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The Neptune Society,
Inc.

To:

Securities
and Exchange Commission

From:

The
Neptune Society, Inc.

Date:

May
31, 2005

Re:

The
Neptune Society, Inc. (SEC File No.000-31182

Responses to the Securities and Exchange Commission

Staff Comments dated May 5, 2005, regarding

Form 10-KSB for the Year Ended December 31, 2004

Filed March 31, 2005

        On
March 31, 2005, The Neptune Society, Inc. (the “Company”) filed an annual report
on Form 10-KSB for the year ended December 31, 2004 (the “Form 10-KSB”) with the
Securities and Exchange Commission (the “SEC”). On May 5, 2005, the staff of the
SEC (the “Staff”) issued the Company a letter setting forth comments to the Form
10-KSB. Set forth below are the Company’s responses to the comments of the Staff.

        In
connection with our response to the Staff’s comments, the Company hereby acknowledges
that:

•

the
Company is responsible for the adequacy and accuracy of the disclosure in its filings
with the SEC;

•

Staff
comments or changes to disclosure in response to Staff comments do not foreclose the SEC
from taking any action with respect to the Company’s filings; and

•

the
Company may not assert Staff comments as a defense in any proceeding initiated by the SEC
or any person under the federal securities laws of the United States.

Form 10-KSB for the Year
Ended December 31, 2004:

Management’s
Discussion and Analysis or Plan of Operation, page 16

1.

We
note you disclose that ‘Management and finance fee income improved. . .   This
increase was driven by improved sales volume and current period marketing

Securities and Exchange Commission

May 31, 2005

Page 2

allowances
received when our trustees acquired life
insurance policies.’ Please explain to us
how under GAAP current period marketing
allowances affect your management and finance fees.

Company’s Response

The
reference to “current period marketing allowances” is to clarify that a portion
of the marketing allowances were identified as non-recurring and therefore reported as
other income. The management and finance fees include only the portion of the marketing
allowance earned on current period paid in full pre-need contracts and ongoing allowances
earned upon the renewal of existing certificates. It is our intent to continue to invest
paid in full pre-need contracts in life insurance, thereby generating ongoing and
recurring trust management fee income.

Both
the current portion and non-recurring portions of the marketing allowances meet the tests
of revenue recognition under FASB Statement of Financial Accounting Concepts No. 5. The
marketing allowances have been both realized and earned. They are not contingent on any
future activity nor conditioned on any additional performance.

Consolidated Statements
of Operations, page 23

2.

Please
separately present your service and merchandise revenues and their
corresponding costs and expenses on the face of the consolidated
statements of operations.

Company’s Response

Due
to the differing treatment of merchandise revenue based on state regulations, it is not
practical to split revenue between service and merchandise. For example, in Florida and
Illinois, all of the payments that we receive from customers are placed into trust. Upon
performance of the service, the entire amount of the account balance, both principal and
interest, is withdrawn. It is not practicable to break down that total sum between its
merchandise and service components. So for those states where we do not deliver
merchandise and therefore do not recognize revenue until the service is performed, service
and merchandise is delivered as a combined cremation package and cannot be split in a
meaningful way.

Note 2, Summary of
Significant Accounting Policies

Revenue Recognition

Pre-arrangement Revenue
Recognition, page 27

3.

Advise
us and disclose the business reason(s) behind your change in business practice
now that you implemented a full merchandise delivery policy for new
pre-need contracts sold in all locations except in three states where the
practice is not permitted.

Securities and Exchange Commission

May 31, 2005

Page 3

Company’s Response

The
Company adopted a full merchandise delivery policy in January of 2003 primarily to
emphasize its unique value proposition. By pre-arranging with The Neptune Society, the
customer can be assured that their final arrangements will be handled according to their
wishes. These wishes are fully documented in the merchandise and service contracts. By
physically taking possession of their urn, they can be assured that there will not be any
attempt to convince their loved ones to buy expensive add-ons that are not needed and not
desired by the purchaser/beneficiary. In fact, in over 90% of the fulfillments handled by
the Neptune Society as a result of a pre-arrangement, no member of the family even needs
to come in to our office.

By
delivering the merchandise at the time of sale, the Company was also able to reduce
handling and storage costs.

4.

Advise
us and disclose the type of merchandise (personalized or non-personalized or
both) you included in a full merchandise delivery. Clarify to us if a
customer accepts and takes physical delivery and title of merchandise in a
pre-need contractual arrangement in this case. Also, clarify if there
remains any obligation for additional performance or delivery, especially in the
case of personalized merchandise.

Company’s Response

The
Neptune Society merchandise package varies from market to market but the core elements
include a specially designed Neptune cremation urn, a Neptune Society Information Book, a
Memorial Plaque and a Registration Packet Portfolio. The urn and memorial plaque are
suitable for display or to be used in a private scattering ceremony. The Neptune Society
Information book provides for documentation of the beneficiary’s final wishes and can
be used to document a number of items that will be important in the disposition of an
individual’s estate. The portfolio is used to hold copies of the contract, the
information book and any other items that will be important in dealing with the estate of
the deceased.

The
merchandise is not personalized at the time of delivery but the Information Book, when
completed by the purchaser, is a highly personalized tool.

The
customer takes physical delivery and title to the merchandise at the time of sale. There
is no obligation for additional performance or delivery.

5.

We
note that you allocate your pre-arrangement revenue to merchandise, travel
contracts, administrative fees when the pre-need contracts are sold and
merchandise delivered in all locations beginning in 2003 except in three
states. Are the deliverables separate units of accounting under the
guidance within EITF 00-21? Are you allocating the revenues based on vendor
specific objective evidence (‘VSOE’) of fair value? Advise us how you
apply EITF 00-21 in allocating the pre-arrangement revenues among these
multiple deliverables and the cremation services.

Securities and Exchange Commission

May 31, 2005

Page 4

Company’s Response

We
do not allocate revenues between the merchandise, travel contract and administrative fees,
but rather these values are based on specific contract prices as evidenced by both our
contracts and our general price lists. The deliverables are therefore separate units of
accounting under the guidance within EITF 00-21. These prices list and contractual amounts
set forth the most
objective and reliable evidence of fair value of the deliverables.

6.

Further,
advise us and disclose the revenue earning processes of each deliverable and
explain how your policies comply with SAB Topic 13.A.3. Support your
accounting for immediate revenue recognition for merchandise sold, travel
contracts placed and administrative fees charged at the time the
pre-need contracts arc sold. In your response, cite the relevant accounting literature
you relied on in your explanations, as appropriate.

Company’s Response

SAB
Topic 13.A.3 concerns “bill and hold” merchandise sales. Where merchandise
revenue is recognized, the merchandise is physically delivered and therefore SAB Topic
13.A.3 does not apply.

Sales Commissions and
Obtaining Costs, page 28

7.

We
note your change in accounting for sales commissions and obtaining costs,
commencing January l, 2003. Explain to us, and clarify in your
disclosures, the nature and type of costs classified as sales commissions and
obtaining costs. Also, advise us why you did not include the costs in
the ‘costs and expenses’ line item to arrive at gross profit.

Company’s Response

Selling
and obtaining costs are comprised primarily of sales commissions and marketing costs
associated with the sale of pre-need contracts. For those markets where we make physical
delivery of merchandise and recognize the revenue associated with that merchandise at the
time of sale, selling and obtaining costs are recognized in the current period. For those
markets where we do not deliver merchandise and for sales made in all markets before we
began delivering merchandise, selling and obtaining costs are deferred and recognized as
expense in the period when the contract is cancelled or the service is performed.

Management
views commissions and marketing costs as selling expenses rather than a direct cost of
providing the service. Therefore they are not included in gross profit.

8.

Further,
explain why a full delivery of merchandise would affect the accounting for
deferral and expensing of commissions and obtaining costs.

Securities and Exchange Commission

May 31, 2005

Page 5

Company’s Response

Under
GAAP costs and expenses must be matched with related revenues. Therefore in the states
where we deliver merchandise and therefore recognize merchandise revenue, we must also
recognize the commissions and obtaining costs. In states where the merchandise revenue is
deferred, we also defer the related commissions and obtaining costs.

Gross vs Net Revenues

9.

Advise
us and disclose if you are reporting cremation service revenues on a net or on
a gross basis when you use the services of third party crematories, and
explain to us why. Refer to EITF 99-19.

Company’s Response

EITF
99-19 addresses the reporting of net revenue when the company has simply retained a
commission or fee on the third party service. We do not have such arrangements with third
party crematories. Our customers contract with us based on our published general price
lists and we are then obligated to perform the service regardless of whether we have a
company-owned crematory or must contract for outside services. We meet criteria 1, 3 and 4
cited in EITF 99-19 to determine whether gross revenue should be reported, and criteria 2
does not apply.

1.

We
are the principal in the transaction. We determine which crematory will           perform
the actual removal and cremation, and the customer is generally not           aware of
anyone other than Neptune Society related to the transaction.

2.

Third
party crematories do not deliver a product, but rather provide a service           so
this criteria does not apply.

3.

We
carry the risks and rewards of ownership, including the risk of loss for
          collection, delivery, or returns.

4.

We
do not act as agent or broker, nor do we receive compensation for selecting a
          particular crematory or vendor with which to do business.

Goodwill (Names and
Reputations), page 36

10.

We
note that the fair value of the Company, as a single reporting unit under FASB
142, exceeded the carrying value of the net assets including goodwill.
In view of the different state regulations among your business locations,
explain to us the basis for your conclusion that you have only one
reporting unit. Refer to EITF Topic No.D-101.

Securities and Exchange Commission

May 31, 2005

Page 6

Company’s Response

Approximately
98% of the goodwill carried on our books comes from the initial purchase of the Neptune
Group in 1999. Any amounts that could be allocated to a separate business unit since then
would be immaterial.

Returns and Refunds

11.

You
state on page 6 that a client has the right to cancel a Pre-need Plan within 30
days of the initial purchase and receive a full refund. After this
initial period, a Pre-need contract may be cancelled by the purchaser with
proper notice and any refunds would be made subject to individual state
regulations. Tell us and disclose your accounting policy for returns and refunds
in these circumstances.

Company’s Response

All
of our pre-need plans provide the customer with the right to a full refund if requested
within 30 days of the time of purchase and if the merchandise is returned in good
condition. Any cancellation rights beyond that time are limited to a refund of some or all
of the funds associated with the cremation services and merchandise to be delivered at the
time of need. The actual amount of the refund in those cases is determined by the rules of
each state and generally ranges from 85-100% of the funds held in trust.

These
refunds are recorded when paid with the appropriate offsetting receivable from the trust.
The difference between the trust receivable and the refund paid is recorded as
administrative fee income and included in the services and merchandise revenue.

Our
cancellation rates are historically quite low. For 2004, our cancellation rate beyond the
30 day period averaged about 2/10 of 1%.

Marketing Allowances

12.

Advise
us the nature of your marketing allowances for the purchase of group insurance
coverage for pre-arrangements and the revenue earning process. Also,
advise us why you did not account for the allowances as reductions of marketing
expenses in the income statements. Refer to EITF 02-16 and examples in
Exhibit 02-16A.

Company’s Response

EITF
02-16 addresses accounting by a customer or reseller for consideration received from a
vendor to offset the cost of selling their product. We do not believe EITF 02-16 applies
to this circumstance. The marketing allowances received by Neptune associated with the
transfer of trust investments to a group life insurance policy are not directly associated
with the selling and obtaining costs associated with Neptune’s pre-need contracts,
nor are we selling the life insurance policies on behalf of the insurance company. In
fact, the marketing allowances represent a form of management fees associated with the
trust funds.

Securities and Exchange Commission

May 31, 2005

Page 7

Recent Accounting
Pronouncements, page 34

13.

We
note that the adoption of FIN 46R did not have a material impact on the Company’s
financial position or results of operations. Advise us if your pre-need
arrangement trust funds are variable interest entities (the ‘VIE’).
Refer to the guidance within paragraph 5 of FIN 46R. If not, explain why
not. If so, advise us your basis in determining that you are or you are not the
primary beneficiaries of the trust funds. Refer to paragraphs 14-15 of FIN 46R.

Company’s Response

We believe our
pre-need trusts do not meet any of the criteria for variable interest entities under FIN
46.

a.

The total
equity investment at risk is not sufficient to permit the entity to finance its
activities          without additional subordinated financial support provided by any
parties, including equity holders.

This
condition does not exist as the amount trusted simply remains on deposit until the
service is performed.

b.

As
a group the holders of the equity investments at risk lack any one of the following three
characteristics of a controlling          financial interest:

i.

Direct
or indirect ability through voting rights or similar rights to make decisions about an
entity's activities. This criterion is not applicable as the members are not holders of
equity investments at risk. The members simply pay into a trust in exchange for the
promise that their death care needs will be