment  of  Iowa   Acquisition."   The  shares  were  issued  to  two
shareholders  pursuant  to  an  exemption  from  the  registration   requirement
available under Section 4(2) of the Securities Act of 1933, as amended.

     In June 2001,  Neptune  Society  issued  739 shares of common  stock to the
former  owners of the  Spokane,  Washington  property  in a private  transaction
pursuant to the  purchase  agreement.  See,  "Description  of Business - Neptune
Society Acquisitions - Spokane,  Washington Acquisition." The agreement required
an  adjustment  to the number of original  shares  issued to the extent  Neptune
Society's  stock  traded  below a certain  price on  January  2,  2001.  Neptune
Society's  stock  traded  below that price which  triggered  the issuance of the
above mentioned shares.  The shares were issued to two shareholders  pursuant to
an exemption from the registration  requirement  available under Section 4(2) of
the Securities Act of 1933, as amended.

     In August 2001,  Neptune  Society  issued 140,424 shares of common stock to
the former owners of the Portland Business in a private transaction  pursuant to
the  purchase  agreement.   See  "Description  of  Business  -  Neptune  Society
Acquisitions - Oregon  Acquisition." The agreement required an adjustment to the
number of original  shares issued to the extent Neptune  Society's  stock traded
below a certain average price for a sixty day period  immediately  prior to July
5, 2001.  Neptune  Society's  stock traded below that price which  triggered the
issuance  of  the  above  mentioned  shares.  The  shares  were  issued  to  two
shareholders  pursuant  to  an  exemption  from  the  registration   requirement
available under Section 4(2) of the Securities Act of 1933, as amended.

     In August 2001,  Neptune Society issued Green Leaf Investors II, LLC, 3,948
shares of common  stock and a warrant  exercisable  to acquire  7,500  shares of
common stock at $24.00 per share for a period of one year. See  "Description  of
Business - Oregon  Acquisition  -  Disposition  of  Portland  Assets and Related
Transactions  - Green Leaf Bridge Loan." The shares and warrant were issued in a
private  transaction  as a loan fee in connection  with a short term  $1,500,000
loan, pursuant to an exemption from the registration requirement available under
Section 4(2) of the Securities Act of 1933, as amended.

     In August, 2001, Neptune Society issued a total of 13,750 shares of Neptune
Society common stock to  Weintraub's  nominees,  each an accredited  investor as
that term is defined under Rule 501(a) of Regulation  D,  promulgated  under the
Securities  Act of 1933,  as  amended.  See  "Description  of Business - Neptune
Society  Acquisitions  - Neptune  Group  Acquisition."  The shares  were  issued
pursuant to an exemption from the registration requirements available under Rule
506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended.

     In  December  2001,  Neptune  Society  issued a total of  75,000  shares of
Neptune  Society  common  stock  to  Weintraub's  nominees,  each an  accredited
investor as that term is defined under Rule 501(a) of Regulation D,  promulgated
under the Securities Act of 1933, as amended.



                                       39
<PAGE>

See  "Description  of Business - Neptune  Society  Acquisitions  - Neptune Group
Acquisition."  The shares  were issued in a private  transaction  pursuant to an
exemption  from  the  registration  requirement  available  under  Rule  506  of
Regulation D and Section 4(2) of the Securities Act of 1933, as amended.

     In June 2001, we have granted options exercisable to acquire 392,046 shares
of stock at $1.10 under certain Executive Employment Agreements. The shares were
issued in a private  transaction  pursuant to an exemption from the registration
requirement  available  under  Section 4(2) of the  Securities  Act of 1933,  as
amended.

     Subsequent Events

     In February,  2002,  Neptune  Society issued 25,000  shares,  and cancelled
3,750 shares  previously issued in October 2001, of Neptune Society common stock
to Dorsey & Whitney LLP in  connection  with a fee  restructuring  agreement  to
restructure  our  obligations  of  approximately  $460,000 in accrued and unpaid
legal  fees and  expenses.  The  shares  were  issued in a  private  transaction
pursuant to an exemption from the registration  requirement available under Rule
506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended.

     In March, 2002, Neptune Society issued Green Leaf in a private  transaction
75,000  shares  of  common  stock  as a loan  extension  fee  and a  convertible
debenture in the principal  amount of $75,000  convertible into shares of common
stock at  $0.333333  per share,  subject to certain  anti-dilution  rights.  See
"Description  of Business - Oregon  Acquisition - Disposition of Portland Assets
and Related  Transactions - Restructuring of Green Leaf Bridge Loan." The shares
and the  convertible  debenture  were issued  pursuant to an exemption  from the
registration  requirement  available under Section 4(2) of the Securities Act of
1933, as amended.

     In March 2002,  Neptune Society issued CapEx 101,250 shares of common stock
and DHB 67,500  shares of common stock in a private  transaction  as a debenture
restructuring fee. See "Description of Business - Other Events." The shares were
issued in a private  transaction  pursuant to an exemption from the registration
requirement  available  under  Section 4(2) of the  Securities  Act of 1933,  as
amended.

     In March,  2002,  we issued 6,250 shares of our common stock in  connection
with the employment of certain senior staff. The shares were issued in a private
transaction pursuant to an exemption from the registration requirement 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, 2001,  2000, the nine months ended December 31, 1999 and the
three months ended December 31, 1999 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



                                       40
<PAGE>

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.

<TABLE>
                                                  Predecessor Company                       Successor Company
                                                     Three Months               Nine Months                       Pro forma
                                                        Ended                      Ended
                                                                                              Year      Year        Year
                                                                                              Ended     Ended       Ended
                                                                 December 31,     December   December   December   December
                                              1997      1998         1999         31, 1999   31, 2000   31, 2001   31, 1999
                                            --------------------------------    -------------------------------------------
                                               000's, except per share amount           (000's, except per share amount)
<S>                                           <C>       <C>         <C>             <C>        <C>       <C>         <C>
INCOME STATEMENT DATA:
Total Revenue                                 8,966     7,865       2,962           5,688      7,689     13,030      8,650

Gross Profit                                  5,304     4,107       1,763           3,436      3,237      6,767      5,199

General and Administrative Expenses           2,907     2,847         748           3,032      6,003      7,798      3,780

Compensation to Principal Shareholder         1,841     2,200         430               -          -          -          -

Professional Fees                               245       669         536             340      1,245      1,765        959

Amortization and Depreciation Expense             -         -           -           1,024      1,685      2,082      1,365

Interest Expense                                  -         -           -           1,184      2,485      2,515     (1,690)
Income (loss) before cumulative effect
 of change in  accounting principle             311    (1,609)         49          (1,890)    (8,435)   (10,151)    (2,297)

Net Income/(loss)                               311    (1,609)         49          (1,890)    (8,839)   (10,151)    (2,297)
Loss before cumulative effect of
 change in accounting principle per share         -         -           -           (1.23)     (4.75)     (5.09)     (1.52)

Loss per share                                    -         -           -           (1.23)     (4.98)     (5.09)     (1.52)

</TABLE>


<PAGE>

<TABLE>
                                                  Predecessor Company                       Successor Company
                                                     Three Months               Nine Months                       Pro forma
                                                        Ended                      Ended
                                                                                              Year      Year        Year
                                                                                              Ended     Ended       Ended
                                                                 December 31,     December   December   December   December
                                              1997      1998         1999         31, 1999   31, 2000   31, 2001   31, 1999
                                            --------------------------------    -------------------------------------------
                                               000's, except per share amount           (000's, except per share amount)
<S>                                           <C>       <C>         <C>             <C>        <C>       <C>         <C>
BALANCE SHEET DATA:

Current Assets                                2,008       835       1,172           7,046      1,421      2,078          -

Current Liabilities                             491       647         916          11,730      8,281      6,069          -

Long Term Debt                                    -         -           -           5,722        101      2,292          -

Convertible Debentures                            -         -           -           4,438      5,937      5,000          -

Shareholders Equity                           2,578       808         792          12,385     16,108      7,023          -

OTHER FINANCIAL DATA:

Number of Offices                                10        10          10              13         18         18          -
</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,  2000 and  ending
December 31, 2001 as well as the percentage of the Company's revenue represented
by each item. 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.

<TABLE>
                                            First          Second          Third          Fourth
                                           Quarter         Quarter        Quarter         Quarter
                                           -------         -------        -------         -------
<S>                                       <C>               <C>             <C>             <C>
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)

 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>



                                       41
<PAGE>

<TABLE>
                                            First          Second          Third          Fourth
                                           Quarter         Quarter        Quarter         Quarter
                                           -------         -------        -------         -------
<S>                                       <C>               <C>             <C>             <C>
 Net revenues                             $  1,602          1,664          1,992           2,430

 Gross profit                                  651            631            747           1,208

 Operating loss                             (1,407)        (1,367)        (1,691)         (1,231)

 Loss before cumulative effect of
  change in accounting principle            (1,855)        (1,789)        (3,144)         (1,647)

 Net loss                                   (2,259)        (1,789)        (3,144)         (1,647)

 Loss before cumulative effect of change
  in accounting principle per share             (1.12)         (1.04)         (1.72)          (0.88)

 Basic net loss per share(1)              $  (1.36)         (1.04)         (1.72)          (0.88)
</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 North America.  As of March
28, 2002, we operate 19 locations serving California,  Colorado,  Florida, Iowa,
Oregon,  New York, and Washington.  Our strategy is to grow by: (i) s initiating
start-up  operations;  (ii) electively acquiring small,  family-owned  cremation
service providers  strategically  located across North America ; (iii) operating
all our  locations  under one  nationally  branded name,  "The Neptune  Society"
(where permitted); (iv) avoiding direct competition with corporate consolidators
by concentrating  solely on cremation services and cremation  products;  and (v)
improving   revenue  and   profitability   of  newly   acquired   operations  by
consolidating  administrative and management  functions within our organization.
We believe  that  implementing  these  initiatives  are  critical  to  achieving
profitability and are our most important challenges in competing  effectively in
the death care industry.

Critical Accounting Policies:

     We recognize revenue according to the following:

     At-need  cremation  services--We  recognize  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--We  sell pre-need cremation services and
merchandise  under  contracts  that  provide for delivery of the services at the
time of need.  Revenues related to pre-need  cremation  services are recorded as
revenue in the period the services are performed.

     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,  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



                                       42
<PAGE>

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.

     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.

     During the four month period  beginning  June 1, 2001 and ending  September
30, 2001,  we recognized  pre-need  merchandise  revenue in accordance  with our
revenue recognition policy.

     Effective on October 1, 2001, the Company  adopted changes to its inventory
management  policy in an effort to reduce  expenses  related to storing  certain
delivered  merchandise in connection  with the sale of pre-need  contracts.  The
Company  will  continue  to  deliver  and  store  certain  merchandise  sold  in
connection  with pre-need  sales  contracts as required by  applicable  law, but
because this certain  merchandise  is identical in each pre-need  contract,  the
Company will no longer segregate and  specifically  identify such merchandise by
customer. As a result of this change in inventory management policy, the Company
will not continue to recognize  revenue on the sale of certain  future  pre-need
merchandise sales. This change in inventory  management is expected to result in
an immediate improvement in the Company's cash flow.

     Florida and New York do not allow us 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.

     We are allowed  under state  regulations  in 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.



                                       43
<PAGE>

     Pre-need  installment  sales--We also sell 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 revenue until the transaction  qualifies for revenue  recognition under
our accounting  policies.  Prior to January 1, 2001,  due to the  uncertainty of
collections of these accounts, we recorded these transactions in accordance with
our revenue recognition accounting policies as cash was received.  Subsequent to
December 31, 2000, we record these  transactions  in accordance with our revenue
recognition accounting policies on an accrual basis.

     Worldwide  travel  sales--We  sell a worldwide  travel  assurance plan (the
"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 these plans
at the time of sale.  We also sell  worldwide  travel  plans  under  installment
plans. Under such plans, the customer makes an initial down-payment and pays the
balance in monthly installments plus interest.

     Commission  income--  Under  pre-need  cremation  services and  merchandise
arrangements  funded through  insurance  purchased by customers from third party
insurance  companies,  we  earn 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 us as  cremation  services  and
merchandise are delivered.

     Direct and indirect  costs--We  expense  direct and  indirect  costs in the
period  incurred,  with the exception of expenses  specifically  identifiable to
individual pre-need cremation arrangements,  such as commissions.  Such expenses
are recognized when the related pre-need  merchandise  and/or service  revenues,
respectively, are recognized.


YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000:

Results of Operations

     The following  discussion compares the operations of the registrant for the
year ended  December 31, 2001 to the  operations of the registrant for the three
and year ended December 31, 2000.

     Revenues

     In May  2001,  the  Company  changed  its  inventory  procedures  and sales
contracts  to conform  to its  revised  revenue  recognition  policy.  Under the
Company's revised revenue  recognition  policy,  the Company  recognizes 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



                                       44
<PAGE>

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,  the Company  recognized
pre-need  merchandise  revenues of  $1,804,000.  Effective  October 1, 2001, the
Company changed its inventory management policy and no longer recognized revenue
on the sale of pre-need  merchandise.  The  introduction of the Worldwide Travel
Assurance Plan (the "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, the Company 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.

     The Company  believes  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 the
Leneda  litigation  for  trademark  infringement  as a result  of our use of the
"Neptune Society" name in those counties Riverside, Imperial, San Bernardino and
San Diego Counties.  We suspended sales in these areas, and we estimate that the
Leneda litigation caused our revenues to decline by approximately $350,000 or 3%
during the year ended  December 31, 2001. See "Legal  Proceedings."  In October,
2001, the Company  entered into a settlement  agreement  with Leneda.  Under the
terms  of  the  settlement  agreement,  we  are  permitted  to  market  pre-need
arrangement contracts under the name "Trident Society." The Company believes the
Leneda  settlement will not have a material  financial impact on operations.  We
can not predict when, or if, revenues  related to the affected areas will return
to historical levels.

     During 2000,  the Company  acquired the Ankeny,  Iowa and Portland,  Oregon
properties,  respectively,  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.  The  Company  did not  acquire  or open any new
properties or offices  during 2001.  The Company sold  substantially  all assets
related to its  Portland,  Oregon  businesses  in  December  2001.  See "Loss on
Disposal of Assets."

     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 is attributable to decreased management fees due to
reduced investment  yields,  which was partially offset by increased finance fee
income. Finance fees increased due to the Company's 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  $4,451,463  or 58% of revenues  for the
comparable period in 2000. The



                                       45
<PAGE>

$1,812,000 or 41% increase was attributable to fiscal 2000  acquisitions and new
office  openings,  and increases in costs related to the Travel Plan.  The gross
profit during the year ended December 31, 2001 was  6,767,000,  an $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
$1,995,000or  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,
respectively,  for the year ended  December  31, 2001 and 2000.  The increase in
amortization and  depreciation  expenses during 2001 was primarily the result of
the Iowa and Oregon acquisitions.

     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 successful completion of registration of the Company's common stock with the
Securities  and  Exchange  Commission  in the  second  quarter  of 2001  and the
re-structuring of the Company's capitalization. Certain provisions of the Leneda
Settlement  Agreement  required the Company to pay $120,000 in legal expenses of
the former principal  shareholder.  See "Other Financings." The Company issued a
note  payable  related  to  such  obligation.  Professional  fees  also  include
$443,000and  $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 sum-lump  payment of  $335,000  was paid upon
termination.

     Loss on Disposal of Assets

     In December 2001, the Company sold  substantially all of the assets related
to its  Portland,  Oregon  businesses.  The Company  sold those assets for total
consideration of $2.5 million. Such consideration consisted of: a) assumption of
$1.5  million  of the  Company's  debt,  and b) the  forgiven  of the $1 million
convertible  debenture  previously due July 2003. As a result of the disposal of
those assets,  the Company recognized a $2.8 million loss. The Company purchased
those  assets  in  July  2000  for  $5.7  million,  $500,000  cash,  $1  million
convertible debenture and $4.2 million in stock.

     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



                                       46
<PAGE>

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.

     We anticipate  interest  expense will increase in subsequent  periods.  The
Company entered into a Letter of Memorandum with Private Investment Company with
terms to convert a $1 million non-interest bearing promissory note, due December
31,  2001,  into an a 12%  per  annum  interest  bearing  convertible  debenture
maturing in September 2004.

     The Company  entered an agreement to borrow up to  $1,500,000 at 19.98% per
annum.  Under the terms of the  Agreement,  the  Company  borrowed  $800,000  in
December 2001 due and payable  December  2002,  interest  payable  monthly.  The
Company  anticipates  borrowing an additional  $700,000 with similar terms under
the Agreement.  The above mentioned transactions in addition to the extension of
acquisition  debt principal  payments will likely  contribute to higher interest
costs. See "Other Financings".

     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,  respectively,  for the year ended December 31, 2001
and 2000. The loss related 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, 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.

     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. The Company considered the criteria to be
satisfied  when (i) the Company was permitted to receive one hundred  percent of
the  unrestricted   funds  associated  with  the  merchandise   sale,  (ii)  the
merchandise  was in a condition  for its  intended  use (iii) the Company had no
specific  performance   obligations   essential  to  the  functionality  of  the
merchandise; (iv) the customer accepted title of the merchandise, evidenced by a
written  transfer of title to the customer and  certificate  of ownership.  And,
also at the request of the customer, the Company 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,  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 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



                                       47
<PAGE>

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  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.  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.

     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,  respectively,  for the year ended
December 31, 2001 and 2000. The net loss related to the reasons described above.


YEAR END DECEMBER 31, 2000  (SUCCESSOR  COMPANY)  COMPARED  WITH THE NINE MONTHS
ENDED DECEMBER 31, 1999 (SUCCESSOR COMPANY) AND THE THREE MONTHS ENDED MARCH 31,
1999 (PREDECESSOR COMPANY):


Results of Operations

     The following  discussion compares the operations of the registrant for the
year ended  December 31, 2000 to the  operations of the  registrant for the nine
month period ended  December 31, 1999.  In certain  cases,  we have compared our
operations for the year ended December 31, 2000 to our pro forma results for the
year  December 31, 1999,  which  reflect the  revenues,  cost of sales and gross
margin of our operations as if our  acquisition of the  Predecessor had occurred
on January 1, 1999.

Revenues

     Cremation  service  revenues for the Successor  Company were $6,188,000 for
the  year  ended  December  31,  2000  compared  to the pro  forma  revenues  of
$6,724,000 for the same period in 1999.  Included in pro forma cremation service
revenues in the first half of 1999 are $961,000 of pre-need merchandise revenues
that were recognized  under the Company's  previous revenue  recognition  policy
(see discussion below of Cumulative  Effect of Change in Accounting  Principle.)
As a result,  pro forma 1999 cremation  service  revenues  exceed 2000 cremation
service revenues.  Also, during the third and fourth quarters of 1999,  $995,000
of  merchandise  sales were  deferred  as we did not meet our  previous  revenue
recognition  criteria.  In 2000, the Company deferred  $4,326,000 of merchandise
sales due to the change in accounting  principle as of January 1, 2000. Revenues
were also lower  during the year ended  December  31,  2000  resulting  from the
Leneda  litigation  for  trademark  infringement  as a result  of our use of the
"Neptune  Society" name in Riverside,  Imperial,  San  Bernardino  and San Diego
Counties.  We suspended  sales in these areas,  and we estimate  that the Leneda
litigation  caused our  revenues  to decline by  approximately  $200,000 or 2.6%
during the year ended December 31, 2000. See



                                       48
<PAGE>

"Litigation." We began marketing pre-need arrangement  contracts in the Southern
California  areas affected by the Leneda  litigation  under the Trident Society,
Inc. name in the first quarter 2001,  which over time is expected to allow us to
generate revenues from the affected area at historical levels.

     Cremation service and merchandise revenues related to the December 31, 1999
Spokane,  Washington  acquisition,  current  year  acquisitions  and new  office
openings were $1,077,000 for the year ended December 31, 2000.

     Additionally,  pro forma  revenues  for the year ended  December  31, 1999,
reflect a  non-recurring  liquidation of amounts  trusted by the  Predecessor in
1996 of approximately  $525,000. The trust was created as a result of California
trusting  requirements  that had  required  the  Predecessor  to  trust  100% of
Pre-Need  sales  during  an  approximate  two  month  period  of  1996,  pending
clarification  of the  merchandise  delivery  requirements  in California by the
California  staff  funeral  home  regulations.  Subsequently,  California  state
regulators required the Predecessor to liquidate this fund and actually purchase
and deliver  merchandise  at the time the contract  for the pre-need  service is
made in accordance with the state's merchandise delivery  administrative  rules.
See "Industry Regulations--Death Care Service Industry Regulations."

     Revenues  earned  for the year  ended  December  31,  2000 from  Trust Fund
management  and finance fees were  $1,501,000  compared to pro forma revenues of
$1,400,000  for the same  period  in 1999,  a 7.2%  increase.  The  increase  is
attributable to increasing yields on trust fund assets.

Costs and Expenses and Gross Profit

     Direct  costs and  expenses  were  $4,451,000  or 57.9% for the year  ended
December 31, 2000  compared to pro forma direct costs and expenses of $3,451,000
or 39.9% for the comparable  period in 1999. The increase is attributable to the
Spokane, Washington acquisition,  current year acquisitions, new office openings
and additional costs of $656,000 to operate the PDS Center,  which was opened in
November 1999.

     The gross profit during the year ended  December 31, 2000 was $3,237,000 or
42.1% of total  revenues  compared to $5,199,000 or 60.1% for the comparable pro
forma  period in 1999.  If revenues  and costs of sales  related to  merchandise
sales in  connection  with  2,350  pre-need  sales  contracts  could  have  been
recognized  currently,  gross profit and gross  profit  margin for the pro forma
year ended  December 31, 1999 would have been  $4,312,000  or 62.7% of revenues,
excluding the non-recurring revenue item noted above; and gross profit and gross
profit margin for the year ended December 31, 2000 would have been $5,974,000 or
54.2% of revenues.

General and Administrative Expenses

     General and  administrative  expenses for the year ended  December 31, 2000
were $6,003,000 or 78.1% of revenues.  General and  administrative  for the nine
months  ended  December  31,  1999 were  $3,032,000  or 53.3% of  revenues.  The
relative  increase in general and  administrative  expenses in 2000  compared to
1999 is related to additional  costs  associated  with the  increased  number of
management  level personnel and the additional  costs associated with supporting
increased geographic locations.



                                       49
<PAGE>

Amortization Expense

     Amortization  expense was  $1,685,000 for the year ended December 31, 2000.
Amortization expense was $1,024,000 for the nine month period ended December 31,
1999. The relative increase in amortization  expense during 2000 was a result of
the Washington, Iowa and Oregon acquisitions.

Professional Fees

     Professional  fees were  $1,245,000 or 16.2% of revenues for the year ended
December 31,  2000.  Professional  fees were  $340,000 for the nine month period
ended  December  31,  1999  or  6.0%  of  revenues.  The  relative  increase  in
professional  fees during 2000 were related to costs  associated with the Leneda
litigation  and  advisory  services in  connection  with our ongoing  efforts to
register common stock with the Securities and Exchange Commission.  Professional
fees also include  $333,000 and  $263,000 of  consulting  fees paid by us to the
former principal shareholder in 2000 and 1999,  respectively,  for marketing and
sales consultation.

Interest Expense

     Interest  expense was  $2,485,000  or 32.3% of revenues  for the year ended
December 31, 2000.  Interest expense was $1,184,000 or 20.8% of revenues for the
nine month period ended  December  31, 1999.  The relative  increase in interest
expense in 2000 was a result of our  additional  borrowings  and higher  average
interest rates.

Loss before Cumulative Effect of Change in Accounting Principle

     Loss  before  cumulative  effect of a change in  accounting  principle  was
$8,435,000 for the year ended December 31, 2000. Loss before  cumulative  effect
of a change in  accounting  principle was  $1,890,000  for the nine month period
ended December 31, 1999,  respectively.  The net 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, 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.

     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,  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.



                                       50
<PAGE>

     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 conditions beyond current state regulations.  As of January 1, 2000, the
Company has 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  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 through 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 our additional  revenue  recognition  criteria
had not been met. The Company has deferred  revenues of $4,326,000 since January
1,  2000  until  such  time as the  additional  criteria  noted  above  has been
satisfied.   Future   pre-need   merchandise   sales  will  be  recognized  upon
satisfaction of the Company's current revenue recognition policy.

     The cumulative  effect  adjustment  represents the deferral of revenues and
costs related to pre-need merchandise sales transactions  previously  recognized
in 1999. All other pre-need  merchandise sales  transactions for the nine months
ended  December  31,  1999 had been  deferred  previously  (see  discussions  in
"Revenue"  sections of Results of Operations  for Years Ended  December 31, 2000
and 1999,  respectively.)  For the year 2000,  the effect of this change on loss
before the cumulative  effect of the accounting change was to increase such loss
by  $3,613,000,  or $2.03 per diluted  share.  This amount  represents  deferred
revenues and costs related to pre-need  merchandise  sales  transactions for the
entire year 2000.

     If the new  accounting  principle  had been in effect  for the nine  months
ended  December 31,  1999,  three months ended March 31, 1999 and the year ended
December 31, 1998, net loss would have been $2,294,000, $280,000 and $2,268,000,
respectively.  The  diluted  loss per  share  for the  nine-month  period  ended
December 31, 1999 would have been $1.50.

Net Loss

     Net loss was  $8,839,000 for the year ended December 31, 2000. Net loss was
$1,890,000  for the nine month  period ended  December  31,  1999.  The net loss
related to each respective period differed for the reasons described above.

     Subsequent Events

     On  January 2, 2002,  the  Company  began  operations  out of its  Colorado
office.

     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 effect to the reverse stock split effected on March 22, 2002.

     During March 2002, the Company  submitted  applications  to open offices in
the state of Illinois.



                                       51
<PAGE>

     Liquidity and Capital Resources

     At  December  31,  2001,  we had  current  assets of  $2,091,000,  which is
comprised of cash, accounts  receivable and prepaid expenses.  Our total current
liabilities  were  $6,228,000  comprised  mainly of  accounts  payable,  accrued
liabilities,  and the current  portion of long term debt. We had long-term debt,
including  convertible  debentures,  of  $5,000,000.  We had a  working  capital
deficit of $4,137,000 at December 31, 2001.

     As of December 31, 2001, we had the following debt obligations:

<TABLE>
     Obligations as of December 31, 2001:             Principal      Interest           Due
                                                         Due           Rate             Date
<S>                                                 <C>                <C>          <C>
     Convertible debentures                         $  5,000,000       13.00%       February 2005
     Note payable (original acquisition debt)          2,391,940       13.00%           July 2003
     Note payable*                                     1,000,000        0.00%      September 2001
     Note payable                                        800,000       19.98%       December 2002
     Notes payable, net discount of $60,090              369,872       11.87%       November 2003
     Note payable                                        350,000       13.00%           July 2003
     Note payable                                         94,102       10.00%           July 2002
     Line of credit                                       90,000        9.00%          April 2002
     Convertible debentures                               75,000       13.00%           July 2002
     Notes payable                                        10,877        9.00%            May 2002

     Total Debt Obligations                           10,181,791
     Current Portion (Due During 2002)                 2,890,215
                                                    ------------
         Long-term obligations                    $    7,291,576
                                                    ============
</TABLE>

     * In August 2001,  the Company  entered into a Memorandum of  Understanding
(the "MOU") to convert its $1,000,000  note due to Private  Investment  Company,
Ltd.  on  September  30, 2001 into a 12%  convertible  debenture  with  interest
payable  annually on September 30th of each year of the term. Under the terms of
the MOU, the debenture was anticipated to have a conversion  price of $24.00 per
share and a maturity  date of September  30, 2004.  The Company  agreed to issue
2,500 shares of the Company's common stock valued at approximately  $45,000.  As
of March 22,  2002,  the Company has not entered  into a definite  agreement  to
convert the promissory note.


     We had net cash used by  operating  activities  of $775,000  and  $873,000,
respectively,  for the three months ended December 31, 2001 and 2000. We had net
cash used by operating  activities of $735,000 and $732,000,  respectively,  for
the year ended  December 31, 2001 and 2000.  Interest  paid for the three months
ended  December  31, 2001 and 2000 were  $529,000  and  $157,000,  respectively.
Interest paid for the year ended December 31, 2001 and 2000 were  $1,132,000 and
$659,000, respectively.



                                       52
<PAGE>

     Plan of Operation

     Our Plan of Operation is based,  in part,  on  information  provided in the
reports of our  consultants  and the decisions of  management.  Our  independent
auditors have not examined, compiled or otherwise applied procedures to the plan
of operations presented herein, and,  accordingly,  do not express an opinion or
any  other  form of  assurance  on it.  Information  contained  in this  plan of
operation is presented on a cash basis, which is not in accordance with US GAAP,
and represents to projections and assumptions of management.  Actual results can
vary materially from the estimates of management and investors are cautioned not
to place  undue  reliance  on  management's  projections  and  assumptions.  See
"Forward-Looking Statements."

     Set out below is a summary of our Plan of  Operation  for the  fiscal  year
ending 2002.

     Material Commitments--Short-term                      Funding Requirements
     --------------------------------                      --------------------

     Operating expenditures (incl. Working capital)           $17.8 million

     Interest payments                                          1.2 million

     Current portion of long-term debt                          2.9 million

     Capital expenditures                                       0.1 million

     Estimated total Short-term commitments                    22.0 million

     Estimated total Cash from Operations                      19.6 million

     Estimated total Cash from Debt Proceeds                    0.7 million
                                                           --------------------
     Estimated net Cash Funding Requirements                   $1.7 million
                                                           --------------------

     Net Cash Flow operations: Management's current year budget projects it will
achieve  $1.8  million in positive net cash flows before the payment of debt and
interest and capital  expenditures.  We anticipate generating cash receipts from
sales and other income of $19.6 million, on cash expenditures of $17.8 million.

     Working  capital:  Management  entered the  current  year (2002) with a net
working capital deficit of $4.1 million.  The majority of the deficit relates to
the current  portion of long-term  debt of $2.9 million due or coming due during
the fourth quarter of 2002. See "Liquidity & Capital  Resources".  The remainder
relates to accounts payable and accrued expenses in connection with our on-going
operations.  The Company  enter into a loan  agreement to borrow $1.5 million in
December 2001. The Company has drawn down $800,000 against the loan precedent to
January 1, 2002. We anticipate the remaining $700,000 will be drawn in the first
half of 2002. See "Other Financings".

     Interest payments:  We carry outstanding debt, including  convertible debt,
requiring  annual cash  interest  payments of $1.1  million,  payable in monthly
installments. There is no guarantee that any convertible debt will be converted;
therefore the maximum amount of interest payments have been projected.

     Capital  Expenditures:  We  anticipate  capital  expenditures  to amount to
approximately  $78,000.  These expenditures  include office furniture and office
and computer equipment.


                                       53
<PAGE>

     We will have to raise  capital  during the first  eleven  months of 2002 to
extinguish  the current  portions of long-term debt due or coming due during the
fourth quarter.  See "Liquidity and Capital  Resources".  We intend to raise the
capital required to fund our financing needs by issuance of debt and equity.  We
are attempting to raise such financing;  however, we have no current arrangement
to obtain such financing.  There can be no assurance financing will be available
or accessible on reasonable terms.

     Our total  operating and capital budgets for the fiscal year ended December
31, 2002 is estimated  to be  approximately  $19 million.  There is no assurance
that our actual  expenditures  for the fiscal year ending December 31, 2002 will
not exceed our estimated operating budgets. Actual expenditures will depend on a
number of factors,  some of which are beyond our control including,  among other
things,  timing of regulatory  approval of its  projects,  the  availability  of
financing on acceptable  terms,  reliability of the assumptions of management in
estimating cost and timing,  the death and cremation  rates in the  geographical
locations that we serve,  consumer acceptance of our pre need plans,  changes in
governmental  regulation  as they relate to our business,  certain  economic and
political  factors,  the time expended by consultants and professionals and fees
associated with applications  related obtaining and maintaining licenses for our
locations and the  professional  fees associated with our reporting  obligations
under the Securities  Exchange Act of 1934. If the actual  expenditures for such
costs exceed the  estimated  costs or if events  occur that  require  additional
expenditures,  we will be required  to raise  additional  financing  or to defer
certain  expenditures  to meet other  obligations.  If we cannot raise  adequate
financing  to fund our plan of  operation,  we may be  required  to suspend  our
growth  strategy;  consolidate  our operations  through  reductions in staffing,
marketing and sales, promotion and hours of operation;  terminate our operations
in  unprofitable or difficult to service  markets;  sell assets or operations in
some of the markets we service and/or suspend our operations in certain markets.
The  failure to meet  certain  expenditures  may cause us to default on material
obligations and such default may have a material  adverse effect on our business
and results of operations.

     Material Commitments--Long-term (3 year period ending December 2005):

     Operating expenditures (incl. Working capital)           $72.9 million

     Interest payments                                          2.9 million

     Long-term debt                                             8.0 million

     Capital expenditures                                       0.4 million

     Estimated total Long-term commitments                     84.2 million

     Estimated total Cash from Operations                      94.8 million
                                                           --------------------
     Estimated net Cash Surplus                               $10.6 million


     Net Cash operations: Management projects that long-term, 2003 through 2005,
it will achieve  $21.9  million in positive net cash flows before the payment of
debt and interest and capital expenditures.  The Company anticipates  generating
cash receipts from sales and other income of $94.8 million, on cash expenditures
of $72.9 million.



                                       54
<PAGE>

     Long-term  debt:  We  anticipate  we  will  generate   sufficient  cash  to
extinguish all outstanding debt coming due and to finance our long-term location
expansion plan. See "Liquidity and Capital Resources".

     Interest payments:  We carry outstanding debt, including  convertible debt,
requiring cash interest payments of $2.9 million. Of the $2.9 million, a balloon
payment of $1.6  million will be due February  2005.  The  remainder of interest
payments  is payable in monthly  installments.  There is no  guarantee  that any
convertible  debt will be converted;  therefore  the maximum  amount of interest
payments have been projected.

     Capital  Expenditures:  We  anticipate  capital  expenditures  to amount to
approximately  $353,000 million. These expenditures include office furniture and
office and computer equipment.

     Lease payments-future  years: We are obligated under certain office rental,
facility rental,  storage rental equipment rental,  temporary housing rental and
automotive rental agreements. See "Properties".  Future lease payments from 2003
through 2005 amount to $1.0 million.

     Long-term, for the fiscal years 2003 through 2005, we anticipate generating
sufficient  capital from our operations to finance basic operations,  extinguish
outstanding debt, and execute the location  expansion  initiative of our plan of
operation.  We do  not  anticipate  needing  additional  financing  beyond  that
required  for  2002  to fund  these  initiatives.  See  "Liquidity  and  Capital
Resources".

     Our  cumulative  operating  and capital  budgets for the three fiscal years
ended December 31, 2005 is estimated to be approximately  $76 million.  There is
no  assurance  that our actual  expenditures  for the three  fiscal years ending
December  31,  2005 will not  exceed our  estimated  operating  budgets.  Actual
expenditures  will depend on a number of  factors,  some of which are beyond our
control including, among other things, market price for our common stock, timing
of  regulatory  approval of its  projects,  the  availability  of  financing  on
acceptable  terms,  reliability  of the  assumptions of management in estimating
cost and timing,  the death and cremation  rates in the  geographical  locations
that  we  serve,   consumer  acceptance  of  our  pre  need  plans,  changes  in
governmental  regulation  as they relate to our business,  certain  economic and
political  factors,  the time expended by consultants and professionals and fees
associated with applications  related obtaining and maintaining licenses for our
locations and the professional  fees associated with completing the registration
of our shares under the Securities  Exchange Act of 1934. On March 28, 2002, the
closing  price for our common stock was $2.15.  Our ability to raise  additional
financing  without  substantial  dilution to our existing  shareholders  will be
affected by the market price for our common stock. We cannot assure you that our
stock price will not  decline as a result of our  financing  activities.  If the
actual expenditures for such costs exceed the estimated costs or if events occur
that require  additional  expenditures,  we will be required to raise additional
financing  or to defer  certain  expenditures  to meet  other  obligations.  The
failure  to meet  certain  expenditures  may  cause us to  default  on  material
obligations and such default may have a material  adverse effect on our business
and results of operations.

     We expect  operating  cash  flows,  before  debt  servicing  and  expansion
expenditures, to be adequate to finance our basic operations. We anticipate that
we will finance the current portion of long-term debt, additional  acquisitions,
if any, and growth, in part, by issuing equity and/or debt securities.



                                       55
<PAGE>

New Accounting Pronouncements

     In December 1999, the Securities and Exchange  Commission (the  Commission)
issued Staff  Accounting  Bulletin  No. 101 (SAB 101),  Revenue  Recognition  in
Financial  Statements,  which is to be applied  beginning with the fourth fiscal
quarter of fiscal years  beginning  after  December 15, 1999. SAB 101 summarizes
certain  of the  Staff's  views  in  applying  GAAP to  revenue  recognition  in
financial  statements.  The  Company  has  changed  its  accounting  for revenue
recognition  as a result of SAB 101 as described  in Note 3 to the  Consolidated
Financial Statements.

     In March, 2000 the Financial  Accounting Standards Board (FASB) issued FASB
Interpretation No. 44 (Interpretation  44), "Accounting for Certain Transactions
Involving  Stock  Compensation".  Interpretation  44 provides  criteria  for the
recognition  of  compensation   expense  in  certain  stock-based   compensation
arrangements  that are  accounted for under APB Opinion No. 25,  Accounting  for
Stock-Based  Compensation.  Interpretation  44 is effective  July 1, 2000,  with
certain  provisions  that are effective  retroactively  to December 15, 1998 and
January  12,  2000.  Interpretation  44 did not impact the  Company's  financial
statements.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended by SFAS No. 137, is effective for fiscal years  beginning after June 15,
2000.  SFAS No. 133 requires the Company to recognize all  derivatives as either
assets or liabilities  and measure those  instruments at fair value.  It further
provides  criteria for  derivative  instruments  to be designated as fair value,
cash flow and foreign  currency  hedges and  establishes  respective  accounting
standards for reporting changes in the fair value of the derivative instruments.
Upon  adoption,  the Company will be required to adjust  hedging  instruments to
fair value in the balance sheet and recognize the offsetting  gains or losses as
adjustments  to be  reported  in net income or other  comprehensive  income,  as
appropriate.  The Company does not expect the  adoption to impact the  Company's
financial  position  or  results  of  operations  since  the  Company  does  not
participate in such activities.

     In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets.  Statement 141 requires
that the purchase  method of  accounting  be used for all business  combinations
initiated after June 30, 2001.  Statement 141 also specifies criteria intangible
assets  acquired  in a  purchase  method  business  combination  must meet to be
recognized  and reported  apart from  goodwill,  noting that any purchase  price
allocable  to an  assembled  workforce  may  not be  accounted  for  separately.
Statement 142 will require that goodwill and intangible  assets with  indefinite
useful lives no longer be amortized,  but instead tested for impairment at least
annually in accordance with the provisions of Statement 142.  Statement 142 will
also require that intangible assets with definite useful lives be amortized over
their respective  estimated useful lives to their estimated residual values, and
reviewed for  impairment in  accordance  with SFAS No. 121,  Accounting  for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

     The  Company  is  required  to  adopt  the   provisions  of  Statement  141
immediately and Statement 142 effective January 1, 2002.



                                       56
<PAGE>

     Statement 141 will require upon adoption of Statement 142, that the Company
evaluate its existing  intangible  assets and goodwill  that were  acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
from  goodwill.  Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible  assets acquired
in purchase business  combinations,  and make any necessary  amortization period
adjustments by the end of the first interim period after adoption.  In addition,
to the extent an intangible  asset is identified as having an indefinite  useful
life, the Company will be required to test the  intangible  asset for impairment
in  accordance  with the  provisions  of Statement  142 within the first interim
period.  Any  impairment  loss will be measured  as of the date of adoption  and
recognized as the cumulative  effect of a change in accounting  principle in the
first interim period.

     In  connection  with  the  transitional  goodwill  impairment   evaluation,
Statement 142 will require the Company to perform an assessment of whether there
is an  indication  that  goodwill  is impaired  as of the date of  adoption.  To
accomplish  this the Company must identify its reporting units and determine the
carrying value of each  reporting unit by assigning the assets and  liabilities,
including the existing goodwill and intangible  assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each  reporting unit and compare
it to the reporting  unit's carrying  amount.  To the extent a reporting  unit's
carrying amount exceeds its fair value, an indication  exists that the reporting
unit's  goodwill may be impaired and the Company must perform the second step of
the  transitional  impairment test. In the second step, the Company must compare
the  implied  fair  value  of  the  reporting  unit's  goodwill,  determined  by
allocating the reporting  unit's fair value to all of it assets  (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with Statement 141, to its carrying amount, both of which would be
measured  as of the  date  of  adoption.  This  second  step is  required  to be
completed  as  soon as  possible,  but no  later  than  the  end of the  year of
adoption. Any transitional  impairment loss will be recognized as the cumulative
effect  of a change  in  accounting  principle  in the  Company's  statement  of
earnings.

     As of the  date of  adoption,  the  Company  expects  to  have  unamortized
goodwill in the amount of $24.4 million which will be subject to the  transition
provisions of Statements 141 and 142.  Amortization  expense related to goodwill
was $1.8 million and $1.7 million,  respectively,  for the years ended  December
31,  2001 and 2000.  Because  of the  extensive  effort  needed  to comply  with
adopting  Statements 141 and 142, it is not  practicable to reasonably  estimate
the impact of adopting these Statements on the Company's financial statements at
the date of this report,  including  whether any transitional  impairment losses
will be  required  to be  recognized  as the  cumulative  effect  of a change in
accounting principle.

     In August  2001,  the  Financial  Accounting  Standards  Board  issued FASB
Statement  No. 144,  Accounting  for the  Impairment  or Disposal of  Long-Lived
Assets (Statement 144), which supersedes both FASB Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of (Statement  121) and the accounting  and reporting  provisions of APB Opinion
No. 30, Reporting the Results of  Operations--Reporting  the Effects of Disposal
of a Segment of a Business, and



                                       57
<PAGE>

Extraordinary,  Unusual  and  Infrequently  Occurring  Events  and  Transactions
(Opinion 30), for the disposal of a segment of a business (as previously defined
in that Opinion).  Statement 144 retains the fundamental provisions in Statement
121 for recognizing and measuring  impairment  losses on long-lived  assets held
for use and  long-lived  assets to be disposed of by sale,  while also resolving
significant  implementation  issues associated with Statement 121. Statement 144
retains  the basic  provisions  of  Opinion  30 on how to  present  discontinued
operations in the income  statement but broadens that  presentation to include a
component of an entity (rather than a segment of a business).  Unlike  Statement
121,  an  impairment  assessment  under  Statement  144 will  never  result in a
write-down  of goodwill.  Rather,  goodwill is evaluated  for  impairment  under
Statement No. 142.

     The  Company  is  required  to adopt  Statement  144 no later than the year
beginning after December 15, 2001. Accordingly, the Company will adopt Statement
144 in the first  quarter of 2002.  Management  does not expect the  adoption of
Statement 144 for  long-lived  assets held for use to have a material  impact on
the Company's  financial  statements  because the  impairment  assessment  under
Statement 144 is largely  unchanged  from  Statement  121. The provisions of the
Statement for assets held for sale or other  disposal  generally are required to
be applied  prospectively  after the adoption date to newly  initiated  disposal
activities.  Therefore,  management  cannot determine the potential effects that
adoption of Statement 144 will have on the Company's financial statements.

     In October 2001,  the FASB recently  issued SFAS No. 143,  "Accounting  for
Asset Retirement Obligations," which requires companies to record the fair value
of a  liability  for asset  retirement  obligations  in the period in which they
incurred. The statement applies to a company's legal obligations associated with
the retirement of a tangible ling-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 to the Company's financial position or results of operations.


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.


                                       58
<PAGE>

     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, 2001,  the  carrying  value of our long term fixed rate
debt was approximately $10.2 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.









                                       59
<PAGE>

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




                          INDEPENDENT AUDITORS' REPORT



Board of Directors
Neptune Society, Inc.
Burbank, California


We have audited the accompanying  consolidated balance sheet of Neptune Society,
Inc. and  subsidiaries  as of December 31,  2001,  and the related  consolidated
statements of operations,  shareholders' equity and cash flows for the year 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 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 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
audit 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 Neptune  Society,  Inc. and
subsidiaries  as of December 31, 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.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
consolidated financial statements, the Company has a working capital deficit and
has  experienced  operating  losses  over  the past  three  years,  which  raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regards 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/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS

Santa Monica, California
March 20, 2002


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




                                       60
<PAGE>

                          Independent Auditors' Report



The Board of Directors
The Neptune Society, Inc.:


We have audited the accompanying consolidated balance sheets of Neptune Society,
Inc.  and  Subsidiaries  (Successor  Company)  as of  December  31, 2000 and the
related consolidated  statements of operations,  shareholders'  equity, and cash
flows for the nine months ended  December  31, 1999 and the year ended  December
31, 2000,  respectively,  (Successor Company Period) and the combined statements
of  operations,   shareholders'  equity,  and  cash  flows  of  Neptune  Society
(Predecessor   Company)  for  the  three  month  period  ended  March  31,  1999
(Predecessor Company Period).  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 audits.

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 consolidated
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  consolidated  financial  statements.  An audit also includes  assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the aforementioned  Successor  consolidated financial statements
present  fairly,  in all material  respects,  the financial  position of Neptune
Society,  Inc. and Subsidiaries as of December 31, 2000 and the results of their
operations  and their cash flows for the Successor  Company Period in conformity
with accounting  principles  generally accepted in the United States of America.
Further,  in  our  opinion,  the  aforementioned  Predecessor  Company  combined
financial  statements present fairly, in all material  respects,  the results of
their  operations  and their cash flows for the  Predecessor  Company  Period 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.

As discussed in note 1 to the consolidated financial statements, effective March
31, 1999, all of the outstanding  capital stock of the  Predecessor  Company was
acquired in a business combination  accounted for as a purchase.  As a result of
the acquisition,  the consolidated  financial  information for the periods after
the acquisition is presented on a different cost basis than that for the periods
before the acquisition and, therefore, is not comparable.

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.


March 16, 2001

/s/ KPMG LLP

                                       61
<PAGE>

                              Neptune Society, Inc.
                           Consolidated Balance Sheets
                           December 31, 2000 and 2001


<TABLE>
                                                            2000                2001
                                                       -------------       -------------
<S>                                                    <C>                      <C>
            Assets (Note 5)
 Current assets:
   Cash                                                $  1,065,339             213,219
   Accounts receivable                                      234,370           1,751,276
   Prepaid expenses and other current assets                121,061             113,644
                                                       -------------       -------------
                     Total current assets                 1,420,770           2,078,138

 Property and equipment, net                              2,365,806             548,469

 Names and reputations, net                              29,451,385          24,364,472

 Non compete agreements, net                                474,051              48,333

 Deferred financing costs                                 1,208,081           1,539,132

 Deferred charges and other assets                        2,572,340           4,343,159
                                                       -------------       -------------
                                                         37,492,433          32,921,704
                                                       =============       =============
       Liabilities and Shareholders' Equity
 Current liabilities:
   Current portion of long-term debt                      5,748,946           2,890,215
   Accounts payable                                       1,399,538           1,700,487
   Accrued and other current liabilities                  1,132,671           1,478,188
                                                       -------------       -------------
                     Total current liabilities            8,281,155           6,068,890

 Long-term debt                                             100,878           2,291,575

 Convertible debentures                                   5,937,303           5,000,000

 Other long-term liabilities                                467,087             848,861

 Deferred pre-need revenues                               6,598,247          11,688,952
                                                       -------------       -------------
                                                         21,384,670          25,898,278
 Shareholders' equity:
   Common stock, $.008 par value,
     6,250,000 shares authorized, 2,152,952
     and 1,915,343 shares issued and outstanding
     at December 31, 2001 and 2000, respectively             15,323              17,224

   Additional paid-in capital                            26,821,240          27,886,170

   Accumulated deficit                                  (10,728,800)        (20,879,968)
                                                       -------------       -------------
                     Total shareholders' equity          16,107,763           7,023,426
                                                       -------------       -------------
                                                       $ 37,492,433          32,921,704
                                                       =============       =============
</TABLE>


See accompanying notes to consolidated financial statements.

Effective as of March 22, 2002, the Corporation effected a 1 for 4 reverse split
of its common  stock.  Information  contained  in these  Consolidated  Financial
Statements gives effect to the reverse stock split.


                                       62
<PAGE>

                              Neptune Society, Inc.
                      Consolidated Statements of Operations
     Three Months ended March 31, 1999, Nine Months ended December 31, 1999
                   And Years ended December 31, 2000 and 2001

<TABLE>
                                              Predecessor
                                                 Company                               Successor Company
                                            ----------------     ---------------------------------------------------------
                                               Three months
                                             ended March 31,      Nine months ended     Year Ended      Year Ended December
                                                  1999            December 31, 1999  December 31, 2000       31, 2001
                                            ----------------     ---------------------------------------------------------
<S>                                         <C>                    <C>                  <C>                 <C>
 Revenues:
   Services and merchandise                 $    2,128,857         4,595,014            6,187,708           11,775,109
   Non-recurring trust liquidation                 525,467                 -                    -                   -
   Management and finance fees                     307,196         1,093,156            1,500,996            1,255,187
                                            ----------------     ---------------------------------------------------------
                 Total revenues                                                        13,030,296
                                                 2,961,520         5,688,170            7,688,704

 Costs and expenses                              1,198,469         2,252,169            4,451,463            6,263,073
                                            ----------------     ---------------------------------------------------------
                 Gross profit                    1,763,051         3,436,001            3,237,241            6,767,223

 General and administrative expenses               748,385         2,986,392            5,802,283            7,797,566

 Compensation to principal shareholder             430,090                 -                    -                    -

 Amortization and depreciation expense                   -         1,069,898            1,886,203            2,081,585

 Professional fees                                 535,878           339,836            1,244,836            1,765,289

 Loss on disposal of assets, net                         -                 -                    -            2,759,380
                                            ----------------     ---------------------------------------------------------

 Total general and administrative expenses       1,714,353         4,396,136            8,933,322           14,403,821
                                            ----------------     ---------------------------------------------------------

 Loss from operations                               48,698          (960,135)          (5,696,081)          (7,636,598)


 Interest expense                                        -         1,183,627            2,485,030            2,514,570
                                            ----------------     ---------------------------------------------------------
 Loss before income taxes                           48,698        (2,143,762)          (8,181,111)         (10,151,168)


 Income tax (benefit) expense                            -          (254,128)             254,128                    -
                                            ----------------     ---------------------------------------------------------
 Loss before  cumulative
   effect of change in accounting
   principle                                        48,698        (1,889,634)          (8,435,239)         (10,151,168)

 Cumulative effect of change in
   accounting principle                                  -                 -              403,927                    -
                                            ----------------     ---------------------------------------------------------
                 Net loss $
                                                    48,698        (1,889,634)          (8,839,166)         (10,151,168)
                                            ================     ==========================================================
Loss per share - Basic and Diluted
   Loss before cumulative effect of change
     in accounting principle                $                         (01.23)               (4.75)               (5.09)

   Cumulative effect on prior years of
     changing to a different revenue
      recognition method                                                   -                (0.23)                   -

 Loss per share - Basic and Diluted         $                         (01.23)               (4.98)               (5.09)
 Weighted average number of shares-
   Basic and Diluted                                               1,530,643            1,776,119            1,994,991
</TABLE>


See accompanying notes to consolidated financial statements.

Effective as of March 22, 2002, the Corporation effected a 1 for 4 reverse split
of its common  stock.  Information  contained  in these  Consolidated  Financial
Statements gives effect to the reverse stock split.


                                       63
<PAGE>

                              Neptune Society, Inc.
                 Consolidated Statements of Shareholders' Equity
                      Year ended December 31, 2001 and 2000

<TABLE>
                                              Common Stock
                                                                     Additional                       Total
                                                                      paid-in      Accumulated     Shareholders'
                                          Shares         Amount       capital         deficit         equity
                                       ------------   -----------   ------------  -------------    -------------
<S>                                    <C>            <C>             <C>         <C>                <C>
 Successor Company:
    Balance at March 31, 1999              375,000    $   3,000        198,000              -          201,000

   Exercise of warrants                  1,000,000        8,000        792,000              -          800,000
   Issuance of common stock for

      acquisition of Predecessor           125,000        1,000      4,999,000              -        5,000,000
                                       ------------   -----------   ------------  -------------    -------------
  Balance after effects of

      acquisition of Predecessor         1,500,000       12,000      5,989,000              -        6,001,000

    Net loss                                     -            -              -     (1,889,634)      (1,889,634)
    Issuance of common stock, net
      of $473,690 of offering costs        143,750        1,150      6,425,160              -        6,426,310
    Issuance of common stock
          for acquisitions                   5,682           45        249,953              -          249,998

  Discount on convertible debentures             -           -         562,000              -          562,000
  Detachable warrants issued

      with convertible debentures                -           -         670,409              -          670,409
  Shares issued in connection with

      long-term debt                             -           -         364,840              -          364,840
                                       ------------   -----------   ------------  -------------    -------------

   Balance at December 31, 1999          1,649,432      13,195      14,261,362     (1,889,634)      12,384,923
                                       ------------   -----------   ------------  -------------    -------------

     Net loss                                    -           -               -     (8,839,166)      (8,839,166)
     Issuance of common stock, net

       of $82,500 of offering costs        164,584       1,317       7,006,178              -        7,007,495
     Issuance of common stock

           for acquisitions                 93,327         747       4,987,672              -        4,988,419
   Discount on convertible
debentures                                       -           -         115,000              -          115,000
   Compensation related to stock
options                                          -           -          51,081              -           51,081
   Shares issued in connection with
       long-term debt                        8,000          64         399,947              -          400,011
                                       ------------   -----------   ------------  -------------    -------------
   Balance at December 31, 2000          1,915,343    $ 15,323      26,821,240    (10,728,800)      16,107,763
                                       ------------   -----------   ------------  -------------    -------------
     Net loss                                                                     (10,151,168)     (10,151,168)
   Discount on convertible
    debentures                                   -           -          60,090              -           60,090
   Compensation related to stock
    options                                      -           -         530,532              -          530,532
   Shares issued in connection with
    long- and short-term debt               96,447         772         475,437              -          476,209
   Issuance of common stock
    related acquisition
    activities                             141,162       1,129          (1,129)             -                -
                                       ------------   -----------   ------------  -------------    -------------
   Balance at December 31, 2001         2,152,952      17,224      27,886,170    (20,879,968)       7,023,426
                                       ============   ===========   ============  =============    =============
</TABLE>


See accompanying notes to consolidated financial statements.

Effective as of March 22, 2002, the Corporation effected a 1 for 4 reverse split
of its common  stock.  Information  contained  in these  Consolidated  Financial
Statements gives effect to the reverse stock split.


                                       64
<PAGE>

                              Neptune Society, Inc.
                      Consolidated Statements of Cash Flows
     Three Months ended March 31, 1999, Nine Months ended December 31, 1999
                   And Years ended December 21, 2001 and 2000


<TABLE>
                                                           Predecessor
                                                             Company                     Successor Company
                                                          -------------------------------------------------------------
                                                            3/31/1999          12/31/1999    12/31/2000    12/31/2001
                                                          ---------------    ------------------------------------------

<S>                                                            <C>             <C>            <C>            <C>
Net loss                                                 $                                   (8,839,166)   (10,151,168)

Adjustments to reconcile net loss to net                      48,698          (1,889,634)
  net cash provided by (used in) operating
  activities:
    Depreciation and amortization                              9,611           1,069,898      1,886,203      2,081,585
    Accretion of discount on notes payable                         -             932,253        697,783         67,605

  Non-cash interest & amortization of
    deferred finance costs                                         -                   -      1,126,306      1,315,279

  Stock issued for professional services                           -                   -              -         31,658

  Stock compensation                                               -                   -         51,081        530,532

  Loss on disposal of assets                                       -                   -              -      2,759,380

    Deferred tax benefit                                           -            (254,128)       254,128              -

  Change in operating assets and liabilities:

    Accounts receivable                                      145,811            (178,310)       (56,060)    (1,516,906)

    Prepaid expenses and other current assets                  4,924             (32,642)       (12,710)         7,417

    Deferred charges and other assets                        (65,659)           (660,101)    (2,481,375)      (320,915)

    Accounts payable                                         306,892              10,108        901,531        300,949

    Accrued and other liabilities                            (38,843)            232,652        823,561       (931,133)

    Deferred preneed revenues                                149,082           1,682,014      4,916,233      5,090,705
                                                          ---------------    ------------------------------------------
Net cash used in operating activities:                       560,516             912,110       (732,485)      (735,012)
                                                          ---------------    ------------------------------------------
Cash flows from investing activities:

  Purchases of property and equipment                         (7,934)           (156,872)      (216,803)        (4,403)

  Acquisitions, net of cash acquired                               -          (1,814,455)      (703,620)             -
                                                          ---------------    ------------------------------------------
Net cash provided by (used in) investing activities           (7,934)         (1,971,327)      (920,423)        (4,403)
                                                          ---------------    ------------------------------------------
Cash flows from financing activities:

  Payments on notes payable                                        -          (4,548,005)   (11,864,781)    (2,412,704)

  Proceeds from issuance of debt, net                              -           5,005,439        750,000      2,300,000

  Net proceeds of common stock issued                              -           6,426,310      7,007,495             (0)

  Proceeds from exercise of warrants                               -             800,000              -              -

  Distribution to owners                                     (64,000)                  -              -              -
                                                          ---------------    ------------------------------------------
Net cash provided by (used in) financing activities          (64,000)          7,683,744     (4,107,286)      (112,704)
                                                          ---------------    ------------------------------------------
Net decrease in cash                                         488,582           6,624,527     (5,760,194)      (852,120)

Cash, beginning of period                                    612,370             201,006      6,825,533      1,065,339
                                                          ---------------    ------------------------------------------
Cash, end of period                                      $ 1,100,952           6,825,533      1,065,339        213,219
                                                          ===============    ==========================================
Supplemental disclosure of cash flow information -
  Cash paid during the period for Interest                         -             186,921        659,000      1,132,000
                                                          ===============    ==========================================

Supplemental disclosure of noncash investing and financing activities:

  Detachable warrants issued with convertible
    debentures                                                     -             670,409              -              -
  Debt assumed by third party resulting from
    asset sale                                                     -                   -              -      1,500,000
  Debt forgiveness related to asset sale                           -                   -              -      1,000,000
  Discount on note payable                                         -             926,840        115,000         60,090
  Common stock issued for acquisitions                             -           5,249,998      4,988,419              -
  Notes issued for acquisition                                     -          19,968,529      1,000,000              -
                                                          ===============    ==========================================
</TABLE>

See accompanying notes to consolidated financial statements.

Effective as of March 22, 2002, the Corporation effected a 1 for 4 reverse split
of its common  stock.  Information  contained  in these  Consolidated  Financial
Statements gives effect to the reverse stock split.



                                       65
<PAGE>

Notes to the Consolidated Financial Statements

(1)  The Business, Basis of Presentation and Liquidity

     Neptune Society,  Inc., a Florida  Corporation,  is the holding company for
     Neptune  America,  Inc.,  a  California  Corporation.   Neptune  Management
     Corporation and Heritage  Alternatives,  Inc. are wholly owned subsidiaries
     of Neptune America, Inc. and engage in marketing and administering pre-need
     and at-need cremation services in California,  Colorado,  Florida, New York
     and Washington.  Neptune Society, Inc. operates crematories in Los Angeles,
     California and Spokane, Washington, Portland, Oregon and Ankeny, Iowa.

     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,  see Note 7 for allocation of the purchase price),  to acquire
     all of the  outstanding  shares and cause to be  acquired  the  partnership
     interests  of  the  following  entities  (collectively  referred  to as the
     Predecessor Company):

                  Neptune Management Corp.
                  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  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.  The financial  statements of Lari Corp. prior to
     April 1,  1999  have  not been  included  as they are not  material  to the
     Predecessor  Company  financial  statements.  In January  1999,  Lari Corp.
     issued  250,000  shares of common stock and 1,000,000  warrants to purchase
     common stock for $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  Neptune  Society,  Inc.  (the  Successor  Company).
     Collectively,  the  Predecessor  Company and  Successor  Company are herein
     referred to as the Company.

     Since purchase accounting was reflected on the opening balance sheet of the
     Successor  Company  on April  1,  1999,  the  financial  statements  of the
     Successor  Company are not  comparable to the  financial  statements of the
     Predecessor Company. Accordingly, a


                                       66
<PAGE>


     vertical  black  line is  shown to  separate  Successor  Company  financial
     statements from those of the Predecessor Company for periods ended prior to
     April 1, 1999.

     Liquidity

     As of December 31, 2001, the Company has a working  capital deficit of $4.0
     million and has experienced operating losses over the past three years. The
     Company has obtained  additional  financing (see Note 5 and Note 11) and is
     currently  exploring other  financing  alternatives to further address such
     working capital deficiency.

(2)  Summary of Significant Accounting Policies

     (a)  Principles of Consolidation

          The  consolidated  financial  statements as of and for the nine months
          ended December 31, 1999 and the years ended December 31, 2000 and 2001
          present  the  consolidated  accounts  of  Neptune  Society,  Inc.  and
          subsidiaries.  The operating results of Neptune Society,  Inc. for the
          nine months ended  December 31, 1999 equal those for the twelve months
          ended December 31, 1999.  All  significant  intercompany  balances and
          transactions have been eliminated in consolidation.

          The combined financial statements for the three months ended March 31,
          1999 present the combined financial position and results of operations
          of the acquired Predecessor Companies.  The Predecessor Companies have
          been  presented  on a  combined  basis as they  were  either  owned or
          controlled by a certain individual,  related trusts, or members of his
          family and the operations of each entity were interrelated.

          All  significant  intercompany  balances  and  transactions  have been
          eliminated in consolidation or combination.

     (b)  Revenue recognition

          At-need cremation  services--We recognize 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--We  sell pre-need cremation services
          and  merchandise  under  contracts  that  provide for  delivery of the
          services at the time of need.  Revenues related to pre-need  cremation
          services  are  recorded  as revenue in the  period  the  services  are
          performed.

          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.


                                       67
<PAGE>

          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 us 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.

          We are 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.

          During  the year ended  December  31,  2001,  the  Company  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.

          Pre-need   installment   sales--We   also  sell   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 revenue until
          the transaction qualifies for revenue recognition under our accounting
          policies.  Prior  to  January  1,  2001,  due  to the  uncertainty  of
          collections  of these  accounts,  we recorded  these  transactions  in
          accordance with our revenue  recognition  accounting  policies as cash
          was received.

          Worldwide travel sales--We sell a worldwide travel assurance plan (the
          "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 these plans at the time of sale.
          We also sell worldwide  travel plans under  installment  plans.  Under
          such plans,  the customer makes an initial  down-payment  and pays the
          balance in monthly installments plus interest.

          Commission  income-- Under pre-need cremation services and merchandise
          arrangements  funded  through  insurance  purchased by customers  from
          third party


                                       68
<PAGE>

          insurance companies, we earn 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 us as cremation services and merchandise are delivered.

          Direct and indirect costs--We expense direct and indirect costs in the
          period   incurred,   with  the  exception  of  expenses   specifically
          identifiable to individual  pre-need cremation  arrangements,  such as
          commissions.  Such expenses are recognized  when the related  pre-need
          merchandise and/or service revenues, respectively, are recognized.

     (c)  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.  Funds  deposited in trust are not  segregated
          between amounts received for cremation services and funds received for
          merchandise.  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  deposit  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 funds  activities.  California allows a maximum
          fee of four  percent of beginning  year trust fund equity,  subject to
          the trust fund's  annual  performance.  A certain  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(k)).  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  $36,680,000  and  $36,328,000  at  December  31,  2000 and 2001,
          respectively,  which, in the opinion of management, exceeds the future
          obligations under such arrangements.


<TABLE>
                                                    December 31,        December 31,
                                                        2000                2001
                                                  ---------------    ----------------
         <S>                                      <C>                      <C>
           Cash & Cash Equivalents                 $    2,035,000           2,235,000
           Fixed income investment contracts            7,319,000           3,140,000
           Mutual funds and stocks                      4,715,000           2,072,000
           U.S. Government Investments                 20,831,000          28,881,000

           Life Insurance                               1,780,000                   -
                                                  ---------------    ----------------
           Total                                  $    36,680,000          36,328,000
                                                  ================   ================
</TABLE>


                                       69
<PAGE>

          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.

     (d)  Cash and Cash Equivalents

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

     (e)  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


     (f)  Names and Reputations

          Names and  Reputations  consists of the excess of the  purchase  price
          paid  over the fair  value of  identifiable  net  assets  acquired  in
          transactions accounted for as purchases.  "Names and Reputations" is a
          term used in the death care industry and is similar to goodwill.  Such
          amounts are amortized  over 20 years using the  straight-line  method.
          Many of the acquired  cremation  service  entities  have provided high
          quality service to customers for  generations.  The resulting  loyalty
          often  represents  a  substantial  portion of the value of a cremation
          business.  The Company continually monitors the recoverability of this
          intangible asset based on the projections of future  undiscounted cash
          flows of the acquired businesses.  If impairment is indicated, then an
          adjustment  will  be  made  to  reduce  the  carrying  amount  of  the
          intangible  asset  to  its  fair  value.  At  December  31,  2001,  no
          impairment was deemed to have occurred.  Accumulated  amortization  at
          December   31,   2000  and  2001  was   $2,551,000   and   $1,713,000,
          respectively.

     (g)  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  projections  of  future
          undiscounted   cash  flows  of  the  geographic   area  to  which  the
          non-compete agreement relates. If an impairment is indicated,  then an
          adjustment  will  be  made  to  reduce  the  carrying  amount  of  the
          intangible  asset  to  its  fair  value.


                                       70
<PAGE>

          At December  31,  2001,  no  impairment  was deemed to have  occurred.
          Accumulated  amortization  at December  31, 2000 and 2001 was $159,000
          and $97,000, respectively.

     (h)  Advertising

          Costs of advertising are expensed as incurred. Advertising expense was
          approximately  $59,000,  $185,000,  $373,000 and $423,000for the three
          months ended March 31, 1999,  the nine months ended  December 31, 1999
          and the years ended December 31, 2000 and 2001, respectively.

     (i)  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  bases  and  operating  loss  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,  2000 and 2001,  respectively,  the  Company  recorded a
          valuation allowance against all of its deferred tax assets.

     (j)  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.

     (k)  Deferred Obtaining Costs

          Deferred  obtaining costs 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.

     (l)  Deferred Financing Costs

          Under  certain  debt  agreements,  the Company is  obligated  to pay a
          portion of the lender's  expenses and loan  origination  costs.  These
          costs are deferred  and expensed as interest  expense over the life of
          the associated debt.

     (m)  Computation of Earnings (Loss) Per Common Share

          For the nine  months  ended  December  31,  1999 and the  years  ended
          December  31,  2000 and  2001,  basic  and  diluted  loss per share is
          computed by dividing net loss by the weighted average number of common
          shares  outstanding  during  the  period.  For the nine  months  ended
          December  31,  1999 and the years  ended  December  31, 2000 and 2001,
          options to purchase 106,688, 158,438 and 215,250, respectively, shares
          of common stock at prices  ranging from $3.64 to $57.00 per share were
          not included in the  computation of diluted loss per share because the
          effect  would  be  anti-dilutive.



                                       71
<PAGE>

          Additionally,  84,375,  84,375 and 88,750,  respectively,  warrants to
          purchase common stock ranging from $12.00 to $50.00 per share were not
          included  in the  computation  of  diluted  loss per share at the nine
          months ended  December 31, 1999, and the years ended December 31, 2000
          and December 31, 2001 because the effect would be anti-dilutive.

     (n)  Fair Value of Financial Instruments

          The  carrying  amounts  of  cash  and  cash  equivalents  and  current
          receivables and payables  approximate 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.

     (o)  Use of Estimates

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

     (p)  Comprehensive Income (loss)

          Except  for  net  income   (loss)  the  Company   does  not  have  any
          transactions   or  other   economic   events  that  enter  into  other
          comprehensive income (loss) during the periods presented.

(3)  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,  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.

     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 conditions beyond current state  regulations.  As of
     January 1, 2000,  the Company has 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
     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  our  additional  revenue
     recognition  criteria  had not been met. The Company  deferred  revenues of
     $4,326,000 and $5,097,000,  respectively,  for the years ended December 31,
     2000 and 2001 until such time as the  additional  criteria  noted above has
     been satisfied.  Future pre-need  merchandise sales will be recognized upon
     satisfaction of the Company's current revenue recognition policy.


                                       72
<PAGE>

     The effect of this  change on income  before the  cumulative  effect of the
     accounting  change,  for the years ended  December 31, 2000 and 2001 was to
     increase net loss  $3,613,000 and  $3,326,000,  respectively,  or $2.03 and
     $1.67 per diluted share. If the new accounting principle had been in effect
     for the nine months  ended  December  31, 1999 and three months ended March
     31, 1999, net loss would have been  $2,294,000 and $280,000,  respectively.
     The diluted loss per share for the  nine-month  period  ended  December 31,
     1999 would have been $1.50.

(4)  Property and Equipment

     Property and equipment is summarized as follows:

<TABLE>
                                                             December 31,             December 31,
                                                                 2000                     2001
                                                           -----------------      -----------------
       <S>                                                <C>                      <C>
        Land                                               $      1,000,000                     0
        Building                                                    404,000                     0
        Furniture and fixtures                                      195,828               143,606
        Nautical equipment                                          110,000               110,000
        Automobiles                                                 117,308                97,611
        Equipment                                                   461,963               416,971
        Leasehold improvements                                      322,935               191,882
                                                           -----------------      -----------------
           Total property and equipment                           2,612,034               960,070

        Less accumulated depreciation and amortization              246,228               411,601
                                                           -----------------      -----------------
           Property and equipment, net                     $      2,365,806               548,469
                                                           =================      =================
</TABLE>


(5)  Long Term Debt

     Long-term debt at December 31, 2000 and 2001, respectively, is as follows:

<TABLE>
                                                                                       December 31,          December 31,
                                                                                           2000                  2001

<S>                                                                                  <C>                     <C>
13% Convertible debentures, non-amortizing,  interest accruing at 13% per year
payable monthly at 6.5% per year, due February 24, 2005. See (b) below.       $        5,000,000              5,000,000

Note payable, non-amortizing, interest accruing at 9% per year on $5,635,905
payable in monthly installments of $37,006. Non-interest bearing on $9,238,313.
Balance due in three payments of $4,874,216, $5,275,562, and $4,724,440, on
January 3, 2000 and July 31, 2000 and 2001, respectively. In July 2000, this
note was amended to extend the due date of $4,724,440 to July 31, 2001. Secured
by a first trust deed on all assets of the Company. See (a) & (e) below.
                                                                                       4,724,440              2,391,940


Note payable to a private investor, non-interest bearing, non-amortizing,  due
on  September  30,  2001.  3,000 shares of the  Company's  common  shares were
issued  in  connection  with the  transaction.  The  value of these  shares is
being amortized over the life of the note.    See (c) below.                           1,000,000              1,000,000

Note payable, non-amortizing,  interest accruing at 19.98% payable monthly due
December 2002.  See (k) below.                                                                 -                800,000
</TABLE>



                                       73
<PAGE>
<TABLE>
                                                                                       December 31,          December 31,
                                                                                           2000                  2001

<S>                                                                                  <C>                     <C>
Note  payable,  non-amortizing,  non-interest  bearing due July 2003.  See (l)
below.                                                                                         -                350,000

8% Convertible debentures, non-amortizing, interest accruing at 8% per year
payable monthly, due July 17, 2003. The balance is net of unaccreted discount of
$0, arising from the beneficial conversion feature of the
debentures.  See (d) & (m)below.                                                         937,503                      -

13% Convertible debentures, non-amortizing,  interest accruing at 12% per year
payable monthly, due July 31, 2003.  See (g) & (m) below.                                      -                 75,000

Notes  payable,  non-interest  bearing  payable  in  monthly  installments  of
$15,000,  due  November  2003  and  February  2004.  The  balance  is  net  of
unaccreted discount of $60,090.  See (i) below.                                                -                369,872

Note  payable,  interest  accruing at 10% payable in monthly  installments  of
$14,000, due July 2003.  See (j) 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.                               35,184                 10,877
Line of credit,  interest  accruing  at 9%,  interest  only  payable  monthly,
maximum limit $100,000, principal due April 1, 2002.                                      90,000                 90,000

                                                                                      11,787,127             10,181,791
    Less current installments                                                          5,748,946              2,890,215
                                                                                 ----------------       ---------------
                                                                                  $    6,038,181              7,291,576
                                                                                 ================       ===============
</TABLE>

          (a) On August 1, 1999, a $19,000,000  note issued in  connection  with
          the  acquisition  of  the  Predecessor  was  amended  as  follows:  i)
          $9,625,088  of the note became  interest  free in exchange for $76,000
          cash,  34,375  warrants to acquire  common shares at $48 per share and
          revised  payment due dates of $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  have  been  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.

          (b) 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 such
          deferred  financing  cost  results in an  effective  interest  rate of
          15.8%. In addition,  the debentures are 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,  has
          been 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 is
          based on its quoted  market  price.  Such  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 has 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 is also obligated to adjust the number of shares  issuable
          under the convertible  debentures and warrants if it issues additional
          shares of common stock under the following scenarios:  (i) the Company
          issues  shares  for  less  than  $40.00  in cash,  in  which  case the
          debenture  shall be convertible at the lower price or (ii) the Company
          issues shares without  consideration  in a transaction that results in
          the  issuance  of shares  for  consideration  of less than  $40.00 per
          share,  in which case the debenture  shall be  convertible  at a price
          adjusted to give effect to the lower value of the share issuance.


                                       74
<PAGE>
          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  above  convertible
          debenture holder, (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 the certain debt  coverage  ratios.  The  debenture  holder
          retained certain  anti-dilution rights that would allow it to maintain
          its proportion ownership percentage.

          (c) On March 31, 2000,  the Company  obtained an  additional  $750,000
          loan from Private Investment Company,  Ltd., bringing the total of the
          promissory  note  to  $1,000,000.   The  note  is  an   interest-free,
          non-amortizing,  promissory  note to be repaid no later than September
          30, 2001.  Financing costs of 3,000 common shares valued at $50.00 per
          share were paid in connection  with this loan and are being  amortized
          to interest expense over the life of the loan.

          (d) On July 17,  2000,  the  Company  issued a  three-year  $1,000,000
          convertible  debenture in connection with the purchase of the Portland
          acquisition   at  an   interest   rate  of  8%,   payable  in  monthly
          installments.  The debenture is convertible  into 20,833 shares of our
          common stock upon election of the holder at any time between the first
          anniversary of the closing date and the due date. The intrinsic  value
          of the  beneficial  conversion  feature,  $115,000  was  recorded as a
          credit to  additional  paid-in-capital  and a discount to the carrying
          value  of the  debentures.  The  discount  is  being  accreted  to the
          redemption  price  of  the  debentures  and  results  in an  effective
          interest  rate of 11.8%.  Upon our  notification  of our  intention to
          redeem  the  debenture,  the  holder  has the  right  to  convert  the
          debenture,  or accept  the cash  payment  and  receive  a  warrant  to
          purchase  shares of our common stock  calculated  by dividing the then
          principal amount by $48.00 at the time of the redemption.  The warrant
          shall be  exercisable  until  July  2003.  We  granted  the  purchaser
          piggyback  registration rights pursuant to which we agreed to register
          the  purchasers'  common  stock in the  event  we file a  registration
          statement,  at our expense,  to register any of our securities for our
          own account or for the account of other security holders.

          (e) On July 31,  2000,  the Company  restructured  its note due to the
          Weintraub Trust. 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  the  $19,000,000  acquisition  note  resulting  in  a
          remaining balance of $4,724,440  outstanding and extended the due date
          on such 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  Weintraub  Trust 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 such  guarantee  and  adjustments  to such  liability  are recorded
          through interest expense.

          (f) 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 will accrue 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 was amortized to interest expense over the life of the note.

          (g) In August 2001,  the Company  borrowed  $1,575,000 at 12% interest
          per annum, payable monthly, which was due and payable January 2, 2002.
          Of the principle  amount,  $75,000  represents 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. The value of the shares and warrants
          and cash loan fees was amortized to interest  expense over the life of
          the note. The debt is collateralized by certain assets of the Company.


                                       75
<PAGE>

          (h)  In  August  2001,  the  Company  entered  into  a  Memorandum  of
          Understanding to convert its $1,000,000 note due to Private Investment
          Company,  Ltd. on September 30, 2001 into a 12% convertible  debenture
          with interest  payable  annually on September 30th of each year of the
          term. The debenture shall have a conversion  price of $24.00 per share
          of the  Company's  common stock and a maturity  date of September  30,
          2004.  The Company  shall issue 2,500 shares of the  Company's  common
          stock  valued  at  approximately  $45,000.  This  transaction  was not
          consummated as of December 31, 2001.

          (i) In November 2001, the Company issued non-interest  bearing,  notes
          payable of $360,000  and $70,000,  respectively,  in  connection  with
          professional  services  rendered due November 2003 and February  2004.
          The $360,000 note is amortizing at $15,000 per month. The Company also
          issued  25,000  shares  valued at $72,000.  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.  The carrying  value of the notes
          payable at December 31, 2001 was  $370,000.  To the extent the Company
          complies  with the terms of the notes,  the note holder shall  forgive
          the $70,000 obligation. The notes are collateralized by certain assets
          of the Company.

          (j) In  November  2001,  the  Company  issued a 10%  amortizing,  note
          payable of $120,000 in connection with professional  services rendered
          due July 31, 2002. The debt is collateralized by certain assets of the
          Company.

          (k) In December 2001, the Company  entered into an agreement to borrow
          a total of  $1,500,000  for  payment  of  Weintraub  debt and  working
          capital  purposes.  On December 28, 2001,  the Company issued a 19.98%
          non-amortizing,  note payable of $800,000 due December 28, 2002. Under
          the agreement, the Company may borrow an additional $700,000 at 19.98%
          due  one  year  from  the  date  of  the  note  which  would  also  be
          non-amortizing.

          (l) In December  2001,  the Company  executed  an  agreement  with Mr.
          Weintraub and the Weintraub  Trust  ("Weintraub")  to restructure  the
          remaining  $2.7 million of  acquisition  debt,  previously due January
          2002,  at 12%  interest per annum.  On December 28, 2001,  the Company
          paid  Weintraub  $333,000  of note  principle,  and agreed to amortize
          $963,000  over 18 months and make a lump-sum  payment of $1,429,000 in
          July 2003. Also 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,  2001 for
          additional  loan  fees  related  to  this   restructuring  and  issued
          Weintraub  75,000  shares  of the  Company's  common  stock  valued to
          $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
          and Weintraub  further agreed to either mutual  releases with insurers
          and/or  Weintraub  to  forebear  from suing  insurers.  (See Note 8(b)
          Litigation".)  The Company also paid-out the remainder of all payments
          due over  Weintraub's  consulting  agreement in the amount of $355,000
          and terminated the agreement.

          (m) In December  2001,  as a condition  of the sale of certain  assets
          related to its Portland,  Oregon businesses (the "Oregon Assets"), the
          Company  entered  into an  agreement  to  restructure  and  extend its
          $1,575,000  note  payable at 12%  previously  due January 2, 2002 to a
          July 2002 due date. Under the agreement,  $1,500,000 of the $1,575,000
          note payable and the $1,000,000 convertible  debenture,  respectively,
          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  $0.33333  per share  maturing  July 2002,  subject to
          anti-dilution  price  protection,  which in the event that the Company
          effects a reverse split of it common stock prior to July 31, 2002, the
          conversion  price  of  the  convertible  debenture  would  not  exceed
          $0.333333 per share (post split).  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 is being amortized to interest  expense over the life of
          the debenture.


                                       76
<PAGE>

          The aggregate  maturities of long-term  borrowings after consideration
          of unaccreted discount at December 31, 2001 are as follows:

               2002                      $          2,890,215
               2003                                 2,222,796
               2004                                    68,780
               2005                                 5,000,000
               2006 and thereafter                          0
                                                            -

                                         $         10,181,791


(6)  Shareholders' Equity

     (a)  Common Stock

          In January 1999, Neptune Society, Inc., the Successor,  issued 250,000
          shares of common stock at $0.80 per share in a private  placement.  In
          addition, four share purchase warrants were issued with each share. In
          April 1999,  the Company  received gross proceeds of $800,000 from the
          exercise of the share  purchase  warrants.  In July 1999,  the Company
          entered  into a private  placement  Agency  Agreement  for the sale of
          145,834  shares of the  Company's  common  stock at $48.00  per share.
          During 1999,  143,750  shares were sold under such agreement for gross
          proceeds of $6,900,000. The remaining 2,084 shares were sold for gross
          proceeds of $100,000 in January  2000.  The Company paid an agency fee
          of $420,000 in connection with such private placement.

          Effective  as of May  19,  2000,  the  Company's  Board  of  Directors
          authorized  and effected a 1 for 2 reverse  split of its common stock.
          Per  share  amounts  in  the   accompanying   consolidated   financial
          statements give retroactive effect to the reverse stock split.

          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.

          Effective as of March 22, 2002, the Company effected a 1 for 4 reverse
          split of its common stock. Information contained in these consolidated
          financial statements gives effect to the reverse stock split.

     (b)  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),  stock  options   non-qualified  and
          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. On December 31, 2001, 92,250 options
          to acquire  common stock were granted at an exercise price of $3.64 to
          $10.00  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.

     (c)  Stock Compensation

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


                                       77
<PAGE>

<TABLE>
                                               2000                                        2001
                             ------------------------------------------  --------------------------------------
                                Number of Shares     Weighted Average       Number of Shares   Weighted Average
                               Underlying Options     Exercise Prices      Underlying Options   Exercise Prices
                             ------------------------------------------  --------------------------------------
<S>                                <C>                 <C>                        <C>               <C>
 Outstanding Beg of year           106,688             $  47.00                   158,438           $ 39.08
 Granted                            87,500             $  51.28                   484,296           $  5.40
 Cancelled                         (35,750)            $      -                   (35,438)          $     -
 Outstanding End of year           158,438             $  49.28                   607,296           $ 14.52
 Exercisable End of year            64,438             $  47.00                   275,256           $ 24.20
                             ------------------------------------------  --------------------------------------
</TABLE>

          The  following  table further  describes  the Company's  stock options
          outstanding as of December 31, 2001:

<TABLE>
                                                Options
                         Number Options      Weighted Average             Weighted                Number
                         Outstanding at       Remaining Life       Average Exercise Price     Exercisable at
                       December 31, 2001    December 31, 2001        December 31, 2001      December 31, 2001
                       -----------------    -----------------        -----------------      -----------------
<S>                     <C>                   <C>                    <C>                    <C>
 $0 to $0.99                  2,500                2.80                 $    3.64                      -
 $1.00 to $1.99             392,046                9.50                 $    5.44                119,319
 $2.00 to $2.99              89,750                2.40                 $    5.44                      -

 Total                      484,296                8.15                 $    5.40                119,319
</TABLE>

          SFAS 123 applies only to options  granted  since April 1, 1999. 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, 2000 and 2001 would have
          been as follows:

<TABLE>
                                                              2000               2001
          <S>                    <C>                      <C>             <C>
             Net loss            as reported              (8,839,166)     $ (10,151,168)
                                 pro forma               (10,396,000)     $ (12,563,891)

            Basic and diluted loss per common share
                                 as reported                   (4.98)     $       (5.09)
                                 pro forma                     (5.84)     $       (6.28)
</TABLE>

          The fair value of the  Company's  stock  options  used to compute  pro
          forma  net  earnings  and  earnings  per  share  disclosures  are  the
          estimated   present  value  at  grant  date  using  the  Black-Scholes
          option-pricing model.

          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:


                                       78
<PAGE>

                                                   2000             2001
                                                   ----             ----
        Dividend yield                                    -             -
        Expected volatility                      30.5%-34.5%          32%
        Risk-free interest rate                  6.02-6.77%         6.00%
        Expected life of option                    3 years          3 years


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

(7)  Acquisitions

     As  described  in Note 1,  during  1999,  the Company  acquired  all of the
     outstanding  shares  and  caused to be  acquired  the  limited  partnership
     interests of the Predecessor  Company.  This transaction has been accounted
     for  utilizing  the  purchase  method  of  accounting  and the  results  of
     operations of the acquired  businesses  have been included in the Company's
     results of operations from the respective dates of acquisition.

     The amounts and  components of the purchase price and the allocation of the
     purchase price to assets and liabilities acquired are as follows:

       Cash (including $310,000 of transaction costs)    $    1,310,000
       Common Stock                                           5,000,000
       Fair value of $21,000,000 of notes issued             19,968,529
                                                         ------------------
                                                         $   26,278,529
                                                         ==================

       Property and equipment                            $      326,774
       Names and reputations                                 26,809,237
       Current liabilities                                     (857,482)
                                                         ------------------
                                                         $   26,278,529
                                                         ==================

     The fair value of the 125,000  common shares issued in connection  with the
     purchase of the  Predecessor was based on the market value of the Company's
     common stock before and after the acquisition.

     Accounting Principles Board Opinion No. 16, Business Combinations, requires
     that obligations to perform future services acquired in a purchase business
     combination  be recorded by the  acquiring  company at the present value of
     the costs that will be  incurred  to perform  the future  services  plus an
     allowance for normal profit on those costs to perform the future  services.
     No purchase price consideration was allocated to the Predecessor's deferred
     service revenue as the future additional cash  consideration to be received
     by the  Company (in the form of trust  proceeds)  exceeds the fair value of
     the future services to be performed.  In addition,  because the Company had
     sufficient  inventory  to satisfy the  Predecessor's  pre-need  merchandise
     sales,  the fair value of the  remaining  commitment  with  respect to such
     merchandise is negligible.

     On  December  31,  1999,  the  Company  acquired a  crematory  in  Spokane,
     Washington  for $500,000  cash and 5,682 shares of common stock for a total
     purchase  price  of  $749,998  under  an  asset  purchase  agreement  and a
     non-compete agreement. 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 acquired, $491,752, has been recorded
     as names and reputations.  The purchase agreement also contains  provisions
     for  additional  consideration  to be paid based on future  earnings of the
     acquired  entity.  In addition,  the Company is obligated to pay additional
     consideration,  not to exceed $125,000, based on the future market price of
     the Company's common stock.  Amounts paid as additional  consideration,  if
     any,  in  accordance  with  the  purchase  agreement  will be  recorded  as
     additional  purchase price. Such amounts are not contingent upon employment
     of the seller with the Company.  Pro forma results of  operations  for 1998
     and 1999 as if the Spokane,  Washington acquisition had occurred on January
     1,  1998  are not  significantly  different  from  the  reported  operating
     results.

     In March 2000,  the Company  acquired all of the  outstanding  stock of the
     Cremation  Society of Iowa,  Inc.  in  exchange  for  20,129  shares of the
     Company's  common  stock with a fair value of  $1,000,000  and  $110,000 in
     cash.



                                       79
<PAGE>

     In August,  2000, the Company renegotiated the purchase price for Cremation
     Society of Iowa to 12,077 shares of the Company's common stock, with a fair
     value of $640,000 at the date of the  renegotiation,  and $110,000 in cash.
     The  renegotiated  purchase price also includes certain earn out provisions
     based on gross  revenues  and EBITDA,  and a price  guarantee on the shares
     issued in the  purchase  such that  their  fair value will not be less than
     $640,000  on December  1, 2000.  As of July 2000,  the Company did not meet
     certain  conditions of the agreement.  As such, the Company was required to
     issue the former  owners an  additional  2,923  shares of its common  stock
     valued at $158,000.

     In July 2000 the Company  purchased all of the outstanding stock of Wilhelm
     Mortuary,  Inc.,  certain  assets of  Heritage  Memorial  Society,  LLC and
     Community Memorial Centers,  LLC (Oregon businesses) in exchange for 78,327
     shares of the Company's common stock value at $4,191,000,  $500,000 in cash
     and a convertible  debenture of $1,000,000  maturing on July 17, 2003.  The
     debenture  bears  interest  at 8% per year and is  convertible  into 20,833
     shares of the  Company's  common  stock at any time after July 2001,  based
     upon a conversion  price of $48.00 per share.  The  intrinsic  value of the
     beneficial  conversion  feature,  $115,000,  was  recorded  as a credit  to
     paid-in-capital and a discount to the carrying value of the debentures. The
     discount is being accreted to the redemption price of the debentures.  This
     acquisition was accounted for as a purchase.  Of the abovementioned  78,327
     common shares issued,  7,762 shares relate to non-compete  agreements  with
     former  owners of the  acquired  entities.  The Company  also issued  2,500
     options exercisable at $49.60 per share, vesting July 1, 2001, and expiring
     July 1, 2003 to a certain former employee of the acquired entities.

     Pursuant to the Oregon businesses purchase  agreement,  if the value of the
     common  stock  (based on the  average  trading  price for the 60 day period
     preceding  the first  trading day  following  July 17,  2001) issued to the
     former owners of the Portland  Business was less than $3,885,000,  we would
     pay the  owners  the  difference  between  $3,885,000  and the value of the
     shares in cash or, at our  option,  common  stock of  Neptune  Society.  In
     August 2001, we issued  140,424 shares of common stock to the former owners
     of the Portland Business under this agreement.

     As described  above,  during the year ended  December 31, 2000, the Company
     acquired all of the outstanding shares of the Cremation Society of Iowa and
     the Oregon businesses. These transactions have been accounted for utilizing
     the purchase  method of  accounting  and the results of  operations  of the
     acquired  businesses  have  been  included  in  the  Company's  results  of
     operations from the respective dates of acquisition.

     The amounts and  components of the purchase price and the allocation of the
     purchase price to assets and liabilities acquired are as follows:

        Cash (including $93,620 of transaction costs)        $         703,620
        Common Stock                                                 5,103,419
        Fair value of $1,000,000 of note issued                        885,000
                                                             ------------------
                                                             $       6,692,039
                                                             ==================
       Current assets                                        $         66,009
       Property and equipment                                       1,805,585
       Names and reputations                                        4,618,165
       Non-compete agreement                                          487,674
       Current liabilities                                           (173,891)
       Long term debt                                                (111,503)
                                                             ------------------
                                                             $      6,692,039
                                                             ==================

     The  purchase  price of the above  acquisitions  was  allocated  to the net
     assets  acquired  based on  management's  estimate of the fair value of the
     acquired assets and liabilities at the dates of acquisition.



                                       80
<PAGE>

     The unaudited pro forma revenues and net loss, as if the acquisition of the
     Companies had occurred at the beginning of 2000, would have been $8,293,000
     and $8,852,000, respectively.

     The unaudited pro forma results of operations does not necessarily  reflect
     the  results  of  operations  that  would have  occurred  had the  combined
     companies  constituted  a single  entity  during such  periods,  and is not
     necessarily indicative of results which may be obtained in the future.

     Sale of Portland Assets

     During the fourth quarter 2001 as part of our overall business  strategy to
     focus on our pre-need marketing and sales operations, we determined that it
     was in our best interest to restructure our Oregon operations to dispose of
     certain  physical assets related to the Portland  Business and the Portland
     Property  for the  purposes  of (i)  reducing  the  liabilities  of Wilhelm
     Mortuary,  Inc. to CMC and Green Leaf;  and (ii)  focusing our resources on
     marketing and selling  pre-need  contracts on a national  basis using third
     party  independent  contractors  to  provide  at-need  services.  Effective
     December 31, 2001, we sold  substantially  all of the assets related to the
     Portland Business and the Portland Property to Western Management Services,
     L.L.C.,  an Oregon  limited  liability  company  managed  by  Michael  Ashe
     ("Western"),  under the terms of an asset purchase agreement (the "Portland
     Purchase  Agreement").  In connection  with the acquisition of the Portland
     Business and the Portland Property  (collectively,  the "Portland Assets"),
     Mr. Ashe's employment  agreement with Neptune  Management was terminated in
     its entirety and Mr. Ashe  entered  into a  consulting  agreement  with the
     Company  to  provide  consulting  services  to us.  Under  the terms of the
     Portland Purchase Agreement, we agreed as follows:

          (i) Western would purchase the assets related to the Portland Business
     and the Portland  Property in consideration  of (a) assuming  $1,500,000 of
     Wilhelm's  obligations  under the Green Leaf  Note,  (b)  assuming  Neptune
     Society's  obligations under the CMC Debenture in the amount of $1,000,000,
     and (c)  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;

          (ii) Wilhelm would (a) pay $75,000 of the principal  balance due under
     the Green Leaf Note, (b) restructure terms of the Green Leaf Note to extend
     the due date to July 31,  2002,  and (c) obtain  the  consent of Green Leaf
     related to Western's  assumption  of the  obligations  under the Green Leaf
     Note;

          (iii)  Neptune  Society  and  CMC  would  amend  and  restate  the CMC
     Debenture to delete the conversion features of the CMC Debenture and obtain
     the consent of CMC related to Western's assumption of the obligations under
     the CMC Debenture; and

          (iv) Western's  obligations are secured by a security  interest in the
     asset of the  Portland  Business  granted to Wilhelm and a deed of trust on
     the  Portland  Property,  each of which  is  subordinate  to  Green  Leaf's
     security interest and deed of trust and to CMC's deed of trust.

     In connection with our sale of the Portland Assets, we amended the terms of
     a $1 million  convertible  debenture issued to Community  Memorial Centers,
     L.L.C., a limited liability company.  David Schroeder,  our Chief Operating
     Officer,  President  and  Director,  and  Michael  Ashe,  our  Former  Vice
     President of Operations, are members of Community Memorial Centers, L.L.C.

     The sale of the Portland Assets was closed on March 12, 2002.


                                       81
<PAGE>

(8)  Commitments and Contingencies

     (a)  Leases

          The  Company  leases   facilities  under  operating  lease  agreements
          expiring  through  November  2010.  The Company  also  leases  certain
          equipment and automobiles under operating lease agreements expiring at
          various dates  through  2012.  Rent expense for the three months ended
          March 31, 1999,  the nine months ended December 31, 1999 and the years
          ended December 31, 2000 and 2001 were $62,000, $318,000,  $515,000 and
          $645,000, respectively.

          Future minimum lease payments under non-cancelable operating leases at
          December 31, 2001 are as follows:

              Year ending December 31:

                  2003                                    $           409,765
                  2004                                                239,803
                  2005                                                219,214
                  2006                                                160,883
                  Thereafter                                          251,875
                                                             -------------------
                                                          $         1,715,722
                                                             ===================

     (b)  Litigation

          During March 1998,  the  Department of Consumer  Affairs,  Funeral and
          Cemetery  Division  (the  "Department")  commenced  an  administrative
          proceeding  alleging  various  statutory  and  regulatory   violations
          arising from an incident  occurring at the  Heritage  Crematory.  This
          proceeding was settled by the Predecessor Company agreeing to sell its
          business  by a  date  certain  or  surrender  its  funeral  director's
          license.  A sale of the  Predecessor  Company to Lari Corp,  Inc. (see
          Note 1) was  concluded  in March  1999.  The  Department  granted us a
          transfer of the funeral  establishment  license on July 22, 2000, with
          the same probationary  terms and conditions  applicable to the Neptune
          Group.  These  conditions  require  us to comply  with the  California
          regulatory requirements related to our business of providing cremation
          services and marketing  pre-need plans for one year, or as long as Mr.
          Weintraub continues to be a shareholder of the Company.

          The Company was a defendant in litigation  over the use of the service
          mark  "Neptune  Society"  in  certain  geographic  areas  of  southern
          California.  The  Company  is  currently  prohibited  from  using such
          service mark in the  disputed  geographic  areas and the  plaintiff is
          seeking  monetary  damages  in  an  unspecified  amount.  The  Company
          believes  the lawsuit is without  merit and intends to defend the case
          vigorously. No provision has been made in the financial statements for
          the ultimate outcome of this uncertainty. Additionally, 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.

          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  (Honorable Gary A. Fees).  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 had an arrangement with Leneda whereby Leneda
          would perform at-need  services for certain of the Company's  pre-need
          contracts sold within Leneda's  territories.  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  Alternatives,  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 the 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.


                                       82
<PAGE>

          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 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 the
          Neptune  Society's  obligations  under the Service  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.

(9)  Income Taxes

     The Predecessor Company filed separate federal and state income tax returns
     for each of the  combining  entities.  Since  no taxes  were due from the C
     corporations  and any income taxes from the limited  partnerships and the S
     corporation (other than state taxes on certain S corporation earnings) were
     the obligations of the partners or shareholders,  no income taxes have been
     provided in the consolidated financial statements for periods through March
     31, 1999.

     Income tax  (benefit)  expense for the nine months ended  December 31, 1999
     and the years ended December 31, 2000 and 2001 is summarized below.

<TABLE>
                                                           1999            2000           2001
       <S>                                             <C>              <C>          <C>
       Current expense:
       Federal                                         $       -               -              -
       State                                                 800             800              -
                                                       -----------     -----------    -----------
       Total current                                         800             800              -
                                                       -----------     -----------    -----------
       Deferred (benefit) expense:
       Federal                                          (217,629)        217,629               -
       State                                             (37,299)         35,699               -
                                                       -----------     -----------    -----------
       Total deferred                                   (254,928)        253,328               -
                                                       -----------     -----------    -----------
       Income tax (benefit) expense                    $(254,128)        254,128               -
                                                       ===========     ===========    ===========
</TABLE>

     Income tax (benefit) expense differs from the expected statutory amount for
     the nine months ended  December  31, 1999 and the years ended  December 31,
     2000 and 2001 as follows:

<TABLE>
                                                                 1999              2000             2001
      <S>                                            <C>                       <C>             <C>
       Expected income tax expense (benefit)         $         (728,879)       (2,781,578)     (3,451,937)
       State income tax, net of federal benefit                (125,076)         (477,319)       (600,701)
       Nondeductible goodwill                                    377,682           592,632         832,602
       Change in valuation allowance                             200,773         2,822,093       2,780,000
       Other                                                      21,372            98,300       (440,036)
                                                        -----------------  ----------------  --------------
       Income tax (benefit) expense                  $         (254,128)           254,128               -
                                                        =================  ================  ==============
</TABLE>



                                       83
<PAGE>

     The tax  effects of  temporary  differences  that give rise to  significant
     portions of deferred tax assets and deferred  tax  liabilities  at December
     31, 2000 and 2001 is presented below:

<TABLE>
                                                                     2000                2001
                                                               -----------------     ---------------
<S>                                                            <C>                      <C>
        Deferred tax assets:
        Deferred revenue                                       $    2,628,372           3,976,400
        State taxes                                                                             -
                                                                          272
        Net operating loss                                          1,395,566           3,350,600
        Other                                                          23,333              84,600
                                                               -------------------   ---------------
        Total gross deferred tax assets                             4,047,543           7,411,600
                                                               -------------------   ---------------
        Valuation allowance                                        (3,022,866)         (5,802,600)
                                                               -------------------   ---------------
        Net deferred tax assets                                     1,024,677           1,609,000
        Deferred tax liability:
        Deferred commissions                                       (1,024,677)         (1,609,000)
                                                               -------------------   ---------------
        Net deferred taxes                                                  -                   -
                                                               ===================   ===============
</TABLE>

     The Company's deferred tax asset is fully 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  $8.7  million  (federal)  start to expire in the year  2019.
     State income tax loss  carryforwards of approximately $3.0 million start to
     expire in the year 2004.


(10) Selected Quarterly Financial Data (Unaudited)

     The  quarterly  results  of  operations  for  fiscal  2001 and 2000 were as
     follows:

IN THOUSANDS, EXCEPT PER SHARE DATA
-----------------------------------
<TABLE>
                                                      First        Second        Third         Fourth
                                                     Quarter       Quarter      Quarter       Quarter
                                                     -------       -------      -------       -------
<S>                                               <C>               <C>           <C>           <C>
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 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)


                                                      First        Second        Third         Fourth
                                                     Quarter       Quarter      Quarter       Quarter
                                                     -------       -------      -------       -------
FISCAL 2000:

Net revenues                                           1,602        1,664         1,992         2,430
Gross profit                                             651          631           747         1,208
Operating loss                                        (1,407)      (1,367)       (1,691)       (1,231)
Loss before cumulative effect of
 change in accounting principle                       (1,855)      (1,789)       (3,144)       (1,647)
Net loss                                              (2,259)      (1,789)       (3,144)       (1,647)
Basic loss per share before extraordinary
 item and cumulative effect of change in
 accounting principle                                  (1.12)       (1.04)        (1.72)        (0.88)
Basic net loss per share (1)                      $    (1.36)       (1.04)        (1.72)        (0.88)
-----------------------
(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.
(2)  The Neptune  Group was  acquired  March 31,  1999.  As a result,  operating
     results for 1999 reflect the nine-month period ended December 31, 1999.
</TABLE>


(11) Subsequent Events

     On  January 2, 2002,  the  Company  began  operations  out of its  Colorado
     office.

     Effective  as of March 22,  2002,  the  Company  effected a 1 for 4 reverse
     split of its common  stock.  Information  contained  in these  Consolidated
     Financial Statements gives effect to the reverse stock split.

     On March 27, 2002, the Company entered into a private  placement  agreement
     for the sale of 1,388,889 shares of the Company's common stock at $1.08 per
     share. On March 29, 2002, the Company received $1,400,000 of the $1,500,000
     of gross proceeds due.

     On March 28, 2002,  the Company paid  $700,000 of its  $1,000,000  PIC note
     payable (see Note 5).


                                       84
<PAGE>

(12) New Accounting Pronouncements

     In July 2001, the FASB issued Statement No. 141, Business Combinations, and
     Statement  No. 142,  Goodwill and Other  Intangible  Assets.  Statement 141
     requires  that the purchase  method of  accounting be used for all business
     combinations  initiated  after June 30, 2001.  Statement 141 also specifies
     criteria   intangible   assets  acquired  in  a  purchase  method  business
     combination  must meet to be recognized  and reported  apart from goodwill,
     noting that any purchase price allocable to an assembled  workforce may not
     be accounted for  separately.  Statement 142 will require that goodwill and
     intangible assets with indefinite useful lives no longer be amortized,  but
     instead  tested for  impairment at least  annually in  accordance  with the
     provisions  of  Statement  142.   Statement  142  will  also  require  that
     intangible  assets  with  definite  useful  lives be  amortized  over their
     respective  estimated useful lives to their estimated  residual values, and
     reviewed for impairment in accordance with SFAS No. 121, Accounting for the
     Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed
     Of.

     The  Company  is  required  to  adopt  the   provisions  of  Statement  141
     immediately and Statement 142 effective January 1, 2002.

     Statement 141 will require upon adoption of Statement 142, that the Company
     evaluate its existing  intangible assets and goodwill that were acquired in
     a  prior  purchase  business   combination,   and  to  make  any  necessary
     reclassifications  in order to conform  with the new  criteria in Statement
     141 for  recognition  apart from goodwill.  Upon adoption of Statement 142,
     the Company  will be required to  reassess  the useful  lives and  residual
     values of all intangible assets acquired in purchase business combinations,
     and make any necessary  amortization  period  adjustments by the end of the
     first  interim  period  after  adoption.  In  addition,  to the  extent  an
     intangible  asset is identified as having an  indefinite  useful life,  the
     Company will be required to test the  intangible  asset for  impairment  in
     accordance  with the  provisions  of Statement 142 within the first interim
     period. Any impairment loss will be measured as of the date of adoption and
     recognized as the cumulative effect of a change in accounting  principle in
     the first interim period.

     In  connection  with  the  transitional  goodwill  impairment   evaluation,
     Statement  142 will require the Company to perform an assessment of whether
     there  is an  indication  that  goodwill  is  impaired  as of the  date  of
     adoption.  To accomplish this the Company must identify its reporting units
     and determine the carrying  value of each  reporting  unit by assigning the
     assets and  liabilities,  including  the existing  goodwill and  intangible
     assets,  to those reporting  units as of the date of adoption.  The Company
     will then have up to six months from the date of adoption to determine  the
     fair value of each  reporting  unit and compare it to the reporting  unit's
     carrying  amount.  To the extent a reporting unit's carrying amount exceeds
     its fair value, an indication exists that the reporting unit's goodwill may
     be  impaired   and  the  Company  must  perform  the  second  step  of  the
     transitional  impairment test. In the second step, the Company must compare
     the implied fair value of the  reporting  unit's  goodwill,  determined  by
     allocating the reporting unit's fair value to all of it assets  (recognized
     and  unrecognized)  and liabilities in a manner similar to a purchase price
     allocation in accordance with Statement 141, to its carrying  amount,  both
     of which would be measured as of the date of adoption.  This second step is
     required to be completed as soon as possible,  but no later than the end of
     the year of adoption.  Any transitional  impairment loss will be recognized
     as the  cumulative  effect  of a  change  in  accounting  principle  in the
     Company's statement of earnings.

     As of the  date of  adoption,  the  Company  expects  to  have  unamortized
     goodwill  in the  amount of $24.4  million  which  will be  subject  to the
     transition  provisions  of  Statements  141 and 142.  Amortization  expense
     related to goodwill was $1.7 million and $1.8  million,  respectively,  for
     the years ended December 31, 2000 and 2001. Because of the extensive effort
     needed  to  comply  with  adopting  Statements  141  and  142,  it  is  not
     practicable to reasonably  estimate the impact of adopting these Statements
     on the Company's financial statements at the date of this report, including
     whether  any  transitional   impairment  losses  will  be  required  to  be
     recognized as the cumulative effect of a change in accounting principle.


                                       85
<PAGE>
     In August  2001,  the  Financial  Accounting  Standards  Board  issued FASB
     Statement No. 144,  Accounting for the Impairment or Disposal of Long-Lived
     Assets  (Statement  144),  which  supersedes  both FASB  Statement No. 121,
     Accounting  for the  Impairment  of  Long-Lived  Assets and for  Long-Lived
     Assets to Be Disposed Of (Statement  121) and the  accounting and reporting
     provisions   of  APB   Opinion   No.   30,   Reporting   the   Results   of
     Operations--Reporting  the  Effects of Disposal of a Segment of a Business,
     and   Extraordinary,   Unusual  and   Infrequently   Occurring  Events  and
     Transactions  (Opinion 30), for the disposal of a segment of a business (as
     previously defined in that Opinion).  Statement 144 retains the fundamental
     provisions in Statement 121 for recognizing and measuring impairment losses
     on long-lived  assets held for use and long-lived  assets to be disposed of
     by sale, while also resolving significant  implementation issues associated
     with Statement 121.  Statement 144 retains the basic  provisions of Opinion
     30 on how to present  discontinued  operations in the income  statement but
     broadens that presentation to include a component of an entity (rather than
     a segment of a business).  Unlike  Statement 121, an impairment  assessment
     under Statement 144 will never result in a write-down of goodwill.  Rather,
     goodwill is evaluated for impairment under Statement No. 142.

     The  Company  is  required  to adopt  Statement  144 no later than the year
     beginning  after  December  15, 2001.  Accordingly,  the Company will adopt
     Statement 144 in the first quarter of 2002.  Management does not expect the
     adoption  of  Statement  144 for  long-lived  assets held for use to have a
     material  impact  on  the  Company's   financial   statements  because  the
     impairment  assessment  under  Statement  144  is  largely  unchanged  from
     Statement  121. The provisions of the Statement for assets held for sale or
     other disposal generally are required to be applied prospectively after the
     adoption date to newly initiated disposal activities. Therefore, management
     cannot determine the potential  effects that adoption of Statement 144 will
     have on the Company's financial statements.

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



                                       86
<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



                                       87
<PAGE>

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 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, 2001.



                                       88
<PAGE>

<TABLE>
                                                                                     Director/              Age
Name                                  Position                                       Officer Since
---------------------------------------------------------------------------------------------------------------
<S>                                   <C>                                            <C>                    <C>
Marco P. Markin                       CEO and Director of each of Neptune Society,   June 1999               37
                                      Neptune of America, (since October) and
                                      Neptune Management (since June 1999)

David Schroeder (1)                   President, Chief Operating Officer Secretary   November 2000           55
                                      and Director of each of Neptune Society,
                                      Neptune of America and Neptune Management;
                                      President of Heritage Alternatives (since
                                      January 2001)

Gary R. Loffredo(2)                   Director of Neptune Society (since October     April 1999              39
                                      1999) and Neptune Management (since April
                                      1999)

Thomas J. Soucy(3)                    Director of each of Neptune Society (since     March 2000              43
                                      June 1999); Chief Financial Officer,
                                      Treasurer (from March 2000 to November 2000)
                                      of each of Neptune Society, Neptune of
                                      America, Neptune Management and Heritage
                                      Alternatives

Rodney Bagley (1)                     Chief Financial Officer, Treasurer,            November 2000           41
                                      Secretary and Director of each of Neptune
                                      Society, Neptune of America, Neptune
                                      Management and Heritage Alternatives

Gary I. Harris(4)                     Director of Neptune Society                    October 1999            61


Tom R. Camp (5)                       Director of Neptune Society                    June 5, 2001            47
---------------------------------------------------------------------------------------------------------------
(1)  Mr.  Schroeder  resigned as Secretary of all Neptune  Companies on March 6,
     2002, and was replaced by Mr. Bagley.
(2)  Mr. Loffredo resigned as a Director of Neptune  Management  effective as of
     March 7, 2002.
(3)  Mr. Soucy resigned effective as of January 18, 2002.
(4)  Mr. Harris resigned as a Director effective as of March 11, 2002.
(5)  Mr. Camp resigned effective as of February 27, 2002.
</TABLE>


     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 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 from 1982 - 1985.



                                       89
<PAGE>

     David L. Schroeder - Mr. Schroeder was appointed Chief Operating Officer of
Neptune  Society on June 1, 2000, as a Director and Secretary of Neptune Society
in November  2000,  and as President of all Neptune  companies in January  2001.
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.

     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.

     Gary R.  Loffredo  - Since  November  1998,  Mr.  Loffredo  has  been  Vice
President of  Investment  Banking for BG Capital  Group.  BG Capital  Group is a
venture  capital and  merchant  banking firm with offices in Florida and Canada.
Prior to joining BG Capital, Mr. Loffredo began his career at Lehman Brothers in
New York and Miami  where he worked for 12 years.  From  April 1997 to  December
1998,  Mr.  Loffredo  served  as  President  for Rome  Supply  Corp,  a  private
construction  company he  founded  based in  Florida.  Mr.  Loffredo  majored in
finance,  graduating  from the  University of South  Carolina with a Bachelor of
Science  Degree  in  1984.  Mr.  Loffredo  resigned  as a  Director  of  Neptune
Management effective as of March 7, 2002.

     Thomas J. Soucy - Mr.  Soucy is a Director of Neptune  Society.  Mr.  Soucy
served as the Chief Financial  Officer for Neptune Society,  Neptune of America,
Neptune  Management and Heritage  Alternatives from March 2000 to November 2000.
Mr. Soucy has worked as an accounting  supervisor  for Hughes  Aircraft  Company
from June, 1979 to June,  1984,  progressed to the position of audit manager for
Deloitte & Touche from June,  1984 to September,  1990,  and as CFO of Englewood
Park  Cemetery and Green Hills  Memorial Park from  September,  1990 to January,
2000.  Mr. Soucy is a Certified  Public  Accountant and a member of the American
Institute of Certified Public Accountants, the State Society of Certified Public
Accountants,  he has served on various boards of nonprofit organizations.  He is
also a member of the  Internment  Association of California and a past member of
the International Cemetery and Funeral Association. Mr. Soucy resigned effective
as of January 18, 2002.

     Gary I. Harris - Mr. Harris is the National  Sales Manager of Neptune and a
Director.  Prior to joining  Neptune 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



                                       90
<PAGE>

worked  since  1985.  He  attended  both the  University  of Toledo and New York
University. Mr. Harris resigned as a Director effective as of March 11, 2002.

     Tom  Camp - Mr.  Camp's  professional  background  ranges  from  holding  a
position as the Director of Programs for the Nebraska  Safety Counsel to working
as an attorney for Gang, Tyre, Ramer & Brown,  Inc., an entertainment  law firm,
to his current  position  as CEO,  Secretary  and General  Counsel of The Apogee
Companies.  Mr. Camp has been a part of the Apogee  Companies,  its predecessors
and affiliates,  since the company's formation in 1991. Mr. Camp is also Manager
of Green Leaf  Investors  II, LLC. In addition to his current  status at Apogee,
Mr.  Camp  also  currently  serves  as a  Director  of Hanna  Car  Wash  Systems
International,  LLC.  Mr.  Camp has also  previously  served  as a  Director  of
Micromonitors, Inc. Mr. Camp resigned effective as of February 27, 2002.

     Subsequent to December 31, 2001, we appointed  Anthony  George and Bryan G.
Symington  Smith as  directors  to fill  vacancies  created  as a result  of the
resignations of four members of our 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.

     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
directors:  Marco Markin,  David Schroeder and Rodney Bagley.  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.



                                       91
<PAGE>

     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 2001, the Board of Directors met 4 times  including  participants by
telephone,  and  approved  actions by written  consent 14 times.  Each  director
attended all of the Board meetings.

     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

     The  following  represents  each person who did not file on a timely  basis
reports  required  by Section  16(a) of the  Exchange  Act during the year ended
December 31, 2001:

<TABLE>
    Name                    Reporting Person                          Form 3/# of       Form 4/# of       Form5/# of
                                                                      transactions     transactions      transactions
---------------------------------------------------------------------------------------------------------------------
<S>                         <C>                                       <C>               <C>               <C>
Marco P. Markin             CEO and Director                             Late/1             N/A             Late/2

David Schroeder(5)          President, Chief Operating Officer           Late/1             N/A             Late/2
                            Secretary and Director

Gary R. Loffredo(1)         Director                                     Late/1             N/A             Late/1

Thomas J. Soucy(2)          Director                                     Late/1             N/A             Late/1

Rodney Bagley(6)            Chief Financial Officer, Treasurer           Late/1             N/A             Late/2
                            and Director

Gary I. Harris(3)           Director                                     Late/1             N/A             Late/1

Tom Camp (4)                Director                                     Late/1           Late/1             N/A
---------------------------------------------------------------------------------------------------------------------
1)   Mr. Loffredo resigned as a Director of Neptune  Management  effective as of
     March 7, 2002.
2)   Mr. Soucy resigned effective as of January 18, 2002.
3)   Mr. Harris resigned effective as of March 11, 2002.
4)   Mr. Camp resigned effective as of February 27, 2002.
5)   Mr. Schroeder resigned as Secretary effective as of March 6, 2002
6)   Mr. Bagley was appointed as Secretary effective as of March 6, 2002.
</TABLE>



                                       92
<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,  1999,  2000 and 2001.  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
---------------------------------------------------------------------------------------------------------------------
                                                                        Long-Term Compensation
                                                               -----------------------------------------
                                     Annual Compensation
                              --------------------------------------------------------------------------

                                                                      Awards

                                Salary   Bonus   Other Annual   Deferred   Securities     LTIP Payouts  All Other
                                                   Compens-     Compens-   Under-lying                 Compens-ation
Name and                                            ation        ation     Options/ SARs
Principal Position     Year       ($)     ($)        ($)          ($)         (#)                            ($)
---------------------------------------------------------------------------------------------------------------------
<S>                    <C>    <C>        <C>     <C>            <C>         <C>            <C>          <C>
Marco Markin(1)        2001   $ 145,233      -   $  98,287      $ 54,767     159,432                    $      -


President, CEO and     2000   $ 120,000          $  83,000                    37,500
Director of Neptune
Society                1999   $  40,000


Emanuel Weintraub,(2)  2001           -      -   $ 587,325

Consultant to          2000           -          $ 240,000
Neptune of America
                       1999           -          $ 263,000


David Schroeder(3)     2001   $ 134,616      -   $  21,355      $ 38,263     149,432                    $ 62,189

Chief Operating        2000   $ 120,000      -           -                    18,750
Officer of Neptune
Society                1999           -

Gary Harris4)          2001   $  75,000      -   $ 134,619         7,500

National Sales         2000   $  75,000      -   $  78,000                     3,125
Manager of Neptune
Management             1999           -

Rodney Bagley(5)       2001   $ 161,737      -   $  23,355      $ 38,263     149,432                    $ 60,189

Chief Financial        2000   $  51,000      -           -                    18,750
Officer, Secretary
and Director of        1999           -
Neptune Society
---------------------------------------------------------------------------------------------------------------------


                                       93
<PAGE>

(1)  Mr.  Markin was  appointed  as an Officer and  Director  of our  subsidiary
     companies n April 1999. He was appointed as Neptune Society's President and
     CEO in October  1999.  In 2001,  his annual was salary of $200,000 of which
     $54,767 was deferred.  See "Employment  Contract" section. In 2001, we paid
     Mr. Markin  $98,287 for lease  payments on his home and for personal use of
     an automobile.
(2)  Mr.  Weintraub  was the President of the Neptune  Group.  The Neptune Group
     paid  compensation of $430,000 to Mr. Weintraub in 1999. Mr. Weintraub also
     served as a  consultant  to the Company  from April 1999 to December  2001.
     During that period, all of Mr. Weintraub's  compensation was related to his
     consulting agreement with the Company.
(3)  Mr. Schroeder has served as our Chief Operating Officer since June 1, 2000.
     In 2001, his annual salary was $200,000 of which $38,263 was deferred.  See
     "Employment  Contract" section.  In 2001, we paid Mr. Schroeder $21,355 for
     lease payments for personal use of an automobile. Under his employment, Mr.
     Schroeder is entitled to $62,189 for lease  payments on his home which have
     been deferred.
(4)  In 2001,  Mr. Harris earned a salary of $75,000 per year and a bonus in the
     form of sales commissions based on the number of Pre-Need Contracts sold by
     independent  contractors  that he manages at the rate of $10 per  contract.
     Mr. Harris earned approximately $78,000 from sales commissions.
(5)  Mr.  Bagley was appointed  Chief  Financial  Officer of Neptune  Society in
     November 2000. In 2001, his annual salary was $200,000 of which $38,263 was
     deferred.  See "Employment  Contract" section.  In 2001, we paid Mr. Bagley
     $23,355 for lease  payments for personal  use of an  automobile.  Under his
     employment agreement,  Mr. Bagley is entitled to $62,189 for lease payments
     on his home which have been deferred.
</TABLE>

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

     Set forth  below are the stock  options we  granted to our named  executive
officers in most recently completed fiscal year. Such stock options expire three
years after the grant date.  We did not grant any SARs during the most  recently
completed fiscal year ended December 31, 2001.

OPTION/SAR GRANTS IN LAST FINANCIAL YEAR


<TABLE>
Individual Grants

                                                                        Market Value of
                                                                         Common Shares
                      Common Shares     % of Total                        Underlying
                      under             Options/SARs     Exercise or    Options on the
                      Options/SARs      Granted to       Base Price      Date of Grant       Expiration
                      Granted           Employees in     ($/Common      ($/Common Share)         Date
Name                  #                 Financial Year   Share)
------------------------------------------------------------------------------------------------------
<S>                      <C>             <C>              <C>             <C>                <C>
Marco Markin             28,750               33%          $10.00            $10.00          June 2003
President, CEO and      130,681                            $ 4.40            $ 8.80          June 2010
Director of
Neptune Society

David Schroeder          18,750               31%          $10.00            $10.00          June 2003
Chief Operating         130,681                            $ 4.40            $ 8.80          June 2010
Officer of Neptune
Society

Gary Harris               7,500                2%          $10.00            $10.00          June 2003
National Sales
Manager of Neptune
Management
</TABLE>



                                       94
<PAGE>

<TABLE>
                                                                        Market Value of
                                                                         Common Shares
                      Common Shares     % of Total                        Underlying
                      under             Options/SARs     Exercise or    Options on the
                      Options/SARs      Granted to       Base Price      Date of Grant       Expiration
                      Granted           Employees in     ($/Common      ($/Common Share)         Date
Name                  #                 Financial Year   Share)
------------------------------------------------------------------------------------------------------
<S>                      <C>             <C>              <C>             <C>                <C>

Rodney Bagley            18,750               31%          $10.00            $10.00          June 2003
Chief Financial         130,681                             $4.40            $ 8.80          June 2010
Officer of Neptune
Society

Gary Loffredo             2,500               >1%          $10.00            $10.00          June 2003
Director of Neptune
Society
</TABLE>


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

     There  were no stock  options  or SARs  exercised  during  the last  fiscal
year-end, and there were 275,256 vested options or SARs at December 31, 2001.


Long Term Incentive Plans

     No long-term  incentive awards were made during the most recently completed
fiscal years ended December 31, 1999, 2000 and 2001.


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 years ended  December  31, 2000 and December 31, 2001,  except
for Mr. Soucy who received $24,000.


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

Employment Arrangements

     On  June  6,  2001,  the  Company   entered  into   employment   agreements
("Agreement(s)")  with  Mr.  Marco  Markin,  Chairman  of the  Board  and  Chief
Executive Officer,  Mr. David Schroeder,  President and Chief Operating Officer,
and Mr. Rodney M. Bagley,  Executive Vice  President-Finance and Chief Financial
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.

     Under the  Agreements,  each  respective  Officer  receives  an annual base
salary of $200,000 ($30,000 deferred subject to the Compensation Committee),  up
to 113,750 options to purchase,  at a discount,  shares of the Company's  common
stock vesting over the  employment  period,  and a minimum annual bonus payments
equal to 50% of base salary subject to the Company achieving certain performance
based criteria.  Our Compensation  Committee determines the relevant performance
measures,  the amount of the annual bonus payment and when deferred basic salary
payment will be made.


                                       95
<PAGE>

     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.


Report on Repricing of Options/SARs

     We did not reprice any options or SARs outstanding during the most recently
completed fiscal years ended December 31, 2000 and 2001.


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

     Our Compensation  Committee  consists of three  directors:  Marco Markin, a
director and our President  and Chief  Executive  Officer,  David  Schroeder,  a
director and our Chief Operating Officer,  and Rodney Bagley, a director and our
Chief  Financial  Officer.  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.

     The  Compensation  Committee  determined  the  compensation  paid to  Marco
Markin,  our Chief Executive  Officer,  based on several factors,  including the
compensation paid to chief 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



                                       96
<PAGE>

capital  obligations  and  our  financial   performance.   Mr.  Markin  did  not
participate in the determination of his compensation.

     Mr.  Schroeder  was a principal  of the company we  acquired  our  Portland
Business from, and we entered into an employment agreement with Mr. Schroeder in
connection  with  the  acquisition.   The   determination  of  Mr.   Schroeder's
compensation  was  negotiated  at arms' length prior to his  appointment  to our
board of directors and the  Compensation  Committee.  We  subsequently  sold our
Portland Business effective December 31, 2002.


Incentive Stock Option Plan

     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.

     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.

     We have granted options exercisable to acquire a total of 210,875 shares of
our common stock as follows:


                                       97
<PAGE>

<TABLE>
                                         Number of Shares
                                         Acquirable Upon       Exercise       Expiration Date
          Grantee                            Exercise             Price
---------------------------------------------------------------------------------------------
<S>                                       <C>                  <C>               <C>
December 31, 1999 Grants

     Sales Representatives                  14,500              $47.00            3 Years

     Directors, Employees and               53,125              $47.00            3 Years
      Trustees

March 2, 2000 Grants

     Employees                               9,750              $48.48            3 Years

May 31, 2000 Grants

     Trustees                                1,250              $56.00            3 Years

July 5, 2000 Grants

     Employees                              21,250              $53.00            3 Years

July 7, 2000 Grants

     Employees                               1,250              $55.72            3 Years

September 25, 2000 Grants

     Employees                              18,750              $55.00            3 Years

June 5, 2001 Grants

     Directors, Employees and Trustees      88,500              $10.00            3 Years

October 1, 2001 Grants

     Employees                               2,500              $ 3.64             3 Years

         Total                             210,875                ----                 ---
---------------------------------------------------------------------------------------------
</TABLE>




                                       98
<PAGE>

Number of acquirable shares upon exercise includes 71,188 options that have been
cancelled as of December 31, 2001.


Vesting Schedules

     Options granted to sales  representatives vest over a period of three years
and based on the number of  contracts  sold during the period from January 01 to
December 31, each year as follows:

    Contracts Sold During Year          Total # of Shares Eligible for Vesting
              100-199                                    62.5
              200-299                                    125
              300-399                                    250
              400-499                                    500
              500-599                                    750
               600+                                     1,000

In addition, we may grant sales representatives options to acquire common shares
that are not subject to performance requirements.

     Options  granted  under our Incentive  Stock Option Plan to our  directors,
trustees  and other  employees  generally  vest pro rata over one to three years
beginning on the date of grant.

     Options granted under provisions of certain executive employment agreements
vest pro rata over the five year lives of the agreements.


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 and 2001.

                               [Performance Graph]

                                March 31,        December 31,      December 31,
                                  2000              2000              2001
                                  ----              ----              ----
The Neptune Society, Inc.         $100             $164.57            $7.41

Nasdaq Composite Index            $100             $100               $100


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.


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.

     To our knowledge, no shareholder  beneficially owns more that 5% of Neptune
Society's shares of common stock.

     The following table sets forth the ownership interest, direct and indirect,
of our directors and named executive officers as of December 31, 2001:

<TABLE>

                                                         Number of Common
Name of Director/Officer    Address                       Shares Owned        Percent of Class(1)
-------------------------------------------------------------------------------------------------
<S>                         <C>                           <C>                 <C>
Gary R. Loffredo            102 NE 2nd St, Suite 777         9,375 (2)                (2)
Director                    Boca Raton, FL  33432

Gary I. Harris (8)          3500 W. Olive, Suite 1430
Director                    Burbank, CA 91505
</TABLE>




                                       99
<PAGE>

<TABLE>

                                                         Number of Common
Name of Director/Officer    Address                       Shares Owned        Percent of Class(1)
-------------------------------------------------------------------------------------------------
<S>                         <C>                           <C>                 <C>

Marco P. Markin             3500 W. Olive, Suite 1430       92,899 (3)                3.8%(3)
CEO, President & Director   Burbank, CA  91505

Thomas J. Soucy(6)          3500 W. Olive, Suite 1430         None                      -
Director                    Burbank, CA  91505

Rodney Bagley(10)           3500 W. Olive, Suite 1430       58,523                    2.4%
CFO, Treasurer & Director   Burbank, CA  91505

David Schroeder (9)         3500 W. Olive, Suite 1430       61,334 (4)                2.5%(4)
COO, Secretary & Director   Burbank, CA  91505

Tom Camp (7)                4444 Lakeside Drive, Suite 340    None
Director                    Burbank, CA 91505

Officers and Directors                                      225,880 (5)               9.3%(5)
 as a group
(includes 6 persons)
-------------------------------------------------------------------------------------------------
*    Less than one percent (1%).
(1)  Based on 2,424,401 shares issued and outstanding as of March 28, 2002.
(2)  Consists of 9,375 shares of common stock that are acquirable  upon exercise
     of options within sixty (60) days of December 31, 2001.
(3)  Consists of 15,625 shares of common stock and 77,273 shares of common stock
     that are  acquirable  upon  exercise of options  within  sixty (60) days of
     December 31, 2001.
(4)  Consists of 5,529 shares of common stock and 58,523  shares of common stock
     that are acquirable upon exercise of options within
(5)  Consists of 21,154  shares of common  stock plus  204,727  options that are
     acquirable  upon exercise of options within sixty (60) days of December 31,
     2001.
(6)  Mr. Soucy resigned as a director effective on January 18, 2002.
(7)  Mr. Camp resigned as a director effective on February 27, 2002
(8)  Mr. Harris resigned as a director effective on March 11, 2002.
(9)  Mr.  Schroeder  resigned as Secretary of all Neptune  companies on March 7,
     2002
(10) Mr.  Bagley was  appointed  Secretary of all Neptune  companies on March 7,
     2002
</TABLE>


     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.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Except for the transactions described below, 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,  during the
fiscal year ended  December 31, 2001, or in any proposed  transaction  which has
materially affected or will materially affect us.

     In December 2001, the Company executed an agreement with Mr. Weintraub, the
former  President of the Neptune  Group of  companies  and the  Weintraub  Trust
("Weintraub")  to restructure  the remaining  $2.7 million of acquisition  debt,
previously due January 2002, at 12%



                                      100
<PAGE>

interest per annum. On December 27, 2001, the Company paid Weintraub $333,000 of
note  principle,  and  agreed to  amortize  $963,000  over 18 months  and make a
lump-sum  payment of $1,429,000 in July 2003.  Also as a part of the  agreement,
the Company paid $168,000 in loan fees related to previous loan  restructurings,
issued a 12%  non-amortizing,  note  payable of  $350,000  due July 31, 2001 for
additional loan fees related to this  restructuring  and issue Weintraub  75,000
shares of the Company's  common stock valued to $126,000.  See  "Description  of
Business - Neptune  Society  Acquisitions  - Neptune  Group  Acquisition  - 2001
Neptune Group Debt Restructuring."


Green Leaf Bridge Loan

     In August  2001,  Wilhelm  Mortuary,  Inc.  obtained  a bridge  loan in the
principal  amount of $1,575,000  from Green Leaf  Investors II, LLC a California
limited  liability  company managed by Tom Camp, a director of Neptune  Society,
who  resigned on  February  28,  2002.  See,  "Description  of Business - Oregon
Acquisition" and "Green Leaf Bridge Loan."

Sale of Portland Assets

     Effective  December  31,  2001,  we sold  substantially  all of the  assets
related to the Portland Business and the Portland Property to Western Management
Services,  L.L.C.,  an Oregon limited liability company managed by Michael Ashe,
our former Vice  President of  Operations,  under the terms of an asset purchase
agreement  (the  "Portland   Purchase   Agreement").   In  connection  with  the
acquisition  of the  Portland  Business and the Portland  Property,  Mr.  Ashe's
employment agreement with Neptune Society was terminated in its entirety and Mr.
Ashe entered  into a consulting  agreement  with Neptune  Management  to provide
consulting  services to us. See "Description of Business - Oregon  Acquisition -
Sale of Portland Assets."


Restructuring of Green Leaf Bridge Loan

     In connection with our sale of the Portland Assets,  we entered into a note
extension and assumption agreement with Green Leaf, 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,  which in the event that
the Neptune Society effects a reverse split of it common stock prior to July 31,
2002  the  conversion  price  of the  convertible  debenture  would  not  exceed
$0.333333 per share (post split).

CMC Convertible Debenture Restructuring

     In connection with our sale of the Portland Assets, we amended the terms of
a $1 million convertible debenture issued to Community Memorial Centers, L.L.C.,
a limited  liability  company.  David  Schroeder,  our Chief Operating  Officer,
President  and  Director,  and  Michael  Ashe,  our  Former  Vice  President  of
Operations,  are members of Community Memorial Centers,  L.L.C. See "Description
of Business - Oregon Acquisitions - Sale of Portland Assets".



                                      101
<PAGE>

     We believe  that the  foregoing  transactions  were  entered  into terms as
favorable as would have been entered into with unrelated third parties.


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


                              NEPTUNE SOCIETY, INC

                                AND SUBSIDIARIES

                   Index to Consolidated Financial Statements

                                                                 Page

Independent Auditors' Report                                      60

Independent Auditors' Report                                      61

Audited Consolidated Financial Statements:

     Consolidated Balance Sheets                                  62

     Consolidated Statements of Operations                        63

     Consolidated Statements of Shareholders' Equity              64

     Consolidated Statements of Cash Flows                        65

     Notes to Consolidated Financial Statements                   66


(a)  Exhibits

     Exhibit
     Number         Description
     ------         -----------
      3.1(1)        Articles of  Incorporation  of L R Associates,  Inc.,  filed
                    January 4, 1985

      3.2(1)        Articles of Amendment of L R Associates,  Inc. changing name
                    to Lari Corp., filed August 3, 1998

      3.3(1)        Articles of Amendment of Lari Corp. changing name to Neptune
                    Society, filed April 26, 1999


                                      102
<PAGE>

     Exhibit
     Number         Description
     ------         -----------
      3.4(1)        Articles of Amendment of Neptune  Society filed May 9, 2000,
                    effecting  a  combination  of the  Corporation's  shares  of
                    common stock

      3.5(1)        Bylaws of Neptune Society

     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.



                                      103
<PAGE>

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



                                      104
<PAGE>

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

     10.26(1)       Agency  Agreement  dated for reference  July 31, 2000 by and
                    between  Neptune  Society and  Standard  Securities  Capital
                    Corporation

     10.27(2)       Employment  Agreement  by and  between the Company and Marco
                    Markin

     10.28(2)       Employment  Agreement  by and  between the Company and David
                    Schroeder

     10.29(2)       Employment  Agreement  by and between the Company and Rodney
                    M. Bagley

     10.30(2)       Memorandum of  Understanding  by and between the Company and
                    Private Investment Company

     10.31(2)       Loan  Agreement   dated  August  8,  2001  with  Green  Leaf
                    Investors I, LLC, a California limited liability company

     10.32(2)       Warrant issued to Green Leaf

     10.33(2)       Guaranty issued to Green Leaf



                                      105
<PAGE>

     Exhibit
     Number         Description
     ------         -----------
     10.34(3)       Second Debt Restructuring Agreement

     10.35(3)       Third Debt Restructuring Agreement

     10.36          Asset Purchase Agreement effective as of January 31, 2002 by
                    and between Western Management  Services,  L.L.C., an Oregon
                    limited   liability  company  (the   "Purchaser"),   Wilhelm
                    Mortuary, Inc., a corporation incorporated under the laws of
                    the State of Oregon  ("Seller"),  and The  Neptune  Society,
                    Inc., a Florida corporation, and Neptune Society of America,
                    Inc., a California corporation .

     10.37          Service  Agreement  effective  as of March 8,  2002,  by and
                    between  Western  Management  Services,  L.L.C.,  an  Oregon
                    limited  liability  company  ("Service  Provider"),  and The
                    Neptune Society, Inc., a Florida Corporation.

     10.38          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.

     10.39          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.

     10.40          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.

     10.41          Form of CapEx, L.P. Debenture Amendment

     10.42          Form  of  D.H.  Blair  Investment  Banking  Corp.  Debenture
                    Amendment

     10.43          Form of Warrant Amendment



                                      106
<PAGE>

     Exhibit
     Number         Description
     ------         -----------
      21.1          List of Subsidiaries of the Registrant
---------------------
(1)  Previously filed on February 12, 2001.
(2)  Previously  filed as an exhibit to Form 10Q (for the Period  ended June 30,
     2001) on August 14, 2001.
(3)  Previously filed as an exhibit to Form 10Q/A (for the Period ended June 30,
     2001) on August 20, 2001.


(b)

<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



/s/ Marco Markin              Chief Executive Officer and        March 31, 2002
-------------------------     Director (principal executive
Marco Markin                  officer)



/s/ David Schroeder           Chief Operating Officer,           March 31, 2002
-------------------------     President and Director
David Schroeder


/s/Rodney Bagley              Chief Financial Officer,           March 31, 2002
-------------------------     Secretary and Director
Rodney Bagley                 (principal financial officer)


                              Director                           March ___, 2002
-------------------------
Bryan G. Symington Smith


                              Director                           March ___, 2002
-------------------------
Anthony George



                                      107
<PAGE>

                                  EXHIBIT INDEX

     Exhibit
     Number         Description
     ------         -----------
      3.1(1)        Articles of  Incorporation  of L R Associates,  Inc.,  filed
                    January 4, 1985

      3.2(1)        Articles of Amendment of L R Associates,  Inc. changing name
                    to Lari Corp., filed August 3, 1998

      3.3(1)        Articles of Amendment of Lari Corp. changing name to Neptune
                    Society, filed April 26, 1999

      3.4(1)        Articles of Amendment of Neptune  Society filed May 9, 2000,
                    effecting  a  combination  of the  Corporation's  shares  of
                    common stock

      3.5(1)        Bylaws of Neptune Society

     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.


<PAGE>

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

     10.26(1)       Agency  Agreement  dated for reference  July 31, 2000 by and
                    between  Neptune  Society and  Standard  Securities  Capital
                    Corporation

     10.27(2)       Employment  Agreement  by and  between the Company and Marco
                    Markin

     10.28(2)       Employment  Agreement  by and  between the Company and David
                    Schroeder

     10.29(2)       Employment  Agreement  by and between the Company and Rodney
                    M. Bagley

     10.30(2)       Memorandum of  Understanding  by and between the Company and
                    Private Investment Company



<PAGE>

     Exhibit
     Number         Description
     ------         -----------
     10.31(2)       Loan  Agreement   dated  August  8,  2001  with  Green  Leaf
                    Investors I, LLC, a California limited liability company

     10.32(2)       Warrant issued to Green Leaf

     10.33(2)       Guaranty issued to Green Leaf

     10.34(3)       Second Debt Restructuring Agreement

     10.35(3)       Third Debt Restructuring Agreement

     10.36          Asset Purchase Agreement effective as of January 31, 2002 by
                    and between Western Management  Services,  L.L.C., an Oregon
                    limited   liability  company  (the   "Purchaser"),   Wilhelm
                    Mortuary, Inc., a corporation incorporated under the laws of
                    the State of Oregon  ("Seller"),  and The  Neptune  Society,
                    Inc., a Florida corporation, and Neptune Society of America,
                    Inc., a California corporation .

     10.37          Service  Agreement  effective  as of March 8,  2002,  by and
                    between  Western  Management  Services,  L.L.C.,  an  Oregon
                    limited  liability  company  ("Service  Provider"),  and The
                    Neptune Society, Inc., a Florida Corporation.

     10.38          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.

     10.39          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.

     10.40          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.

     10.41          Form of CapEx, L.P. Debenture Amendment

     10.42          Form  of  D.H.  Blair  Investment  Banking  Corp.  Debenture
                    Amendment

     10.43          Form of Warrant Amendment

      21.1          List of Subsidiaries of the Registrant
---------------------
(1)  Previously filed on February 12, 2001.
(2)  Previously  filed as an exhibit to Form 10Q (for the Period  ended June 30,
     2001) on August 14, 2001.
(3)  Previously filed as an exhibit to Form 10Q/A (for the Period ended June 30,
     2001) on August 20, 2001.