##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -----------------------------------------------------------------------------------------



FOR THE TRANSITION PERIOD FROM  TO
.



Commission File Number 20418



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KENNEDY-WILSON, INC.

(Exact name of registrant as specified in its charter)



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|Delaware                                                       |  | 95-4364537                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|9601 Wilshire Blvd., Suite 220                                 |  |                                     
|Beverly Hills, CA                                              |  | 90210                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



(310) 887-6400

(Registrants telephone number, including area code)



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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 checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x



Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: Common stock, $.01 par value; 8,863,284 shares outstanding at November 11, 2003.



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##### Table of Contents

KENNEDY-WILSON, INC.



INDEX TO QUARTERLY
REPORT ON FORM 10-Q



SEPTEMBER 30, 2003



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|        |  |                                                                                                                      |  | Page
|------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ----
|PART I  |  | Financial Information                                                                                                |  |     
|        |  |                                                                                                                     
|Item 1. |  | Financial Statements                                                                                                 |  |     
|        |  |                                                                                                                     
|        |  | Consolidated Balance Sheets as of September 30, 2003 (Unaudited) and December 31, 2002                               |  | 3   
|        |  |                                                                                                                     
|        |  | Consolidated Statements of Income for the Three and Nine-Month Periods ended September 30, 2003 and 2002 (Unaudited) |  | 4   
|        |  |                                                                                                                     
|        |  | Consolidated Statements of Cash Flow for the Nine-Month Periods ended September 30, 2003 and 2002 (Unaudited)        |  | 5   
|        |  |                                                                                                                     
|        |  | Notes to Consolidated Financial Statements (Unaudited)                                                               |  | 7   
|        |  |                                                                                                                     
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                |  | 17  
|        |  |                                                                                                                     
|Item 3. |  | Quantitative and Qualitative Disclosure about Market Risk                                                            |  | 24  
|        |  |                                                                                                                     
|Item 4. |  | Controls and Procedures                                                                                              |  | 24  
|        |  |                                                                                                                     
|PART II |  | Other Information                                                                                                    |  |     
|        |  |                                                                                                                     
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                                     |  | 25  



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##### Table of Contents

Kennedy-Wilson, Inc. and Subsidiaries

Consolidated Balance Sheets



|                                                                                                                                                                                 |  | September 30,2003 |             |   | December 31,2002 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ---------------- | -
|                                                                                                                                                                                 |  | (Unaudited)       |             |   |                  |  
|Assets                                                                                                                                                                           |  |                   |             |   |                  |  
|Cash and cash equivalents                                                                                                                                                        |  | $                 | 6,887,000   |   |                  | $
|Cash - restricted                                                                                                                                                                |  |                   |            |   |                  |  
|Accounts receivable                                                                                                                                                              |  |                   | 3,785,000   |   |                  |  
|Investment in Kennedy-Wilson Japan                                                                                                                                               |  |                   |            |   |                  |  
|Notes receivable                                                                                                                                                                 |  |                   | 24,428,000  |   |                  |  
|Investments in joint ventures                                                                                                                                                    |  |                   | 50,227,000  |   |                  |  
|Contracts and other assets, net                                                                                                                                                  |  |                   | 8,703,000   |   |                  |  
|Goodwill, net                                                                                                                                                                    |  |                   | 23,965,000  |   |                  |  
|                                                                                                                                                                                 |  |                   |             |   |                  |  
|Total Assets                                                                                                                                                                     |  | $                 | 117,995,000 |   |                  | $
|                                                                                                                                                                                 |  |                   |             |   |                  |  
|Liabilities and Stockholders Equity                                                                                                                                             |  |                   |             |   |                  |  
|                                                                                                                                                                                 |  |                  
|Liabilities                                                                                                                                                                      |  |                   |             |   |                  |  
|Accounts payable                                                                                                                                                                 |  | $                 | 280,000     |   |                  | $
|Accrued expenses and other liabilities                                                                                                                                           |  |                   | 2,829,000   |   |                  |  
|Accrued salaries and benefits                                                                                                                                                    |  |                   | 1,255,000   |   |                  |  
|Deferred and accrued income taxes                                                                                                                                                |  |                   | 5,503,000   |   |                  |  
|Notes payable                                                                                                                                                                    |  |                   | 20,467,000  |   |                  |  
|Borrowings under lines of credit                                                                                                                                                 |  |                   | 18,909,000  |   |                  |  
|Senior unsecured notes                                                                                                                                                           |  |                   | 8,333,000   |   |                  |  
|Subordinated debt                                                                                                                                                                |  |                   | 2,773,000   |   |                  |  
|                                                                                                                                                                                 |  |                   |             |   |                  |  
|Total liabilities                                                                                                                                                                |  |                   | 60,349,000  |   |                  |  
|                                                                                                                                                                                 |  |                   |             |   |                  |  
|Commitments and Contingencies                                                                                                                                                    |  |                   |             |   |                  |  
|                                                                                                                                                                                 |  |                  
|Stockholders Equity                                                                                                                                                             |  |                   |             |   |                  |  
|Preferred stock, $0.01 par value: 5,000,000 shares authorized; none issued as of September 30, 2003 and December 31,
2002                                                        |  |                   |            |   |                  |  
|Common stock, $0.01 par value: 50,000,000 shares authorized; 8,862,151 and 11,215,992 shares issued and outstanding as of
September 30, 2003 and December 31, 2002, respectively |  |                   | 89,000      |   |                  |  
|Additional paid-in capital                                                                                                                                                       |  |                   | 46,216,000  |   |                  |  
|Restricted stock - deferred compensation                                                                                                                                         |  |                   | (6,872,000  | ) |                  |  
|Retained earnings                                                                                                                                                                |  |                   | 17,963,000  |   |                  |  
|Accumulated other comprehensive income                                                                                                                                           |  |                   | 250,000     |   |                  |  
|                                                                                                                                                                                 |  |                   |             |   |                  |  
|Total stockholders equity                                                                                                                                                       |  |                   | 57,646,000  |   |                  |  
|                                                                                                                                                                                 |  |                   |             |   |                  |  
|Total Liabilities and Stockholders Equity                                                                                                                                       |  | $                 | 117,995,000 |   |                  | $
|                                                                                                                                                                                 |  |                   |             |   |                  |  



See accompanying notes
to consolidated financial statements.



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##### Table of Contents

Kennedy-Wilson, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)



|                                                               |  | Three months endedSeptember 30, |           |   | Nine months endedSeptember 30, |  
|-------------------------------------------------------------- |  | ------------------------------- | --------- | - | ------------------------------ | -
|                                                               |  | 2003                            |           |   | 2002                           |  
|Revenue                                                        |  |                                 |           |   |                                |  
|Property management and leasing fees                           |  | $                               | 3,201,000 |   |                                | $
|Property management and leasing fees  related party           |  |                                 | 1,033,000 |   |                                |  
|Commissions                                                    |  |                                 | 1,177,000 |   |                                |  
|Commissions - related party                                    |  |                                 | 560,000   |   |                                |  
|Interest and other income                                      |  |                                 | 880,000   |   |                                |  
|                                                               |  |                                 |           |   |                                |  
|Total revenue                                                  |  |                                 | 6,851,000 |   |                                |  
|                                                               |  |                                 |           |   |                                |  
|Operating expenses                                             |  |                                 |           |   |                                |  
|Commissions and marketing expenses                             |  |                                 | 1,028,000 |   |                                |  
|Sale of residential real estate                                |  |                                 |          |   |                                |  
|Compensation and related expenses                              |  |                                 | 4,263,000 |   |                                |  
|General and administrative                                     |  |                                 | 2,200,000 |   |                                |  
|Depreciation and amortization                                  |  |                                 | 774,000   |   |                                |  
|Non-cash write down of investment                              |  |                                 |          |   |                                |  
|Non-recurring, non-cash Japan IPO expense                      |  |                                 |          |   |                                |  
|                                                               |  |                                 |           |   |                                |  
|Total operating expenses                                       |  |                                 | 8,265,000 |   |                                |  
|Equity income                                                  |  |                                 | 1,790,000 |   |                                |  
|                                                               |  |                                 |           |   |                                |  
|Total operating income (loss)                                  |  |                                 | 376,000   |   |                                |  
|                                                               |  |                                 |           |  
|Non-operating income (expense)                                 |  |                                 |           |   |                                |  
|Gain on sale of stock of subsidiary                            |  |                                 | 1,087,000 |   |                                |  
|Interest expense                                               |  |                                 | (252,000  | ) |                                |  
|Valuation adjustment - warrants                                |  |                                 |          |   |                                |  
|Write-down of technology investments                           |  |                                 |          |   |                                |  
|(Loss) gain on extinguishment of debt                          |  |                                 |          |   |                                |  
|                                                               |  |                                 |           |   |                                |  
|Income before minority interest and provision for income taxes |  |                                 | 1,211,000 |   |                                |  
|                                                               |  |                                 |           |  
|Minority interest                                              |  |                                 |          |   |                                |  
|                                                               |  |                                 |           |   |                                |  
|Income before provision for income taxes                       |  |                                 | 1,211,000 |   |                                |  
|                                                               |  |                                 |           |  
|Provision for income taxes                                     |  |                                 | (485,000  | ) |                                |  
|                                                               |  |                                 |           |   |                                |  
|Net Income                                                     |  | $                               | 726,000   |   |                                | $
|                                                               |  |                                 |           |   |                                |  
|Share Data:                                                    |  |                                 |           |   |                                |  
|                                                               |  |                                 |           |  
|Net income per share, basic                                    |  | $                               | 0.09      |   |                                | $
|Basic weighted average shares                                  |  |                                 | 7,957,791 |   |                                |  
|                                                               |  |                                 |           |  
|Net income per share, diluted                                  |  | $                               | 0.09      |   |                                | $
|Diluted weighted average shares                                |  |                                 | 8,102,428 |   |                                |  



See accompanying notes
to consolidated financial statements.



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Kennedy-Wilson, Inc. and Subsidiaries

Consolidated Statements of Cash Flow

(Unaudited)



|                                                                                                 |  | Nine months endedSeptember 30, |            
|------------------------------------------------------------------------------------------------ |  | ------------------------------ | -----------
|                                                                                                 |  | 2003                           |            
|Cash flows from operating activities:                                                            |  |                                |            
|Net income                                                                                       |  | $                              | 5,502,000  
|Adjustments to reconcile net income to net cash (used in) provided by operating activities:      |  |                                |            
|Depreciation and amortization                                                                    |  |                                | 2,254,000  
|Loss (gain) on extinguishment of debt - non-cash                                                 |  |                                | 394,000    
|Equity in joint venture income                                                                   |  |                                | (2,381,000 
|Minority interest in income of subsidiary                                                        |  |                                |           
|Gain on sale of stock of subsidiary                                                              |  |                                | (16,020,000
|Non-recurring Japan IPO expense                                                                  |  |                                |           
|Valuation adjustment - warrants                                                                  |  |                                | (35,000    
|Amortization of deferred compensation                                                            |  |                                | 761,000    
|Non-cash write-down of investment                                                                |  |                                |           
|Write-down of technology investment                                                              |  |                                |           
|Change in assets and liabilities:                                                                |  |                                |            
|Accounts receivable                                                                              |  |                                | 1,003,000  
|Contracts and other assets                                                                       |  |                                | 120,000    
|Accounts payable                                                                                 |  |                                | (581,000   
|Accrued expenses and other liabilities                                                           |  |                                | 1,692,000  
|                                                                                                 |  |                                |            
|Net cash (used in) provided by operating activities                                              |  |                                | (7,291,000 
|                                                                                                 |  |                                |            
|Cash flows from investing activities:                                                            |  |                                |            
|Purchase of contracts and other assets                                                           |  |                                | (55,000    
|Collections of notes receivable                                                                  |  |                                | 9,764,000  
|Purchases of notes receivable and redemption of joint venture partner in note receivable venture |  |                                | (18,530,000
|Reduction of real estate                                                                         |  |                                |           
|Purchases of and additions to real estate                                                        |  |                                |           
|Distributions from joint ventures                                                                |  |                                | 6,149,000  
|Contributions to joint ventures                                                                  |  |                                | (6,147,000 
|Deconsolidation of subsidiary                                                                    |  |                                |           
|Proceeds from sale of investment in Kennedy-Wilson Japan                                         |  |                                | 29,916,000 
|Cash - restricted decrease                                                                       |  |                                | 42,000     
|                                                                                                 |  |                                |            
|Net cash provided by (used in) investing activities                                              |  |                                | 21,139,000 
|                                                                                                 |  |                                |            
|Cash flow from financing activities:                                                             |  |                                |            
|Borrowings under notes payable                                                                   |  |                                | 15,597,000 
|Repayment of notes payable                                                                       |  |                                | (13,858,000
|Borrowings under lines of credit                                                                 |  |                                | 9,472,000  
|Repayment of lines of credit                                                                     |  |                                | (14,787,000
|Repayment of mortgage loans payable                                                              |  |                                |           
|Borrowings under senior unsecured notes                                                          |  |                                | 5,000,000  
|Repayment of senior unsecured notes                                                              |  |                                | (11,667,000
|Issuance of common stock                                                                         |  |                                |           
|Repurchase of common stock                                                                       |  |                                | (8,535,000 
|                                                                                                 |  |                                |            
|Net cash used in financing activities                                                            |  |                                | (18,778,000
|                                                                                                 |  |                                |            
|Effect of exchange rate changes on cash and cash equivalents                                     |  |                                |           
|Accumulated other comprehensive loss - foreign currency translation, net of taxes                |  |                                | (35,000    
|                                                                                                 |  |                                |            
|Net decrease in cash and cash equivalents                                                        |  |                                | (4,965,000 
|Cash and cash equivalents, beginning of period                                                   |  |                                | 11,852,000 
|                                                                                                 |  |                                |            
|Cash and cash equivalents, end of period                                                         |  | $                              | 6,887,000  
|                                                                                                 |  |                                |            



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Kennedy-Wilson, Inc. and Subsidiaries

Consolidated Statements of Cash Flow (continued)

(Unaudited)



Supplemental disclosure of non-cash financing activity:



Stock was repurchased by issuing a note payable in the amount of $2,745,000.



See accompanying notes to consolidated financial statements.



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Kennedy-Wilson, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended September 30, 2003 and 2002

(Unaudited)



NOTE 1 - ACCOUNTING
POLICIES



The Companys unaudited interim financial statements have been
prepared in conformity with generally accepted accounting principles used in the preparation of the Companys annual financial statements. In the opinion of the Company, all adjustments, consisting of normal and recurring items, necessary for a
fair presentation of the results of operations for the three and nine month periods ended September 30, 2003 and 2002 have been made. The results of operations for these periods are not necessarily indicative of results that might be expected for
the full year. The interim statements are condensed and do not include some of the information necessary for a more complete understanding of the financial data. Accordingly, your attention is directed to the footnote disclosures found in the
Companys 2002 Annual Report on Form 10-K.



BASIS OF PRESENTATION - The
consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All material intercompany balances and transactions have been eliminated. Assets and liabilities denominated in foreign currencies are
translated at rates of exchange prevailing on the date of the consolidated balance sheet, while income statement items are translated at average rates of exchange for the period.



USE OF ESTIMATES - The preparation of these financial statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses. The Company bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.



RECLASSIFICATION - Certain amounts for prior periods have been reclassified to conform to the
current period presentation.



REVENUE RECOGNITION - The Companys real
estate services revenues are generally recorded when the related services are performed or at closing in the case of real estate sales commissions. Property management fees are recognized over time as earned based upon the terms of the management
agreement.



Leasing commission revenues are accounted for in accordance with
the provisions of Staff Accounting Bulletin 101. Accordingly, leasing commissions that are payable upon tenant occupancy, payment of rent or other events beyond the Companys control are recognized upon the occurrence of such event. In
accordance with Emerging Issues Task Force (EITF) 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, the Company records brokerage commission revenues and expenses on a gross basis. Of the criteria listed in
EITF 99-19, the Company is the



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primary obligor in the transaction, does not have inventory risk, performs all, or part, of the service, has credit risk, and has wide latitude in
establishing the price of services rendered, discretion in selection of agents and determination of service specifications. Due to these factors, management concluded that gross reporting is appropriate.



Revenues on notes receivable are recognized on an effective interest basis under the
provisions of Practice Bulletin 6 and are reported as interest and other income in the accompanying consolidated statements of income. Whenever the expected future cash flows can not be reasonably estimated, a cost recovery basis is applied in which
payments received are applied against the Companys basis in the note before any revenue is recognized. Any increases in the estimated future cash flows to be received from notes receivable, including changes resulting from restructuring or
creation of a new note, are reported as interest income prospectively under the effective interest method.



INVESTMENTS IN JOINT VENTURES - The Company has a number of partnership and joint venture interests ranging from 2% to 50% that were formed to acquire, manage, develop and/or sell real estate. These investments are
accounted for under the equity method.



The Company reviews each of its
investments on a periodic basis for evidence of impairment. Impairment losses are recognized whenever events or changes in circumstances indicate declines in value of an investment below its carrying value and the related undiscounted cash flows are
not sufficient to recover the assets carrying amount. No impairment losses were recorded by the Company in the three and nine month periods ended September 30, 2003. During the third quarter of 2002, management concluded that the cost basis of
two investments was not probable of recovery. Based on the analysis performed by management, the basis of one of the investments was reduced by $2.5 million and the other was reduced by $1.5 million, resulting in cost basis of the associated assets
of $1 million and zero, respectively.



GOODWILL - Goodwill is reviewed for
impairment annually in the fourth quarter of each year, and more frequently if there is a triggering event, by Company management in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets. During the three and nine month periods ended September 30, 2003 and 2002, there were no triggering events identified that would indicate a need of review for impairment.



CASH AND CASH EQUIVALENTS - Cash and cash equivalents consists of cash and all highly liquid
investments purchased with maturities of three months or less.



RESTRICTED CASH
- Restricted cash consists of non-refundable deposits on acquisitions of real estate and marketing funds advanced by clients.



LONG-LIVED ASSETS - Long-lived assets and assets held for sale are reviewed for impairment whenever events or changes in circumstances indicate that an impairment may
have occurred. No impairment loss was recorded in the three or nine month periods ended September 30, 2003, and $2.5 million was recorded in the three and nine month periods ended September 30, 2002.`



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NOTES RECEIVABLE - The Company accounts for notes receivable in accordance with SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, as amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures. Accordingly, loans are measured for impairment based upon the present value of expected future cash flows,
discounted at the loans effective interest rate or, if readily determinable, the loans observable market price or the fair value of the collateral if the loan is collateral dependant.



CAPITALIZED INTEREST - The Company capitalizes interest in accordance with SFAS No. 58,
Capitalization of Interest Cost in Financial Statements That Include Investments Accounted for by the Equity Method, for qualifying equity investments. Interest is capitalized on investment assets that are undergoing construction or
entitlement activities in preparation for their planned principal operations. An appropriate interest rate is applied to the Companys cash investment in the qualifying asset. The interest is credited against interest expense and added to the
basis in the investment. Interest is capitalized when the development or entitlement activity commences and is no longer capitalized on developments, or portions thereof, which have begun their planned principal operations. Interest capitalization
is ceased if development is halted for any reason.



EARNINGS PER SHARE - Basic
earnings per share is computed based upon the weighted average number of shares of common stock outstanding during the periods presented. Diluted earnings per share is computed based upon the weighted average number of shares of common stock and
dilutive securities outstanding during the periods presented. The diluted earnings per share computation also includes the dilutive impact of options and warrants to purchase common stock which were outstanding during the period calculated by the
treasury stock method, unvested restricted stock grants and the assumed conversion of the Companys convertible subordinated debt in 2002 as if conversion to common shares had occurred at the beginning of the year. Earnings have
also been adjusted for interest expense on the convertible subordinated debt in 2002.



RECENT ACCOUNTING PRONOUNCEMENTS - In November 2002, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34 (FIN 45). FIN 45 requires that upon issuance of a guarantee, the entity must
recognize a liability for the fair value of the obligation it assumes under that guarantee. FIN 45 requires disclosure about each guarantee even if the likelihood of the guarantors having to make any payments under the guarantee is remote. The
provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002. The Company has certain guarantees associated with loans secured by assets held in various
joint venture partnerships. The maximum potential amount of future payments (undiscounted) the Company could be required to make under the guarantees is approximately $35 million. The guarantees expire through 2005 and the Companys performance
under the guarantees would be required to the extent there is a shortfall in liquidation between the principal amount of the loan and the net sales proceeds of the property. In one joint venture partnership, the entire loan of approximately $9
million is



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collateralized by the property and the Company is obligated to indemnify the lender under certain conditions such as fraud or bankruptcy. The Company also
has a leasing guarantee agreement which expires in 2009. The maximum amount that the Company could be responsible for under the guarantee is approximately $2.3 million. During the three and nine month periods ended September 30, 2003, the Company
issued no new guarantees to unconsolidated entities.



In December 2002, the
FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB 51 (FIN 46). The primary objectives of FIN 46 are to provide guidance on the identification of entities for which
control is achieved through means other than through voting rights (variable interest entities, or VIEs) and how to determine when and which business enterprise should consolidate the VIE (the primary beneficiary). The provisions of FIN 46 are
effective immediately for VIEs created after January 31, 2003 and no later than the end of the first interim or annual period ending after December 15, 2003 for VIEs created before February 1, 2003. In addition, FIN 46 requires that both the primary
beneficiary and all other enterprises with a significant variable interest make additional disclosure in financial statements issued after January 31, 2003. We expect a certain previously unconsolidated special purpose entity to be consolidated
under the provisions of this interpretation. The special purpose entity which is expected to be consolidated under the provisions of FIN 46 comprises $1,204,000 of the Companys investments in joint ventures as of September 30, 2003. This
investment is engaged in the development, operation and ultimate disposition of two industrial buildings located in San Antonio, Texas. The Companys maximum exposure to loss as a result of its involvement is limited to its capital investment
and loan guarantee of up to $3.6 million. The total assets and liabilities of this entity are approximately $8.8 million and $8.3 million, respectively.



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. The standard amends and clarifies
financial reporting for derivative instruments and for hedging activities accounted for under SFAS No. 133 and is effective for contracts entered into or modified, and for hedges designated, after June 30, 2003. Adoption of the standard is not
expected to have a material impact on the Companys consolidated financial position, results of operations or cash flows.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Instruments with Characteristics of Both Liabilities and Equity. The standard establishes how an
issuer classifies and measures certain freestanding financial instruments with characteristics of liabilities and equity and requires that such instruments be classified as liabilities. The standard is effective for financial instruments entered
into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. Adoption of this standard is not expected to have a material impact on the Companys consolidated
financial position, results of operations or cash flows.



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STOCK-BASED EMPLOYEE COMPENSATION - Stock-based employee compensation is accounted for using the intrinsic value method
allowed under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. No stock-based employee compensation expense is reflected in net income for options granted under the Companys stock option plans, as
options granted under the plans have exercise prices equal to the market value of the Companys common shares on the date of grant. Restricted stock grants are valued at the market value of the stock on the date of the grant. This amount is
recorded as deferred compensation and is amortized over the vesting period of the grant. The following table illustrates the effect on net income and net income per share as if the Company had applied the fair value provisions of SFAS No. 123,
Accounting for Stock-Based Compensation to stock-based employee compensation.



|                                                                                                                                                 |  | Three months endedSeptember 30, |          |   | Nine months endedSeptember 30, |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------- | -------- | - | ------------------------------ | -
|                                                                                                                                                 |  | 2003                            |          |   | 2002                           |  
|Net income, as reported                                                                                                                          |  | $                               | 726,000  |   |                                | $
|Add:          Stock-based employee compensation expense included in reported net
income, net of related tax effects                              |  |                                 | 152,000  |   |                                |  
|Deduct:      Total stock-based employee compensation expense determined under fair value based
method for all awards, net of related tax effects |  |                                 | (178,000 | ) |                                |  
|                                                                                                                                                 |  |                                 |          |   |                                |  
|Net income, pro forma - Basic                                                                                                                    |  |                                 | 700,000  |   |                                |  
|Income effect of dilutive securities, tax effected                                                                                               |  |                                 |         |   |                                |  
|                                                                                                                                                 |  |                                 |          |   |                                |  
|Net income, pro forma - Diluted                                                                                                                  |  | $                               | 700,000  |   |                                | $
|                                                                                                                                                 |  |                                 |          |   |                                |  
|Net income per share:                                                                                                                            |  |                                 |          |   |                                |  
|Basic, as reported                                                                                                                               |  | $                               | 0.09     |   |                                | $
|Basic, pro forma                                                                                                                                 |  | $                               | 0.09     |   |                                | $
|Diluted, as reported                                                                                                                             |  | $                               | 0.09     |   |                                | $
|Diluted, pro forma                                                                                                                               |  | $                               | 0.09     |   |                                | $



NOTE
2 - INVESTMENT IN KENNEDY-WILSON JAPAN



During the third quarter of 2003, the
Company sold its remaining 4,000 shares of Kennedy-Wilson Japan for approximately $841 per share in accordance with an option agreement entered into during 2002.



For the nine-month period ended September 30, 2003, the Company sold 24,600 shares (as adjusted for a 2-for-1 stock split) of Kennedy-Wilson
Japan at per share prices ranging from $841 to $1,420 for total gross cash consideration of approximately $29.9 million.



The Companys equity in earnings of Kennedy-Wilson Japan were minor. During the nine month period ended September 30, 2003, the Companys equity in earnings of
Kennedy-Wilson Japan was $610,000, and is included in equity income in the accompanying consolidated statements of income. During the three and nine month periods ended September 30,



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##### Table of Contents

2002, the Company consolidated its investment in Kennedy-Wilson Japan, and, accordingly there was no equity in earnings from this investment in those
periods.



NOTE 3 - NOTES RECEIVABLE



Notes receivable consists primarily of discounted loan portfolios and other
related assets acquired from financial institutions, and notes resulting from the sale of assets to third parties or joint ventures. A majority of these notes are collateralized by real estate, personal property or guarantees.



NOTE 4 - INVESTMENTS IN JOINT VENTURES



The Company has a number of partnership and joint venture interests ranging from 2% to 50%
that were formed to acquire, manage, develop and/or sell real estate. As of September 30, 2003, the Company also had an investment in one special purpose entity in which it had a 97% ownership interest. Under the provisions of FIN 46, we expect to
consolidate this entity, but do not expect it to materially impact our financial position and to have no impact on net income. For the three and nine month periods ended September 30, 2003, the Companys equity in income of joint ventures was
$1,790,000 and $2,381,000, respectively. In the third quarter of 2003, the gain from one joint venture on the sale of a residential investment was approximately $1.1 million and the gain from the sale of five assets was approximately $700,000. For
the three and nine month periods ended September 30, 2002, the Companys equity in income of joint ventures was $1,609,000 and $4,053,000, respectively.



NOTE 5 - NOTES PAYABLE



Notes payable were incurred primarily in connection with the acquisition of discounted loan portfolios, redemption of a joint venture investment partner, and in
connection with a stock repurchase.



NOTE 6 -
SENIOR UNSECURED NOTES



During 2003, the Company repaid the remaining $10
million balance of the 12% Senior Notes. The Company recorded a loss on the extinguishment of the debt in the amount of $0 and $514,000 for the three and nine month periods ended September 30, 2003, respectively.



NOTE 7 - CAPITAL STOCK TRANSACTIONS



During the third quarter of 2003, the Company repurchased approximately 468,000 shares of
its common stock. The total consideration of the share repurchases was approximately $2.6 million. During the nine month period ended September 30, 2003, the Company repurchased approximately 2,361,000 shares of its common stock for a total
consideration of approximately $11.3 million, of which $2,745,000 was financed by a note payable.



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##### Table of Contents

NOTE 8 - COMPREHENSIVE INCOME



Comprehensive income consists of net income and other comprehensive income. Accumulated
other comprehensive income consists of foreign currency translation adjustments. During the third quarter of 2003, there was no foreign currency translation adjustment. The tax benefit associated with items included in other comprehensive income for
the Company was $22,000 for the three and nine month periods ended September 30, 2003, which results from the $35,000 (net of tax benefit) foreign currency translation adjustment in the first quarter. The following table provides a summary of the
comprehensive income:



|                                                |  | Three months endedSeptember 30, |         | Nine months ended September 30,
|----------------------------------------------- |  | ------------------------------- | ------- | -------------------------------
|                                                |  | 2003                            |         | 2002                           
|Net income                                      |  | $                               | 726,000 |                                
|Foreign currency translation loss, net of taxes |  |                                 |        |                                
|                                                |  |                                 |         |                                
|Comprehensive income                            |  | $                               | 726,000 |                                
|                                                |  |                                 |         |                                



NOTE
9 - SEGMENT INFORMATION



The Companys business activities currently
consist of property management, commercial and residential brokerage, and various types of real estate and note pool investments. The Companys segment disclosure with respect to the determination of segment profit or loss and segment assets is
based on these services and its various investments:



PROPERTY MANAGEMENT - The
Company is a nationwide commercial and residential property management and leasing Company, providing a full range of services relating to property management. The Company also provides asset management services for some of its joint ventures.



BROKERAGE - Through its various offices, the Company provides specialized
brokerage services for both commercial and residential real estate and provides other real estate services such as property valuations, development and implementation of marketing plans, arranging financing, sealed bid and open bid auctions.



INVESTMENTS - With joint venture partners and on its own, the Company invests
in commercial and residential real estate and purchases and manages pools of discounted notes.



The Company did not generate material intersegment revenues for the three and nine month periods ended September 30, 2003 and 2002. The Company does not include capital expenditures by segment as part of the decision
making process. The amounts representing investments with related parties and non-affiliates are included in the investment segment. No single external customer provided the Company with 10% or more of its revenues during any period presented in
these financial statements.



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##### Table of Contents

The following tables reconcile the Companys income and expense activity for the three and nine month periods ended
September 30, 2003 and balance sheet data as of September 30, 2003.



2003 Reconciliation of Reportable Segment Information



|                                                                      |  | For the three months ended September 30, 2003 |           
|--------------------------------------------------------------------- |  | --------------------------------------------- | ----------
|                                                                      |  | PropertyManagement                            |           
|Property management and leasing fees                                  |  | $                                             | 3,984,000 
|Commissions                                                           |  |                                               | 1,358,000 
|Interest and other income                                             |  |                                               |          
|                                                                      |  |                                               |           
|Total revenue                                                         |  |                                               | 5,342,000 
|                                                                      |  |                                               |           
|Operating expenses                                                    |  |                                               | 4,550,000 
|Equity income                                                         |  |                                               | 512,000   
|                                                                      |  |                                               |           
|                                                                      |  |                                               | 1,304,000 
|Non-operating income (expense)                                        |  |                                               |          
|                                                                      |  |                                               |           
|Income (loss) before provision for income taxes                       |  | $                                             | 1,304,000 
|                                                                      |  |                                               |           
|                                                                      | 
|                                                                      |  | For the nine months ended September 30, 2003  |           
|                                                                      |  | PropertyManagement                            |           
|Property management and leasing fees                                  |  | $                                             | 12,365,000
|Commissions                                                           |  |                                               | 2,651,000 
|Interest and other income                                             |  |                                               |          
|                                                                      |  |                                               |           
|Total revenue                                                         |  |                                               | 15,016,000
|                                                                      |  |                                               |           
|Operating expenses                                                    |  |                                               | 13,493,000
|Equity income                                                         |  |                                               | 435,000   
|                                                                      |  |                                               |           
|                                                                      |  |                                               | 1,958,000 
|Non-operating income (expense)                                        |  |                                               |          
|                                                                      |  |                                               |           
|Income (loss) before minority interest and provision for income taxes |  | $                                             | 1,958,000 
|                                                                      |  |                                               |           
|Total assets                                                          |  | $                                             | 13,066,000
|                                                                      |  |                                               |           





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##### Table of Contents

The following tables reconcile the Companys income and expense activity for the three and nine month periods ended
September 30, 2002 and balance sheet data as of September 30, 2002.



2002 Reconciliation of Reportable Segment Information



|                                                                      |  | For the three months ended September 30, 2002
|--------------------------------------------------------------------- |  | ---------------------------------------------
|                                                                      |  | PropertyManagement                           
|Property management and leasing fees                                  |  | $                                            
|Commissions                                                           |  |                                              
|Interest and other income                                             |  |                                              
|                                                                      |  |                                              
|Total revenue                                                         |  |                                              
|                                                                      |  |                                              
|Operating expenses                                                    |  |                                              
|Equity income                                                         |  |                                              
|                                                                      |  |                                              
|                                                                      |  |                                              
|Non-operating income (expense)                                        |  |                                              
|                                                                      |  |                                              
|Income (loss) before minority interest and provision for income taxes |  | $                                            
|                                                                      |  |                                              
|                                                                      | 
|                                                                      |  | For the nine months ended September 30, 2002 
|                                                                      |  | PropertyManagement                           
|Property management and leasing fees                                  |  | $                                            
|Commissions                                                           |  |                                              
|Interest and other income                                             |  |                                              
|                                                                      |  |                                              
|Total revenue                                                         |  |                                              
|                                                                      |  |                                              
|Operating expenses                                                    |  |                                              
|Equity income                                                         |  |                                              
|                                                                      |  |                                              
|                                                                      |  |                                              
|Non-operating income (expense)                                        |  |                                              
|                                                                      |  |                                              
|Income (loss) before minority interest and provision for income taxes |  | $                                            
|                                                                      |  |                                              
|Total assets                                                          |  | $                                            
|                                                                      |  |                                              



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##### Table of Contents

NOTE 10 - EARNINGS PER SHARE



The following table sets forth the computation of basic and diluted net income per share:



|                                                   |  | Three months endedSeptember 30, |           | Nine months endedSeptember 30,
|-------------------------------------------------- |  | ------------------------------- | --------- | ------------------------------
|                                                   |  | 2003                            |           | 2002                          
|Basic earnings per share:                          |  |                                 |           |                               
|Net income available to stockholders               |  | $                               | 726,000   |                               
|                                                   |  |                                 |           |                               
|Weighted average shares                            |  |                                 | 7,957,791 |                               
|                                                   |  |                                 |           |                               
|Net income per share, basic                        |  | $                               | 0.09      |                               
|                                                   |  |                                 |           |                               
|Diluted earnings per share:                        |  |                                 |           |                               
|Net income                                         |  | $                               | 726,000   |                               
|Income effect of dilutive securities, tax effected |  |                                 |          |                               
|                                                   |  |                                 |           |                               
|Net income available to stockholders               |  | $                               | 726,000   |                               
|                                                   |  |                                 |           |                               
|Weighted average shares                            |  |                                 | 7,957,791 |                               
|Convertible debentures                             |  |                                 |          |                               
|Options                                            |  |                                 | 144,637   |                               
|                                                   |  |                                 |           |                               
|Total diluted shares                               |  |                                 | 8,102,428 |                               
|                                                   |  |                                 |           |                               
|Net income per share, diluted                      |  | $                               | 0.09      |                               
|                                                   |  |                                 |           |                               



Potentially dilutive securities
excluded from the diluted earnings per share calculation because they are anti-dilutive are as follows:



|                            |  | Three months endedSeptember 30, |  | Nine months endedSeptember 30,
|--------------------------- |  | ------------------------------- |  | ------------------------------
|                            |  | 2003                            |  | 2002                          
|Options                     |  | 472,270                         |  | 924,949                       
|Warrants                    |  | 727,727                         |  | 927,023                       
|Restricted stock - unvested |  | 1,143,706                       |  | 1,570,532                     



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##### Table of Contents

Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



OVERVIEW



We are an integrated real estate services and investment Company with headquarters in Beverly Hills, California. Through our subsidiaries, we provide a complementary
array of real estate services, including fund management, property management and leasing, real estate brokerage services including auction marketing, and asset management. We also invest in commercial and residential real estate and discounted loan
portfolios. Our investments in real estate are made primarily through joint ventures.



Although our current real estate investment strategy favors joint venture investments, in the future, we may still acquire and sell commercial real estate on a wholly owned basis. We are no longer involved in single-family residential
development and sales but are investing, through joint venture partnerships, in multi-family apartment projects. We also invest on our own account and through joint venture partnerships in discounted loan portfolios secured primarily by real estate.



In 2002, the Company completed two public stock offerings and two private
sales of shares of its formerly wholly-owned subsidiary, Kennedy-Wilson Japan. The sale of stock reduced the Companys ownership in the Japan subsidiary to 37% at December 31, 2002. This change in ownership necessitated a change in the
accounting treatment for Kennedy-Wilson Japan from a consolidated entity to an equity investment beginning in the fourth quarter of 2002. Instead of including the various components of Kennedy-Wilson Japans revenue and expenses in the
individual revenue and expense categories on the income statement, the Companys share of the net income of the Japan subsidiary is included in equity income. Likewise, on the balance sheet the Companys investment in Kennedy-Wilson Japan
is shown as a single separate line item. Subsequently, during 2003, the Company has sold all of its shares and no longer has an ownership in Kennedy Wilson Japan.



COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002



Total operating revenue for the three months ended September 30, 2003 was approximately $6.9
million compared to approximately $14.1 million for the three months ended September 30, 2002. The decrease was due primarily to the revenue generated from the Japan subsidiary during the third quarter of 2002 being recorded as property management
and commission revenues but, as previously discussed, being accounted for under equity income in 2003. Additionally, in the U.S. there was a significant decrease in leasing commissions during this period. Total operating expenses for the three
months ended September 30, 2003 decreased 39.2% to approximately $8.3 million compared to approximately $13.6 million for the same period in 2002. This decrease in expenses was due, in part, to the change in accounting for the Kennedy-Wilson Japan
subsidiary from consolidation to the equity method. In addition, there was a non-cash write-down of investments of approximately $1.5 million that occurred during the third quarter of 2002. Net income for the third quarters of 2003 and 2002 was
approximately $726,000 and $738,000, respectively.



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##### Table of Contents

REVENUE



Property management and leasing operations generated approximately $4.2 million of revenue (including related party fees of $1,033,000), in
the third quarter of 2003, representing 61.8% of our total revenue, compared to approximately $7.4 million (including related party fees of $928,000), and 52.9% of total revenue for the same period in 2002. The Japan subsidiary, which was accounted
for as an equity investment during 2003 until the final 4,000 shares owned by the Company were sold during the third quarter, contributed approximately $460,000 of property management related fees in the third quarter of 2002. During the third
quarter of 2003, property management revenue in the U.S., which includes property management and leasing revenue, asset management, construction management, and engineering services, declined compared to the third quarter of 2002 primarily as a
result of a decline in leasing commissions during this period.



Brokerage
commission revenue for the third quarter of 2003 was approximately $1.7 million (including related party fees of $560,000), representing 25.4% of total revenue compared to approximately $5.5 million (including related party fees of $620,000) and
38.9% of total revenue for the third quarter of 2002. The Japan subsidiary, which was accounted for as an equity investment during 2003 until the final 4,000 shares owned by the Company were sold during the third quarter, contributed approximately
$4.4 million of brokerage commissions in the third quarter of 2002.



Interest
and other income totaled approximately $880,000 for the three months ended September 30, 2003, compared to approximately $1.2 million for the same period in 2002. Interest income generated from notes in the U.S. increased by 152.1% in the third
quarter of 2003 compared to the same period in 2002 due to the addition of six new loan pools purchased during 2003, three of which were acquired during the third quarter. The Japan subsidiary contributed $807,000 of the interest and other income
during the third quarter of 2002.



OPERATING
EXPENSES



As discussed above, the Companys formerly wholly-owned
subsidiary, Kennedy-Wilson Japan, was consolidated through September 2002. Subsequent to September 2002, the investment is accounted for on the equity method. Therefore, operating expenses for 2003 do not include activity on a consolidated basis
compared to the consolidated activity of Kennedy-Wilson Japan included for the first three quarters of 2002.



Commissions and marketing expenses were approximately $1.0 million for the three months ended September 30, 2003, compared to approximately $1.9 million for the same period in 2002. The decline relates to the decline
in leasing commission revenue discussed above.



There was no expense associated
with the cost of real estate sold during the third quarter of 2003, compared to $35,000 associated with the Japan subsidiary during the third quarter of 2002.



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##### Table of Contents

Compensation and related expenses were approximately $4.3 million for the third quarter of 2003, a decrease of 34% when
compared to approximately $6.5 million for the third quarter of 2002. The Companys continued cost reduction measures over the past twelve months has resulted in a decline of approximately $900,000 in compensation related expense in the U.S.
during the period. Additionally, approximately $1.3 million of the decrease relates to the effect of the deconsolidation of our Japan subsidiary.



General and administrative expenses were approximately $2.2 million for the third quarter of 2003, a 23.3% decrease when compared to approximately $2.9 million in the
same period in 2002. The Japan subsidiary contributed approximately $717,000 of expense during the third quarter of 2002, which was approximately 24.7% of the total general and administrative expense for the period.



Depreciation and amortization expense declined 13.4% to $774,000 for the three months ended
September 30, 2003, as compared to $894,000 for the same period in 2002. There was approximately $100,000 of depreciation on capitalized expense during this period in 2002 that has been fully amortized by the third quarter of 2003. Additionally, the
Japan subsidiary accounted for approximately $38,000 of the depreciation and amortization expense during the third quarter of 2002.



There was no non-cash write-down of investments during the third quarter of 2003 compared to approximately $1.5 million for the third quarter of 2002. During the third
quarter of 2002, management concluded that the cost basis of a real estate investment was not probable of recovery. Based on the analysis performed by management, the basis of the real estate investment was reduced by approximately $1.5 million.



Equity income increased 11.2% to approximately $1.8 million for the third
quarter of 2003, compared to approximately $1.6 million realized in the third quarter of 2002. Equity income in the U.S increased by 51.6% during the third quarter of 2003, as compared to the same period in 2002, because of gains realized on the
sale of six investment assets.



NON-OPERATING
ITEMS



Gain on sale of stock of subsidiary was approximately $1.1 million for
the third quarter of 2003, compared to approximately $4.1 million realized during the same period of 2002.



Interest expense was $252,000 for the three months ended September 30, 2003, compared to $657,000 during the same period in 2002. The decrease is due to an overall reduction in debt and a reduction of interest rates.
Interest expense is net of interest capitalized of $544,000 and $562,000, during the three month period ended September 30, 2003 and 2002, respectively. Interest is capitalized on investment assets that are undergoing construction or entitlement
activities in preparation for their planned principal operations.



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Valuation adjustment - The change in the fair value of warrants associated with the senior unsecured notes was $333,000
for the third quarter of 2002. The Senior Debt was fully repaid by the third quarter of 2003.



There was no write-down of technology investment during the third quarter of 2003 compared to a $2.5 million write-down for the same period in 2002. During the third quarter of 2002, management concluded that the cost
basis of an e-commerce investment was not probable of recovery. Based on the analysis performed by management, the basis of the e-commerce investment was reduced by $2.5 million, resulting in cost basis of the associated asset of $1 million.



The provision for income taxes is $485,000 for the third quarter of 2003,
compared to approximately $411,000 for the same period in 2002. The higher provision in 2003 results from a higher tax rate.



COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002



Total revenue for the nine months ended September 30, 2003 was approximately $19.2 million, as compared to $35.8 million during the same
period in 2002. The decrease related primarily to a decrease in property management and commission revenue, due in part, to the deconsolidation of our Japan subsidiary which accounted for approximately $10.0 million of property management and
commission revenue during the nine months ending September 30, 2002. Earnings before minority interest and taxes for the nine months ended September 30, 2003 were approximately $9.1 million, compared to approximately $12.2 million for the same
period in 2002. Net income for the nine months ended September 30, 2003 was approximately $5.5 million, compared to approximately $5.2 million for the same period in 2002.



REVENUE



Property management and leasing operations generated approximately $13.2 million of revenue (including approximately $2.8 million of related party fees) during the first
nine months of 2003, representing 68.6% of our total revenue as compared to approximately $20.7 million (including approximately $2.7 million in related party fees) for the same period in 2002. The deconsolidation of the Japan subsidiary, which
contributed approximately $1.8 million of property management revenue during the first nine months of 2002, had a significant effect on the decline in revenue during the first nine months of 2003. Additionally, a decrease in leasing revenue also
contributed to the revenue decline.



Brokerage commission revenue for the first
nine months of 2003 was approximately $3.2 million (including approximately $1.4 million of related party fees) representing 16.8% of total revenue, compared to brokerage commission revenue for the same period of 2002 of approximately $11.8 million
(including approximately $1.8 million of related party fees). The decrease was substantially due to the deconsolidation of our Japan subsidiary, which contributed approximately $8.2 million of commission revenue during the first nine



20



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##### Table of Contents

months of 2002. Brokerage commissions in the U.S declined approximately 9.2% due to a decrease in the number and size of sales transactions. Brokerage
commissions are reported net of outside brokers commission expense but not commissions paid to employees which are recorded as marketing and commission expense.



Interest and other income for the first nine months of 2003 totaled approximately $2.8 million, compared to approximately $3.4 million, of
which approximately $2.2 million related to the Japan subsidiary, for the same period in 2002. Interest income generated from notes in the U.S. increased by approximately 146.3% for the first nine months of 2003 over the same period in 2002 due to
the addition of six new loan pools purchased during 2003 and the buy-out of a joint venture investment which owned note pool assets.



OPERATING EXPENSES



Operating expenses for the first nine months of 2003 were approximately $26.5 million, representing a 28.2% decrease from approximately $37 million for the same period in
2002. The decrease was due to exclusion of costs related to the deconsolidation of our Japan subsidiary and the continued implementation of cost reduction initiatives by the Company.



Commissions and marketing expenses were approximately $2.8 million for the nine months ended September 30, 2003 compared to approximately
$4.4 million during the same period in 2002. The reduction in commission expense correlates with the reduction in leasing and brokerage commission revenue.



There was no cost of residential real estate sold for the nine months ended September 30, 2003, compared to $220,000 for the same period in 2002. The expense in 2002
related to sales in Japan.



Compensation and related expenses were
approximately $13.7 million for the first nine months of 2003 representing a 27.7% decrease from approximately $19 million for the same period of 2002. Compensation expense relating to the Japan subsidiary totaled approximately $3.2 million for the
first nine months of 2002. Additionally, compensation in the U.S. decreased by approximately 13% due to staff reductions and the Companys continued cost reduction measures.



General and administrative expenses were approximately $7.8 million for the first nine months of 2003, compared to approximately $8.3
million for the same period in 2002. The U.S operations experienced an increase in the period due to non-recurring legal expense for the settlement of disputes relating to a development project and an employment contract.



Depreciation and amortization expense was approximately $2.3 million for the nine months
ended September 30, 2003 compared to approximately $2.6 million during the same period of 2002. Most of the change relates to the deconsolidation of the Japan subsidiary.



The non-cash Japan IPO expense of $1.1 million occurred during the first nine months of 2002 and is directly related to the gain on the sale
of stock. There was no such expense during the first nine months of 2003.



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Equity income totaled $2.4 million for the first nine months of 2003 compared to approximately $4.1 million realized in
the same period of 2002. For the first nine months of 2002, equity income included approximately $1.4 million related to investments by our Japan subsidiary, and approximately $725,000 related to a joint venture investment in note assets which is
now wholly owned by the Company and is recorded as interest income in 2003.



NON-OPERATING ITEMS



Gain on sale of stock of
subsidiary was approximately $16.0 million for the nine months ended June 30, 2003, compared to approximately $12.9 million earned in the same period of 2002. The gain in 2003 resulted from the sale of 24,600 shares owned in our Japan subsidiary, as
compared to the sale of 5,000 shares (adjusted for a 2-for-1 stock split) as part of the successful initial public offering and 4,000 shares (stock split adjusted) as part of a secondary offering of that subsidiarys shares in Japan during the
first nine months of 2002.



Interest expense was $1.0 million for the first
nine months of 2003, compared to approximately $1.9 million during the same period in 2002, representing a 45.5% decrease. The decline is due, in part, to the reduced average interest rates on variable rate loans and a substantial repayment of debt,
including the repayment of the 12% senior unsecured notes. Interest expense is reported net of capitalized interest of approximately $1.8 million for 2003 and approximately $1.7 million for 2002. Interest is capitalized on investment assets that are
undergoing construction or entitlement activities in preparation for their planned principal operations.



Valuation adjustment - The change in the fair value of warrants was $35,000 for the first nine months of 2003, compared to $48,000 for the same period in 2002. These warrants were associated with the senior unsecured
notes that have been fully repaid.



There was no write-down of technology
investments during the first nine months of 2003, compared to $2.5 million for the first nine months of 2002. During the third quarter of 2002, management concluded that the cost basis of an e-commerce investment was not probable of recovery. Based
on the analysis performed by management, the basis of the e-commerce investment was reduced by $2.5 million, resulting in cost basis of the associated asset of $1 million.



The loss on extinguishment of debt was $968,000 for the first nine months of 2003, compared to a gain of $750,000 realized during the first
nine months of 2002. The loss in 2003 was related to prepayment penalties and the write-off of unamortized capitalized loan fees associated with the early retirement of the balance of the 12% senior notes payable. The gain in 2002 related to the
conversion of the convertible subordinated debentures in the amount of $3,977,000 and the issuance of subordinated debentures in the amount of $2,773,000 to retire the $7,500,000 of convertible subordinated debt.



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The provision for income taxes was approximately $3.6 million for the first nine months of 2003, compared to
approximately $2.9 million for the same period of 2002 due to the increase in net income before taxes and a higher tax rate.



LIQUIDITY AND CAPITAL RESOURCES



Our liquidity and capital resource requirements include expenditures for joint venture fund investments, distressed note pools, real estate, and working capital needs.
Historically, we have not required significant capital resources to support our brokerage operations. We finance our operations with internally generated funds and borrowings under our revolving lines of credit as described below. Our recent
acquisitions of note pools are financed with notes payable.



Cash used in
operating activities during the nine months ended September 30, 2003 was approximately $7.3 million, compared to approximately $2.9 million in cash provided by operating activities for the same period in 2002. Although net income for the first nine
months of 2003 was approximately $5.5 million, net cash generated from operations excludes gains on the sale of the shares Kennedy-Wilson Japan of approximately $16 million, which is included as an investing activity. In the same period of 2002, the
Company had net income of approximately $5.3 million, net cash generated from operations also excludes the approximate $12.9 million gain on the sale of shares in Kennedy-Wilson Japan.



Cash provided by investing activities during the nine months ended September 30, 2003 was approximately $21.1 million, compared to
approximately $6.8 million in cash used in investing activities during the same period in 2002. In 2003, approximately $39.7 million in proceeds was received from the sale of shares in Kennedy-Wilson Japan and collections of notes receivable, offset
by the acquisition of note pools and the redemption of a joint venture partner in a note receivable venture.



Cash used in financing activities was approximately $18.8 million for the first nine months of 2003, compared to approximately $1.8 million in cash used in financing activities for the same period of 2002. In 2003,
the proceeds from the sale of shares in Kennedy-Wilson Japan described above were used to repay debt and repurchase shares of the Companys common stock.



To the extent that we engage in additional strategic investments, we may need to obtain third party financing which could include bank financing or the public sale or
private placement of debt or equity securities. We believe that existing cash, plus capital generated from property management and leasing, brokerage, sales of real estate owned, collections from notes receivable, as well as our current unsecured
lines of credit, will provide us with sufficient capital requirements for at least the next twelve months.



Our need, if any, to raise additional funds to meet our working capital and capital requirements will depend on numerous factors, including the success and pace of the implementation of our strategy for growth. We
regularly monitor capital raising alternatives to be able to take advantage of other available avenues to support our working capital and



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investment needs, including strategic partnerships and other alliances, bank borrowings, and the sale of equity or debt securities. We intend to retain
earnings to finance our growth and, therefore, do not anticipate paying any dividends.



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK



The Companys exposure to market risk has not materially changed from what was reported on the Companys Form 10-K for the year ended December 31, 2002.



FORWARD LOOKING STATEMENTS



This report contains forward-looking statements as well as historical information. Forward
looking statements, which are included in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, may involve known and unknown risks, uncertainties and other factors that may cause the
companys actual results and performance to be materially different from any results or performance suggested by the statements in this report. When used in our documents or oral presentations, the words plan, believe,
anticipate, estimate, expect, objective, projection,  forecast, goal, or similar words are intended to identify forward-looking statements.



Item 4. CONTROLS AND PROCEDURES



An evaluation of the
effectiveness of the design and operation of Kennedy-Wilson, Inc.s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14 was carried out under the supervision and with the participation of Kennedy-Wilson, Inc.s
management, including Kennedy-Wilson, Inc.s Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Kennedy-Wilson, Inc.s disclosure controls
and procedures are effective in timely alerting them to material information relating to Kennedy-Wilson, Inc. required to be included in Kennedy-Wilson, Inc.s periodic Securities and Exchange Commission filings. There have been no significant
changes in Kennedy-Wilson, Inc.s internal controls or in other factors that could significantly affect these controls subsequent to the evaluation date.



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PART II - OTHER INFORMATION



Item 6. EXHIBITS AND REPORTS ON FORM 8-K



(a) Exhibits



The following exhibits are included
herein:



|ITEM |  | DESCRIPTION                                                                                                                                        
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|     | 
|31.2 |  | Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|     | 
|32.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                             



(b) Reports on Form
8-K



None



SIGNATURE



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                                                   |  | KENNEDY-WILSON, INC.
|-------------------------------------------------- |  | --------------------
|                                                   |  | Registrant          
|Date: November 11, 2003                            |  |                     
|                                                   | 
|/s/ Freeman A. Lyle                                |  |                     
|Freeman A. Lyle                                    |  |                     
|Executive Vice President & Chief Financial Officer |  |                     
|(Principal Financial and Accounting Officer)       |  |                     



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