<PAGE>

================================================================================


                      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:  May 31, 2001

                                      OR

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

For the transition period from__________________________________to______________


                        Commission file number:  1-8645



                             MEGO FINANCIAL CORP.
            (Exact name of registrant as specified in its charter)

           New York                                              13-5629885
(State or other jurisdiction of                              (I. R. S.  Employer
incorporation or organization)                               Identification No.)

                  4310 Paradise Road, Las Vegas, Nevada 89109
              (Address of principal executive offices) (Zip Code)

                                (702) 737-3700
             (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 [_]



                     APPLICABLE ONLY TO CORPORATE ISSUERS:

  As of July 12, 2001, there were 3,500,557 shares of Common Stock, $.01 par
value per share, of the Registrant outstanding.

================================================================================
<PAGE>

                     MEGO FINANCIAL CORP. AND SUBSIDIARIES


                                     INDEX
                                     -----

<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----
PART I    FINANCIAL INFORMATION
<S>       <C>                                                                                                  <C>
Item 1.   Condensed Financial Statements (unaudited)

          Condensed Consolidated Balance Sheets at May 31, 2001 and August 31, 2000.....................         1

          Condensed Consolidated Income Statements for the Three and Nine Months Ended
              May 31, 2001 and 2000.....................................................................         2

          Condensed Consolidated Statements of Stockholders' Equity for the Nine Months Ended
              May 31, 2001..............................................................................         3

          Condensed Consolidated Statements of Cash Flows for the Nine  Months Ended
              May 31, 2001 and 2000.....................................................................         4

          Notes to Condensed Consolidated Financial Statements..........................................         5

Item 2.   Management's Discussion and Analysis of Financial Condition
          Results of Operations.........................................................................         6

Item 3.   Quantitative and Qualitative Disclosures About Market Risk....................................        13

PART II   OTHER INFORMATION

Item 1.   Legal Proceedings.............................................................................        14

Item 6.   Exhibits and Reports on Form 8-K..............................................................        14

SIGNATURE...............................................................................................        15
</TABLE>

                                       i

<PAGE>

PART I      FINANCIAL INFORMATION
Item 1.     Condensed Financial Statements

                     MEGO FINANCIAL CORP. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
          (thousands of dollars, except share and per share amounts)
                                  (unaudited)
<TABLE>
<CAPTION>
                                                                                                         May 31,        August 31,
ASSETS                                                                                                     2001            2000
                                                                                                        ----------     -----------
<S>                                                                                                     <C>            <C>
Cash and cash equivalents                                                                               $      656      $   1,069
Restricted cash                                                                                              3,489          1,255
Notes receivable, net of allowance for cancellations and discounts of $14,152 at
    May 31, 2001 and $13,234 at August 31, 2000                                                            101,131         83,156
Interest only receivables, at fair value                                                                     3,334          2,701
Timeshare interests held for sale                                                                           19,501         23,307
Land and improvements inventory                                                                              2,612          4,113
Other investments                                                                                            4,485          4,492
Property and equipment, net of accumulated depreciation of $16,493 at May 31,
    2001 and $17,632 at August 31, 2000                                                                     16,760         23,167
Deferred selling costs                                                                                       5,673          5,231
Prepaid debt expenses                                                                                        2,226          2,060
Other assets                                                                                                15,678         18,041
                                                                                                        ----------      ---------

              TOTAL ASSETS                                                                              $  175,545      $ 168,592
                                                                                                        ==========      =========


LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
    Notes and contracts payable                                                                         $  113,282      $ 109,131
    Accounts payable and accrued liabilities                                                                20,721         19,544
    Reserve for notes receivable sold with recourse                                                          3,641          4,033
    Deposits                                                                                                 3,078          2,841
    Accrued income taxes                                                                                     2,302          2,975
                                                                                                        ----------      ---------

              Total liabilities before subordinated debt                                                   143,024        138,524
                                                                                                        ----------      ---------

Subordinated debt                                                                                            4,211          4,286

Stockholders' equity:
    Preferred stock, $.01 par value (authorized--5,000,000 shares, none
    outstanding)
    Common stock, $.01 par value (authorized--50,000,000 shares; 3,500,557
      shares issued and outstanding at May 31, 2001 and August 31, 2000)                                        35             35
    Additional paid-in capital                                                                              13,068         13,068
    Retained earnings                                                                                       16,012         12,679
    Accumulated other comprehensive loss                                                                      (805)             -
                                                                                                        ----------      ---------

              Total stockholders' equity                                                                    28,310         25,782
                                                                                                        ----------      ---------

              TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                $  175,545      $ 168,592
                                                                                                        ==========      =========

</TABLE>

           See notes to condensed consolidated financial statements.

                                       1
<PAGE>

                     MEGO FINANCIAL CORP. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED INCOME STATEMENTS
          (thousands of dollars, except share and per share amounts)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                          Three Months Ended               Nine Months Ended
                                                                               May 31,                          May 31,
                                                                   --------------------------------   -----------------------------
                                                                        2001             2000              2001             2000
                                                                   ---------------  ---------------   ---------------  ------------
<S>                                                                <C>              <C>               <C>              <C>
REVENUES
    Timeshare interest sales, net                                     $   14,889       $   13,377        $   41,015      $   36,274
    Land sales, net                                                        5,742            5,851            15,569          14,433
    Interest income                                                        3,965            3,255            10,724           9,298
    Financial income                                                         844              241             2,173             782
    Gain on sale of notes receivable                                           -              635               292             635
    Gain on sale of investments and other assets                             (19)              31             1,589             709
    Incidental operations                                                    357              421             1,235           1,556
    Other                                                                  1,127              924             3,101           2,763
                                                                      ----------       ----------        ----------      ----------
               Total revenues                                             26,905           24,735            75,698          66,450
                                                                      ----------       ----------        ----------      ----------

COSTS AND EXPENSES
    Direct cost of:
       Timeshare interest sales                                            3,069            2,987             8,681           7,575
       Land sales                                                            964              943             2,510           2,240
    Interest expense                                                       3,046            3,194             9,178           9,173
    Marketing and sales                                                   13,260           10,857            35,781          28,724
    General and administrative                                             4,920            4,632            14,243          12,905
    Incidental operations                                                    447              278             1,154           1,377
    Depreciation                                                             333              449             1,076           1,400
                                                                      ----------       ----------        ----------      ----------
               Total costs and expenses                                   26,039           23,340            72,623          63,394
                                                                      ----------       ----------        ----------      ----------


INCOME BEFORE INCOME TAXES                                                   866            1,395             3,075           3,056

INCOME TAXES (BENEFIT)                                                      (121)               -              (258)              -
                                                                      ----------       ----------        ----------      ----------


NET INCOME APPLICABLE TO COMMON STOCK                                 $      987       $    1,395        $    3,333      $    3,056
                                                                      ==========       ==========        ==========      ==========
NET INCOME  PER COMMON SHARE
    Basic:

       Net income applicable to common stock                          $     0.28       $     0.40        $     0.95      $     0.87
                                                                      ==========       ==========        ==========      ==========

       Weighted-average number of common shares and common share
         equivalents outstanding                                       3,500,557        3,500,557         3,500,557       3,500,557
                                                                      ==========       ==========        ==========      ==========

    Diluted:
       Net income applicable to common stock                          $     0.28       $     0.40        $     0.95      $     0.87
                                                                      ==========       ==========        ==========      ==========


       Weighted-average number of common shares and common share
         equivalents outstanding                                       3,500,557        3,500,557         3,500,557       3,500,557
                                                                      ==========       ==========        ==========      ==========
</TABLE>

           See notes to condensed consolidated financial statements.

                                       2
<PAGE>

                     MEGO FINANCIAL CORP. AND SUBSIDIARIES
          CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
          (thousands of dollars, except share and per share amounts)
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                                                       Accumulated
                                                    Common Stock           Additional                     other
                                                   $.01 par value           paid-in        Retained    comprehensive
                                                -------------------------
                                                   Shares       Amount      capital       earnings        loss          Total
                                                ------------ ------------ ------------- -------------- ------------ -----------
<S>                                             <C>         <C>         <C>            <C>             <C>          <C>
Balance at August 31, 2000                      3,500,557    $       35   $    13,068   $     12,679                $     25,782

Net income for the nine months ended
  May 31, 2001                                                                                 3,333                       3,333

Cumulative effect of change in accounting
  principle as of September 1, 2000 for
  unrealized loss on interest rate swaps,
  net of related income tax benefit of $87                                                             $      (168)         (168)

Unrealized loss on interest rate swaps for
  the nine months ended May 31, 2001, net of
  related income tax benefit of $ 328                                                                         (637)         (637)
                                                ---------    ----------   -----------   ------------   -----------  ------------

Total Comprehensive Income                                                                                                 2,528
                                                                                                                    ------------

Balances at May 31, 2001                        3,500,557    $       35   $    13,068   $     16,012   $      (805) $     28,310
                                                =========    ==========   ===========   ============   ===========  ============
</TABLE>

           See notes to condensed consolidated financial statements.

                                       3
<PAGE>

                     MEGO FINANCIAL CORP. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (thousands of dollars)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                                   Nine Months Ended May 31,
                                                                                             -------------------------------------
                                                                                                   2001                2000
                                                                                             -----------------  ------------------
<S>                                                                                          <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                                               $           3,333  $            3,056
                                                                                             -----------------  ------------------
    Adjustments to reconcile net income to net cash provided by (used in) operating
     activities:
       Charges to allowance for cancellations                                                           (6,276)             (6,339)
       Provision for cancellations                                                                       6,819               5,077
       Amortization of interest rate swap                                                                  188                   -
       Gain on sales of notes receivable and investments and other assets                               (1,881)             (1,344)
       Cost of sales                                                                                    11,191               9,815
       Depreciation                                                                                      1,076               1,400
       Amortization of interest only receivables                                                           495                 360
       Additions to interest only receivables                                                           (1,128)               (660)
       Repayments on notes receivable                                                                   34,943              37,412
       Additions to notes receivable                                                                   (63,450)            (59,656)
       Proceeds from sales of notes receivable                                                           9,889              19,594
       Purchase of land and timeshare interests                                                         (5,884)             (3,602)
       Changes in operating assets and liabilities:
         (Increase) decrease in restricted cash                                                         (2,234)                153
         (Increase) decrease in other assets                                                             2,197              (3,253)
         Increase in deferred selling costs                                                               (442)               (815)
         Decrease in accounts payable and accrued liabilities                                             (231)               (133)
         Increase in deposits                                                                              237                 464
         Decrease in accrued income taxes                                                                 (258)                  -
                                                                                             -----------------  ------------------
            Total adjustments                                                                          (14,749)             (1,527)
                                                                                             -----------------  ------------------
              Net cash provided by (used in) operating activities                                      (11,416)              1,529
                                                                                             -----------------  ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of property and equipment                                                                    (933)             (1,292)
    Proceeds from the sale of property and equipment                                                     7,853               1,001
    Additions to other investments                                                                           -                 (34)
    Payments on other investments                                                                            -                  30
                                                                                                             -                   -
              Net cash provided by (used in) investing activities                                        6,920                (295)
                                                                                             -----------------  ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from borrowings                                                                            49,766              49,643
    Reduction of debt                                                                                  (45,615)            (50,740)
    Payments on subordinated debt                                                                          (75)               (429)
    Increase in subordinated debt                                                                            -                 237
              Net cash provided by (used in) financing activities                                        4,076              (1,289)
                                                                                             -----------------  ------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS                                                                 (420)                (55)
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD                                                         1,069               1,821
                                                                                             -----------------  ------------------

CASH AND CASH EQUIVALENTS -- END OF PERIOD                                                   $             649  $            1,766
                                                                                             =================  ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Cash paid during the period for:
   Interest, net of amounts capitalized                                                      $           9,114  $            9,101
                                                                                             =================  ==================
</TABLE>

           See notes to condensed consolidated financial statements.

                                       4
<PAGE>

                     MEGO FINANCIAL CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
     For the three and nine months ended May 31, 2001 and 2000 (unaudited)

1.   Financial Statements

          In the opinion of management, when read in conjunction with the
audited Consolidated Financial Statements for the years ended August 31, 2000
and 1999, contained in the Form 10-K of Mego Financial Corp. (Mego Financial)
filed with the Securities and Exchange Commission for the year ended August 31,
2000, the accompanying unaudited Condensed Consolidated Financial Statements
contain all of the information necessary to present fairly the financial
position of Mego Financial and subsidiaries at May 31, 2001, the results of its
operations for the three and nine months ended May 31, 2001 and 2000, the change
in stockholders' equity for the nine months ended May 31, 2001 and the cash
flows for the nine months ended May 31, 2001 and 2000. All intercompany accounts
between the parent and its subsidiaries have been eliminated.

          The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America (GAAP) requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. In the opinion of management, all material adjustments necessary for
the fair presentation of these statements have been included herein, which are
normal and recurring in nature. The results of operations for the three and nine
months ended May 31, 2001 are not necessarily indicative of the results to be
expected for the full year.

2.   Nature of Operations

          Mego Financial is a premier developer and operator of timeshare
properties and a provider of consumer financing to purchasers of its timeshare
intervals and land parcels through its wholly-owned subsidiary, Preferred
Equities Corporation (PEC), established in 1970. PEC is engaged in originating,
selling, servicing and financing consumer receivables generated through
timeshare interest and land sales. Mego Financial and its subsidiaries are
herein collectively referred to as the Company as the context requires. Mego
Financial was incorporated under the laws of the state of New York in 1954 under
the name Mego Corp. and, in 1992, changed its name to Mego Financial Corp.

          PEC markets and finances timeshare interests and land in select resort
areas. By providing financing to virtually all of its customers, PEC also
originates consumer receivables that it either hypothecates or sells, and
typically services. In February 1988, Mego Financial acquired PEC, pursuant to
an assignment by Comay Corp., Growth Realty Inc., RER Corp., and H&H Financial,
Inc., affiliates of the Company, of their contract right to purchase PEC.

          To facilitate its sales of timeshare interests, the Company has
entered into several trust agreements. The trustees administer the collection of
the related notes receivable. The Company has assigned title to certain of its
resort properties in Nevada and its interest in certain related notes receivable
to the trustees.

3.   Interest Rate Swap and Cumulative Effect on Change in Accounting Principle

          Effective September 1, 2000, the Company adopted the requirements of
Financial Accounting Standards No. 133 (SFAS 133) "Accounting for Derivative
Instruments and Hedging Activities", which was amended by SFAS No. 137. In
August 2000, the Company entered into a $25 million, 5-year, interest rate swap
transaction with a financial institution to hedge potential exposure to its
variable rate notes payable portfolio. The interest rate swap is considered and
was documented as a highly effective cash flow hedge. Beginning September 1,
2000, the unrealized gain or loss mark to market, net of related income tax
effect, is recorded into a separate Stockholders' equity caption titled
Accumulated other comprehensive loss. The cumulative effect of change in
accounting principle of $168,000, which is net of related income tax, was
recorded as of September 1, 2000 under the same caption.

4.   Stockholders' Equity

          Mego Financial's stock option plan (Stock Option Plan) provides for
grants of non-qualified and qualified incentive options to officers, key
employees and directors. Options for 48,570 shares of Mego Financial common
stock were outstanding as of May 31, 2001.

                                       5
<PAGE>

Item 2.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations

Special Cautionary Notice Regarding Forward-Looking Statements

          The following Management's Discussion and Analysis of Financial
Condition and Results of Operations section contains certain forward-looking
statements and information relating to Mego Financial Corp. (Mego Financial)
(Mego Financial and it subsidiaries are referred to herein collectively as the
Company as the context requires) that are based on the beliefs of management as
well as assumptions made by and information currently available to management.
Such forward-looking statements include, without limitation, the Company's
expectations and estimates as to the Company's business operations, including
the introduction of new timeshare and land sales programs and future financial
performance, including growth in revenues and net income and cash flows. In
addition, as used herein, the words "anticipates," "believes," "estimates,"
"expects," "plans," "intends" and similar expressions, as they relate to the
Company or its management, are intended to identify forward-looking statements.
Such statements reflect the current views of the Company's management with
respect to future events and are subject to certain risks, uncertainties and
assumptions. In addition, the Company specifically advises readers that the
factors listed under the caption "Liquidity and Capital Resources" could cause
actual results to differ materially from those expressed in any forward-looking
statement. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated or
expected.
          The following discussion and analysis should be read in conjunction
with the Company's Form 10-K for the fiscal year ended August 31, 2000, and the
Condensed Consolidated Financial Statements, including the notes thereto,
contained elsewhere herein.

General

          The business of the Company is primarily the marketing, financing and
sale of timeshare interests, retail lots and land parcels, and servicing the
related receivables, and managing timeshare properties. The Company, through its
subsidiary, Preferred Equities Corporation (PEC), provides financing to
purchasers of its timeshare interests and land. This financing is generally
evidenced by notes secured by deeds of trust and mortgages. These notes
receivable are payable over a period up to twelve years, bear interest at rates
generally ranging from 12.5% to 15.5%, and require equal monthly installments of
principal and interest.

          PEC has entered into financing arrangements with certain purchasers of
timeshare interests and land whereby a 5% interest rate is charged on those
sales where the aggregate down payment is at least 50% of the purchase price and
the balance is payable in 36 or fewer monthly payments. Notes receivable of $6.1
million at May 31, 2001 and $6.4 million at August 31, 2000 were made under this
arrangement.

PEC
---

          PEC recognizes revenue primarily from sales of timeshare interests and
land in resort areas, gain on sale of receivables and interest income. PEC
periodically sells its consumer receivables while generally retaining the
servicing rights. Revenue from sales of timeshare interests and land is
recognized after the requisite rescission period has expired and at such time as
the purchaser has paid at least 10% of the sales price for sales of timeshare
interests and 20% of the sales price for land sales. Land sales typically meet
these requirements within three to ten months of closing, and sales of timeshare
interests typically meet these requirements at the time of sale. The sales
price, less a provision for cancellation, is recorded as revenue and the
allocated cost related to such net revenue of the timeshare interest or land
parcel is recorded as expense in the period that revenue is recognized. When
revenue related to land sales is recognized, the portion of the sales price
attributable to uncompleted required improvements, if any, is deferred.

          Notes receivable with payment delinquencies of 90 days or more have
been considered in determining the allowance for cancellations. Cancellations
occur when the note receivable is determined to be uncollectible and the related
collateral, if any, has been recovered, or is in the process of being recovered.
Cancellation of a note receivable in the quarter the related sales revenue is
recognized is accounted for as a reversal of the revenue with an adjustment to
cost of sales. Cancellation of a note receivable subsequent to the quarter the
revenue was recognized is charged to the allowance for cancellations.

          Gain on sale of notes receivable includes the present value of the
differential between contractual interest rates charged to borrowers on notes
receivable sold by PEC and the interest rates to be received by the purchasers
of such notes

                                       6
<PAGE>

receivable, after considering the effects of estimated prepayments and a normal
servicing fee. PEC retains certain participations in cash flows from the sold
notes receivable and generally retains the associated servicing rights. PEC
generally sells its notes receivable at par value.

          The present values of expected net cash flows from the sale of notes
receivable are recorded at the time of sale as interest only receivables.
Interest only receivables are amortized as a charge to income, as payments are
received on the retained interest differential over the estimated life of the
underlying notes receivable.  Interest only receivables are recorded at the
lower of unamortized cost or estimated fair value.  The expected cash flows used
to determine the interest only receivables asset have been reduced for potential
losses under recourse provisions of the sales agreements. Reserve for notes
receivable sold with recourse represents PEC's estimate of the fair value of its
future credit losses to be incurred over the lives of the notes receivable in
connection with the recourse provisions of the sales agreements and is shown
separately as a liability in the Company's Condensed Consolidated Balance
Sheets.

          In discounting cash flows related to notes receivable sales, PEC
defers servicing income at an annual rate of 1% and discounts cash flows on its
sales at the rate it believes a purchaser would require as a rate of return.
Earned servicing income is included under the caption of financial income. The
cash flows were discounted to present value using a discount rate of 15% for the
nine months ended May 31, 2001 and 2000. PEC has developed its assumptions based
on experience with its own portfolio, available market data and consultation
with its financial advisors.

          In determining expected cash flows, management considers economic
conditions at the date of sale.  In subsequent periods, these estimates may be
revised as necessary using the original discount rate, and any losses arising
from prepayment and loss experience will be recognized as realized.

          Provision for cancellations relating to notes receivable is recorded
as expense in amounts sufficient to maintain the allowance at a level considered
adequate to provide for anticipated losses resulting from customers' failure to
fulfill their obligations under the terms of their notes receivable. PEC records
provision for cancellations at the time revenue is recognized, based on
historical experience and current economic factors. The related allowance for
cancellations represents PEC's estimate of the amount of the future credit
losses to be incurred over the lives of the notes receivable. The allowance for
cancellations is adjusted for actual cancellations experienced, including
cancellations related to previously sold notes receivable which were reacquired
pursuant to the recourse obligations discussed herein. Such allowance is also
reduced to establish the separate liability for reserve for notes receivable
sold with recourse. PEC's judgment in determining the adequacy of this allowance
is based upon a periodic review of its portfolio of notes receivable. These
reviews take into consideration changes in the nature and level of the
portfolio, historical cancellation experience, current economic conditions which
may affect the purchasers' ability to pay, changes in collateral values,
estimated value of inventory that may be reacquired and overall portfolio
quality. Changes in the allowance as a result of such reviews are included in
the provision for cancellations.

          Fees for servicing notes receivable originated by PEC and sold with
servicing rights retained are generally based on a stipulated percentage of the
outstanding principal balance of such notes receivable and are recognized when
earned.  Interest received on notes receivable sold, less amounts paid to
investors, is reported as financial income.  Interest only receivables are
amortized systematically to reduce notes receivable servicing income to an
amount representing normal servicing income and the present value discount.
Late charges and other miscellaneous income are recognized when collected.
Costs to service notes receivable are recorded to expense as incurred.  Interest
income represents the interest received on loans held in PEC's portfolio, the
accretion of the discount on the interest only receivables and interest on cash
funds.

          Total costs and expenses consist primarily of marketing and sales
expenses, general and administrative expenses, direct costs of sales of
timeshare interests and land, depreciation and amortization and interest
expense. Marketing and sales costs directly attributable to unrecognized sales
are accounted for as deferred selling costs until such time as the sale is
recognized.

          Land sales as of May 31, 2001 exclude $20.3 million of sales not yet
recognized under generally accepted accounting principles (GAAP) since the
requisite payment amounts have not yet been received or the respective recission
periods have not yet expired. Of the $20.3 million unrecognized land sales, the
Company estimates that it will ultimately recognize $16.7 million of revenues,
which would be reduced by a related provision for cancellations of $1.7 million,
estimated deferred selling costs of $4.7 million and cost of sales of $2.5
million, for an estimated net profit of $7.8 million.

                                       7
<PAGE>

Results of Operations

Three Months Ended May 31, 2001 Compared to Three Months Ended May 31, 2000

          Total revenues for the Company increased 8.8% or $2.2 million to $26.9
million during the three months ended May 31, 2001 from $24.7 million during the
three months ended May 31, 2000.  The net increase was primarily due to a change
in the following items  (thousands of dollars):

                                          Three Months Ended May 31,
                                     ----------------------------------
                                                                Increase
                                       2001          2000      (Decrease)
                                     -------       -------      -------
Timeshare interest sales             $14,889       $13,377       $1,512
Interest income                        3,965         3,255          710
Financial income                         844           241          603
Gain on sale of notes receivable           -           635         (635)

          Gross sales of timeshare interests increased to $17.3 million during
the three months ended May 31, 2001 from $15.3 million during the three months
ended May 31, 2000, an increase of 13.3%. Net sales of timeshare interests
increased to $14.9 million from $13.4 million, an increase of 11.3%. The
increase is primarily attributable to the success of the off-site sales offices,
as well as by certain price increases implemented at most of the resorts. The
Houston sales office opened in March 2000, and was in its early marketing
efforts during the three months ended May 31, 2000, thus helping in the
favorable 2001 comparison. The provision for cancellations represented 14.1% and
12.5%, respectively, of gross sales for the three months ended May 31, 2001 and
2000, primarily due to a provision adjustment in fiscal 2001 reflecting the
results of the customary review of the allowance adequacy. During the review,
consideration was given to negative economic and industry conditions, and their
potential effect on future allowance requirements.

          Gross sales of land increased to $6.4 million during the three months
ended May 31, 2001 from $6.3 million during the three months ended May 31, 2000,
an increase of 2.0%. Net sales of land decreased to $5.7 million during the
three months ended May 31, 2001 from $5.9 million during the three months ended
May 31, 2000, a decrease of 1.9%. The provision for cancellations represented
10.5% and 7.0%, respectively, of gross sales of land for the three months ended
May 31, 2001 and 2000, primarily due to a provision adjustment in fiscal 2001
reflecting on the results of the customary review of the allowance adequacy.
During the review, consideration was given to negative economic and industry
conditions, and their potential effect on future allowance requirements.

          Interest income increased 21.8% to $4.0 million for the three months
ended May 31, 2001 from $3.3 million for the three months ended May 31, 2000,
primarily due to increased average notes receivable balances for the comparative
quarters.

          During the three months ended May 31, 2001, there were no sales of
receivables, nor gains thereon, compared to a $635,000 net gain during the three
months ended May 31, 2000.

          Financial income increased to $844,000 during the three months ended
May 31, 2001 from $241,000 for the three months ended May 31, 2000, an increase
of 250.2%. The increase was primarily due to the comparative increased volume of
sold loans and the increase in spread (including an increase in fair value of
interest only receivables) on those sold loan portfolios with a variable, pass-
through interest rate.

          Total costs and expenses for the Company increased to $26.0 million
for the three months ended May 31, 2001 from $23.3 million for the three months
ended May 31, 2000, an increase of 11.6%. The increase resulted primarily from
an increase of $2.4 million in marketing and sales expense, an increase of
22.1%; and, an increase of $288,000 in general and administrative expenses, an
increase of 6.2%. As a percentage of gross sales of timeshare interests and
land, marketing and sales expenses related thereto increased to 55.8% for the
three months ended May 31, 2001 from 50.3% for the three months ended May 31,
2000. The increase in marketing and sales expenses is due primarily to
new sales offices and general increases related to a competitive sales
environment. The increase in general and administrative expenses is due
primarily to

                                       8
<PAGE>

the inclusion of the rent expense related to the sale and leaseback of the two
office buildings in fiscal 2001, the expense for which was formerly reported in
Interest and Depreciation expense.

          Interest expense decreased to $3.0 million during the three months
ended May 31, 2001 from $3.2 million during the three months ended May 31, 2000,
a decrease of 4.6%. While there was a higher average outstanding balance of
Notes and contracts payable during the three months ended May 31, 2001 compared
to the three months ended May 31, 2000, this was more than offset by a decrease
in interest expense as a result of the reduction of debt related to the sale of
the office buildings and the decrease in overall interest expense related to the
prime rate decline.

          Pre-tax income of $866,000 was earned during the three months ended
May 31, 2001 compared to pre-tax income of $1.4 million during the three months
ended May 31, 2000.

          An income tax benefit of $121,000 was recorded for the three months
ended May 31, 2001 compared to no income tax provision for the three months
ended May 31, 2000, due to the use of net operating loss carryforwards which
were previously fully reserved and are used to offset income on a consolidated
basis. Income taxes are recorded, and the liability is adjusted, based on an
ongoing review of related facts and circumstances.

          Net income applicable to common stock amounted to $1.0 million during
the three months ended May 31, 2001 compared to net income applicable to common
stock of $1.4 million during the three months ended May 31, 2000, primarily due
to the foregoing.

Nine Months Ended May 31, 2001 Compared to Nine Months Ended May 31, 2000

          Total revenues for the Company increased 13.9%, or $9.2 million, to
$75.7 million during the nine months ended May 31, 2001 from $66.5 million
during the nine months ended May 31, 2000. The increase was primarily due to a
change in the following items (thousands of dollars):

<TABLE>
<CAPTION>
                                                                                    Nine Months Ended May 31,
                                                                              ----------------------------------
                                                                                2001          2000      Increase
                                                                              --------      --------    --------
<S>                                                                           <C>           <C>          <C>
Timeshare interest and land sales                                             $56,584       $50,707      $5,877
Interest income                                                                10,724         9,298       1,426
Financial income                                                                2,173           782       1,391
Gain on sale of notes receivable and investments and other assets               1,881         1,344         537
</TABLE>

          Gross sales of timeshare interests increased to $46.7 million during
the nine months ended May 31, 2001 compared to $40.6 million during the nine
months ended May 31, 2000, an increase of 15.1%. Net sales of timeshare
interests increased to $41.0 million from $36.3 million, an increase of 13.1%.
The provision for cancellations represented 12.2% of gross sales of timeshare
interests for the nine months ended May 31, 2001 and 10.6% for the nine months
ended May 31, 2000, primarily due to an upward provision adjustment during the
nine months ended May 31, 2001 and downward adjustments during the nine months
ended May 31, 2000, reflecting the results of customary reviews of the adequacy
of the allowance.

          Gross sales of land increased to $16.7 million during the nine months
ended May 31, 2001 from $15.2 million during the nine months ended May 31, 2000,
an increase of 9.8%. Net sales of land increased to $15.6 million during the
nine months ended May 31, 2001 from $14.4 million during the nine months ended
May 31, 2000, an increase of 7.9%. The provision for cancellations increased to
6.6% of gross sales of land for the nine months ended May 31, 2001 from 5.0% for
the nine months ended May 31, 2000, primarily due to an upward provision
adjustment during the nine months ended May 31, 2001 and downward adjustments
during the nine months ended May 31, 2000, reflecting the results of customary
reviews of the adequacy of the allowance.

          Interest income increased to $10.7 million for the nine months ended
May 31, 2001 from $9.3 million for the nine months ended May 31, 2000, an
increase of 15.3%, primarily due to increased notes receivable for the current
period.

          A net gain on sale of investments and other assets of $1.6 million,
resulting primarily from the sale of the Company's two office buildings, and a
net gain of $292,000 on the sale of notes receivable, were recorded for the nine
months ended May

                                       9
<PAGE>

31, 2001, compared to a net gain on sale of investments and other assets of
$709,000, resulting primarily from the sale of two golf courses in Pahrump,
Nevada, and $635,000 gain on sales of notes receivables, for the nine months
ended May 31, 2000.

          Financial income increased to $2.2 million during the nine months
ended May 31, 2001 from $782,000 for the nine months ended May 31, 2000, an
increase of 177.9%. The increase was primarily due to the comparative increased
volume of sold loans and the increase in spread (including an increase in fair
value of interest only receivables) on those sold loan portfolios with a
variable, pass-through interest rate.

          Total costs and expenses for the Company increased to $72.6 million
for the nine months ended May 31, 2001 from $63.4 million for the nine months
ended May 31, 2000, an increase of 14.6%. The increase resulted primarily from
an increase in direct costs of timeshare interest and land sales to $11.2
million from $9.8 million, an increase of 14.0%; an increase in marketing and
sales expenses to $35.8 million from $28.7 million, an increase of 24.6%; and,
an increase in general and administrative expenses to $14.4 million from $12.9
million, an increase of 11.3%. The increase in direct costs of timeshare sales
is attributable to higher net timeshare sales during the current fiscal period
compared to the same period last fiscal year. As a percentage of gross sales of
timeshare interests and land, marketing and sales expense related thereto
increased to 56.4% for the nine months ended May 31, 2001 from 51.5% for the
nine months ended May 31, 2000. The increase in marketing and sales expenses is
due primarily to new sales offices and general increases related to a
competitive sales environment. The increase in general and administrative
expenses is due primarily to the inclusion of the rent expense related to the
sale and leaseback of the two office buildings in fiscal 2001, the expense for
which was formerly reported in Interest and Depreciation expense; an increase in
recording and filing fees and escrow costs related to the increased sales
volume; and, reserves for the Company's guaranty of office and equipment leases
related to a previously affiliated company.

          Pre-tax income of $3.1 million was earned during each of the nine
months ended May 31, 2001 and 2000.

          An income tax benefit of $258,000 was recorded for the nine months
ended May 31, 2001 compared to no income tax provision or benefit recorded for
the nine months ended May 31, 2000. Income taxes are recorded, and the liability
is adjusted, based on an ongoing review of related facts and circumstances.

          Net income applicable to common stock was $3.3 million during the nine
months ended May 31, 2001 compared to net income applicable to common stock of
$3.1 million during the nine months ended May 31, 2000, primarily due to the
foregoing.

Liquidity and Capital Resources

          Cash and cash equivalents for the Company were $656,000 at May 31,
2001 compared to $1.1 million at August 31, 2000. The fluctuation in this
account is primarily due to the timing of the Company's fundings, which occur in
the normal course of business.

          PEC's cash requirements arise from the acquisition of timeshare
properties and land, payments of operating expenses, payments of principal and
interest on debt obligations, and payments of marketing and sales expenses in
connection with sales of timeshare interests and land and payments of income
taxes to Mego Financial. Marketing and sales expenses payable by PEC in
connection with sales of timeshare interests and land typically exceed the down
payments received at the time of sale, as a result of which PEC generates a cash
shortfall. This cash shortfall and PEC's other cash requirements are funded
primarily through advances under PEC's lines of credit in the aggregate amount
of $137.0 million, sales of receivables and cash flows from operations. At May
31, 2001, no commitments existed for material capital expenditures.

          At May 31, 2001, PEC had arrangements with 5 institutional lenders for
the financing of receivables in connection with sales of timeshare interests and
land and the acquisition of timeshare properties and land, which provide for
lines of credit of up to an aggregate of $137.0 million. Such lines of credit
are secured by timeshare and land receivables and mortgages. At May 31, 2001, an
aggregate of $110.4 million was outstanding under such lines of credit, and
$26.6 million was available for borrowing. Under the terms of these lines of
credit, PEC may borrow 65% to 90% of the balances of the pledged timeshare and
land receivables. PEC is required to comply with certain covenants under these
agreements, which, among other things, require PEC to meet certain minimum
tangible net worth requirements. The most stringent of such requirements
provides that PEC maintain a minimum tangible net worth of $25 million. At May
31, 2001, PEC's tangible net worth was $33.6 million. Summarized lines of credit
information and accompanying notes relating to these lines of credit outstanding
at May 31, 2001, consist of the following (thousands of dollars):

                                      10
<PAGE>

<TABLE>
<CAPTION>
            Borrowing                  Maximum
            Amount at                 Borrowing               Revolving
          May 31, 2001                 Amounts           Expiration Date (A)         Maturity Date (A)         Interest Rate
     ----------------------      -----------------      ---------------------        -----------------       ------------------

     <S>                         <C>                    <C>                          <C>                     <C>
     $               54,668      $          65,000      (b) December 31, 2001        Various                 Prime +  2.0 - 2.25%
                     28,360                 35,000      (c) December 1, 2002         Various                 Prime +  2.0 -3%

                     26,894                 30,000      (d) April 30, 2003           Various                 Libor +  4.0 - 4.25%
                          -                  5,000      (e) February 4, 2002         None                    Prime + 1%
                      1,972                  1,972      (f)                          July 31, 2003           Prime + 2.25%
     ----------------------      -----------------
     $              111,894      $         136,972
     ======================      =================
 </TABLE>



(a)  As it has typically done in the past, management expects to extend the
     Revolving Expiration Date and Maturity Date on similar terms. When the
     Revolving Expiration Date expires as shown, the loans convert to term loans
     with maturities as stated or extended.

(b)  Covenants include PEC's requirement to maintain a minimum tangible net
     worth of $25 million. Other covenants include: PEC's requirement not to
     exceed a ratio of 4:1 of consolidated total liabilities to consolidated
     tangible net worth; PEC's requirement to maintain a minimum net processed
     sales for each fiscal quarter; and, PEC's requirement to maintain a maximum
     percentage of costs and expenses for Marketing and sales and General and
     administrative expenses relating to net processed sales for each rolling
     12-month period. The maximum percentage related to costs and expenses
     referred to above has been exceeded in the past two quarters. This does not
     constitute an Event of Default under the loan agreement, however, it gives
     the lender the option to suspend advances to PEC under the line of credit.
     The lender has not elected to do so, has continued to make regular advances
     and has informed us verbally that they intend to continue such advances. At
     May 31, 2001, $52.2 million of loans secured by receivables were
     outstanding related to financings at prime plus 2%, of which $21.9 million
     of loans secured by land receivables mature May 15, 2010 and $30.3 million
     of loans secured by timeshare receivables mature May 15, 2007. The
     outstanding borrowing amount includes a real estate loan with an
     outstanding balance of $597,000 maturing December 31, 2001, bearing
     interest at prime plus 2.25%. The remaining Acquisition and Development
     (A&D) loans, receivables loans and a resort lobby loan outstanding of $1.9
     million are at prime plus 2% and mature December 31, 2001.

(c)  Covenants include PEC's requirement to maintain a minimum tangible net
     worth of $25 million during the life of the loan. These credit lines
     include available financing for A&D and receivables. At May 31, 2001, $5.3
     million was outstanding under the A&D loan, which matures on June 30, 2004,
     and $17.0 million was outstanding under the receivables loan, which matures
     on May 31, 2004. There also are two working capital loans: $2.5 million at
     prime plus 3% which expires December 31, 2001, and $3.6 million at prime
     plus 2%, which expires April 1, 2005, and is secured by inventory.

(d)  Covenants include PEC's requirement to maintain a minimum tangible net
     worth, which amount is $26.7 million as of May 31, 2001. These credit lines
     include available financings for A&D and receivables. At May 31, 2001, $3.2
     million was outstanding under the A&D loans which have a maturity date of
     April 30, 2003 and bear interest at the 90-day London Interbank Offering
     Rate (LIBOR) plus 4%. The available receivable financings, of which $23.7
     million was outstanding at May 31, 2001, are at 90-day LIBOR plus 4% and
     have a maturity date of March 30, 2006.

(e)  Covenants include PEC's requirement to maintain a minimum tangible net
     worth of $20 million during the life of the loan. This is a receivables
     line, which bears interest at prime plus 1% and matures on February 4,
     2002.

(f)  Covenants include PEC's requirement to maintain a minimum tangible net
     worth of $25 million.

     A schedule of the cash shortfall arising from recognized and unrecognized
     sales for the periods indicated is set forth below (thousands of dollars):

                                      11
<PAGE>

<TABLE>
<CAPTION>
                                                                              Nine Months Ended May 31,
                                                                           -------------------------------
                                                                              2001                 2000
                                                                           -------------------------------
          <S>                                                              <C>                   <C>
          Marketing and selling expenses attributable
                to recognized and unrecognized sales                       $   35,354            $  29,539
          Less:  Down payments                                                 (9,764)              (8,175)
                                                                           ----------            ---------
          Cash Shortfall                                                   $   25,590            $  21,364
                                                                           ==========            =========
</TABLE>


     During the nine months ended May 31, 2001 and 2000, PEC sold $9.6 million
and $19.0, respectively, in notes receivable.

     PEC sells notes receivable subject to recourse provisions as contained in
each agreement.  PEC is obligated under these agreements to replace or
repurchase accounts that become over 90 days delinquent or are otherwise subject
to replacement or repurchase in either cash or receivables generally at the
option of the purchaser. At May 31, 2001, and August 31, 2000, PEC was
contingently liable to replace or repurchase notes receivable sold with recourse
totaling $54.2 million and $59.6 million, respectively.  At May 31, 2001, the
repurchase provisions provide for substitution of receivables as recourse for
$48.5 million of sold notes receivable and cash payments for repurchase relating
to $5.7 million of sold notes receivable.  The undiscounted amounts of the
recourse obligations on such notes receivable were $4.1 million and $4.5 million
at May 31, 2001 and August 31, 2000, respectively.  PEC continually reviews the
adequacy of this liability.  These reviews take into consideration changes in
the nature and level of the portfolio, current and future economic conditions
which may affect the obligors' ability to pay, changes in collateral values,
estimated value of inventory that may be reacquired and overall portfolio
quality.

     The components of the Company's debt, including lines of credit consist of
the following (thousands of dollars):

<TABLE>
<CAPTION>
                                                                        May 31,              August 31,
                                                                          2001                  2000
                                                                   -------------------   -----------------
     <S>                                                           <C>                   <C>
     Notes collateralized by receivables                             $          92,814   $          80,593
     Mortgages collateralized by real estate properties                         19,196              27,407
     Installment contracts and other notes payable                               1,272               1,131
                                                                   -------------------   -----------------
       Total                                                         $         113,282   $         109,131
                                                                   ===================   =================
</TABLE>


Financial Condition

     Changes in the aggregate of the allowance for cancellations, excluding
discounts, and the reserve for notes receivable sold with recourse for the nine
months ended May 31, 2001, consisted of the following (thousands of dollars):

<TABLE>
     <S>                                                                          <C>
     Balance at beginning of period                                               $      16,860
       Provision for cancellations                                                        6,819
       Amounts charged to allowance for cancellations, net                               (6,276)
                                                                                  -------------
     Balance at end of period                                                     $      17,403
                                                                                  =============
</TABLE>


     The allowance for cancellations and the reserve for notes receivable sold
with recourse consisted of the following at these dates (thousands of dollars):

                                      12
<PAGE>

                                                           May 31,    August 31,
                                                            2001        2000
                                                          ---------   ---------
Allowance for cancellations, excluding discounts          $  13,762   $  12,827
Reserve for notes receivable sold with recourse               3,641       4,033
                                                          ---------   ---------
       Total                                              $  17,403    $ 16,860
                                                          =========   =========



May 31, 2001 Compared to August 31, 2000

       Cash and cash equivalents decreased to $656,000 at May 31, 2001 from $1.1
million at August 31, 2000. The fluctuation in this account is primarily due to
the timing of the Company's fundings, which occur in the normal course of
business.

       Notes receivable, net, increased 21.6% to $101.1 million at May 31, 2001
from $83.2 million at August 31, 2000 primarily as a result of net new
receivables added.

       Timeshare interests held for sale decreased 16.3% to $19.5 million at May
31, 2001 from $23.3 million at August 31, 2000.

       Land and improvements inventory decreased 36.5% to $2.6 million at May
31, 2001 from $4.1 million at August 31, 2000.

       Notes and contracts payable increased 3.8% to $113.3 million at May 31,
2001 from $109.1 million at August 31, 2000. Net borrowings related to the
financing of receivables more than offset the decrease due to normal portfolio
amortization, the debt paydowns in connection with the sales of two office
buildings and sale of notes receivable.

       Reserve for notes receivable sold with recourse decreased 9.7% to $3.6
million at May 31, 2001 from $4.0 million at August 31, 2000. Recourse to the
Company on sales of notes receivable is governed by the agreements between the
purchasers and the Company.

       Stockholders' equity increased 9.8% to $28.3 million at May 31, 2001 from
$25.8 million at August 31, 2000.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

          There was no material change for the three months ended May 31, 2001
in the information about the Company's "Quantitative and Qualitative Disclosures
About Market Risk" as disclosed in its Annual Report on Form 10-K for the fiscal
year ended August 31, 2000, except as reported in the Company's Form 10-Q's for
the quarters ended November 30, 2000 and February 28, 2001.

                                      13
<PAGE>

PART II   OTHER INFORMATION

Item 1.

     There has been no material change in the status of other litigation
reported in the Company's Annual Report on Form 10-K for the year ended August
31, 2001, except as reported herein and in its Form 10-Q's for the quarters
ended November 30, 2000 and February 28, 2001.

Item 6. Exhibits and Reports on Form 8-K


(a) Exhibits

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

       10.229     Hypothecation Loan Agreement dated February 6, 2001 between
                  Preferred Equities Corporation and HSBC Bank USA.

       10.230     Amended and Restated Loan and Security Agreement by and
                  between Preferred Equities Corporation and Heller Financial,
                  Inc. dated April 5, 2001.

(b) No reports on Form 8-K were filed during the quarter.

                                      14
<PAGE>

                                   SIGNATURE


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.



                                          MEGO FINANCIAL CORP.


                                          By:/s/ Charles G. Baltuskonis
                                             --------------------------------
                                             Charles G. Baltuskonis
                                             Senior Vice President and Chief
                                             Accounting Officer



Date: July 12, 2001

                                      15
<PAGE>

                                 Exhibit Index

Ex #                          Exhibit Description



10.229            Hypothecation Loan Agreement dated February 6, 2001 between
                  Preferred Equities Corporation and HSBC Bank USA.

10.230            Amended and Restated Loan and Security Agreement by and
                  between Preferred Equities Corporation and Heller Financial,
                  Inc. dated April 5, 2001.