Mego Financial Corp · 10-KT · For 12/31/01

Filed On 5/22/02   ·   SEC File 1-08645   ·   Accession Number 1021408-2-7534

Annual-Transition Report   ·   Form 10-K
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Document/Exhibit                   Description                      Pages   Size 

 1: 10-KT       Annual-Transition Report                              75    524K 
 2: EX-10.237   Employment Agreement                                   9     41K 

10-KT   ·   Annual-Transition Report
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION  
Washington, D. C. 20549 
--------------------------------------------------------------------------------

FORM 10-KT  

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

OR  

[X]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES        
EXCHANGE ACT OF 1934                                                  
For the transition period from September 1, 2001 to December 31, 2001 

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                   (IRS Employer
          incorporation or organization)                 identification no.)

              4310 Paradise Road, Las Vegas, NV                89109
         ---------------------------------------------------------------------
             (Address of principal executive offices)           (Zip code)

Registrant's telephone number, including area code             702-737-3700     
                                                  ------------------------------
Securities registered pursuant to Section 12(b) of the Act:        None         
                                                           ---------------------
Securities registered pursuant to Section 12(g) of the Act:                     

Common Stock, $.01 Par Value  
--------------------------------------------------------------------------------
(Title of Class)  

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 [_]                      

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405  
of Regulation S-K is not contained herein, and will not be contained, to the    
best of the registrant's knowledge, in definitive proxy or information          
statements incorporated by reference in Part III of this Form 10-K or any       
amendment to this Form 10-K.  [X]                                               

As of May 1, 2002, 5,577,183 shares of the registrant's common stock were       
outstanding. The aggregate market value of common stock held by non-affiliates  
of the registrant as of May 1, 2002 was approximately $27,375,000 based on a    
closing price of $5.80 for the common stock as reported on the NASDAQ National  
Market on such date. For purposes of the foregoing computation, all executive   
officers, Directors and their affiliates are deemed to be affiliates. Such      
determination should not be deemed to be an admission that such executive       
officers, Directors or their affiliates are, in fact, affiliates of the         
registrant.                                                                     

DOCUMENTS INCORPORATED BY REFERENCE 
None  

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MEGO FINANCIAL CORP.  

ANNUAL REPORT ON FORM 10-KT 

TABLE OF CONTENTS 

                                                        [Enlarge/Download Table]

                                              PART I                                           PAGE
                                                                                                   
Item 1.  Business.............................................................................    1

Item 2.  Properties...........................................................................   12

Item 3.  Legal Proceedings....................................................................   12

Item 4.  Submission of Matters to a Vote of Security Holders..................................   13

                                              PART II                                              

Item 5.  Market for the Registrant's Common Equity and Related Security Holder Matters........   13

Item 6.  Selected Consolidated Financial Data.................................................   14

Item 7.  Management's Discussion and Analysis of Financial Condition                               
           and Results of Operations..........................................................   17

Item 7A. Quantitative and Qualitative Disclosures About Market Risk...........................   29

Item 8.  Financial Statements and Supplementary Data..........................................   31

Item 9.  Changes in and Disagreements With Accountants on Accounting                               
           and Financial Disclosure...........................................................   31

                                             PART III                                              

Item 10. Directors and Executive Officers of the Company......................................   32

Item 11. Executive Compensation...............................................................   35

Item 12. Security Ownership of Certain Beneficial Owners and Management.......................   38

Item 13  Certain Relationships and Related Transactions.......................................   40

                                              PART IV                                              

Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K....................   41

         Signatures...........................................................................   46

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PART I  

Item 1.  Business                                                               

General                                                                         

     The principal business of Mego Financial Corp. (the "Company" or "LESR") is
vacation ownership sales, resort operations, land sales for vacation and second 
homes and travel services.  Established in 1954, Mego Financial Corp. is        
headquartered in Las Vegas, Nevada with resorts in Las Vegas and Reno, Nevada;  
Honolulu, Hawaii; Brigantine, New Jersey; Steamboat Springs, Colorado; Indian   
Shores and Orlando, Florida, comprising a total of 1,040 units and representing 
53,120 vacation ownership interests.                                            

     Vacation ownership sales and operations are performed through Mego's wholly
owned subsidiary, Leisure Homes Corporation, (LHC) formerly known as Preferred  
Equities Corporation (PEC).  LHC also develops and sells parcels of raw land to 
be used primarily as sites for second and/or vacation homes, and provides       
consumer financing to the purchasers of both vacation interval interests and    
land parcels.  In addition to on site sales offices in Colorado and Nevada, LHC 
sells its land offerings from offsite offices in West Covina, California; Dallas
and Houston, Texas; and Orlando, Florida.                                       

The Company, through its wholly owned subsidiary, Leisure Resorts     
Corporation (LRC), manages vacation ownership properties and receives management
income in association therewith. Leisure Services Corporation (LSC), a wholly   
owned subsidiary, provides travel services to the leisure vacation ownership    
marketplace.                                                                    

    LHC acquires, develops and markets vacation ownership interests in resorts
located in popular high volume vacation destinations.  LHC currently markets and
operates eight vacation ownership resorts located in: Steamboat Springs,        
Colorado (two resort locations); Indian Shores and Orlando, Florida; Honolulu,  
Hawaii; Las Vegas and Reno, Nevada and Brigantine, New Jersey (adjacent to      
Atlantic City, New Jersey).  The Company's wholly owned subsidiary LRC provides 
management services to all eight vacation ownership resorts.  The vacation      
ownership resorts are operated as "Ramada Vacation Suites" pursuant to an       
agreement with Cendant Corporation (Cendant) whereby LHC has the right to use   
the "Ramada" name, owned by Cendant, in the sales and marketing of vacation     
ownership interest.  As described under Recent Events, the Company has given    
notice to Cendant of its termination of this agreement.                         

 LHC's residential land group acquires existing platted subdivisions and
also acquires, develops and subdivides real property and markets the platted and
subdivided residential lots to retail customers who intend to build a home on   
site.  LHC currently sells residential land in Pahrump, Nevada (approximately 60
miles west of Las Vegas, Nevada) and Park County, Colorado (approximately 60    
miles west of Colorado Springs, Colorado). LHC is in the process of acquiring   
2,021 one-acre lots in Mojave County, Arizona.                                  

Recent Events                                                                   

Our shareholders took the following related actions at a special meeting held on
January 17, 2002:                                                               

.    Elected an entire new 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 to Charles K. Stewart, of
         500,000 shares of our 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 LCAC 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 the Company to certain
       affiliates of former officers, directors and other shareholders and
the related security agreements.                            

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   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.                                                                        

Our 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 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. 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.                                                   

.    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.                    

     .    Repositioning the Company's vacation ownership operations to emphasize
        the luxury market. Raintree is a developer, marketer and operator of
      luxury vacation ownership resorts in North America with resorts in
Mexico, the United States and Canada.                       

.    Adopting "Leisure Industries" as its new corporate identity and  
restructuring its operations under that name.               

.    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.                                              

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.    On April 19, 2002, the Company notified Cendant Corporation      
  ("Cendant") of its intent to terminate the Agreement with them
       pursuant to which the Company was granted a license to use the name
      "Ramada" and "Ramada Vacation Suites" in the sale of Leisure Homes
         Corporation's vacation properties. Cendant has questioned LHC's right
       to terminate and the timing related thereto but has not objected to
     such termination. The Company further notified Cendant that on or
       before May 1, 2002, LHC and its affiliates would 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 scheduled for removal on or
    before September 30, 2002. The Company will continue as a Ramada
     franchisee for the hotel premises located at its Orlando, Florida
          resort. LHC intends to continue its consulting agreements with Resorts
        Condominiums International ("RCI"), a Cendant subsidiary, or certain
        RCI subsidiaries and affiliates, in an amount not to exceed $300,000
       related to these prior agreements. The termination of the Agreement
    will eliminate the Company's payment to Cendant of approximately
      $2,000,000 a year. It is unknown whether the discontinuance of the
         Company's use of the "Ramada" and "Ramada Vacation Suites" names will
have a material effect on sales.                            

.    Developing and acquiring complementary travel and travel-related 
       businesses. On March 29, 2002, the Company entered into a Letter of
      Intent to acquire LCAC, an owner of certain travel related assets.
         This acquisition is subject to approval of a Special Committee of the
 Board, and a vote of shareholders. The Company's wholly owned
        subsidiary 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, a wholly owned
   subsidiary of LCAC. 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.                                        

 .    Continuing its efforts to dispose of non-core assets. 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
         due to former management in full. This sale is not expected to have a
  significant impact on the Company's 2002 results of operation.

     .    Upgrading the Company's operating procedures, technology platforms and
financial controls.                                         

.    Raising capital necessary to pursue the Company's new strategic  
      initiatives. Since the sale of shares to LCAC and Mr. Stewart, the
        Company has sold approximately 1,000,000 additional shares of common
         stock for proceeds of approximately $5,000,000. Included with each of
      these shares the purchasers received one warrant for each share of
         common stock purchased. These warrants entitle the holder to purchase
      one share of common stock at purchase prices ranging from $5.00 to
      $6.00. The warrants expire one year from the date of issuance. The
  Company will require substantial additional capital to acquire
Raintree and pursue the other elements of its business plan.

    .    In January, 2002 the Company's Board of Directors approved a business
   restructuring. Among other things, this restructuring included:
 approval of certain hiring's and 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".

Vacation Ownership Properties and Sales                                         

   The vacation ownership interests offered by LHC in its resorts other than
in Hawaii generally consist of undivided fee interests in the land and          
facilities comprising the property or an undivided fee interest in a particular 
unit, pursuant to which the owner acquires the perpetual right to weekly        
occupancy of a residence unit each year. In its resort in Hawaii, LHC offers    
"right-to-use" interests, pursuant to which the owner has occupancy rights for  
one week each year until December 31, 2009, the last full year of the underlying
land lease for the resort property. During the four-month period ended December 
31, 2001 and fiscal years ending August 31, 2001, 2000 and 1999, LHC had net    
sales of 628, 3,659, 2,885 and 2,841 vacation ownership interests, respectively,
at prices ranging from $4,250 to $32,990.                                       

   LHC also offers a sales program whereby a customer pays a fixed fee on an
installment basis to use a vacation ownership interest during an initial one-   
year period with an option to purchase the vacation ownership interest. If the  
customer exercises the option to purchase the interest, the fixed fee is applied
toward the down payment of the vacation ownership interest purchased.           

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     The Company, through LHC, markets and sells vacation ownership interests at
the resorts, all of which are managed by LRC.  In light of the termination of   
the agreement with Cendant, (see Recent Events) the Company has renamed its     
resorts from Ramada Vacation Suites to Leisure Resorts.                         

Leisure Resorts at Las Vegas includes 37 buildings with a total of 489
----------------------------                                          
studio, one- and two- bedroom units that have been converted for sale as 24,939 
vacation ownership interests.  As of December 31, 2001, 2,009 vacation ownership
interests remained available for sale.  The resort is in close proximity to "the
Strip" in Las Vegas and features swimming pools and other amenities.  LHC has   
completed an expansion of the resort common areas to include an expanded lobby, 
convenience store and expanded sales facilities.                                

     Leisure Resorts at Reno consists of a 95-unit hotel that has been converted
-----------------------                                               
for sale as 4,845 vacation ownership interests.  As of December 31, 2001, 831   
vacation ownership interests remained available for sale.  The resort has       
substantially completed major renovations and features an indoor swimming pool, 
exercise facilities, sauna, jacuzzi and sun deck.                               

Leisure Resorts at Honolulu is an 80-unit hotel consisting of three   
---------------------------                                           
buildings that have been converted for sale as 4,160 vacation ownership         
interests.  As of December 31, 2001, 742 vacation ownership interests remained  
available for sale.  The resort is within walking distance of a public beach and
features a swimming pool and jacuzzi.  LHC has a leasehold interest in the      
buildings, equipment and furnishings which expires in December 2009.  The annual
rental payments total approximately $192,000.                                   

  Leisure Resorts at Steamboat Springs consists of 60 one- and two-bedroom
------------------------------------                                  
units, which have been converted for sale as 3,060 vacation ownership interests.
As of December 31, 2001, 780 vacation ownership interests remained available for
sale.  LHC acquired this condominium resort in 1994 and completed its conversion
in 1995.  LHC has constructed a 5,500-square foot amenity building at this      
resort that features a spa and sauna.                                           

Leisure Resorts - Hilltop at Steamboat Springs is a converted hotel   
----------------------------------------------                        
building with indoor swimming pool, restaurant, cocktail lounge and meeting room
facilities.  The complex contains 56 one- and two-bedroom units to be sold as   
2,856 vacation ownership interests.  As of December 31, 2001, 1,391 vacation    
ownership interests remained available for sale. The resort is located in       
Steamboat Springs, Colorado, in close proximity to ski slopes and other         
attractions.                                                                    

    Leisure Resorts at Orlando consists of an eight-building, 120 unit complex
--------------------------                                            
that has been converted into 6,120 vacation ownership interests.  As of December
31, 2001, 214 vacation ownership interests remained available for sale.  Three  
additional buildings, containing 42 units to be sold as 2,184 vacation ownership
interests, are under construction in phases, and will be available for sale in  
2002.  In addition, the Company acquired the remaining eight buildings of the   
related property and is currently operating it as a hotel, Ramada Inn All       
Suites.  The Company plans to convert, as needed over the next several years the
hotel property into 109 units to be sold as 5,668 vacation ownership interests. 
The resort features a pool and is located near major tourist attractions.       

    Leisure Resorts at Indian Shores consists of a two-building complex, which
--------------------------------                                      
has been converted into a total of 32 one- and two-bedroom units to be sold as  
1,632 vacation ownership interests.  As of December 31, 2001, 48 vacation       
ownership interests remained available for sale.  The resort is located on the  
intercoastal waterway in close proximity to St. Petersburg and Clearwater,      
Florida.                                                                        

   Leisure Resorts on Brigantine Beach consists of a 91-unit hotel and a 17-
-----------------------------------                                   
unit three-story building that have been either converted or constructed for    
sale as 5,508 vacation ownership interests.  As of December 31, 2001, 754       
vacation ownership interests were available for sale.  The resort, located on   
beach front property in close proximity to Atlantic City, New Jersey, features  
an enclosed swimming pool, cocktail lounge, bar and restaurant.                 

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   The following table sets forth certain information regarding the vacation
ownership interests at the Company's resort properties:                         

                                                        [Enlarge/Download Table]

                                                                   Steamboat                         Indian                         
                                Las Vegas     Reno      Waikiki     Springs   Hilltop     Orlando    Shores    Brigantine    Total  
                               ---------------------------------------------------------------------------------------------------- 
                                                                                                                                    
Maximum number                    24,939      4,845      4,160       3,060     2,856       6,120      1,632       5,508      53,120 

Net number sold through                                                                                                             
December 31, 2001                 22,930      4,014      3,418       2,280     1,465       5,907      1,584       4,754      46,352 

Number available for sale at                                                                                                        
December 31, 2001                  2,009        831        742         780     1,391         214         48         754       6,768 

Percent sold through                                                                                                                
December 31, 2001                     92%        83%        82%         75%       51%         97%        97%         86%         87%

Number sold during the four                                                                                                         
months ended December 31, 2001       603        142         59          84       218         381         45          75       1,607 

Number reacquired during the four                                                                                                   
months ended December 31, 2001                                                                                                      

Contract cancellations               138         21         33          30        26         128         22          19         417 
Exchanges  (3)                       222         36         35          37        64          86         19          18         517 
Acquired for unpaid                                                                                                                 
maintenance fees                      16         29          -           -         -           -          -           -          45 
                                 -------------------------------------------------------------------------------------------------- 
Total number reacquired during                                                                                                      
the four months ended                                                                                                               
December 31, 2001                    376         86         68          67        90         214         41          37         979 
                                 -------------------------------------------------------------------------------------------------- 
Net number sold (reacquired)                                                                                                        
during the four months                                                                                                              
ended December 31, 2001              227         56         (9)         17       128         167          4          38         628 

Additional pending as of                                                                                                            
December 31, 2001                      -          -          -           -         -       2,184          -           -       2,184 

Sales prices of timeshare                                                                                                           
interests available at                                                                                                              
December 31, 2001                                                                                                                   
Low                              $ 9,990    $ 5,000    $ 3,950    $  8,990   $ 8,990    $  8,990    $ 9,990     $ 3,290     $ 3,290 
High                             $25,990    $13,990    $ 6,990    $ 27,990   $34,990    $ 16,990    $19,990     $22,560     $34,990 
Average                          $13,308    $ 6,162    $ 4,906    $ 15,983   $17,958    $ 14,243    $12,947     $ 6,436     $12,867 

 (1)  This does not include the 2,184 shown as pending, which were under
         construction at December 31, 2001. It also does not include the 5,688
       previously discussed, which are currently being operated as a hotel
    and will be converted to vacation ownership interests as needed.

   (2)  4,823 vacation ownership interests were sold prior to acquisition by
the Company.                                                

   (3)  These exchanges are primarily related to customers exchanging and/or
    upgrading their current property to larger, higher-priced units.

          For the four months ended December 31, 2001 and the fiscal years ended
   August 31, 2001, 2000 and 1999, respectively, LHC's revenue from vacation
   ownership sales was $14.7 million, $61.8 million, $55.3 million and $45.8
million, representing 51.1%, 56.1%, 56.5% and 57.2% of total revenues.

RCI Exchange Network                                                  

    Vacation and interest ownership is significantly enhanced by the
  availability of resort exchange networks. These networks allow owners to
    exchange their occupancy right in their home resort for an occupancy right
in another resort. Several companies, including Resorts Condominiums  
     International (RCI), a wholly owned subsidiary of Cendant, provide vacation
    ownership interest exchange networks. LHC's resorts participate in the RCI
network.                                                              

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  According to RCI, it has a total of more than 3,600 participating resort
facilities located worldwide.  LHC and the Owner's Association (as defined      
hereinafter) of each of LHC's vacation ownership resorts have entered into an   
agreement with RCI pursuant to which purchasers of vacation ownership interests 
in LHC resorts may apply for membership in the RCI exchange network.  The cost  
of the RCI membership fee, which is at the option and expense of the vacation   
ownership interest owner, is $63 for the first year and $84 for each annual     
renewal.  The initial five-year term of the Owner's Associations agreement with 
RCI are automatically renewable for additional five-year term, unless either    
party gives not less than 180 days written notice prior to the expiration of the
then current term.  Either party may terminate the agreement upon a breach of   
the agreement by the other party.                                               

Owners' Associations and Property Management                                    

   LHC's resort properties require ongoing management services.  Independent
not-for-profit corporations known as Owners' Associations have been established 
to administer each of LHC's resorts other than the resort in Honolulu.  LHC's   
resort in Honolulu is administered by the White Sands Resort Club, a division of
LHC (together with the Owners' Associations, collectively the "Associations").  
Owners of vacation ownership interests in each resort are responsible for the   
payment of annual assessment fees, which are intended to fund all of the        
operating expenses at the resort facilities and accumulate reserves for         
replacement of furnishings, fixtures and equipment, and building maintenance, to
their respective Association.  Annual assessment fees for 2001 ranged from $275 
to $435.  In prior years, LHC has advanced monies to cover deficits for         
Associations located outside the State of Florida.  There is no certainty LHC   
will continue this practice.  In Florida, if Association expenses exceed annual 
assessment fees, LHC is obligated to pay the deficit.  During the fiscal years  
ended August 31, 2001 and 2000, LHC financed budget shortfalls of $132,000 and  
$645,000, respectively, for the Owners' Associations at Indian Shores and       
Orlando.  During the four month period ended December 31, 2001, annual          
assessment fees and association expenses were substantially the same for both   
Indian Shores and Orlando.  As of December 31, 2001 the budget shortfall        
guarantee for Orlando and Indian Shores has ended as both resorts have met the  
required ratio's of developer owned versus sold intervals of 85%.  As additional
inventory is added in Florida, LHC will re-evaluate its obligation to fund these
budge shortfalls.  During calendar year 2001, the combined Associations had a   
deficiency of $508,000 in Association fees received compared to expenses paid.  

  If the owner of a vacation ownership interest defaults in the payment of
the annual assessment fee, the Association may impose a lien on the related     
vacation ownership interest. LHC, at its option, may pay the Association the    
lien amount of vacation ownership interest of owners who are delinquent, but    
have paid LHC in full for their vacation ownership interest.  In exchange for   
the payment by LHC of such amounts, the Associations assign their liens for non-
payment on the respective vacation ownership interests to LHC.  In the event the
vacation ownership interest holder does not satisfy the lien after having an    
opportunity to do so, LHC typically acquires the vacation ownership interest for
the amount of the lien and any related foreclosure costs.                       

   LRC has entered into management agreements with the Associations pursuant
to which LRC receives annual management and administrative fees in exchange for 
providing or arranging for various property management services including       
reservations, bookkeeping, staffing, budgeting, maintenance and housekeeping    
services.  During the four months ended December 31, 2001 and the fiscal years  
ending August 31, 2001, 2000 and 1999, PEC, the management entity prior to LRC, 
received fees of $1.0 million, $2.9 million, $2.7 million and $2.5 million,     
respectively.  The management agreements are typically for initial terms ranging
from three to five years and automatically renew for successive one-year terms  
unless canceled by an Association.                                              

LRC's intent and goal is to manage these properties until all vacation
ownership interests are sold and the receivables generated from such sales have 
been paid.  Due to cancellations, exchanges and upgrades, none of the resorts   
are likely to realize a 100% sellout for an extended period of time.  The       
Company believes that continued management of these properties preserves the    
integrity and operating efficiencies of the resorts.                            

Land Sales                                                                      

    LHC is currently engaged in the retail sale of land in Nevada and Colorado
for residential, commercial, industrial and recreational use.  LHC may acquire  
and sell land in other states including but not limited to Arizona, if an       
opportunity arises.  See "Management's Discussion and Analysis of Financial     
Condition and Results of Operations - Real Estate Risk".  Residential lots      
generally range in size from one-quarter acre to five acres with some larger,   
while commercial and industrial lots also vary in size.                         

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LHC's residential lots generally range in price from $17,000 to $39,000, while  
commercial and industrial lots generally range in price from $45,000 to $94,000.
LHC sold (reacquired) 96, 781, 766 and 613 residential lots, net, and (2), (3), 
2 and 14 commercial and industrial lots during the four months ended December   
31, 2001, and the fiscal years ended August 31, 2001, 2000 and 1999,            
respectively. LHC is required from time to time to cancel the purchase of lots  
and parcels as a result of payment defaults or customer cancellations.          

Nevada                                                                
------                                                                

 A substantial portion of LHC's land sales have historically occurred in
subdivisions in the Pahrump Valley, Nevada, located approximately 60 miles west 
of Las Vegas.  LHC has little inventory remaining in this location.             

  The following table illustrates certain statistics regarding the Pahrump
Valley subdivisions:                                                            

    Number of acres acquired since 1969                                 18,777
    Number of lots platted                                              29,849
    Net number of lots sold through December 31, 2001                   29,689
     Percent of lots sold through December 31, 2001  (unsold .5%)           100%
    Number of platted lots available for sale at December 31, 2001         160

For the Four Months Ended December 31, 2001:                          
--------------------------------------------                          
    Number of parcels and lots sold                                         92
     Number of parcels and lots canceled                                   (114)
    Number of parcels and lots repurchased                                  93
     Number of parcels and lots exchanged                                  (128)
                                                                      --------
Number of parcels and lots sold, net of cancellations                 
       and exchanges                                                        (57)

    Central Nevada Utilities Company (CNUC), a wholly-owned subsidiary of PEC,
provides sewer and water service within CNUC's certificated service area.  As of
December 31, 2001, CNUC had 3,457 customers.  In the past 5 years, connections  
have grown at an average annual rate of 15.3% and 13.3% for residential water   
and sewer, respectively.                                                        

 On April 11, 2002, substantially all of the assets of CNUC were sold to
Utilities, Inc.  See Recent Events.                                             

Colorado                                                              
--------                                                              

LHC also sells larger unimproved tracts of land in Colorado.  LHC owns
unimproved land in Huerfano County, Colorado, which is being sold for           
recreational use in parcels of at least 35 acres, at prices ranging from $13,000
to $18,000, depending on location and size.  These parcels are sold without any 
planned improvements and without water rights, which rights have been reserved  
by LHC, except for an owner's right to drill a domestic well.  Substantially all
of the parcels have been sold, with 24 parcels remaining in inventory at        
December 31, 2001.                                                              

In September 1993, LHC acquired improved and unimproved land in Park  
County, Colorado, known as South Park Ranch, which is being sold for            
recreational use as 1,870 separate parcels typically ranging in size from 5 to 9
acres and a few larger parcels at prices beginning at $17,000.  Substantially   
all of the parcels had been sold, with 20 parcels remaining in inventory as of  
December 31, 2001.  These parcels are sold without any planned improvements,    
except for roads which are already in place and a recreational facility that    
includes a basketball court, baseball field and picnic facilities.              

 In February 1998, LHC acquired a tract of land in Park County, Colorado
near the town of Hartsel, known as Hartsel Springs Ranch.  In July 2001, LHC    
acquired additional parcels.  This property is being sold as 2,434 separate     
parcels with an average price of $26,200 and size five acres, respectively.  As 
of December 31, 2001, 102 lots remained unsold.  These parcels are sold without 
any planned improvements, except for roads which are already in place.          

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  The following table illustrates certain statistics regarding the parcels
and lots in Huerfano and Park Counties, Colorado:                               

Number of acres acquired since 1969                                      64,434 
Number of lots platted                                                    5,428 
Net number of lots sold through December 31, 2001                         5,279 
Percent of lots sold through December 31, 2001                               97%
Number of platted lots available for sale at December 31, 2001              149 

For the four Months ended December 31, 2001                                     
-------------------------------------------                                     
Number of parcels and lots sold                                             570 
Number of parcels and lots canceled                                        (178)
Number of parcels and lots exchanged                                       (239)
                                                                      --------
Number of parcels and lots sold, net of cancellations and exchanges         153 
                                                                      --------

For the four months ended December 31, 2001 and the fiscal years ended
August 31, 2001, 2000 and 1999, respectively, LHC's revenue from land sales was 
$6.2 million, $23.5 million, $20.7 million and $17.0 million, representing      
21.6%, 21.4%, 22.2% and 21.3% of total revenues.                                

Sales of Non-Core Assets                                                        

  The Company owns and has listed for sale certain commercial parcels that
are not necessary for its normal business activities.  Twenty-two of these      
parcels located in the Pahrump Valley.  The Company also owns water rights in   
Huerfano County, that are in escrow for sale for $900,000 and a 4.25 acre parcel
in Biloxi, Mississippi, that is listed for sale for approximately $2,125,000.   

   Since the Company began listing its non-core assets for sale in 1999, the
sale of its two office buildings, the Company has sold in book value            
approximately $18.8 million in non-core assets.  Sales have included two golf   
courses, a sports complex, seven other parcels located in the Pahrump Valley,   
its two office buildings and Central Nevada Utilities Corporation.   In 2000,   
the Company leased back the building at 1500 E. Tropicana for a period of ten   
years with two 5-year renewal options, and the building at 4310 Paradise Road   
for a period of 5- 1/2 years with a 4- 1/2 year renewal option.  The majority of
the sales proceeds were used to reduce debt and for working capital.            

    The Company will continue to actively market its non-core assets; however,
there is no certainty as to when additional sales will occur or whether the     
Company will realize a profit from such sales.                                  

Trust Arrangements                                                              

     Title to certain LHC resort properties and land parcels in Huerfano County,
Colorado is held in trust by trustees to meet regulatory requirements that were 
applicable at the time of the commencement of sales.  In connection with sales  
of vacation ownership interests pursuant to "right-to-use" or installment sales 
contracts, title to certain LHC resort properties in the states of Nevada and   
Hawaii are held in trust by trustees to meet requirements of certain state      
regulatory authorities.  Prior to 1988, LHC sold vacation ownership interests in
certain of its resorts in the state of Nevada pursuant to "right-to-use"        
contracts and continues in other resorts to sell under installment sales        
contracts in which the purchaser does not receive a deed until the purchase     
price is paid in full.  Additionally, LHC offers "right-to-use" interests in its
resort in Hawaii, as this resort is owned in leasehold.  In connection with the 
registration of the sale of such "right to use" vacation ownership interests,   
the Department of Real Estate of the State of Nevada and the Department of      
Commerce and Consumer Affairs of the State of Hawaii require title to be held in
trust.                                                                          

Customer Financing                                                              

LHC provides financing to virtually all the purchasers of its vacation
ownership interests and retail lots who make a down payment equal to at least   
10% of the purchase price.  The financing is generally evidenced by installment 
sale contracts as well as notes secured by deeds of trust.  Currently, the term 
of the financing generally ranges from two to twelve years, with principal and  
interest payable in equal monthly payments.                                     

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Interest rates are fixed and generally range from 12.5% to 15.5% per year based 
on prevailing market rates and the amount of the down payment made relative to  
the sales price. LHC has a sales program 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. At December   
31, 2001, LHC serviced approximately 21,600 customer receivables related to     
sales of vacation ownership interests and land, whose receivables had an        
aggregate outstanding principal balance of $173.2 million, a weighted-average   
maturity of approximately 7 years and a weighted-average interest rate of 13.2  
%.                                                                              

 LHC has lines of credit with institutional lenders for the financing of
vacation ownership interest and land receivables of up to an aggregate of $162.0
million.  These lines of credit bear interest at variable rates tied to the     
prime rate and 90-day London Interbank Offering Rate (LIBOR) and are secured by 
vacation ownership, land receivables and the inventory.  As of December 31,     
2001, an aggregate of $121.4 million was outstanding under such lines of credit 
and $40.6 million was available for borrowing (subject to the availability of   
qualified collateral).  LHC periodically sells its vacation ownership and land  
receivables to various third party purchasers and uses a portion of the sales   
proceeds to reduce the outstanding balances of its lines of credit, thereby     
increasing the borrowing availability under such lines by the amount of         
prepayment.  These sales have generally resulted in yields to the purchaser that
are less than the weighted-average yield on the sold receivables.  The estimated
fair value of this spread is shown on LHC's books as retained interest in       
receivables sold. The receivable sales agreements generally provide for: (i) LHC
to continue servicing the sold receivables; (ii) LHC to repurchase or replace   
accounts that become more than 60 to 90 days contractually delinquent; (iii) the
maintenance of cash reserve accounts for losses;  (iv) certain minimum net worth
requirements; and (v) covenants that generally require LHC to use its best      
efforts to, among other things, remain the manager of the related resorts, cause
the Associations to maintain appropriate insurance and to pay applicable real   
estate taxes.  Performance by LHC on the lines of credit and sales of           
receivables is guaranteed by the Company.  The aggregate principal balance of   
receivables sold by LHC were $3.7 million, $3.6 million, $2.7 million and $2.6  
million at December 31, 2001, August 31, 2001, 2000 and 1999, respectively.     

  As of December 31, 2001, total sold notes receivable were $51.0 million.
LHC was contingently liable to replace or repurchase delinquent receivables     
related to such sold notes receivable. Delinquencies greater than 60 days have  
increased as of December 2001, to 7.5% from 5.3% as of August 31, 2001.  The    
following table sets forth information with respect to receivables owned and    
sold that were 60 or more days delinquent as of the dates indicated:            

(thousands of dollars):                                             

                   December 31,               August 31,
                              ------------  ----------------------------------
                                2001        2001         2000         1999
                              ------------  --------     --------     --------
    60-day delinquent           $ 14,320    $  9,938     $  8,494     $  9,153
    Total receivables           $191,686    $188,882     $172,907     $151,709
     60-day delinquency %             7.5%        5.3%         4.9%         6.0%

    The 60-day delinquent amounts include any account that is contractually 60
days delinquent, including those accounts whereby customers are still making    
payments but have not cured their delinquency status.                           

LHC provides an allowance for cancellations at the time it recognizes 
revenues from sales of vacation ownership interests and land.  LHC believes,    
based on its experience and its analysis of economic conditions, that the       
allowance is adequate to absorb losses on receivables that become uncollectible.
Upon the sale of the receivables, the allowance related to those receivables is 
reduced and the reserve for notes receivable sold with recourse is appropriately
increased.                                                                      

Marketing and Sales                                                             

     LHC markets and sells vacation ownership interests and land through on-site
and off-site sales offices.  LHC's sales staff receives commissions based on net
sales volume.  LHC maintains fully staffed on-site sales offices at its vacation
ownership properties in Las Vegas and Steamboat Springs, Colorado as well as its
Las Vegas headquarters, and at its land projects in Nevada and Colorado.  Small 
on-site sales offices staffed with one to two sales associates are maintained in
Reno, Nevada; Hawaii; Indian Shores and Orlando, Florida and Brigantine, New    
Jersey.                                                                         

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LHC also maintains off-site sales offices in West Covina, California; Dallas and
Houston, Texas; and Denver, Colorado. LHC's marketing efforts are targeted      
primarily at tourists and potential tourists meeting its customer profile.      
Currently, approximately 34.6% of sales are made through the Las Vegas sales    
offices.                                                                        

As part of its marketing strategy, LHC maintains an internal vacation 
ownership interest exchange program.  This program enables owners of LHC's      
vacation ownership interests to exchange their occupancy right at their home    
resort for an occupancy right at another of LHC's vacation ownership resorts.   
In addition, LHC has a sales program pursuant to which purchasers of its        
vacation ownership interests, retail lots and land may exchange their equity    
interests in one property for an interest in another of LHC's properties.       

The agreement of sale for a vacation ownership interest or land may be
rescinded within various statutory rescission periods ranging from five to ten  
days. For land sales made at a location other than the subject property, in     
addition to the statutory rescission period, the customer may cancel the        
contract within a specified period, usually five months from the date of        
purchase, provided that the contract is not in default, the customer has        
completed a developer-guided inspection of the subject property and thereafter  
the customer requests the cancellation. Generally, if a customer defaults after 
all rescission and cancellation periods have expired, all payments are retained 
by LHC.                                                                         

Seasonality                                                                     

     The Company's sales are not significantly affected seasonality factors. The
Company is not dependent upon any large affinity group of customers whose loss  
would have a material adverse effect on the Company.                            

Competition                                                                     

   The vacation ownership and real estate industries are highly competitive.
Competitors in the vacation ownership and real estate business include hotels   
and other vacation ownership and real estate developers.  Certain of the        
Company's competitors are substantially larger and have more capital and other  
resources than the Company.                                                     

LHC's vacation ownership resorts compete directly with many other such
resorts located in Las Vegas, Reno, Honolulu, Atlantic City, Orlando, St.       
Petersburg/Clearwater, Tampa and Steamboat Springs.  In recent years, several   
major lodging, hospitality and entertainment companies have begun to develop and
market vacation ownership properties.  According to the American Resort         
Development Association (ARDA) data, in 2001, approximately 31.5% of vacation   
ownership resorts were located in the Mountain/Pacific region of the United     
States, 23.6% in Florida, 12.0% in the Northeast region, 16.5% in the Southeast 
region and 16.4% in the Central region of the United States.  In addition, LHC  
competes with condominium projects and with traditional hotel accommodations in 
these areas.  Some of these competing projects and accommodations are larger and
more luxurious than LHC's current facilities.                                   

Government Regulation                                                           

    The Company's vacation ownership and real estate operations are subject to
extensive regulation and licensing requirements by federal, state and local     
authorities.  The following sub-sections summarize the regulations applicable to
the Company.                                                                    

Environmental Regulation                                                        

   Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate may be      
required to investigate and clean up hazardous or toxic substances or chemical  
releases at such property, and may be held liable to a governmental entity or to
third parties for property damage, personal injury and investigation and cleanup
costs incurred by such parties in connection with the contamination.  Such laws 
typically impose cleanup responsibility and liability without regard to whether 
the owner knew of or caused the presence of the contaminants, and the liability 
under such laws has been interpreted to be joint and several unless the harm is 
divisible and there is a reasonable basis for allocation of responsibility.  The
costs of investigation, remediation or removal of such substances may be        
substantial, and the presence of such substances, or the failure to properly    
remediate such property, may adversely affect the owner's ability to sell or    

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rent such property or to borrow using such property as collateral. Persons who  
arrange for the disposal or treatment of hazardous or toxic substances also may 
be liable for the costs of removal or remediation of such substances at the     
disposal or treatment facility, whether or not the facility is owned or operated
by such person. In addition, the owner or former owners of a site may be subject
to common law claims by third parties based on damages and costs resulting from 
environmental contamination emanating from a site.                              

Vacation Ownership Regulation                                                   

Nevada Revised Statutes Chapter 119A requires the Company to give each
customer a Public Offering Statement that discloses all aspects of the vacation 
ownership program, including the terms and conditions of sale, the common       
facilities, the costs to operate and maintain common facilities, the Company's  
history and all services and facilities available to the purchasers. Section    
514E of the Hawaii Revised Statutes provides for similar information to be      
provided to all prospective purchasers through the use of the Hawaii Disclosure 
Statement and Chapter 721 of the Florida Statutes has similar provisions.       
Section 11000, et seq., of the California Business and Professions Code provides
for similar information to be provided to all prospective purchasers through the
use of an Out-of-State Vacation ownership Permit issued by the California       
Department of Real Estate. Section 45 of the New Jersey Statutes Annotated      
provides for similar information to be provided to all prospective purchasers   
through the use of a Public Offering Statement. The Texas Register at 22 Texas  
Administrative Code, Section 543 provides for similar information to be provided
to all prospective purchasers through the use of the Texas Timeshare Disclosure 
Statement. Title 12, Article 61 of the Colorado Revised Statutes provides for   
similar information to be provided to all prospective purchasers in their       
contract of sale or by separate written documents. Nevada and Colorado require a
five-day rescission period for all vacation ownership purchasers. The rescission
period required by Hawaii and New Jersey is seven days. The rescission period   
required by Florida is ten days. The rescission period in California and Texas  
for out-of-state sales is five days. The Nevada, California, New Jersey, Hawaii,
Colorado, Florida and Texas vacation ownership statutes have stringent          
restrictions on sales and advertising practices and require the Company to      
utilize licensed sales personnel.                                               

Lending Regulation                                                              

     LHC is subject to various federal lending regulations related to marketing,
financing and selling consumer receivables.  These federal regulations include: 
Fair Housing Act, Americans With Disabilities Act, Interstate Land Sales Full   
Disclosure Act, Truth-In-Lending Act, Real Estate Settlement Procedures Act,    
Equal Credit Opportunity Act, Federal Trade Commission Telemarketing Rule,      
Federal Communications Commission Telephone Census Protection Act, Federal Trade
Commission Act (Unfair or Deceptive Act or Practices) and Fair Debt Collections 
Practices Act.                                                                  

     The Company believes that it has made all required filings with state, city
and county authorities and is in material compliance with all applicable        
federal, state and local regulations.  The Company believes that such           
regulations have not had a material adverse effect on any phase of the Company's
operations, including the overall cost of acquiring property.  Compliance with  
or changes in official interpretations of regulations might impose additional   
compliance costs on the Company that cannot be predicted.                       

Real Estate Regulation                                                          

     The real estate industry is subject to extensive regulation. The Company is
subject to compliance with various federal, state and local environmental,      
zoning and other statutes and regulations regarding the acquisition,            
subdivision, development and sale of real estate and various aspects of its     
financing operations. The Interstate Land Sales Full Disclosure Act establishes 
strict guidelines with respect to the subdivision and sale of land in interstate
commerce. The U.S. Department of Housing and Urban Development (HUD) has        
enforcement powers with respect to this statute. In some instances (e.g., land  
sales in Huerfano County, Colorado), the Company has been exempt from HUD       
registration requirements because of the size or number of the subdivided       
parcels and the limited nature or type of its offerings. The Company must       
disclose financial information concerning the property, evidence of title, a    
description of the intended manner of offering, proposed advertising materials  
and must bear the costs of such registration, which include legal and filing    
fees.                                                                           

  The Company believes that it is in compliance, in all material respects,
with all applicable federal, state and local regulations.                       

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The Company believes that such regulations have not had a material adverse      
effect on any phase of its operations. Compliance with future changes in        
regulations might impose additional compliance costs on the Company that cannot 
be predicted.                                                                   

Advertising Regulation                                                          

     LHC's marketing and advertising procedures are subject to the Federal Trade
Commission Act (Unfair and Deceptive Practices), Federal Trade Commission       
Telemarketing Rules, Federal Communication Commission Telephone Consumer        
Protection Act, Fair Housing Act, Equal Credit Opportunity Act and various state
consumer protection laws regulating telephone solicitations and the sale of     
travel and sweepstakes, both in states in which PEC vacation ownership resorts  
are located or registered and in states in which it otherwise solicits sales.   

Employees                                                                       

    As of December 31, 2001, LHC had 1,245 employees, of whom 1,051 were full-
time employees and 194 were part-time employees.  Employees were comprised of   
the following: 779 sales and marketing officers and personnel, 155 general and  
administrative personnel, 299 hotel personnel and 12 utility company personnel. 
None of PEC's employees are represented by a collective bargaining unit.  The   
Company believes that its relations with its employees are satisfactory.        

Item 2.  Properties                                                             

   As of December 31, 2001, the Company's unsold inventory consisted of: 160
residential, commercial and industrial lots, 149 recreational land parcels, and 
6,768 vacation ownership interests.  In addition, the Company maintains the     
following properties:                                                           

The Company's principal executive offices are located at 4310 Paradise
Road, Las Vegas, Nevada 89109, where it occupies approximately 31,000 square    
feet of office space.  In November 2000, the Company entered into a             
sale/leaseback transaction for this building.  The Company signed a master lease
for the entire building for an initial term of 5  1/2 years with one 4- 1/2 year
renewal option.  The current monthly rent is $30,450.                           

    In October 2000, the Company entered into a sale/leaseback transaction for
an office building located at 1500 E. Tropicana, Las Vegas, Nevada.  This       
building has approximately 57,500 square feet of office space, of which the     
Company occupies approximately 35,000 square feet.  Of the remaining space,     
approximately 7,000 square feet is leased to tenants on a short-term basis and  
approximately 15,500 square feet is unoccupied.  The Company signed a master    
lease for the entire building for a ten-year term with two five-year renewal    
options.  The current monthly rent is $58,308.                                  

    The Company leases an executive office at 1125 N. E. 125th Street in North
Miami, Florida, comprised of approximately 1,600 square feet, on a month-to-    
month basis.   This lease expired in April of 2002 and this office was closed.  

   The Company leases various other facilities on a long-term, short-term or
month-to-month basis for off-site marketing and sales offices. The Company has  
leased sales offices in West Covina, California; Denver, Colorado; Dallas and   
Houston, Texas and marketing locations in close proximity of those offices and  
its Las Vegas sales offices.                                                    

Item 3.  Legal Proceedings                                                      

     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 plaintiff's 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.                              

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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 defendant's 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.     

In the general course of business the Company and its subsidiaries and
affiliates including LHC may be named in lawsuits.  The Company will report all 
such litigation which it believes could have a material adverse effect on the   
business or financial condition of the Company.                                 

Item 4.  Submission of Matters to a Vote of Security Holders                    

No matters were submitted to a vote of the Company's security holders 
during the four-month period ended December 31, 2001.                           

PART II 

Item 5.  Market for the Registrant's Common Equity and Related Security Holder  
Matters                                                                         

Market Information                                                              

  The Company's common stock is traded on the Nasdaq National Market under
the symbol LESR.  The following table sets forth the high and low sales prices  
of the common stock as reported on the Nasdaq National Market for the periods   
presented:                                                                      

                                               High            Low
                                               ------------    -----------
December 31, 2001:                                                              
------------------                                                              

Four-month period ended December 31, 2001             $5.05          $3.86      

Year Ended August 31, 2001:                                                     
---------------------------                                                     

First Quarter                                          5.00           4.31      

Second Quarter                                         5.06           4.19      

Third Quarter                                          4.84           3.70      

Fourth Quarter                                         4.20           3.60      

Year Ended August 31, 2000:                                                     
---------------------------                                                     

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First Quarter                                          4.88           3.56      

Second Quarter                                         5.06           3.63      

Third Quarter                                          4.22           3.63      

Fourth Quarter                                         4.63           3.88      

As of May 1, 2002, there were 679 holders of record of the 5, 577,183 
outstanding shares of common stock.  The closing sales price for the common     
stock on May 1, 2002 was $5.80 per share.                                       

     The Company did not pay any cash dividends on its common stock during 2001.
The Company intends to retain future earnings for the operation and expansion of
its business and does not currently anticipate paying cash dividends on its     
common stock.  Any future determination as to the payment of such cash dividends
would depend on a number of factors including future earnings, results of       
operations, capital requirements, the Company's financial condition and any     
restrictions under credit agreements existing from time to time, as well as such
other factors as the Board of Directors might deem relevant.  No assurance can  
be given that the Company will pay any dividends in the future.                 

Item 6.  Selected Consolidated Financial Data                                   

The selected financial information set forth below should be read in  
conjunction with the consolidated financial statements, the related notes       
thereto and "Item 7". Management's Discussion and Analysis of Financial         
Condition and Results of Operations" included elsewhere herein.                 

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(thousands of dollars except per share amounts)                                 
Consolidated Selected Financial Data (1) (2)                                    
--------------------------------------------                                    

                                                        [Enlarge/Download Table]

                                                  Four Months                                                                  
                                                     Ended                                                                     
                                                  December 31,                   For the Years Ended August 31,                
                                                 --------------  ------------------------------------------------------------- 
                                                      2001         2001          2000        1999         1998          1997   
                                                 --------------  --------     ----------  ----------   ----------     -------- 
                                                                                                                               
Income statement data:                                                                                                         
Revenues of continuing operations:                                                                                             
----------------------------------                                                                                             
Timeshare interest sales                            $ 14,659     $ 61,758     $ 55,317     $ 45,830     $ 41,449      $ 39,850 
Land sales                                             6,189       23,550       20,723       17,037       14,903        19,248 
Interest income                                        5,295       14,977       12,430        9,310        7,161         7,168 
Financial income                                         475        2,995        1,153        1,184        3,304         2,922 
Utility operations                                       692        1,817        2,033        2,597        2,831         3,050 
Gain on sale of notes receivable                           -          668          635            -          656         2,013 
Gain on sale other investments and other assets            0          124        1,857          513            -             - 
Other (3)                                              1,477        4,164        3,701        3,657        3,113         3,464 
                                                    --------     --------     --------     --------     --------      -------- 
     Total revenues of continuing operations          28,787      110,053       97,849       80,128       73,417        77,715 
                                                    --------     --------     --------     --------     --------      -------- 

Costs and expenses of continuing operations:                                                                                   
--------------------------------------------                                                                                   
Cost of sales timeshare (4)                            2,451       10,886       10,518        8,527        7,375         5,922 
Cost of sales land (4)                                 1,040        3,359        3,050        2,709        1,770         1,571 
Interest expense                                       4,458       12,214       12,468        9,270        7,850         8,458 
Marketing and sales                                   14,274       48,781       39,769       35,291       34,167        34,078 
Provision for cancellations                            3,258        9,647        7,354        5,626        4,827        10,219 
Depreciation                                             574        1,412        1,827        1,878        2,245         1,964 
Incidental operations                                    386        1,631        1,698        2,274        2,644         2,984 
General and administrative                             8,591       18,942       17,746       14,333       17,736        17,175 
                                                    --------     --------     --------     --------     --------      -------- 
     Total costs and expenses of continuing                                                                                    
        operations                                    35,032      106,872       94,430       79,908       78,614        82,371 
                                                    --------     --------     --------     --------     --------      -------- 
Income (loss) from continuing operations                                                                                       
before income taxes                                   (6,245)       3,181        3,419          220       (5,197)       (4,656)

Income (taxes) benefit                                   (72)         656          530          830        1,968        12,662 
                                                    --------     --------     --------     --------     --------      -------- 

Income (loss) from continuing operations              (6,317)       3,837        3,949        1,050       (3,229)        8,006 

Income from discontinued operations                                                                                            
net of income taxes and minority interest (5)                           -            -            -            -        11,334 
                                                    --------     --------     --------     --------     --------      -------- 

Net income (loss) before extraordinary item           (6,317)       3,837        3,949        1,050       (3,229)       19,340 

Loss on extinguishment of debt, net of                                                                                         
income taxes (6)                                        (426)           -            -            -            -             - 
                                                    --------     --------     --------     --------     --------      -------- 

Net income (loss) applicable to common stock        $ (6,743)    $  3,837     $  3,949     $  1,050     $ (3,229)     $ 19,340 
                                                    ========     ========     ========     ========     ========      ======== 

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                                                        [Enlarge/Download Table]
                                                                                                                           
Per Share Data (7) (8):                                                                                                    
Basic:                                                                                                                     
------                                                                                                                     
Income (loss) from continuing operations      $     (1.81)  $      1.10  $      1.13  $      0.30  $     (0.92) $      2.58
Income from discontinued operations                     -             -            -            -            -         3.64
Loss on extinguishment of debt                      (0.12)                                                                 
                                              -----------   -----------  -----------  -----------  -----------  -----------
Net income (loss) applicable to common stock  $     (1.93)  $      1.10  $      1.13  $      0.30  $     (0.92) $      6.22
                                              ===========   ===========  ===========  ===========  ===========  ===========
Weighted-average number of common shares and                                                                               
Common share equivalents outstanding            3,500,557     3,500,557    3,500,557    3,500,557    3,500,557    3,108,510
                                              ===========   ===========  ===========  ===========  ===========  ===========
Diluted (9)                                                                                                                
-----------                                                                                                                
Income (loss) from continuing operations      $     (1.81)  $      1.10  $      1.13  $      0.30  $     (0.92) $      2.46
Income from discontinued operations                     -             -            -            -            -         3.48
Loss on extinguishment of debt                       (.12)            -            -            -            -             
                                              -----------   -----------  -----------  -----------  -----------  -----------
Net income (loss) applicable to common stock  $     (1.93)  $      1.10  $      1.13  $      0.30  $     (0.92)        5.94
                                              ===========   ===========  ===========  ===========  ===========  ===========
Weighted-average number of common shares and                                                                               
common share equivalents outstanding            3,500,557     3,500,557    3,500,557    3,500,557    3,500,557    3,253,718
                                              ===========   ===========  ===========  ===========  ===========  ===========

  (1)  On September 2, 1997, the Company distributed all of its 10 million
  shares of common stock of its former subsidiary, Mego Mortgage
        Corporation (MMC), to the Company's shareholders in a tax-free spin-
     off. The operations of MMC have been reclassified as discontinued
      operations and the fiscal 1997 prior years' Consolidated Financial
          Statements of the Company included herein reflect the reclassification
accordingly.                                                

(2)  The income statement data, per share data and balance sheet data 
          herein for the five fiscal years are not necessarily indicative of the
        results to be expected in the future. Certain reclassifications have
   been made to conform prior years with the current presentation.

    (3)  Other revenues include incidental operations' income, management fees
from Owners' Associations and other miscellaneous items.    

  (4)  Cost of sales includes product costs of sales of vacation ownership
interests and land, and utility operations' expenses.       

    (5)  Income from discontinued operations, net of taxes of $9.1 million and
        minority interest of $2.4 million, includes the net income from MMC,
    after tax, reduced by the related minority interests and certain
  general and administrative expense related to the discontinued
operations.                                                 

   (6)  Loss on extinguishment of debt, net of taxes of $219,000 relating to
   the restructuring of the Subordinated Debt. Under the fifteenth
  amendment, the Company agreed to pay approximately $645,000 to
      exchange the underlying collateral of the subordinated debt, defer
  payment of the remaining principal balance and all accumulated
      interest from March 1, 2002 until the sale of CNUC is completed or
          terminated, but not later then August 31, 2002. This subordinated debt
was paid in full on April 11, 2002, (see recent events).    

   (7)  All share and per share references have been restated to reflect the
      one-for-six reverse split of the Company's common stock, effective
September 9, 1999.                                          

 (8)  No cash dividends per common share were declared during the fiscal
years included herein.                                      

  (9)  The incremental shares from assumed conversions are not included in
       computing the diluted per share amounts for fiscal 1998 because the
          Company incurred a net loss and the effect would be anti-dilutive. The
   incremental shares from assumed conversions are not included in
     computing the diluted per share amounts for the four months ended
        December 31, 2001 or fiscal 2001, 2000 and 1999 because the exercise
          price of the options and warrants exceeded the average market price of
the common shares during these fiscal years.                

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(10) In payment of the exercise price of $4,250,000 of warrants exercised for   
166,666 shares of the Company's common stock by the Assignors, the    
     subordinated debt due to the Assignors was reduced by that amount in August
   1997. See Note 10 of Notes to Consolidated Financial Statements and "Item
     13. Certain Relationships and Related Transactions." This subordinated debt
was paid in full on April 11, 2002; see "Business Recent Events".     

Item 7.  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 and the foregoing Business sections contain 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 potential losses to the Company stemming from the economic downturn in
the tourism industry following the September 11, 2001 terrorist attacks have had
and are anticipated to continue to have some adverse impact on the operating    
results of the Company's the four months ended December 31, 2001, and possibly  
thereafter.  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 Consolidated Financial Statements, including the notes thereto, contained   
elsewhere herein.                                                               

General                                                                         

     The principal business of Mego Financial Corp. (the "Company" or "LESR") is
vacation ownership sales, resort operations, land sales for vacation and second 
homes and travel services.                                                      

    The following discussion relates to its financial position at December 31,
2001 and the results of its operations for the four months then ended.  In      
January 2002, the Company's new management adopted a business plan              
contemplating, among other things, the substantial expansion of its vacation    
resort business, and the initiation and acquisition of businesses that          
complement its vacation resort business.  See "Business - Recent Events" for a  
discussion of the elements of its 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 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 reasonable to us.  Any failure to do so may have a   
material adverse effect on our operations and financial results.                

Critical Accounting Policies and Estimates                                      

The Company's discussion and analysis of its financial condition and  
results of operations are based upon its consolidated financial statements,     
which have been prepared in accordance with accounting principles generally     

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accepted in the United States. The preparation of these financial statements    
requires management to make estimates and judgments that affect the reported    
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent liabilities. On an ongoing basis, management evaluates its estimates,
including those that relate to bad debts, investments, income tax contingencies 
and litigation. Management bases its estimates on historical experience and on  
various other assumptions that are believed to be reasonable under the          
circumstances, the results of which form the basis for making judgments about   
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different   
assumptions and conditions. If actual results significantly differ from         
management's estimates, the Company's financial condition and results of        
operations could be materially impacted.                                        

    The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its         
consolidated financial statements.                                              

LESR                                                                            
----                                                                            

LESR recognizes revenue primarily from the sales of vacation ownership
interests and land parcels, interest income, financial income from retained     
interests in receivables sold, and management fees from operating and managing  
vacation ownership properties through LRC.  The Company 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 six to ten months of closing, and sales of vacation         
ownership interests typically meet these requirements at the time of sale.  The 
sales 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, typically when the  
note is past due 180 days or more.  Cancellation of a note receivable subsequent
to the quarter the revenue was recognized is charged to the allowance for       
cancellations.                                                                  

The Company historically has sold its notes receivable at par value.  
Proceeds from the sale of notes receivable sold with recourse were $0, $14.9    
million, $19.6 million and $0 for the four months ended December 31, 2001 and   
for the fiscal years ended August 31, 2001, 2000 and 1999, respectively.  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 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 the key assumptions-- 
rates of prepayment, guaranteed rates of return and discount rates commensurate 
with the risks involved.                                                        

 The Company's retained interest in receivables sold are carried at fair
value as either derivatives or available-for-sale investments.  Unrealized      
holding gains or losses on the retained interest in receivables sold are        
included in earnings for those transactions structured so that the Company,     
through its retained interest, receives fixed interest amounts and pays the     
buyer variable amounts based on a floating interest rate index, as the resulting
financial interest meets the definition of a derivative.                        

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Unrealized holding gains or losses, if any, on retained interests in notes      
receivable sold not meeting the definition of a derivative would be included in 
shareholders' equity, net of income taxes. Losses in such retained interests    
considered to be other than temporary 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.  The       
Company records provision for cancellations at the time revenue is recognized,  
based on historical experience and current economic factors.  The related       
allowance for cancellations represents management'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 reduced by 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.  Management'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 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.                                    

 Recourse to the Company on sales of notes receivable is governed by the
agreements between the purchasers and LESR.  The reserve for notes receivable   
sold with recourse represents the Company's estimate of the fair value of future
credit losses to be incurred over the lives of the notes receivable.  A         
liability for reserve for notes receivable sold with recourse is established at 
the time of each sale based upon the Company's estimate of the fair value of the
future recourse obligation under each agreement of sale.                        

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.  Financial income includes changes in the fair value of retained        
interests sold and interest income accreted on such interests.  Interest income 
represents the interest earned on loans held in LESR's portfolio 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 amortization and interest expense.         
Marketing and sales costs directly attributable to unrecognized sales are       
accounted for as deferred selling costs until such time as the sale is          
recognized.  The Company incurs a portion of operating expenses of the vacation 
ownership Associations based on ownership of unsold vacation ownership interests
at each of the respective vacation ownership properties.  These costs are       
referred to as "association assessments" or "maintenance payments", and are     
included in the consolidated statements of operations in general and            
administrative expenses.   Management fees received from the Associations are   
included in other revenues in the consolidated statements of operations.  These 
fees are deemed not to be the result of a separate revenue generating line of   
business since the management activities to which they relate are part of the   
support of the vacation ownership business and the fees are actually a reduction
of the expense the Company incurs to fulfill obligations regarding vacation     
ownerships.                                                                     

The following table sets forth certain data regarding notes receivable
additions and servicing through sales of vacation ownership interests and land: 

                                                        [Enlarge/Download Table]

(in thousands, except number of notes)            Four Months                                   
                                                     Ended                                      
                                                  December 31,    For the Years Ended August 31,
                                                 --------------  -------------------------------
                                                       2001           2001                2000  
                                                 --------------  -------------------------------
                                                                                                
Principal balance of notes receivable additions  $       29,090  $   85,821          $    82,388
                                                 ==============  ==========          ===========

Number of notes receivable additions                      2,772       7,792                7,552
                                                 ==============  ==========          ===========

Notes receivable serviced at end of period       $      173,179  $  172,485          $   152,990
                                                 ==============  ==========          ===========

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    At December 31, 2001, $19.5 million of land sales not yet recognized under
accounting principles generally accepted in the United States since the         
requisite payment amounts had not yet been received or the respective           
Purchasers' rescission periods had not yet expired. Of the $19.5 million in     
unrecognized land sales, the Company estimates that it will ultimately recognize
$16.6 million of revenues, which would be reduced by a related provision for    
cancellations of $2.9 million, estimated selling costs of $4.8 million and cost 
of sales of $3.0 million, for an estimated net profit of $5.9 million.          

Real Estate Risk                                                                

  Real estate development involves significant risks, including risks that
suitable properties will not be available at reasonable prices, that            
acquisition, development and construction financing may not be available on     
favorable terms or at all, that infrastructure and construction costs may exceed
original estimates, that construction may not be completed on schedule, and that
upon completion of construction and improvements, properties may not be sold on 
favorable terms or at all.  In addition, LHC's vacation ownership activities, as
well as its ownership, improvement, subdivision and sale of land, are subject to
comprehensive federal, state and local laws regulating environmental and health 
matters, protection of endangered species, water supplies, zoning, land         
development, land use, building design and construction and other matters.  Such
laws and difficulties in obtaining, or the failure to obtain, the requisite     
licenses, permits, allocations, authorizations and other entitlements pursuant  
to such laws can adversely impact the development and completion of LHC's       
projects.  The enactment of "slow-growth" or "no-growth" initiatives in any area
where LHC sells land or vacation ownership interests could also delay or        
preclude entirely the development of such properties.                           

Results of Operations                                                           

Four Months Ended December 31, 2001 Compared to Four Months Ended December 31,  
2000                                                                            

The following discussion relates to our operating results for the four
months ended December 31, 2001 and December 31, 2000.                           

                                                                [Download Table]

                                                            Four Month         
                                                           Period Ended        
                                                           December 31,        
                                                    -------------------------- 
                                                        2001           2000    
                                                    ----------      ---------- 
                                                                    (unaudited)
                                                                               
REVENUES                                                                       
      Vacation ownership sales                      $   14,659      $   20,173 
      Land sales                                         6,189           6,460 
      Interest income                                    5,295           4,464 
      Financial income                                     475             665 
      Gain on sale of notes receivable                       -           1,607 
      Gain on sale of investments and other assets           -             293 
      Utility operations                                   692             643 
      Other                                              1,477           1,332 
                                                    ----------      ---------- 

               Total revenues                           28,787          35,637 

COSTS AND EXPENSES                                                             
      Direct cost of:                                                          
           Vacation ownership sales                      2,451           3,952 
           Land sales                                    1,040             992 
      Interest expense                                   4,458           4,041 
      Marketing and sales                               14,274          15,020 
      Utility operations                                   386             456 
      Provision for cancellations                        3,258           2,497 
      Depreciation                                         574             510 

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                                                        [Enlarge/Download Table]
                                                                                     
      General and administrative                                   8,591        6,583
                                                              ----------   ----------

         Total costs and expenses                                 35,032       34,051
                                                              ----------   ----------

(LOSS) INCOME BEFORE INCOME TAXES AND                                                
      EXTRAORDINARY ITEM                                          (6,245)       1,586

INCOME (TAX) BENEFIT EXPENSE                                         (72)         327
                                                              ----------   ----------

(LOSS) INCOME BEFORE EXTRAORDINARY ITEM                           (6,317)       1,913

      Extraordinary loss on early extinguishment                                     
        of debt, net of income taxes of approximately $219          (426)           -
                                                              ----------   ----------

NET (LOSS) INCOME                                             $   (6,743)  $    1,913
                                                              ==========   ==========

(LOSS) INCOME PER COMMON SHARE                                                       
      Basic and Diluted:                                                             
        (Loss) income before extraordinary item                    (1.81)        0.55

        Extraordinary loss on early extinguishment                                   
          of debt, net of income taxes of approximately $219       (0.12)           -
                                                              ----------   ----------
        Net (loss) income                                     $    (1.93)  $     0.55
                                                              ==========   ==========

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

Total revenues for the Company decreased 19% or $6.9 million to $28.7 million   
during the four-month period ended December 31, 2001 from $35.6 million during  
the four-month period ended December 31, 2000 primarily due to: a net decrease  
of $5.5 million in vacation ownership and land sales from $0.3 million in       
December 2001; an decrease of $1.6 million gain on sale of notes receivable     
during the four months ended; and, a decrease of $0.2 million in financial      
income to $0.5 million in the 4 months ended December 31, 2001 from $0.7 million
for the four month ended December 31, 2000.  This was partially offset by an    
increase of $0.8 million in interest income from $4.5 million in the four months
ended December 31, 2000 to $5.3 million in the four months ended December 31,   
2001.                                                                           

   Gross sales of vacation ownership interests decreased to $14.7 million in
the four months ended December 31, 2001 from $20.2 million in the four month    
ended December 31, 2000, a decrease of 27%.                                     

     Gross sales of land decreased to $6.2 during the four months ended December
31, 2001 from $6.5 million in fiscal 2001 a decrease of 4.6%.                   

     Financial income decreased to $0.5 million from $0.7 million.  The decrease
was primarily due to the comparative decreased volume of sold loans.            

  Interest income increased to $5.3 million from $4.5 million for the four
months ended December 31, 2001, an increase of 17.8% primarily due to increased 
average notes receivable balances for the current period.                       

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  Total costs and expenses for the Company increased to $35.0 million from
$34.1 million for the four months ended December 31, 2001, an increase of 3%.   
The increase resulted primarily from an increase of $2.0, or 30.5%, in general  
and administrative expenses, mostly due to the recognition of higher maintenance
fees expenses on developer owned vacation intervals, and as well as the         
inclusion of 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.  These increases were partially offset on a  
comparative basis as the fiscal 2000 expenses included reserves for the         
Company's guaranty of office and equipment leases related to a previously       
affiliated company.                                                             

     Interest expense increased $0.5 million to  $4.5 million from $4.0 million,
an increase of 12.5%.  While the average loan balances were higher in fiscal    
2001, the Company benefited from the declining interest rate market on its      
variable debt, net of the interest rate swaps.                                  

  As a percentage of gross sales of vacation ownership interests and land,
marketing and sales expenses related thereto increased to 68.5% during the four 
months ended December 31, 2001 from 56.4%.  Cost of sales was 16.7% for the     
four months ended December 31, 2001 as compared to 18.7%.  Sales prices of      
vacation ownership interests are typically lower than those of land, while      
selling costs per sale, other than commissions, are approximately the same for  
vacation ownership interests and land; accordingly, the Company generally       
realizes lower profit margins from sales of vacation ownership interests than   
from sales of land.                                                             

     Pretax loss of $6.2 million was recorded for the four months ended December
31, 2001 as compared to pretax income of 1.6 million for the four months ended  
December 31, 2000.                                                              

The income tax expense for the four months ended December 31, 2001 was
$72,000 as compared to the income tax benefit of $656,000 for fiscal 2001.  The 
benefit for fiscal 2001 was primarily due to the application of net operating   
loss (NOL) carryforwards and changes in certain income tax liability reserves as
a result of facts and circumstances determined in an ongoing review and analysis
of the Company's federal income tax liability. (See Note 11 of Notes to         
Consolidated Financial Statements).                                             

 Net loss applicable to common stock amounted to $6.8 million during the
four months ended December 31, 2001 compared to the net income of $1.0 million  
during the four months ended December 31, 2000, primarily due to the foregoing  
reported results.                                                               

Year Ended August 31, 2001 Compared to Year Ended August 31, 2000               

   Total revenues for the Company increased 12.6% or $12.3 million to $110.1
million during fiscal 2001 from $97.8 million during fiscal 2000 primarily due  
to: a net increase of $7.0 million in vacation ownership and land sales to $85.3
million in fiscal 2001 from $76.0 million in fiscal 2000 (vacation ownership    
sales increased by $6.4 million and land sales increased by $2.8 million); an   
increase of $2.6 million in interest income to $15.0 million in fiscal 2001 from
$12.4 million in fiscal 2000; and, an increase of $1.8 million in financial     
income to $3.0 million in fiscal 2001 from $1.2 million in fiscal 2000. This was
partially offset by a decrease of $1.7 million in gains on sale of assets and   
other investments from $1.9 million in fiscal 2000 to $124,000 in fiscal 2001.  

   Gross sales of vacation ownership interests increased to $61.8 million in
fiscal 2001 from $55.3 million in fiscal 2000, an increase of 11.6%.  Net sales 
of vacation ownership interests increased to $54.0 million from $49.1 million,  
an increase of 10.0%.  This increase is primarily attributable to a comparative 
increase in unit sales volume and also to certain price increases.  The         
provision for cancellations represented 12.6% and 11.3%, respectively, of gross 
sales of vacation ownership interests for fiscal 2001 and 2000.  The percentage 
increase in the provision for cancellations for vacation ownership interests was
primarily due to an increase in the fiscal 2001 provision, as consideration was 
given to negative economic and industry conditions, and their potential effect  
on future allowance requirements, and a downward adjustment recorded during the 
prior fiscal year based on a review of the reserve adequacy at that time.  The  
number of cancellations during fiscal 2001 was 968 compared to 1,048 during     
fiscal 2000.  The number of exchanges, generally for vacation ownership         
interests, which are primarily made for upgrades, was 1,819 during fiscal 2001  
compared to 1,955 during fiscal 2000.                                           

  Gross sales of land increased to $23.5 million in fiscal 2001 from $20.7
million in fiscal 2000, an increase of 13.6%.  Net sales of land increased to   
$21.7 million in fiscal 2001 from $19.6 million in fiscal 2000 an increase of   
10.5%.                                                                          

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The provision for cancellations increased to 7.9% for the year ended August 31, 
2001 from 5.3% of gross sales of land for the year ended August 31, 2000,       
primarily due to an upward adjustment recorded during fiscal 2001 and an        
increase in the fiscal 2001 provision percentage, as consideration was given to 
negative economic and industry conditions and their potential effect on future  
allowance requirements, and a downward adjustment recorded during fiscal 2000   
based on a review of reserve adequacy at that time.                             

Gain on sale of investments and other assets of $124,000 were recorded
during the fiscal 2001 compared to a gain of $1.9 million recorded during fiscal
2000.  In fiscal 2001, the Company sold its two office buildings in             
sale/leaseback transactions and is recognizing the gain over the term of the    
leases.  In fiscal 2000, the Company sold its golf courses and several          
commercial non-core land parcels in Pahrump Valley, Nevada.                     

     Financial income increased to $3.0 million from $1.2 million.  The increase
was primarily due to the comparative increased volume of sold loans and the     
increase in interest rate spread, including an increase in estimated fair value 
of retained interests in receivables sold, on those sold loan portfolios with a 
variable pass-through interest rate.                                            

Interest income increased to $15.0 million in fiscal 2001 from $12.4  
million in fiscal 2000, an increase of 20.5% primarily due to increased average 
notes receivable balances for the current period.                               

  Total costs and expenses for the Company increased to $106.8 million for
fiscal 2001 from $94.4 million for fiscal 2000, an increase of 13.1%.  The      
increase resulted primarily from: an increase of 5.0% in direct product costs of
vacation ownership interest and land sales to $14.2 million from $13.6 million, 
an increase of 22.7% in marketing and sales to $48.8 million from $39.8 million,
and, an increase of $1.2 million, or 6.7%, in general and administrative        
expenses. The increase in direct costs of vacation ownership interest and land  
sales is generally attributable to higher net vacation ownership sales in 2001. 
The increase in marketing and sales expenses is due primarily to the higher     
gross sales, new sales offices and general marketing increases related to a     
competitive sales environment.  The increase in general and administrative      
expenses is due primarily to the increase in recording and filing fees, escrow  
costs and credit card costs due to increase in volume, and the inclusion of 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.  These increases were partially offset on a comparative basis as the   
fiscal 2000 expenses included reserves for the Company's guaranty of office and 
equipment leases related to a previously affiliated company.                    

    Interest expense decreased $254,000 to $12.2 million from $12.5 million, a
decrease of 2.0%.  While the average loan balances were higher in fiscal 2001,  
the Company benefited from the declining interest rate market on its variable   
debt, net of the interest rate swaps.                                           

  As a percentage of gross sales of vacation ownership interests and land,
marketing and sales expenses related thereto increased to 57.2% in fiscal 2001  
from 52.3% in fiscal 2000.  Cost of sales was 16.7% in fiscal 2001 and 17.8% in 
fiscal 2000.  Sales prices of vacation ownership interests are typically lower  
than those of land, while selling costs per sale, other than commissions, are   
approximately the same for vacation ownership interests and land; accordingly,  
the Company generally realizes lower profit margins from sales of vacation      
ownership interests than from sales of land.                                    

Pretax income of $3.2 million was recorded in fiscal 2001 compared to 
pretax income of $3.4 million in fiscal 2000.                                   

    The income tax benefit for fiscal 2001 was $656,000 compared to the income
tax benefit of $530,000 for fiscal 2000.  The benefit for both fiscal 2001 and  
2000 was primarily due to the application of net operating loss (NOL)           
carryforwards and changes in certain income tax liability reserves as a result  
of facts and circumstances determined in an ongoing review and analysis of the  
Company's federal income tax liability. See Note 11 of Notes to Consolidated    
Financial Statements.                                                           

Net income applicable to common stock amounted to $3.8 million during 
fiscal 2001 compared to net income of $3.9 million during fiscal 2000, primarily
due to the foregoing reported results.                                          

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Year Ended August 31, 2000 Compared to Year Ended August 31, 1999               

  Total revenues for the Company increased 22.1% or $17.7 million to $97.8
million during fiscal 2000 from $80.1 million during fiscal 1999 primarily due  
to: a net increase of $13.1 million in vacation ownership and land sales to     
$76.0 million in fiscal 2000 from $62.9 million in fiscal 1999 (vacation        
ownership sales increased by $9.5 million and land sales increased by $3.7      
million); an increase in interest income to $12.4 million in fiscal 2000 from   
$9.3 million in fiscal 1999; and, a higher gain on sale of notes receivable and 
sale of investments and other assets.                                           

   Gross sales of vacation ownership interests increased to $55.3 million in
fiscal 2000 from $45.8 million in fiscal 1999, an increase of 20.7%. Net sales  
of vacation ownership interests increased to $49.1 million from $41.2 million,  
an increase of 18.9%. This increase is primarily attributable to a favorable mix
as a comparatively greater number of the high-priced units were sold during     
fiscal 2000, and also to certain price increases. The provision for             
cancellations represented 11.3% and 10.0%, respectively, of gross sales of      
vacation ownership interests for fiscal 2000 and 1999. The percentage increase  
in the provision for cancellations for vacation ownership interests was         
primarily due to a larger downward adjustment recorded during the prior fiscal  
year based on a review of the reserve adequacy at that time and cancellation    
experience during fiscal 2000. The number of cancellations during fiscal 2000   
was 1,048 compared to 875 during fiscal 1999. The number of exchanges, generally
for vacation ownership interests, which are primarily made for upgrades, was    
1,955 during fiscal 2000 compared to 2,757 during fiscal 1999.                  

  Gross sales of land increased to $20.7 million in fiscal 2000 from $17.0
million in fiscal 1999, an increase of 21.6%. Net sales of land increased to    
$19.6 million in fiscal 2000 from $16.0 million in fiscal 1999 an increase of   
22.8%. The provision for cancellations decreased to 5.3% for the year ended     
August 31, 2000 from 6.2% of gross sales of land for the year ended August 31,  
1999, primarily due to a downward adjustment recorded during fiscal 2000 based  
on a review of reserve adequacy.                                                

Gain on sale of notes receivable and investments of $2.5 million was  
recorded during the fiscal 2000 as the Company, in addition to notes receivable 
sales in the normal course of business, sold its golf courses and several       
commercial non-core land parcels in Pahrump Valley, Nevada. This is compared to 
a gain of $513,000 recorded during fiscal 1999 as the Company sold a parcel of  
land in Pahrump Valley, Nevada.                                                 

     Interest income increased to $12.4 million in fiscal 2000 from $9.3 million
in fiscal 1999, an increase of 33.5%, primarily due to increased average notes  
receivable balances for the current period.                                     

 Total costs and expenses for the Company increased to $94.3 million for
fiscal 2000 from $79.9 million for fiscal 1999, an increase of 18.0%. The       
increase resulted primarily from: an increase in direct product costs of        
vacation ownership interest sales and land sales to $13.5 million from $11.2    
million, an increase of 20.5%; an increase in marketing and sales to $39.8      
million from $35.3 million, an increase of 12.7%; an increase in interest       
expense to $12.5 million from $9.3 million, an increase of 34.5%; and, an       
increase of $3.4 million, or 23.8%, in general and administrative expenses. The 
increase in direct costs of vacation ownership sales is directly attributable to
higher vacation ownership sales in 2000 and to the higher costs to develop new  
vacation ownership inventory. The increase in marketing and sales expenses is   
due primarily to the higher gross sales; however, as noted below, the increase  
in dollars was accompanied by a related lower percentage of marketing and sales 
expenses. The increase in interest expense is due to the increase in the average
outstanding balance of notes and contracts payable. The increase in general and 
administrative expenses is due primarily to: increased sales volume; the        
increase in escrow costs related to the increased sales volume; a net increase  
in maintenance fees paid to Owner Associations by LHC; an increase in executive 
incentive plan compensation, which is directly related to the pretax income     
increase; the full resumption of payment of Directors' fees; and, reserves for  
the Company's guaranty of office and equipment leases related to a previously   
affiliated company.                                                             

  As a percentage of gross sales of vacation ownership interests and land,
marketing and sales expenses related thereto decreased to 52.3% in fiscal 2000  
from 56.1% in fiscal 1999. Cost of sales was 17.8% in fiscal 2000 and 17.9% in  
fiscal 1999. Sales prices of vacation ownership interests are typically lower   
than those of land, while selling costs per sale, other than commissions, are   
approximately the same in amount for vacation ownership interests and land;     
accordingly, the Company generally realizes lower profit margins from sales of  
vacation ownership interests than from sales of land. Subsequent to the first   
quarter of fiscal 1999, the Company restructured its marketing and sales        
programs, which restructuring included the closing of unprofitable sales        
locations, the elimination of certain marketing programs and the layoff of      
related personnel.                                                              

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Pretax income of $3.4 million was recorded in fiscal 2000 compared to 
pretax income of $220,000 in fiscal 1999.                                       

    The income tax benefit for fiscal 2000 was $530,000 compared to the income
tax benefit of $830,000 for fiscal 1999. The benefit for both fiscal 2000 and   
1999 was primarily due to the application of net operating loss (NOL)           
carryforwards and changes in certain income tax liability reserves as a result  
of facts and circumstances determined in an ongoing review and analysis of the  
Company's federal income tax liability.                                         

Net income applicable to common stock amounted to $3.9 million during 
fiscal 2000 compared to net income of $1.1 million during fiscal 1999, primarily
due to the foregoing reported results.                                          

Liquidity and Capital Resources                                                 

    The following discussion relates to our financial position at December 31,
2001 and the results of our operations for the four month 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 on terms acceptable to us. Any   
failure to raise the necessary capital may have a material adverse effect on our
operations and financial results.                                               

    Cash and cash equivalents for the Company were $1.7 million as of December
31, 2001 compared to $1.9 million as of August 31, 2001. The fluctuation in this
account is primarily due to the timing of the Company's fundings, which occur in
the normal course of business and the increase in restricted cash required by   
lenders as loans were sold.                                                     

The Company's cash requirements arise from the acquisition of vacation
ownership 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 vacation ownership interests and land.     
Marketing and sales expenses payable by LHC in connection with sales of vacation
ownership interests and land typically exceed the down payments received at the 
time of sale; as a result, such sales generate significant cash shortfalls. The 
cash shortfalls and other cash requirements are funded primarily through        
advances under the Company's lines of credit, sales of receivables and cash flow
from operations. The lines of credit historically have been issued to LHC with  
the guarantee of the Company.                                                   

At December 31, 2001, the Company had the following commitments for   
material capital expenditures:                                                  

158 Ida Street, Las Vegas, Nevada                 $1.5 million        

Subsequent to December 31, 2001, the company purchased property in Las
Vegas located at 158 Ida for a purchase price of approximately 1.5 million. The 
company plans to use this property as part of the expansion, tear-down and      
rebuild, of the Las Vegas Resorts.                                              

 As of December 31, 2001, LHC had a maximum borrowing capacity of $162.0
million under its lines of credit with various 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. These lines of credit bear interest at variable rates above the prime rate
and 90-day London Interbank Offering Rate (LIBOR) and are secured by vacation   
ownership and land receivables and inventory. As of December 31, 2001, an       
aggregate of $121.4 million was outstanding under such lines of credit, and     
$40.6 million was available for borrowing (subject to the availability of       
qualified collateral). Under the terms of these lines of credit, LHC may,       
depending upon the terms and conditions of the respective line of credit, borrow
65% to 85% of the amount of the pledged vacation ownership and land receivables.
The Company and its subsidiary, LHC, are required to comply with certain        
covenants under these agreements, which, among other things, require the Company
and LHC to meet certain minimum tangible net worth requirements.                

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The most stringent of such requirements provides that LHC maintains a 
    minimum tangible net worth of $27.5 million as of December 31, 2001. LHC's
  tangible net worth was $38.0 million. The table below sets forth certain
    information with respect to these lines of credit as of December 31, 2001:

                                                        [Enlarge/Download Table]

(thousands of dollars)                                                                                                     

                          Outstanding                                                                                      
                            Balance         Maximum            Revolving                                                   
     Lender            December 31, 2001    Amounts       Expiration Date (a)    Maturity Date (a)       Interest Rate     
     ------            -----------------  ------------  -----------------------  -----------------  -----------------------
                                                                                                                           
Finova                 $          59,479  $     65,000  (b)  February 28, 2002   Various            Prime +  2.0 - 2.25%   
Textron                           28,314        35,000  (c)  December 1, 2002    Various            Prime +  2.0 - 3%      
GE Capital                        28,694        40,000  (d)  April 30, 2003      Various            Libor +  4.0 - 4.25%   
HSBC                                 179         5,000  (e)  February 4, 2002    February 6, 2006   Prime +  1.0%          
Capital Source                     3,491        15,000  (f)  August 8, 2004      August 8, 2004     Prime +  2.5%          
Textron                            1,223         1,972  (g)  N/A                 July 31, 2003      Prime + 2.25%          
                       -----------------  ------------                                                                     
                       $         121,380  $    161,972                                                                     
                       =================  ============                                                                     

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

  (b)  Covenants includes LHC's requirement to maintain a minimum tangible
        net worth of $25 million; LHC's requirement not to exceed a ratio of
      4:1 of consolidated total liabilities to consolidated tangible net
          worth; LHC's requirement to maintain a minimum net processed sales for
    each fiscal quarter, and LHC's requirement to maintain a maximum
        percentage of costs and expenses for marketing and sales and general
        and administrative expenses relating to net processed sales for each
        rolling 12-month period. The maximum percentage related to costs and
  expenses referred to above has been exceeded in the last three
          quarters. This does not constitute an Event of Default under this loan
       agreement, or this line of credit; however, it gives the lender the
    option to suspend advances to LHC under this line of credit. The
         lender has not elected to exercise this option, has continued to make
     regular advances and has informed LHC verbally that it intends to
     continue such advances. As of December 31, 2001, $58.0 million of
          loans secured by receivables were outstanding related to financings at
  prime plus 2%, of which $26.9 million of loans secured by land
         receivables mature May 15, 2010 and $31.1 million of loans secured by
       vacation ownership receivables mature May 15, 2007. The outstanding
    borrowing amount includes a real estate loan with an outstanding
       balance of $523,000 maturing December 31, 2001, bearing interest at
     prime plus 2.25%. The remaining Acquisition and Development (A&D)
        loans, receivables loans and a resort lobby loan outstanding of $1.5
million are at prime plus 2% and mature                     

     (c)  Covenants include LHC'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. As of December
     31, 2001, $4.17 million was outstanding under the A&D loan, which
         matures on February 28, 2004, and $18.9 million was outstanding under
        the receivables loan, which matures on June 30, 2004. There also are
          two working capital loans: $2.3 million at prime plus 3% which expires
       December 31, 2001, and $2.9 million at prime plus 2%, which expires
April 1, 2005, and is secured by inventory.                 

     (d)  Covenants include LHC's requirement to maintain a minimum tangible net
         worth of $25 million. These credit lines include available financings
   for A&D and receivables. At December 31, 2001, $2.6 million was
        outstanding under the A&D loans, which have a maturity date of April
         30, 2003 and bear interest at the 90-day LIBOR plus 4%. The available
   receivable financings, of which $2.6 million was outstanding at
      December 31, 2001, are at 90-day LIBOR plus 4% and have a maturity
date of March 30, 2006.                                     

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

     (f)  Covenants include LHC's requirement to maintain a minimum tangible net
   worth of $27.5 million. This is a receivables line, which bears
interest at prime plus 2.5% and matures on August 8, 2004.  

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

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

                                                        [Enlarge/Download Table]

                                              Four Months                                                           
                                                 Ended                                                              
(thousands of dollars)                        December 31,            For the Fiscal Years ended August 31,         
                                             --------------   ----------------------------------------------------- 
                                                  2001             2001              2000               1999        
                                             --------------   --------------   ----------------   ----------------- 
                                                                                                                    
Marketing and selling expenses attributable                                                                         
   to recognized and unrecognized sales      $       14,530   $       46,514   $         40,717   $          35,856 
Less:  Down payments                                 (3,770)         (13,486)           (12,280)            (12,452)
                                             --------------   --------------   ----------------   ----------------- 

Cash Shortfall                               $       10,760   $       33,028   $         28,437   $          23,404 
                                             ==============   ==============   ================   ================= 

        The Company sells notes receivable subject to recourse provisions as
contained in each agreement. The Company is obligated under these     
  agreements to replace or repurchase accounts that are over 60 to 90 days
     delinquent or are otherwise subject to replacement or repurchase, in either
   cash or receivables at the option of the purchaser. At December 31, 2001,
August 31, 2001 and 2000, LHC was contingently liable to replace or   
repurchase notes receivable sold with recourse totaling $51.0 million,
    $56.8 million and, $59.6 million respectively. The undiscounted amounts of
   the recourse obligations on such notes receivable were $3.6 million, $4.0
million, and $4.5 million at December 31, 2001, August 31, 2001 and at
    August 31, 2000, respectively. Management 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.                                                    

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, defaults, 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, excluding discounts, and
 the reserve for notes receivable sold with recourse for the four months
  ended December 31, 2001 and for fiscal years ended August 31, 2001, 2000
and 1999, consisted of the following:                                 

                                                        [Enlarge/Download Table]

                                           Four Months                                                           
                                              ended                                                              
     (thousands of dollars)                December 31,            For the Fiscal Years Ended August 31,         
                                          --------------   ----------------------------------------------------- 
                                               2001             2001              2000               1999        
                                          --------------   --------------   -----------------  ----------------- 
                                                                                                                 
Balance at beginning of period            $       18,705   $       16,860   $          18,149  $          18,488 

     Provision for cancellations                   3,258            9,647               7,354              5,626 
     Amounts charged to allowance for                                                                            
     cancellations and reserve for notes                                                                         
     receivable sold with recourse                (3,493)          (7,802)             (8,643)            (5,965)
                                          --------------   --------------   -----------------  ----------------- 

Balance at end of period                  $       18,470   $       18,705   $          16,860  $          18,149 
                                          ==============   ==============   =================  ================= 

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        The allowance for cancellations and the reserve for notes receivable
sold with recourse consisted of the following:                        

                                                        [Enlarge/Download Table]

                                                                          Four Months Ended                    
(thousands of dollars)                            December 31,                August 31,                       
                                                  ------------  -----------------------------------------------
                                                      2001          2001             2000              1999    
                                                  ------------  -----------------------------------------------
                                                                                                               
Allowance for cancellations, excluding discounts  $     14,910  $     14,707    $      12,827      $     13,987
Reserve for notes receivable sold with recourse          3,560         3,998            4,033             4,162
                                                  ------------  ------------    -------------      ------------

          Total                                   $     18,470  $     18,705    $      16,860      $     18,149
                                                  ============  ============    =============      ============

  The combined allowance for cancellations and reserve for notes
     receivable sold with recourse as a percentage of total owned and sold notes
    receivable was 9.6% as of December 31, 2001 compared to 10.8% as of August
31, 2001.                                                             

December 31, 2001 Compared to August 31, 2001                         

       Cash and cash equivalents was $1.7 million at December 31, 2001 and
$1.9 million at August 31, 2001 due to timing differences.            

  Notes receivable, net, increased 4.0% to $109.3 million during
     December 31, 2001 from $105.1 million at August 31, 2001 as a result of the
   increased fourth quarter fiscal 2001 sales, net of notes receivable sold,
during that period.                                                   

        Retained interest in receivables sold increased 2.4% to $3.6 million
at December 31, 2001 from $3.6 million at August 31, 2001.            

         Land and improvements inventory and vacation ownership interests held
  for sale decreased 3.1% to $20.6 million at December 31, 2001 from $21.7
  million at August 31, 2001. This decrease is a result of decreased sales
  during the four-month period ended December 31, 2001 offset by inventory
acquisitions.                                                         

   Notes and contracts payable increased 9.4% to $131.5 million at
  December 31, 2001 from $120.2 million at August 31, 2001. Net borrowings
     related to financing customer receivables increased by $28.8 million, which
was partially offset by net paydowns on other debt of $17.5 million.  

       Deferred income taxes decreased 12% to $1.4 million at December 31,
  2001 from $1.6 million at August 31, 2001, due to the changes in certain
income tax liability reserves as a result of facts and circumstances  
determined in an ongoing review and analysis of the Company's federal 
income tax liability, and the income tax effect on the unrealized     
depreciation on interest rate swaps.                                  

        Stockholders' equity decreased to $21.3 million at December 31, 2001
from $28.2 million at August 31, 2001 as a result of net loss of $6.8 
     million during the four months ended December 31, 2001, partially offset by
a net increase in accumulated other comprehensive loss of $92,000,    
reflecting interest rate swap transactions.                           

August 31, 2001 Compared to August 31, 2000                           

          Cash and cash equivalents was $1.9 million at August 31, 2001 and $1.1
million at August 31, 2000.                                           

          Notes receivable, net, increased 26.3% to $105.1 million at August 31,
 2001 from $83.2 million at August 31, 1999 as a result of the increased
fiscal 2001 sales, net of notes receivable sold during fiscal 2001.   

          Retained interests in receivables sold increased 33.3% to $3.6 million
at August 31, 2001 from $2.7 million at August 31, 2000.              

         Land and improvements inventory and vacation ownership interests held
 for sale decreased 22.3% to $21.3 million at August 31, 2001 from $27.4
million at August 31, 2000. This decrease is directly related to the  
increase in sales in fiscal 2001.                                     

    Notes and contracts payable increased 10.2% to $120.2 million at
August 31, 2001 from $109.1 million at August 31, 2000. Net borrowings
    related to financing customer receivables increased by $9.6 million, which
was partially offset by net paydowns on other debt of $2.9 million.   

      Reserve for notes receivable sold with recourse were $4.0 and $4.0
    respectively at August 31, 2001 and 2000. The majority of notes receivable
sold during the fiscal year were land receivables,                    

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which typically require a lower reserve. The loans previously sold prior to     
fiscal 2001 continue to amortize, which correspondingly lowers the required     
reserve.                                                                        

 Deferred income taxes decreased to $1.6 million at August 31, 2001 from
$3.0 million, due to the changes in certain income tax liability reserves as a  
result of facts and circumstances determined in an ongoing review and analysis  
of the Company's federal income tax liability.                                  

 Stockholders' equity decreased to $28.2 million at August 31, 2001 from
$25.8 million at August 31, 2000 as a result of net income of $3.9 million      
during fiscal 2001.                                                             

Recent Accounting Standards                                                     

    In July 2001, the FASB issued Statements of Financial Accounting Standards
No. 141, "Business Combinations" (SFAS 141), and No. 142, "Goodwill and Other   
Intangible Assets" (SFAS 142). SFAS 141 eliminated the use of the pooling-of-   
interests method of accounting for business combinations initiated after June   
30, 2001 and is effective for any business combination accounted for by the     
purchase method that is completed after June 30, 2001. SFAS 142, which includes 
the requirements to test goodwill and indefinite lived intangible assets for    
impairment rather than amortize them, will be effective for fiscal years        
beginning after December 15, 2001. Management does not believe the adoption of  
these statements will have a significant impact on the Company's financial      
statements.                                                                     

     In September 2001, the FASB issued SFAS No. 144 on asset impairment that is
applicable to financial statements issued for fiscal years beginning after      
December 15, 2001. The FASB's new rules on asset impairment supersede FASB No.  
121 and provide a single accounting model for long-lived assets to be disposed  
of. Management does not believe that the adoption of SFAS 144 will have a       
material effect on the financial statements.                                    

  New accounting rules or statements may affect the income and earnings of
the Company from time to time.                                                  

Effects of Changing Prices and Inflation                                        

   The Company's operations are sensitive to increases in interest rates and
to inflation. Increased borrowing costs resulting from increases in interest    
rates may not be immediately recoverable from prospective purchasers.           
Inflationary increases are difficult to pass on to customers since increases in 
sales prices often result in lower sales closing rates and higher cancellations.
The Company's notes receivable consist primarily of fixed-rate long term        
installment contracts that do not increase or decrease as a result of changes in
interest rates charged to the Company. In addition, delinquency and cancellation
rates may be affected by changes in the national economy.                       

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk            

The Company's various business activities generate liquidity, market and credit 
risk:                                                                           

    .    liquidity risk is the possibility of being unable to meet all present
and future financial obligations in a timely manner;        

    .    market risk is the possibility that changes in future market rates or
prices will make the Company's positions less valuable; and 

    .    credit risk is the possible loss from a customer's failure to perform
according to the terms of the transaction.                  

The table below provides information about the Company's financial    
instruments that are sensitive to changes in interest rates. Such information   
includes fair values of the market risk sensitive instruments and contract terms
sufficient to determine future cash flows from those instruments, categorized by
expected maturity dates:                                                        

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                                                        [Enlarge/Download Table]

                                                             Expected Maturity Date as of December                         
                                   ----------------------------------------------------------------------------------------
(thousands of dollars)                                                                        There-                Fair   
                                      2002        2003       2004        2005       2006      after      Total      Value  
                                   ----------   --------   -------     --------   --------  ---------  --------- ----------
                                                                                                                           
Assets:                                                                                                                    
Notes receivable (a)                                                                                                       
      Fixed rate                   $  8,550     $  9,960   $11,150     $ 12,740   $ 14,560  $  52,580  $ 109,348  $ 109,348
          Average interest rate       13.40%       13.40%    13.40%       13.40%     13.40%     13.40%                     
Retained interests in receivables                                                                                          
          sold (b)                                                                                                         
      Fixed rate                   $    252     $    288   $   327     $    353   $    464  $     328  $   2,012  $   2,012
          Average interest rate       13.53%       13.55%    13.59%       13.64%     13.74%     13.89%                     
      Variable rate                $    200     $    227   $   257     $    290   $    329  $     373  $   1,676  $   1,343
          Average interest rate       12.55%       12.55%    12.56%       12.58%     12.62%     12.74%                     

Liabilities:                                                                                                               
Notes and contracts payable (c)                                                                                            
      Fixed rate                   $    550     $    140   $   245     $    109   $     75             $   1,119  $   1,119
          Average interest rate       11.79%       11.79%    11.79%       11.79%     11.79%                                
      Variable rate                $  3,839     $  1,223   $13,814     $ 15,678   $ 28,872  $  58,012  $ 121,438  $ 121,438
          Average interest rate       10.27%        7.00%     7.00%        8.04%      6.10%     10.00%                     
Subordinated debt (d)                                                                                                      
      Fixed rate                   $   4,211                                                           $   4,211  $  4,211 
          Average interest rate        10.00%                                                                              
Interest rate swap (e)                                                 $ (2,043)  $   (207)            $  (2,251) $ (2,251)
      Fixed rate                                                          10.94%      5.34%                                

(a)  The fair value was estimated by discounting future cash flows of the       
outstanding notes receivable, net of the allowance for cancellation.  

(b)  The fair value was estimated by discounting future cash flows of the       
    instruments using discount rates, default, loss and prepayment assumptions
based upon available market data, opinions from financial advisors and
portfolio experience.                                                 

(c)  Interest rates on notes payable generally are adjustable, indexed to the   
prime rate or to the 90-day London Interbank Offering Rate (LIBOR);   
therefore, carrying value approximates fair value.                    

(d)  Carrying value is approximately the same as fair value.                    

(e)  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. In August 2001, the Company entered into a similar $20 million,
5-year, interest rate swap transaction.                               

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Item 8.  Financial Statements and Supplementary Data                            

The following consolidated financial statements of the Company and its
subsidiaries are included herewith:                                             

                                                                Page
                                                                ----

Report of Independent Certified Public Accountants                     F-2      
Independent Auditors' Report                                           F-3      
Consolidated Balance Sheets                                            F-4      
Consolidated Statements of Operations                                  F-5      
Consolidated Statements of Stockholders' Equity                        F-6      
Consolidated Statements of Cash Flows                                  F-7      
Notes to Consolidated Financial Statements                             F-8      

    All schedules are omitted because of the absence of conditions under which
they are required or because the required information is included in the        
financial statements.                                                           

Item 9.  Changes in and Disagreements With Accountants on Accounting and        
Financial Disclosure                                                            

 On August 21, 2001, the Company changed its public accounting firm from
Deloitte & Touche LLP to Ernst & Young LLP.                                     

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PART III

Item 10.  Directors and Executive Officers of the Company as of January 18, 2002

The following table sets forth certain information with respect to the
directors and executive officers of the Company.                                

                                                        [Enlarge/Download Table]

       Name                     Age           Position (of Company unless otherwise noted)    
----------------------------  --------  ------------------------------------------------------
                                                                                              
Floyd W. Kephart                 59      Chairman of the Board, Chief Executive Officer and   
                                           President                                          
Spencer I. Browne                52      Director                                             
Michael H. Greco                 51      Director                                             
James D. Locke                   57      Director                                             
Ross Mangano                     55      Director                                             
Thomas G. Palmer                 63      Director                                             
Edward J. Wegel                  44      Vice Chairman of the Board of Directors              
Gregg A. McMurtrie               46      President of Leisure Homes Corporation               
Jon A. Joseph                    55      Senior Vice President and General Counsel            
Carol W. Sullivan                53      Senior Vice President and Chief Financial Officer,   
                                           LHC                                                
Robert S. Understein             60      Senior Vice President and Chief Financial Officer    
Michelle K. Decker               44      Senior Vice President and Director of Technology     
Kella K. Brown                   53      Director of Communications                           
Angela Jester                    34      Senior Vice President and Director of Human          
                                           Resources                                          
Diane Steenman                   55      President of Leisure Services Corporation            

Floyd W. Kephart has been Chief Executive Officer and President of the
Company since December 13, 2001 and a partner in Union Square Partners since    
October 1, 2000.  He resigned from Union Square Partners on January 17, 2002.   
Mr. Kephart has served as Chairman of the Board of Directors of Solutions       
America since its inception in July 1999.  Mr. Kephart has served on several    
corporate boards and on the Securities and Exchange Commission's Advisory       
Commission on Small Capital Formation.  He has been a frequent speaker on issues
relating to future trends in business and government.  Mr. Kephart has held     
several government positions and has served as a policy consultant to three     
presidential administrations.  As a consultant to business, he has worked with  
over 30 Fortune 150 clients, including General Motors, Sony Pictures            
Entertainment, Procter & Gamble, Chrysler, ABC, NBC and Columbia/HCA, and has   
provided media training or advice on corporate strategy to more than 100        
corporate executives and celebrities.  Mr. Kephart has served as Chairman and   
Chief Executive Officer of Artists & Entertainment, Inc. since 1987.  Mr.       
Kephart also served as Chairman of the Board of Directors of SCA, Inc. from     
January 1997 to May 1999.  Artists & Entertainment, Inc. was a shareholder in   
SCA, Inc.  The other shareholders of SCA, Inc. deadlocked over the operation of 
the corporation and decided to put the corporation into bankruptcy.  As         
chairman, Mr. Kephart oversaw the termination of all directors, officers and    
employees of SCA, Inc. and filed for protection under Chapter 11 of the         
Bankruptcy Act.  He was then replaced by a trustee who oversaw the completion of
the bankruptcy proceedings.                                                     

 Spencer I. Browne was the founder and has been a principal of Strategic
Asset Management, LLC since 1996.  Strategic Asset Management, LLC assists small
and medium-size companies to access the capital markets and provides initial and
mezzanine capital through direct investment in debt and equity securities. From 
1988 to 1996, Mr. Browne was President and Chief Executive Officer of Asset     
Investors Corporation, a mortgage real estate investment trust, and form 1989 to
1996 he was also President and Chief Operating Officer, and from 1990 a         
director, of MDC Holdings, Inc., among the nation's largest homebuilding and    
mortgage origination Companies.  From 1996 to 1999, Mr. Browne was a director of
Mego Mortgage Corporation, a former subsidiary of the Company.                  

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    Mr. Browne received his Bachelor of Science degree from the Wharton School
at the University of Pennsylvania and his law degree from Villanova University. 
Mr. Browne serves as a director of Annally Mortgage Management, Inc. and        
Internet Commerce Corporation.                                                  

   Michael H. Greco has been the Chief Executive Officer of MortgageRamp.com
since 2000.  MortgageRamp.com is a fully integrated, Web-based, end-to-end      
commercial real estate financing company.  From 1999 to 2000, he was President  
and Chief Executive Officer of Lake Norman Capital Advisors LLC, a full-service 
advisory company serving the collateralized mortgage-backed securities industry.
From 1998 to 1999, he was Chief Executive Officer of WMF Funding, a division of 
WMF Group, Ltd.  From 1994 to 1998, he was a managing director of First Union   
National Bank, and from 1992 to 1994, he was a Senior Vice President of         
Donaldson, Lufkin & Jenrette.  He is a graduate of Georgia State University with
a B.S. in Urban Planning.                                                       

   James D. Locke has been a partner of Union Square Partners since February
2000.  Union Square Partners is a boutique investment banking firm with an      
emphasis on financial services and restructurings.  From 1990 to 2000, Mr. Locke
was employed by Friedman, Billings, Ramsey & Co., where he became a partner in  
1997 and was the co-head of the real estate group.  Mr. Locke received a        
Bachelor of Science in Economics from the University of Illinois and a Master of
City and Regional Planning from the University of North Carolina.  In 1999, he  
graduated from the Advanced Management Program at the Harvard Business School.  

Ross Mangano has been the President and a Director of Oliver Estate   
Management, Inc., a management company specializing in investments in public and
private companies, since 1971.  He is the chairman of Cerprobe Corporation and  
serves as a director of Blue Chip Casino, Inc., Orchard Software Corporation,   
U.S. RealTel Inc. and Biosante Pharmaceuticals, Inc.                            

    Thomas G. Palmer has been a principal and Managing Director of the Hanover
Company from its inception in 1997.  The Hanover Company is a private merchant  
bank formed to identify, acquire and fund financial assets and operating        
companies on behalf of investment funds and to perform financial advisory and   
consulting services.  From 1991 to 1997, Mr. Palmer was the President and Chief 
Operating Officer of Parrish Partnerships, a global merchant banking            
organization which functioned as at the general partner of an investment limited
partnership consisting of the Hillman Company and the Travelers Companies.      
Prior to that, he spent 18 years as a senior executive of Manufacturers Hanover 
Corporation.  He has a B.B.A. degree with a major in marketing and a minor in   
finance from Gonzaga University and an MBA degree from Rutgers University       
graduate school of business.                                                    

     Edward J. Wegel has been the Managing Partner of Aviation Capital Partners.
From 1997 to 1999, he was the President and Chief Executive Officer and a member
of the board of directors of US Airways Express. From 1995 to 1996, he was      
President, Chief Executive Officer and a member of the board of directors of    
BWIA International Airways in Trinidad.  Mr. Wegel has a B.S. in Engineering    
from the United States Military Academy and an MBA in finance from the          
University of Colorado.                                                         

  Jon A. Joseph, Senior Vice President, General Counsel and Secretary, has
been with the Company since June 1995.  Mr. Joseph was Executive Vice President 
of Valley Bank of Nevada from 1984 to 1991.  In 1992, Valley Bank of Nevada was 
acquired by Bank of America.  Mr. Joseph remained with the legal department of  
Bank of America until June 1, 1995, when he joined the Company.                 

 Carol W. Sullivan, Senior Vice President and Chief Financial Officer of
PEC, has been with the Company since January 8, 2001.  Ms. Sullivan served as   
Senior Vice President - Mortgage Portfolio for Sunterra Corporation from June   
1998 to June 2000 and was appointed Treasurer in January 2000.  Prior to that,  
she was a consultant in the vacation ownership industry form 1988 to 1998,      
providing financial consulting and advisory services to lenders and developers. 
Ms. Sullivan was Vice President - Real Estate Receivables Lending from 1980 to  
1985 and Vice President - Real Estate Lending and Development from 1985 to 1988 
of Finova Financial Corporation                                                 

   Gregg A. McMurtrie was named Executive Vice President and Chief Operating
Officer of PEC in November 1998.  Mr. McMurtrie joined the staff of PEC in      
August 1982.  He has served as Vice President of PEC since August 1991.  From   
August 1982 to July 1987, Mr. McMurtrie served in various capacities in the     
credit, internal auditing, marketing, customer relations, sales and executive   
departments.  He was General Manager, Colorado Land Sales, from September 1987  
to February 1989.  From September 1989 to November 1998, Mr. McMurtrie served as
Director of Sales Administration.                                               

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     Robert S. Understein has joined the company as the Chief Financial Officer.
Mr. Understein has served as the Chief Financial Officer of several companies   
including ITHub, ThoughtBank and CyberCFO during the past two years. Mr.        
Understein has an extensive background in mortgage banking, the hospitality     
industry, international corporate operations and investment banking. Prior to   
serving as the Chief Financial Officer of these e-commerce companies, he was a  
partner in Understein & Associates, an investment and business consulting       
practice. Mr. Understein has also served as the Managing Director of Trading    
Worldwide LLC, a multinational investment corporation (1994-1998), Commercial   
Mortgage Banking (1989-1994), and the Managing Partner of Understein and        
Associates, a CPA firm representing high income, high net worth individuals     
concentrating on financial and tax planning. Mr. Understein holds a Bachelors of
Science Degree in Commerce from the University of Virginia (where he serves on  
the Business School Advisory Board) and Juris Doctorate from American           
University, Washington College of Law.                                          

Michelle Decker joined the Company as Senior Vice President and Chief 
Technology Officer. Ms. Decker has been the Chief Technology Officer for Twenty-
First Century Financial Systems, Inc. from September 2000 until joining the     
Company. From 1998 to 2000, Ms. Decker was the Chief Technology Officer for     
Expedia and Travelscape.com. From 1988-1998, Ms. Decker held several management 
positions within Carlson Marketing Group in information technology and business 
operations. During this time, Ms. Decker provided management and hands-on       
consultative support to all international operations responsible for all aspects
of systems strategy, systems architecture and the related systems               
infrastructure. Primary operating locations included Canada, Australia, New     
Zealand, Brazil, Europe and Japan, totaling twelve offices. From 1984 to 1988,  
she was with Deloitte & Touche. Ms. Decker holds a Bachelors degree in          
Accounting and computer Science from Slippery Rock State University and an MBA  
in Accounting and Finance from Youngstown State University.                     

  Kella Brown brings over 15 years of achievement in general management to
the Office of Communications. Prior to joining the Company, Ms. Brown was       
President of Top Tier Consultants, a management consulting and leadership       
development services company. From 1999 to 2000, Ms. Brown was Director of      
Administration for the Corporation for Solar Technology and Renewable Resources.
Ms. Brown also was Assistant General Manager for Wachenhut Services, Inc., from 
1987 to 1995. She received a B.S. from the University of Kentucky and an M.B.A. 
from the University of Utah.                                                    

  Angela Jester was named Senior Vice President for Human Resources of the
Company in April 2002. She is certified as a Senior Professional in Human       
Resources (SPHR), and is a program chairperson of the Society of Human Resources
Management. Ms. Jester has been the recipient of the Nevada Human Resource      
Association's Quarterly Super Star Award, and has been invited to speak before  
the Southern Nevada Society of CPAs. As Vice President for Human Resources of   
TRIRIGA, in Las Vegas, she was instrumental in the company's winning the eStart-
Up Company of the Year award. Until April 2002, she was Director of Human       
Resources for Texas Station Hotel and Casino in Las Vegas, Nevada.              

 Diane Steenman joined the Company in March 2002 as President of Leisure
Services. She has over 25 years of experience in the travel, hospitality, call  
center and vacation ownership industries. Most recently she was Chief Operating 
Officer of Lowestfare.com. Prior to that she was Vice President of Central      
Reservations for Universal, Orlando (1998 - 2000). In that position she managed 
9 lines of business including theme park sales, hotel and restaurant reservation
services and Universal wholesale tour operation. Ms. Steenman served as Vice    
President Marketing Systems for Sunterra Resorts (1997-1998), and was the Vice  
President of Travel Services for RCI (1993 - 1997). She served and Vice         
President and General Manager of US Travel and was President of Banc One Travel 
(1990 - 1993). She has her Bachelor of Arts from the University of California,  
Berkeley and graduated with honors.                                             

Compliance with Section 16(a) of the Securities Exchange Act of 1934            

    Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's Directors and executive officers, and persons who own more than   
ten percent of the Company's outstanding common stock, to file with the SEC     
initial reports of ownership and reports of changes in ownership of common      
stock.  Such persons are required by SEC regulation to furnish the Company with 
copies of all such reports they file.                                           

    To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company, all Section 16(a) filing requirements         
applicable to its officers, directors and greater than ten percent beneficial   
owners have been satisfied.                                                     

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Additional Information Concerning Officers and Directors                        

Effective as of September 23, 1998, the Company entered into          
indemnification agreements with each of its Directors and a former officer,     
which superseded indemnification agreements entered into by the Company and such
persons in April 1998. The new indemnification agreements provide certain       
protections now afforded by the Company's Articles of Incorporation and By-laws 
so that they cannot be changed without the consent of such Directors and        
officer. In addition, such agreements clarify the procedures for obtaining      
indemnification from the Company and require the Company to maintain directors  
and officers insurance.                                                         

Item 11.  Executive Compensation                                                

    The following table sets forth information concerning the annual and long-
term compensation earned by the Company's Chief Executive Officer and each of   
the five other most highly compensated executive officers (Named Executive      
Officers) whose annual salary and bonus during the fiscal years presented       
exceeded $100,000.                                                              

                                                        [Enlarge/Download Table]

                                                                                                                  Long-Term         
                                                                                                         ---------------------------
                                                                                                             Compensation Awards    
                                                                 Annual Compensation                                                
                                              ---------------------------------------------------------  Number of                  
                                                 Fiscal                                    Other Annual   Options       All Other   
         Name and Principal Position              Year        Salary        Bonus(a)       Compensation   Granted    Compensation(b)
---------------------------------------------------------   ----------      ---------      ------------  ---------   ---------------
                                                                                                                                    
Robert E. Nederlander,                                                                                                              
    Chairman of the Board and                        1999   $   65,424 (c)  $       -      $      5,901        833   $             -
    Chief Executive Officer                          2000       30,769 (c)          -                 -          -                 -
                                                     2001      100,000 (c)        962                 -          -                 -
                 September 1 through December 31     2001       30,769            962                 -          -                 -

Jerome J. Cohen,                                                                                                                    
    President, MFC                                   1999   $  300,002      $   5,769      $      9,800      2,083   $         2,400
    Chairman of the Board, Chief Executive           2000      300,002         92,667                 -          -                 -
    Officer and President, PEC                       2001      298,848         92,667 (a)             -          -                 -
                 September 1 through December 31     2001       91,154              -                 -          -                 -

Herbert B. Hirsch                                                                                                                   
    Senior Vice President, Chief Financial           1999   $  200,000      $   3,486      $      2,335      1,666   $         2,809
    Officer and Treasurer, MFC                       2000      200,000         37,067                 -          -                 -
    Senior Vice President and Chief                  2001       61,539         37,067 (a)             -          -                 -
    Financial Officer, PEC (to January 7, 2001)                                                                                     
                 September 1 through December 31     2001       15,385              -                 -          -                 -

Jon A. Joseph                                                                                                                       
    General Counsel and Secretary, MFC               1999   $  200,000      $   1,923      $     24,000          -   $         2,838
    Senior Vice President, PEC                       2000      200,000         25,000            24,000          -                 -
                                                     2001      200,000         30,000 (a)        24,000          -                 -
                 September 1 through December 31     2001       61,538              -             7,385          -                 -

Carol W. Sullivan                                                                                                                   
    Senior Vice President and                        2001   $  187,692      $       - (a)  $          -          -   $             -
    Chief Financial Officer, PEC                                                                                                    
    (commencing January 8, 2001)                                                                                                    
                 September 1 through December 31     2001   $   61,538              -                 -          -                 -

Gregg A. McMurtrie                                                                                                                  
    Executive Vice President                         1999   $  142,462      $   5,885      $      3,910        833   $         2,172
    and Chief Operating Officer, PEC                 2000      150,000         25,000             2,127          -                 -
                                                     2001      150,000         25,000 (a)         1,949          -                 -
                 September 1 through December 31     2001   $   46,154              -               497          -                 -

(a)  Incentive compensation is included in the fiscal year it is earned with    
   respect to contractual arrangements. The Executive Incentive Compensation
Plan has been terminated.                                             

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(b)  Represents the Company's discretionary matching contributions of 25% of the
employee's contribution to the Company's 401(k) Plan on behalf of the 
employee.                                                             

(c)  Prior to December 11, 1998, Mr. Nederlander earned an annual salary of     
$200,000. On that date, his salary was suspended. In April 2000, Mr.  
Nederlander's salary was reinstated at an annual rate of $100,000.    

(d)  Prior to January 8, 2001, Mr. Hirsch earned an annual salary of $200,000.  
On that date, his salary was changed to an annual rate of $50,000.    

Option Grants in Last Fiscal Year                                               

There were no grants of stock options during the year ended August 31,
2001.                                                                           

Aggregated Fiscal Year-End Option Value Table                                   

   The following table sets forth certain information concerning unexercised
stock options held by the Named Executive Officers as of December 31, 2001. No  
stock options were exercised by the Named Executive Officers during the four    
months ended December 31, 2001. See "Stock Option Plan" below in this section.  

                                                        [Enlarge/Download Table]

                                       Number of Unexercised                         Value of Unexercised In-the-Money        
                                          Options Held at                                     Options Held at                 
                                          August 31, 2001                                  December 31, 2001 (1)              
----------------------  --------------------------------------------------  --------------------------------------------------
         Name                 Exercisable               Unexercisable             Exercisable               Unexercisable     
----------------------  -----------------------    -----------------------  -----------------------    -----------------------
                                                                                                                              
Robert Nederlander               1,582                      1,334                     $    -                     $    -       
Jerome J. Cohen                  2,082                      2,084                     $    -                     $    -       
Herbert B. Hirsch                1,165                      1,334                     $    -                     $    -       
Jon A. Joseph                    3,000                      2,000                     $    -                     $    -       
Carol W. Sullivan                    -                          -                     $    -                     $    -       
Gregg A. McMurtrie               1,332                        833                     $    -                     $    -       

(1)  The closing sales price of the Company's Common Stock as reported on the   
   Nasdaq National Market on December 31, 2001 was $4.90. The exercise price
  as of December 31, 2001 was $6.00 per share; therefore, the value of the
unexercised options at December 31, 2001 was zero.                    

Employment Agreements                                                           

     On September 1, 1996, the Company entered into an employment agreement with
Jerome J. Cohen, which originally was to expire on January 31, 2002. The        
agreement provides for an annual base salary of $300,000 plus a bonus of 2.5% of
Incentive Income as defined in the Company's Incentive Plan (See "Executive     
Incentive Compensation Plan"). On November 10, 2000, the agreement was amended  
to extend its expiration date to January 31, 2005. Under the agreement as       
amended, in the event (1) that the Company determines to terminate Mr. Cohen's  
employment under the agreement, (2) of a change in control of ownership of the  
Company or (3) of a sale of all or substantially all of the Company's assets,   
the Company would be required to enter into a termination agreement with Mr.    
Cohen under which he would receive a termination payment of $750,000. The       
termination payment would be payable in 36 equal monthly installments except in 
the case of a further change in control of ownership or sale of assets of the   
Company, in which case any unpaid balance of the $750,000 would become payable  
in a lump sum.                                                                  

   Mr. Cohen's employment agreement was terminated according to its terms on
January 18, 2002.                                                               

    The Company has entered into an employment agreement which renews annually
unless either party gives notice of termination, with Jon A. Joseph. The current
expiration date of the agreement is December 31, 2003. The agreement provides   
for an annual base salary of $224,000. In the event of a change in control of   
ownership of the Company, as defined in the agreement, Mr. Joseph would receive 
a separation payment of $200,000.                                               

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     On September 2, 1997, the Company entered into an agreement with Herbert B.
Hirsch pursuant to which the Company would pay him a separation payment of      
$150,000 at such time as he no longer is employed by the Company.               

    PEC has entered into a compensation agreement with Carol W. Sullivan dated
January 8, 2001 which provides for an annual base salary of $200,000.  The      
Agreement is renewable annually, unless terminated by either party upon proper  
notice.  PEC has the right to terminate the Agreement at any time.  If PEC shall
terminate or fail to renew the Agreement, Ms. Sullivan shall be entitled to a   
severance payment of $100,000 if such failure to renew or termination takes     
place during the first year of employment and $200,000 if such failure to renew 
or termination takes place during the second year or later years of the term of 
the Agreement.                                                                  

   The Company entered into an employment agreement with Floyd W. Kephart on
February 1, 2002 which expires January 31, 2005 subject to a two-year extension 
if the Company and Mr. Kephart so agree.  The agreement calls for a base salary 
of $360,000 per annum.  In addition to any Company Stock Options that may be    
granted to Mr. Kephart pursuant to the Company's Stock Option Plan, on January  
31st of each year of the employment agreement, the Company shall grant Options  
to Mr. Kephart equal to the Company's then issued common stock, determined on a 
fully diluted basis, times one percent (1%).  No Options shall be granted       
unless, as of December 31/st/ of the year immediately prior to a respective     
grant, the Company has a net profit.                                            

Stock Option Plan                                                               

     Under the Company's Stock Option Plan (Plan), as originally adopted, 87,500
shares of common stock were reserved for issuance upon exercise of options.  In 
calendar year 1997, the Company's Board of Directors and shareholders approved  
an amendment to the Plan to increase by 83,333 shares the number of shares of   
common stock reserved for issuance pursuant to the Plan.  As a result, an       
aggregate of 170,833 shares of common stock are reserved for issuance pursuant  
to the Plan, of which 76,833 shares have been issued upon exercise of options   
through August 31, 1997.  During fiscal 1998, the Company's Board of Directors  
unanimously approved, subject to approval by the Company's shareholders, the    
amendment and restatement of the Plan.  The amendments to the Plan approved by  
the Company's Board of Directors consist of changes to permit the grant of      
options to non-employee Directors of the Company and changes to conform the Plan
to changes to the federal securities laws.  On September 16, 1998, the          
shareholders approved the amendment and restatement of the Plan.  The Plan is   
designed to serve as an incentive for retaining qualified and competent         
employees and Directors.                                                        

    The Stock Option Committee of the Company's Board of Directors administers
and interprets the Plan and is authorized, in its discretion, to grant options  
thereunder to all eligible employees of the Company, including officers and     
directors of the Company.  The Plan provides for the granting of both "incentive
stock options" (as defined in Section 422A of the Internal Revenue Code) and    
nonstatutory stock options.  Options can be granted under the Plan on such terms
and at such prices as determined by the Board, or a committee thereof, except   
that the per share exercise price of options may not be less than 80% of the    
fair market value of the common stock on the date of grant, and, in the case of 
an incentive stock option, the per share exercise price may not be less than    
100% of such fair market value.  In the case of incentive stock options granted 
to a 10% shareholder, the per share exercise price may not be less than 110% of 
the fair market value of the common stock on the date of grant and shall expire 
five years from the date of grant.  The aggregate fair market value of the      
shares covered by incentive stock options granted under the Plan that become    
exercisable by a grantee for the first time in any calendar year is subject to a
$100,000 limit.  There are currently 26 individuals, including both officers and
directors that have been granted options.                                       

    Options granted under the Plan are exercisable after the period or periods
specified in the option agreement.  Options granted under the Plan are not      
exercisable after the expiration of ten years from the date of grant (except    
five years in the case of incentive stock options granted to 10% shareholders)  
and are not transferable other than by will or by the laws of descent and       
distribution.                                                                   

In September 1997, an additional 58,083 incentive stock options were  
granted under the Plan to employees at fair market value. On September 23, 1998,
an additional 18,500 incentive stock options were granted under the Plan. An    
aggregate of 48,570 options were outstanding as of December 31, 2001 under the  
Plan.                                                                           

     The Company intends to adopt a new Stock Option Plan in 2002 subject to the
approval of the Company's shareholders.                                         

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Compensation Committee Interlocks and Insider Participation                     

  The Board of Directors has a Compensation Committee consisting of Messrs
Locke, Greco and Palmer.  The Committee has the responsibility for all salary   
and benefits administration.                                                    

Executive Incentive Compensation Plan                                           

   On June 22, 1994, effective for the year ended August 31, 1995, the Board
of Directors of the Company approved and adopted an Executive Incentive         
Compensation Plan (Incentive Plan) for executives and other key employees of the
Company and its subsidiaries who contribute to the success of the Company.      
Under the terms of the Incentive Plan, awards of incentive compensation are     
determined by the Incentive Compensation Committee of the Board of Directors of 
the Company, which committee shall be composed of not less than two members.    
The Incentive Plan provides that the Board of Directors may amend, suspend or   
terminate the Incentive Plan at any time.  Incentive Compensation for any fiscal
year is defined as an amount equal to 7.5% of incentive income (Incentive       
Income) for such year.  Incentive Income for any fiscal year is defined as the  
amount reported as income before taxes in the Consolidated Financial Statements 
of the Company for such year.  The maximum amount of all awards of Incentive    
Compensation for any fiscal year shall not exceed (a) 7.5% of Incentive Income  
for such year, reduced by (b) the amount of Incentive Income which must be paid 
by the Company to employees pursuant to any contractual obligation of the       
Company, increased by (c) any unawarded Incentive Compensation carried forward  
from a prior fiscal year.                                                       

   The Board of Directors has also approved an employment agreement with Mr.
Cohen, President of the Company, and agreements with Mr. Hirsch and Mr. Joseph, 
executive officers of the Company, pursuant to which Messrs. Cohen, Hirsch and  
Joseph are entitled to receive 2.5%, 1% and .5%, respectively, of Incentive     
Income of the Company, as defined in the Incentive Plan.                        

 The Executive Compensation Incentive Plan was terminated on January 18,
2002.                                                                           

Split-Dollar Insurance Plan                                                     

On April 5, 1995, the Board of Directors of the Company established a 
split-dollar life insurance plan (Split-Dollar Plan) pursuant to which the      
Company paid the premiums for certain "second to die" life insurance policies on
the lives of Messrs. Nederlander, Cohen, and Hirsch, former executive officers  
and Directors of the Company and their respective spouses for a period not to   
exceed five years, at an annual aggregate premium outlay of $300,000.  Each     
policy is in the name of a trust established for family beneficiaries selected  
by each executive.  On August 3, 1995, the Company approved a life insurance    
policy for Mr. Schuster at an annual cost of $100,000 for a period of five      
years.  Pursuant to the plan, and with respect to each policy, after ten years, 
or earlier upon the deaths of the respective insured parties, or certain other  
events, the Company was to receive the amount of premiums paid on the policy.   
Through December 31, 1998, $300,000 was paid on Mr. Schuster's policy and       
$400,000 was paid on each of the others, leaving a balance of premiums in the   
amount of $500,000 still owed by the Company on the policies.  Pursuant to an   
amendment to the original agreement, executed in April 1999, future payments by 
the Company relating to the policies were waived by Messrs. Nederlander, Cohen, 
Hirsch and Schuster.  In consideration of the waiver, the Company agreed to     
accept repayment of the lesser of the premiums paid or the cash value of the    
policy upon the deaths of the respective insured parties.                       

Item 12.  Security Ownership of Certain Beneficial Owners and Management        

     The following table sets forth, as of May 1, 2002, information with respect
to the beneficial ownership of our common stock by (i) each of our directors and
executive officers, (ii) each person known by us to be the beneficial owner of  
more than 5% of our common stock, and (iii) all of our directors and executive  
officers as a group.  Unless otherwise noted, we believe that all persons named 
in the table have sole voting and investment power with respect to all shares   
beneficially owned by them.                                                     

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                                                                [Download Table]

 Name and Address of Beneficial              Shares Beneficially Owned         
   Owner or Identity of Group         Number of Shares      Percentage of Class
   --------------------------         ----------------      -------------------
                                                                               
Floyd W. Kephart (2)                      100,000                    1.8%      
Spencer I. Browne (3)                      28,976                      *       
Michael H. Greco (4)                            -                      -       
James D. Locke (5) (16)                         -                      -       
Ross Mangano (6) (14)                       8,750                      *       
Thomas G. Palmer (7)                            -                      -       
Edward J. Wegel (8)                         1,000                      -       
Jon A. Joseph (9)                           5,083                      *       
Gregg A. McMurtrie (10)                     2,166                      *       
Carol W. Sullivan (11)                          -                      -       
Robert S. Understein (11)                       -                      -       
Michelle Decker (11)                            -                      -       
Kella Brown (11)                                -                      -       
Angela Jester (11)                              -                      -       
Diane Steenman (11)                             -                      -       
Friedman Billings Ramsey Group,                                                
  Inc. and affiliates (12)                456,737                    8.2%      
Charles K. Stewart (13)                   500,000                    9.0%      
Troon & Co. (14)                          325,000                    5.8%      
David M. Doerge (15)                      353,000                    6.3%      
Union Square Partners, Ltd. (16)          311,904                    5.6%      
Stonestreet Limited Partnership (17)      643,940                   10.9%      
All executive officers and directors                                           
  as a group (17 persons) (18)            145,977                    2.6%      

*  Less than 1%.                                                                

(1) A person is deemed to be the beneficial owner of securities that can be     
acquired by such person within 60 days from May 1, 2002 upon the exercise of    
options or warrants.  Each beneficial owner's percentage ownership is determined
by assuming that options and warrants that are held by such person (but not     
those held by any other person) and that are exercisable within 60 days from the
applicable date have been exercised.                                            
(2) 4310 Paradise Road, Las Vegas, Nevada 89109.                                
(3) 650 South Cherry Street, Denver Colorado 80246.                             
(4) C/O Mortgage Ramp, 400-0G North Harbor Place, Davidson, North Carolina      
28036.                                                                          
(5) 6219 Kennedy Drive, Chevy Chase, Maryland 20815.                            
(6) P.O. Box 1655, South Bend, Indiana 46634. In addition, Mr. Mangano may be   
deemed to own 91,250 shares and 325,000 shares beneficially owned by Oliver     
Illinois Trust and Troon & Co., respectively, because Mr. Mangano is a Trustee  
of Oliver Illinois Trust and a Trustee and Partner of Troon & Co. Mr. Mangano   
disclaims beneficial ownership.                                                 
(7) 425 Via Corta, Suite 202, Palos Verdes Estates, California 90274.           
(8) Aviation Capital Partners, LLC, 1234 Summer Street, Suite 101, Stamford,    
Connecticut 06905.                                                              
(9) 4310 Paradise Road, Las Vegas, Nevada 89109. Includes 3,000 shares issuable 
under options granted pursuant to the Company's Stock Option Plan.              
(10) 4310 Paradise Road, Las Vegas, Nevada 89109. Consists of shares issuable   
under options granted pursuant to the Company's Stock Option Plan.              
(11) 4310 Paradise Road, Las Vegas, Nevada 89109.                               
(12) 1001 19/th/ Street North, Arlington, Virginia 22209. Based upon a          
Schedule 13G dated July 13, 1998, as amended on each of February 16, 1999, 2000 
and 2001, July 11, 2001, August 13, 2001, February 13, 2002 and May 10, 2002    
filed jointly by Friedman Billings Ramsey Group, Inc., Orkney Holdings, Inc.,   
Eric F. Billings, Emanuel J. Friedman and W. Russell Ramsey with the SEC.       
(13) 7 Bristol Road, Northfield, Illinois 60093.                                
(14) C/O Oliver Estate, 112 West Jefferson Boulevard, Suite 613, South Bend,    
Indiana 46601.                                                                  

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(15) The Chicago Mercantile Exchange, 30 South Wacker Drive, Suite 2112,        
Chicago, Illinois 60606. Includes 176,000 shares owned by Doerge Collateralized 
Bridge Fund, as to which Mr. Doerge disclaims beneficial ownership, 2,000 shares
owned by David Doerge IRA and 175,000 shares owned by Cranberry Ventures LLC, of
which David Doerge is the managing member.                                      
(16) 200 Park Avenue South, New York, New York  10003.  James D. Locke of Union 
Square Partners, Ltd., is a director of the company.  Floyd W. Kephart, a former
partner of Union Square Partners, Ltd., is chairman of the board, president and 
chief executive officer of the company.                                         
(17) C/O Canaccord Capital Corporation, 320 Bay Street, Suite 1300, Toronto,    
Ontario M511 4A6, Canada.  Includes 321,970 shares issuable upon the exercise of
warrants.                                                                       
(18) See Notes (2) - (11).                                                      

Item 13.  Certain Relationships and Related Transactions                        

     The Company acquired LHC through the assignment of certain interests by the
Assignors. In connection with this acquisition, on January 31, 1995, an         
aggregate of $13.3 million was payable by the Company to the Assignors. On March
2, 1995, an aggregate of $13.3 million was payable by the Company to the        
Assignors. On March 2, 1995, the Assignors agreed to defer payment of $10       
million of the amounts due to them under an amendment to the related Assignment 
and Assumption Agreement providing for the subordination of the Subordinated    
Debt. By September 1, 1998, the principal on the Subordinated Debt had been     
reduced to $4,285,714 by the payments of cash and a $4.25 million reduction, in 
August 1997, related to the exercise, in a non-cash transaction, by the         
Assignors warrants to purchase 166,666 shares of the Company's Common Stock at  
an exercise price of $25.50 per share. On May 1, 2001, the Company further      
reduced the principal through the payment of $75,000 to one of the Assignors.   
Subsequent amendments to the Company further reduced the principal through the  
payment of $75,000 to one of the Assignors. Subsequent amendments to the        
Assignment and Assumption Agreements provided for additional deferrals from time
to time of the principal payments. The most recent of these amendments was the  
Amended and Restated Fourteenth Amendment to the Assignment and Assumption      
Agreement which was executed as of November 15, 2001 and deferred the payment of
both the principal which had been reduced to $4,210,714.29 and the interest     
accrued from March 1, 2001 until March 1, 2002. Interest of $428,571 on         
Subordinated Debt was paid during fiscal 2001. The Subordinated Debt is         
collateralized by a pledge of LHC's outstanding stock.                          

On December 3, 2001, the Company entered into a Fifteenth Amendment to
Assignment and Assumption Agreement which, subject to the approval by the       
Company's shareholders, would: 1) terminate the pledge of the LHC outstanding   
stock and replace such pledge with a pledge of all of the outstanding stock of  
CNUC; 2) defer payment of the remaining principal payments aggregating          
$4,210,714 and all accumulated interest from March 1, 2001 until the Asset Sale 
is consummated or terminated, but in no event, later than August 31, 2002 (the  
Due Date); and  3) limit recourse to the pledged stock of CNUC and an assignment
of proceeds of the Asset Sale.  In exchange for the Assignors agreeing to such  
amendment and agreeing to release their pledge of the LHC stock and making      
collection of the Assignment Amount recourse only to the CNUC stock (which stock
may be transferred only with the consent of the Nevada Public Utilities         
Commission) and the assignment of the proceeds of the Asset Sale, the Company   
will make an At Risk Payment to the Assignors in an amount equal to $644,643 on 
the Due Date which amount is included in the Assignment Amount and for which    
there is recourse only to the CNUC stock and the assignment of proceeds of the  
Asset Sale.                                                                     

    The Fifteenth Amendment and other ancillary documents and instruments that
implement the transactions contemplated by the Fifteenth Amendment, including   
all stock certificates evidencing shares to be pledged (the Fifteenth Amendment 
Documents) have been deposited with an escrow agent to be released in accordance
with the terms of an escrow agreement.                                          

     On April 11, 2002, the Asset Sale closed and the Subordinated Debt was paid
in full.                                                                        

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PART IV 

Item 14.  Exhibits, Financial Statements, Schedules and Reports on Form 8-K     

(a)  Certain documents filed as part of Form 10-K. See Item 8 above for a list  
    of financial statements included as part of this Annual Report on Form 10-
K.                                                                    

   Reports on Form 8-K.  The Company filed the following reports on Form 8-K
during the transition period:                                         

        1. Current Report on Form 8-K, dated August 14, 2001, filed with the
   Securities and Exchange Commission on August 7, 2001, with respect to the
 termination of the engagement of Deloitte & Touche LLP as the Company's
independent accountant.                                               

(b)  Exhibits.                                                                  

                                                                [Download Table]

 Exhibit                                                                         
  Number                        Description                                      
---------  -----------------------------------------------------------------     
                                                                                 
3.1(a)(1)  Certificate of Incorporation of the Company, as amended, filed as     
           Exhibit 3.1 to the Company's Form 10-K for the fiscal year ended      
           August 31, 1987 and incorporated herein by reference.                 

3.1(b)(5)  Certificate of Amendment of the Certificate of Incorporation of the   
           Company, dated June 19, 1992.                                         

3.1(c)(8)  Certificate of Amendment of the Certificate of Incorporation of the   
           Company, dated August 26, 1993.                                       

3.2(1)     By-laws of the Company, as amended.                                   

10.19(5)   Stock Purchase Agreement dated August 13, 1992 between the Company and
           PEC.                                                                  

10.27(6)   Guaranty Agreement as of October 15, 1992 made by Vacation Spa        
           Resorts, Inc., Preferred Equities Corporation, and the Company in     
           favor of NBD Bank, N.A.                                               

10.31(7)   First Amendment to Stock Purchase Agreement dated March 10, 1993, by  
           and between the Company and Preferred Equities Corporation.           

10.57(9)   Licensing Agreement dated April 18, 1995, by and among Hospitality    
           Franchise Systems, Inc., Ramada Franchise Systems, Inc. and           
           Preferred Equities Corporation.                                       

10.95(12)  Amendment No. 14 to Amended and Restated Loan and Security Agreement  
           dated June 5, 1996, by and between Finova Capital Corporation and     
           Preferred Equities Corporation and Second Amended and Restated        
           Promissory Note, relating to Headquarters and FCFC Property.          

10.96(12)  Amendment No. 15 to Amended and Restated Loan and Security Agreement  
           dated August 16, 1996, by and between Finova Capital Corporation      
           and Preferred Equities Corporation; Amendment No. 7 to Loan and       
           Security Agreement; Amendment No. 5 to Amended and Restated           
           Promissory Note; Amendment No. 5 to Promissory Note; Amendment        
           No. 1 to Promissory Note [Towers Lobby].                              

10.102(14) Acquisition and Renovation Loan Agreement dated August 6, 1996        
           between Heller Financial, Inc. as Lender and Preferred Equities       
           Corporation as Borrower; and Interval Receivables Loan and            
           Security Agreement dated August 6, 1996 by and among Heller           
           Financial, Inc. as Lender and Preferred Equities Corporation as       
           Borrower and Mego Financial Corp. as Guarantor, and the three         
           related Promissory Notes.                                             

10.103(15) Subdivision Improvement Agreement dated March 7, 1995 between         
           Preferred Equities Corporation and the Board of County                
           Commissioners of the County of Nye, State of Nevada.                  

10.104(15) Subdivision Improvement Agreement dated February 20, 1996 between     
           Preferred Equities Corporation and the Board of County                
           Commissioners of the County of Nye, State of Nevada.                  

10.105(15) Subdivision Improvement Agreement dated February 20, 1996 between     
           Preferred Equities Corporation and the Board of County                
           Commissioners of the County of Nye, State of Nevada.                  

10.106(15) Subdivision Improvement Agreement dated December 17, 1996 between     
           Preferred Equities Corporation and the Board of County                
           Commissioners of the County of Nye, State of Nevada.                  

10.107(15) Subdivision Improvement Agreement dated December 17, 1996 between     
           Preferred Equities Corporation and the Board of County                
           Commissioners of the County of Nye, State of Nevada.                  

10.108(15) Subdivision Improvement Agreement dated December 17, 1996 between     
           Preferred Equities Corporation and the Board of County                
           Commissioners of the County of Nye, State of Nevada.                  

10.109(15) Subdivision Improvement Agreement dated December 17, 1996 between     
           Preferred Equities Corporation and the Board of County                
           Commissioners of the County of Nye, State of Nevada.                  

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10.110(15)  Subdivision Improvement Agreement dated December 17, 1996 between   
            Preferred Equities Corporation and the Board of County Commissioners
of the County of Nye, State of Nevada.                  

10.132(17)  Employment Agreement between Jon A. Joseph and Mego Financial Corp. 
dated August 31, 1997.                                  

10.138(17)  Mortgage Loan Facility Agreement between FINOVA Capital Corporation 
   and Preferred Equities Corporation dated February 18, 1998.

10.143(23)  Letter Amendment to General Loan and Security Agreement dated       
    December 1, 1997, between Steamboat Suites, Inc. and Textron
Financial Corporation.                                  

10.144(23)  Mortgage Loan Facility Agreement between FINOVA Capital Corporation 
and Preferred Equities Corporation dated March 20, 1998.

10.145(23)  Loan and Security Agreement dated August 12, 1998 between Preferred 
           Equities Corporation as Borrower and Dorfinco Corporation as Lender
and the related Promissory Note.                        

10.150(20)  Amended and Restated and Consolidated Loan and Security Agreement   
       between Finova and PEC & Mego Financial dated December 23, 1998

10.151(20)  Common Stock Purchase Warrant issued by Mego Financial to Finova    
Capital Corporation dated December 23, 1998.            

10.152(21)  First Amended and Restated and Consolidated Promissory Note dated as
            of November 5, 1998 between FINOVA Capital Corporation and Preferred
Equities Corporation relating to Aloha Bay Phase I.     

10.167(22)  Forbearance and Modification Agreement dated as of May 7, 1999 by   
        and between Preferred Equities Corporation and Heller Financial,
Inc.                                                    

10.171(22)  First Amendment to Forbearance Agreement and Amendment No. 6 to     
      Second Amended and Restated and Consolidated Loan and Security
            Agreement dated May 7, 1999 by and among Finova Capital Corporation,
Preferred Equities Corporation and Mego Financial Corp. 

10.173(24)  Forbearance Agreement dated August 6, 1999 among Preferred Equities,
            and Mego Financial Corporation and Litchfield Financial Corporation.

10.175(24)  Extension dated September 7, 1999 to the Second Amendment to        
       Forbearance Agreement and Amendment No. 7 to Second Amended and
            Restated Consolidated Loan and Security Agreement dated December 23,
      1998 between Preferred Equities Corporation and Finova Capital
Corporation.                                            

10.177(24)  Forbearance Agreement and Amendment No. 5 to Second Amended and     
            Restated and Consolidated Loan and Security Agreement dated December
          23, 1998 between Finova Capital Corporation and Preferred Equities
Corp.                                                   

10.178(24)  Letter Agreement dated February 8, 1999 between Preferred Equities  
       Corporation and Finova Capital Corporation regarding additional
      agreements to the Forbearance Agreement and Amendment No. 5 to
            Second Amended and Restated Consolidated Loan and Security Agreement
dated December 23, 1998.                                

10.181(24)  Amendment dated October 15, 1999 to the General Loan and Security   
          Agreement Inventory Advance between Preferred Equities Corporation
and Textron Financial Corporation dated October 5, 1994.

10.196(25)  Third Amendment to Forbearance Agreement and Amendment No. 8 to     
      Second Amended and Restated and Consolidated Loan and Security
     Agreement dated November 9, 1999, by and among Finova Capital
       Corporation, Preferred Equities Corporation, and Mego Financial
Corp.                                                   

10.197(25)  Fourth Amendment to Forbearance Agreement and Amendment No. 9 to    
      Second Amended and Restated and Consolidated Loan and Security
     Agreement dated December 17, 1999 by and among Finova Capital
       Corporation, Preferred Equities Corporation, and Mego Financial
Corp.                                                   

10.199(26)  Fifth Amendment to Forbearance Agreement and Amendment Number 10 to 
      Second Amended and Restated and Consolidated Loan and Security
           Agreement dated as of February 25, 2000 by and among FINOVA Capital
       Corporation, Preferred Equities Corporation, and Mego Financial
Corp.                                                   

10.201(26)  Amended, Restated and Increased Receivables Promissory Note No. 1 by
         Preferred Equities Corp. to Heller Financial, Inc. dated December
22, 1999.                                               

10.202(26)  Amended, Restated and Consolidated Acquisition Promissory Note No. 1
            by Preferred Equities Corp. to Heller Financial, Inc. dated December
22, 1999.                                               

10.203(26)  Fourth Amendment to Interval Receivables Loan and Security Agreement
   dated December 22, 1999 between Heller Financial, Inc., and
Preferred Equities Corporation.                         

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10.204(26)  Third Amendment to Acquisition and Construction Loan Agreement dated
       December 22, 1999 between Heller Financial, Inc., and Preferred
Equities Corporation.                                   

10.205(26)  General Loan and Security Agreement (Inventory Loan) executed       
         December 17, 1999 by and among Textron Financial Corp., Preferred
Equities Corp. and Steamboat Suites, Inc.               

10.206(26)  General Loan and Security Agreement (Receivable Loan Facility)      
        executed December 17, 1999 by and among Textron Financial Corp.,
Preferred Equities Corp. and Steamboat Suites, Inc.     

10.207(26)  Sixth Amendment to Forbearance Agreement and Amendment No. 11 to    
      Second Amended and Restated and Consolidated Loan and Security
  Agreement dated March 31, 2000 by and among Finova Capital
            Corporation, Preferred Equities Corporation and Mego Financial Corp.

10.211(28)  Seventh Amendment to Forbearance Agreement and Amendment No. 12 to  
      Second Amended and Restated and Consolidated Loan and Security
 Agreement dated July 20, 2000 by and among FINOVA Capital
            Corporation, Preferred Equities Corporation and Mego Financial Corp.

10.214(28)  Fourth Amendment to Acquisition and Construction Loan Agreement     
   dated September 7, 2000 between Heller Financial, Inc., and
Preferred Equities Corporation.                         

10.215(28)  ISDA Master Swap Agreement between Sovereign Bank and Preferred     
Equities Corporation dated August 31, 2000.             

10.216(28)  Five year extension of Licensing Agreement dated April 18, 1995, by 
       and among Hospitality Franchise Systems, Inc., Ramada Franchise
Systems, Inc. and Preferred Equities Corporation.       

10.217(28)  Extension of Loan and Security Agreement dated August 12, 1998      
          between Dorfinco Corporation and Preferred Equities Corporation to
December 31, 2001.                                      

10.218(28)  Master Lease Agreement and Guaranty of Lease among Jozac Business   
           Center, LLC, Landlord; Preferred Equities Corporation, Tenants; and
          Mego Financial Corporation, Guarantor, for 4310 Paradise Road, Las
Vegas, NV dated October 2, 2000.                        

10.219(28)  Master Lease Agreement and Guaranty of Lease among Jozac Business   
           Center, LLC, Landlord; Preferred Equities Corporation, Tenants; and
       Mego Financial Corporation, Guarantor, for 1500 Tropicana, Las,
Vegas, NV dated November 9, 2000.                       

10.222(29)  Seventh Amendment to loan and security agreement by Preferred       
       Equities Corporation and Colorado Land and Grazing Corp., dated
December 15, 2000.                                      

10.223(29)  Fifth Amendment to Promissory Note made by Preferred Equities       
            Corporation and Colorado Land And Grazing Corp on December 15, 2000.

10.224(29)  Compensation Agreement between Carol Sullivan and Preferred Equities
Corporation dated January 8, 2001.                      

10.225(30)  First Amendment to Loan and Security Agreement by and between       
     Preferred Equities Corporation and Dorfinco Corporation dated
November 30, 2000.                                      

10.226(30)  First Amendment to General Loan and Security Agreement between      
        Steamboat Suites, Inc., and Preferred Equities Corporation dated
February 1, 2001.                                       

10.227(30)  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.                    

10.229(31)  Hypothecation Loan Agreement dated February 6, 2001 between         
Preferred Equities Corporation and HSBC Bank USA.       

10.230(31)  Amended and Restated Loan and Security Agreement by and between     
       Preferred Equities Corporation and Heller Financial, Inc. dated
April 5, 2001.                                          

10.231      General Loan and Security Agreement for Inventory Loan III executed 
        March 30, 2001 among Textron Financial Corporation and Preferred
      Equities Corporation and Brigantine Preferred Properties, Inc.

10.232      First Amendment to General Loan and Security Agreement on Receivable
     Loan Facility executed 7/9/01 between Steamboat Suites, Inc.,
          Preferred Equities Corporation and Brigantine Preferred Properties
and Textron Financial Corporation.                      

10.233      First Amended and Restated Loan and Security Agreement executed on  
         June 22, 2001 between Preferred Equities Corporation and Colorado
       Land and Grazing Corporation, Mego Financial Corp, and Dorfinco
Corporation.                                            

10.235      Loan and Security Agreement by and between Preferred Equities       
            Corporation and Capital Source Finance LLC effective August 8, 2001.

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     10.237      Employment Agreement dated February 1, 2002 by and between Mego
Financial Corp and Floyd W. Kephart.          

21.1(19)  List of subsidiaries.                                   
---------------                                                                 

   (1)    Filed as part of the Company's Form 10-K for fiscal year ended
 August 31, 1988 and incorporated herein by reference.

   (2)    Filed as part of the Company's Form 10-K for fiscal year ended
 August 31, 1989 and incorporated herein by reference.

   (3)    Filed as part of the Company's Form 10-K for fiscal year ended
 August 31, 1990 and incorporated herein by reference.

   (4)    Filed as part of the Company's Form 10-K for fiscal year ended
 August 31, 1991 and incorporated herein by reference.

      (5)    Filed as part of the Company's Registration Statement on Form S-4
       originally filed August 31, 1992 and incorporated herein by
reference.                                          

   (6)    Filed as part of the Company's Form 10-K for fiscal year ended
 August 31, 1992 and incorporated herein by reference.

   (7)    Filed as part of the Company's Form 10-K for fiscal year ended
 August 31, 1993 and incorporated herein by reference.

   (8)    Filed as part of the Company's Form 10-K for fiscal year ended
 August 31, 1994 and incorporated herein by reference.

   (15)   Filed as part of the Company's Form 10-K for fiscal year ended
            August 31, 1995 and incorporated herein by reference. (14) Filed
             as part of the Company's Form 10-Q for the quarter ended November
           30, 1996 and incorporated herein by reference. Filed as part of
           the Company's Form 10-Q for the quarter ended February 28, 1997
and incorporated herein by reference.               

       (16)   Filed as part of the Company's Form 10-Q for the quarter ended May
31, 1997 and incorporated herein by reference.      

   (17)   Filed as part of the Company's Form 10-Q for the quarter ended
   February 28, 1998 and incorporated herein by reference.

       (18)   Filed as part of the Company's Form 10-Q for the quarter ended May
31, 1998 and incorporated herein by reference.      

       (19)   Filed as part of the Company's Form 10-K for the fiscal year ended
 August 31, 1997 and incorporated herein by reference.

   (20)   Filed as part of the Company's Form 10-Q for the quarter ended
   November 30, 1998 and incorporated herein by reference.

   (21)   Filed as part of the Company's Form 10-Q for the quarter ended
   February 28, 1999 and incorporated herein by reference.

       (22)   Filed as part of the Company's Form 10-Q for the quarter ended May
31, 1999 and incorporated herein by reference.      

       (23)   Filed as part of the Company's Form 10-K for the fiscal year ended
 August 31, 1998 and incorporated herein by reference.

      (24)   Filed as part of the Company's Form 10K for the fiscal year ended
 August 31, 1999 and incorporated herein by reference.

(25)   Filed as part of the Company's Form 10-Q for quarter ended 
   November 30, 1999 and incorporated herein by reference.

   (1)    Filed as part of the Company's Form 10-Q for the quarter ended
  February 29, 2000 and incorporated herein by reference

       (2)    Filed as part of the Company's Form 10-Q for the quarter ended May
31, 2000 and incorporated herein by reference.      

       (3)    Filed as part of the Company's Form 10-K for the fiscal year ended
 August 31, 2000 and incorporated herein by reference.

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     (4)   Filed as part of the Company's Form 10-Q for quarter ended November
30, 2000 and incorporated herein by reference.          

(5)   Filed as part of the Company's Form 10-Q for the quarter ended
February 29, 2001 and incorporated herein by reference  

    (6)   Filed as part of the Company's Form 10-Q for the quarter ended May
31, 2001 and incorporated herein by reference.          

(d)   Financial Statement schedules required by Regulation S-X. No financial    
     statement schedules are included because of the absence of the conditions
   under which they are required or because the information is included in
the financial statements or the notes thereto.                      

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SIGNATURES  

Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to 
be signed on its behalf by the undersigned, thereunto duly authorized.          

                    MEGO FINANCIAL CORP.

Date: May 20, 2002                      By /s/ Floyd Kephart                    
      ------------                         -------------------------------------
                                 Floyd W. Kephart, President

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the          
Registrant in the capacities and on the date(s) indicated.                      

          Signature                              Title                    Date
          ---------                              -----                    ----

/s/ Floyd W. Kephart              Chief Executive Officer, President and        
-------------------------------   Chairman of the Board                         
Floyd W. Kephart                                                                

/s/ Robert S. Understein          Senior Vice President and Chief               
-------------------------------   Financial Officer                             
Robert S. Understein                                                            

/s/ Spencer I. Browne             Director                                      
-------------------------------                                                 
Spencer I. Browne                                                               

/s/ Michael H. Greco              Director                                      
-------------------------------                                                 
Michael H. Greco                                                                

/s/ James D. Locke                Director                                      
-------------------------------                                                 
James D. Locke                                                                  

/s/ Ross Mangano                  Director                                      
-------------------------------                                                 
Ross Mangano                                                                    

/s/ Thomas G. Palmer              Director                                      
-------------------------------                                                 
Thomas G. Palmer                                                                

/s/ Edward J. Wegel               Director                                      
-------------------------------                                                 
Ed Wegel                                                                        

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MEGO FINANCIAL CORP. AND SUBSIDIARIES 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS  

                                                        [Enlarge/Download Table]

                                                                                         Page No.
                                                                                         --------
                                                                                                 
Report of Independent Certified Public Accountants......................................   F-2   

Independent Auditors' Report............................................................   F-3   

Consolidated Financial Statements:                                                               

     Consolidated Balance Sheets........................................................   F-4   

     Consolidated Statements of Operations..............................................   F-5   

     Consolidated Statements of Stockholders' Equity ...................................   F-6   

     Consolidated Statements of Cash Flows..............................................   F-7   

Notes to Consolidated Financial Statements..............................................   F-8   

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS  

To the Board of Directors and Stockholders of                                   
Mego Financial Corp. and Subsidiaries                                           
Las Vegas, Nevada                                                               

We have audited the accompanying consolidated balance sheets of Mego Financial  
Corp. and its subsidiaries (the Company) as of December 31, 2001 and August 31, 
2001 and the related consolidated statements of operations, stockholders'       
equity, and cash flows for the four-month period ended December 31, 2001 and for
the year ended August 31, 2001. These financial statements are the              
responsibility of the Company's management. Our responsibility is to express an 
opinion on these financial statements based on our audits.                      

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free  
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit    
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement       
presentation. We believe that our audits provide a reasonable basis for our     
opinion.                                                                        

In our opinion, the financial statements referred to above present fairly, in   
all material respects, the consolidated financial position of Mego Financial    
Corp. and its subsidiaries at December 31, 2001 and August 31, 2001, and the    
consolidated results of their operations and their cash flows for the four-month
period ended December 31, 2001 and for the year ended August 31, 2001 in        
conformity with accounting principles generally accepted in the United States.  

                                                           ERNST & YOUNG LLP

Miami, Florida                                                                  
May 10, 2002                                                                    

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INDEPENDENT AUDITORS' REPORT                                                    

To the Board of Directors and Stockholders of                                   
Mego Financial Corp. and Subsidiaries                                           
Las Vegas, Nevada                                                               

We have audited the accompanying consolidated balance sheet of Mego Financial   
Corp. and its subsidiaries (the "Company") as of August 31, 2000 and the related
consolidated statements of operations, statements of stockholders' equity, and  
statements of cash flows for each of the two years in the period ended August   
31, 2000. These financial statements are the responsibility of the Company's    
management. Our responsibility is to express an opinion on these financial      
statements based on our audits.                                                 

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and       
perform the audit to obtain reasonable assurance about whether the financial    
statements are free of material misstatement. An audit includes examining, on a 
test basis, evidence supporting the amounts and disclosures in the financial    
statements. An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall     
financial statement presentation. We believe that our audits provide a          
reasonable basis for our opinion.                                               

In our opinion, such consolidated financial statements present fairly, in all   
material respects, the financial position of Mego Financial Corp. and its       
subsidiaries at August 31, 2000, and the results of its operations and its cash 
flows for each of the two years in the period ended August 31, 2000, in         
conformity with accounting principles generally accepted in the United States of
America.                                                                        

DELOITTE & TOUCHE LLP                                                           

San Diego, California                                                           

November 22, 2000                                                               

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

                                                        [Enlarge/Download Table]

                                                                                Four Months                               
                                                                                   Ended             Fiscal Year End      
                                                                                December 31,            August 31,        
                                                                               -------------  ----------------------------
                                                                                   2001          2001             2000    
                                                                               -------------  ----------------------------
                                                                                                                          
ASSETS                                                                                                                    
Cash and cash equivalents                                                      $    1,721     $   1,894        $    1,069 
Restricted cash                                                                     7,635         6,927             6,837 
Notes receivable, net                                                             109,347       105,127            83,156 
Retained interests in receivables sold                                              3,688         3,603             2,701 
Vacation ownership inventory                                                       17,865        18,139            23,307 
Land and improvements inventory                                                     2,757         3,152             4,113 
Assets available for sale                                                           3,885         3,984             4,152 
Property and equipment, net                                                        22,649        23,134            23,507 
Deferred financing costs, net                                                       2,071         2,359             2,060 
Deferred selling costs                                                              5,422         5,466             5,231 
Other assets                                                                       15,313        12,043            12,459 
                                                                               ----------     ---------        ---------- 

TOTAL ASSETS                                                                   $  192,353     $ 185,828        $  168,592 
                                                                               ==========     =========        ========== 

LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                      
Liabilities:                                                                                                              
      Notes and contracts payable                                              $  131,530     $ 120,238        $  109,131 
      Accounts payable                                                              1,873         1,387               712 
      Accrued liabilities and other                                                21,135        18,257            18,158 
      Interest rate swap liabilities                                                2,251         2,111                 - 
      Deferred income                                                               2,282         2,582               674 
      Reserve for notes receivable sold with recourse                               3,560         3,998             4,033 
      Customer deposits                                                             2,831         3,201             2,841 
      Deferred income taxes                                                         1,289         1,617             2,975 
                                                                               ----------     ---------        ---------- 

                  Total liabilities before subordinated debt                      166,751       153,391           138,524 
                                                                               ----------     ---------        ---------- 

Subordinated debt                                                                   4,211         4,211             4,286 
                                                                               ----------     ---------        ---------- 
TOTAL LIABILITIES                                                                 170,962       157,602           142,810 
                                                                               ----------     ---------        ---------- 
Commitments and contingencies                                                                                             

Stockholders' equity:                                                                                                     
      Preferred stock, $.01 par value (authorized--5,000,000 shares, none                                                 
         issued and outstanding)                                                        -             -                 - 
      Common stock, $.01 par value (authorized--50,000,000 shares;  3,500,557                                             
          shares issued and outstanding at December 31, 2001, August 31, 2001          35            35                35 
          and 2000)                                                                                                       
      Additional paid-in capital                                                   13,068        13,068            13,068 
      Retained earnings                                                             9,773        16,516            12,679 
      Accumulated other comprehensive loss                                         (1,485)       (1,393)                - 
                                                                               ----------     ---------        ---------- 

                  Total stockholders' equity                                       21,391        28,226            25,782 
                                                                               ----------     ---------        ---------- 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                     $  192,353     $ 185,828        $  168,592 
                                                                               ==========     =========        ========== 

See notes to consolidated fiancial statements.  

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aPAGE>                                                                          

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

                                                        [Enlarge/Download Table]

                                                         Four-Month                                              
                                                        Period Ended                                             
                                                         December 31,            Years Ended August 31,          
                                                       --------------  ------------------------------------------
                                                            2001          2001            2000           1999    
                                                       --------------  -----------    -----------    ------------
                                                                                                                 
REVENUES                                                                                                         
      Vacation ownership sales                         $    14,659     $    61,758    $    55,317    $    45,830 
      Land sales                                             6,189          23,550         20,723         17,037 
      Interest income                                        5,295          14,977         12,430          9,310 
      Financial income                                         475           2,995          1,153          1,184 
      Gain on sale of notes receivable                           -             668            635              - 
      Gain on sale of investments and other assets               -             124          1,857            513 
      Utility operations                                       692           1,817          2,033          2,597 
      Other                                                  1,477           4,164          3,701          3,657 
                                                       -----------     -----------    -----------    ----------- 

           Total revenues                                   28,787         110,053         97,849         80,128 

COSTS AND EXPENSES                                                                                               
      Direct cost of:                                                                                            
           Vacation ownership sales                          2,451          10,886         10,518          8,527 
           Land sales                                        1,040           3,359          3,050          2,709 
      Interest expense                                       4,458          12,214         12,468          9,270 
      Marketing and sales                                   14,274          48,781         39,769         35,291 
      Utility operations                                       386           1,631          1,698          2,274 
      Provision for cancellations                            3,258           9,647          7,354          5,626 
      Depreciation                                             574           1,412          1,827          1,878 
      General and administrative                             8,591          18,942         17,746         14,333 
                                                       -----------     -----------    -----------    ----------- 

           Total costs and expenses                         35,032         106,872         94,430         79,908 
                                                       -----------     -----------    -----------    ----------- 

(LOSS) INCOME BEFORE INCOME TAXES AND                       (6,245)          3,181          3,419            220 
      EXTRAORDINARY ITEM                                                                                         

INCOME TAX (EXPENSE) BENEFIT                                   (72)            656            530            830 
                                                       -----------     -----------    -----------    ----------- 

(LOSS) INCOME BEFORE EXTRAORDINARY ITEM                     (6,317)          3,837          3,949          1,050 

      Extraordinary loss on early extinguishment                                                                 
           of debt, net of income taxes of $219               (426)              -              -              - 
                                                       -----------     -----------    -----------    ----------- 

NET (LOSS) INCOME                                      $    (6,743)    $     3,837    $     3,949    $     1,050 
                                                       ===========     ===========    ===========    =========== 

(LOSS) INCOME PER COMMON SHARE                                                                                   
      Basic and Diluted:                                                                                         
           (Loss) income before extraordinary item     $     (1.81)    $      1.10    $      1.13    $      0.30 
           Extraordinary loss on early extinguishment                                                            
              of debt, net of income taxes of                (0.12)              -              -              - 
                                                       -----------     -----------    -----------    ----------- 
           Net (loss) income                           $     (1.93)    $      1.10    $      1.13    $      0.30 
                                                       ===========     ===========    ===========    =========== 

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

See notes to consolidated financial statements. 

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

                                                        [Enlarge/Download Table]

                                                                                                     Accumulated              
                                                        Common Stock        Additional                  Other                 
                                                       $.01 par value         Paid-In   Retained    Comprehensive             
                                                 -------------------------                                                    
                                                    Shares         Amount     Capital   Earnings         Loss         Total   
                                                 ------------      -------  ----------  ---------   -------------   --------- 
                                                                                                                              
Balances at September 1, 1998                       3,500,557      $    35  $   12,964  $   7,680               -   $  20,679 
Warrants issued                                             -            -         104          -                         104 
Net income for the fiscal year ended 1999                   -            -           -      1,050               -       1,050 
                                                 ------------      -------  ----------  ---------   -------------   --------- 
Balances at August 31, 1999                         3,500,557           35      13,068      8,730                      21,833 
Net income for the fiscal year                                                                                                
    ended August 31, 2000                                   -            -           -      3,949               -       3,949 
                                                 ------------      -------  ----------  ---------   -------------   --------- 
Balances at August 31, 2000                         3,500,557           35      13,068     12,679               -      25,782 
Net income for the fiscal year                                                                                                
    ended August 31, 2001                                   -            -           -      3,837               -       3,837 
Cumulative effect of change in accounting                                                                                     
    principle as of September 1, 2000 for                                                                                     
    unrealized loss of interest rate swaps,                                                                                   
    net of related income tax benefit of $87                -            -           -          -            (168)       (168)
Unrealized loss on interest rate swaps                                                                                        
    for fiscal year ended August 31, 2001,                                                                                    
    net of reclassification adjustments of $347             -            -           -          -          (1,225)     (1,225)
                                                 ------------      -------  ----------  ---------   -------------   --------- 
    and net of income tax benefit of $631                                                                                     
Total comprehensive income                                                                                              2,444 
                                                                                                                    --------- 
Balances at August 31, 2001                         3,500,557           35      13,068     16,516          (1,393)     28,226 
Net loss for the four months ended                                                                                            
    December 31, 2001                                       -            -           -     (6,743)              -      (6,743)
Unrealized loss on interest rate swaps                                                                                        
    for the four-month ended December 31, 2001                                                                                
    net or reclassification adjustment of $540                                                                                
    and net of income tax benefit of $47                    -            -           -          -             (92)        (92)
                                                 ------------      -------  ----------  ---------   -------------   --------- 
Total comprehensive loss                                                                                               (6,835)
                                                                                                                    --------- 
Balances at December 31, 2001                       3,500,557      $    35  $   13,068  $   9,773   $      (1,485)  $  21,391 
                                                 ============      =======  ==========  =========   =============   ========= 

See notes to consolidated financial statements. 

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

                                                        [Enlarge/Download Table]

                                                                       Four-Month                                             
                                                                      Period Ended                                            
                                                                      December 31,            Years Ended August 31,          
                                                                      ------------   ---------------------------------------- 
                                                                          2001         2001             2000           1999   
                                                                      ------------   ---------        --------       -------- 
                                                                                                                              
CASH FLOWS FROM OPERATING ACTIVITIES                                                                                          
    Net (loss) income                                                 $     (6,743)  $   3,837        $  3,949       $  1,050 
                                                                      ------------   ---------        --------       -------- 
    Adjustments to reconcile net income (loss) to net cash (used in)                                                          
       provided by operating activities:                                                                                      
       Charges to allowance for cancellations                               (3,874)     (7,802)         (8,643)        (5,987)
       Provision for cancellations                                           3,258       9,647           7,354          5,626 
       Gain on sale of notes receivable                                          -        (668)           (635)             - 
       Gain on sale of other investments and other assets                        -        (124)         (1,857)          (513)
       Loss on early extinguishment of debt                                    645           -               -              - 
       Provision for uncollectible owner's association advances                  -           -            (200)             - 
       Cost of timeshare interest and land sales                             3,491      14,245          13,568         11,236 
       Depreciation                                                            574       1,412           1,827          1,878 
       Additions to retained interests in receivables sold                       -      (1,824)           (660)             - 
       Accretion of retained interests in receivables sold                     (85)        922             525            801 
       Repayments on notes receivable                                       25,048      47,112          50,733         42,962 
       Additions to notes receivable                                       (29,090)    (85,821)        (82,388)       (64,112)
       Proceeds from sales of notes receivable                                   -      15,526          19,594              - 
       Purchase of land and timeshare interests                             (2,822)     (8,116)         (4,810)        (3,651)
       Changes in operating assets and liabilities:                                                                           
          Restricted cash                                                     (708)        (90)         (2,971)        (2,172)
          Deferred financing costs                                             309        (299)           (303)          (326)
          Deferred selling costs                                               502        (235)           (946)          (566)
          Other assets                                                      (3,749)        559          (1,145)          (258)
          Accounts payable                                                     486         675         (16,284)        (3,902)
          Accrued liabilities and other                                      2,258         164          17,074            487 
          Swap liability                                                        48         718               -              - 
          Deferred income                                                     (300)      1,908             674              - 
          Customer deposits                                                   (370)        360             554         (2,590)
          Deferred income taxes                                               (328)     (1,358)           (530)          (963)
                                                                      ------------   ---------        --------       -------- 

            Net cash (used in) provided by operating activities            (11,450)     (9,252)         (5,520)       (21,000)
                                                                      ------------   ---------        --------       -------- 

CASH FLOWS FROM INVESTING ACTIVITIES                                                                                          
    Purchase of other investments                                                -      (5,927)            (34)          (950)
    Purchase of property and equipment                                         (15)     (1,463)         (2,230)        (1,488)
    Proceeds from sale of property and equipment                                 -       6,286           1,617              - 
    Proceeds from the sale of other investments                                  -         149           1,031            747 
                                                                      ------------   ---------        --------       -------- 

            Net cash provided by (used in) investing activities                (15)       (955)            384         (1,691)
                                                                      ------------   ---------        --------       -------- 

CASH FLOWS FROM FINANCING ACTIVITIES                                                                                          
    Proceeds from borrowings                                                28,796      73,980          64,363         59,047 
    Reduction of debt                                                      (17,504)    (62,873)        (59,787)       (36,478)
    Payments on subordinated debt                                                -         (75)           (192)          (465)
    Increase in subordinated debt                                                -           -               -            595 
                                                                      ------------   ---------        --------       -------- 

            Net cash (used in) provided by financing activities             11,292      11,032           4,384         22,699 
                                                                      ------------   ---------        --------       -------- 

NET INCREASE (DECREASE) IN CASH AND CASH                                                                                      
    EQUIVALENTS                                                               (173)        825            (752)             8 

CASH AND CASH EQUIVALENTS-BEGINNING OF                                                                                        
    PERIOD                                                                   1,894       1,069           1,821          1,813 
                                                                      ------------   ---------        --------       -------- 

CASH AND CASH EQUIVALENTS-END OF PERIOD                               $      1,721   $   1,894        $  1,069       $  1,821 
                                                                      ============   =========        ========       ======== 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                                                              
    Cash paid during the period for interest, net of                                                                          
    amounts capitalized                                               $      4,179   $  15,199        $ 12,339       $  9,000 
                                                                      ------------   ---------        --------       -------- 

See notes to consolidated financial statements. 

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MEGO FINANCIAL CORP. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
DECEMBER 31, 2001 

1.  Nature of Operations                                              

   Mego Financial Corp. (the Company) is a 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,       
Leisure Homes Corporation (LHC), formerly known as Preferred Equities           
Corporation (PEC), established in 1969. LHC is engaged in originating, selling, 
servicing and financing consumer receivables generated through the Company's    
timeshare and land sales. LHC markets and finances timeshare interests and land 
in select resort areas. By providing financing to virtually all of the Company's
customers, LHC also originates consumer receivables that it hypothecates or     
sells, and services. 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. In February 1988, the Company acquired LHC, pursuant to an 
assignment by the Assignors, as defined below, of their contract right to       
purchase LHC.                                                                   

Acquisition of Leisure Homes Corporation                      
----------------------------------------                      

        The acquisition of LHC on February 1, 1988 was effected pursuant to an
Assignment Agreement, dated October 25, 1987, between the Company and several   
corporations (Assignors) and a related Assignment and Assumption Agreement      
(Assignment and Assumption Agreement), dated February 1, 1988, and amended on   
July 29, 1988, between the Company and the Assignors (collectively, such        
agreements constitute the Assignment). The acquisition of LHC was accomplished  
by LHC issuing two shares of its common stock to the Company for a purchase     
price of approximately $50,000. Simultaneously, the previously outstanding      
shares held by others were surrendered and redeemed by LHC at a cost to LHC of  
approximately $10,463,000 plus fees and expenses, leaving the Company with all  
of the outstanding shares of LHC.                                               

   The right to purchase shares from LHC was obtained by the Company
pursuant to the Assignment, which assigned to the Company the right to purchase 
shares from LHC pursuant to the Stock Purchase and Redemption Agreement, dated  
October 6, 1987, between LHC and the Assignors, as amended on October 25, 1987. 
Consideration for the Assignment consisted of promissory notes (Purchase Notes) 
from the Company to the Assignors in the aggregate amount of $2,000,000 and     
additional payments to the Assignors as described below. The Purchase Notes were
paid in full prior to August 31, 1988. After the payment of the Purchase Notes, 
the Assignors were entitled to receive from the Company on a quarterly basis, as
determined as of the end of each quarter, additional payments equal in the      
aggregate to 63% of LHC's consolidated unrestricted cash balances, for a period 
ended on January 31, 1995. The additional payments were collateralized by a     
pledge of LHC stock to the Assignors.                                           

        All obligations owed by the Company to the Assignors were paid in full
on April 11, 2002 (see Note 10).                                                

      During March 2002, the Company formed two wholly owned subsidiaries,
Leisure Services Corporation (LSC), and Leisure Resorts Corporation (LRC). LSC  
will be responsible for servicing the Company's loans and handling customer     
relationships. LRC will perform all vacation ownership resort and related       
homeowner management services which were previously performed by LHC. On March  
29, 2002, LSC entered into a management agreement to perform management and     
related services for Adventure Bound, Inc., a 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 others.           

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MEGO FINANCIAL CORP. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  

2.  Summary of Significant Accounting Policies                        

      Basis of Presentation--These financial statements are being filed by
---------------------                                         
the Company as part of a Transitional Report on Form 10-K covering the          
transition period from September 1, 2001 to December 31, 2001 in connection with
the Company's change in fiscal year-end from August 31 to December 31. Future   
periodic reporting by the Company will be made on a calendar quarter basis      
beginning with the three months ended March 31, 2002. The following unaudited   
financial information for the four-month period ended December 31, 2000 is      
presented for comparative purposes. Revenue, income from continuing operations  
and earnings per share were $35.6 million, $1.9 million and $0.55, respectively,
for the four month period ended December 21, 2001.                              

      Principles of Consolidation--The accompanying consolidated financial
---------------------------                                   
statements include the accounts of the Company and its subsidiaries. All        
significant intercompany accounts and transactions have been eliminated in      
consolidation (see Note 1).                                                     

         Parent Company Only Basis--As of December 31, 2001, August 31, 2001 and
-------------------------                                     
2000, the Company, on a "parent company only" basis, had total assets of        
$39,532,000, $41,999,000 and $34,398,000, respectively which were comprised     
principally of its equity investment in subsidiaries of $37,972,000, $34,650,000
and $32,962,000, respectively, and other assets, including amounts due from     
subsidiaries, of $1,532,000, $7,349,000 and $1,438,000, respectively, and       
liabilities of $13,988,000, $10,826,000 and $4,187,000, respectively, excluding 
subordinated debt. As of December 31, 2001, August 31, 2001 and 2000,           
liabilities, excluding subordinated debt, were comprised principally of notes   
payable of $8,927,000, $5,927,000 and $0, respectively and deferred income taxes
of $1,289,000, $1,617,000 and $2,975,000, respectively. As of December 31, 2001,
August 31, 2001 and 2000, subordinated debt of $4,211,000, $4,211,000 and       
$4,286,000, respectively, was outstanding.                                      

         Cash Equivalents--Cash equivalents consist primarily of certificates of
----------------                                              
deposit with original maturities of 90 days or less.                            

    Restricted Cash--Restricted cash represents: cash on deposit which
---------------                                               
relates to CNUC's customer deposits and betterment fees; cash on deposit in     
accordance with notes receivable sale agreements; untransmitted funds received  
from collection of notes receivable owned by others and serviced by the Company;
and customer deposits held by escrow agents.                                    

         Notes Receivable--Notes receivable are stated at amortized cost reduced
----------------                                              
by the allowance for cancellations and discounts. A discount is applied against 
notes receivable bearing interest at rates "below market" interest rate so that 
the effective yield is 10%.                                                     

      Allowance for Cancellations--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. The Company records the provision for cancellations  
at the time revenue is recognized based upon periodic analysis of the portfolio,
collateral values, historical credit loss experience, borrowers' ability to     
repay and current economic factors. The allowance for cancellations represents  
the Company's estimate of the future credit losses to be incurred over the lives
of the notes receivable. The Company'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, current economic conditions which may affect the        
purchasers' ability to pay, the estimated value of inventory that may be        
reacquired and overall portfolio quality. Changes in the allowance as a result  
of such reviews are reflected in the provision for cancellations.               

 Vacation Ownership Inventory--Costs incurred in connection with
----------------------------                                  
preparing vacation ownership inventory are capitalized and include all costs of 
acquisition, renovation and furnishings. Vacation ownership inventory are valued
at the lower of cost or fair value less costs to sell.                          

  Land and Improvements Inventory--Land and improvements inventory
-------------------------------                               
include carrying costs capitalized during the development period and costs of   
improvements incurred to date and are stated at the lower of cost or fair value 
less costs to sell.                                                             

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MEGO FINANCIAL CORP. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  

Property and Equipment--Property and equipment are stated at cost and 
----------------------                                                
are depreciated over their estimated useful lives (generally 3 - 40 years) using
the straight-line method. Costs of maintenance and repairs that do not improve  
or extend the life of the respective assets are recorded as expense.            

Utility Accounting Policies--The Company, through a wholly owned      
---------------------------                                           
subsidiary, provides water and sewer services to customers in the Pahrump valley
of Nevada. This subsidiary is subject to regulation by the Public Utilities     
Commission of Nevada and the Company's accounting policies conform to generally 
accepted accounting principles as applied in the case of regulated public       
utilities in accordance with the accounting requirements of the regulatory      
authority having jurisdiction. Contributions in aid of construction (CIAC)      
received by the Company from its customers are included as a separate liability 
and amortized over the period of 9 - 25 years, which represents the estimated   
remaining useful life of the corresponding improvements. Amortization of CIAC   
reduces depreciation expense. CIAC is included in accrued liabilities in the    
accompanying consolidated balance sheets in the amounts of approximately        
$9,308,000, $9,244,000 and $9,173,000 at December 31, 2001, August 31, 2001 and 
2000, respectively.                                                             

 Income Taxes--Deferred income tax assets and liabilities are determined
------------                                                          
based upon differences between the financial statement and income tax bases of  
assets and liabilities using enacted tax rates in effect for the year in which  
the differences are expected to reverse. The realization of deferred tax assets 
is based on historical tax positions and expectations about future taxable      
income. Valuation allowances are recorded related to deferred tax assets if     
their expected realization does not meet the "more likely than not" criteria of 
SFAS 109, "Accounting for Income Taxes."                                        

     Revenue and Profit Recognition--In accordance with the requirements of SFAS
------------------------------                                        
No. 66, "Accounting for Sales of Real Estate," the Company recognizes revenue on
vacation ownerships and land sales when a minimum down payment of the sales     
price (10% for vacation ownerships and 20% for land sales) has been received in 
cash, the rescission period has expired, collectibility of the receivable       
representing the remainder of the sales price is reasonably assured and the     
Company has completed substantially all of its obligations with respect to any  
development related to the real estate sold. In cases where all development has 
not been completed, the Company recognizes revenue in accordance with the       
percentage-of-completion method of accounting.                                  

   All payments received prior to the recognition of the sale as revenue are
accounted for as deposits. Selling costs directly attributable to unrecognized  
sales are accounted for as deferred selling costs until the sale is recognized. 

Cancellations occur when the note receivable is determined to be      
uncollectible. Cancellation of a sale in the quarter the revenue is recognized  
is deemed to not represent a sale and is accounted for as a reversal of the     
revenue within adjustment to cost of sales. Cancellation of a note receivable   
subsequent to the quarter in which the revenue was recognized is charged to the 
allowance for cancellations.                                                    

Derivatives and Hedging Activities--On September 1, 2000, the Company 
-----------------------------------                                   
adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging        
Activities", and its corresponding amendments under SFAS No. 138. This guidance 
establishes accounting and reporting standards for derivative instruments,      
hedging activities, and exposure definition. Pursuant to the standard, the      
Company records all derivatives as either assets or liabilities on the balance  
sheet and measures those instruments at fair value. Derivatives not designated  
as hedging instruments such as certain of the Company's retained interests in   
receivables sold are adjusted to fair value through earnings in the current     
period. If the derivative is a hedge, depending on the nature of the hedge,     
changes in fair value will either be offset against the change in fair value of 
the hedged assets, liabilities, or firm commitments through earnings, or be     
recognized in other comprehensive income until the hedged item is recognized in 
earnings.                                                                       

The Company utilizes derivative instruments that hedge the exposure of
variability in expected future cash flows that is attributable to a particular  
risk and that are designated as cash flow hedges. The effective portion of the  
net gain or loss on the derivative instrument is reported as a component of     
accumulated other comprehensive income in stockholders' equity and reclassified 
into earnings in the same period or periods during which the hedged transaction 
also affects earnings. The remaining net gain or loss on the derivative         
instrument in excess of the cumulative change in the present value of the future
cash flows on the hedged item, if any, is recognized in current earnings.       

The Company formally documents all relationships between hedging      
instruments and hedged items, as well as its risk-management objective and      
strategy for undertaking various hedge transactions.                            

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MEGO FINANCIAL CORP. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  

  This process includes attributing all derivatives that are designated as
cash flow hedges to floating rate assets or liabilities or forecasted           
transactions. The Company also formally assesses, both at the inception of the  
hedge and on an ongoing basis, whether each derivative is highly effective in   
offsetting changes in cash flows of the hedged item. Fluctuations in the value  
of the derivative instruments are generally offset by changes in the cash flows 
being hedged; however, if it is determined that a derivative is not highly      
effective as a hedge or if a derivative ceases to be a highly effective hedge,  
the Company will discontinue hedge accounting prospectively for the affected    
derivative. The Company does not use derivative financial instruments for       
speculative or trading purposes.                                                

    Sales of Notes Receivable and Retained Interests in Receivables Sold--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 notes   
receivable 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 the fair     
value of future credit 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 consolidated balance sheets. At December 31, 2001, August 31, 2001 and
2000, the outstanding balance of notes receivable sold with recourse was        
$50,987,000, $52,180,000 and $59,600,000, respectively.                         

Gains on sales of receivables depend 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 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 the key assumptions-- 
rates of prepayment, servicing fees, return rate guarantees and discount rates  
commensurate with the risks involved.                                           

  The Company's retained interests in receivables sold are carried at fair
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         
interest, receives fixed interest amounts and pays the buyer variable amounts   
based on a floating interest rate index, as the resulting financial interest    
meets the definition of a derivative in accordance with (SFAS 133). Unrealized  
holding gains or loses, if any, on retained interests in notes receivable sold  
not meeting the definition of a derivative would be included in shareholders'   
equity, net of income taxes. Declines in fair value in such retained interests  
below amortized cost caused by changes in the amount or timing of cash flows to 
be received from other than changes in interest rates are reflected in earnings.

     In August 2001, the Company sold to a financial institution $5.4 million of
timeshare interest receivables at par. The Company recognized a $382,000 gain on
the sale of the receivables and recorded a $356,000 retained interest in notes  
receivable sold and a $711,000 recourse obligation which is included in reserve 
for notes receivable sold with recourse in the accompanying consolidated balance
sheets.                                                                         

     In September 2000, the Company sold to a financial institution $9.5 million
of land receivables at par. The Company recognized a $286,000 gain on the sale  
of the receivables and recorded a $273,000 retained interest in notes receivable
sold and a $625,000 recourse obligation which is included in reserve for notes  
receivable sold with recourse in the accompanying consolidated balance sheets.  

    The significant assumptions used to measure the fair value of the retained
interests were as follows: prepayment rates of 19% per annum as the portfolio   
matures, servicing fee of 1%, guarantee return rates ranging from 5.75% to 10.5%
and discount rate of 15%.                                                       

 Interest Income--Interest income is recorded as earned. Interest income
---------------                                                       
represents the interest earned on notes receivable and short-term investments.  
Interest income and related receivable are reversed on all notes receivable when
principal or interest payments are more than three months contractually past due
and not resumed until such loans are less than three months past due.           

    Loan Origination Fees--The direct incremental cost of originating loans to
---------------------                                                 
customers is deferred and amortized to interest income as an adjustment to the  
yield over the estimated life of the related loans.                             

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MEGO FINANCIAL CORP. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  

 Financial Income--Fees for servicing notes receivable originated by the
----------------                                                      
Company 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. Financial income includes changes in 
the fair value of retained interests in receivables sold meeting the definition 
of a derivative and interest income accreted on such interests.                 

Advertising--The Company expenses advertising costs as incurred.      
-----------                                                           
Advertising expenses included in marketing and selling expenses in the          
accompanying consolidated statements of operations totaled approximately        
$332,000, $904,000, $410,000 and $323,000, during the four-month period ended   
December 31, 2001 and for the years ended August 31, 2001, 2000 and 1999,       
respectively.                                                                   

    Vacation Owners' Associations--The Company is responsible for a portion of
-----------------------------                                         
operating expenses of the vacation owners' associations based on the Company's  
ownership percentage in the unsold vacation interests at each of the respective 
vacation ownership properties. These costs are included in the general and      
administrative expenses in the accompanying statements of operations and totaled
approximately $1,295,000, $934,000, $1,581,000 and $968,000, during the four-   
month period ended December 31, 2001 and for years ended August 31, 2001, 2000  
and 1999, respectively. Management fees recognized from managing the operations 
of the associations are included in other revenues in the accompanying          
statements of operations and totaled approximately $984,310, $2,884,426,        
$2,691,625 and $2,544,750, during the four-month period ended December 31, 2001 
and for years ended August 31, 2001, 2000 and 1999, respectively.               

   Income Per Common Share--Basic (loss) income per common share is based on
-----------------------                                               
the net (loss) income applicable to common stock for each period divided by the 
weighted-average number of common shares outstanding during the period. Diluted 
income per common share is computed by dividing net (loss) income applicable to 
common stock by the weighted-average number of common shares plus common share  
equivalents. In loss periods, or periods whereby the option and warrants'       
exercise price exceeds the average market price, anti-dilutive common share     
equivalents are excluded.                                                       

As of December 31, 2001, August 31, 2001, and 2000 options to purchase
48,570, 48,570 and 51,652 shares of common stock, respectively at $6.00 per     
share were outstanding and warrants to purchase 83,333 shares of common stock at
$6.00 per share were outstanding. The options and warrants were not included in 
the computation of diluted EPS because the options' and warrants' exercise      
prices were greater than the average market price of the common shares and,     
thus, would be anti-dilutive. The options, which expire on September 2, 2002    
through September 22, 2008, and the warrants, which expire on January 1, 2004,  
were still outstanding at December 31, 2001.                                    

    Effective September 9, 1999, the Company consummated a one-for-six reverse
stock split for all of the Company's common shares outstanding. All share and   
per share references have been restated to retroactively show the effect of this
reverse stock split.                                                            

    Comprehensive Income--Comprehensive income, summarized on the consolidated
--------------------                                                  
statements of stockholders' equity, consists of net (loss) income for the       
periods presented and the change in net unrealized gain (loss) on retained      
interests in receivables sold classified as available-for-sale investments and  
interest rate swaps, net of related income tax benefit.                         

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 obligations   
into fixed interest rates. As of December 31, 2001 and August 31, 2001, the fair
value of the swaps was approximately $2,251,000 and $2,111,000, respectively.   

Asset Impairments--The Company periodically reviews the carrying value
-----------------                                                     
of certain of its assets in accordance with SFAS 121, "Accounting for the       
Impairment of Long-Lived Assets to be Disposed of," to identify potential       
situations in which the carrying value of assets may not be recoverable.        

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MEGO FINANCIAL CORP. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  

If such reviews indicate that the carrying value of such assets may not be      
recoverable, the Company would estimate the undiscounted sum of the expected    
future cash flows of such assets to determine if such sum is less than the      
carrying value of such assets to ascertain if a permanent impairment exists. If 
a permanent impairment exists, the Company would determine the fair value by    
using quoted market prices, if available, for such assets, or if quoted market  
prices are not available, the Company would discount the expected future cash   
flows of such assets and would recognize the impairment through a charge to     
operations.                                                                     

   Segment Information-- In accordance with SFAS No. 131, "Disclosures about
-------------------                                                   
Segments of an Enterprise and Related Information," the Company considers its   
business to consist of one reportable operating segment. The Company does not   
currently allocate revenues and expenses, or assets and liabilities, in a       
segmented format for internal use or decision-making processes.                 

  Recent Accounting Standards--In July 2001, the FASB issued SFAS No. 141,
---------------------------                                           
"Business Combinations" and No. 142, "Goodwill and Other Intangible Assets"     
(SFAS 142). SFAS 141 eliminated the use of the pooling-of-interests method of   
accounting for business combinations initiated after June 30, 2001 and is       
effective for any business combination accounted for by the purchase method that
is completed after June 30, 2001. SFAS 142, which includes the requirements to  
test goodwill and indefinite lived intangible assets for impairment rather than 
amortize them, will be effective for fiscal years beginning after December 15,  
2001. Management does not believe the adoption of these statements will have a  
significant impact on the Company's financial statements.                       

In September 2001, the FASB issued SFAS No. 144, "Accounting for the  
Impairment or Disposal of Long-Lived Assets", that is applicable to financial   
statements issued for fiscal years beginning after December 15, 2001. The FASB's
new rules on asset impairment supersede SFAS No. 121 and provide a single       
accounting model for long-lived assets, including discontinued operations. SFAS 
144 supersedes 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, 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
FAS No. 144 as of January 1, 2002, the Company will be required to report       
operations of its wholly owned subsidiary CNUC as discontinued operations.      
Consequently as of March 31, 2002 the Company will classify the operations of   
CNUC in discontinued operations and the related net assets as held for sale.    

  Reclassification--Certain prior period amounts have been reclassified to
----------------                                                      
conform with the current period presentation.                                   

 Use of Estimates--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 consolidated financial statements. Actual results could differ from those   
estimates.                                                                      

3. Notes Receivable                                                             

    The Company generally provides financing to the purchasers of its vacation
ownership and land. These financings are evidenced by notes secured by deeds of 
trust or mortgages. These notes receivable are generally payable over a period  
of up to 12 years, bear interest at rates generally ranging from 12.5% to 15.5% 
and require equal monthly installments of principal and interest.               

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MEGO FINANCIAL CORP. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  

Notes receivable consisted of the following:                          

                                                                [Download Table]

(thousands of dollars)               December 31,            August 31,         
                                     ------------   --------------------------- 
                                         2001           2001            2000    
                                     ------------   ------------    ----------- 
                                                                                
Related to vacation ownership sales  $     95,431   $     93,011    $    71,306 
Related to land sales                      28,826         27,200         25,084 
                                     ------------   ------------    ----------- 
                                          124,257        120,211         96,390 
                                     ------------   ------------    ----------- 

Less:  Allowance for cancellations        (14,557)       (14,707)       (12,827)
         Discounts                           (353)          (377)          (407)
                                     ------------   ------------    ----------- 
                                          (14,910)       (15,084)       (13,234)
                                     ------------   ------------    ----------- 
            Total                    $    109,347   $    105,127    $    83,156 
                                     ============   ============    =========== 

     The Company has entered into financing arrangements with certain purchasers
of timeshare interests and land whereby a 5% interest rate is charged if the    
aggregate down payment is at least 50% of the purchase price and the balance is 
payable in 36 or fewer monthly payments. At December 31, 2001, August 31, 2001  
and 2000, notes receivable totaling approximately $5,734,000, $5,777,000 and    
$6,421,000, respectively, made under this arrangement were included in the table
above. A discount is established to provide for an effective interest rate      
(currently 10%) on notes receivable bearing a below market interest rate at the 
time of sale, and is applied to the principal balance and amortized over the    
terms of the notes receivable. The effective interest rate is based upon the    
economic interest rate environment and similar industry data.                   

Allowance for Cancellations--Changes in both the allowance for        
---------------------------                                           
cancellations and the reserve for notes receivable sold with recourse consist of
the following:                                                                  

                                                        [Enlarge/Download Table]

(thousands of dollars)                                  Four-Month                         Years Ended                    
                                                       Period Ended                         August 31,                    
                                                     -----------------   ------------------------------------------------ 
                                                     December 31, 2001        2001             2000               1999    
                                                     -----------------   -------------    --------------      ----------- 
                                                                                                                          
Balance at beginning of year                         $          18,705   $      16,860    $       18,149      $    18,488 
Provision for cancellations                                      3,258           9,647             7,354            5,626 
Amounts charged to allowance for cancellations and                                                                        
    reserve for notes receivable sold with recourse             (3,846)         (7,802)           (8,643)          (5,965)
                                                     -----------------   -------------    --------------      ----------- 
Balance at end of year                               $          18,117   $      18,705    $       16,860      $    18,149 
                                                     =================   =============    ==============      =========== 

Allowance for cancellations                          $          14,557   $      14,707    $       12,827      $    13,987 
Reserve for notes receivable sold with recourse                  3,560           3,998             4,033            4,162 
                                                     -----------------   -------------    --------------      ----------- 
            Total                                    $          18,117   $      18,705    $       16,860      $    18,149 
                                                     =================   =============    ==============      =========== 

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MEGO FINANCIAL CORP. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  

4. Vacation Ownership Inventory                                                 

Vacation ownership inventory consists of the following:     

                                                        [Enlarge/Download Table]

(thousands of dollars)                                                                        
                                             December 31,               August 31,            
                                             -------------  ----------------------------------
                                                  2001           2001                 2000    
                                             -------------  ---------------      -------------
                                                                                              
Vacation ownership interests                 $      13,771  $        14,972      $      18,755

Vacation ownership interests in development          4,094            3,167              4,552
                                             -------------  ---------------      -------------

 Total                                       $      17,865  $        18,139      $      23,307
                                             =============  ===============      =============

5.   Assets Available for Sale                                                  

Assets available for sale consist of the following:         

                                                                [Download Table]

(thousands of dollars)          December 31,            August 31,         
                                ------------  -----------------------------
                                    2001         2001              2000    
                                ------------  ----------        -----------
                                                                           
Water rights:                                                              
     Huerfano County, Colorado  $        543  $      543        $       547
     Nye County, Nevada                  417         417                417
Land:                                                                      
     Nye County, Nevada                  944         944              1,108
     Biloxi, Mississippi               1,981       2,080              2,080
                                ------------  ----------        -----------
                 Total          $      3,885  $    3,984        $     4,152
                                ============  ==========        ===========

6.   Property and Equipment                                                     

          Property and equipment and related accumulated depreciation consist of
the following:                                                                  

                                                                [Download Table]

(thousands of dollars)           December 31,                  August 31,           
                                 -------------   ---------------------------------- 
                                      2001            2001                2000      
                                 -------------   --------------      -------------- 
                                                                                    
Water and sewer systems          $      20,572   $       20,390      $       19,391 
Furniture and equipment                  5,471            6,814               6,745 
Vehicles                                 2,640            3,155               3,051 
Buildings                                6,618            9,087              10,077 
Leasehold improvements                     439              563                 533 
Land                                       223              223               1,342 
                                 -------------   --------------      -------------- 
                                        35,963           40,232              41,139 
Less:  Accumulated depreciation        (13,314)         (17,098)            (17,632)
                                 -------------   --------------      -------------- 
    Total                        $      22,649   $       23,134      $       23,507 
                                 =============   ==============      ============== 

     During the year ended August 31, 2001, the Company entered into a
sale-leaseback transaction for its two primary office buildings in Las Vegas.   
The two buildings were sold for a total consideration of $8,300,000, less       
transaction costs. The gains of $1,621,000 were deferred and are being amortized
as an offset to rent expense in proportion to the related gross rental charged  
to expense over the lease terms. The deferred gain included in accrued          
liabilities and other in the accompanying consolidated balance sheets totaled   
approximately $1,424,000 and $1,478,000 as of December 31, 2001 and August 31,  
2001, respectively.                                                             

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MEGO FINANCIAL CORP. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  

7. Other Assets                                                                 

Other assets consist of the following:                                

                                                        [Enlarge/Download Table]

(thousands of dollars)                     December 31,             August 31,          
                                          --------------  ------------------------------
                                               2001           2001              2000    
                                          --------------  -----------        -----------
                                                                                        
HOA receivables                           $        4,119  $     1,835              2,315
Deferred loan origination costs                    2,430        1,472                443
Prepaid expenses                                   1,891        2,210              1,527
Split-dollar life insurance policies               1,521        1,495              1,411
Interest receivable                                1,266        1,165              1,059
Promotional inventories                              930          775                861
Paid-in-full delinquent maintenance fees             929          692                677
Financial services income receivable                 245          227                189
Other                                              1,982        2,172              3,977
                                          --------------  -----------        -----------
             Total                        $       15,313  $    12,043        $    12,459
                                          ==============  ===========        ===========

8.   Accrued Liabilities and Other                                              

Accrued liabilities and other consist of the following:     

                                                        [Enlarge/Download Table]

                                           December 31,            August 31,         
                                           ------------  -----------------------------
                                               2001          2001             2000    
                                           ------------  -----------       -----------
                                                                                      
Contributions in aid of construction       $      9,308  $     9,244       $     9,173
Sold receivables replacement liability            2,980         (593)              187
Payroll and related                               2,316        3,145             3,474
Deferred gain on sale of office buildings         1,424        1,478                 -
Other                                             5,107        4,983             5,324
                                           ------------  -----------       -----------
                Total                      $     21,135  $    18,257       $    18,158
                                           ============  ===========       ===========

9. Notes and Contracts Payable                                                  

        The Company's debt consists of the following (thousands of dollars):

                                                        [Enlarge/Download Table]

                                                                                  December 31,         August 31,      
                                                                                  ------------  -----------------------
Borrowings Under Lines of Credit                                                      2001        2001          2000   
--------------------------------                                                  ------------  ---------     ---------
                                                                                                                       
Notes collateralized by receivables with a carrying value at                                                           
      December 31, 2001 of approximately $84,000                                                                       
      Borrowings bearing interest at prime plus 2-2.50%                           $     80,628  $  71,116     $  80,593

Mortgages collateralized by real estate properties with a carrying value at                                            
      December 31, 2001 of approximately $51,000 Borrowings bearing interest                                           
      at prime plus 2-2.50% and 90-day                                                                                 
      LIBOR plus 4.25%                                                                  40,752     41,802        26,619
                                                                                  ------------  ---------     ---------
                                                                                       121,380    112,918       107,212

Other                                                                                                                  
-----                                                                                                                  
Other mortgages collateralized by the respective underlying assets with                                                
      various repayment terms and fixed interest rates of 8% and variable                                              
      rates of prime plus 2%                                                             8,985      5,995           788

Installment contracts and other notes payable secured by their underlying assets         1,165      1,325         1,131
                                                                                  ------------  ---------     ---------
         Total                                                                    $    131,530  $ 120,238     $ 109,131
                                                                                  ============  =========     =========

 At December 31, 2001, the prime rate was 4.75% and the 90-day LIBOR was
1.88%.                                                                          

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MEGO FINANCIAL CORP. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

         Lines of Credit-- As of December 31, 2001, August 31, 2001, and 2000,
---------------                                             
LHC had $162.0, $152.0, and $133.5 million in lines of credit, respectively,    
with institutional lenders for the financing of receivables in connection with  
sales and acquisitions of vacation ownerships and land and vacation ownership.  
These lines of credit bear interest at variable rates based on the prime and 90-
day LIBOR rate and are secured by timeshare and land receivables and inventory. 
At December 31, 2001, August 31, 2001 and 2000, an aggregate of approximately   
$121.4, $112.9 and $107.2 million, respectively, was outstanding under such     
lines of credit and approximately $40.6 and $39.1 and 26.3 million,             
respectively, was available for borrowing. Depending upon the terms and         
conditions of the respective line of credit, LHC may borrow 65% to 85% of the   
balances of the pledged timeshare and land receivables.                         

     A summary of these lines of credit outstanding as of December 31,
2001, is as follows:                                                            

(thousands of dollars)                                                          

                                                        [Enlarge/Download Table]

  Lender          December 31, 2001      Amounts     Expiration Date (a)     Maturity Date (a)        Interest Rate     
-------------------------------------  -----------  ---------------------  -------------------   -----------------------
                                                                                                                        
Finova               $    59,479        $  65,000     February 28, 2002     February 28, 2002 -    Prime +  2.0 - 2.25% 
                                                                             May 15, 2010                               
Textron                   28,314           35,000     December 1, 2002      December 31, 2002 -    Prime +  2.0 - 3%    
                                                                             December 31, 2005                          
GE Capital                28,694           40,000     April 30, 2003        March 30, 2006         LIBOR +  4.0 - 4.25% 
HSBC                         179            5,000     February 4, 2002      February 6, 2006       Prime +  1.0%        
Capital Source             3,491           15,000     August 8, 2004        August 8, 2004         Prime +  2.5%        
Textron                    1,223            1,972     N/A                   July 31, 2003          Prime + 2.25%        
                    ------------       ----------                                                                       
                     $   121,380        $ 161,972                                                                       
                    ============       ==========                                                                       

      LHC is required to comply with certain financial and non-financial
covenants under these lines of credit agreements. Among other things, these     
agreements require LHC to meet certain minimum tangible net worth requirements, 
certain loan-to-value ratio, 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 for one of the    
above lines of credit. 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 related to  
one of the lines of credit. 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 advances 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:                                                                     

               Years Ending December 31                 (thousands of dollars)
------------------------                        

                   2002.........................        $    8,619
                   2003.........................             6,089
                   2004.........................            14,058
                   2005.........................            15,757
                   2006.........................            28,995
                   Thereafter...................            58,012
                                                        ----------
                             ...................        $  131,530
                                                        ----------

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MEGO FINANCIAL CORP. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) 

10.  Subordinated Debt                                                

       On March 2, 1995, Mego Financial entered into the Amendment whereby
the Assignors agreed to defer payment of $10,000,000 of the amount payable to   
Assignors and to subordinate such amount, constituting Subordinated Debt, in    
right of payment to debt for money borrowed by the Company or obligations of    
subsidiaries guaranteed by the Company. Warrants for 166,666 shares of the      
Company's common stock, at an exercise price of $25.50 per share (the closing   
market price per share on March 2, 1995) were granted to the Assignors in       
consideration of the payment deferral and subordination. The Warrants were      
exercised in August 1997 in a non-cash transaction whereby the Subordinated Debt
was reduced by $4,250,000. The Amendment calls for interest to be paid semi-    
annually at the rate of 10% per annum starting September 1, 1995, and semi-     
annual payments of $1,429,000 plus interest, which commenced March 1, 1997. In  
connection with the exercise of Warrants, payments aggregating $4,250,000 were  
deemed paid and the semiannual payments were scheduled to resume in March 1999  
(subsequently deferred until February 1, 2000) with a partial payment in        
September 1998. The final $4.29 million was scheduled to be repaid in 3 equal   
installments on March 1, 1999, September 1, 1999 and March 1, 2000. 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 is accounted for like,  
and reported in the same manner as, an extinguishment in the consolidated       
financial statements in accordance with EITF 96-19, "Debtor's Accounting for a  
Modification or Exchange of Debt Instruments."                                  

11.  Income Taxes                                                               

       The Company files a consolidated federal income tax return with its
subsidiaries for its tax year, which ends the last day of February.             

 The income tax (expense) benefits of approximately $(72,000),
$656,000, $530,000 and $830,000, respectively, for the four-month period ended  
December 31, 2001 and for the years ended August 31, 2001, 2000 and 1999 all    
represent deferred income tax benefits.                                         

          Deferred income taxes shown in consolidated balance sheets reflect the
net tax effects of (a) temporary differences between the carrying amount of     
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes, (b) temporary differences between the timing of revenue    
recognition for book purposes and for income tax purposes, and (c) operating    
loss and tax credit carry forwards. The tax effects of significant items        
comprising the Company's net deferred income taxes as of the December 31, 2001, 
August 31, 2001 and 2000 are as follows:                                        

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MEGO FINANCIAL CORP. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  

(thousands of dollars)                     December 31,        August 31,       
                                           ------------  -----------------------
                                            2001         2001         2000
                                           ------------  ---------    ----------
Deferred tax liabilities                                                        
  Timing of revenue recognition           $   25,860    $  27,632    $  21,612
Deferred tax assets                                                             
  Net operating loss carryforwards            24,571       26,015       18,637
                                          ----------    ---------    ---------

Net deferred income taxes                  $    1,289    $   1,617    $   2,975 
                                          ==========    =========    =========

 At December 31, 2001, the Company had net operating loss carry forwards
totaling approximately $72.3 million that expire beginning in 2008 through 2022.

The provision for income taxes as reported is different from the tax  
provision computed by applying the statutory federal rate of 34%.  The          
differences are as follows:                                                     

                                                        [Enlarge/Download Table]

                                                          Four-Month                                    
(thousands of dollars)                                   Period Ended                                   
                                                          December 31        Years Ended August 31,     
                                                         -------------  --------------------------------
                                                             2001          2001        2000        1999 
                                                         -------------  --------     --------     ------
                                                                                                        
Income(loss) before income taxes                          $ (6,245)     $  3,181     $  3,419     $ 220 
                                                          ========      ========     ========     ===== 

Tax at the statutory federal rate                         $ (2,123)     $  1,082     $  1,162     $  75 
(Decrease) Increase in income taxes resulting from                                                      
       Changes in certain income tax liability reserves      1,832        (1,738)      (1,692)     (905)
       Extraordinary item                                      219             -            -         - 
                                                          --------      --------     --------     ----- 
Income tax (expense) benefit                              $    (72)     $    656     $    530     $ 830 
                                                          ========      ========     ========     ===== 

12.  STOCKHOLDERS' EQUITY                                                       

   The Company has a stock option plan (Stock Option Plan), adopted November
1993, amended September 9, 1997, and amended and restated as of September 16,   
1998, in each case with the by approval of shareholders, for officers, key      
employees and directors which provides for non-qualified and qualified incentive
options.  The Stock Option Committee of the Board of Directors determines the   
option price (not to be less than fair market value for qualified incentive     
options) at the date of grant.  The options generally expire ten years from the 
date of grant and are exercisable over the period stated in each option         
generally at the cumulative rate of 20% per year for three years from the date  
of grant, and the remaining 40% at the end of the fourth year.                  

SFAS 123 establishes financial accounting and reporting standards for 
stock-based employee compensation plans and for transactions in which an entity 
issues its equity instruments to acquire goods or services from non-employees.  
Those transactions must be accounted for based on the fair value of the         
consideration received or the fair value of the equity instruments issued,      
whichever is more reliably measurabledeterminable.  The Company has elected to  
continue to apply the provisions of APB Opinion No. 25 as permitted by SFAS 123 
and, accordingly, provides pro forma disclosure herein.                         

   A summary of the Company's stock option activity as of December 31, 2001,
and and for the years ended August 31, 2001, and 2000, and 1999 is are presented
below:                                                                          

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MEGO FINANCIAL CORP. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  

                                                        [Enlarge/Download Table]

                            December 31, 2001            August 31, 2001             August 31, 2000          August 31, 1999  
                        ---------------------------  --------------------------  ----------------------------------------------
                                         Weighted-                   Weighted-               Weighted-               Weighted- 
                                         Average                      Average                 Average                 Average  
                                         Exercise                    Exercise                Exercise                Exercise  
                         Shares           Price       Shares           Price      Shares       Price     Shares        Price   
                        -------          --------    --------       -----------  --------   ----------  --------     --------- 
                                                                                                                               
Outstanding at                                                                                                                 
beginning of period      48,570          $  6.00       51,652         $ 6.00      58,906      $ 9.14      57,406      $   9.22 
Granted                       -             6.00            -              -           -           -      18,500          6.00 
Forfeited                     -                -       (3,082)          6.00      (7,254)      31.50     (17,000)         6.00 
                        -------                      --------                    -------                --------               
Outstanding at end of                                                                                                          
period                   48,570             6.00       48,570           6.00      51,652        6.00      58,906          9.14 
                        =======                      ========                    =======                ========               
Options exercisable at                                                                                                         
end of period            48,570             6.00       26,242           6.00      17,532        6.00       9,783         13.56 
                        =======                      ========                    =======                ========               

 The fair value of theeach options granted during fiscal 1999 (none were
granted during the four months ended December 31) is were estimated on the date 
of grant using the Black-Scholes option-pricing model with the following        
weighted-average assumptions: (1) dividend yield of zero; (2) expected          
volatility of 35%; (3) risk-free interest rate of 6%; and, (4) expected life of 
7 years. The weighted-average fair value of options granted was during fiscal   
1999 was $1.63. at As of December 31, 2001, and there were 48,570 options       
outstanding, respectively, which have an exercise price of $6.00 per common     
share and a weighted-average remaining contractual life of 6 years.             

Had compensation cost for grants of stock options been determined     
consistent in accordance with SFAS 123, the Company's pro forma net (loss)      
income and pro forma net (loss) income per common share for the four-month      
period ended December 31, 2001 and for years ended August 31, 2001, 2000 and    
1999fiscal 2001 and 2000 would approximate the pro forma amounts below (thousand
of dollars, except per share amounts):                                          

                                                        [Enlarge/Download Table]

                              December 31, 2001  August 31, 2001  August 31, 2000  August 31, 1999
                              -----------------  ---------------  ---------------  ---------------
                                                                                                  
Net (loss) income applicable                                                                      
 to common stock              $        (6,743)   $       3,817    $       3,929    $       850    
Net (loss) income applicable                                                                      
share:                                                                                            
   Basic and Diluted                    (1.93)            1.09             1.12           0.24    

13.  FAIR VALUES OF FINANCIAL INSTRUMENTS                                       

    SFAS No. 107, "Disclosure about Fair Value of Financial Instruments" (SFAS
107), requires disclosure of estimated fair value information for financial     
instruments, whether or not recognized in the bBalance sSheets.  Fair values are
based upon estimates using present value or other valuation techniques in cases 
where quoted market prices are not available.  Those techniques are             
significantly affected by the assumptions used, including the discount rate and 
estimates of future cash flows.  In that regard, the derived fair value         
estimates cannot be substantiated by comparison to independent markets and, in  
many cases, could not be realized in immediate settlement of the instrument.    
SFAS 107 excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements.  Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.                 

  Estimated fair values, carrying values and various methods and
assumptions used in valuing the Company's financial instruments as of the four  
months ended December 31, 2001, and atAugust 31, 2001 and 2000 are set forth    
below (thousands of dollars):                                                   

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MEGO FINANCIAL CORP. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  

                                                        [Enlarge/Download Table]

                                                       -------------------------  ------------------------  --------------------
                                                          December 31, 2001           August 31, 2001          August 31, 2000  
                                                       -------------------------  ------------------------  --------------------
                                                       Carrying       Estimated    Carrying     Estimated   Carrying  Estimated 
                                                         Value       Fair Value     Value       Fair Value    Value   Fair Value
                                                       ---------     ----------   ----------    ----------  --------  ----------
                                                                                                                                
Financial Assets:                                                                                                               
Cash and cash equivalents (a)                          $  1,693      $   1,693     $  1,894     $   1,894   $  1,069   $  1,069 
Notes receivable, net (b)                               109,347        109,347      105,127       105,127     83,156     83,156 
Retained interests in receivables sold (c)                3,688          3,688        3,603         3,603      2,701      2,701 
Interest rate swaps (d)                                  (2,251)        (2,251)      (2,111)       (2,111)         -       (255)

Financial Liabilities:                                                                                                          
Reserves for notes receivables sold with recourse (e)     3,560          3,560        3,998         3,998      4,033      4,033 
Notes and contracts payable (f)                         131,530        131,530      120,238       120,238    109,131    109,131 

(a)  Carrying value is the same as fair value.                                  

(b)  The fair value was estimated by discounting future cash flows of the       
outstanding notes receivable, net of the allowance for cancellations. 

(c)  The fair value was estimated by discounting future cash flows of the       
instruments using discount rates, defaultestimated guaranteed rates of
return, servicing fee and prepayment assumptions based upon available 
market data, opinions from financial advisors and historical portfolio
experience.                                                           

(d)  Fair value was estimated by obtaining a third-party quote.                 

(e)  The fair value was determined by discounting management's estimate of      
   future credit losses expected to be incurred on the notes receivable sold
through their maturity.                                               

(f)  Notes and contracts payable generally bear interest at agenerally          
aredjustable rates, indexed to the prime or LIBOR rate; theeirrefore, 
carrying value approximates fair value.                               

14.  CONCENTRATIONS OF RISK                                                     

     Availability of Funding Sources--The Company funds substantially all of the
-------------------------------                                       
notes receivable, timeshare inventory and land inventory with borrowings through
its financing facilities and internally generated funds.  These borrowings are  
in turn repaid with the proceeds received by the Company from such notes        
receivable through loan sales and payments.  Any failure to renew or obtain     
adequate financing under its financing facilities, or other borrowings, or any  
substantial reduction in the size of or pricing in the markets for the Company's
notes receivable, could have a material adverse effect on the Company's         
operations.                                                                     

    Geographic Concentrations--The Company services notes receivable in all 50
-------------------------                                             
states, the District of Columbia and Canada.  As of December 31, 2001 and August
31, 2001, 25.1% and 25.3%, respectively, 20.9% and 19.9% respectively, and 13.4%
and 13.3%, respectively, of the dollar value of notes receivable serviced had   
been originated in California, Texas and Colorado.  No other state accounted for
more than 10% of the portfolio of the Company's receivables.  The risk inherent 
in such concentrations is dependent upon regional and general economic          
stability, which affects property values, and the financial stability of the    
borrowers.  The Company's timeshare and land inventories are concentrated in    
Nevada, New Jersey, Colorado, Florida and Hawaii.  The risk inherent in such    
concentrations is in the continued popularity of these resort destinations,     
which affects the marketability of the Company's products.                      

     Credit Risk--The Company is exposed to on-balance sheet credit risk related
-----------                                                           
to its notes receivable.  The Company is exposed to off-balance sheet credit    
risk related to notes receivable sold under recourse provisions.  The           
outstanding balance of notes receivable sold with recourse provisions totaled   
$50,987,000, $52,180,000 and $59,588,000 as of December 31, 2001, and August 31,
2001 and 2000, respectively.                                                    

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MEGO FINANCIAL CORP. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  

  Interest Rate Risk--The Company's profitability is in part determined by
------------------                                                    
the difference, or "spread," between the effective rate of interest received on 
the notes receivable originated by the Company and the interest rates payable   
under its financing facilities to fund the Company's notes receivable and       
inventory held for sale and the yield required by financial institutions on     
notes receivable hypothecated or sold.  The spread can be adversely affected    
after a note is originated and while it is held, by increases in the interest   
rate.  Additionally, the fair value of the retained interests in receivables    
sold by the Company may be adversely affected by changes in the interest rate   
environment, which could affect the discount rate and prepayment assumptions    
used to value the assets.                                                       

    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.  In August 2001, the  
Company entered into a similar $20 million, 5-year, interest rate swap          
transaction.  The interest rate swaps are considered and are documented as      
highly effective cash flow hedges.                                              

15.  Other Related Party Transactions                                           

 Vacation Owners' Associations--Owners' associations (Associations) have
-----------------------------                                         
been incorporated for the Grand Flamingo, Reno Spa, Brigantine, Steamboat       
Springs, Aloha Bay and Orlando timeshare properties.  The respective            
Associations are independent not-for-profit corporations.  LHC acts as the      
managing agent for these Associations and the White Sands Waikiki Resort Club,  
which is a division of LHC, and has received recognized management fees for its 
services of approximately $984,000, $2,884,000, and $2,692,000 and $2,540,000   
for the four-month period ended December 31, 2001 and for years ended August 31,
2001, 2000, and 1999, respectively.  LHC recognizes expenses for the The        
expenses of LHC for management of each timeshare property  are incurred to      
preserve the integrity of the property and the portfolio performance on an      
ongoing basis beyond the end of the sales period.  The owners of the vacation   
ownership interests in each Association are responsible for payment to the      
Associations of assessments, which are intended to fund all of the operating    
expenses at each of the resort facilities.  The Company's share of the          
Association assessments, based on unsold inventory owned, net of room income,   
are included in general and administrative expenses in the accompanying         
statements of operations and totaled approximately $1,827,000, $934,000,        
$1,581,000 and $968,000 for the four- month period ended December 31, 2001, and 
for the years ended August 31, 2001, 2000 and 1999, respectively. The Company   
has in the past financed budget deficits of the Associations as is reflected in 
the receivable from such Associations, but is not obligated to do so in the     
future, except at some of its Florida properties.  The Public Offering          
Statements for the Indian Shores and Orlando resorts contain a provision whereby
LHC guarantees that the annual assessment fees will not exceed a specified      
amount, in which case LHC agrees to pay any monetary deficiencies at Indian     
Shores and Orlando I.  These guarantees are effective through the Associations' 
calendar year of December 31, 2001.  In the calendar years 2001 and 2000, LHC   
financed a budget deficit of $132,000 and $645,000 for the Associations for the 
respective years at Indian Shores and Orlando respectively.                     

   The Company has agreed to pay to the Associations the lien amount fees of
timeshare interest owners who are delinquent with respect to such fees, but have
paid the Company in full for their timeshare interests.  In exchange for the    
payment by the Company of such fees, the Associations assign their liens for    
non-payment on the respective timeshare interests to the Company.  In the event 
the timeshare interest holder does not satisfy the lien after having an         
opportunity to do so, the Company typically acquires the timeshare interest for 
the amount of the lien and any related foreclosure costs.                       

     Included in other assets in the accompanying consolidated balance sheets at
December 31, 2001, August 31, 2001 and 2000, were approximately $4,185,000,     
$1,828,000 and $2,314,000, respectively, due from the Associations.             

16.  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.                        

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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.                                                                     

  Leases-The Company leases certain real estate for sales offices and also
------                                                                
leases its Hawaii real estate for vacation ownership usage.  Rental expense for 
the four-month period ended December 31, 2001 and for years ended August 31,    
2001, 2000 and 1999 totaled $1,480,000,  $4,199,000, and $2,327,000,            
respectively, and is included in the statement of operations in general and     
administrative expenses.  Future minimum rental payments under operating these  
leases are set forth below:                                                     

(thousands of dollars)                                                          
For the Years Ending December 31,                           
---------------------------------                           
              2002                                          $  6,252
              2003                                             2,720
              2004                                             1,872
              2005                                             1,344
              2006                                             1,044
              Thereafter                                       3,370
                                                            --------
                Total                                       $ 16,602
                                                            ========

Future Improvements-- Central Nevada Utilities Company (CNUC), a      
-------------------                                                   
subsidiary, has issued performance bonds of $3,709,000 outstanding at December  
31, 2001, to ensure the completion of water, sewer and other improvements in    
portions of the Calvada development areas.  The cost of the improvements will be
offset by the future receipt of betterment fees and connection fees.            

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   Contingencies--At December 31, 2001, irrevocable letters of credit in the
-------------                                                         
amount of $310,000 were issued and outstanding to secure certain obligations of 
the Company.  These letters are collateralized by notes receivable.             

 License Agreement--In April 1995, LHC entered into a strategic alliance
-----------------                                                     
with Cendant Corporation (Cendant) pursuant to which LHC was granted a ten-year 
(including a renewal option) exclusive license to operate both its existing and 
future vacation properties under the name "Ramada Vacation Suites" (the         
Licensing Agreement). The arrangement provides for the payment by LHC of an     
initial access fee of $1,000,000, which has been paid, and monthly recurring    
fees equal to 1% of LHC's Gross Sales, as defined, each month through January   
1996 and 1.5% of LHC's Gross Sales each month commencing in February 1996 with  
certain minimums increasing each year.  The initial term of the arrangement     
was five years and LHC has exercised its option to renew the arrangement for    
an additional term of five years, expiring December 31, 2005.                   

On April 19, 2002, LHC and Cendant mutually agreed to terminate the   
Licensing Agreement. 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 Licensing          
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.               

 The termination of the Licensing Agreement will eliminate the Company's
payment to Cendant of approximately $2,000,000 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.                             

17.  Subsequent Events                                                          

In January 2002, the Company's board of directors approved the sale by
certain former officers, directors and other shareholders to LC Acquisition     
Corp. (LCA) of an aggregate of 1,269,634 shares of the Company's common stock at
a price of $4.00 per share.                                                     

     In January 2002, the Company sold 750,000 shares of its common stock to LCA
and 500,000 shares of its common stock to Doerge Capital Management, later      
assigned to an individual, at a price of $4.00 per share.                       

 In February 2002, the Company entered into letters of intent with three
entities; the Government of St. Lucia, Hilton International and M Group Resorts,
to acquire their respective ownership interest, which collectively represent the
entire ownership, in Jalousie (1996) Ltd. (JL), the entity which owns the       
Jalousie Hilton Resort & Spa (Resort).  The Company intends to acquire the      
Resort, through the acquisition of JL, and to operate the Resort as a hotel and 
vacation ownership facility. Hilton International will continue to manage the   
hotel portion of the Resort.                                                    

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 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), a developer, marketer, and     
operator of luxury vacation interval ownership resorts in North America, with   
resorts in Mexico, the United States and Canada. 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         
approvals of Raintree and the Company.                                          

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   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 prior to 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 prior to December 31, 2004.                     

    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 March 29, 2002, the Company entered into a Letter of Intent to acquire
LCAC, an owner of certain travel related assets. This acquisition is subject to 
approval of a Special Committee of the Board, and a vote of shareholders. The   
Company's wholly owned subsidiary 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, a wholly owned subsidiary of    
LCAC. On May 14, 2002, Leisure Services Corporation amended the management      
agreement to perform management and related services for Cheap Seats, Inc. a    
wholly owned subsidiary of LCAC. The Company, through Leisure                   
ServicesCorporation and Adventure Bound, Inc., in conjunction with Cheap Seats, 
intends to offer tour, travel and travel related services to its current and    
potential customers.                                                            

Raising capital necessary to pursue the Company's new strategic       
initiatives.  Since the sale of shares to LCAC and Mr. Stewart, the Company has 
sold approximately 1,000,000 additional shares of common stock for proceeds of  
approximately $5,000,000. Included with each of these shares the purchasers     
received one warrant for each share of common stock purchased. These warrants   
entitle the holder to purchase one share of common stock at purchase prices     
ranging from $5.00 to $6.00. The warrants expire one year from the date of      
issuance. Under the subscription agreements, the Company has the right to demand
exercise, at its discretion, if the Company's common stock trades at $7.00 or   
more for ten consecutive trading days at any time during the term of the        
warrants. The Company will require substantial additional capital to acquire    
Raintree and pursue the other elements of its business plan.                    

In January, 2002 the Company's Board of Directors approved a business 
restructuring. Among other things, this restructuring included: approval of     
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, management anticipates      
incurring a non-recurring charge of approximately $2.5 million against its      
operations during the first quarter of 2002.                                    

  18.  Quarterly Financial Data (unaudited).  The following tables reflect
consolidated quarterly financial data for the Company for the for years ended   
August 31, 2001 and 2000:                                                       

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  

                                                        [Enlarge/Download Table]


(thousands  of dollars)                                               Three Months Ended                
                                                  ------------------------------------------------------
                                                    August 31,     May 31,   February 28,  November 30, 
                                                      2001        2001(1)      2001(1)       2000(1)    
                                                  ------------ ------------- ------------ --------------
                                                                                                        
Revenues:                                                                                               
Net timeshare interest and land sales             $    19,077   $    20,631    $   17,193    $   18,760 
Net gain on sale of assets                                429            22            41           300 
Interest income                                         4,253         3,965         3,550         3,209 
Financial income and other                              2,467         2,328         2,170         2,011 
                                                  -----------   -----------    ----------    ---------- 
        Total revenues                                 26,226        26,946        22,954        24,280 
                                                  -----------   -----------    ----------    ---------- 

Expenses:                                                                                               
Direct costs of timeshare interest and                                                                  
      land sales                                        3,054         4,033         3,232         3,926 
Operating expenses                                     18,626        18,963        16,173        17,004 
Interest expense                                        3,036         3,046         3,088         3,044 
                                                  -----------   -----------    ----------    ---------- 
        Total expenses                                 24,716        26,042        22,493        23,974 
                                                  -----------   -----------    ----------    ---------- 

Income before income taxes                              1,510           904           461           306 
Income taxes (benefit)                                     79          (108)           13          (640)
                                                  -----------   -----------    ----------    ---------- 

Net income applicable to common stock             $     1,431   $     1,012    $      448    $      946 
                                                  ===========   ===========    ==========    ========== 
Income  per common share:                                                                               
     Basic and Diluted:                                                                                 
        Net income applicable to common stock     $      0.41   $      0.29    $     0.13    $     0.27 
                                                  ===========   ===========    ==========    ========== 
        Weighted-average number of common shares    3,500,557     3,500,557     3,500,557     3,500,557 
                                                  ===========   ===========    ==========    ========== 

Net gain on sale of assets                                      $        41    $       41    $   (1,600)
Operating expenses                                                        3             3          (120)
Income before income taxes                                               38            38        (1,480)
Income taxes (benefit)                                                   13            13          (503)
Net income applicable to common stock                                    25            25          (977)

Income per common share:                                                                                
  Net income applicable to common stock:                                                                
             as restated                                        $      0.29    $     0.13    $     0.27 
                                                                ===========    ==========    ========== 
             as previously reported                             $      0.28    $     0.12    $     0.47 
                                                                ===========    ==========    ========== 

(1) Certain amounts have been restated in connection with adjustment of net gain
on the sale-leaseback of two buildings in accordance with SFAS No. 98,          
"Accounting for Leases", Sale-Leaseback Transactions Involving Real Estate.  See
Note 7.  The preceding table summarizes the increase (decrease) of the line     
items which were restated.