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


                           SECURITIES AND EXCHANGE COMMISSION
                                   Washington, D.C. 20549

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

                                          FORM 10-Q
                                   -----------------------

(Mark One)
    [X]             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                                SECURITIES EXCHANGE ACT OF 1934
                       For the quarterly period ended September 30, 1997

                                              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 _____________

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

                                    PRIME SUCCESSION, INC.
                   (Exact name of registrant as specified in its charter)
                                    ---------------------


       DELAWARE                                                 13-3904211
(State or Other Jurisdiction of                              (I.R.S. Employer
Incorporation or Organization)                              Identification No.)


3940 Olympic Blvd., Suite 300                                       41018
Erlanger, Kentucky, U.S.A.                                      (Postal Code)
          (Address of principal executive offices)

                                          (606) 746-6800
                       (Registrant's telephone number, including area code)


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

         The number of  outstanding  shares of Common  Stock as of November  10,
1997, was 100.

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


<PAGE>





                              TABLE OF CONTENTS



                                                                           Page


Part I.   FINANCIAL INFORMATION

          Item 1.   FINANCIAL STATEMENTS:

          CONSOLIDATED BALANCE SHEETS
             as of September 30, 1997 and December 31, 1996                   1

          CONSOLIDATED STATEMENTS OF OPERATIONS
             for the Three Months Ended September 30, 1997 and 1996
             and the Nine Months Ended September 30, 1997 and 1996            3

           CONSOLIDATED STATEMENTS OF CASH FLOWS
             for the Nine Months Ended September 30, 1997 and 1996            4

           NOTES to INTERIM CONSOLIDATED FINANCIAL STATEMENTS                 5

           Item 2.   MANAGEMENT'S DISCUSSION and ANALYSIS
                        of FINANCIAL CONDITION and RESULTS of OPERATIONS      6

Part II.   OTHER INFORMATION

           Item 5.   OTHER INFORMATION                                       12

           Item 6.   EXHIBITS and REPORTS on FORM 8-K                        12

SIGNATURES                                                                   12





                                      

<PAGE>



PART I

ITEM 1.   FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                                         PRIME SUCCESSION, INC. AND SUBSIDIARIES
                                                Consolidated Balance Sheets



                                                                 September 30, 1997            December 31, 1996
                                                                 ------------------            -----------------
                                                                         (unaudited)


                                                          Assets
<S>                                                                            <C>                      <C>
Cash and cash equivalents                                                      $    1,892,461           $    2,985,704
Restricted cash                                                                            --                4,388,837
Receivables:
   Trade, less allowance of $2,525,954 and $2,834,438                              11,420,987               11,286,384
   Other                                                                              524,352                  785,586
                                                                             ----------------         ----------------

           Total receivables                                                       11,945,339               12,071,970
                                                                               --------------           --------------
Inventories:
   Merchandise                                                                      4,158,917                2,951,913
   Cemetery lots and mausoleum spaces                                               1,772,520                1,115,342
                                                                              ---------------          ---------------

           Total inventories                                                        5,931,437                4,067,255
                                                                              ---------------          ---------------
Prepaids and other current assets                                                          --                  354,576
Prepaid fees to shareholders                                                               --                  375,000
Deferred income taxes                                                                 446,249                  371,249
                                                                             ----------------         ----------------

            Total current assets                                                   20,215,486               24,614,591
                                                                               --------------           --------------
Property and equipment:
   Land and land improvements                                                      16,156,646               16,101,845
   Buildings and improvements                                                      47,599,727               45,664,076
   Equipment, furniture and fixtures                                                8,447,768                7,363,265
   Accumulated depreciation                                                       (2,513,198)                (741,179)
                                                                             ----------------        -----------------

            Net property and equipment                                             69,690,943               68,388,007
                                                                               --------------           --------------
Developed cemetery properties                                                      12,811,351               12,951,162
Undeveloped cemetery property                                                      31,902,345               30,616,355
Goodwill, less accumulated amortization of $6,030,540 and
      $1,789,876                                                                  225,437,469              228,215,892
Other intangible assets, less accumulated amortization of
      $4,787,647 and $1,548,680                                                    23,942,464               27,621,587
Long-term receivables, less allowance of $3,527,932 and
      $2,731,216                                                                    8,502,342                5,584,119
Other assets                                                                          843,788                  796,489
                                                                             ----------------         ----------------
                                                                                 $393,346,188             $398,788,202
                                                                                 ============             ============

See accompanying notes to interim consolidated financial statements.



</TABLE>
                                                                1


<PAGE>


<TABLE>
<CAPTION>


                                          PRIME SUCCESSION, INC. AND SUBSIDIARIES
                                                Consolidated Balance Sheets


                                                                   September 30, 1997          December 31, 1996
                                                                   ------------------          -----------------
                                                                          (unaudited)


                                             Liabilities and Shareholders' Equity
<S>                                                                            <C>                      <C>
Accounts payable                                                               $    2,300,969           $    2,695,283
Other accrued expenses                                                              9,110,193               11,255,743
Bank indebtedness under revolving loan                                              9,500,000                       --
Current installments of obligations under agreements with
    former owners                                                                   2,339,015                3,326,127
Current installments of long-term debt                                              1,475,559                5,253,936
                                                                              ---------------          ---------------

            Total current liabilities                                              24,725,736               22,531,089
                                                                               --------------           --------------

Deferred merchandise liabilities and revenues, less trust fund
    deposits                                                                       18,862,955               19,612,190
Obligations under agreements with former owners, less
current                                                                            15,410,388               17,568,971
    installments                                                                  190,390,649              189,752,128
Long-term debt, less current installments                                          18,316,831               18,316,831
Deferred income taxes                                                               3,160,388                4,402,013
Other long-term liabilities
Shareholders' equity:
   Common stock, par value $.01 per share, 1,000 shares                                     1                        1
     authorized; 100 issued and outstanding shares                                129,554,499              129,554,499
   Additional paid-in capital                                                     (7,075,259)              (2,949,520)
                                                                             ----------------         ----------------
   Accumulated deficit
                                                                                  122,479,241              126,604,980
                                                                                -------------            -------------
            Total shareholders' equity                                           $393,346,188             $398,788,202
                                                                                 ============             ============



See accompanying notes to interim consolidated financial statements.


</TABLE>

                                                                2

<PAGE>

<TABLE>
<CAPTION>



                                           PRIME SUCCESSION, INC. AND SUBSIDIARIES

                                            Consolidated Statements of Operations
                                                         (unaudited)



                                        Successor               Predecessor                 Successor                  Predecessor
                                         Company                  Company                    Company                     Company
                                        ---------                ----------                 ----------                  ---------- 
                          Three Months    August 26, 1996    July 1, 1996      Nine Months      August 26, 1996    January 1, 1996
                              Ended           through          through            Ended             through            through
                          September 30,    September 30,      August 25,      September 30,      September 30,       August 25,
                              1997             1996              1996             1997               1996               1996
                              ----             ----              ----             ----               ----               ----

Revenues:
<S>                          <C>               <C>              <C>               <C>                 <C>              <C>
  Funeral services           $16,920,121       $ 6,955,889      $10,289,277       $54,788,505         $ 6,955,889      $ 47,281,120
  Cemetery sales               5,888,749         1,370,313        2,039,419        16,579,559           1,370,313         8,834,774
                           -------------       -----------     ------------      ------------         -----------      ------------
                              22,808,870         8,326,202       12,328,696        71,368,064           8,326,202        56,115,894
Costs and expenses:
  Funeral homes               11,412,570         4,928,898        7,295,472        35,101,640           4,928,898        32,257,977
  Cemetery                     4,156,177         1,049,642        1,560,630        11,773,258           1,049,642         6,546,474
                            ------------       -----------     ------------        ----------         -----------     -------------
                              15,568,747         5,978,540        8,856,102        46,874,898           5,978,540        38,756,396
Corporate general and
administrative expenses          744,784           641,463        1,216,253         2,455,763             641,463         4,637,919
Depreciation and
amortization                   2,865,783           903,857        1,307,696         8,289,703             903,857         5,341,150
Legal settlement                      --                --               --                --                  --         6,344,313
                             ------------       -----------     ------------        ----------         -----------     -------------
Operating income               3,629,556           802,342          948,645        13,747,700             802,342           988,061
                             ------------       -----------     ------------        ----------         -----------     -------------
Other expenses
(income):
  Interest expense,
   including amortization
   of deferred loan costs
      (see Note 2)

                               6,082,747         2,512,064        2,453,786        17,846,431           2,512,064        10,059,415
  Other (income)expense               --            (9,158)         133,485                --              (9,158)           39,315
                             ------------       -----------     ------------        ----------         -----------     -------------
                               6,082,747         2,502,906        2,587,271        17,846,431           2,502,906        10,098,730
                             ------------       -----------     ------------        ----------         -----------     -------------
Loss before income
taxes                        (2,453,191)       (1,700,564)      (1,638,626)       (4,098,731)         (1,700,564)       (9,110,669)
Income tax (expense)             (1,323)          (42,007)        (111,337)          (27,008)            (42,007)         (364,796)
                             ------------       -----------     ------------        ----------         -----------     -------------
Net loss                     (2,454,514)       (1,742,571)      (1,749,963)       (4,125,739)         (1,742,571)       (9,475,465)
Redeemable Preferred
Stock dividend
requirements                         --                --          (69,278)               --                  --          (277,111)
                             ------------       -----------     ------------        ----------         -----------     -------------
Net loss attributable to
common shareholders         $(2,454,514)      $(1,742,571)     $(1,819,241)      $(4,125,739)        $(1,742,571)    $  (9,752,576)
                            ============      ============     ============      ============        ============    ==============
Net loss per share
attributable to common
shareholders
                            $ 24,545.14        $ 17,425.71    $         --       $ 41,257.39         $ 17,425.71     $         --
                            ============       ===========    =============       ===========         ===========    =============



See accompanying notes to interim consolidated financial statements.


</TABLE>

                                                                3
<PAGE>


<TABLE>
<CAPTION>


                                           PRIME SUCCESSION, INC. AND SUBSIDIARIES

                                            Consolidated Statements of Cash Flows
                                                         (unaudited)

                                                                                    Successor                  Predecessor
                                                                                     Company                     Company
                                                                                     -------                     -------
                                                                                             August 26,         January 1,
                                                                         Nine Months            1996               1996
                                                                            Ended             through            through
                                                                        September 30,      September 30,        August 25,
                                                                            1997                1996               1996
                                                                            ----                ----               ----

Cash flows from operating activities:
<S>                                                                       <C>                 <C>                <C>
  Net loss                                                                $ (4,125,739)       $ (1,742,571)      $ (9,475,465)
  Adjustments to reconcile  net loss to net cash provided by (used in) operating
     activities:
       Depreciation and amortization                                         9,632,970           1,072,322          5,701,419
       Provision for doubtful accounts                                         544,505             120,828            113,143
       Provision for deferred income taxes                                          --              41,264            155,227
       Legal settlement                                                             --                  --          6,344,313
       Payment on legal settlement                                                  --          (5,344,313)        (1,100,000)
       Changes in operating assets and liabilities
         net of effects of acquisition of subsidiaries:
           Receivables                                                      (3,589,915)           (904,260)          (211,649)
           Inventories                                                      (1,777,840)             26,477            (68,444)
           Accounts payable and accrued expenses                            (3,455,099)          1,941,449            887,452
           Deferred merchandise liabilities and revenue (net)                 (742,612)            759,566          2,475,263
           Other                                                            (2,076,436)          1,418,790         (1,515,129)
                                                                          -------------         -----------      -------------
Net cash provided by (used in) operating activities                         (5,590,166)         (2,610,448)         3,306,130
                                                                          -------------        -----------        ------------

Cash flows from investing activities:
  Proceeds from the disposal of assets                                         188,698               7,000            152,205
  Purchases of property and equipment                                       (2,757,977)           (166,180)        (1,087,432)
  Net cash received for sale of business                                     2,041,033                  --                 --
  Net cash paid for purchase of business                                    (2,606,951)                 --           (675,000)
                                                                           ------------        ------------      -------------
Net cash used in investing activities                                       (3,135,197)           (159,180)        (1,610,227)
                                                                           ------------        ------------      -------------

Cash flows from financing activities:
  Proceeds from long-term debt                                               1,309,782         190,000,000            618,000
  Proceeds from short-term debt                                              9,500,000                  --                 --
  Payments on long-term debt                                                (4,525,801)       (109,707,365)        (3,219,194)
  Payments on obligations under agreements with former owners               (3,040,698)           (177,867)        (1,444,015)
  Decrease (Increase) in restricted cash                                     4,388,837          (9,109,084)                --
  Capital Contributions                                                             --                  --          3,000,000
  Issuance of common stock                                                          --         129,554,500                 --
  Acquisition of Predecessor Company                                                --        (195,396,246)                --
                                                                         -------------        -------------       ------------
Net cash provided by (used in) financing activities                          7,632,120           5,163,938         (1,045,209)
                                                                          ------------        -------------       ------------
Net increase (decrease) in cash and cash equivalents                        (1,093,243)          2,394,310            650,694
Cash and cash equivalents at beginning of period                             2,985,704           1,417,043            766,349
                                                                          ------------         ------------        -----------
Cash and cash equivalents at end of period                                $  1,892,461         $ 3,811,353        $ 1,417,043
                                                                          ============          ===========        ===========
<FN>

 See accompanying notes to interim consolidated financial statements.
</FN>
</TABLE>


                                                                4

<PAGE>




                         PRIME SUCCESSION, INC. AND SUBSIDIARIES

                  Notes to Interim Consolidated Financial Statements
                                       (unaudited)

(1)      On August 26, 1996,  Prime  Succession,  Inc.'s  (Predecessor  Company)
         capital stock was purchased  (the  Acquisition)  by Blackstone  Capital
         Partners II Merchant  Banking  Fund L.P. and  affiliates,  Loewen Group
         International,  Inc. and PSI Management Direct L.P. A new entity, Prime
         Succession,   Inc.  (Successor  Company),   was  formed  and  became  a
         wholly-owned  subsidiary of the Predecessor Company. In connection with
         the  Acquisition,  all of the assets and liabilities of the Predecessor
         Company were transferred to the Successor  Company.  Collectively,  the
         Predecessor  Company and  Successor  Company are herein  referred to as
         "the Company".  Since purchase  accounting was reflected in the opening
         balance  sheet  of the  Successor  Company  on  August  26,  1996,  the
         financial statements of the Successor Company are not comparable to the
         financial  statements  of  the  Predecessor  Company.   Accordingly,  a
         vertical  black  line  is  shown  to  separate  the  Successor  Company
         financial  statements  from those of the  Predecessor  Company  for the
         periods ended prior to August 26, 1996.

(2) Interest  expense  includes  amortization of deferred loan costs as follows:
<TABLE>
<CAPTION>


                         Successor                      Predecessor                   Successor                     Predecessor
                          Company                         Company                      Company                        Company
                         ---------                        -------                      -------                        -------
                                                                                                August 26,
             Three Months        August 26, 1996       July 1, 1996         Nine Months            1996           January 1, 1996
                 Ended               through              through              Ended             through              through
             September 30,        September 30,         August 25,         September 30,        September            August 25,
                 1997                  1996                1996                1997                30,                  1996
                 ----                  ----                ----                ----                1996                 ----
                                                                                                   ----
                                                                                                    
<S>             <C>                  <C>                  <C>              <C>                  <C>                    <C>
                $452,396             $146,982             $137,678          $1,343,266           $146,982               $560,959
</TABLE>


(3)      Footnote disclosure which would substantially  duplicate the disclosure
         contained in the Annual Report on Form 10-K for the year ended December
         31, 1996 has not been  included.  The  unaudited  interim  consolidated
         financial  statements  reflect all adjustments which, in the opinion of
         management,  are  necessary to reflect a fair  statement of the results
         for the  periods  presented  and to  present  fairly  the  consolidated
         financial  position of Prime  Succession,  Inc. and  subsidiaries as of
         September  30, 1997.  All such  adjustments  are of a normal  recurring
         nature.


                                      5
<PAGE>



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

Overview

         The  Company is an  operator  of funeral  homes and  cemeteries  in the
United States. The Company owns 143 funeral homes and 19 cemeteries in 20 states
as of November 10, 1997. The Company  commenced  operations in 1992 and expanded
rapidly  through the  aggressive  acquisition  of funeral homes and  cemeteries,
primarily in non-urban areas of the United States.

         The Company had no funeral  homes when it began  operations in 1992 and
grew to 146 funeral homes in 1996. In order to achieve this rapid growth, former
management was primarily focused on identifying funeral homes to be acquired and
consummating  acquisitions of such homes rather than on maximizing profitability
of the funeral homes and cemeteries which it had acquired.  As a result,  former
management  did not take  advantage  of certain  opportunities  to  improve  the
efficiency and  performance  of the funeral homes  acquired by the Company.  New
management intends to substantially eliminate the Company's acquisition program.
In addition,  in order to improve the Company's present and long-term  operating
performance,  new  management  intends to take  advantage of (i) the quality and
size of the Company's  portfolio of properties,  (ii) the opportunity to operate
more  efficiently  those  properties  located in close proximity to one another,
(iii) the shift in focus from  acquisitions  to profit  maximization at existing
locations  and  (iv)  the  benefits  at  both  local  sites  and  the  corporate
headquarters  from  an  Administrative  Services  Agreement  with  Loewen  Group
International,  Inc. The  Company's  future  results of  operations  will depend
largely upon the ability of  management to  successfully  implement its business
strategy.

                                      6

<PAGE>




Results of Operations

         The Company's  operations  are detailed  below for the three months and
the  nine  months  ended  September  30,  1997   (Successor   Company)  and  the
corresponding period in the prior year (Predecessor Company) expressed in dollar
amounts as well as relevant percentages.  Revenue, gross margin, earnings (loss)
from  operations  and  expenses  other  than  income  taxes are  presented  as a
percentage  of revenue.  Income taxes are  presented  as a percentage  of losses
before income taxes. <TABLE> <CAPTION>


Three Months Ended September 30, 1997 Compared to Three Months Ended September 30, 1996

                                      Successor                 Predecessor                Successor                  Predecessor
                                       Company                    Company                   Company                     Company
                                       -------                    -------                   -------                     ------- 
                               Three                                                  Three
                              Months           August 26,        July 1, 1996         Months          August 26,        July 1, 1996
                               Ended              1996             through            Ended              1996              through
                             September          through           August 25,        September          through           August 25,
                                30,          September 30,           1996              30,          September 30,           1996
                               1997               1996               ----              1997              1996               ----
                               ----               ----                                 ----              ----

                                (millions  of dollars)       (millions of dollars)          (percent)                     (percent)


Revenues
<S>                              <C>                 <C>               <C>              <C>                <C>                <C>
    Funeral services             $16.9               $ 6.9             $10.3            74.1%              83.1%              83.7%
    Cemetery                       5.9                 1.4               2.0            25.9               16.9               16.3
                               -------              ------            ------
              Total              $22.8               $ 8.3             $12.3           100.0%             100.0%             100.0%
                                 =====               =====             =====
Gross Margin
    Funeral                      $ 5.5                $2.0               3.0            32.5%              29.0%              29.1%
    Cemetery                       1.7                  .3                .4            28.8               21.4               20.0
                                ------               -----             -----
              Total                7.2                 2.3               3.4            31.6               27.7               27.6
Expenses
    General and
     administrative                 .7                  .6               1.2             3.1                7.2                9.8
    Depreciation
     and
     amortization                  2.9                  .9               1.3            12.7               10.8               10.6
                                ------               -----            ------
Earnings From
Operations                         3.6                  .8                .9            15.9                9.6                7.3
    Interest on
     long-term debt                6.1                 2.5               2.5            26.8               30.1               20.3
    Other expense                   --                  --                .1              --                 --                 .8
                                -------             -------           -------
Loss Before
Income Taxes                      (2.5)               (1.7)             (1.7)          (11.0)             (20.5)             (13.8)
    Income taxes                    --                  --               (.1)             --                 --               (5.9)
Net Loss                        $ (2.5)             $ (1.7)           $ (1.8)          (11.0)%            (20.5)%            (14.6)%
                                =======             =======           =======
</TABLE>




                                                                7
<PAGE>




    Consolidated  revenues increased 10.7% to $22.8 million for the three months
ended  September  30, 1997  compared to $20.6 million for the three months ended
September 30, 1996.  Sales of funeral  services and cemetery sales accounted for
74.1% and 25.9%,  respectively,  of total  revenues  for the three  months ended
September  30,  1997  compared to 83.5% and 16.5%,  respectively,  for the three
months ended  September 30, 1996.  Funeral  service  revenues  decreased 1.7% to
$16.9  million,   and  cemetery  revenues   increased  73.5%  to  $5.9  million.
Consolidated  earnings from  operations  increased to $3.6 million for the three
months  ended  September  30, 1997 from $1.7  million for the three months ended
September 30, 1996. The increase in earnings from  operations of $1.9 million is
due to enhanced  pricing,  merchandising  and  significant  reduction in funeral
operating  expenses for the period.  Funeral  contribution  margin was 32.5% and
cemetery  contribution margin was 28.8% for the three months ended September 30,
1997  compared  to 29.1% and 20.6%,  respectively,  for the three  months  ended
September  30,  1996.  Contribution  margin is defined as  funeral  revenues  or
cemetery  revenues,  as the  case  may be,  less  related  cost of  sales.  On a
same-store business,  excluding 1996 acquisitions and dispositions,  total calls
decreased by 419 from 4,776 calls for the three months ended  September 30, 1996
to 4,357  calls for the three  months  ended  September  30,  1997.  The average
revenue  per call  increased  by $383 from  $3,500  for the three  months  ended
September  30, 1996 to $3,883 for the three  months  ended  September  30, 1997.
Cemetery revenues increased primarily due to increased pre-need sales efforts in
Alabama, Florida and Tennessee.

    General and administrative  expenses decreased to $0.7 million for the three
months  ended  September  30, 1997 from $1.8  million for the three months ended
September  30,  1996.  As a  percentage  of  consolidated  revenue,  general and
administrative  expense  decreased to 3.1% for the three months ended  September
30, 1997 compared to 8.7% for the three months ended September 30, 1996. General
and  administrative  expenses  decreased  due to the  elimination  of  Corporate
Development  staff  as  well  as the  implementation  of a more  efficient  area
management  system.  The majority of the Company's funeral service locations and
cemeteries are managed by area management in geographic  clusters.  The clusters
are established primarily in non-urban areas. The area manager has better day to
day management of the locations with reduced overhead and travel expenses.

    The Company has also restructured its accounting and information  systems to
be more  effective  and  efficient.  The Company has chosen  Lawson  Software to
support a major systems upgrade project that was completed in the third quarter.
The Company has connected all cluster operations with a central processor in the
corporate   office  enabling   timely   reporting  of  operating  and  financial
information  in a cost effective  manner.  The Company began using this state of
the art financial package in the second quarter of 1997.

    Depreciation and amortization increased $0.7 million to $2.9 million for the
three months  ended  September  30, 1997  compared to $2.2 million for the three
months ended  September  30, 1996.  The  increase is due to the  application  of
purchase accounting related to the Acquisition of the Company.

    Interest on long-term debt increased by $1.1 million to $6.1 million for the
three months  ended  September  30, 1997  compared to $5.0 million for the three
months ended  September  30, 1996 as a result of  additional  borrowings  by the
Company to finance the Acquisition.


                                      8
<PAGE>

<TABLE>
<CAPTION>



Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30, 1996

                                   Successor                  Predecessor                  Successor                  Predecessor
                                    Company                     Company                     Company                     Company
                                    -------                     -------                     -------                     -------
                        Nine Months      August 26, 1996      July 1, 1996      Nine Months     August 26, 1996     January 1, 1996
                           Ended             through            through            Ended            through             through
                       September 30,      September 30,        August 25,      September 30,     September 30,        August 25,
                            1997               1996               1996              1997              1996               1996
                            ----               ----               ----              ----              ----               ----

                             (millions  of dollars)           (millions of                (percent)                    (percent)
                                                                   dollars)


Revenues
<S>                              <C>                 <C>               <C>              <C>                <C>                <C>
    Funeral services             $54.8               $ 7.0             $47.3            76.8%              84.3%              84.3%
    Cemetery                      16.6                 1.3               8.8            23.2               15.7               15.7
                               -------              ------           -------
              Total              $71.4               $ 8.3             $56.1           100.0%             100.0%             100.0%
                                 =====               =====             =====
Gross Margin
    Funeral                      $19.7                $2.0             $15.1            35.9%              28.6%              31.9%
    Cemetery                       4.8                  .3               2.3            28.9               23.1               26.1
                                ------               -----            ------
              Total               24.5                 2.3              17.4            34.3               27.7               31.0
Expenses
    General and
     administrative                2.5                  .6               4.9             3.5                7.2                8.7
    Cost of legal
     proceedings                    --                  --               6.3              --                 --               11.2
    Depreciation
     and
     amortization                  8.3                  .9               5.2            11.6               10.8                9.3
                                ------               -----            ------
Earnings From
Operations                        13.7                  .8               1.0            19.2                9.6                1.8
    Interest on
     long-term debt               17.8                 2.5              10.1            24.9               30.1               18.0
Loss Before
Income Taxes                      (4.1)               (1.7)             (9.1)           (5.7)             (20.5)             (16.2)
    Income taxes                    --                  --               (.4)             --                 --               (4.4)
                                 ------              ------         ---------
Net Loss                        $ (4.1)             $ (1.7)           $ (9.5)           (5.7)%            (20.5)%            (16.9)%
                                =======             =======           =======


</TABLE>


                                                                9
<PAGE>


    Consolidated  revenues  increased 10.9% to $71.4 million for the nine months
ended  September  30, 1997  compared to $64.4  million for the nine months ended
September 30, 1996.  Sales of funeral  services and cemetery sales accounted for
76.8% and 23.2%,  respectively,  of total  revenues  for the nine  months  ended
September  30,  1997  compared  to 84.3% and 15.7%,  respectively,  for the nine
months ended  September 30, 1996.  Funeral  service  revenues  increased 0.9% to
$54.8  million,   and  cemetery  revenues  increased  64.4%  to  $16.6  million.
Consolidated  earnings from  operations  increased to $13.7 million for the nine
months  ended  September  30, 1997 from $8.1  million for the nine months  ended
September 30, 1996 before the $6.3 million legal settlement with Jeffrey Gamble.
The  increase in earnings  from  operations  of $5.6  million is due to enhanced
pricing,  merchandising and significant  reduction in funeral operating expenses
for the period.  Funeral contribution margin was 35.9% and cemetery contribution
margin was 28.9% for the nine months ended  September 30, 1997 compared to 31.5%
and  25.7%,  respectively,  for  the  nine  months  ended  September  30,  1996.
Contribution margin is defined as funeral revenues or cemetery revenues,  as the
case may be, less related cost of sales.  On a  same-store  business,  excluding
1997 acquisitions and  dispositions,  total calls decreased by 1,159 from 15,490
calls for the nine months ended  September 30, 1996 to 14,331 calls for the nine
months ended  September 30, 1997. The average revenue per call increased by $373
from $3,450 for the nine months ended  September 30, 1996 to $3,823 for the nine
months ended September 30, 1997.  Cemetery revenues  increased  primarily due to
increased pre-need sales efforts in Alabama, Florida and Tennessee.

    General and  administrative  expenses decreased to $2.5 million for the nine
months  ended  September  30, 1997 from $5.5  million for the nine months  ended
September  30,  1996.  As a  percentage  of  consolidated  revenue,  general and
administrative expense decreased to 3.5% for the nine months ended September 30,
1997 compared to 8.5% for the nine months ended September 30, 1996.  General and
administrative   expenses   decreased  due  to  the   elimination  of  Corporate
Development  staff  as  well  as the  implementation  of a more  efficient  area
management  system.  The majority of the Company's funeral service locations and
cemeteries are managed by area management in geographic  clusters.  The clusters
are established primarily in non-urban areas. The area manager has better day to
day management of the locations with reduced overhead and travel expenses.

    The Company has also restructured its accounting and information  systems to
be more  effective  and  efficient.  The Company has chosen  Lawson  Software to
support a major systems upgrade project that was completed in the third quarter.
The Company has connected all cluster operations with a central processor in the
corporate   office  enabling   timely   reporting  of  operating  and  financial
information  in a cost effective  manner.  The Company began using this state of
the art financial package in the second quarter of 1997.

    Depreciation and amortization increased $2.2 million to $8.3 million for the
nine  months  ended  September  30, 1997  compared to $6.1  million for the nine
months ended  September  30, 1996.  The  increase is due to the  application  of
purchase accounting related to the Acquisition of the Company.

    Interest on  long-term  debt  increased  by $5.2 million for the nine months
ended September 30, 1997 compared to the nine months ended September 30, 1996 as
a result of additional borrowings by the Company to finance the Acquisition.

Liquidity and Capital Resources

    Historically, the Company's primary sources of cash have been funds provided
by operating  activities,  proceeds from additional long-term debt and, prior to
the   Acquisition,   capital   contributions  by  the  Company's  then  majority
shareholder.

    As of September 30, 1997, the Company had a net working  capital  deficit of
$(4.5) million and a current ratio of 0.82:1,  compared to a net working capital
of $2.1 million and a current ratio of 1.09:1 as of December 31, 1996.

    Under the Bank Revolving Facility (as defined below), the Company may borrow
up to $25.0 million for general  corporate  purposes  until August 26, 2001. The
loans thereunder bear interest at the Base Rate or the Adjusted Eurodollar Rate,
each as  defined  thereunder.  There is a  commitment  fee of 0.5% on the unused
portion of the credit  line.  There were  outstanding  letters of credit of $4.2
million and  borrowings  of $9.5 million on the credit line as of September  30,
1997.
                                     10

<PAGE>
    Net cash used in operating  activities  was $5.6 million for the nine months
ended September 30, 1997, compared to net cash provided by operating  activities
of $0.7 million for the same period in 1996, for a decrease of $6.3 million. The
net loss was reduced by $7.1 million from $11.2  million in 1996 to $4.1 million
in 1997 and non-cash adjustments  increased by $3.0 million compared to 1996 for
depreciation and amortization of goodwill, deferred finance costs, provision for
doubtful accounts and provision for deferred income taxes. The decrease in legal
settlements of $6.3 million is the most significant change compared to 1996. The
net  increase  of  $2.5  million  in  accounts  receivable  compared  to 1996 is
attributable  to  increased  pre-need  sales.  The  increase of $1.7  million in
inventories compared to 1996 is attributable to the Company's remerchandising of
all of its selection rooms and cemetery inventory development. Accounts payable
and other  operating  liabilities  required a total of $3.5 million for the nine
months ended  September 30, 1997 compared to $2.8 million  provided for the same
period in 1996.

    The net  increase  of $1.4  million  compared  to 1996 in net  cash  used in
investing activities primarily relates to the purchase of funeral home buildings
for $1.4 million that were previously leased.  The routine capital  improvements
to the  Company's  facilities  is  comparable  to the prior  year.  The  Company
acquired  three  cemeteries  and a funeral  home  during the nine  months  ended
September 30, 1997 for $2.6 million and sold two funeral homes for $2.0 million.

    Net cash  provided by financing  activities  represents  the release of $4.4
million in restricted cash that had been restricted  pursuant to the Bank Credit
Facilities (as defined below),  $9.5 million in borrowings on the operating line
of credit,  and proceeds  from  long-term  borrowing of $1.3  million.  This was
offset  by the  $3.0  million  payment  to  satisfy  certain  obligations  under
agreements with former owners of funeral homes and cemeteries and other payments
on long-term debt of $4.5 million.

    Contemporaneously   with   the   consummation   of  the   acquisition   (the
"Acquisition")  of the Company's parent in August 1996, the Company entered into
senior  secured  amortization  extended  term loan  facilities  (the  "Bank Term
Facility")  in an aggregate  principal  amount of $90  million,  the proceeds of
which were used to finance the  Acquisition  and related  transaction  costs, to
pre-fund certain capital expenditures and to refinance existing  indebtedness of
the Company, and a senior secured revolving credit facility (the "Bank Revolving
Facility";  together with the Bank Term Facility,  the "Bank Credit Facilities")
in an aggregate  principal  amount of up to $25  million,  the proceeds of which
will be used for  general  corporate  purposes  and a  portion  of which  may be
extended  (as agreed  upon) in the form of swing line loans or letters of credit
for the account of the Company. The Bank Term Facility will mature on August 26,
2003 and the Bank  Revolving  Facility will mature on August 26, 2001.  The Bank
Term  Facility is subject to  amortization,  subject to certain  conditions,  in
semi-annual installments in the amounts of $1 million in each of the first three
years after the  anniversary  of the closing date of the Bank Term Facility (the
"Bank  Closing");  $4  million in the fourth  year  after the Bank  Closing;  $9
million  in the fifth year after the Bank  Closing;  $12.5  million in the sixth
year after the Bank Closing and $61.5 million upon the maturity of the Bank Term
Facility. The Revolving Credit Facility is payable in full at maturity,  with no
prior amortization.

    All  obligations  under the Bank Credit  Facilities  and any  interest  rate
hedging  agreements  entered  into  with  the  lenders  or their  affiliates  in
connection  therewith are  unconditionally  guaranteed  (the "Bank  Guarantees")
jointly and severally,  by Prime Succession Holdings,  Inc., the Parent Company,
and each of the Company's  existing and future domestic  subsidiaries (the "Bank
Guarantors").  All obligations of the Company and the Bank Guarantors  under the
Bank Credit  Facilities  and the Bank  Guarantees  are secured by first priority
security  interests in all existing and future  assets (other than real property
and  vehicles  covered by  certificates  of title) of the  Company  and the Bank
Guarantors.  In  addition,  the Bank  Credit  Facilities  are secured by a first
priority  security interest in 100% of the capital stock of the Company and each
subsidiary thereof and all intercompany receivables.

    In connection with the Acquisition,  the Company also issued $100 million of
10 3/4% Senior Subordinated Notes due 2004, which were exchanged in January 1997
for $100  million of 10 3/4% Senior  Subordinated  Notes due 2004 (the  "Notes")
that were  registered  under the  Securities  Act of 1933.  The Notes  mature on
August 15, 2004.  Interest on the Notes is payable  semi-annually on February 15
and August 15 at the annual rate of 10 3/4%. The Notes are redeemable in cash at
the option of the Company,  in whole or in part,  at any time on or after August
15, 2000, at prices ranging from 105.375% with annual reductions to 100% in 2003
plus accrued and unpaid  interest,  if any, to the redemption date. The proceeds
of the Notes were used, in part, to finance the Acquisition.

                                     11
<PAGE>


    The  Company  and  its  subsidiaries  are  subject  to  certain  restrictive
covenants contained in the indenture relating to the Notes,  including,  but not
limited to,  covenants  imposing  limitations  on the  incurrence  of additional
indebtedness;   certain  payments,  including  dividends  and  investments;  the
creation  of liens;  sales of assets  and  preferred  stock;  transactions  with
interested persons; payment restrictions affecting subsidiaries;  sale-leaseback
transactions;  and  mergers and  consolidations.  In  addition,  the Bank Credit
Facilities contain certain restrictive covenants that, among other things, limit
the  ability of the  Company and its  subsidiaries  to dispose of assets,  incur
additional  indebtedness,  prepay  other  indebtedness,  pay  dividends  or make
certain  restricted  payments,  create  liens on  assets,  engage in  mergers or
acquisitions or enter into leases or transactions with affiliates.

    As of September  30, 1997,  the Company had $201.4  million of  indebtedness
outstanding and $11.3 million of borrowing availability under the Bank Revolving
Facility. The Company believes that, based upon current levels of operations and
anticipated  growth and availability under the Bank Revolving  Facility,  it can
adequately service its indebtedness.  If the Company cannot generate  sufficient
cash flow from  operations or borrow under the Bank  Revolving  Facility to meet
such  obligations,  then the Company may be  required to take  certain  actions,
including reducing capital expenditures,  restructuring its debt, selling assets
or seeking additional equity in order to avoid an event of default under the
Bank Credit Facilities or the Indenture  relating to the Notes. There can be no
assurance  that such  actions  could be  effected or would be  effective  in
allowing the Company to meet such obligations.


                                     12
<PAGE>



PART II

ITEM 5 - OTHER INFORMATION

Forward-Looking Statements

         Certain  statements  in this  Quarterly  Report  on Form  10-Q  include
"forward-looking  statements"  as  defined  in  Section  21E of  the  Securities
Exchange Act of 1934. All statements  other than statements of historical  facts
included  herein,  including,  without  limitation,  the statements under Item 7
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  regarding  the  Company's  financial  position,  plans to  increase
revenues,  reduce  general  and  administrative  expense and take  advantage  of
synergies,  are forward-looking  statements.  Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to be correct. Important
factors that could cause actual results to differ  materially from the Company's
expectations ("Cautionary Statements") are disclosed herein, including,  without
limitation, in conjunction with the forward-looking  statements included herein.
All subsequent written and oral forward-looking  statements  attributable to the
Company  or  persons  acting on its  behalf  are  expressly  qualified  in their
entirety by the Cautionary Statements.


ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

         The Exhibits,  as shown in the "Index of Exhibits",  attached hereto as
pages 13 and 14, are filed as a part of this Report.



SIGNATURES

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  Registrant  has duly  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                               PRIME SUCCESSION, INC.

                               /s/ MYLES S. CAIRNS
                               ---------------------
                               Myles S. Cairns
                               Chief Financial Officer,
                               Secretary and Treasurer
November 10, 1997


                                     13

<PAGE>



INDEX OF EXHIBITS


(a) Exhibit
      Number                            Document Description

      3.1*        Certificate of Incorporation of Blackhawk Acquisition Corp.

      3.2*        Certificate of Amendment of Certificate of Incorporation of
                  Blackhawk Acquisition Corp. changing its name to Prime
                  Succession Acquisition Corp.

      3.3*        Certificate of Amendment of Certificate of Incorporation of
                  Prime Succession Acquisition Corp. changing its name to
                  Prime Succession, Inc.

      3.4*        By-Laws of Prime Succession, Inc.

      4.1*        Indenture dated as of August 15, 1996 between Prime Succession
                  Acquisition Corp. and United States Trust Company of New York,
                  as Trustee

      4.2*        Form of 10 3/4% Senior Subordinated Note due 2004 (included
                  in Exhibit 4.1)

      10.1(a)*    Casket Supply Agreement, dated January 1, 1993, between
                  Batesville Casket Company, Inc. and Prime Succession, Inc.

      10.1(b)*    Amendment Agreement, dated August 1994, between Batesville
                  Casket Company, Inc. and Prime Succession, Inc. (with respect
                  to Casket Supply Agreement)

      10.1(c)*    Amendment 2, dated May 22, 1995, between Batesville Casket
                  Company, Inc. and Prime Succession, Inc. (with respect to
                  Casket Supply Agreement)

      10.2*       Stockholders'  Agreement  dated as of August  26,  1996  among
                  Prime  Succession,   Inc.  (to  be  renamed  Prime  Succession
                  Holdings,  Inc.),  Blackstone  Capital  Partners  II  Merchant
                  Banking Fund L.P.,  Blackstone  Offshore  Capital  Partners II
                  L.P.,  Blackstone Family  Investment  Partnership II L.P., PSI
                  Management Direct L.P. and Loewen Group International, Inc.

      10.3*       Administrative Services Agreement dated as of August 26, 1996
                  between Prime Succession Acquisition Corp. (to be renamed
                  Prime Succession, Inc.) and Loewen Group International, Inc.

      10.4*       Credit  Agreement  dated as of August  26,  1996  among  Prime
                  Succession,  Inc. (to be renamed  Prime  Succession  Holdings,
                  Inc.), Prime Succession Acquisition Corp. (to be renamed Prime
                  Succession,  Inc.), Goldman, Sachs & Co., as syndication agent
                  and arranging agent, the financial  institutions  from time to
                  time  parties  thereto as lenders and The Bank of Nova Scotia,
                  as administrative agent for such lenders.

      10.5*       Letter Agreement dated August 1, 1996 between Prime Succession
                  Acquisition Corp. (to be renamed Prime Succession, Inc.) and
                  Gary Wright.

      10.6*       Letter Agreement dated August 1, 1996 between Prime Succession
                  Acquisition Corp. (to be renamed Prime Succession, Inc.) and
                  Myles Cairns

      10.7*       Put/Call  Agreement,  dated  as  of  August  26,  1996,  among
                  Blackstone  Capital  Partners II Merchant  Banking  Fund L.P.,
                  Blackstone  Offshore  Capital  Partners  II  L.P.,  Blackstone
                  Family  Investment  Partnership II L.P., PSI Management Direct
                  L.P.,  Loewen  Group  International  Inc. and the Loewen Group
                  Inc.

      10.8*        Stock Purchase  Agreement,  dated as of June 14, 1996, by and
                   among Prime  Succession,  Inc.,  the  individuals or entities
                   listed on the signature pages thereof,  The Loewen Group Inc.
                   and Blackhawk Acquisition Corp.

                                     14

<PAGE>



(a) Exhibit
      Number                            Document Description


      12          Computation of Ratio of Earnings to Fixed Charges

      21*         Subsidiaries of Prime Succession, Inc. (formerly known as
                  Prime Succession Acquisition Corp.)

      27          Financial Data Schedule

*        Incorporated by reference to the Exhibits to the Company's
             Registration Statement on Form S-4 (Registration No.
             333-14599).


(b)   Reports on Form 8-K
      None



                                     15
<PAGE>



<TABLE>
<CAPTION>


         Exhibit 12

         Prime Succession, Inc. and subsidiaries
         Ratio of Earnings to Fixed Charges
         (Dollars in Thousands)



                                   Successor                     Predecessor              Successor                     Predecessor
                                    Company                        Company                 Company                        Company
                                    -------                        -------                 -------                        -------

                          Three Months       August 26, 1996     July 1, 1996    Nine Months      August 26, 1996    January 1, 1996
                            Ended              through            through          Ended             through              through
                          September 30,      September 30,       August 25,      September 30,     September 30,        August 25,
                            1997               1996               1996             1997               1996                 1996
                            ----               ----               ----             ----               ----                 ----
<S>                         <C>                 <C>               <C>              <C>                 <C>                  <C>

         Ratio of
         Earnings to
         Fixed Charges
         Earnings:
           Loss before

           income taxes     (2,455)             (1,701)           (1,639)          (4,099)             (1,701)              (9,111)
           Add: Fixed
           charges, net      6,327               2,609             2,609           18,499               2,609               10,691
         Income before
         income taxes
         and fixed
         charges, net        3,872                 908               970           14,400                 908                1,580
         Fixed Charges:
           Total interest
           expense (1)       6,083               2,512             2,454           17,846               2,512               10,059
           Interest factor
           in rents (2)        244                  97               155              653                  97                  632
         Total fixed
         charges             6,327               2,609             2,609           18,499               2,609               10,691
         Ratio of
           earnings to
           fixed charges      0.61                0.35              0.37             0.78                0.35                 0.15

         Coverage
         deficiency (3)      2,455               1,701             1,639            4,099               1,701                9,111


</TABLE>
                                                               
<PAGE>




         (1)      Total interest  expense for each period includes  amortization
                  of loan costs.

         (2)      Interest factor in rents represents one-third of rent expense,
                  which is considered representative of the interest factor.

         (3)      The Company's  earnings are  inadequate to cover fixed charges
                  for  all  periods   indicated   above.   Coverage   deficiency
                  represents  the excess of fixed  charges  over  income  before
                  income taxes and fixed charges, net.