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

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                                   FORM 10-K/A
                                 Amendment No. 1

|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)


    4312 Woodman Ave., 3rd Floor
      Sherman Oaks, California                                  91423
----------------------------------------            ----------------------------
(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 $0.001 per Share
--------------------------------------------------------------------------------
                                (Title of Class)

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

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

     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 August 31, 2002 was approximately $2,529,197,  based on the
closing  price of the  Registrant's  commons  stock on the NASD Over the Counter
Bulletin  Board of $0.60 per  share.  The  number of shares of the  Registrant's
Common Shares outstanding as of August 31, 2002 was 4,852,281.

     On March 22,  2002,  the  Registrant  effected a 4:1 reverse  stock  split.
Effective on May 31, 2002, the Registrant  amended its Articles of Incorporation
to increase its authorized  capital from 6,250,000  shares of common stock,  par
value $0.008,  to 85,000,000  shares  consisting of 75,000,000  shares of common
stock,  par value $0.001,  and 10,000,000  shares of preferred  stock, par value
$0.001. Information contained in this annual report gives effect to such reverse
split and the increase in the Registrant's authorized capital.

<PAGE>

                                EXPLANATORY NOTE


The purpose of this  amendment is to amend and restate in their entirety Items 7
and 8 contained  in Part II and Item 14  contained  in Part IV of our Form 10-K,
which was  originally  filed on April 1, 2002.  Additional  disclosure  has been
included in  Management's  Discussion  and Analysis of Financial  Condition  and
Results  of  Operations  and in the  footnotes  to  the  consolidated  financial
statements.








                                       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".  Effective  on May 31,
2002,  the  Registrant  amended its  Articles of  Incorporation  to increase its
authorized  capital from 6,250,000 shares of common stock, par value $0.008,  to
85,000,000  shares  consisting of 75,000,000  shares of common stock,  par value
$0.001, and 10,000,000 shares of preferred stock, par value $0.001.  Information
contained  in this annual  report  gives  effect to such  reverse  split and the
increase in the Registrant's authorized capital.

     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>

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 April 1,
2002, we operate 19 locations serving California,  Colorado,  Florida, Illinois,
Iowa, Oregon, New York, and Washington. Our strategy is to grow by:

     o    initiating start-up operations;

     o    selectively acquiring small,  family-owned cremation service providers
          strategically located across North America ;

     o    operating all our locations  under one nationally  branded name,  "The
          Neptune Society" (where permitted);

     o    avoiding   direct   competition   with  corporate   consolidators   by
          concentrating solely on cremation services and cremation products; and

     o    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.  We considered such criteria met when we were
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 we 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,  we 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 California, Iowa, Washington and Oregon.

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

     o    a definitive delivery date,

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



                                       2
<PAGE>

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

In addition, the merchandise must not be subject to claims of our creditors, the
risks  and  rewards  of  merchandise  ownership  must  have  transferred  to the
customer,  and our custodial  risks are  insurable  and insured.  We shall defer
pre-need  merchandise sales until the merchandise has been physically  delivered
or upon  satisfaction of the additional  criteria noted. We recognize revenue on
the sale of future pre-need  merchandise sales upon the physical delivery of the
merchandise or upon the satisfaction of our 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,  we adopted  changes to our  inventory  management
policy in an effort to reduce  expenses  related  to storing  certain  delivered
merchandise in connection with the sale of pre-need contracts.  We 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,   we  will  no  longer  segregate  and
specifically  identify such merchandise by customer.  As a result of this change
in inventory management policy, we 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 our 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.

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, we account 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  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.  We  recognize  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.



                                       3
<PAGE>

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

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

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

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

We believe that revenues were also lower during the year ended December 31, 2001
as we suspended marketing activities in Riverside,  Imperial, San Bernardino and
San Diego Counties pending resolution of resulting from litigation for trademark
infringement  resulting  from  our use of the  "Neptune  Society"  name in those
counties. We suspended sales in these areas, and we estimate that the litigation
caused our revenues to decline by  approximately  $350,000 or 3% during the year
ended  December  31,  2001.  In  October,  2001,  we entered  into a  settlement
agreement  to  resolve  the  litigation.  Under  the  terms  of  the  settlement
agreement,  we are permitted to market pre-need arrangement  contracts under the
name  "Trident  Society."  We believe  the  settlement  will not have a material
financial  impact  on  operations;  however,  we can not  predict  when,  or if,
revenues related to the affected areas will return to historical levels.

During 2000,  we acquired  businesses in Ankeny,  Iowa and Portland,  Oregon and
opened two new offices.  Cremation  service and merchandise  revenues related to
acquisitions and new office openings after December 31, 1999 were $2,800,000 and
$1,077,000 for the year ended December 31, 2001 and 2000,  respectively.  We did
not  acquire  any new  business or open any new  offices  during  2001.  We sold
substantially  all  the  assets  related  to  our  Portland,   Oregon  cremation
businesses in December 2001. 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 was  attributable  to decreased  management fees due to
reduced investment  yields,  which was partially offset by increased finance fee
income.  Finance fees increased due to our current  ability to recognize  income
over the life of the pre-need  contract  versus at the end of the  contract,  as
previously recognized.

Costs and Expenses and Gross Profit

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



                                       4
<PAGE>

General and Administrative Expenses

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

Amortization and Depreciation Expenses

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

Professional Fees

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

Loss on Disposal of Assets

In  December  2001,  we sold  substantially  all of the  assets  related  to our
Portland, Oregon businesses. We had purchased those assets in July 2000 for $5.7
million,  consisting of $500,000 in cash, a $1 million convertible debenture and
$4.2 million in stock.  We sold those assets as part of our efforts to focus our
strategy on our marketing and selling pre-need operations and to reduce debt. We
sold the assets for total  consideration  of $2.5  million.  Such  consideration
consisted of assumption of a $1.5 million promissory note and the forgiveness of
the $1  million  convertible  debenture  previously  due July  2003.  We  remain
obligated under our guarantee of the $1.5 million  promissory  note. As a result
of the disposal of those assets, we recognized a $2.7 million loss.

Interest Expense

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

We anticipate  interest expense will increase in subsequent  periods. We 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 a 12% per annum  interest  bearing  convertible  debenture  maturing
September 2004. Subsequently, in April 2002, we completed a private placement of
1,388,889 shares of common stock at $1.08 per share to raise $1,500,000. We used
the proceeds to satisfy our obligation due to Private  Investment  Company under
the  $1  million   non-interest  bearing  promissory  note  and  terminated  our
arrangement under the letter of memorandum.

We entered into an agreement to borrow up to $1,500,000 at 19.98% per annum.  We
borrowed  $800,000  under the terms of the agreement in December  2001,  due and
payable  December  2002,  interest  payable  monthly.  We elected  not to borrow
additional  funds under the  agreement.  Instead,  in May 2002,  we  completed a
private  placement  of  13.75%  convertible  debentures  due  March  2004 in the
principal  amount of  $1,000,000  in  consideration  of $200,000 in cash and the
satisfaction  of the promissory  note in the principal  amount of $800,000.  The
convertible  debenture is exercisable  for shares of common stock of The Neptune
Society, Inc. at $1.20 per share.



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<PAGE>

The above  mentioned  transactions  in addition to the extension of  acquisition
debt principal payments will likely contribute to higher interest costs.

Loss before Cumulative Effect of Change in Accounting Principle

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

Cumulative Effect of Change in Accounting Principle

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

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

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

     o    the merchandise was in a condition for its intended use

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

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

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

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

     o    a definitive delivery date,

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

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

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

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



                                       6
<PAGE>

     Net Loss

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


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 our operations for the year ended December 31,
2000 to our  operations  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 our 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,
we 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  litigation  for  trademark  infringement
resulting from 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  litigation  caused our revenues to decline by  approximately
$200,000 or 2.6% during the year ended  December 31, 2000.  The  litigation  was
subsequently settled in 2001. We began marketing pre-need arrangement  contracts
in the Southern  California  areas affected by the litigation  under the Trident
Society 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,  acquisitions  during  2000  and  new  office
openings during 2000 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  Regulation
--Death Care Service Industry Regulation."

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
increased 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  and  additional  costs  of  $656,000  to  operate  our
telemarketing 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, gross
profit and



                                       7
<PAGE>

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
$5,802,000 or 75.5% of revenues.  General and administrative for the nine months
ended  December  31, 1999 were  $2,986,000  or 52.5% 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.

Amortization Expense

Amortization  expense  was  $1,886,000  for the year ended  December  31,  2000.
Amortization expense was $1,070,000 for the nine month period ended December 31,
1999. The relative increase in amortization  expense during 2000 was a result of
our 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
trademark  infringement  litigation and advisory services in connection with our
ongoing  efforts to  register  common  stock with the  Securities  and  Exchange
Commission  under the Securities  Exchange Act of 1934.  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,  we changed  our  accounting  policies
applicable to pre-need  merchandise sales. The implementation of SAB No. 101 had
no effect on our consolidated cash flows.

Prior to 2000,  revenue  related to merchandise  sold with a pre-need  cremation
service  arrangement  was  recognized  upon  meeting  certain  state  regulatory
criteria, which, in California,  Iowa, Washington and Oregon may be prior to the
performance of cremation services.  We considered such criteria met when we were
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 we 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,  we 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, we changed our 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,  we have included a
definitive  delivery date, the requirement that stored merchandise be segregated
and specifically



                                       8
<PAGE>

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 our creditors,  the
risks  and  rewards  of  merchandise  ownership  must  have  transferred  to the
customer,  and  our  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. We have  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 our 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.

     Liquidity and Capital Resources

At December 31, 2001, we had current  assets of  $2,078,000,  comprised of cash,
accounts  receivable and prepaid  expenses.  Our total current  liabilities were
$6,069,000 comprised mainly of accounts payable,  accrued  liabilities,  and the
current portion of long term debt. We had long-term debt, including  convertible
debentures  of  $8,140,436.  We had a working  capital  deficit of $3,991,000 at
December 31, 2001.

At June 30, 2002, we had current  assets of  $3,321,000,  which was comprised of
$887,000 in cash,  $2,218,000  in accounts  receivable  and  $216,000 in prepaid
expenses  and  other  current  assets.  We  had  total  current  liabilities  of
$3,720,000,  comprised mainly of $1,389,000 in accounts  payable,  $1,424,000 in
accrued  liabilities,  and $907,000 in the current portion of long-term debt. We
had long-term debt of $2,069,000,  convertible  debentures with a carrying value
of $5,827,000 and other long-term  liabilities of $996,000. We also had deferred
pre-need revenue of $15,642,000. We had a working capital deficit of $400,000 at
June 30, 2002.

We have also  guaranteed  the payment of a  $1,500,000  debt,  due July 31, 2002
(extended to November 1, 2002), assumed by the purchaser of our Portland, Oregon
crematory operations.

In April 2002,  we completed a private  placement of 1,388,889  shares of common
stock at $1.08 per share to raise  $1,500,000,  pursuant to a private  placement
agreement  dated March 27, 2002. We used the proceeds to satisfy our  obligation
due under a $1,000,000  promissory note payable to Private Investment Company by
paying  $700,000 on March 28,  2002 and the balance on the final  closing of the
private placement.

In May 2002,  we issued  107,441  shares of common stock at $1.08 per share.  In
addition,  we issued 13.75%  convertible  debentures in the principal  amount of
$71,653.  These securities were issued to holders of our convertible  debentures
in consideration of deferred interest due under the debentures.

In May 2002, we completed a private placement of 13.75%  convertible  debentures
due  March  2004 in the  principal  amount of  $1,000,000  in  consideration  of
$200,000 in cash and the  satisfaction  of a  promissory  note in the  principal
amount of  $800,000.  The  convertible  debenture is  exercisable  for shares of
common stock of The Neptune Society, Inc. at $1.20 per share.

In May 2002,  we issued  6,250  shares of our common  stock as  compensation  in
connection with the employment of certain senior staff.



                                       9
<PAGE>

In July 2002, a 13% convertible debenture in the principal amount of $75,000 due
July 31, 2002 was converted by Green Leaf  Investors I, LLC into 225,000  shares
of our common stock.

We have been  informed  that  Western  Management  Services,  LLC and Green Leaf
Investors  I, LLC agreed in principle to extend the due date of the $1.5 million
promissory note due July 31, 2002 to November 1, 2002. We remain obligated under
our  guarantee  of the note,  which is  secured by a  security  interest  in our
assets.

Debt Obligations

As of June 30, 2002, we had the following debt obligations:

<TABLE>
Obligations as of June 30, 2002:                             Principal      Monthly       Interest       Due
                                                                Due         Payment       Rate           Date
                                                            ------------    ---------     --------     --------
<S>                                                         <C>             <C>            <C>             <C>
Convertible debentures                                      $  5,000,000    Interest       13.00%      Feb-2005
Convertible debentures                                            71,653    Interest       13.75%      Apr-2004
Note payable (original acquisition debt)                       2,123,393    Prin. & Int.   13.00%      Jul-2003
Convertible debentures, net discount of $245,000                 755,000    Interest       13.75%      Mar-2004
Notes payable, net discount of $45,372                           294,589    Principal      11.87%      Nov-2003
Note payable                                                     350,000    Interest       13.00%      Jul-2003
Note payable                                                      75,948    Prin. & Int.   10.00%      Jul-2002
Line of credit*                                                   45,000    Interest        9.00%      Apr-2002
Convertible debentures**                                          75,000    Interest       13.00%      Jul-2002
Notes payable, net discount of $3,978                             12,486    Prin. & Int.   10.00%      Apr-2005

                                                               8,803,069

    Obligations coming due over next 12 months                   907,410
                                                            ------------
    Long-term obligations                                   $  7,895,659
                                                            ============

     *    In July  2002,  we  extinguished  the  $45,000  balance of its line of
          credit.

     **   In July 2002, the holder  converted such debenture into 225,000 shares
          of our common stock. See "Subsequent Events."
</TABLE>


We had net cash  provided by operating  activities  of $405,000 and $116,000 for
the three  months  ended June 30, 2002 and 2001,  respectively.  We had net cash
provided by (used in) operating  activities of $595,000 and  $(154,000)  for the
six months  ended June 30, 2002 and 2001,  respectively.  Interest  paid for the
three  months  ended  June  30,  2002  and  2001  was  $217,000  and   $227,000,
respectively.  Interest paid for the six months ended June 30, 2002 and 2001 was
$428,000 and $422,000, respectively.

In addition,  we guaranteed  the  obligations  of Wilhelm  Mortuary,  Inc.,  our
wholly-owned subsidiary,  to Green Leaf Investors I, LLC in the principal amount
of $1.5  million  due July  31,  2002  (extended  to  November  1,  2002).  This
obligation was assumed by Western  Management  Services,  LLC in connection with
the sale of the assets and  properties  used in our Portland,  Oregon  crematory
operations by Wilhelm.  We remain  obligated  under our guarantee to Green Leaf,
which is secured  by a security  interest  granted  in our  assets.  We have not
included a reserve in our financial statements in connection with our guarantee,
which is  disclosed  as a  contingent  liability  under Note 8 of our  financial
statements.

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



                                       10
<PAGE>

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  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."

Management has revised its plan of operation for the fiscal year ending December
31, 2002 as a result of weaker  than  anticipated  sales of  pre-need  contracts
during the first six months of 2002. As a result, our plan of operations differs
from  projections  made in our  annual  report on Form  10-K for the year  ended
December 31, 2001 and our  quarterly  report on Form 10-Q for the quarter  ended
March 31, 2002.  Set out below is a summary of our revised Plan of Operation for
the fiscal year ending December 31, 2002.

     Material Commitments--Short-term Funding Requirements


         Operating expenditures (incl. working capital)       $17.5 million

         Interest payments                                      1.1 million

         Current portion of long-term debt                      2.1 million

         Capital expenditures                                   0.2 million
                                                              ---------------

         Estimated total Short-term commitments                20.9 million


         Estimated total Cash from Operations                  18.7 million

         Cash from Equity Sales                                 1.5 million

         Cash from Debt Proceeds                                0.2 million
                                                              ---------------
         Estimated net Cash (Deficit)                         $(0.5) million
                                                              ---------------

Net Cash Flow operations: Management's current year forecast for the year ending
December  31,  2002  projects  it will  achieve  approximately  $1.2  million in
positive net cash flows from operations  before the payment of debt and interest
and capital  expenditures.  We anticipate  generating cash from operations (cash
receipts  from  sales and other  income) of  approximately  $18.7  million,  and
operating expenditures (cash expenditures) of approximately $17.5 million.

Working  capital:  Management had a net working capital deficit of approximately
$400,000 as of June 30, 2002. We had current assets of $3,321,000, offset by the
current  portion of long-term  debt of $907,000  coming due over the next twelve
months. See "Liquidity & Capital  Resources".  The remainder relates to accounts
payable of $1,389,000 and accrued  expenses of $1,424,000 in connection with our
on-going  operations.  In addition,  we guaranteed  the  obligations  of Wilhelm
Mortuary, Inc., our wholly-owned  subsidiary,  to Green Leaf Investors I, LLC in
the principal  amount of $1.5 million due July 31, 2002 (extended to November 1,
2002).  This  obligation  was  assumed by Western  Management  Services,  LLC in
connection  with the sale of the assets  and  properties  used in our  Portland,
Oregon crematory  operations by Wilhelm. We remain obligated under our guarantee
to Green Leaf, which is secured by a security interest granted in our assets.

Interest  payments:  We carry  outstanding  debt,  including  convertible  debt,
requiring annual cash interest payments of approximately  $1.1 million,  payable
in monthly  installments  for the year ending  December  31,  2002.  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 $200,000 for the year ending December 31, 2002. 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.



                                       11
<PAGE>

We may have to  raise  additional  capital  to meet our  obligations  under  the
portions  of  long-term   debt  due  after  2002.  See  "Liquidity  and  Capital
Resources".  We intend to raise the capital required to fund our financing needs
by issuance  of debt and equity.  There can be no  assurance  financing  will be
available or accessible on reasonable terms.

Our total  operating and capital  budgets for the fiscal year ended December 31,
2002 is estimated to be  approximately  $21 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 to 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.

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 long-term debt, additional acquisitions,  if any, and growth, in
part, by issuing equity and/or debt securities.

Subsequent Events

In addition to the financing transactions described under "Liquidity and Capital
Resources," above, the follow events occurred subsequent to December 31, 2001:

     o    On January 2, 2002, we began operations out of our Colorado office.

     o    On March 22,  2002,  we  effected a 4:1  reverse  stock  split and the
          symbol for our common stock was changed to NPTI.  Information  in this
          report gives effect to the reverse  stock split  effected on March 22,
          2002.

     o    In March 2002, the Company  submitted  applications to open offices in
          the state of Illinois. The Illinois office was opened in April 2002.

     o    On May 31, 2002, we amended our Articles of  Incorporation to increase
          our  authorized  capital to consist of  85,000,000  shares,  including
          75,000,000  shares of common stock,  $0.001 par value,  and 10,000,000
          shares of  preferred  stock,  $0.001  par value.  Information  in this
          report  gives  effect to the  increase in our  authorized  capital and
          decrease in par value.

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



                                       12
<PAGE>

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.
The Company  was  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.  SFAS No.
133, as amended by SFAS No. 137, did not impact the Company's financial position
or  results  of  operations  since  the  Company  did  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  that  intangible
assets  acquired in a purchase  method  business  combination  must meet certain
criteria 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.

We were  required to adopt the  provisions  of  Statement  141  immediately  and
Statement 142 effective January 1, 2002.

Statement  141 required  upon  adoption of Statement  142,  that we evaluate our
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, we were  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, we were
required to test the  intangible  asset for  impairment in  accordance  with the
provisions of Statement 142 within the first interim period. Any impairment loss
is required to 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 required us to perform an assessment of whether there was an indication that
goodwill  was  impaired  as of the  date  of  adoption.  To  accomplish  this we
identified  our  reporting  units  and  determined  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.  We then had 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 we must  perform  the second step of the  transitional  impairment
test.  In the  second  step,  we 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 our statement of earnings.



                                       13
<PAGE>

As of the date of adoption,  we had unamortized  goodwill in the amount of $24.4
million which was subject to the  transition  provisions  of Statements  141 and
142.  Amortization expense related to goodwill was $1.8 million and $1.7 million
for the years ended  December 31, 2001 and 2000,  respectively.  We have,  as of
June 30, 2002,  completed the first step of  determining  the fair value of each
reporting unit and comparing it to the reporting  unit's  carrying  amount,  and
does not believe that an impairment exists.

In October 2001, the FASB issued SFAS No. 143,  "Accounting for Asset Retirement
Obligations,"  which requires  companies to record the fair value of a liability
for asset  retirement  obligations  in the  period in which they  occurred.  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,  we would  capitalize the cost,
thereby  increasing the carrying  amount of the related asset.  The  capitalized
asset retirement cost is depreciated over the life of the respective asset while
the  liability  is  accreted  to  its  present  value.  Upon  settlement  of the
liability,  the  obligation  is settled at its  recorded  amount or the  company
incurs a gain or loss.  The  statement is effective  for fiscal years  beginning
after June 30, 2002. We do not expect the adoption to have a material  impact to
our financial position or results of operations.

In 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.


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.



                                       14
<PAGE>


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



                          INDEPENDENT AUDITORS' REPORT

Board of Directors
The Neptune Society, Inc.
Burbank, California

We have  audited  the  accompanying  consolidated  balance  sheet of The 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. The consolidated  financial statements
of The Neptune  Society,  Inc. and  subsidiaries as of December 31, 2000 and for
the year then ended, and for the nine months ended December 31, 1999, as well as
the combined financial statements of The Neptune Society  (predecessor  company)
for the three months ended March 31, 1999,  were audited by other auditors whose
report  dated  March 16, 2001  included a going  concern  explanatory  paragraph
regarding the going concern basis of accounting.

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 The 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.




CERTIFIED PUBLIC ACCOUNTANTS


/s/ Stonefield Josephson, Inc.
Santa Monica, California
March 20, 2002 (except for Note 1 and 11, which
  is as of May 16, 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


                                       15
<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



                                       16
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS


<TABLE>
                                                                        December 31,       December 31,
           ASSETS                                                           2000               2001
                                                                      --------------     --------------
<S>                                                                    <C>               <C>
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         2,078,139

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
                                                                      --------------     --------------
Shareholders' equity:
  Common stock, $.001 par value,
    75,000,000 shares authorized, 1,915,343
    and 2,152,952 shares issued and outstanding
    at December 31, 2000 and 2001, respectively                               1,915             2,153
  Additional paid-in capital                                             26,834,648        27,901,241
  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 independent auditors' report and notes to consolidated
                             financial statements.



                                       17
<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
                                                Predecessor    |
                                                  Company      |                        Successor Company
                                             ----------------  |  -------------------------------------------------------
                                               Three months    |
                                                   ended       |       Nine months
                                                March 31,      |          ended                Years ended December 31,
                                                   1999        |    December 31, 1999           2000              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                           2,961,520   |          5,688,170             7,688,704       13,030,296
                                               --------------- |      ---------------      ----------------  ---------------
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        7,797,567
                                                               |
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)
                                               =============== |      ===============      ================  ===============
</TABLE>




    See accompanying independent auditors' report and notes to consolidated
                             financial statements.


                                       18
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)



<TABLE>
                                                Predecessor    |
                                                  Company      |                        Successor Company
                                             ----------------  |  -------------------------------------------------------
                                               Three months    |
                                                   ended       |       Nine months
                                                March 31,      |          ended                Years ended December 31,
                                                   1999        |    December 31, 1999           2000              2001
                                              ---------------  |     ------------------    ----------------  ---------------
<S>                                            <C>                  <C>                  <C>               <C>
                                                               |
Loss per share - basic and diluted                             |
  Loss before cumulative effect of                             |
  change in accounting principle               $          -    |      $       (1.23)        $       (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             $          -    |      $       (1.23)        $       (4.98)    $     (5.09)
                                               =============== |      ===============      ================  ==============

Weighted average number of shares-                             |
  basic and diluted                                       -    |          1,530,643             1,776,119       1,994,991
                                               =============== |      ===============      ================  ===============
</TABLE>






    See accompanying independent auditors' report and notes to consolidated
                             financial statements.



                                       19
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


<TABLE>
                                                                         Additional                             Total
                                                Common stock              paid-in         Accumulated      shareholders'
                                             Shares        Amount          capital           deficit           equity
                                          -----------    -----------    -------------    -------------     -------------
<S>                                       <C>            <C>             <C>              <C>               <C>
Successor Company:
Balance at March 31, 1999                    375,000     $     375       $   200,625      $        -        $   201,000

Exercise of warrants                       1,000,000         1,000           799,000               -            800,000

Issuance of common stock for
  acquisition of Predecessor                 125,000           125         4,999,875               -          5,000,000
                                          -----------    -----------    -------------    -------------     -------------

Balance after effects of
  acquisition of Predecessor               1,500,000         1,500         5,999,500               -          6,001,000
                                          -----------    -----------    -------------    -------------     -------------

Net loss                                           -             -                 -      (1,889,634)        (1,889,634)

Issuance of common stock, net
  of $473,690 of offering costs              143,750           144         6,426,166               -          6,426,310

Issuance of common stock
  for acquisitions                             5,682             5           249,993               -            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         1,649        14,272,908      (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           165         7,007,330               -          7,007,495

Issuance of common stock for
  acquisitions                                93,327            93         4,988,326               -          4,988,419

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

Compensation related to stock
  options                                          -             -            51,081               -             51,081

Shares issued in connection with
  long-term debt                               8,000             8           400,003               -            400,011
                                          -----------    -----------    -------------    -------------     -------------

Balance at December 31, 2000                1,915,343        1,915        26,834,648     (10,728,800)        16,107,763
                                          -----------    -----------    -------------    -------------     -------------
</TABLE>

                                                         (Continued)

    See accompanying independent auditors' report and notes to consolidated
                             financial statements.



                                       20
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)




<TABLE>
                                                                         Additional                             Total
                                                Common stock              paid-in         Accumulated      shareholders'
                                             Shares        Amount          capital           deficit           equity
                                          -----------    -----------    -------------    -------------     -------------
<S>                                       <C>            <C>             <C>              <C>               <C>
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           97           476,112                 -          476,209

Issuance of common stock
  related acquisition activities              141,162          141              (141)                -                -
                                       --------------   -----------     ---------------   ---------------  --------------

Balance at December 31, 2001                2,152,952    $   2,153       $27,901,241      $(20,879,968)     $ 7,023,426
                                       ==============   ===========     ===============   ===============  ==============
</TABLE>






    See accompanying independent auditors' report and notes to consolidated
                             financial statements.



                                       21
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
                                                Predecessor   |
                                                  Company     |                         Successor Company
                                              --------------- |   -------------------------------------------------------
                                               Three months   |
                                                   ended      |        Nine months
                                                March 31,     |           ended                Years ended December 31,
                                                   1999       |     December 31, 1999           2000              2001
                                              --------------- |     ------------------    ----------------  ---------------
<S>                                            <C>                   <C>                  <C>               <C>
Net loss                                       $      48,698  |       $  (1,889,634)       $  (8,839,166)    $ (10,151,168)
                                                              |
Adjustments to reconcile net loss to net                      |
  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 provided by (used for)                     |
            operating activities:                    560,516  |             912,110             (732,485)         (735,012)
                                              --------------- |      ---------------      ----------------  ---------------
Cash flows used for investing activities:                     |
  Purchases of property and equipment                 (7,934) |            (156,872)            (216,803)           (4,404)
  Acquisitions, net of cash acquired                       -  |          (1,814,455)            (703,620)                -
                                              --------------- |      ---------------      ----------------  ---------------
          Net cash used for investing                         |
            activities                                (7,934) |          (1,971,327)            (920,423)           (4,404)
                                                              |
Cash flows provided by (used for) 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                 -
  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 increase (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
                                              =============== |       ===============      ================  ===============
</TABLE>


    See accompanying independent auditors' report and notes to consolidated
                             financial statements.



                                       22
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
                                                Predecessor   |
                                                  Company     |                         Successor Company
                                             ---------------- |   -------------------------------------------------------
                                               Three months   |
                                                   ended      |        Nine months
                                                March 31,     |           ended                Years ended December 31,
                                                   1999       |     December 31, 1999           2000              2001
                                              --------------- |     ------------------    ----------------  ---------------
<S>                                            <C>                   <C>                  <C>               <C>
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 independent auditors' report and notes to consolidated
                             financial statements.



                                       23
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

     The Neptune Society,  Inc., a Florida  Corporation,  is the holding company
     for Neptune America,  Inc., a California  Corporation.  Neptune  Management
     Corporation 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.  The Neptune  Society,  Inc.  operates  crematories in Los
     Angeles,  California,  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 The 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 vertical  line is shown to  separate
     Successor  Company  financial  statements  from  those  of the  Predecessor
     Company for periods ended prior to April 1, 1999.


See accompanying independent auditors' report.


                                       24
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


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

     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.  During the first and
          second  quarters of 2002 the company  has raised  additional  debt and
          equity  financing  of  approximately  $1,700,000  (see Note  11),  has
          generated  positive  cash  flows  from  operating  activities  and has
          sufficient liquidity to continue operations for a reasonable period of
          time. Accordingly, in management's opinion, the going concern basis of
          accounting is appropriate for the accompanying financial statements.

(2)  Summary of Significant Accounting Policies:

     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 The 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.

     Revenue Recognition:

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

          Pre-need cremation  arrangements--The Company sells pre-need cremation
          services and merchandise  under contracts that provide for delivery of
          the  services  at the  time of  need.  Revenues  related  to  pre-need
          cremation  services are recorded as revenue in the period the services
          are performed.




See accompanying independent auditors' report.


                                       25
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(2)  Summary of Significant Accounting Policies, Continued:

     Revenue Recognition, Continued:

          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.

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

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

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

          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.




See accompanying independent auditors' report.


                                       26
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(2)  Summary of Significant Accounting Policies, Continued:

     Revenue Recognition, Continued:

          Pre-need installment  sales--The Company also sells pre-need cremation
          arrangements  under installment  plans. Under such plans, the customer
          makes  an  initial  down-payment  and  pays  the  balance  in  monthly
          installments  plus  interest.  To the extent that cash received is not
          trusted,  the Company accounts for this cash as deferred revenue until
          the transaction  qualifies for revenue recognition under the Company's
          accounting policies.  Prior to January 1, 2001, due to the uncertainty
          of  collections  of  these  accounts,   the  Company   recorded  these
          transactions  in  accordance  with the Company's  revenue  recognition
          accounting policies as cash was received.

          Worldwide travel sales--The Company sells a worldwide travel assurance
          plan (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.  The  Company  also  sells  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, the Company earns a commission on the
          sale of the policies.  Commission income, net of related expenses, are
          recognized at the point at which the  commission is no longer  subject
          to refund,  generally 3 to 5 days after the  contract is sold.  Policy
          proceeds are paid to the Company as cremation services and merchandise
          are delivered.

          Direct and indirect  costs--The  Company  expenses direct and indirect
          costs  in  the  period  incurred,   with  the  exception  of  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.




See accompanying independent auditors' report.


                                       27
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(2)  Summary of Significant Accounting Policies, Continued:

     Trust Funds:

          Depending  upon the  jurisdiction  in which a pre-need  arrangement is
          sold, the Company is required to place in trust or escrow certain,  if
          not  all,  of the  proceeds  received  from  the  sale  of a  pre-need
          arrangement.  The  trustors of such trusts are the  purchasers  of the
          pre-need  arrangements.  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 - Deferred  Obtaining Costs).  Indirect costs of
          marketing  pre-need  cremation  services  are  expensed  in the period
          incurred.

          The fair value of the pre-need  funeral trust assets  summarized below
          were  $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>
                                                                2000                2001
                                                          --------------    --------------
          <S>                                             <C>                <C>
          Cash and 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>

          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.


See accompanying independent auditors' report.


                                       28
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(2)  Summary of Significant Accounting Policies, Continued:

     Cash and Cash Equivalents:

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

     Property and Equipment:

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

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

     Names and Reputations

          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.

     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.

          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.




See accompanying independent auditors' report.


                                       29
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(2)  Summary of Significant Accounting Policies, Continued:

     Advertising:

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

     Income Taxes:

          Income taxes are accounted  for under the asset and liability  method.
          Deferred tax assets and  liabilities are recognized for the future tax
          consequences   attributable  to  differences   between  the  financial
          statement  carrying  amounts of existing  assets and  liabilities  and
          their   respective  tax  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.

     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.

     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.

     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.


See accompanying independent auditors' report.


                                       30
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(2)  Summary of Significant Accounting Policies, Continued:

     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.

          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.

     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.

     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.

     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.



See accompanying independent auditors' report.


                                       31
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(3)  Change in Accounting Principle, Continued:

     In  response to SAB No. 101,  the Company  changed its revenue  recognition
     accounting   policy  with  respect  to  merchandise   sold  in  a  pre-need
     arrangement to include 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   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.

     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>
                                                                  2000                2001
                                                             --------------      ------------
       <S>                                                   <C>                 <C>
       Land                                                  $   1,000,000       $         -
       Building                                                    404,000                 -
       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>


See accompanying independent auditors' report.


                                       32
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(5)  Long Term Debt:

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

<TABLE>
                                                                                         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

           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
</TABLE>


See accompanying independent auditors' report.


                                       33
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(5)  Long Term Debt, Continued:

<TABLE>
                                                                                         2000                2001
                                                                                    --------------      ------------
           <S>                                                                      <C>                 <C>
           Notes payable, interest accruing at 9% payable in monthly
             installments of $1,244 and $980, respectively, both notes
             due May 31, 2002.                                                             35,184             10,876

           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         10,181,790
           Less current installments                                                    5,748,946          2,890,215
                                                                                    --------------      ------------
                                                                                     $  6,038,181       $  7,291,575
                                                                                    ==============      ============
</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.



See accompanying independent auditors' report.


                                       34
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(5)  Long Term Debt, Continued:

          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 the
          Company's 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  the  Company's  notification  of the
          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 the Company's  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. The Company granted the
          purchaser piggyback  registration rights pursuant to which the Company
          agreed  to  register  the  purchasers'  common  stock in the event the
          Company filed a registration  statement,  at the Company's expense, to
          register any of the Company's securities for the Company's 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.


See accompanying independent auditors' report.


                                       35
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(5)  Long Term Debt, Continued:

     (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.

     (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.



See accompanying independent auditors' report.


                                       36
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(5)  Long Term Debt, Continued:

     (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,  "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.

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

        Year ended December 31,
            2002                                       $      2,890,214
            2003                                              2,222,796
            2004                                                 68,780
            2005                                              5,000,000
                                                       ----------------
                                                       $     10,181,790



See accompanying independent auditors' report.



                                       37
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(6)  Shareholders' Equity:

     Common Stock

     In January 1999, The 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.

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

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



See accompanying independent auditors' report.


                                       38
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(6)  Shareholders' Equity, Continued:

     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.

<TABLE>
                                                                         2000                               2001
                                                              ---------------------------        --------------------------
                                                                                  Average                           Average
                                                                                 Exercise                          Exercise
                                                              Number               Price         Number              Price
                                                              ------               -----         ------              -----
               <S>                                            <C>               <C>              <C>               <C>
               Outstanding, beginning of year                 106,688           $   47.00        158,438           $   49.28
               Granted                                         87,500           $   51.28        484,296           $    5.40
               Cancelled                                      (35,750)          $       -        (35,438)          $       -
               Outstanding, end of year                       158,438           $   49.28        607,296           $   14.36
               Exercisable, end of year                        64,438           $   47.00        277,756           $   29.93
</TABLE>


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

<TABLE>
                                                             Number of           Weighted        Weighted
                                                              options             average         average         Number
                                                            outstanding       remaining life  exercise price   excercisable
                                                            -----------       --------------  --------------   ------------
              <S>                                           <C>              <C>          <C>                  <C>
               $0 to $4.00                                        2,500            2.80         $   3.64                -
               $4.01 to $6.00                                   392,046            9.50         $   4.40          119,319
               $6.01 to $11.00                                   88,500            2.40         $  10.00                -
               $45.01 to $48.00                                  67,313            1.00         $  47.00           80,937
               $48.01 to $50.00                                  20,719            1.17         $  48.48           31,000
               $50.01 to $54.00                                  32,218            1.60         $  53.12           42,500
               $54.01 to $60.00                                   4,000            1.56         $  56.08            4,000
                                                          -------------         ---------       --------      -----------
                         Total                                  607,296            6.74         $  14.36          277,756
                                                          =============         =========       ========      ===========
</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>
         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                               $        (5.85)    $        (6.30)
                                                            ================   ===============
</TABLE>


See accompanying independent auditors' report.


                                       39
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(6)  Shareholders' Equity, Continued:

     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:

                                                  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



See accompanying independent auditors' report.


                                       40
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(7)  Acquisitions, Continued:

     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.

     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.



See accompanying independent auditors' report.


                                       41
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(7)  Acquisitions, Continued:

     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,  the
     Company  would pay the owners the  difference  between  $3,885,000  and the
     value of the shares in cash or, at the  Company's  option,  common stock of
     Neptune  Society.  In August 2001,  the Company  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



See accompanying independent auditors' report.


                                       42
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(7)  Acquisitions, Continued:

     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.

     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 the Company's  overall  business
     strategy  to focus on its  pre-need  marketing  and sales  operations,  the
     Company  determined  that it was in its best  interest to  restructure  its
     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 its 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,   the  Company  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 the  Company.  Under  the  terms  of the  Portland
     Purchase Agreement, the Company agreed to the following:

     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.



See accompanying independent auditors' report.


                                       43
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(7)  Acquisitions, Continued:

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

(8)  Commitments and Contingencies

     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,
             2002                                  $          434,182
             2003                                             409,765
             2004                                             239,803
             2005                                             219,214
             2006                                             160,883
             Thereafter                                       251,875
                                                   ------------------

                                                   $        1,715,722

     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 the Company 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  the Company to comply with the
     California  regulatory  requirements  related to the Company's  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.



See accompanying independent auditors' report.


                                       44
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(8)  Commitments and Contingencies, Continued:

     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.



See accompanying independent auditors' report.


                                       45
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(8)  Commitments and Contingencies, Continued:

     Under the terms of the  Settlement  Agreement,  Neptune  Society and Leneda
     entered into a Service  Agreement  under which Leneda agreed to be the sole
     service  provider of  fulfillment  cremation  services for a total of 7,300
     existing pre-need contracts (the "Relevant  Contracts"),  which were either
     executed in or otherwise  indicate that the contract  holder resided within
     the counties of San Diego,  San  Bernardino,  Riverside and  Imperial,  all
     located in the state of  California.  These  fulfillment  services  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.




See accompanying independent auditors' report.


                                       46
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(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
                                                          --------------    -------------    --------------
                                                          $     (254,128)   $     254,128    $            -
                                                          ==============    =============    ==============
</TABLE>



See accompanying independent auditors' report.


                                       47
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(9)  Income Taxes, Continued:

     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.



See accompanying independent auditors' report.



                                       48
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(10) Selected Quarterly Financial Data (Unaudited)

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

<TABLE>
                                               In Thousands, Except Per Share Data

                                                          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)

         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 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>


See accompanying independent auditors' report.


                                       49
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(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 4 for 1 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).

     On May 31,  2002,  the Company  amended its  Articles of  Incorporation  to
     increase its authorized capital to consist of 85,000,000 shares,  including
     75,000,000 shares of common stock,  $0.001 par value, and 10,000,000 shares
     of preferred stock, $0.001 par value.  Retroactive effect has been made for
     the change in all periods presented.


(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 requires  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 also requires 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 requires  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.


See accompanying independent auditors' report.



                                       50
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(12) New Accounting Pronouncements, Continued:

     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.

     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.



See accompanying independent auditors' report.


                                       51
<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(12) New Accounting Pronouncements, Continued:

     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.




See accompanying independent auditors' report.



                                       52
<PAGE>


ITEM 14.  CONTROLS AND PROCEDURES

(a)  Evaluation of disclosure controls and procedures. Not Applicable.

(b)  Changes in  internal  controls.  There were no  significant  changes in our
internal  controls or in other  factors  that could  significantly  affect these
controls subsequent to the date of their evaluation.


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

                              NEPTUNE SOCIETY, INC
                                AND SUBSIDIARIES

                   Index to Consolidated Financial Statements

                                                                            Page

Independent Auditors' Report                                                 15

Independent Auditors' Report                                                 16

Audited Consolidated Financial Statements:

     Consolidated Balance Sheets                                             17

     Consolidated Statements of Operations                                18-19

     Consolidated Statements of Shareholders' Equity                      20-21

     Consolidated Statements of Cash Flows                                22-232

     Notes to Consolidated Financial Statements                              24


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


                                       53
<PAGE>

      Exhibit
      Number        Description
      ------        -----------
       3.5(1)       Bylaws of Neptune Society
       3.6(6)       Articles of Amendment of The Neptune Society, Inc.
      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.
      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



                                       54
<PAGE>

      Exhibit
      Number        Description
      ------        -----------
      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
      10.34(3)      Second Debt Restructuring Agreement
      10.35(3)      Third Debt Restructuring Agreement
      10.36(4)      Asset Purchase Agreement effective as of January 31, 2002 by
                    and between Western Management  Services,  L.L.C., an Oregon
                    limited  liability  company,   Wilhelm  Mortuary,   Inc.,  a
                    corporation  incorporated  under  the  laws of the  State of
                    Oregon,   and  The   Neptune   Society,   Inc.,   a  Florida
                    corporation,   and  Neptune  Society  of  America,  Inc.,  a
                    California corporation .
      10.37(4)      Service  Agreement  effective  as of March 8,  2002,  by and
                    between  Western  Management  Services,  L.L.C.,  an  Oregon
                    limited liability company, and The Neptune Society,  Inc., a
                    Florida Corporation.
      10.38(4)      Note  Extension  And  Assumption  Agreement  effective as of
                    January  31,  2002,  and  is  made  by and  between  Western
                    Management  Services,  L.L.C.,  an Oregon limited  liability
                    company, Wilhelm Mortuary, Inc., an Oregon corporation,  The
                    Neptune  Society,  Inc.,  a  Florida  corporation,   Neptune
                    Society of America,  Inc.,  a  California  corporation,  and
                    Green Leaf Investors I, LLC, a California  limited liability
                    company.
      10.39(4)      Convertible  Debenture in the  principal  amount of $75,000,
                    due July 31, 2002,  issued to Green Leaf Investors I, LLC, a
                    California limited liability company.
      10.40(4)      Debenture and Warrant  Amendment  Agreement  effective as of
                    December 31, 2001, by and between The Neptune Society, Inc.,
                    a Florida  corporation,  CapEx,  L.P.,  a  Delaware  limited
                    partnership,  and D.H. Blair Investment Banking Corp., a New
                    York corporation.
      10.41(4)      Form of CapEx, L.P. Debenture Amendment
      10.42(4)      Form  of  D.H.  Blair  Investment  Banking  Corp.  Debenture
                    Amendment
      10.43(4)      Form of Warrant Amendment
      10.44(5)      Form of 13.75% Convertible Debenture
      99.1          Certification of Chief Financial Officer
      99.2          Certification of Chief Executive Officer
---------------------
(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.
(4)  Previously  filed as an exhibit  to Form 10-K (for the year ended  December
     31, 2001) on April 1, 2002.
(5)  Previously  filed on Form 10-Q (for the period ended March 31, 2002) on May
     15, 2002.
(6)  Previously filed on Form 8-K on June 3, 2002.



                                       55
<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     September 13, 2002
-------------------------     Director (principal executive
Marco Markin                  officer)



/s/ David Schroeder           Chief Operating Officer,        September 13, 2002
-------------------------     President and Director
David Schroeder


/s/Rodney Bagley              Chief Financial Officer,        September 13, 2002
-------------------------     Secretary and Director
Rodney Bagley                 (principal financial officer)


/s/ Bryan G. Symington Smith  Director                        September 13, 2002
-------------------------
Bryan G. Symington Smith


/s/ Anthony George            Director                        September 13, 2002
-------------------------
Anthony George




Certifications

Certification of Chief Financial Officer

I, Rodney Bagley, certify that:

1. I have  reviewed  this annual  report on Form 10-K/A of The Neptune  Society,
Inc.;

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

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

Date:   September 13, 2002

                                         /s/ Rodney Bagley
                                         --------------------------------------
                                         Rodney Bagley, Chief Financial Officer



Certification of Chief Executive Officer

I, Marco Markin, certify that:

1. I have  reviewed  this annual  report on Form 10-K/A of The Neptune  Society,
Inc.;


                                       56
<PAGE>


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

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

Date:   September 13, 2002

                                           /s/ Marco Markin
                                           -------------------------------------
                                           Marco Markin, Chief Executive Officer







                                       57