<PAGE>   1
================================================================================

                       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: FEBRUARY 28, 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 April 11, 2001, there were 3,500,557 shares of Common Stock, $.01
par value per share, of the Registrant outstanding.

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

<PAGE>   2

                      MEGO FINANCIAL CORP. AND SUBSIDIARIES


                                      INDEX


<TABLE>
<CAPTION>
                                                                                         Page
                                                                                         ----
<S>        <C>                                                                           <C>
PART I     FINANCIAL INFORMATION

Item 1.    Condensed Financial Statements (unaudited)

           Condensed Consolidated Balance Sheets at
            February 28, 2001 and August 31, 2000..........................................1

           Condensed Consolidated Income Statements for the Three and Six Months
            Ended February 28, 2001 and February 29, 2000..................................2

           Condensed Consolidated Statements of Stockholders' Equity for the Six
            Months Ended February 28, 2001.................................................3

           Condensed Consolidated Statements of Cash Flows for the Six Months
            Ended February 28, 2001 and February 29, 2000..................................4

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

Item 2.    Management's Discussion and Analysis of Financial Condition
            and Results of Operations......................................................7

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.....................15


PART II    OTHER INFORMATION

Item 1.    Legal Proceedings...............................................................15

Item 5     Other Information...............................................................15

Item 6.    Exhibits and Reports on Form 8-K................................................16


SIGNATURE..................................................................................17
</TABLE>



                                       i
<PAGE>   3

PART I    FINANCIAL INFORMATION
ITEM 1.   CONDENSED FINANCIAL STATEMENTS

                      MEGO FINANCIAL CORP. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                (thousands of dollars, except per share amounts)
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                 FEBRUARY 28,     AUGUST 31,
ASSETS                                                               2001            2000
                                                                 ------------     ----------
<S>                                                              <C>              <C>
Cash and cash equivalents                                          $   1,323       $   1,069
Restricted cash                                                        3,123           1,255
Notes receivable, net of allowance for cancellations and
  discounts of $13,839 at February 28, 2001 and $13,234 at
  August 31, 2000                                                     92,117          83,156
Interest only receivables, at fair value                               2,954           2,701
Timeshare interests held for sale                                     19,632          23,307
Land and improvements inventory                                        3,126           4,113
Other investments                                                      4,485           4,492
Property and equipment, net of accumulated depreciation of
  $16,158 at February 28, 2001 and $17,632 at August 31, 2000         16,771          23,167
Deferred selling costs                                                 5,665           5,231
Prepaid debt expenses                                                  2,004           2,060
Other assets                                                          16,128          18,041
                                                                   ---------       ---------

            TOTAL ASSETS                                           $ 167,328       $ 168,592
                                                                   =========       =========


LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
    Notes and contracts payable                                    $ 103,577       $ 109,131
    Accounts payable and accrued liabilities                          22,755          19,544
    Reserve for notes receivable sold with recourse                    3,931           4,033
    Deposits                                                           3,362           2,841
    Accrued income taxes                                               2,311           2,975
                                                                   ---------       ---------

            Total liabilities before subordinated debt               135,936         138,524
                                                                   ---------       ---------

Subordinated debt                                                      4,286           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 February 28, 2001
      and August 31, 2000)                                                35              35
    Additional paid-in capital                                        13,068          13,068
    Retained earnings                                                 15,025          12,679
    Accumulated other comprehensive loss                              (1,022)             --
                                                                   ---------       ---------

            Total stockholders' equity                                27,106          25,782
                                                                   ---------       ---------

            TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY             $ 167,328       $ 168,592
                                                                   =========       =========
</TABLE>


            See notes to condensed consolidated financial statements.



                                       1
<PAGE>   4

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


<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED               SIX MONTHS ENDED
                                                      -----------------------------     ------------------------------
                                                      FEBRUARY 28,     FEBRUARY 29,     FEBRUARY 28,      FEBRUARY 29,
                                                         2001             2000             2001              2000
                                                      ------------     ------------     ------------      ------------
<S>                                                   <C>              <C>              <C>               <C>
REVENUES
    Timeshare interest sales, net                     $    12,108      $    10,906      $    26,126       $    22,897
    Land sales, net                                         5,085            4,563            9,827             8,582
    Interest income                                         3,550            3,172            6,759             6,043
    Financial income                                          850              269            1,329               541
    Gain on sale of notes receivable                           --               --              292                --
    Gain on sale of investments                                --              678            1,608               678
    Incidental operations                                     388              511              878             1,135
    Other                                                     932              919            1,974             1,839
                                                      -----------      -----------      -----------       -----------
             Total revenues                                22,913           21,018           48,793            41,715
                                                      -----------      -----------      -----------       -----------

COSTS AND EXPENSES
    Direct cost of:
      Timeshare interest sales                              2,455            2,210            5,612             4,588
      Land sales                                              777              741            1,546             1,297
    Interest expense                                        3,088            3,113            6,132             5,979
    Marketing and sales                                    11,057            8,593           22,521            17,867
    General and administrative                              4,409            4,395            9,323             8,273
    Incidental operations                                     353              499              707             1,099
    Depreciation                                              351              461              743               951
                                                      -----------      -----------      -----------       -----------
             Total costs and expenses                      22,490           20,012           46,584            40,054
                                                      -----------      -----------      -----------       -----------


INCOME BEFORE INCOME TAXES                                    423            1,006            2,209             1,661

INCOME TAXES (BENEFIT)                                         --               --             (137)               --
                                                      -----------      -----------      -----------       -----------


NET INCOME APPLICABLE TO COMMON STOCK                 $       423      $     1,006      $     2,346       $     1,661
                                                      ===========      ===========      ===========       ===========

INCOME PER COMMON SHARE
    Basic:
      Net income applicable to common stock           $      0.12      $      0.29      $      0.67       $      0.47
                                                      ===========      ===========      ===========       ===========


      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           $      0.12      $      0.29      $      0.67       $      0.47
                                                      ===========      ===========      ===========       ===========


      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>   5

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


<TABLE>
<CAPTION>
                                                COMMON STOCK                                         ACCUMULATED
                                               $.01 PAR VALUE           ADDITIONAL                      OTHER
                                          ------------------------       PAID-IN       RETAINED     COMPREHENSIVE
                                           SHARES         AMOUNT         CAPITAL       EARNINGS          LOSS           TOTAL
                                          -------------------------------------------------------------------------------------
<S>                                       <C>            <C>            <C>            <C>          <C>               <C>
Balances at August 31, 2000               3,500,557      $      35      $  13,068      $  12,679                      $  25,782

Net income for the six months ended
    February 28, 2001                                                                      2,346                          2,346

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

Unrealized loss on interest rate
     swaps for the six months ended
     February 28, 2001, net of
     related income tax of $495                                                                            (854)           (854)
                                          -------------------------------------------------------------------------------------

Total comprehensive income                                                                                                1,324
                                                                                                                      ---------

Balances at February 28, 2001             3,500,557      $      35      $  13,068      $  15,025      $  (1,022)      $  27,106
                                          =====================================================================================
</TABLE>


           See notes to condensed consolidated financial statements.



                                       3
<PAGE>   6

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


<TABLE>
<CAPTION>
                                                                 SIX MONTHS ENDED
                                                            ---------------------------
                                                            FEBRUARY 28,   FEBRUARY 29,
                                                                2001           2000
                                                            ------------   ------------
<S>                                                         <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                $  2,346       $  1,661
                                                              --------       --------
    Adjustments to reconcile net income to net cash used
      in operating activities:
      Charges to allowance for cancellations                    (4,085)        (3,831)
      Provision for cancellations                                3,702          2,717
      Amortization of interest rate swap                           106             --
      Gain on sale of notes receivable                            (292)            --
      Gain on sale of other assets                              (1,608)          (678)
      Cost of sales                                              7,158          5,885
      Depreciation                                                 743            951
      Additions to interest only receivable                       (562)            --
      Amortization of interest only receivables                    309            271
      Repayments on notes receivable                            22,337         24,334
      Additions to notes receivable                            (40,614)       (36,347)
      Proceeds from sale of notes receivable                     9,889             --
      Purchase of land and timeshare interests                  (2,496)        (2,483)
      Changes in operating assets and liabilities:
        (Increase) decrease in restricted cash                  (1,868)           399
        (Increase) decrease in other assets                      1,969         (3,574)
        Increase in deferred selling costs                        (434)          (920)
        Increase (decrease) in accounts payable and
          accrued liabilities                                    1,556           (759)
        Increase in deposits                                       521            427
        Decrease in accrued income taxes                          (137)            --
                                                              --------       --------

          Total adjustments                                     (3,806)       (13,608)
                                                              --------       --------

            Net cash used in operating activities               (1,460)       (11,947)
                                                              --------       --------


CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of property and equipment                            (592)          (435)
    Proceeds from the sale of property and equipment             7,853             --
    Proceeds from the sale of other investments                      7          1,001
    Additions to other investments                                  --            (29)
    Payments on other investments                                   --             30
                                                              --------       --------

            Net cash provided by investing activities            7,268            567
                                                              --------       --------

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from borrowings                                    27,310         33,675
    Reduction of debt                                          (32,864)       (22,288)
    Payments on subordinated debt                                   --           (215)
    Increase in subordinated debt                                   --            237
                                                              --------       --------

            Net cash provided by (used in) financing
              activities                                        (5,554)        11,409
                                                              --------       --------

NET INCREASE IN CASH AND CASH EQUIVALENTS                          254             29

CASH AND CASH EQUIVALENTS-- BEGINNING OF PERIOD                  1,069          1,821
                                                              --------       --------

CASH AND CASH EQUIVALENTS-- END OF PERIOD                     $  1,323       $  1,850
                                                              ========       ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
    Cash paid during the year for:
      Interest, net of amounts capitalized                    $  6,090       $  5,795
                                                              ========       ========
</TABLE>


           See notes to condensed consolidated financial statements.



                                       4
<PAGE>   7

                      MEGO FINANCIAL CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                FEBRUARY 28, 2001
                                   (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 February 28, 2001, the results of its operations
for the three and six months ended February 28, 2001 and 2000, the change in
stockholders' equity for the six months ended February 28, 2001 and the cash
flows for the six months ended February 28, 2001 and February 29, 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 six
months ended February 28, 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 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 the Assignors (Comay Corp., Growth Realty Inc., RER Corp., and
H&H Financial, Inc.) 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.



                                       5
<PAGE>   8

4.   STOCKHOLDERS' EQUITY

        Mego Financial's stock option plan (Stock Option Plan), provides for
grants of non-qualified and qualified incentive stock options to officers, key
employees and directors. Options for 48,570 shares of Mego Financial common
stock were outstanding as of February 28, 2001.



                                       6
<PAGE>   9

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 its 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, included 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 Condensed Consolidated Financial Statements, including the notes thereto,
contained elsewhere herein and in the Company's Form 10-K for the fiscal year
ended August 31, 2000.

GENERAL

        The business of the Company is primarily the marketing, financing, and
sale of timeshare interests, retail lots and land parcels, 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 or 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

        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. Cancellation of a note receivable in the
quarter the 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.



                                       7
<PAGE>   10

        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 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 six
months ended February 28, 2001 and February 29, 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
a 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.



                                       8
<PAGE>   11

Marketing and sales costs directly attributable to unrecognized sales are
accounted for as deferred selling costs until such time as the sale is
recognized.

        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 $6.4
million at February 28, 2001 and August 31, 2000 were made under this
arrangement.

        Land sales as of February 28, 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 $1.3 million,
estimated deferred selling costs of $4.7 million and cost of sales of $2.5
million, for an estimated net profit of $8.2 million.

RESULTS OF OPERATIONS

Three Months Ended February 28, 2001 Compared to Three Months Ended February 29,
2000

        Total revenues for the Company increased 9.0% or $1.9 million to $22.9
million during the three months ended February 28, 2001 from $21.0 million
during the three months ended February 29, 2000. The increase was primarily due
to a net increase of $1.7 million in timeshare interest and land sales to $17.2
million during the three months ended February 28, 2001 from $15.5 million
during the three months ended November 30, 2000 (net timeshare interest sales
increased by $1.2 million and net land sales increased by $500,000), an increase
in interest income to $3.6 million during the three months ended February 28,
2001 from $3.2 million during the three months ended February 29, 2000, an
increase in financial income to $850,000 during the three months ended February
28, 2001 from $269,000 during the three months ended February 28, 2000, and no
gains on sale of receivables and investments and other assets during the three
months ended February 28, 2001, compared to a gain on sale of investments during
the three months ended February 28, 2000 of $678,000.

        Gross sales of timeshare interests increased to $13.6 million during the
three months ended February 28, 2001 from $12.0 million during the three months
ended February 29, 2000, an increase of 13.4%. Net sales of timeshare interests
increased to $12.1 million during the three months ended February 28, 2001 from
$11.0 million during the three months ended February 28, 2000, an increase of
11.0%. The provision for cancellations increased to 11.1% of gross sales of
timeshare interests for the three months ended February 28, 2001 from 9.2% for
the three months ended February 29, 2000, primarily due to a downward adjustment
based on the results of the customary quarterly review of the allowance adequacy
during the three months ended February 29, 2000.

        Gross sales of land increased to $5.3 million during the three months
ended February 28, 2001 from $4.8 million during the three months ended February
29, 2000, an increase of 11.7%. Net sales of land increased to $5.1 million
during the three months ended February 28, 2001 from $4.6 million during the
three months ended February 29, 2000, an increase of 11.4%. The provision for
cancellations represented 4.4% and 4.2, respectively, of gross sales of land for
the three months ended February 28, 2001 and February 29, 2000.

        Interest income increased to $3.5 million during the three months ended
February 28, 2001 from $3.2 million for the three months ended February 29,
2000, an increase of 11.9%, primarily due to increased average notes receivable
balances for the comparative quarters.

        Financial income increased to $850,000 during the three months ended
February 28, 2001 from $269,000 for the three months ended February 29, 2000, an
increase of 216.0%. The increase was primarily due to the comparative increased
volume of sold loans and the increase in spread on those sold loan portfolios
with a variable, pass-through interest rate.



                                       9
<PAGE>   12

        There was no gain on sale of other investments for the three months
ended February 28, 2001 compared to a net gain of $678,000 resulting from the
sale of two golf courses recorded for the three months ended February 29, 2000.

        Total costs and expenses for the Company increased to $22.5 million for
the three months ended February 28, 2001 from $20.0 million for the three months
ended February 29, 2000, an increase of 12.4%. The increase resulted primarily
from an increase in direct costs of timeshare sales to $2.5 million from $2.2
million, an increase of 11.1%; and an increase of $2.5 million in marketing and
sales expense, an increase of 28.7%. The increase in direct costs of timeshare
sales is attributable to higher net timeshare sales during the current fiscal
quarter compared to the same quarter last year. As a percentage of gross sales
of timeshare interests and land, marketing and sales expenses related thereto
increased to 58.4% for the three months ended February 28, 2001 from 51.2% for
the three months ended February 29, 2000. The increase in marketing and sales
expenses is due primarily to higher gross sales, new sales offices and general
increases related to a competitive sales environment.

        Interest expense was $3.1 million during the three months ended February
28, 2001 and February 29, 2000 due to offsetting factors. There was a higher
average outstanding balance of Notes and contracts payable during the three
months ended February 28, 2001 compared to the three months ended February 29,
2000, and this was 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.

        Pretax income of $423,000 was earned during the three months ended
February 28, 2001 compared to a pretax income of $1.0 million during the three
months ended February 29, 2000.

        No income taxes were recorded for the three months ended February 28,
2001 and February 29, 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 amounted to $423,000 during the
three months ended February 28, 2001 compared to net income applicable to common
stock of $1.0 million during the three months ended February 29, 2000, primarily
due to the foregoing.

Six Months Ended February 28, 2001 Compared to Six Months Ended February 29,
2000

        Total revenues for the Company increased 17.0%, or $7.0 million, to
$48.8 million during the six months ended February 28, 2001 from $41.7 million
during the six months ended February 29, 2000. The increase was primarily due to
an increase in timeshare and land sales to $36.0 million during the six months
ended February 28, 2001 from $31.5 million during the six months ended February
29, 2000 (net timeshare sales increased by $3.2 million and net land sales
increased by $1.2 million), an increase in interest income to $6.8 million
during the six months ended February 28, 2001 from $6.0 million during the six
months ended February 29, 2000, and a gain on sale of notes receivable and
investments of $1.9 million during the six months ended February 29, 2000
compared to $678,000 during the six months ended February 29, 2000.

        Gross sales of timeshare interests increased to $29.4 million during the
six months ended February 28, 2001 from $25.3 million during the six months
ended February 29, 2000, an increase of 16.2%. Net sales of timeshare interests
increased to $26.1 million during the six months ended February 28, 2001 from
$22.9 million during the six months ended February 29, 2000, an increase of
14.1%. The provision for cancellations increased to 11.1% of gross sales of
timeshare interests for the six months ended February 28, 2001 from 9.5% for the
six months ended February 29, 2000, primarily due to a downward adjustment based
on the results of the customary quarterly review of the allowance adequacy
during the six months ended February 29, 2000.

        Gross sales of land increased to $10.3 million during the six months
ended February 28, 2001 from $8.9 million during the six months ended February
29, 2000, an increase of 15.3%. Net sales of land increased to $9.8 million
during the six months ended February 28, 2001 from $8.6 million during the six
months ended February 28, 2000, an increase of 14.5%. The provision for
cancellations increased to 4.2% of gross sales of land for the six



                                       10
<PAGE>   13

months ended February 28, 2001 from 3.6% for the six months ended February 29,
2000, primarily due to a downward adjustment based on the results of the
customary quarterly review of the allowance adequacy during the six months ended
February 29, 2000.

        Interest income increased to $6.8 million for the six months ended
February 28, 2001 from $6.0 million for the six months ended February 29, 2000,
an increase of 11.8%, primarily due to increased notes receivable for the
current period.

        Financial income increased to $1.3 million during the six months ended
February 28, 2001 from $541,000 for the six months ended February 29, 2000, an
increase of 145.7%. The increase was primarily due to the comparative increased
volume of sold loans and the increase in spread on those sold loan portfolios
with a variable, pass-through interest rate.

        A net gain on sale of investments of $1.6 million, resulting from the
sale of the Company's two office buildings, and a gain of $292,000 on the sale
of notes receivable, were recorded for the six months ended February 28, 2001
compared to a net gain on sale of other investments of $678,000, resulting from
the sale of two golf courses in Pahrump, recorded for the six months ended
February 29, 2000.

        Total costs and expenses for the Company increased to $46.6 million for
the six months ended February 28, 2001 from $40.1 million for the six months
ended February 29, 2000, an increase of 16.3%. The increase resulted primarily
from an increase in direct costs of timeshare sales to $5.6 million from $4.6
million, an increase of 22.3%; an increase in marketing and sales expenses to
$22.5 million from $17.9 million, an increase of 26.0%; and, an increase in
general and administrative expenses to $9.3 million from $8.3 million, an
increase of 12.7%. 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 expenses related thereto
increased to 56.8% for the six months ended February 28, 2001 from 52.2 % for
the six months ended February 29, 2000. The increase in marketing and sales
expense is due primarily to higher gross sales, new sales offices and general
increases related to a competitive sales environment. Sales prices of timeshare
interests are typically lower than those of land, while selling costs per sale,
other than commissions, are approximately the same in amount for timeshare
interests and land; accordingly, the Company generally realizes lower profit
margins from sales of timeshare interests than from sales of land. The increase
in General and administrative expenses is primarily due 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 $2.2 million was earned during the six months ended
February 28, 2001 compared to pre-tax income of $1.7 million during the six
months ended February 29, 2000.

        An income tax benefit of $137,000 was recorded for the six months ended
February 28, 2001 compared to no income tax provision during the six months
ended February 29, 2000, due to the use of net operating loss carryforwards
which were previously fully reserved and currently 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 was $2.3 million during the six
months ended February 28, 2001 compared to net income applicable to common stock
of $1.7 million during the six months ended February 29, 2000, primarily due to
the foregoing.



                                       11
<PAGE>   14

LIQUIDITY AND CAPITAL RESOURCES

        Cash and cash equivalents for the Company were $1.3 million at February
28, 2001 compared to $1.1 million at August 31, 2000.

        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, 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 $133.5 million, sales of receivables and cash flow from operations. At
February 28, 2001, no commitments existed for material capital expenditures.

        At February 28, 2001, PEC had arrangements with 4 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 $123.5 million. Such lines of credit
are secured by timeshare and land receivables and mortgages. At February 28,
2001, an aggregate of $102.2 million was outstanding under such lines of credit,
and $21.3 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 maintains a minimum tangible net worth of $25 million. At
February 28, 2001, PEC's tangible net worth was $33.0 million. Summarized lines
of credit information and accompanying notes relating to these lines of credit
outstanding at February 28, 2001, consist of the following (thousands of
dollars):

<TABLE>
<CAPTION>
    BORROWING          MAXIMUM
    AMOUNT AT         BORROWING          REVOLVING
FEBRUARY 28, 2001      AMOUNTS      EXPIRATION DATE (a)   MATURITY DATE       INTEREST RATE
-------------------  -------------  --------------------  ---------------  --------------------
<S>                  <C>            <C>                   <C>              <C>
          $ 51,963       $ 65,000   (b)  December 31, 2001  Various         Prime + 2.0 - 2.25%
------------------   ------------

            16,986         15,000   (c)  December 1, 2002   Various         Prime + 2.0
             7,842         11,500   (d)  December 31, 2001  Various         Prime + 2.0 - 3.00%
------------------   ------------
            24,828         26,500        Considered one borrowing line for the maximum amount.
------------------   ------------

            23,452         30,000   (e)  April 30, 2003     Various         Libor + 4.0 - 4.25%
             1,972          1,972   (f)                     July 30, 2003   Prime + 2.25%
------------------   ------------
         $ 102,215      $ 123,472
==================   ============
</TABLE>

(a) When the revolver expires as shown, the loans convert to term loans with
    maturities as stated below. In addition, management expects to extend the
    lines on similar terms.

(b) Restrictions include PEC's requirement to maintain a minimum tangible net
    worth of $25 million. Other restrictions include: PEC's requirement to
    maintain costs and expenses for marketing and sales and general and
    administrative expenses relating to net processed sales for each fiscal
    quarter; PEC's requirement to maintain a minimum net processed sales
    requirement for each fiscal quarter; and PEC's requirement not to exceed a
    ratio of 4:1 of consolidated total liabilities to consolidated tangible net
    worth. At February 28, 2001, $48.4 million of loans secured by receivables
    were outstanding related to financings at prime plus 2%, of which $20.8
    million of loans secured by land receivables mature May 15, 2011 and $27.6
    million of loans secured by timeshare receivables mature May 15, 2008. The
    outstanding borrowing amount includes a real estate loan with an outstanding
    balance of $1.1 million 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 $2.5 million are at
    prime plus 2% and mature December 31, 2001.



                                       12
<PAGE>   15

(c) Restrictions 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 February 28, 2001, $5.9
    million was outstanding under the A&D loan, which matures on June 30, 2004,
    and $11.1 million was outstanding under the receivables loan, which matures
    on May 31, 2004.

(d) Restrictions include PEC's requirement to maintain a minimum tangible net
    worth of $15 million. This credit line consists of receivable financing with
    a maturity date of May 31, 2004, under which $4.5 million was outstanding at
    February 28, 2001, and a real estate loan of $3.3 million with a maturity
    date of December 31, 200l.

(e) Restrictions include PEC's requirement to maintain a minimum tangible net
    worth of $17 million during the life of the loan. These credit lines include
    available financings for A&D and receivables. At February 28, 2001, $1.7
    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 4.25%. The available receivable financings, of which $21.7
    million was outstanding at February 28, 2001, are at 90-day LIBOR plus 4%
    and have a maturity date of June 5, 2005.

(f) Restrictions 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):

<TABLE>
<CAPTION>
                                                    SIX MONTHS ENDED
                                               ---------------------------
                                               FEBRUARY 28,   FEBRUARY 29,
                                                  2001           2000
                                               ------------   ------------
<S>                                            <C>            <C>
Marketing and selling expenses attributable
    to recognized and unrecognized sales         $ 22,025       $ 18,787
Less:  Down payments                               (6,375)        (5,678)
                                                 --------       --------
Cash Shortfall                                   $ 15,650       $ 13,109
                                                 ========       ========
</TABLE>

        During the six months ended February 28, 2001, PEC sold $9.6 million in
notes receivable. PEC did not sell any notes receivable during the six months
ended February 29, 2000.

        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 February 28, 2001 and August 31, 2000, PEC was
contingently liable to replace or repurchase notes receivable sold with recourse
totaling $61.7 million and $59.6 million, respectively. At February 28, 2001,
the repurchase provisions provide for substitution of receivables as recourse
for $55.1 million of sold notes receivable and cash payments for repurchase
relating to $6.6 million of sold notes receivable. The undiscounted amounts of
the recourse obligations on such notes receivable were $4.4 million and $4.5
million at February 28, 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):



                                       13
<PAGE>   16

<TABLE>
<CAPTION>
                                                      FEBRUARY 28,   AUGUST 31,
                                                          2001          2000
                                                      ------------   ----------
<S>                                                   <C>            <C>
Notes collateralized by receivables                     $ 85,805      $ 80,593
Mortgages collateralized by real estate properties        16,546        27,407
Installment contracts and other notes payable              1,226         1,131
                                                        --------      --------
       Total                                            $103,577      $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 six
months ended February 28, 2001 consisted of the following (thousands of
dollars):


<TABLE>
<S>                                                          <C>
Balance at beginning of period                               $ 16,860
    Provision for cancellations                                 3,702
    Amounts charged to allowance for cancellations, net        (4,087)
                                                             --------
Balance at end of period                                     $ 16,475
                                                             ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                    FEBRUARY 28,   AUGUST 31,
                                                        2001          2000
                                                    ------------   ----------
<S>                                                 <C>            <C>
Allowance for cancellations, excluding discounts      $ 12,544      $ 12,827
Reserve for notes receivable sold with recourse          3,931         4,033
                                                      --------      --------
       Total                                          $ 16,475      $ 16,860
                                                      ========      ========
</TABLE>

February 28, 2001 Compared to August 31, 2000

        Cash and cash equivalents increased to $1.3 million at February 28, 2001
from $1.1 million at August 31, 2000.

        Notes receivable, net, increased $8.9 million to $92.1 million at
February 28, 2001 from $83.2 million at August 31, 2000, as a result of net new
receivables added, less sale of receivables, during the six months ended
February 28, 2001.

        Timeshare interests held for sale decreased 15.8% to $19.6 million at
February 28, 2001 from $23.3 million at August 31, 2000.

        Land and improvements inventory decreased 24.0% to $3.1 million at
February 28, 2001 from $4.1 million at August 31, 2000.

        Notes and contracts payable decreased 5.1% to $103.6 million at February
28, 2001 from $109.1 million at August 31, 2000. This was primarily due to the
debt paydown in connection with the sales of two office buildings and sale of
notes receivables.



                                       14
<PAGE>   17

        Reserve for notes receivable sold with recourse decreased 2.5% to $3.9
million at February 28, 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 5.1% to $27.1 million at February 28,
2001 from $25.8 million at August 31, 2000.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The Company engages in business activities that expose it to interest
rate risk. The financial exposure is managed as an integral part of the
Company's risk management program, which seeks to reduce the potentially adverse
effects that the volatility of the interest rate market may have on the
Company's operating results. The Company does not engage in speculative
transactions or hold financial instruments for trading purposes.

        In August 2000, the Company entered into a $25 million, 5-year, interest
rate swap transaction to hedge potential exposure to its variable rate notes'
portfolio. The interest rate swap is considered and is documented as a highly
effective cash flow hedge. The swap will mature in fiscal 2005, and the
unrealized depreciation as of February 28, 2001 was $1.5 million. The fixed
interest rate of the swap is 10.94%.

        Other than as previously noted, there was no material change for the
quarter ended February 28, 2001 in the information about the Company's
"Quantitative and Qualitative Disclosures About Market Risk" as disclosed in its
Annual Report on Form 10K for the fiscal year ended August 31, 2000.


PART II   OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

        On February 6, 2001, plaintiff John Ruell filed a purported class action
lawsuit in the District Court, Nye County, Nevada. The complaint alleges two
causes of action against defendant PEC: (1) a claim requesting specific
performance of an alleged obligation to provide an airport taxiway and water
service to lot owners in Calvada Meadows Unite 2; and, (2) Fraud. The Complaint
is alleged to be brought on behalf of a class consisting of all lot owners in
Calvada Meadows Unit 2 located in Nye County, Nevada and seeks unspecified
damages in excess of $10,000 and unspecified punitive damages. On March 14,
2001, PEC filed a motion to dismiss the complaint on the grounds that (i) all of
the claims are barred by the Plaintiffs failure to exhaust administrative
remedies and the primary administrative jurisdiction of the Nevada Public
Utilities Commission; (ii) all of the claims are barred by the filed tariff
doctrine; (iii) all of the claims are barred by the applicable statute of
limitations; (iv) the claim for specific performance is inapplicable to the
construction contracts at issue and money damages are an adequate remedy,
precluding specific performance as a remedy, and (v) the fraud claim is barred
due to the failure to plead fraud with particularity and because the mere
failure to fulfill a promise to perform an act in the future does not amount to
fraud. The hearing on PEC's motion to dismiss is scheduled for May 21, 2001.

        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, 2000.

ITEM 5.  OTHER INFORMATION

        On March 7, 2001, Leonard Toboroff was elected to the Board of
Directors.



                                       15
<PAGE>   18

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      EXHIBITS

<TABLE>
<CAPTION>
      EXHIBIT
      NUMBER                                DESCRIPTION
      -------                               -----------
      <S>         <C>
      10.225      First Amendment to Loan and Security Agreement by and between
                  Preferred Equities Corporation and Dorfinco Corporation dated
                  November 30, 2000.

      10.226      First Amendment to General Loan and Security Agreement between
                  Steamboat Suites, Inc., and Preferred Equities Corporation
                  dated February 1, 2001.

      10.227      Eighth Amendment to Forbearance Agreement and Amendment No. 13
                  to Second Amended and Restated and Consolidated Loan and
                  Security Agreement between Finova Capital corporation and
                  Preferred Equities Corporation dated December 29, 2000.

      10.228      Twelfth Amendment to Assignment and Assumption Agreement by
                  and between RER Corp., COMAY Corp., Growth Realty Inc. and H&H
                  Financial, Inc. and Mego Financial Corp. dated February 15,
                  2001.
</TABLE>

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



                                       16
<PAGE>   19

                                    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:   April 11, 2001



                                       17