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

                                    FORM 10-Q

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
         THE SECURITIES EXCHANGE ACT OF 1934

         For the quarterly period ended June 30, 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: 000-30480



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

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



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


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


Indicate by check mark whether the  registrant  (1) has filed all  documents and
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 the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

              8,345,975 shares of Common Stock, $0.002 par value,
                          outstanding as of August 9,
2001.


<PAGE>



                            The Neptune Society, Inc.
                                    Form 10-Q
                                      Index


<TABLE>
<S>     <C>                                                                                           <C>
                                                                                                      Page

PART 1  --  FINANCIAL INFORMATION.......................................................................1


ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.....................................................1

         Condensed Consolidated Balance Sheets--June 30, 2001 and December 31, 2000.....................1

         Condensed Consolidated  Statements of Operations-- Three and Six Months
           Ended June 30, 2001 and 2000.................................................................2

         Condensed  Consolidated  Statements of Cash Flows--Three and Six Months
           Ended June 30, 2001 and 2000.................................................................3

         Notes to Condensed Consolidated Financial Statements...........................................4

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........11

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......................................23


PART II  --  OTHER INFORMATION..........................................................................24

ITEM 1. LEGAL PROCEEDINGS...............................................................................24

ITEM 2. CHANGES IN SECURITIES...........................................................................24

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................................................25

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................25

ITEM 5. OTHER INFORMATION...............................................................................25

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................26

SIGNATURE ..............................................................................................30

</TABLE>





                                       i
<PAGE>
                         PART 1 -- FINANCIAL INFORMATION

Item 1: Financial Statements

                                      Neptune Society, Inc.
                              Condensed Consolidated Balance Sheets
                               June 30, 2001 and December 31, 2000
                                           (Unaudited)


<TABLE>
                                                         June 30, 2001       December 31, 2000
                                                        ---------------      ------------------
<S>                                                      <C>                      <C>
       Assets
Current Assets:
  Cash                                                   $    891,788             1,065,339
  Accounts receivable                                       1,312,918               234,370
  Prepaid expenses and other current assets                   160,956               121,061
                                                        ---------------      ------------------
               Total current assets                         2,365,662             1,420,770

Property and equipment, net                                 2,232,753             2,365,806
Names & reputations,  net                                  28,653,424            29,451,385
Non compete agreements,  net                                  354,822               474,051
Deferred financing costs                                      805,436             1,208,081
Deferred charges and other assets                           3,620,722             2,572,340
                                                        ---------------      ------------------
                                                           38,032,819            37,492,433
                                                        ===============      ==================

       Liabilities and Shareholders' Equity

Current liabilities:
  Current portion of long term debt                         5,837,846             5,748,946
  Accounts payable                                          1,078,831             1,399,538
  Accrued and other current liabilities                     1,272,330             1,132,671
                                                        ---------------      ------------------
                         Total current liabilities          8,189,007             8,281,155

Long term debt                                                      -               100,878

Convertible debentures                                      5,994,800             5,937,303

Other long term liabilities                                   832,119               467,087

Deferred pre-need revenue                                   9,988,871             6,598,247
                                                        ---------------      ------------------
                                                           25,004,797            21,384,670
                                                        ---------------      ------------------
Shareholders' equity:
  Common stock                                                 15,329                15,323
  Additional paid-in capital                               27,201,766            26,821,240
  Accumulated deficit                                     (14,189,073)          (10,728,800)
                                                        ---------------      ------------------

                        Total shareholders' equity         13,028,022            16,107,763
                                                        ---------------      ------------------
                                                          $38,032,819            37,492,433
                                                        ===============      ==================
</TABLE>


See accompanying notes to condensed consolidated financial statements.


                                       1
<PAGE>

                              Neptune Society Inc.
                      Consolidated Statements of Operations
            For the Three and Six Months Ended June 30, 2001 and 2000
                                   (Unaudited)


<TABLE>
                                                  Three months       Three months         Six months       Six months
                                                 ended June 30,     ended June 30,     ended June 30,    ended June 30,
                                                     2001               2000                 2001             2000
                                                ---------------   ---------------    ---------------   ---------------
<S>                                                <C>                <C>                 <C>               <C>
Revenues
  Services and merchandise                         2,871,393          1,199,048           5,113,081         2,527,429
  Management and finance fees                        312,546            464,547             760,158           738,547
                                                ---------------   ---------------    ---------------   ---------------
                      Total revenues               3,183,939          1,663,595           5,873,239         3,265,976

Cost and expenses                                  1,386,622          1,032,687           2,771,772         1,984,031
                                                ---------------   ---------------    ---------------   ---------------
                      Gross profit                 1,797,317            630,908           3,101,467         1,281,945

General and administrative expenses                2,154,197          1,370,950           3,912,887         2,785,703
Amortization and depreciation expense                516,467            394,774           1,057,772           807,336
Professional fees                                    369,743            232,715             546,163           462,605
                                                ---------------   ---------------    ---------------   ---------------
Total general and admin. expenses                  3,040,407          1,998,439           5,516,822         4,055,644

                      Loss from operations        (1,243,090)        (1,367,531)         (2,415,355)       (2,773,699)

Interest expense                                     426,405            702,816           1,044,918         1,404,816
                                                ---------------   ---------------    ---------------   ---------------
Loss before provision for taxes                   (1,669,495)        (2,070,347)         (3,460,273)       (4,178,515)

Income tax benefit                                         -            280,624                   -           534,752
                                                ---------------   ---------------    ---------------   ---------------
Loss before cumulative effect
  of a change in accounting principle             (1,669,495)        (1,789,723)         (3,460,273)       (3,643,763)
                                                ---------------   ---------------    ---------------   ---------------
Cumulative effect on prior years of changing
      to a different revenue recognition method            -                  -                   -          (403,927)
                                                ---------------   ---------------    ---------------   ---------------
                      Net Loss                  $ (1,669,495)        (1,789,723)         (3,460,273)       (4,047,690)
                                                ---------------   ---------------    ---------------   ---------------
Earnings (loss) per share -
     Income (loss) before cumulative effect
       of a change in accounting principle
             Basic & Diluted                           (0.22)             (0.27)              (0.45)            (0.55)
    Cumulative effect on prior years of changing
       to a different revenue recognition method
             Basic & Diluted                               -                  -                   -             (0.06)
    Net income (loss)
             Basic & Diluted                           (0.22)             (0.27)              (0.45)            (0.61)
Weighted average number of shares -
             Basic & Diluted                       7,663,286          6,719,361           7,662,333         6,670,939
</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                       2
<PAGE>

                              Neptune Society Inc.
                 Condensed Consolidated Statements of Cash Flows
            For the Three and Six Months Ended June 30, 2001 and 2000
                                   (Unaudited)

<TABLE>

                                           Three Months Ended  Three Months Ended    Six Months Ended   Six Months Ended
                                              June 30, 2001      June 30, 2000        June 30, 2001       June 30, 2000
                                           ------------------  ------------------    ------------------ ------------------
<S>                                        <C>                    <C>                   <C>                 <C>
Net loss                                   $   (1,669,495)        (1,789,723)           (3,460,273)         (4,047,690)
Adjustments to reconcile net loss to
  net cash used in operating activities:
   Depreciation & amortization                    516,467            394,774             1,057,772             807,336
   Accretion of discount on notes payable          28,750            329,489                57,499             374,670
   Stock Compensation                             379,167                  -               380,532                   -
   Non-cash interest & amortization of
     deferred finance costs                       256,641             87,296               565,584             552,959
   Deferred tax asset                                   -           (124,180)                    -            (534,752)
Accounts receivable                              (979,729)           (39,306)           (1,078,548)            (72,444)
Prepaid & other current assets                    126,791            (89,282)              (39,895)           (367,054)
Deferred charges & other assets                  (483,035)           (86,358)           (1,048,381)           (294,839)
Accounts payable                                  (21,653)           461,428              (320,707)            380,141
Accrued & other liabilities                       121,603           (422,420)              341,747            (224,512)
Deferred pre-need revenues                      1,841,139          1,010,224             3,390,624           2,444,473
                                           ------------------  ------------------    ------------------ ------------------
Cash provided by (used in) operating
  activities                                      116,646           (268,058)             (154,046)           (981,712)
                                           ------------------  ------------------    ------------------ ------------------
Property, plant & equipment                        (4,880)          (144,081)               (7,529)           (376,111)

Acquisitions, net                                       -                  _        -            -            (110,000)
                                           ------------------  ------------------    ------------------ ------------------
Cash used in investing activities                  (4,880)          (144,081)               (7,529)           (486,111)

Repayment of debt                                  (6,056)           (40,431)              (11,976)         (4,450,910)

Proceeds from issuance of debt                          -                  -                     -             750,000
                                           ------------------  ------------------    ------------------ ------------------
Cash used in  financing activities                 (6,056)           (40,431)              (11,976)         (3,700,910)
                                           ------------------  ------------------    ------------------ ------------------
Net increase (decrease) in cash                   105,710           (452,570)             (173,551)         (5,168,733)

Cash, beginning of period                         786,078          2,109,370             1,065,339           6,825,533
                                           ------------------  ------------------    ------------------ ------------------
Cash, end of period                          $    891,788          1,656,800               891,788           1,656,800
                                           ==================  ==================    ================== ==================
Supplemental disclosure of cash
 flow information:
Cash paid during period for interest         $    227,290            192,046               421,835             383,202
                                           ==================  ==================    ================== ==================

</TABLE>


See accompanying notes to condensed consolidated financial statements.


                                       3
<PAGE>

                            THE NEPTUNE SOCIETY, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 and 2000



(1)  The Business

     Neptune Society,  Inc., a Florida  Corporation,  is the holding company for
     Neptune  America,  Inc., a California  Corporation.  On March 31, 1999, the
     Company  acquired a group of private  companies  engaged in  marketing  and
     administering  pre-need  and  at-need  cremation  services  in  California,
     Florida,  New York and Washington.  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, $26,809,237,
     was  recorded as names and  reputations.  Neptune  Society,  Inc.  operates
     crematories in Los Angeles, California and Spokane, Washington.

     As of  June  30,  2001,  the  Company  has a  working  capital  deficit  of
     $5,823,345.   The  Company  is  currently   exploring   various   financing
     alternatives to address such working capital deficiency.

(2)  Interim Financial Statements (Unaudited)

     Basis of Presentation

     The  condensed  consolidated  financial  statements  for the  three and six
     months ended June 30, 2001 and 2000 include the accounts of the Company and
     all   majority-owned   subsidiaries  and  are  unaudited  but  include  all
     adjustments,   consisting  of  normal  recurring  accruals  and  any  other
     adjustments which management considers necessary for a fair presentation of
     the results  for these  periods.  These  condensed  consolidated  financial
     statements  have been prepared in a manner  consistent  with the accounting
     policies  described  in the  annual  report  on  Form  10  filed  with  the
     Securities  and Exchange  Commission  (the  Commission)  for the year ended
     December  31,  2000,  and  should  be read in  conjunction  therewith.  The
     accompanying year-end condensed consolidated balance sheet was derived from
     audited financial  statements but does not include all disclosures required
     by  accounting  principles  generally  accepted  in the  United  States  of
     America.   Operating  results  for  interim  periods  are  not  necessarily
     indicative of the results that may by expected for the full year period.


     Summary of Significant Accounting Policies

     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



                                       4
<PAGE>

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

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

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

     We are allowed  under state  regulations  in 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  six  months  ended  June  30,  2001,  the  Company  recognized
     previously deferred pre-need  merchandise revenues and costs of $15,000 and
     $7,000, respectively,  related to the fiscal year 2000 cumulative effect of
     change in accounting principle adjustment.

     Pre-need  installment  sales--We also sell pre-need cremation  arrangements
     under  installment  plans.  Under such plans, the customer makes an initial
     down-payment and pays the balance in monthly installments plus interest. To
     the extent that cash received is not trusted, the Company accounts for this
     cash as  deferred  revenue  until the  transaction  qualifies  for  revenue
     recognition under our accounting policies. Prior to January 1, 2001, due to
     the  uncertainty  of  collections  of  these  accounts,   we  record  these
     transactions in accordance with our revenue recognition accounting policies
     as cash is  received.  Subsequent  to December  31,  2000,  we record these
     transactions in accordance with our revenue recognition accounting policies
     on an accrual basis.



                                       5
<PAGE>

     Worldwide  travel  sales--We  sell a worldwide  travel  assurance plan (the
     "plan") which  guarantees the provision of cremation  services  anywhere in
     the world to the  extent  the plan  holder is more than 75 miles  away from
     their legal  residence at the time of death.  The plan is underwritten by a
     third party  carrier who  receives a premium  payment,  and is obligated to
     perform  services  if the above  criteria is met.  The  Company  recognizes
     revenue  related to these plans at the time of sale. We also sell worldwide
     travel plans under installment  plans. Under such plans, the customer makes
     an initial  down-payment and pays the balance in monthly  installments plus
     interest.

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

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

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

     Basic and diluted  loss per share is  computed by dividing  net loss by the
     weighted average number of common shares outstanding during the period. For
     the three and six months ended June 30, 2001,  options to purchase  359,000
     and 874,500  shares,  respectively,  of common stock at prices ranging from
     $2.50  to  $14.25  per  share,  13%  convertible   debentures   (which  are
     convertible  into  500,000  shares of common stock at $10.00 per share with
     detachable  warrants to purchase  200,000  shares of common stock at prices
     ranging  from  $10.42 to 12.50 per  share)  and 8%  convertible  debentures
     (which are  convertible  into 83,333  shares of common  stock at $12.00 per
     share)  were not  included  in the  computation  of diluted  loss per share
     because the effect would be antidilutive.

     For the three and six months  ended  June 30,  2000,  options  to  purchase
     498,750 and 498,750, respectively, shares of common stock at prices ranging
     from $11.75 to $14.25 per share and 13% convertible  debentures  (which are
     convertible  into  500,000  shares of common stock at $10.00 per share with
     detachable  warrants to purchase  200,000  shares of common stock at prices
     ranging  from  $10.42  to  $12.50  per  share)  were  not  included  in the
     computation  of  diluted  loss  per  share  because  the  effect  would  be
     antidilutive.

(4)  Shareholders' Equity

     Effective as of May 19, 2000, the Company's  Board of Directors  authorized
     and affected 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.

     During  the six  months  ended June 30,  2001,  874,500  options to acquire
     common stock were  granted.  In  addition,  118,250  options were  canceled
     during the six-month period.

     At June 30,  2001,  7,664,325  shares of the  Company's  common  stock were
     issued and outstanding.



                                       6
<PAGE>

(5)  Debt

     Long-term debt at June 30, 2001 and December 31, 2000, respectively, was as
     follows:

<TABLE>
                                                                    Jun. 30,        Dec. 31,
                                                                      2001            2000
                                                                 ----------------------------
     <S>                                                         <C>            <C>
     13% Convertible debentures, due February 24, 2005.            $5,000,000       5,000,000

     Note payable, due July 31, 2001. (a)                           4,724,440       4,724,440

     Note payable due on September 30, 2001.                        1,000,000       1,000,000

     8% Convertible debentures, due July 17, 2003.  The
     balance is net of unaccreted discount of $5,200,
     arising from the beneficial conversion feature of the
     debentures.                                                      994,800         937,503

     Notes payable due May 31, 2002.                                   23,406          35,184

     Line of credit, due April 1, 2002.                                90,000          90,000
                                                                  -------------   -------------
                                                                   11,832,646      11,787,127
          Less current installments                                 5,837,846       5,748,946
                                                                  -------------   -------------
                                                                 $  5,994,800       6,038,181
                                                                  =============   =============
</TABLE>
-------------------------------------

(a)  On July 31, 2000,  the Company  restructured  its note due to the Weintraub
     Trust  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 3,375
     shares of the Company's  common stock held by the  Weintraub  Trust monthly
     over the  extension  term (a total of  40,500  shares).  As a result of the
     guarantee,  the Company has paid and  expensed  $254,000  through  June 30,
     2001. 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.



                                       7
<PAGE>

(6)  Income Taxes

     As a result of the Company's  continuing  losses,  during the three and six
     months ended June 30, 2001,  the Company did not  recognize any tax benefit
     related to its tax net operating losses.

(7)  Litigation

     On May 15, 2000, Leneda,  Inc. dba Neptune Society of San Diego County, San
     Bernardino County,  Riverside County, and Imperial County filed a Complaint
     for  service  mark  infringement,   breach  of  contract,  unfair  business
     practices,  and  interference  with prospective  economic  advantage in the
     United States District Court in and for the Central  District of California
     (Honorable  Gary A. Fees).  Both Leneda and 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.

     Thus far, the Company has answered the complaint  and asserted  affirmative
     defenses.  We have also counterclaimed for breach of contract and breach of
     implied covenants of good faith and fair dealing. Leneda filed a motion for
     preliminary  injunction  that sought to prohibit  Neptune's use of the mark
     pending  resolution of the  litigation  and a freeze of assets.  We opposed
     this  motion,  which the Court  granted in part  (regarding  the  temporary
     prohibition  on using  the mark) and  denied in part  (regarding  the asset
     freeze) on July 31, 2000.  Under the order,  we are prohibited from selling
     Pre-Need plans under the name "Neptune Society" within Leneda's  territory,
     which  consists of four  counties in Southern  California:  San  Bernadino,
     Imperial, Riverside and San Diego. Leneda is seeking monetary damages in an
     unspecified amount. We intend to defend this case vigorously.

(8)  Subsequent Events

     In August 2001, the Company borrowed  $1,575,000 at 12% interest per annum,
     payable monthly, becoming due and payable January 2, 2002. Of the principle
     amount,  $75,000  represents  a loan fee.  The Company  also issued  15,789
     shares of the  Company's  common  stock  valued at $41,000 and a warrant to
     purchase up to 30,000  shares of the  Company's  common stock at $10.42 per
     share valued at $100. The debt is  collateralized  by certain assets of the
     Company.

     Under the Portland Business purchase agreements, the Company agreed that if
     the value of the common stock (based on the average  trading  price for the
     60 day period  preceding  the first  trading  day  following  July 5, 2001)
     issued  to the  former  owners  of the  Portland  Business  was  less  than
     $3,885,000,  we would pay the owners the difference  between



                                       8
<PAGE>

     $3,885,000  and the value of the shares in cash or, at our  option,  common
     stock of Neptune Society. In August 2001, pursuant to the Portland Business
     purchase  agreements,  the Company  issued  561,693 shares of the Company's
     common stock to the former owners of the Portland Business.

     In August  2001,  the  Company  paid $2  million of its $4.7  million  note
     payable and  restructured  the remaining  $2.7 million.  The remaining $2.7
     million  will become 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 55,000 shares of the
     Company's common stock valued at $143,000.

     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 $6.00 per share of the  Company's  common stock
     and a maturity date of September  30, 2004.  The Company also issued 10,000
     shares of the Company's common stock valued at approximately $26,000.

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

     The  Company  is  required  to  adopt  the   provisions  of  Statement  141
     immediately and Statement 142 effective January 1, 2002.  Furthermore,  any
     goodwill and any intangible asset  determined to have an indefinite  useful
     life that are acquired in a purchase business  combination  completed after
     June 30, 2001 will not be amortized,  but will continue to be evaluated for
     impairment in accordance with the appropriate  pre-Statement 142 accounting
     literature.   Goodwill   and   intangible   assets   acquired  in  business
     combinations  completed  before July 1, 2001 will  continue to be amortized
     prior to the adoption of Statement 142.

     Statement 141 will require upon adoption of Statement 142, that the Company
     evaluate its existing  intangible assets and goodwill that were acquired in
     a  prior  purchase  business   combination,   and  to  make  any  necessary
     reclassifications  in order to conform  with the new  criteria in Statement
     141 for  recognition  apart from



                                       9
<PAGE>

     goodwill.  Upon adoption of Statement  142, the Company will be required to
     reassess  the useful  lives and residual  values of all  intangible  assets
     acquired  in  purchase  business  combinations,   and  make  any  necessary
     amortization  period  adjustments  by the end of the first  interim  period
     after  adoption.  In  addition,  to  the  extent  an  intangible  asset  is
     identified  as  having an  indefinite  useful  life,  the  Company  will be
     required to test the intangible asset for impairment in accordance with the
     provisions of Statement 142 within the first interim period. Any impairment
     loss will be  measured  as of the date of adoption  and  recognized  as the
     cumulative effect of a change in accounting  principle in the first interim
     period.

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

     As of the  date of  adoption,  the  Company  expects  to  have  unamortized
     goodwill  in the  amount of $28.7  million  which  will be  subject  to the
     transition  provisions  of  Statements  141 and 142.  Amortization  expense
     related  to  goodwill  was $1.5  million  and  $798,000  for the year ended
     December  31, 2000 and the six months  ended June 30,  2001,  respectively.
     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.



                                       10
<PAGE>


ITEM 2: MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS

     This report contains  forward-looking  statements within the meaning of the
Securities  Exchange Act of 1934,  as amended.  Any  statements  that express or
involve discussions with respect to predictions,  expectations,  beliefs, plans,
objectives,  assumptions or future events or performance (often, but not always,
using words and  phrases  such as  "expects,"  "believe,"  "believes,"  "plans,"
"anticipate,"  "anticipates," "is anticipated," or stating that certain actions,
events or  results  "will,"  "may,"  "should,"  or "can" be  taken,  occur or be
achieved)  are not  statements of  historical  fact and may be  "forward-looking
statements." Forward-looking statements are based on expectations, estimates and
projections  at the time the  statements are made that involve a number of risks
and  uncertainties  which  could  cause  actual  results  or  events  to  differ
materially  from  those  anticipated  by  the  Company.   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 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.  Important  factors which could cause actual results of the Company
to differ materially from those in  forward-looking  statements  include,  among
others, the following:

     1)   Changes in general economic  conditions  impacting  financial  markets
          that could negatively affect the Company.

     2)   Changes in credit  relationships  impacting the availability of credit
          and the general availability of credit in the marketplace.

     3)   Changes in consumer  demand and/or pricing for the Company's  products
          and  services  caused by several  factors,  such as local death rates,
          cremation rates, competitive pressures and local economic conditions.

     4)   The Company's  ability to successfully  finance and implement  certain
          strategic growth  initiatives that could result in increased  pre-need
          contract sales and case volume.

     5)   Changes in domestic political and/or regulatory  environments in which
          the Company operates, including tax and accounting policies.

     6)   The Company's  ability to  successfully  raise financing to extinguish
          certain debt coming due in the current year.

     Other  specific  risks and  uncertainties  are set  forth in the  Company's
registration  statement on Form 10, as amended,  filed with the  Securities  and
Exchange  Commission.  The Company  assumes no obligation to publicly  update or
revise any forward-looking  statements made therein or any other forward-looking
statements made by the Company.

     Our  management  has included  projections  and estimates in this quarterly
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.   The  Company  undertakes  no
obligation   to  publicly   release  the  results  of  any   revision  to  these
forward-looking  statements that may be made to reflect events or  circumstances
after the date hereof or to reflect the occurrence of unanticipated events.



                                       11
<PAGE>

Overview

     We are a provider of cremation services in North America.  As of August 13,
2001, we operate 18 locations serving  California,  Florida,  Iowa,  Oregon, New
York and  Washington.  Our  strategy  is to grow by: (i)  selectively  acquiring
small,  family-owned  cremation service providers  strategically  located across
North America;  (ii)  initiating  start up operations to be associated  with key
acquisitions;  (iii)  operating all our locations  under one nationally  branded
name, "The Neptune Society" (where permitted);  (iv) avoiding direct competition
with corporate  consolidators by concentrating  solely on cremation services and
cremation  products;  and (v)  improving  revenue  and  profitability  of  newly
acquired  operations by consolidating  administrative  and management  functions
within our  organization.  We believe that  implementing  these  initiatives are
critical to achieving  profitability  and are our most  important  challenges in
competing effectively in the death care industry.

     During the six months ended June 30, 2001, we made no acquisitions.  During
the six months ended June 30,  2000,  we acquired our  operations  in Iowa,  and
subsequent to June 30, 2000, we acquired our  operations in Oregon.  As a result
of these acquisitions, our historical results of operations may vary from future
results and  period-to-period  comparisons  may not be  indicative of our future
results.


SELECTED FINANCIAL INFORMATION

     The selected financial  information presented below as of and for the three
and six  months  ended June 30,  2001 and 2000 are  derived  from the  unaudited
condensed  consolidated  financial  statements  of the  Company.  The  following
discussion and analysis is provided to increase  understanding of, and should be
read  in  conjunction  with,  the  unaudited  condensed  consolidated  financial
statements and accompanying notes.

The following table set forth the Company's  comparable  statements of operation
for the described periods:

<TABLE>
<S>                                             <C>                     <C>             <C>           <C>
                                                ------------------------------     -----------------------------
                                                 Three months   Three months         Six months    Six months
                                                ended June 30,   ended June          ended June    ended June
                                                       2001        30, 2000            30, 2001      30, 2000
                                                ------------------------------     -----------------------------
Revenues
  Services and merchandise                      $2,871,393        1,199,048           5,113,081     2,527,429
  Management and finance fees                      312,546          464,547             760,158       738,547
                                                -----------      -----------         -----------   -----------
                                  Total revenues 3,183,939        1,663,595           5,873,239     3,265,976

Cost and expenses                                1,386,622        1,032,687           2,771,772     1,984,031
                                                -----------      -----------         -----------   -----------
                                  Gross profit   1,797,317          630,908           3,101,467     1,281,945

General and administrative expenses              2,154,197        1,370,950           3,912,887     2,785,703
Amortization and depreciation expense              516,467          399,774           1,057,772       807,336
Professional                                       369,743          232,715             546,163       462,605
                                                -----------      -----------         -----------   -----------
Total general and admin. expenses                3,040,407        1,998,439           5,516,822     4,055,644

                           Loss from operations
                                                (1,243,090)      (1,367,531)         (2,415,355)   (2,773,699)

Interest expense                                   426,405          702,816           1,044,918     1,404,816
                                                -----------      -----------         -----------   -----------
Loss before provision for taxes                 (1,669,495)      (2,070,347)         (3,460,273)   (4,178,515)
</TABLE>


                                       12
<PAGE>

<TABLE>
                                                ------------------------------     -----------------------------
                                                 Three months   Three months         Six months    Six months
                                                ended June 30,   ended June          ended June    ended June
                                                       2001        30, 2000            30, 2001      30, 2000
                                                ------------------------------     -----------------------------
<S>                                              <C>                 <C>                <C>             <C>
Income tax benefit                                       -          280,624                   -       534,752
Loss before cumulative effect
      of a change in accounting principle      $(1,669,495)      (1,789,723)         (3,460,273)

Cumulative effect on prior years of changing
      to a different revenue recognition method          -                -                   -      (403,927)

                                   Net loss    $(1,669,495)      (1,789,723)         (3,460,273)   (4,047,690)
                                               ============     ===========         ===========   ===========
</TABLE>


The following table set forth the Company's comparable financial  information as
a percentage of revenues:

<TABLE>
                                                     -------------------------------      -------------------------------
                                                      Three months   Three months           Six months     Six months
                                                      ended June 30, ended June 30,        ended June 30, ended June 30,
                                                          2001           2000                  2001           2000
                                                     -------------------------------      -------------------------------
<S>                                                      <C>            <C>                     <C>              <C>

Revenues
  Services and merchandise                                90.2%          72.1%                 87.1%          77.4%
  Management and finance fees                              9.8%          27.9%                 12.9%          22.6%
                                  Total revenues         100.0%         100.0%                100.0%         100.0%

Cost and expenses                                         43.6%          62.1%                 47.2%          60.7%
                                    Gross profit          56.4%          37.9%                 52.8%          39.3%

General and administrative expenses                       67.7%          82.4%                 66.6%          85.3%
Amortization and depreciation expense                     16.2%          23.7%                 18.0%          24.7%
Professional fees                                         11.6%          14.0%                  9.3%          14.2%
Total general and admin. expenses                         95.5%         120.1%                 93.9%         124.2%

                            Loss from operations         (39.0%)        (82.2%)               (41.1%)        (84.9%)

Interest expense                                          13.4%          42.2%                 17.8%          43.0%


Loss before provision for taxes                          (52,4%)       (124.5%)               (58.9%)       (127.9%)

Income tax benefit                                         0.0%          16.9%                  0.0%          16.4%

Loss before cumulative effect
      of a change in accounting principle                (52.4%)       (107.6%)               (58.9%)       (111.6%)

Cumulative effect on prior years of changing
      to a different revenue recognition method            0.0%           0.0%                  0.0%         (12.4%)

                                        Net loss         (52.4%)       (107.6%)               (58.9%)       (123.9%)
</TABLE>


                                       13
<PAGE>

The following table sets forth financial  information derived from the Company's
unaudited balance sheets at June 30, 2001 and December 31, 2000:

BALANCE SHEET DATA (Unaudited):
                                       June 30,     December 31,
                                        2001           2000
                                        ----           ----


Current Assets                     $  2,365,662       1,420,770
Current Liabilities                   8,189,007       8,281,155
Long-term Debt                                -         100,878
Convertible Debentures                5,994,800       5,937,303
Shareholders' Equity               $ 13,028,022      16,107,763

OTHER FINANCIAL INFORMATION:

Number of Offices                           18               18


THREE AND SIX MONTHS ENDED JUNE 30, 2001  COMPARED WITH THE THREE AND SIX MONTHS
ENDED JUNE 30, 2000:

Results of Operations

     The following  discussion compares the operations of the registrant for the
three and six months ended June 30, 2001 to the operations of the registrant for
the three and six months ended June 30, 2000.

Revenues

     In May  2001,  the  Company  changed  its  inventory  procedures  and sales
contracts  to conform  to its  revised  revenue  recognition  policy.  Under the
Company's revised revenue recognition policy and its revised inventory and sales
contract  procedures,  the  Company  is allowed to  recognize  certain  pre-need
merchandise   revenues  from  the  sale  of  pre-need  contracts  prior  to  the
performance of the related cremation service in California,  Oregon,  Washington
and Iowa.

     Cremation  service and  merchandise  revenues were $2,871,000 for the three
months ended June 30, 2001 compared to  $1,199,000  for the same period in 2000.
Revenues   increased  139.5%  due  in  part  to  the  recognition  of  $389,000,
approximately one month, of pre-need merchandise revenue, as a result of changes
to the Company's inventory and sales contract procedures.  In addition,  at-need
case  volume   increased  33.8%  over  the  comparable  2000  period,   and  the
introduction  of the Worldwide  Travel  Assurance  Plan ("Travel  Plan"),  a new
product offering,  during the first quarter of 2001 contributed  $593,000 to the
increase in revenues.

     Cremation  service and  merchandise  revenues were  $5,113,000  for the six
months ended June 30, 2001 compared to  $2,527,000  for the same period in 2000.
Revenues  increased 102.3% due to the recognition of approximately  one month of
pre-need  merchandise  revenue,   increased  at-need  and  pre-need  fulfillment
activity  and the  introduction  of a new  travel  assurance  product  offering.
At-need  and  pre-need  fulfillment  case  volume  increased  41.8%  and  11.5%,
respectively,  over the comparable 2000 period.  The  introduction of the Travel
Plan contributed $888,000 to the increase in revenues.

         During the three months ended June 30, 2001 and 2000, merchandise sales
of $1,849,000 and



                                       14
<PAGE>

$1,175,000,  respectively,  were  deferred  as  we  did  not  meet  our  revenue
recognition criteria.  Pre-need cremation arrangement sales contract volume (the
of contracts  sold)  increased 29.7% in the second quarter of 2001 over the same
period in 2000.

During  the six  months  ended  June 30,  2001 and  2000,  merchandise  sales of
$3,407,000 and  $2,119,000,  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 49.5% over the same period
in 2000.

     The Company believes that revenues were also lower during the three and six
months ended June 30, 2001  resulting  from the Leneda  litigation for trademark
infringement,  which  resulted  from a  dispute  over  our  use of the  "Neptune
Society" name in Riverside,  Imperial,  San Bernadino and San Diego Counties. We
have  suspended  marketing  pre-need  arrangement   contracts  in  the  Southern
California areas affected by the Leneda litigation.  We suspended sales in these
areas, and we estimate that the Leneda litigation caused our revenues to decline
by  approximately  $50,000 or 1.7% and $100,000 or 2.0% during the three and six
months ended June 30, 2001,  respectively.  See "Legal  Proceedings."  We do not
anticipate  that we will market or sell pre need or at need  services  until the
Leneda  litigation is resolved,  if at all. As such, we can not predict when, or
if, revenues  related to the affected areas will return to historical  levels or
if we will  ever be able to sell pre need or at need  services  in the  affected
areas.

     On March 15, 2000, the Company acquired the Ankeny,  Iowa property.  In the
fiscal year 2000,  subsequent to the second  quarter,  the Company  acquired the
Portland,  Oregon property and opened two new offices in Washington  state.  The
Company did not acquire or open any new properties or offices during 2001.

     Cremation service and merchandise  revenues related to acquisitions and new
office  openings after December 31, 1999 were $611,000 and $18,000 for the three
months ended June 30, 2001 and 2000, respectively.

     Cremation service and merchandise  revenues related to acquisitions and new
office  openings  after  December 31, 1999 were $992,000 and $47,000 for the six
months ended June 30, 2001 and 2000, respectively.

     Revenues  earned for the three  months  ended  June 30,  2001 and 2000 from
trust fund management and finance fees were $313,000 and $465,000, respectively.
The $152,000 or 32.7% decrease is attributable to decreased  management fees due
to reduced investment yields.

     Revenues  earned for the six months ended June 30, 2001 and 2000 from trust
fund management and finance fees were $760,000 and $739,000,  respectively.  The
$22,000 or 2.9% increase is attributable to increased  finance fee income in the
first quarter.  Finance fees increased due to the Company's  current  ability to
recognize income over the life of the pre-need contract versus at the end of the
contract, as previously recognized.  Finance fee income was partially off-set by
the decrease in trust fund management fees, as discussed above.

Costs and Expenses and Gross Profit

     Direct  costs and  expenses  were  $1,387,000  or 43.6% of revenues for the
three months ended June 30, 2001 compared to $1,033,000 or 62.1% of revenues for
the comparable  period in 2000. The $354,000 or 34.3% increase was  attributable
to fiscal 2000 acquisitions and new office openings, increases in variable costs
related to  increased  pre-need  and at-need  activity  and  increases  in costs
related to the Travel Plan.  The gross profit during the three months ended June
30, 2001 was $1,797,000 or 56.4% of total revenues compared to $631,000 or 37.9%
for the comparable period in 2000.

     Direct costs and expenses were  $2,772,000 or 47.2% of revenues for the six
months ended June 30, 2001  compared to  $1,984,000 or 60.7% of revenues for the
comparable period in 2000. The $788,000


                                       15
<PAGE>

or  39.7%  increase  was  attributable  to the  same  factors  discussed  in the
abovementioned  quarterly results. Gross profit during the six months ended June
30, 2001 was  $3,101,000  or 52.8% of total  revenues  compared to $1,282,000 or
39.3% for the comparable period in 2000.

     The gross  profit  margin for the three and six months  ended June 30, 2001
increased 48.8% and 34.4%, respectively, over the comparable 2000 periods. These
increases were due to increased pre-need and at-need activity,  the introduction
of the Travel  Plan and the  recognition  of one month of  pre-need  merchandise
sales in the second  quarter,  resulting  from the change in our  inventory  and
sales  contract  procedures.  Management  believes  that  the  increase  in case
activity allowed the Company to achieve greater  efficiencies related to certain
fixed costs  included in direct costs and expenses.  The gross margin related to
the Travel Plan and pre-need  merchandise sales,  respectively,  was higher than
the Company's gross margin in the comparable 2000 periods.

General and Administrative Expenses

     General and  administrative  expenses  for the three  months ended June 30,
2001 were $2,154,000 or 67.7% of revenues.  General and administrative  expenses
for the three months ended June 30, 2000 were  $1,371,000  or 82.4% of revenues.
The $783,000 or 57.1%  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 and the additional  costs associated with supporting an increased number
of geographic locations.

     General and administrative  expenses for the six months ended June 30, 2001
were $3,913,000 or 66.6% of revenues.  General and  administrative  expenses for
the six months ended June 30, 2000 were  $2,786,000  or 85.3% of  revenues.  The
$1,127,000  or 40.5%  increase  in general and  administrative  expenses in 2001
compared  to 2000 is due to the  effects of the same  factors  discussed  in the
abovementioned quarterly results.

Amortization and Depreciation Expenses

     Amortization  and   depreciation   expenses  were  $516,000  and  $395,000,
respectively,  for the three months  ended June 30, 2001 and 2000.  Amortization
and depreciation  expenses were $1,058,000 and $807,336,  respectively,  for the
six months  ended June 30,  2001 and 2000.  The  increase  in  amortization  and
depreciation  expenses  during  2001 were  primarily  the result of the Iowa and
Oregon acquisitions.

Professional Fees

     Professional  fees were  $370,000 or 11.6% of revenues for the three months
ended June 30, 2001  compared  to  $233,000  or 14.0% of revenues  for the three
months ended June 30, 2000.  Professional fees were $546,000 or 9.3% of revenues
for the six months ended June 30, 2001 compared to $463,000 or 14.2% of revenues
for the six months ended June 30, 2000. The increase in professional fees during
2001 were related to costs  associated with the Leneda  litigation and audit and
advisory services related to the registration of the Company's common stock with
the Securities  and Exchange  Commission  under the  Securities  Exchange Act of
1934, as amended.  Professional  fees also include  $167,000 of consulting  fees
paid by us to the former principal  shareholder in 2001 and 2000,  respectively,
for marketing and sales consultation.  The Company anticipates that professional
fees will  begin to trend  downward  in  subsequent  periods,  but may remain at
approximately the same level until the Leneda litigation is resolved.

Interest Expense

     Interest  expense was  $426,000 or 13.4% of revenues  for the three  months
ended June 30, 2001  compared  to  $703,000  or 42.2% of revenues  for the three
months ended June 30, 2000. Interest expense was $1,045,000 or 17.8% of revenues
for the six months  ended  June 30,  2001  compared  to  $1,405,000  or 43.0% of
revenues  for the six months  ended June 30,  2000.  The  decrease  in  interest
expense in 2001 was a result of payments made to reduce  acquisition  debt. This
reduction was partially offset by the addition of



                                       16
<PAGE>

debt related to the Oregon acquisition.

         We anticipate  interest expense will increase in subsequent periods due
to certain debt  restructuring  and  refinancing  to partially  extinguish,  and
extend  the due date of the  current  portion of  acquisition  debt due July 31,
2001.  The  Company  also  entered  into a Letter  of  Memorandum  with  Private
Investment  Company with terms to convert a promissory  note,  due September 30,
2001, into an interest bearing convertible debenture maturing in September 2004.
If the agreement is finalized the transaction will 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
$1,669,000  and  $1,790,000,  respectively,  for the three months ended June 30,
2001 and 2000. Loss before cumulative effect of a change in accounting principle
was $3,460,000 and $3,644,000,  respectively,  for the six months ended June 30,
2001 and 2000.  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, the Company changed its accounting policies
applicable to pre-need  merchandise sales. The implementation of SAB No. 101 had
no effect on the consolidated cash flows of the Company.

     Prior  to  2000,  revenue  related  to  merchandise  sold  with a  pre-need
cremation   service   arrangement  was  recognized  upon  physical  delivery  of
merchandise  to  the  customer  or  upon  satisfying  certain  state  regulatory
criteria,  which, in California,  Iowa, Washington and Oregon may occur prior to
the performance of cremation services. The Company considered the criteria to be
satisfied  when (i) the Company was permitted to receive one hundred  percent of
the  unrestricted   funds  associated  with  the  merchandise   sale,  (ii)  the
merchandise  was in a condition  for its  intended  use (iii) the Company had no
specific  performance   obligations   essential  to  the  functionality  of  the
merchandise; (iv) the customer accepted title of the merchandise, evidenced by a
written  transfer of title to the customer and  certificate  of ownership.  And,
also at the request of the customer, the Company arranged for the storage of the
merchandise on the customer's  behalf in an insured  location until the customer
picked  up the  merchandise  or at the  time of  need,  but no  later  than  the
customer's  death.  Customers that purchase pre-need  cremation  arrangements in
California,  Iowa,  Washington and Oregon do not have  cancellation  rights with
respect to the purchase of merchandise.

         In response to SAB No. 101, the Company changed its revenue recognition
accounting policy with respect to merchandise sold in a pre-need  arrangement to
include certain  conditions beyond current state  regulations.  As of January 1,
2000, the Company added the following criteria to its revenue recognition policy
for the  sale of  merchandise:  (i) a  definitive  delivery  date,  (ii)  stored
merchandise  is  required  to  be  segregated  and  specifically  identified  by
customer,  (iii) a customer's merchandise is labeled or marked for such customer
and may  not be  used to fill  another  customer's  order,  and  exchange  for a
different  piece of  merchandise  in the  future is  remote.  In  addition,  the
merchandise must not be subject to claims of the Company's creditors,  the risks
and rewards of merchandise ownership must have transferred to the customer,  and
the Company's  custodial risks are insurable and insured.  The Company  deferred
revenues and costs of $1,849,000  and $451,470,  respectively,  during the three
month period ended June 30, 2001,  and  $3,407,000  and $992,000,  respectively,
during the six months  ended June 30, 2001,  until such time as the  merchandise
has been physically  delivered or upon  satisfaction of the additional  criteria
noted. The Company recognizes revenue on the sale of future pre-need merchandise
sales upon the physical  delivery of the merchandise or upon the satisfaction of
the Company's current revenue recognition policy criteria outlined above.

     The cumulative effect adjustment  represents  revenue and cost deferrals of
$488,000  and  $84,000,  respectively,  related to  pre-need  merchandise  sales
transactions previously recognized in 1999. For the six



                                       17
<PAGE>

months  ended  June 30,  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 $.06 per diluted share.

Net Loss

     Net loss was $1,669,000 and $1,790,000,  respectively, for the three months
ended  June  30,  2001  and  2000.  Net  loss  was  $3,460,000  and  $4,048,000,
respectively,  for the six  months  ended June 30,  2001 and 2000.  The net loss
related to each respective period differed for the reasons described above.

Liquidity and Capital Resources

     At June 30, 2001, we had current assets of  $2,366,000,  which is comprised
of cash, accounts receivable and prepaid expenses. Our total current liabilities
were $8,189,000 comprised mainly of accounts payable,  accrued liabilities,  and
the  current  portion  of long  term  debt.  We had  long-term  debt,  including
convertible  debentures,  with a carrying value of $5,995,000.  We had a working
capital deficit of $5,823,345 at June 30, 2001.

     In  connection  with  the  acquisition  of the  Neptune  Group,  a group of
privately-held  companies engaged in the business of marketing and administering
Pre-Need  and At-Need  cremation  services in  California,  Florida and New York
under the name the "Neptune Society",  on March 31, 1999, the Company issued two
promissory notes totaling $21 million (one note in the amount of $19 million and
one in the amount of $2  million).  At July 31,  2000,  $10 million of long-term
debt related to the original $19 million  acquisition  note was due. In July and
August,  2000, we  negotiated a 12 month  extension on $4.7 million of the above
mentioned  note at an effective  interest rate of 11%, paid off the $5.3 million
remainder of the note and the $1.3 million  outstanding  balance  related to the
original $2 million  acquisition  note due March 2002. Such payments were funded
through a  private  equity  placement  of $7  million.  In  connection  with the
extension of the due date on the $4.7  million,  we  guaranteed  the  difference
between the  aggregate  cash  received  and $47,250 on the sale of 3,375  shares
monthly of our common stock held by the Weintraub Trust over the extension term.
As a result of the  guarantee,  we paid  Weintraub  Trust  $143,000 and $254,000
during the three and six months ended June 30, 2001, respectively. We recorded a
liability for the fair value of such guarantee and adjustments to such liability
are recorded through interest expense.  At June 30, 2001, a liability of $27,000
related to the fair value of such guarantee was included in current  accrued and
other liabilities in the Company's  consolidated balance sheet. We also released
Mr.  Weintraub  from  liability for loss of, or projected  loss of, revenue as a
result  of  the  Leneda  legal  proceeding  occurring  after  the  date  of  our
acquisition of the Neptune Group. See "Legal Proceedings".

     In connection with the Portland acquisition, we assumed outstanding 9% debt
of $137,000 through May 2002.

     We had net cash in flows (out flows) from operating  activities of $116,000
and $(268,000), respectively, for the three months ended June 30, 2001 and 2000.
We had net cash out flows from  operating  activities  of $154,000 and $982,000,
respectively, for the six months ended June 30, 2001 and 2000. Interest paid for
the three  months  ended  June 30,  2001 and 2000 were  $227,000  and  $192,000,
respectively. Interest paid for the six months ended June 30, 2001 and 2000 were
$422,000 and $383,000, respectively.

Subsequent Events

     In  August  2001,  the  Company  entered  into a Third  Debt  Restructuring
Agreement  with the Weintraub  Trust to  restructure  the Company's  outstanding
balance  under the $19 million  promissory  note issued in  connection  with the
Company's  acquisition of the Neptune  Group.  Under the terms of the Third Debt
Restructuring  Agreement,  the Company  paid the  Weintraub  Trust $2 million on
August 7, 2001 and  restructured  the remaining $2.7 million due under the note.
The Company and the Weintraub Trust agreed



                                       18
<PAGE>

that the remaining  $2.7 million will become due and payable on January 2, 2002,
along with a cash loan fee of $168,000,  as consideration for the restructuring.
The restructured amount will accrue interest at 12% per annum,  payable monthly.
The Company also issued 55,000  shares of the Company's  common stock to certain
designated   beneficiaries   valued  at  $143,000  as   consideration   for  the
restructuring.

     In August 2001, the Company,  through a wholly-owned  subsidiary,  borrowed
$1,575,000 at 12% interest per annum,  payable monthly,  due January 2, 2002 for
the purposes of satisfying the Company's  obligations to the Weintraub Trust due
August 7, 2001.  A loan fee in the amount of $75,000 was paid from the  proceeds
of the  loan to the  lender.  The  Company  also  issued  15,789  shares  of the
Company's common stock valued at $41,000 as additional loan fee and a warrant to
purchase up to 30,000  shares of the  Company's  common stock at $6.00 per share
valued at $100. The debt is  collateralized  by the Company's  assets related to
its Portland business.

     Under the Company's  purchase  agreements to acquire its Portland  Business
operations  (the "Portland  Business"),  the Company agreed that if the value of
the  common  stock  (based on the  average  trading  price for the 60 day period
preceding  the first  trading day  following  July 5, 2001) issued to the former
owners  of the  Portland  Business  was less than  $3,885,000,  we would pay the
owners the difference between $3,885,000 and the value of the shares in cash or,
at our option,  the  Company's  common  stock.  In August 2001,  pursuant to the
Portland Business purchase agreements,  the Company issued 561,693 shares of the
Company's common stock to the former owners of the Portland Business.

     In August 2001, the Company entered into a Memorandum of  Understanding  to
convert a $1,000,000 note issued to Private Investment Company, Ltd. ("PIC"),due
September 30, 2001,  into a 12%  convertible  debenture  with  interest  payable
annually  on  September  30th of each year of the term.  The  debenture  will be
convertible  into common stock of the Company at a conversion price of $6.00 per
share and will mature on  September  30, 2004.  The Company  also agreed  issued
10,000 shares of the Company's common stock valued at approximately $26,000 as a
commitment  fee to  PIC.  The  Company  is in the  process  of  entering  into a
definitive agreement related to the conversion of the PIC note.

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 operation presented herein and, accordingly, do not express an opinion or any
other  form of  assurance  on it. Set forth  below is a summary  of our  current
projected Plan of Operation for the fiscal year ending 2001.

Material Commitments--Short-term                              Funding Required
         Cost of sales, general & admin expenditures             $13.9 million
         Current portion of long-term debt                         5.2 million
         Working capital, excluding
                  current portion of long-term debt                2.0 million
         Location expansion                                         .5 million
         Lease payments                                             .5 million
         Interest payments                                          .6 million
         Contingent payments to former owners                       .3 million
         Consulting fee payments                                    .4 million
         Capital Expenditures                                       .1 million
                                                              ------------------
Estimated total Short-term Commitments                             23.5 million

         Estimated Cash Receipts from revenues                     13.3 million
         Estimated Cash receipts from deferred revenues             3.9 million

Estimated total Cash from Operations                               17.2 million

Estimated net Funding Requirements                               $  6.3 million



                                       19
<PAGE>

Net Cash Flow from existing locations' on-going operations: Management's current
year budget  projects it will  achieve  $1.5  million in positive net cash flows
before the payment of debt and interest,  contingent  asset  purchase  price and
capital  expenditures.  We  anticipate  generating  cash receipts from sales and
other income of $16.8 million, on cash expenditures of $15.3 million.

Working  capital:  The Company had a net working capital deficit of $5.8 million
at June 30, 2001. The majority of the deficit  relates to the current portion of
long-term  debt of $5.7  million  due  during  the third  quarter  of 2001.  The
remainder  relates to accounts  payable and accrued  expenses in connection with
our on-going operations.  Subsequent to June 30, 2001, the Company extinguished,
restructured  and/or  extended the due date of both  components  comprising  the
current  portion of long-term  debt. The results of such acts were to reduce the
current portion of long-term debt to $5.2 million.

Current portion of Long-term Debt:  Acquisition  debt of $5.7 million is due and
payable during the third quarter of 2001 as follows: $4.7 million related to the
initial acquisition is due and payable to Emanuel Weintraub on July 31, 2001 and
$1  million  related  to  acquisition  financing  is due and  payable to Private
Investment Company (PIC) on September 30, 2001. Subsequent to June 30, 2001, the
Company paid,  restructured  and/or extended the due date of $4.7 million of the
current  portion of long-term  debt. The result of such  transaction was to paid
$500,000,  refinance  $1.5 million and extend the due date of the remaining $2.7
million of acquisition  debt to January 2002. The $1.5 million bridge  financing
is due January 2002. The Company also entered into a Memorandum of Understanding
to convert the $1 million promissory note, due September 30, 2001, issued to PIC
into  a 12%  convertible  debenture  (convertible  at  $6.00  per  share  of the
Company's  common stock) with a maturity date of September  2004. The Company is
in the process of entering into a definitive  agreement  with PIC related to the
note conversion.

Location  expansion:  In  accordance  with  the  Management's  current  plan  of
operation to add one to two new  locations in the current  year, we estimate our
expansion  investment,  including  capital  expenditures,  to  be  approximately
$550,000.  We also  anticipate  we will  generate  current year cash receipts of
$420,000 on our expansion investment.  In August 2001, we announced that we have
submitted an application to obtain regulatory approval to open a sales office in
Colorado.  We anticipate we will receive such approval during the second half of
2001.  Net  negative  cash flows from  location  expansion  are  projected to be
approximately $130,000.

Lease  payments-current  year: We are obligated  under  certain  office  rental,
facility rental,  storage rental equipment rental,  temporary housing rental and
automotive rental agreements. Current year lease payments amount to $454,000.

Interest payments:  We expect to carry outstanding debt,  including  convertible
debt,  requiring annual cash interest  payments of $620,000,  payable in monthly
installments. There is no guarantee that any convertible debt will be converted;
therefore the maximum amount of interest payments have been projected.

Consulting  payments:  We are  obligated  to pay  consulting  fees of  $348,000,
payable in monthly  installments.  We have  consulting  agreements  with Emanuel
Weintraub   and  Charles   Martin,   which  expire  March  2002  and  May  2002,
respectively.  Mr.  Weintraub  is  entitled  to a fee of $27,775  per month with
$7,775 per month deferred until  expiration or termination of the agreement.  At
the end of the agreement  term, Mr.  Weintraub will receive a balloon payment of
$249,000 plus accrued  interest at 9%. Mr. Martin  receives a consulting  fee of
$1,200 per month.

Contingent payments to former owners:  Under the Washington and Iowa acquisition
agreements,  we agreed to pay the former owners, in cash or common stock, at the
Company's  option,  a percentage of gross revenues and earnings before interest,
taxes,  depreciation  and  amortization  ("EBITDA").  The  Washington  agreement
requires a payment  related to gross revenues  without regard to EBITDA.  In May
2001, we


                                       20
<PAGE>

issued an  additional  2,956 shares of common stock valued at $28,771  under the
Washington agreement.  The Iowa re-negotiated agreement requires payment only if
both gross  revenues and EBITDA  reach or exceed  predetermined  levels.  Iowa's
gross  revenues and EBITDA did not reach or exceed  predetermined  levels and no
additional  payment  or stock  issuance  was  made.  As a part of the July  2000
Weintraub  debt  re-negotiation,   we  guaranteed  the  difference  between  the
aggregate  cash received and $47,250 on the sale of 3,375 shares  monthly of our
common stock held by the Weintraub Trust through July 2001. The final contingent
payment in July 2001 resulting from the guarantee was $27,000, which was paid.

Capital  Expenditures:  We anticipate capital expenditures required for on-going
operations of existing  locations in fiscal year 2001 to amount to approximately
$55,000.  These  expenditures  include office  furniture and office and computer
equipment.

     Our total  operating and capital budgets for the fiscal year ended December
31, 2001 is estimated to be approximately $16 million.  We expect operating cash
flows,  before debt  servicing  and  expansion  expenditures,  to be adequate to
finance our basic operations.  We will need to raise approximately $6.3 million,
if the PIC note can not be  extended,  during the third and fourth  quarters  of
2001 to pay the current  portions of long-term debt due during the first quarter
of 2002, to fund our location  expansion program and to meet our working capital
needs.  We  intend  to  raise  such  capital  by  issuance  of debt,  equity  or
convertible  securities.  We  are  attempting  to  raise  additional  financing;
however,  we have no current  arrangement to obtain such financing and there can
be no assurance  that  financing  will be available or  accessible on reasonable
terms.

     In addition,  there is no assurance  that our actual  expenditures  for the
fiscal year ending  December  31, 2001 will not exceed our  estimated  operating
budgets.  Actual expenditures will depend on a number of factors,  some of which
are beyond our control  including,  among  other  things,  timing of  regulatory
approval of its projects,  the  availability  of financing on acceptable  terms,
reliability of the assumptions of management in estimating cost and timing,  the
death and cremation rates in the geographical  locations that we serve, consumer
acceptance  of our pre need plans,  changes in  governmental  regulation as they
relate  to our  business,  certain  economic  and  political  factors,  the time
expended by consultants and  professionals and fees associated with applications
related   obtaining  and   maintaining   licenses  for  our  locations  and  the
professional  fees associated with the Leneda litigation and the outcome of such
litigation. 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 take some or all of the  following  actions to reduce our working
capital requirements:

          o    suspend our growth strategy;
          o    consolidate  our  operations   through  reductions  in  staffing,
               marketing and sales, promotion and hours of operation;
          o    terminate our operations in  unprofitable or difficult to service
               markets;
          o    sell  assets or  operations  in some of the  markets  we  service
               and/or
          o    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.

Long-Term Debt

     We had outstanding  long-term debt as of June 30, 2001 of  $11,833,000.  We
intend  to  finance  our  long-term  debt  obligations  through  cash  flow from
operations  and  through  additional  issuance  of debt,  equity or  convertible
securities.


                                       21
<PAGE>

New Accounting Pronouncements

     In December 1999, the Securities and Exchange  Commission (the  Commission)
issued Staff  Accounting  Bulletin  No. 101 (SAB 101),  Revenue  Recognition  in
Financial  Statements,  which is to be applied  beginning with the fourth fiscal
quarter of fiscal years  beginning  after  December 15, 1999. SAB 101 summarizes
certain  of the  Staff's  views  in  applying  GAAP to  revenue  recognition  in
financial  statements.  The  Company  has  changed  its  accounting  for revenue
recognition  as a  result  of SAB 101 as  described  in Note 2 to the  Condensed
Consolidated Financial Statements.


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

     The  Company  is  required  to  adopt  the   provisions  of  Statement  141
immediately  and  Statement  142  effective  January 1, 2002.  Furthermore,  any
goodwill and any intangible asset  determined to have an indefinite  useful life
that are acquired in a purchase  business  combination  completed after June 30,
2001 will not be amortized,  but will continue to be evaluated for impairment in
accordance  with  the  appropriate   pre-Statement  142  accounting  literature.
Goodwill  and  intangible  assets  acquired in business  combinations  completed
before  July 1, 2001 will  continue  to be  amortized  prior to the  adoption of
Statement 142.

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

     In  connection  with  the  transitional  goodwill  impairment   evaluation,
Statement 142 will require the Company to perform an assessment of whether there
is an  indication  that  goodwill  is impaired  as of the date of  adoption.  To
accomplish  this the Company must identify its reporting units and determine the
carrying value of each  reporting unit by assigning the assets and  liabilities,
including the existing goodwill and intangible  assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each  reporting unit and compare
it to the reporting  unit's carrying  amount.  To the extent a reporting  unit's
carrying amount exceeds its fair value, an indication  exists that the reporting
unit's  goodwill may be impaired and the Company must perform the second step of
the  transitional  impairment test. In the second step, the Company must compare
the  implied  fair  value  of  the  reporting  unit's  goodwill,  determined  by
allocating the reporting  unit's fair value to all of it assets  (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with Statement 141, to


                                       22
<PAGE>

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 $28.7 million which will be subject to the  transition
provisions of Statements 141 and 142.  Amortization  expense related to goodwill
was $1.5 million and  $798,000 for the year ended  December 31, 2000 and the six
months ended June 30, 2001, respectively. 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.


ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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



                                       23
<PAGE>

PART II  --  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

Leneda Litigation

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

     Thus far, we have answered the complaint and asserted affirmative defenses.
We have  also  counterclaimed  for  breach of  contract  and  breach of  implied
covenants of good faith and fair dealing.  Leneda filed a motion for preliminary
injunction that sought to prohibit  Neptune's use of the mark pending resolution
of the  litigation  and a freeze of assets.  We opposed this  motion,  which the
Court granted in part  (regarding  the temporary  prohibition on using the mark)
and denied in part  (regarding  the asset  freeze) on July 31,  2000.  Under the
order,  we are  prohibited  from selling  Pre-Need plans under the name "Neptune
Society" within Leneda's territory,  which consists of four counties in Southern
California: San Bernadino,  Imperial, Riverside and San Diego. Leneda is seeking
monetary  damages  in an  unspecified  amount.  We intend  to  defend  this case
vigorously.

     We suspended  marketing pre-need plans and at need services in the counties
affected by the Leneda litigation.

     The parties have  submitted  the Leneda  litigation  to  mediation  and the
litigation is still pending.

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

ITEM 2.  CHANGES IN SECURITIES.

     In May 2001,  the Company issued 2,956 shares of common stock to the former
owners of the Spokane,  Washington property in a private transaction pursuant to
the purchase agreement (the agreement).  The agreement required an adjustment to
the number of original  shares issued to the extent the  Company's  stock traded
below a certain average price for the thirty days immediately  preceding January
2, 2001.  The  Company's  stock  traded  below that price  which  triggered  the
issuance  of  the  above  mentioned  shares.  The  shares  were  issued  to  two
shareholders  pursuant  to  an  exemption  from  the  registration  requirements
available  under  Section  4(2) of such act of the  Securities  Act of 1933,  as
amended (the "Securities Act").

     Under the Portland Business purchase agreements, the Company agreed that if
the value of the


                                       24
<PAGE>

common stock (based on the average trading price for the 60 day period preceding
the first trading day following July 5, 2001) issued to the former owners of the
Portland  Business  was less  than  $3,885,000,  we  would  pay the  owners  the
difference  between  $3,885,000  and the value of the  shares in cash or, at our
option,  common  stock of  Neptune  Society.  In August  2001,  pursuant  to the
Portland Business purchase agreements,  the Company issued 561,693 shares of the
Company's common stock to the former owners of the Portland Business. The shares
were issued in reliance upon an exemption from the registration  requirements of
the Securities Act available under Section 4(2) of such act.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

         None.

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

         No matters  were  submitted  to a vote of security  holders  during the
quarter covered by this report.

ITEM 5.  OTHER INFORMATION.

Employment Arrangements

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

     Under the  Agreements,  each  respective  Officer  receives  an annual base
salary  of  $200,000  ($30,000  deferred  subject  to  a  determination  by  the
Compensation  Committee  that the Company has the ability to make such  deferred
payment),  and minimum annual bonus payments equal to 50% of base salary subject
to the Company  achieving certain  performance based criteria.  Our Compensation
Committee will determine the relevant  performance  measures,  the amount of the
annual bonus payment and when the deferred basic salary payment will be made.

     During the employment  period,  the Officers receive  employee  benefits no
less favorable than those provided to our other senior managers.  The Agreements
provide that if any Officer  resigns  with good reason or if we terminate  their
employment  other than for cause or  disability,  then they will be  entitled to
receive an  immediate  lump sum cash  payment and certain  installment  payments
equal to the sum of:

          *accrued,  but  unpaid,  base  salary or other  payment  and  vacation
          through the date of termination

          *two or three  times  their  base  salary,  depending  upon  period of
          service, and

          *the higher of $500,000 or three times the highest  annual  bonus paid
          for any fiscal year during the employment period

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



                                       25
<PAGE>

         The Company also agreed to each of the Officers a signing  bonus in the
form of stock options  exercisable to acquire 68,000 shares of common stock at a
discount to the market  price of such  shares and to issue each of the  officers
additional stock options vesting over the term of the Officer's employment.

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

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

     (a)  EXHIBIT INDEX

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

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

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

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

        3.5(1)      Bylaws of Neptune Society

       10.1(1)      Form of Stock Option Plan

       10.2(1)      Share Purchase  Agreement dated for reference March 26, 1999
                    by and  between  Lari  Acquisition  Company,  Inc.,  Emanuel
                    Weintraub  Inter Vivos  Trust,  Emanuel  Weintraub,  Neptune
                    Management  Corp.,  Heritage  Alternatives,   Inc.,  Neptune
                    Pre-Need Plan, Inc. and Lari Corp.

       10.3(1)      Share Purchase  Agreement dated June 30, 1999 by and between
                    Lari  Acquisition  Company,  Inc.,  Lari Corp.  and  Stanley
                    Zicklin

       10.4(1)      Share Purchase  Agreement dated June 30, 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


                                       26
<PAGE>

       Exhibit
       Number       Description
       ------       -----------
       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  June 30,
                    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  June 30,
                    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 June 30, 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  June 30,  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  June  30,  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 June 30, 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


                                       27
<PAGE>

       Exhibit
       Number       Description
       ------       -----------
       10.19(1)     Amendment  to Agency  Agreement  dated August 5, 1999 by and
                    between  Neptune  Society and  Standard  Securities  Capital
                    Corporation

       10.20(1)     Form of Subscription Agreement

       10.21(1)     Form of Registration Rights Agreement

       10.22(1)     Debenture and Warrant Purchase  Agreement dated November 24,
                    1999.

       10.23(1)     Form of Convertible Debenture

       10.24(1)     Asset  Purchase  Agreement  dated  December 31, 1999, by and
                    among  Neptune  Society,  Crematory  Society of  Washington,
                    Inc., and John C. Ayres.

       10.25(1)     Asset Purchase  Agreement dated March 15, 2000, by and among
                    Neptune  Society,  Cremation  Society  of Iowa,  Inc.,  Dave
                    Noftsger, and John Bethel

       10.26(1)     Asset Purchase Agreements and Merger Agreement dated July 5,
                    2000,  by and  among  Neptune  Society,  Heritage  Memorial,
                    Community  Memorial  Centers,  David Schroeder,  and Michael
                    Ashe

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

       10.27        Employment  Agreement  by and  between the Company and Marco
                    Markin

       10.28        Employment  Agreement  by and  between the Company and David
                    Schroeder

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

       10.30        Memorandum of  Understanding  by and between the Company and
                    Private Investment Company

       10.31        Loan Agreement dated August 8, 2001


                                       28
<PAGE>

       Exhibit
       Number       Description
       ------       -----------
       10.32        Warrant Issued to Green Leaf Investors I, LLC

       10.33        Guaranty Issued to Green Leaf Investors I, LLC

       21.1(1)      List of Subsidiaries of the Registrant
---------------------

(1)  Previously filed on February 12, 2001.


     (b)  Reports on Form 8-K

          No reports on Form 8-K were filed during the period.









                                       29
<PAGE>

                                   SIGNATURES


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused this Form 10-Q,  period  ending June 30, 2001 to be
signed on its behalf by the undersigned duly authorized.

                                      THE NEPTUNE SOCIETY

                                      /s/ Marco Markin
August 14, 2001                       ---------------------------------------
                                       Marco Markin, Chief Executive Officer
                                      (Principal Executive Officer)


                                      /s/ Rodney M. Bagley
August 14, 2001                       -----------------------------------------
                                      Rodney M. Bagley, Chief Financial Officer
                                      (Principal Accounting Officer)








                                       30
<PAGE>
                                 EXHIBIT INDEX

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

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

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

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

        3.5(1)      Bylaws of Neptune Society

       10.1(1)      Form of Stock Option Plan

       10.2(1)      Share Purchase  Agreement dated for reference March 26, 1999
                    by and  between  Lari  Acquisition  Company,  Inc.,  Emanuel
                    Weintraub  Inter Vivos  Trust,  Emanuel  Weintraub,  Neptune
                    Management  Corp.,  Heritage  Alternatives,   Inc.,  Neptune
                    Pre-Need Plan, Inc. and Lari Corp.

       10.3(1)      Share Purchase  Agreement dated June 30, 1999 by and between
                    Lari  Acquisition  Company,  Inc.,  Lari Corp.  and  Stanley
                    Zicklin

       10.4(1)      Share Purchase  Agreement dated June 30, 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  June 30,
                    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  June 30,
                    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 June 30, 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  June 30,  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  June  30,  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

                                       22
<PAGE>
       Exhibit
       Number       Description
       ------       -----------
       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 June 30, 1992 by and between
                    Heritage  Cremation  Services,  Inc., Joseph Estephan,  Elie
                    Estephan and Emanuel Weintraub

       10.17(1)     Form of Commissioned Contractor Agreement

       10.18(1)     Agency  Agreement  dated for reference  July 22, 1999 by and
                    between  Neptune  Society and  Standard  Securities  Capital
                    Corporation

       10.19(1)     Amendment  to Agency  Agreement  dated August 5, 1999 by and
                    between  Neptune  Society and  Standard  Securities  Capital
                    Corporation

       10.20(1)     Form of Subscription Agreement

       10.21(1)     Form of Registration Rights Agreement

       10.22(1)     Debenture and Warrant Purchase  Agreement dated November 24,
                    1999.

       10.23(1)     Form of Convertible Debenture

       10.24(1)     Asset  Purchase  Agreement  dated  December 31, 1999, by and
                    among  Neptune  Society,  Crematory  Society of  Washington,
                    Inc., and John C. Ayres.

       10.25(1)     Asset Purchase  Agreement dated March 15, 2000, by and among
                    Neptune  Society,  Cremation  Society  of Iowa,  Inc.,  Dave
                    Noftsger, and John Bethel

       10.26(1)     Asset Purchase Agreements and Merger Agreement dated July 5,
                    2000,  by and  among  Neptune  Society,  Heritage  Memorial,
                    Community  Memorial  Centers,  David Schroeder,  and Michael
                    Ashe

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

       10.27        Employment  Agreement  by and  between the Company and Marco
                    Markin

       10.28        Employment  Agreement  by and  between the Company and David
                    Schroeder

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

       10.30        Memorandum of  Understanding  by and between the Company and
                    Private Investment Company

       10.31        Loan Agreement dated August 8, 2001



<PAGE>

       Exhibit
       Number       Description
       ------       -----------
       10.32        Warrant Issued to Green Leaf Investors I, LLC

       10.33        Guaranty Issued to Green Leaf Investors I, LLC

       21.1(1)      List of Subsidiaries of the Registrant
---------------------

(1)  Previously filed on February 12, 2001.