<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: March 31, 2002

                                       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 May 1, 2002, there were 5,577,183 shares of Common Stock, $.01 par value
                   per share, of the Registrant outstanding.

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

                     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 March 31, 2002 and December 31, 2001...................1

             Condensed Consolidated Statement of Operations for the Three Months Ended
                March 31, 2002 and February 28, 2001.........................................................2

             Condensed Consolidated Statements of Cash Flows for the Three Months Ended
                March 31, 2002 and February 28, 2001.........................................................3

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

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

Item 3.      Quantitative and Qualitative Disclosures About Market Risk.....................................12

PART II      OTHER INFORMATION

Item 1.      Legal Proceedings..............................................................................12

Item 2.      Changes in Securities..........................................................................13

Item 3.      Sale of Central Nevada Utilities Company.......................................................13

Item 4.      Exhibits and Reports on Form 8-K...............................................................13

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 per share amounts)
                                  (unaudited)
<TABLE>
<CAPTION>

ASSETS                                                                                       March 31, 2002      December 31, 2001
                                                                                             --------------      -----------------
<S>                                                                                          <C>                 <C>
Cash and cash equivalents                                                                    $        2,955      $          1,271
Restricted cash                                                                                       5,991                 6,708
Notes receivable, net of allowance of $13,369 and $14,557
 at March 31, 2002 and December 31, 2001, respectively                                              112,020               109,347
Retained interests in receivables sold, at fair value                                                 3,333                 3,688
Vacation ownerships held for resale                                                                  19,887                17,865
Land and improvements inventory                                                                       2,994                 2,757
Assets available for sale                                                                             3,392                 3,468
Property and equipment, net                                                                           9,790                 9,690
Deferred financing costs                                                                              2,063                 2,071
Deferred selling costs                                                                                5,336                 5,422
Other assets                                                                                          9,623                14,910
Assets related to discontinued operations                                                            15,121                15,156
                                                                                             --------------      ----------------

              TOTAL ASSETS                                                                   $      192,505      $        192,353
                                                                                             ==============      ================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
    Notes and contracts payable                                                              $      127,621      $        131,530
    Accounts payable                                                                                  1,520                 1,873
    Accrued liabilities                                                                              12,071                11,775
    Interest rate swap liability                                                                      1,920                 2,251
    Deferred income                                                                                   3,377                 2,097
    Reserve for notes receivable sold with recourse                                                   3,131                 3,560
    Customer deposits                                                                                 2,592                 2,831
    Deferred income taxes                                                                               433                 1,289
    Liabilities related to discontinued operations                                                    9,838                 9,545
                                                                                             --------------      ----------------

              Total liabilities before subordinated debt                                            162,503               166,751
                                                                                             --------------      ----------------

Subordinated debt                                                                                     4,211                 4,211

Commitments and contingencies

Stockholders' equity:
    Preferred stock, $.01 par value (authorized--5,000,000 shares, none outstanding)                      -                     -
    Common stock, $.01 par value (authorized--50,000,000 shares; 4,784,307 shares
      issued and outstanding at March 31, 2002 and 3,500,557 shares at December 31, 2001                 48                    35
    Additional paid-in capital                                                                       18,836                13,068
    Retained earnings                                                                                 8,174                 9,773
    Accumulated other comprehensive loss                                                             (1,267)               (1,485)
                                                                                             --------------      -----------------

              Total stockholders' equity                                                             25,791                21,391
                                                                                             --------------      -----------------

              TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                     $      192,505      $        192,353
                                                                                             ==============      =================
</TABLE>

           See notes to condensed consolidated financial statements.

                                       1
<PAGE>

                     MEGO FINANCIAL CORP. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                (thousands of dollars, except per share amounts)
                                  (unaudited)
<TABLE>
<CAPTION>

                                                                                                       Three Months Ended
                                                                                                ------------------------------
                                                                                                   March 31,      February 28,
                                                                                                     2002            2001
                                                                                                --------------   -------------
<S>                                                                                              <C>                 <C>
REVENUES
    Vacation ownership sales                                                                    $        9,157   $      13,626
    Land sales                                                                                           6,324           5,321
    Interest income                                                                                      4,034           3,550
    Financial income                                                                                       192             850
    Other                                                                                                1,120             932
                                                                                                --------------   -------------
              Total revenues                                                                            20,827          24,279

COSTS AND EXPENSES
    Direct cost of:
       Vacation ownership sales                                                                          1,480           2,455
       Land sales                                                                                        1,084             777
    Interest expense                                                                                     3,170           3,088
    Marketing and sales                                                                                  8,846          11,057
    General and administrative                                                                           4,550           4,409
    Provision for cancellations                                                                          1,342           1,754
    Depreciation                                                                                           434             351
    Restructuring charges                                                                                2,480               -
                                                                                                --------------   -------------
              Total costs and expenses                                                                  23,386          23,891
                                                                                                --------------   -------------
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE

     INCOME TAX BENEFIT                                                                                 (2,559)            388

INCOME TAX BENEFIT                                                                                         787               -
                                                                                                --------------   -------------
(LOSS) INCOME FROM CONTINUING OPERATIONS                                                                (1,772)            388

Discontinued operations
    Income from discontinued operations                                                                    232              47
    Income tax expense                                                                                     (59)            (12)
                                                                                                --------------   -------------
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX                                                            173              35
                                                                                                --------------   -------------

NET (LOSS) INCOME APPLICABLE TO COMMON STOCK                                                    $       (1,599)  $         423
                                                                                                ==============   =============

(LOSS) INCOME PER COMMON SHARE
    Basic and Diluted:

       From continuing operations                                                               $        (0.41)  $        0.11
       From discontinued operations                                                                       0.04            0.01
                                                                                                ==============   =============

    Diluted:
       Net income applicable to common stock                                                    $        (0.37)  $        0.12
                                                                                                --------------   -------------


       Weighted-average number of common shares and common share equivalents outstanding             4,276,007       3,500,557
                                                                                                ==============   =============
</TABLE>

           See notes to condensed consolidated financial statements.

                                       2
<PAGE>

                     MEGO FINANCIAL CORP. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                (thousands of dollars, except per share amounts)

<TABLE>
<CAPTION>

                                                                                                          Three Months Ended
                                                                                                    ------------------------------
                                                                                                      March 31        February 28
                                                                                                        2002              2001
                                                                                                    -------------    -------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                                 <C>              <C>
    Net (loss) income                                                                               $      (1,599)   $         423
                                                                                                    -------------    -------------
    Adjustments to reconcile net (loss) income to net cash provided by (used in)
     operating activities:
       Charges to allowance for cancellations                                                              (3,317)          (2,380)
       Provision for cancellations                                                                            913            1,754
       Gain on sale of assets available for sales and other assets                                              -                8
       Cost of vacation ownership interest and land sales                                                   2,564            3,232
       Depreciation                                                                                           434              351
       Repayments on notes receivable                                                                      14,602           12,698
       Additions to notes receivable                                                                      (15,300)         (19,590)
       Purchase of land and vacation ownership interests                                                   (4,823)          (1,405)
    Changes in operating assets and liabilities:
       Restricted cash                                                                                        717           (2,610)
       Deferred financing costs                                                                                 8             (427)
       Retained interests in receivables sold                                                                 355             (142)
       Other assets                                                                                         5,287            2,343
       Deferred selling costs                                                                                  86               99
       Accounts payable                                                                                      (353)            (301)
       Accrued liabilities                                                                                    296            1,597
       Interest rate swap liability                                                                          (113)             378
       Deferred income                                                                                      1,280               86
       Customer depostis                                                                                     (239)             333
       Assets related to discontinued operations                                                               35               33
       Liabilities related to discontinued operations                                                         293              100
       Deferred income taxes                                                                                 (856)             284
                                                                                                    -------------    -------------
               Net cash provided by (used in) operating activities                                            270           (3,844)

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of property and equipment                                                                       (458)            (129)
    Proceeds from the sale of other investments                                                                 -                -
                                                                                                    -------------    -------------
               Net cash provided by investing activities                                                     (458)            (129)

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from borrowings                                                                               12,300           13,885
    Reduction of debt                                                                                     (16,209)          (8,211)
    Proceeds from issuance of common stock                                                                  5,781                -
                                                                                                    -------------    -------------
               Net cash provided by financing activities                                                    1,872            5,674

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                        1,684            1,701

CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD                                                            1,271            4,227
                                                                                                    -------------    -------------

CASH AND CASH EQUIVALENTS -- END OF PERIOD                                                          $       2,955    $       5,928
                                                                                                    ==============   =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

    Cash paid during the period ended March 31, 2002 for:
       Interest, net of amounts capitalized                                                         $       3,215    $       3,238
    Income taxes                                                                                    $         136    $           -
</TABLE>

           See notes to condensed consolidated financial statements.

                                       3
<PAGE>

                      MEGO FINANCIAL CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              For the three months ended March 31, 2002 (unaudited)

 1.  Financial Statements

     In the opinion of management, when read in conjunction with the audited
Consolidated Financial Statements as of and for the four month period ended
December 31, 2001 and for the years ended August 31, 2001 and 2000, included in
the Form 10-KT of Mego Financial Corp. (the Company) filed with the Securities
and Exchange Commission, the accompanying unaudited Condensed Consolidated
Financial Statements contain all of the information necessary to present fairly
the financial position of the Company and subsidiaries at the results of its
operations and cash flows for the three then months ended March 31, 2002 and
February 28, 2001.

     In February 2002 the Company changed its fiscal year end from August 31 to
December 31. Accordingly the financial information for the three months ended
March 31, 2002 is based on the Company's new fiscal year and the information
presented for the three months ended February 28, 2001 is based on the Company's
old fiscal year (and is considered to be comparable to the March 31, 2002
information for purposes of this quarterly report.)

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. 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 months ended March
31, 2002 are not necessarily indicative of the results to be expected for the
year ended December 31, 2002.

     The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company and
Subsidiaries' annual report on Form 10-KT for the year period December 31, 2001.

 2.  Nature of Operations

     The Company is a developer and operator of vacation ownership and a
provider of consumer financing to purchasers of its vacation ownership intervals
and land parcels through its wholly-owned subsidiary, Leisure Homes Corporation
(LHC), formerly Preferred Equities Corporation (PEC), established in 1969. The
Company, through its wholly-owned subsidiary Leisure Resorts Corporation (LRC),
manages vacation ownership and receives management income in association
therewith. By providing financing to virtually all of its customers, LHC also
originates consumer receivables that it hypothecates, sells and services.

     The Company 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. The Company's executive officers are located at 4310 Paradise Road, Las
Vegas, Nevada, 89109, and its telephone number is (702) 737-3700.

 3.  Sale of CNUC

     In September 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", on asset impairment that is
applicable to financial statements issued for fiscal years beginning after
December 15, 2001.

 4.  Interest Rate Swaps

     To manage its exposure to interest rate risk in August 2000, the Company
entered into an interest rate swap agreement with a notional amount of $25
million that expires in August 2005. The Company entered into another similar
interest rate swap agreement in August 2001 for a notional amount of $20 million
that expires in August 2006. The swaps convert the floating interest rate on
certain of the Company's long-term debt obligat_ into fixed interest rates. As
of March 31, 2002, and February 28, 2001, the fair value of the swaps was
approximately $1,919,867 and $1,654,872, respectively.

                                       4
<PAGE>

The FASB's new rules on asset impairment provides a single accounting model for
long-lived assets to be disposed of and supersede SFAS 121 and APB Opinion No.
30, "Reporting the Results of Operations -- Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions". On October 2, 2001, Central Nevada Utilities Company
(CNUC) entered into an agreement with Utilities Inc. providing for the
acquisition by Utilities Inc. of all the assets of CNUC for $5.5 million (Asset
Sale). Utilities Inc. deposited in escrow $500,000 of the purchase price to
assure its performance of the agreement. The transaction was subject to the
approval of the Nevada Public Utilities Commission, who approved the transaction
on April 9, 2002. From the proceeds $5.2 million was used to repay the
Subordinated Debt and accrued interest and the at-risk payment. Upon adoption of
SFAS No. 144 as of January 1, 2002, the Company began reporting the operations
of its wholly-owned subsidiary, CNUC, as discontinued operations.

Recent Developments

     At the annual meeting of the Company held on January 17, 2002, the
Company's shareholders approved the following matters:

          .    Elected an entire new Company board of directors, consisting of
               Floyd W. Kephart, Spencer I. Browne, Michael H. Greco, James D.
               Locke, Ross Mangano, Thomas G. Palmer and Edward J. Wegel.

          .    Approved the issuance and sale to LC Acquisition Corp. (LCAC) of
               750,000 shares of the Company's common stock and the issuance and
               sale to Doerge Capital Management, later assigned by Doerge
               Capital Management to Charles Stewart, of 500,000 shares of the
               Company's common stock in each case for a purchase price of $4.00
               per share.

          .    Approved the sale by certain former officers, directors and other
               shareholders to LC Acquisition Corp. of an aggregate of 1,269,634
               shares of the Company's common stock at a price of $4.00 per
               share.

          .    Approved the amendment of the payment and security terms of
               certain outstanding subordinated debt issued by Mego to certain
               affiliates of former officers, directors and other shareholders
               and the related security agreements.

     On December 3, 2001, the Company entered into a Fifteenth Amendment
(Fifteenth Amendment) to the Assignment and Assumption Agreement between the
Company and Comay Corp., Growth Realty, Inc., RER Corp., and H&H Financial,
Inc., affiliates of the Company (Assignors), which would: terminate the pledge
of the PEC outstanding stock and replace such pledge with a pledge of all of the
outstanding stock of CNUC; defer payment of the remaining principle payments of
the Subordinated Debt owed to the Assignors aggregating $4.2 million and all
accumulated interest from March 1, 2001 until the sale of CNUC is consummated or
terminated, but in no event later than August 31, 2002; and limit recourse to
the pledged stock of CNUC and an assignment of up to $5.2 million of the
proceeds of the Asset Sale. In exchange for the Assignors agreeing to such
amendment, including the deferment of principle and accrued interest payments,
the release of the pledge of the PEC stock and the limitation of recourse to the
CNUC stock (stock may be transferred only with the consent of the Nevada Public
Utilities Commission) and the assignment of up to $5.2 million of the proceeds
of the Asset Sale, the Company agreed to an at-risk payment to the Assignors in
an amount equal to $644,643, which was paid upon the closing of the sale of
CNUC. Because the cost to modify the terms of the Subordinated debt of
approximately $645,000 exceeded 10 percent of the present value of the remaining
debt cash flows under the term of the original subordinated debt agreement, the
modification represented a substantial modification. Accordingly, the
modification was accounted for like, and reported in the same manner as, an
extinguishment in the Company's Form 10-KT for the period ended December 31,
2001 in accordance with EITF 96-19, "Debtor's Accounting for a Modification or
Exchange of Debt Instruments."

     The completion of the transactions approved by the Company's shareholders
took place immediately following the shareholders' meeting. The next day, the
new board of directors met to begin planning the restructuring and expansion of
the Company's core businesses and the initiation and acquisition of
complementary business activities. At that meeting, Floyd W. Kephart was elected
Chairman of the Board, Chief Executive Officer and President of the Company.

The new management's business plan is to focus the company on being a leisure
and vacation solutions provider. Elements of the Company's plan include the
following:

          .    Expanding its core vacation ownership business through internal
               development and acquisition of existing vacation ownership
               operations.

          .    On March 4, 2002, Leisure Services Corporation (LSC), a wholly-
               owned Company subsidiary was incorporated in Nevada. LSC will be
               responsible for all Company customer contacts and relationships.
               On March 29, 2002, LSC entered into a Management Agreement to
               perform management and related services for Adventure Bound,
               Inc., a Tempe, Arizona provider of travel and travel related
               services. The Company, through LSC and Adventure Bound, Inc.,
               intends to offer travel and travel related services to its
               customers and potential customers. On May 14, 2002, LSC amended
               the management agreement to perform management and related
               services for Cheap Seats, Inc. a wholly-owned subsidiary of LCAC.
               The Company, through LSC and Adventure Bound, Inc., in
               conjunction with Cheap Seats, intends to offer tour, travel and
               travel related services to its current and potential customers.

<PAGE>

          .    On March 20, 2002, Leisure Resorts Corporation ("LRC") a wholly-
               owned Company subsidiary was incorporated in Nevada. LRC will
               perform all vacation ownership resort and related homeowner
               association management services which were previously performed
               by LHC.

          .    On March 21, 2002, the Company entered into a letter of intent
               with Raintree Resorts International, Inc. (Raintree). Under the
               terms of the proposed agreement, Raintree will become a wholly
               owned subsidiary of the Company. The transaction is subject to
               the successful completion of an inspection period, signing of a
               definitive purchase and sale agreement, and the appropriate
               approval of both Companies. Raintree is a developer, marketer and
               operator of luxury vacation ownership resorts in North America
               with resorts in Mexico, the United States and Canada. On May 5,
               2002, the Company amended its Letter of Intent with Raintree to
               acquire three operations and properties in an initial transaction
               to be closed on or before June 1, 2002; to perform due diligence
               on the remaining properties; to negotiate with the Senior
               Debenture Holders of Raintree; and to complete all transactions
               on or before December 31, 2004.

6.   Commitments and Contingencies

     Litigation--On August 27, 1998, an action was filed in Nevada District
     ----------
Court, County of Clark, No. A 392585, by Robert and Jocelyne Henry, husband and
wife individually and on behalf of all others similarly situated against LHC,
LHC's wholly-owned subsidiary, Central Nevada Utilities Company (CNUC), and
certain other defendants.  The plaintiffs' complaint asked for class action
relief claiming that LHC and CNUC were guilty of collecting certain betterment
fees and not providing associated sewer and water lines.

The court determined that plaintiffs had not properly pursued their
administrative remedies with the Nevada Public Utilities Commission (PUC) and
dismissed plaintiffs' complaint, as amended, without prejudice. Notwithstanding
plaintiffs' appeal of the dismissal, plaintiffs filed for administrative relief
with the PUC. On November 17, 1999, the PUC found that CNUC, the only defendant
over which the PUC has jurisdiction, was not in violation of any duties owed the
plaintiffs or otherwise in violation of CNUC's approved tariffs. Subsequent to
the PUC's decision, plaintiffs voluntarily dismissed their appeal. On May 4,
2000, plaintiffs re-filed their complaint in Nevada District Court, naming all
of the above parties with the exception of CNUC.

     The May 4, 2000 complaint is virtually identical to the amended complaint
discussed above and asserts six claims for relief against defendants:  breach of
deed restrictions, two claims for breach of contract, unjust enrichment,
consumer fraud in violation of NRS 41.600 and violation of NRS 119.220, with all
claims arising out of the alleged failure to provide water and sewer utilities
to the purchasers of land in the subdivisions commonly known as Calvada Valley
North and Calvada Meadows located in Nye County, Nevada.

     On September 8, 2000, the Company filed a motion to dismiss each of the
claims made in the complaint.  The Court granted the motion to dismiss with
respect to Frederick H. Conte in his individual capacity and denied the motion
in all other respects in an order entered on December 19, 2000.

     Plaintiffs then filed a motion to certify class, which defendants opposed.
On September 5, 2001, the Court held that "as to Classes A and B, the showings
required under NRCP 23(a) and (b)(2) have been made to the extent injunctive
relief / specific performance of the subject alleged contractual obligations is
sought, and the Court will certify Classes A and B to such extent only. In all
other respects, the Court does not deem certification to be appropriate as to
both Classes A and B". As a result of this decision, the Court refused to
certify a class for the claims of: breach of contract, unjust enrichment,
consumer fraud in violation of NRS 41.600 and violation of NRS 119.220.
Accordingly, the defendants are no longer subject to class claims for monetary
damages. The defendants' only potential liability is for the construction of
water and sewer facilities. The case is now beginning the discovery phase of the
litigation. The case is scheduled for a jury trial on August 13, 2002. The
Company does not believe that any likely outcome of this case will have a
material adverse effect on the Company's financial condition or results of
operations.

     In the general course of business the Company and LHC, at various times,
have each been named in other lawsuits.  The Company believes that it has
meritorious defenses to these lawsuits and that resolution of these matters will
not have a material adverse effect on its financial condition or results of
operations.

7.   Subsequent Events

          .    On April 17, 2002, Preferred Equities Corporation's ("PEC") name
               was changed to Leisure Homes Corporation ("LHC"). LHC will
               continue PEC's current lines of business and operations except
               resort management operations will now be performed by LRC.

          .    The Company has incorporated Leisure Industries Corporation of
               America, Inc. in Delaware and proposes, subject to stockholder
               approval, to merge into that company and thus change its
               corporate domicile from New York to Delaware. In anticipation of
               the name change, the Company changed its NASDAQ trading symbol
               from "MEGO" to "LESR" on April 15, 2002. The Company's wholly-
               owned subsidiary, Preferred Equities Corporation, changed its
               name to Leisure Homes Corporation. The Company also formed two
               new subsidiaries, Leisure Resorts Corporation and Leisure
               Services Corporation. Leisure Resorts Corporation will perform
               all vacation ownership resort and related homeowner management
               services. Leisure Services Corporation will be responsible for
               all of the Company's customer contacts and relationships.

          .    On April 18, 2002, the Company entered into a Sale Agreement with
               Atlantic Development Corporation to acquire 2,021 platted one-
               acre lots located in Mojave County, Arizona, approximately 20
               miles south of the Hoover Dam. The Company is to acquire the lots
               through the exchange of 540,416 shares of the Company's common
               stock, valued at $6 per share, for a total consideration of
               $3,242,496 for all of Atlantic Development Corporation's issued
               and outstanding stock. Closing of the transaction is subject to
               the receipt of a Public Report from the State of Arizona allowing
               the sale of the lots. Application for the Public Report has been
               made, and the Company expects the Public Report to be issued not
               later than August, 2002.

          .    On April 19, 2002, LHC and Cedant Corporation ("Cendant")
               mutually agreed to terminate that certain AGREEMENT ("Agreement")
               entered into as of April 18, 1995 by between LHC and Cedant.
               Under the Agreement, LHC was granted a license to use the name
               "Ramada Vacation Suites" in the sale of LHC's vacation ownership
               product. LHC and Cendant have agreed that on or before May 1,
               2002, LHC and its affiliates will delete any and all references
               to the names "Ramada" and "Ramada Vacation Suites" in its sales,
               marketing and resort operations. All signage using the "Ramada"
               and "Ramada Vacation Suites" names is to be removed on or before
               September 30, 2002. The Company will continue as a Ramada
               franchisee for the hotel premises located at its Orlando, Florida
               vacation ownership resort. In consideration of the termination of
               the Agreement, LHC has agreed to enter into consulting agreements
               with Resorts Condominiums International ("RCI") a Cendant
               subsidiary, or certain of RCI's subsidiaries and affiliates, in
               an amount not to exceed $300,000.00. The termination of the
               Agreement will eliminate the Company's payment to Cendant of
               approximately $2,000,000.00 a year. It is unknown whether the
               discontinuance of the Company's use of the "Ramada" and "Ramada
               Vacation Suites" names will have a negative affect on sales.

8.   Restructuring Charges

     In January, 2002 the Company's Board of Directors approved a business
restructuring. Among other things, this restructuring included: seven
terminations at senior management levels; relocation of corporate office
facilities from 1500 E. Tropicana Avenue and 4310 Paradise Road to newer office
facilities in closer proximity to one another; discontinuance of the license
agreement with Cendant Corporation whereby the Company licensed the use of the
mane "Ramada Vacation Suites" in its vacation ownership and resort operations;
and approval of change in the name of the resort facilities from "Ramada
Vacation Suites" to "Leisure Resorts".

                                       6
<PAGE>

     As a result of these restructurings, the Company recorded a non-recurring
charge of $2.5 million. Included in this total were: severance benefits
associated with former senior management and officers of approximately $1.9
million; future rental expense to be incurred on vacated office space of
$311,000; and non-cash charges associated with the termination of the Cendant
license agreement in the amount of $308,000. As of March 31, 2002 the Company
has paid in cash $814,000 and expects to pay the remainder by the end of fiscal
2002. Restructuring charges, in certain cases, are based on estimates and
subject to change; however, the Company does not believe revisions to the above
estimates will be material.

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 contains certain forward-looking statements and
information relating to the Company 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 vacation ownership 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.

     The economic downturn in the tourism industry following the September 11,
2001 terrorist attacks had an adverse impact on the operating results of the
Company's first fiscal quarter, which impact potentially can continue in the
foreseeable future. The Company has a mixture of customers who fly and drive
into the various resort locations. At this time, there can be no assurances that
this economic downturn due to a decrease in travel and anxiety about possible
future terrorist attacks will not extend to future periods.

     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-KT for the year ended December 31, 2001, and the Condensed
Consolidated Financial Statements, including the notes thereto, contained
elsewhere herein.

General

     The business of the Company is the marketing, financing and sale of
vacation ownership interests, retail lots and land parcels, servicing
receivables related to the purchase money financing of vacation ownership and
land sales and managing vacation ownership. LHC provides financing to purchasers
of its vacation ownership 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.

     LHC has entered into financing arrangements with certain purchasers of
vacation ownership interests and land parcels 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 $4.7 million at March 31, 2002 and $5.7 million at December 31,
2001 were made under such arrangement.

                                       7
<PAGE>

     The Company recognizes revenue primarily from sales of vacation ownership
interests and land sales in resort areas, interest income, gain on sale of
receivables, financial income from servicing the related receivables and
management fees from operating and managing vacation ownership. LHC periodically
sells its consumer receivables while generally retaining the servicing rights.
Revenue from sales of vacation ownership 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 vacation ownership
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 vacation
ownership interests typically meet these requirements at the time of sale. The
sale price is recorded as revenue and the allocated cost related to such net
revenue of the vacation ownership 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 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.

     The Company generally sells its notes receivable at par value. When the
Company sells notes receivable, it retains certain participation in the cash
flows of the notes receivable sold and generally retains the associated
servicing rights. The sales are generally subject to limited recourse provisions
as provided in the respective notes receivable sales agreements. Under these
agreements, the Company is generally obligated to replace or repurchase accounts
that become 60 to 90 days delinquent or are otherwise subject to replacement or
repurchase in either cash or receivables. Reserve for notes receivable sold with
recourse represents the Company's estimate of losses to be incurred in
connection with the recourse provisions of the sales agreements and is shown
separately as a liability in the Company's Balance Sheet.

     Gain on sale of receivables depends in part on the previous carrying amount
of the financial assets involved in the transfer, allocated between the assets
sold and the retained interests based on their relative fair value at the date
of the transfer. To obtain fair values on the retained interests (both at the
point of the related receivable sale and periodically thereafter) the Company
generally estimates fair value based on the present value of future expected
cash flows estimated using management's best estimates of certain key
assumptions including: default dates; rates of prepayment; loss reserve rates
and discount rates commensurate with the risks involved.

     The Company's retained interests in receivables sold are carried at fair
market value as either derivatives or available-for-sale investments. Unrealized
holding gains or losses on the retained interests are included in earnings for
those transactions structured so that the Company, through its retained
interests, receives fixed interest amounts and pays the buyer variable amounts
based on a floating rate index, as the resulting financial interest meets the
definition of a derivative in accordance with Statement of Financial Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities".
Unrealized holding gains, if any, on retained interests in receivables sold not
meeting the definition of a derivative would be included in shareholders'
equity, net of income taxes. Losses in such retained interests are reflected in
earnings.

     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. LHC records
provision for cancellations at the time revenue is recognized, based on
historical experience and current economic factors. The related allowance for
cancellations represents LHC'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. LHC'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.

                                       8
<PAGE>

     Fees for servicing notes receivable originated by LHC 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. Retained interests in receivables
sold 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 LHC's portfolio, the accretion
of the discount on the retained interests in receivables sold 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 vacation ownership
interests and land, depreciation 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 March 31, 2002, exclude $17.6 million of sales not yet
recognized under generally accepted accounting principles since the requisite
payment amounts have not yet been received or the respective rescission periods
have not yet expired. Of the $17.6 million unrecognized land sales, the Company
estimates that it will ultimately recognize $15.0 million of revenues, which
would be reduced by a related provision for cancellations of $2.6 million,
estimated deferred selling costs of $3.73 million and cost of sales of $3.0
million, for an estimated net profit of $6.0 million.

Results of Operations

Three Months Ended March 31, 2002 compared to Three Months Ended February 28,
2001

     Total revenues for the Company decreased 14.4% or $3.5 million to $20.8
million during the three months ended March 31, 2002 from $24.2 million during
the three months ended February 28, 2001. The net decrease was primarily due to
a net decrease of $3.5 million in vacation ownership interest and land sales to
$15.5 million during the three months ended March 31, 2002 from $18.9 million
during the three months ended February 28, 2001 vacation ownership interest
sales decreased by $4.5 million and land sales increased by $1.0 million and an
increase in interest income to $4.0 million during the three months ended March
31, 2002 from $3.6 million during the three months ended February 28, 2001.

     Interest income increased to $4.0 million during the three months ended
March 31, 2002 from $3.6 million for the three months ended February 28, 2001,
an increase of 13.6%, primarily due to an increase in notes receivable balance
during the period.

     Total costs and expenses for the Company decreased to $23.4 million for the
three months ended March 31, 2002 from $23.9 million for the three months ended
February 28, 2001, a decrease of 2.1%. The decrease resulted primarily from the
net effect of the following: a decrease in direct costs of vacation ownership
interest sales to $1.5 million from $2.5 million, a decrease of 40%; and, a
decrease to $8.8 million from $11.1 million in marketing and sales expense, a
decrease of 20%. As there are substantially variable cost elements in marketing
and sales, the percentage of marketing and sales expenses to gross sales would
remain relatively constant in periods of lower sales. As the tourism industry
has experienced an economic downturn since the September 11, 2001 terrorist
attacks, the Company believes that the decline in sales volume is directly
related to such events, but is unable to quantify the sales volume decline that
is directly attributable to such events.

     Interest expense increased to $3.2 million during the first 2002 quarter
from $3.1 million during the first 2001 quarter, an increase of 2.7%.

                                       9
<PAGE>

     A pretax loss of $2.6 million was recorded during the first 2002 quarter
compared to pretax income of $0.4 million earned during the first 2001 quarter.

     In January, 2002 the Company's Board of Directors approved a business
restructuring. Among other things, this restructuring included: seven
terminations at senior management levels; relocation of corporate office
facilities from 1500 E. Tropicana Avenue and 4310 Paradise Road to newer office
facilities in closer proximity to one another; discontinuance of the license
agreement with Cendant Corporation whereby the Company licensed the use of the
name "Ramada Vacation Suites" in its vacation ownership and resort operations;
and approval of change in the name of the resort facilities from "Ramada
Vacation Suites" to "Leisure Resorts".

     As a result of these restructurings, the Company recorded a non-recurring
charge of $2.5 million. Included in this total where: severance benefits
associated with former senior management and officers of approximately $1.9
million; future rental expense to be incurred on vacated office space of
$311,000; and non-cash charges associated with the termination of the Cendant
license agreement in the amount of $308,000. As of March 31, 2002 the Company
has paid in cash $814,000 and expects to pay the remainder by the end of fiscal
2002. Restructuring charges, in certain cases, are based on estimates and
subject to change; however, the Company does not believe revisions to the above
estimates will be material.

     An income tax benefit of $0.8 million was recorded for the period ended,
March 31, 2002 compared to an income tax benefit of $0 recorded for the period
ended, February 28, 2001. The income tax calculation for the period ended,
February 28, 2001 was reduced due to the use of net operating loss carry
forwards which were previously fully reserved and were used to offset income on
a consolidated basis. Income taxes are recorded based on an ongoing review of
related facts and circumstances.

     Net loss applicable to common stock amounted to $1.6 million during the
period ended, March 31, 2002 compared to net income applicable to common stock
of $0.4 million during the period ended, February 28, 2001, primarily due to the
foregoing.

Liquidity and Capital Resources

     The following discussion relates to our financial position at March 31,
2002 and the results of our operations for the period then ended. In January,
2002, the Company's new management adopted a business plan contemplating, among
other things, the substantial expansion of our vacation resort business, and the
initiation and acquisition of businesses that complement our vacation resort
business. See "Business - Recent Events" for a discussion of the elements of our
business plan. This change in our business model, as well as the risks and
uncertainties inherent in our historical business, are expected to cause our
results of operations and the components thereof to change materially in the
future. In addition, we will require substantial additional capital in the near
term to implement certain elements of our business plan, including the
acquisition of the three properties from Raintree and other businesses. There is
no assurance that we will be able to raise the necessary capital in a timely
manner and on terms acceptable to us. Any failure to raise the necessary capital
may have a material adverse effect on our operations and financial results.

     At March 31, 2002, no commitments existed for material capital
expenditures. However, if the Company completes the transactions contemplated by
the outstanding Letters of Intent as stated in Item 1 and adheres to the
Company's business plan, the Company will incur material capital expenditures in
the future.

     At March 31, 2002, the Company had arrangements, as amended for subsequent
agreement revisions, with institutional lenders for the financing of receivables
in connection with sales of vacation ownership interests and land and the
acquisition of vacation ownership properties and land, which provide for lines
of credit of up to an aggregate of $167.0 million. Such lines of credit are
secured by vacation ownership and land receivables and mortgages. At March 31,
2002, an aggregate of $120.9 million was outstanding under such lines of credit
and $46.1 million was available for borrowing (subject to the availability of
qualified collateral). Under the terms of these lines of credit, LHC may borrow
65% to 90% of the balances of the pledged vacation ownership and land
receivables.

                                       10
<PAGE>

LHC is required to comply with certain covenants under these agreements which,
among other things, require LHC to meet certain minimum tangible net worth
requirements. The most stringent of such requirements provides that LHC
maintains a minimum tangible net worth of $27.5 million. At March 31, 2002,
LHC's tangible net worth was $36.8 million. Summarized lines of credit
information and accompanying notes relating to these lines of credit outstanding
at March 31, 2002, consist of the following:

(thousands of dollars)

<TABLE>
<CAPTION>
                  Outstanding at       Maximum           Revolving
     Lender       March 31, 2002       Amounts      Expiration Date (a)     Maturity Date (a)         Interest Rate
     ------       --------------     -----------   ---------------------   --------------------    --------------------
<S>               <C>                <C>           <C>                     <C>                     <C>
Finova            $      57,780      $  65,000     December 31, 2002         2/28/02 - 5/15/10     Prime +  2.0 - 2.25%
Textron                  28,652         35,000     December 1, 2002        12/31/02 - 12/31/05     Prime +  2.0 - 3%
GE Capital               27,178         40,000     April 30, 2003          March 30, 2006          Libor +  4.0 - 4.25%
HSBC                        165              -     Inactive                February 6, 2006        Prime +  1.0%
Capital Source            5,791         27,000     9/11/03 - 3/11/05       August 11, 2005         Prime +  2.5%
                  -------------      ---------     September 11, 2003      March 11, 2005
                  $     119,566      $ 167,000
                  =============      =========
</TABLE>

(a)  As it has typically done in the past, management expects 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.

     LHC is required to comply with certain financial and non-financial
covenants under these line of credit agreements. Among other things, these
agreements require LHC to meet certain minimum tangible net worth requirements,
maintain certain liabilities to tangible net worth ratios and maintain marketing
& sales and general & administrative expenses, as defined, relative to net
processed sales for each rolling 12-month period below a certain percentage. The
maximum percentage related to costs and expenses referred to above has been
exceeded in the last four quarters. This does not constitute an Event of Default
as defined under this loan agreement, or this line of credit; however, it gives
the lender the option to suspend advances to LHC. The lender has not elected to
exercise this option, but has continued to make regular advances and has
verbally informed LHC that it intends to continue such advances. The maximum
loan-to-value ratio referred to above was exceeded in the last two quarters. As
a result, there presently exists the right of the Lender to declare an Event of
Default as defined under this loan agreement, or this line of credit. Default of
the loan-to-value ratio, under this line, can only cause the lender to cease
advance to the Company. The lender has agreed to forbear from exercising any of
its remedies under the loan agreement through July 31, 2002 as set forth in the
side letter dated January 3, 2002. In exchange for the lender agreeing to the
provisions of the side letter, the Company was required to pay the lender
$250,000. Under this letter, the Company has pledged additional eligible
receivables on a schedule to bring this line into compliance by July 31, 2002.

     Scheduled maturities of the Company's notes and contracts payable are as
follows:

                Period Ended March 31,                   (thousands of dollars)
                ----------------------


                          2002.........................        $    5,533
                          2003.........................             5,549
                          2004.........................            13,605
                          2005.........................            18,356
                          2006.........................            28,198
                          Thereafter...................            56,380
                                                               ----------
                                    ...................        $  127,621
                                                               ----------

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

     (thousands of dollars)
                                                       March 31,   February 28,
                                                     --------------------------
                                                         2002          2001
                                                     -----------    -----------
     Marketing and selling expenses attributable
        to recognized and unrecognized sales         $     9,037    $    22,025
     Less:  Down payments                                 (2,438)        (6,375)
                                                     -----------    -----------
     Cash Shortfall                                  $     6,599    $    15,650
                                                     ===========    ===========

     The Company sells notes receivable subject to recourse provisions as
contained in each agreement. At December 31, 2001, total sold notes receivable
was $47.0 million. The Company 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. The repurchase provisions provide for substitution of
receivables as recourse for $49.4 million of sold notes receivable and cash
payments for repurchase relating to $6.6 million of sold notes receivable.

                                       11
<PAGE>

The undiscounted amounts of the recourse obligations on such notes receivable
were $3.1 million and $3.6 million at March 31, 2002 and December 31, 2001,
respectively. LHC 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)                                  March 31,   December 31,
                                                          2002          2001
                                                      ------------  ------------
Notes collateralized by receivables                   $    104,725  $    106,599
Mortgages collateralized by real estate properties          15,313        14,781
Installment contracts and other notes payable                7,583        10,150
                                                      ------------  ------------
        Total                                         $    127,621  $    131,530
                                                      ============  ============

Financial Condition

     The Company provides allowance for cancellations in amounts which, in the
Company's judgment, will be adequate to absorb losses on notes receivable that
may become uncollectible. The Company's judgment in determining the adequacy of
this allowance is based on its continual review of its portfolio which utilizes
historical experience and current economic factors. These reviews take into
consideration changes in the nature and level of the portfolio, historical
rates, collateral values, current and future economic conditions which may
affect the obligors' ability to pay, collateral values and overall portfolio
quality.

     Changes in the aggregate of the allowance for cancellations, including the
reserve for notes receivable sold with recourse for the three months ended March
31, 2002 consisted of the following:

(thousands of dollars)                                                March 31,
                                                                        2002
                                                                     ----------
Balance at beginning of period                                       $   18,470
     Provision for cancellations                                          1,342
     Amounts charged to allowance for cancellations, net                 (3,312)
                                                                     -----------
                                                                         16,500
     Reserve for notes sold with recourse                                (3,131)
                                                                     -----------
Allowance for cancellations                                              13,369
                                                                     ===========

March 31, 2002 compared to December 31, 2001


     Cash and cash equivalents increased to $3.3 million at March 31, 2002 from
$1.7 million at December 31, 2001.

     Notes receivable, net, increased 2.4% to $112.0 million at March 31, 2002
from $109.3 million at December 31, 2001.

                                       12
<PAGE>

     Land and improvements inventory and vacation ownership interests held for
sale increased 11.3% to $19.9 million at March 31, 2002 from $17.9 million at
December 31, 2001.

     (thousands of dollars)

                                                      March 31,    December 31,
                                                    ------------   ------------
                                                        2002          2001
                                                    ------------   ------------
     Vacation ownership interests                   $     18,029   $     13,771
     Vacation ownership interests in development           1,858          4,094
                                                    ------------   ------------

     Total                                          $     19,887   $     17,865
                                                    ============   ============

     Notes and contracts payable increased 3.0% to $127.6 million at March 31,
2002 from $131.5 million at December 31, 2001. Stockholders' equity increased
20.6% to $25.8 million at March 31, 2002 from $21.4 million at December 31,
2001.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

     There was no material change for the quarter ended March 31, 2002 in the
information about the Company's "Quantitative and Qualitative Disclosures About
Market Risk" as disclosed in its Annual Report on Form 10-KT for the year ended
December 31, 2001.

PART II   OTHER INFORMATION

Item 1.  Legal Proceedings

     There has been no material change in the status of litigation reported in
the Company's Annual Report on Form 10-KT for the year ended December 31, 2001.

Item 2.  Changes in Securities

On January 18, 2002, the Company issued 750,000 shares of its Common Stock to LC
Acquisition Corp. for cancellation of indebtedness in the amount of $3,000,000.
The Company issued 500,000 shares to Charles K. Stewart, as assignee of the
purchase commitment of Doerge Capital Management. These transactions were
approved by the stockholders of the Company at a meeting held on January 17,
2002. The issuance of the shares was exempt from the registration requirements
of the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.

In January, 2002, the Company issued a warrant to purchase 175,000 shares of
Common Stock at $4.00 per share to Roan/Meyer Associates, LP as compensation for
financial advisory services. The issuance of the warrant was exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof. The warrant has been exercised in full and the resale of the shares
issued upon exercise of the warrant has been registered under the Securities
Act.

During the quarter ended March 31, 2002, the Company issued for $4.40 per share
a total of 226,767 shares of Common Stock and warrants to purchase 226,767
shares at an exercise price of $5.00 per share. The warrants are callable if the
underlying Common Stock trades for $7.00 per share for a consecutive period of
ten days. The purchasers of the shares were Stonestreet Limited Partnership,
Perg Galleon LLC, Michael D. Brown, Jeffrey Catuara, Robert W. Baird, Hazlett
Burt & Watson and William C. White. The issuance of the shares and accompanying
warrants was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof.

                                      13
<PAGE>

Item 3.  Sale of Central Nevada Utilities Company

On April 11, 2002, LHC's wholly owned subsidiary, Central Nevada Utilities
Company completed the sale of substantially all of its assets to Utilities, Inc.
for $5,500,000. $5,200,000 was used to pay the Subordinated Debt in full. This
sale is not expected to have a significant impact on the Company's 2002 results
of operation. The Company estimates that the gain on the sale of CNUC to be
approximately $371,000.

Item 4.  Exhibits and Reports on Form 8-K

     Exhibits
     --------

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

     10.238    Termination Agreement dated January 17, 2002 between The Company
               Corp and Jerome J. Cohen.

     10.239    Employment Agreement dated January 17, 2002 between The Company
               Corp and Herbert B. Hirsch.

     10.240    Amended, Restated and Increased Receivables Promissory Note No. 2
               for $40,000,000 dated December 20, 2001 by Preferred Equities
               Corporation to Heller Financial Inc.

     10.241    Purchase Money Promissory Note between M & J Wilkow as agent for
               The Villas at Monterey Limited Partnership and Tango Bay of
               Orlando for $5,927,164.65 dated August 15, 2001.

     10.242    Letter Agreement and Amendment No. 4 dated January 3, 2002
               between Preferred Equities Corporation and FINOVA Capital
               Corporation regarding the Biloxi Property.

     10.243    Letter Agreement dated January 23, 2002 between FINOVA Capital
               Corporation and Preferred Equities Corporation regarding the
               purchase of the Great Vacations Resort of Hershey.

     10.244    Loan and Security Agreement dated March 11, 2002 for Acquisition
               and for Construction of 158 Ida with Promissory Notes and First
               Modification Agreement for Receivables between Preferred Equities
               Corporation and Capital Source Finance LLC.

     10.245    Employment Contract by and between The Company Corporation and
               Jon Arlington Joseph dated January 1, 2002.

     A report on Form 8-K was filed on January 30, 2002. This form 8-K refers to
the Company's change in control, reporting the consummation of the transactions
reported in December.

     A report on Form 8-K was filed on March 1, 2002. This form 8-K refers to
the Company's change in fiscal year, reporting the Board's decision to change
the fiscal year from August 31st to December 31st.

     A report 8-K was filed on March 1, 2002. This form 8-K refers to the
Company's other events, reporting the sale to Charles Stewart of 500,000 shares
pursuant to the assignment to and assumption by him of the Doerge subscription
agreement.

                                      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/ Robert S. Understein
                                                -------------------------------
                                                 Robert S. Understein
                                                 Chief Financial Officer



Date: May 21, 2002

                                      15