##### Table of Contents



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 JUNE 30, 2001

|     |                                                                                         
|---- | ----------------------------------------------------------------------------------------
|[  ] | 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

KENNEDY-WILSON, INC.

(Exact name of registrant as specified in its charter)


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

(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 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;
8,701,733 shares outstanding at August 10, 2001.



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TABLE OF CONTENTS



|                            |                                                                   |                                                                                               |  |  |  |  |  | 
|--------------------------- | ----------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|                            |                                                                   | CONSOLIDATED BALANCE SHEETS                                                                  
|                            |                                                                   | CONSOLIDATED STATEMENTS OF INCOME                                                            
|                            |                                                                   | CONSOLIDATED STATEMENTS OF CASH FLOWS                                                        
|                            |                                                                   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                   
|                            |                                                                   | Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                            | Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|PART II  OTHER INFORMATION
|                            | Item 6. EXHIBITS AND REPORTS ON FORM 8-K                         
|SIGNATURE                  

KENNEDY-WILSON, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 2001

|                               |                                                                                               |                                                                                                                      |    |     
|------------------------------ | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | -- | ----
|                               |                                                                                               |                                                                                                                      |    | Page
|                               |                                                                                               |                                                                                                                      |    |     
|PART I.  Financial Information |                                                                                               |                                                                                                                     
|                              
|                               | Item 1.  Financial Statements                                                                 |                                                                                                                      |   
|                              
|                               |                                                                                               | Consolidated Balance Sheets as of June 30, 2001 and December
31, 2000 (Unaudited)                                    |    | 3   
|                              
|                               |                                                                                               | Consolidated Statements of Income for the Three-Month and
Six-Month Periods Ended June 30, 2001 and 2000 (Unaudited) |    | 4   
|                              
|                               |                                                                                               | Consolidated Statements of Cash Flows for the Six-Month
Periods Ended June 30, 2001 and 2000 (Unaudited)             |    | 5   
|                              
|                               |                                                                                               | Notes to Consolidated Financial Statements (Unaudited)                                                               |    | 6   
|                              
|                               | Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations |                                                                                                                      | 10
|                              
|                               | Item 3. Quantitative and Qualitative Disclosure about Market Risk                             |                                                                                                                      | 14
|                              
|PART II.  Other Information    |                                                                                               | 15                                                                                                                  
|                              
|                               | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                      | 15



2



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##### Table of Contents






KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                           |                            |   |             |            |              |   |             |            | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | - | ----------- | ---------- | ------------ | - | ----------- | ---------- | 
|                                                                                                                                                                           |                            |   | June 30,    |            |              |   |            
|                                                                                                                                                                           |                            |   | 2001        |            | December 31,
|                                                                                                                                                                           |                            |   | (Unaudited) |            | 2000        
|                                                                                                                                                                           |                            |   |             |            |             
|ASSETS                                                                                                                                                                     |                            |   |             |            |              |   |             |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Cash and cash equivalents                                                                                                                                                  |                            | $ | 11,516,000  |            |              | $ | 5,228,000   |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Cash  restricted                                                                                                                                                          |                            |   | 230,000     |            |              |   | 696,000     |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Accounts receivable                                                                                                                                                        |                            |   | 7,591,000   |            |              |   | 12,399,000  |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Notes receivable                                                                                                                                                           |                            |   | 17,630,000  |            |              |   | 11,320,000  |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Real estate held for sale                                                                                                                                                  |                            |   | 1,584,000   |            |              |   | 19,248,000  |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Investments in joint ventures                                                                                                                                              |                            |   | 49,734,000  |            |              |   | 43,167,000  |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Contracts and other assets                                                                                                                                                 |                            |   | 17,462,000  |            |              |   | 16,599,000  |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Goodwill, net                                                                                                                                                              |                            |   | 24,403,000  |            |              |   | 24,447,000  |           
|                                                                                                                                                                           |                            |   |             |            |              |   |             |           
|Total assets                                                                                                                                                               |                            | $ | 130,150,000 |            |              | $ | 133,104,000 |           
|                                                                                                                                                                           |                            |   |             |            |              |   |             |           
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                       |                            |   |             |            |              |   |             |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|LIABILITIES                                                                                                                                                                |                            |   |             |            |              |   |             |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Accounts payable                                                                                                                                                           |                            | $ | 2,637,000   |            |              | $ | 2,283,000   |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Accrued expenses and other liabilities                                                                                                                                     |                            |   | 4,984,000   |            |              |   | 6,404,000   |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Accrued salaries and benefits                                                                                                                                              |                            |   | 3,200,000   |            |              |   | 6,138,000   |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Accrued income taxes payable                                                                                                                                               |                            |   | 5,089,000   |            |              |   | 4,475,000   |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Notes payable                                                                                                                                                              |                            |   | 10,373,000  |            |              |   | 8,423,000   |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Borrowings under lines of credit                                                                                                                                           |                            |   | 30,491,000  |            |              |   | 28,938,000  |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Mortgage loans payable                                                                                                                                                     |                            |   | 437,000     |            |              |   | 4,637,000   |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Senior unsecured notes                                                                                                                                                     |                            |   | 14,583,000  |            |              |   | 14,542,000  |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Subordinated debt                                                                                                                                                          |                            |   | 7,500,000   |            |              |   | 7,500,000   |           
|                                                                                                                                                                           |                            |   |             |            |              |   |             |           
|                                                                                                                                                                           | Total liabilities          |   |             | 79,294,000 |              |   |             | 83,340,000 | 
|                                                                                                                                                                           |                            |   |             |            |              |   |             |           
|COMMITMENTS AND CONTINGENCIES                                                                                                                                              |                            |   |             |            |              |   |             |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|STOCKHOLDERS EQUITY                                                                                                                                                       |                            |   |             |            |              |   |             |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Preferred stock, $0.01 par value: 5,000,000
shares authorized; none issued as of
June 30, 2001 and December 31, 2000                                                       |                            |   |            |            |              |   |            |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Common stock, $0.01 par value: 50,000,000 shares
authorized; 8,701,733 and 8,648,640 shares
issued and outstanding as of June 30, 2001
and December 31, 2000, respectively |                            |   | 88,000      |            |              |   | 87,000      |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Additional paid-in capital                                                                                                                                                 |                            |   | 48,321,000  |            |              |   | 45,458,000  |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Restricted
stock  deferred compensation                                                                                                                                   |                            |   | (2,826,000  | )          |              |   |            |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Retained earnings                                                                                                                                                          |                            |   | 5,383,000   |            |              |   | 4,365,000   |           
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|                                                                                                                                                                          
|Notes receivable from stockholders                                                                                                                                         |                            |   | (110,000    | )          |              |   | (146,000    | )         
|                                                                                                                                                                           |                            |   |             |            |              |   |             |           
|                                                                                                                                                                           | Total stockholders equity |   |             | 50,856,000 |              |   |             | 49,764,000 | 
|                                                                                                                                                                           |                            |   |             |            |              |   |             |           
|Total liabilities and stockholders equity                                                                                                                                 |                            | $ | 130,150,000 |            |              | $ | 133,104,000 |           
|                                                                                                                                                                           |                            |   |             |            |              |   |             |           

See notes to consolidated financial statements.



3



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##### Table of Contents






KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

|                                              |                          |   |                            |            |                          |   |            |            |      |   |            |            |  |   |            |            | 
|--------------------------------------------- | ------------------------ | - | -------------------------- | ---------- | ------------------------ | - | ---------- | ---------- | ---- | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                                              |                          |   |                            |            |                          |   |            |            |      |   |            |           
|                                              |                          |   | For the three months ended |            | For the six months ended
|                                              |                          |   | June 30,                   |            | June 30,                
|                                              |                          |   |                            |            |                         
|                                              |                          |   | 2001                       |            | 2000                     |   | 2001       |            | 2000
|                                              |                          |   |                            |            |                          |   |            |            |     
|REVENUE                                       |                          |   |                            |            |                          |   |            |            |      |   |            |            |  |   |            |           
|                                             
|                                             
|                                             
|                                             
|Property management and leasing fees          |                          | $ | 7,883,000                  |            |                          | $ | 8,454,000  |            |      | $ | 16,050,000 |            |  | $ | 16,949,000 |           
|                                             
|                                             
|                                             
|                                             
|Commissions                                   |                          |   | 3,259,000                  |            |                          |   | 5,021,000  |            |      |   | 7,002,000  |            |  |   | 8,634,000  |           
|                                             
|                                             
|                                             
|                                             
|Sales of residential real estate              |                          |   | 4,027,000                  |            |                          |   | 2,693,000  |            |      |   | 8,560,000  |            |  |   | 25,692,000 |           
|                                             
|                                             
|                                             
|                                             
|Equity in income of joint
venture investments |                          |   | 1,832,000                  |            |                          |   | 669,000    |            |      |   | 2,621,000  |            |  |   | 2,005,000  |           
|                                             
|                                             
|                                             
|                                             
|Gain on sale of commercial real estate        |                          |   |                           |            |                          |   |           |            |      |   | 281,000    |            |  |   |           |           
|                                             
|                                             
|                                             
|                                             
|Gain on restructured notes receivable         |                          |   | 80,000                     |            |                          |   | 880,000    |            |      |   | 47,000     |            |  |   | 2,287,000  |           
|                                             
|                                             
|                                             
|                                             
|Interest and other income                     |                          |   | 392,000                    |            |                          |   | 506,000    |            |      |   | 593,000    |            |  |   | 1,332,000  |           
|                                              |                          |   |                            |            |                          |   |            |            |      |   |            |            |  |   |            |           
|                                              | Total revenue            |   |                            | 17,473,000 |                          |   |            | 18,223,000 |      |   |            | 35,154,000 |  |   |            | 56,899,000 | 
|                                              |                          |   |                            |            |                          |   |            |            |      |   |            |            |  |   |            |           
|OPERATING EXPENSES                            |                          |   |                            |            |                          |   |            |            |      |   |            |            |  |   |            |           
|                                             
|                                             
|                                             
|                                             
|Commissions and marketing expenses            |                          |   | 1,731,000                  |            |                          |   | 125,000    |            |      |   | 3,748,000  |            |  |   | 1,358,000  |           
|                                             
|                                             
|                                             
|                                             
|Cost of residential real estate sold          |                          |   | 3,977,000                  |            |                          |   | 2,598,000  |            |      |   | 8,284,000  |            |  |   | 22,855,000 |           
|                                             
|                                             
|                                             
|                                             
|Compensation and related expenses             |                          |   | 5,827,000                  |            |                          |   | 7,471,000  |            |      |   | 12,157,000 |            |  |   | 15,599,000 |           
|                                             
|                                             
|                                             
|                                             
|General and administrative                    |                          |   | 2,890,000                  |            |                          |   | 4,099,000  |            |      |   | 5,614,000  |            |  |   | 8,456,000  |           
|                                             
|                                             
|                                             
|                                             
|Depreciation and amortization                 |                          |   | 1,007,000                  |            |                          |   | 762,000    |            |      |   | 1,926,000  |            |  |   | 1,732,000  |           
|                                             
|                                             
|                                             
|                                             
|Interest expense                              |                          |   | 1,020,000                  |            |                          |   | 1,371,000  |            |      |   | 1,783,000  |            |  |   | 2,854,000  |           
|                                              |                          |   |                            |            |                          |   |            |            |      |   |            |            |  |   |            |           
|                                              | Total operating expenses |   |                            | 16,452,000 |                          |   |            | 16,426,000 |      |   |            | 33,512,000 |  |   |            | 52,854,000 | 
|                                              |                          |   |                            |            |                          |   |            |            |      |   |            |            |  |   |            |           
|Income before provision
for income taxes      |                          |   | 1,021,000                  |            |                          |   | 1,797,000  |            |      |   | 1,642,000  |            |  |   | 4,045,000  |           
|                                             
|                                             
|                                             
|                                             
|Provision for income taxes                    |                          |   | 388,000                    |            |                          |   | 617,000    |            |      |   | 624,000    |            |  |   | 1,181,000  |           
|                                              |                          |   |                            |            |                          |   |            |            |      |   |            |            |  |   |            |           
|NET INCOME                                    |                          | $ | 633,000                    |            |                          | $ | 1,180,000  |            |      | $ | 1,018,000  |            |  | $ | 2,864,000  |           
|                                              |                          |   |                            |            |                          |   |            |            |      |   |            |            |  |   |            |           
|Share data:                                   |                          |   |                            |            |                          |   |            |            |      |   |            |            |  |   |            |           
|                                             
|                                             
|                                             
|                                             
|Basic net income per share                    |                          | $ | 0.07                       |            |                          | $ | 0.13       |            |      | $ | 0.12       |            |  | $ | 0.32       |           
|                                             
|                                             
|                                             
|                                             
|Basic weighted average shares                 |                          |   | 8,682,645                  |            |                          |   | 9,100,162  |            |      |   | 8,688,527  |            |  |   | 9,090,525  |           
|                                             
|                                             
|                                             
|                                             
|Diluted net income per share                  |                          | $ | 0.07                       |            |                          | $ | 0.12       |            |      | $ | 0.11       |            |  | $ | 0.29       |           
|                                             
|                                             
|                                             
|                                             
|Diluted weighted average shares               |                          |   | 8,854,177                  |            |                          |   | 10,187,462 |            |      |   | 8,887,431  |            |  |   | 10,226,019 |           

See notes to consolidated financial statements.



4



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##### Table of Contents






KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

|                                                                              |                                                     |   |                          |            |      |   |             |            |  
|----------------------------------------------------------------------------- | --------------------------------------------------- | - | ------------------------ | ---------- | ---- | - | ----------- | ---------- | -
|                                                                              |                                                     |   |                          |            |      |   |             |           
|                                                                              |                                                     |   | For the six months ended
|                                                                              |                                                     |   | June 30,                
|                                                                              |                                                     |   |                         
|                                                                              |                                                     |   | 2001                     |            | 2000
|                                                                              |                                                     |   |                          |            |     
|CASH FLOWS FROM OPERATING ACTIVITIES:                                         |                                                     |   |                          |            |      |   |             |           
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Net income                                                                    |                                                     | $ | 1,018,000                |            |      | $ | 2,864,000   |           
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Adjustments to reconcile net income to net
cash used in operating activities: |                                                     |   |                          |            |      |   |             |           
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Depreciation and amortization                       |   |                          | 1,926,000  |      |   |             | 1,732,000  |  
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Equity in income of joint venture investments       |   |                          | (2,621,000 | )    |   |             | (2,005,000 | )
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Compensation expense for restricted stock           |   |                          | 149,000    |      |   |             |           |  
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Gain on restructured notes receivable  non-cash    |   |                          |           |      |   |             | (744,000   | )
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Change in assets and liabilities:                                             |                                                     |   |                          |            |      |   |             |           
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Accounts receivable                                 |   |                          | 4,808,000  |      |   |             | (330,000   | )
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Other assets                                        |   |                          | (2,167,000 | )    |   |             | (3,816,000 | )
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Accounts payable                                    |   |                          | 354,000    |      |   |             | (94,000    | )
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Accrued expenses and other liabilities              |   |                          | (3,744,000 | )    |   |             | (5,861,000 | )
|                                                                              |                                                     |   |                          |            |      |   |             |           
|                                                                              | Net cash used in operating activities               |   |                          | (277,000   | )    |   |             | (8,254,000 | )
|                                                                              |                                                     |   |                          |            |      |   |             |           
|CASH FLOWS FROM INVESTING ACTIVITIES:                                         |                                                     |   |                          |            |      |   |             |           
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Purchase of contracts, furniture, fixtures
and equipment                      |                                                     |   | (158,000                 | )          |      |   | (535,000    | )         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Additions to goodwill                                                         |                                                     |   | (400,000                 | )          |      |   | (225,000    | )         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Settlements of notes receivable                                               |                                                     |   | 4,254,000                |            |      |   | 3,379,000   |           
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Additions to notes receivable                                                 |                                                     |   | (10,564,000              | )          |      |   | (645,000    | )         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Proceeds from sales of real estate held for sale                              |                                                     |   | 19,725,000               |            |      |   | 22,594,000  |           
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Purchase and additions to real estate held for sale                           |                                                     |   | (2,061,000               | )          |      |   | (19,557,000 | )         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Distributions from joint ventures                                             |                                                     |   | 14,711,000               |            |      |   | 6,156,000   |           
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Contributions to joint ventures                                               |                                                     |   | (18,657,000              | )          |      |   | (11,817,000 | )         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Cash  restricted decrease                                                    |                                                     |   | 466,000                  |            |      |   | 1,347,000   |           
|                                                                              |                                                     |   |                          |            |      |   |             |           
|                                                                              | Net cash provided by investing activities           |   |                          | 7,316,000  |      |   |             | 697,000    |  
|                                                                              |                                                     |   |                          |            |      |   |             |           
|CASH FLOWS FROM FINANCING ACTIVITIES:                                         |                                                     |   |                          |            |      |   |             |           
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Borrowings under notes payable                                                |                                                     |   | 3,688,000                |            |      |   | 8,880,000   |           
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Repayment of notes payable                                                    |                                                     |   | (1,738,000               | )          |      |   | (2,837,000  | )         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Borrowings under lines of credit                                              |                                                     |   | 18,623,000               |            |      |   | 11,104,000  |           
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Repayment of lines of credit                                                  |                                                     |   | (17,070,000              | )          |      |   | (17,288,000 | )         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Issuance of mortgage loans payable                                            |                                                     |   | 1,730,000                |            |      |   | 3,121,000   |           
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Repayment of mortgage loans payable                                           |                                                     |   | (5,930,000               | )          |      |   | (5,092,000  | )         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Senior unsecured notes                                                        |                                                     |   | 41,000                   |            |      |   | 15,000,000  |           
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Repayment of subordinated debt                                                |                                                     |   |                         |            |      |   | (5,000,000  | )         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Issuance of common stock                                                      |                                                     |   | 62,000                   |            |      |   | 134,000     |           
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Repurchase of common stock                                                    |                                                     |   | (193,000                 | )          |      |   |            |           
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Loan repayments from stockholders                                             |                                                     |   | 36,000                   |            |      |   | 18,000      |           
|                                                                              |                                                     |   |                          |            |      |   |             |           
|                                                                              | Net cash (used in) provided by financing activities |   |                          | (751,000   | )    |   |             | 8,040,000  |  
|                                                                              |                                                     |   |                          |            |      |   |             |           
|Net increase in cash and cash equivalents                                     |                                                     |   | 6,288,000                |            |      |   | 483,000     |           
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                |                                                     |   | 5,228,000                |            |      |   | 5,243,000   |           
|                                                                              |                                                     |   |                          |            |      |   |             |           
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                      |                                                     | $ | 11,516,000               |            |      | $ | 5,726,000   |           
|                                                                              |                                                     |   |                          |            |      |   |             |           

See notes to consolidated financial statements.



5



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##### Table of Contents






KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)

NOTE 1  FINANCIAL STATEMENT PRESENTATION

The above financial statements have been prepared by Kennedy-Wilson, Inc. a
Delaware corporation, and subsidiaries (the Company) without audit by
independent public accountants, pursuant to the Rules and Regulations
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934. The statements, in the opinion of the Company, present
fairly the financial position and results of operations for the dates and
periods indicated. The information presented as of and for the three
and six month periods ended June 30, 2001 and 2000 has not been audited by independent
accountants, but includes all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the results for such periods. The results of operations for
the three and six month periods ended June 30, 2001 are not necessarily
indicative of results that might be expected for the full fiscal year. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the Rules and Regulations of the Securities
and Exchange Commission. The Company believes that the disclosures contained
in the financial statements are adequate to make the information presented not
misleading. These financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Companys Annual
Report on Form 10-K for the year ended December 31, 2000. Certain
reclassifications have been made to prior period balances to conform to the
current period presentation.

The Companys adoption of SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, on January 1, 2001 did not
have a material impact on the Companys financial position or results of
operations.

In July 2001, the Financial Accounting Standards Board approved Statement of Financial
Accounting Standard No. 141, Business Combinations and SFAS No. 142,
Goodwill and Other Intangible Assets.  SFAS No.  141 prospectively prohibits
the pooling of interest method of accounting for business
combinations initiated after June 30, 2001. SFAS No. 142, which is effective
January 1, 2002, includes requirements to test goodwill and indefinite lived intangible
assets for impairment rather than amortize them. The Company is currently evaluating the impact
that these standards will have on its financial statements.

NOTE 2  INVESTMENTS IN JOINT VENTURES

The Company has a number of partnerships 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.
Investments in joint ventures also include mezzanine loans to real estate
developers for new single-family residential developments. These investments
are accounted for under the cost method.



6



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##### Table of Contents



NOTE 3  REAL ESTATE HELD FOR SALE

Real estate held for sale is comprised of commercial and residential properties
and land, and is accounted for at the lower of carrying amount or fair value
less cost to sell. Real estate is classified as held for sale since the
Companys intent is to acquire and dispose of properties as part of its normal
course of business.

NOTE 4  EARNINGS PER SHARE

The following table sets forth the calculation of basic and diluted earnings
per share:

|                                                   |  |                            |           |                          |  |      |            |      |  |   |           |  |  |   |            | 
|-------------------------------------------------- |  | -------------------------- | --------- | ------------------------ |  | ---- | ---------- | ---- |  | - | --------- |  |  | - | ---------- | 
|                                                   |  | For the three months ended |           | For the six months ended
|                                                   |  | June 30,                   |           | June 30,                
|                                                   |  |                            |           |                         
|                                                   |  | 2001                       |           | 2000                     |  | 2001 |            | 2000
|                                                   |  |                            |           |                          |  |      |            |     
|BASIC CALCULATION                                  |  |                            |           |                          |  |      |            |      |  |   |           |  |  |   |            | 
|                                                  
|                                                  
|                                                  
|                                                  
|Net income                                         |  | $                          | 633,000   |                          |  | $    | 1,180,000  |      |  | $ | 1,018,000 |  |  | $ | 2,864,000  | 
|                                                   |  |                            |           |                          |  |      |            |      |  |   |           |  |  |   |            | 
|Weighted average shares                            |  |                            | 8,682,645 |                          |  |      | 9,100,162  |      |  |   | 8,688,527 |  |  |   | 9,090,525  | 
|                                                   |  |                            |           |                          |  |      |            |      |  |   |           |  |  |   |            | 
|Earnings per share  Basic                         |  | $                          | 0.07      |                          |  | $    | 0.13       |      |  | $ | 0.12      |  |  | $ | 0.32       | 
|                                                   |  |                            |           |                          |  |      |            |      |  |   |           |  |  |   |            | 
|DILUTED CALCULATION                                |  |                            |           |                          |  |      |            |      |  |   |           |  |  |   |            | 
|                                                  
|                                                  
|                                                  
|                                                  
|Net income                                         |  | $                          | 633,000   |                          |  | $    | 1,180,000  |      |  | $ | 1,018,000 |  |  | $ | 2,864,000  | 
|                                                  
|                                                  
|                                                  
|                                                  
|Income effect of dilutive
securities, tax effected |  |                            |          |                          |  |      | 74,000     |      |  |   |          |  |  |   | 149,000    | 
|                                                   |  |                            |           |                          |  |      |            |      |  |   |           |  |  |   |            | 
|Diluted net income                                 |  | $                          | 633,000   |                          |  | $    | 1,254,000  |      |  | $ | 1,018,000 |  |  | $ | 3,013,000  | 
|                                                   |  |                            |           |                          |  |      |            |      |  |   |           |  |  |   |            | 
|Weighted average shares                            |  |                            | 8,682,645 |                          |  |      | 9,100,162  |      |  |   | 8,688,527 |  |  |   | 9,090,525  | 
|                                                  
|                                                  
|                                                  
|                                                  
|Convertible debentures                             |  |                            |          |                          |  |      | 750,000    |      |  |   |          |  |  |   | 750,000    | 
|                                                  
|                                                  
|                                                  
|                                                  
|Common stock equivalents                           |  |                            | 171,532   |                          |  |      | 337,300    |      |  |   | 198,904   |  |  |   | 385,494    | 
|                                                   |  |                            |           |                          |  |      |            |      |  |   |           |  |  |   |            | 
|Total diluted shares                               |  |                            | 8,854,177 |                          |  |      | 10,187,462 |      |  |   | 8,887,431 |  |  |   | 10,226,019 | 
|                                                   |  |                            |           |                          |  |      |            |      |  |   |           |  |  |   |            | 
|Earnings per share  Diluted                       |  | $                          | 0.07      |                          |  | $    | 0.12       |      |  | $ | 0.11      |  |  | $ | 0.29       | 
|                                                   |  |                            |           |                          |  |      |            |      |  |   |           |  |  |   |            | 

At June 30, 2001, potentially dilutive convertible debentures are excluded from
the diluted earnings per share calculation as their effect is anti-dilutive.

NOTE 5  SEGMENT INFORMATION

The Companys business activities currently consist of property management,
commercial and residential brokerage, and various types of real estate and note
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 national commercial and residential
property management and leasing company, providing a full range of services
relating to property management, including tenant representation. The



7



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##### Table of Contents



Company also provides asset management services for some of our joint ventures.

Brokerage  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 auctions 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
distressed notes. The Companys current real estate portfolio focuses on
commercial buildings and multiple and single-family residences. The Company
has entered into joint ventures with large international investors, to invest
in both U.S. and Japanese real estate and note pools. The Company also makes
mezzanine loans to real estate developers for new single-family, residential
developments.

The following tables reconcile the Companys income and expense activity for
the three and six months ended June 30, 2001 and balance sheet data as of June 30, 2001.

2001 Reconciliation of Reportable Segment Information

|                                         |  |                                          |           |           |  |             |           |           |  |              |           |  |  |   |            |   |  |   |            | 
|---------------------------------------- |  | ---------------------------------------- | --------- | --------- |  | ----------- | --------- | --------- |  | ------------ | --------- |  |  | - | ---------- | - |  | - | ---------- | 
|                                         |  | For the three months ended June 30, 2001
|                                         |  |                                         
|                                         |  | Property                                 |           |           |  |             |           |           |  |              |           |  |  |   |            |   |  |  
|                                         |  | Management                               |           | Brokerage |  | Investments |           | Corporate |  | Consolidated
|                                         |  |                                          |           |           |  |             |           |           |  |             
|Property management
and leasing fees     |  | $                                        | 6,510,000 |           |  | $           | 1,137,000 |           |  | $            | 236,000   |  |  |   |            |   |  | $ | 7,883,000  | 
|                                        
|                                        
|                                        
|                                        
|Commissions                              |  |                                          | 330,000   |           |  |             | 2,750,000 |           |  |              | 179,000   |  |  |   |            |   |  |   | 3,259,000  | 
|                                        
|                                        
|                                        
|                                        
|Sales of residential
real estate         |  |                                          |           |           |  |             |           |           |  |              | 4,027,000 |  |  |   |            |   |  |   | 4,027,000  | 
|                                        
|                                        
|                                        
|                                        
|Other                                    |  |                                          |           |           |  |             | 2,058,000 |           |  |              | 175,000   |  |  | $ | 71,000     |   |  |   | 2,304,000  | 
|                                         |  |                                          |           |           |  |             |           |           |  |              |           |  |  |   |            |   |  |   |            | 
|Total revenue                            |  |                                          | 6,840,000 |           |  |             | 5,945,000 |           |  |              | 4,617,000 |  |  |   | 71,000     |   |  |   | 17,473,000 | 
|                                        
|                                        
|                                        
|                                        
|Operating expenses                       |  |                                          | 5,787,000 |           |  |             | 3,903,000 |           |  |              | 3,415,000 |  |  |   | 3,347,000  |   |  |   | 16,452,000 | 
|                                         |  |                                          |           |           |  |             |           |           |  |              |           |  |  |   |            |   |  |   |            | 
|Income before provision
for income taxes |  | $                                        | 1,053,000 |           |  | $           | 2,042,000 |           |  | $            | 1,202,000 |  |  | $ | (3,276,000 | ) |  | $ | 1,021,000  | 
|                                         |  |                                          |           |           |  |             |           |           |  |              |           |  |  |   |            |   |  |   |            | 

|                                         |  |                                        |            |           |  |             |            |           |  |              |            |  |  |   |            |   |  |   |             | 
|---------------------------------------- |  | -------------------------------------- | ---------- | --------- |  | ----------- | ---------- | --------- |  | ------------ | ---------- |  |  | - | ---------- | - |  | - | ----------- | 
|                                         |  | For the
six months ended June 30, 2001
|                                         |  |                                       
|                                         |  | Property                               |            |           |  |             |            |           |  |              |            |  |  |   |            |   |  |  
|                                         |  | Management                             |            | Brokerage |  | Investments |            | Corporate |  | Consolidated
|                                         |  |                                        |            |           |  |             |            |           |  |             
|Property management
and leasing fees     |  | $                                      | 14,070,000 |           |  | $           | 1,556,000  |           |  | $            | 424,000    |  |  |   |            |   |  | $ | 16,050,000  | 
|                                        
|                                        
|                                        
|                                        
|Commissions                              |  |                                        | 1,031,000  |           |  |             | 5,453,000  |           |  |              | 518,000    |  |  |   |            |   |  |   | 7,002,000   | 
|                                        
|                                        
|                                        
|                                        
|Sales of residential
real estate         |  |                                        |            |           |  |             |            |           |  |              | 8,560,000  |  |  |   |            |   |  |   | 8,560,000   | 
|                                        
|                                        
|                                        
|                                        
|Other                                    |  |                                        |            |           |  |             | 2,809,000  |           |  |              | 598,000    |  |  | $ | 135,000    |   |  |   | 3,542,000   | 
|                                         |  |                                        |            |           |  |             |            |           |  |              |            |  |  |   |            |   |  |   |             | 
|Total revenue                            |  |                                        | 15,101,000 |           |  |             | 9,818,000  |           |  |              | 10,100,000 |  |  |   | 135,000    |   |  |   | 35,154,000  | 
|Operating expenses                       |  |                                        | 13,025,000 |           |  |             | 5,520,000  |           |  |              | 8,465,000  |  |  |   | 6,502,000  |   |  |   | 33,512,000  | 
|                                         |  |                                        |            |           |  |             |            |           |  |              |            |  |  |   |            |   |  |   |             | 
|Income before provision
for income taxes |  | $                                      | 2,076,000  |           |  | $           | 4,298,000  |           |  | $            | 1,635,000  |  |  | $ | (6,367,000 | ) |  | $ | 1,642,000   | 
|                                         |  |                                        |            |           |  |             |            |           |  |              |            |  |  |   |            |   |  |   |             | 
|Total assets                             |  | $                                      | 16,686,000 |           |  | $           | 23,937,000 |           |  | $            | 61,773,000 |  |  | $ | 27,754,000 |   |  | $ | 130,150,000 | 
|                                         |  |                                        |            |           |  |             |            |           |  |              |            |  |  |   |            |   |  |   |             | 



8



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##### Table of Contents



The following tables reconcile the Companys income and expense activity for
the three and six months ended June 30, 2000.

2000 Reconciliation of Reportable Segment Information

|                                         |  |                                          |           |           |  |             |           |           |  |              |           |  |  |   |            |   |  |   |            | 
|---------------------------------------- |  | ---------------------------------------- | --------- | --------- |  | ----------- | --------- | --------- |  | ------------ | --------- |  |  | - | ---------- | - |  | - | ---------- | 
|                                         |  | For the
three months ended June 30, 2000
|                                         |  |                                         
|                                         |  | Property                                 |           |           |  |             |           |           |  |              |           |  |  |   |            |   |  |  
|                                         |  | Management                               |           | Brokerage |  | Investments |           | Corporate |  | Consolidated
|                                         |  |                                          |           |           |  |             |           |           |  |             
|Property management
and leasing fees     |  | $                                        | 8,116,000 |           |  | $           | 338,000   |           |  |              |           |  |  |   |            |   |  | $ | 8,454,000  | 
|                                        
|                                        
|                                        
|                                        
|Commissions                              |  |                                          | 867,000   |           |  |             | 3,644,000 |           |  |              | 510,000   |  |  |   |            |   |  |   | 5,021,000  | 
|                                        
|                                        
|                                        
|                                        
|Sales of residential
real estate         |  |                                          |           |           |  |             |           |           |  |              | 2,693,000 |  |  |   |            |   |  |   | 2,693,000  | 
|                                        
|                                        
|                                        
|                                        
|Other                                    |  |                                          |           |           |  |             | 929,000   |           |  |              | 916,000   |  |  | $ | 210,000    |   |  |   | 2,055,000  | 
|                                         |  |                                          |           |           |  |             |           |           |  |              |           |  |  |   |            |   |  |   |            | 
|Total revenue                            |  |                                          | 8,983,000 |           |  |             | 4,911,000 |           |  |              | 4,119,000 |  |  |   | 210,000    |   |  |   | 18,223,000 | 
|                                        
|                                        
|                                        
|                                        
|Operating expenses                       |  |                                          | 7,108,000 |           |  |             | 1,923,000 |           |  |              | 2,348,000 |  |  |   | 5,047,000  |   |  |   | 16,426,000 | 
|                                         |  |                                          |           |           |  |             |           |           |  |              |           |  |  |   |            |   |  |   |            | 
|Income before provision
for income taxes |  | $                                        | 1,875,000 |           |  | $           | 2,988,000 |           |  | $            | 1,771,000 |  |  | $ | (4,837,000 | ) |  | $ | 1,797,000  | 
|                                         |  |                                          |           |           |  |             |           |           |  |              |           |  |  |   |            |   |  |   |            | 

|                                         |  |   |                                        |  |           |   |             |  |           |   |              |  |  |   |            |   |  |   |            | 
|---------------------------------------- |  | - | -------------------------------------- |  | --------- | - | ----------- |  | --------- | - | ------------ |  |  | - | ---------- | - |  | - | ---------- | 
|                                         |  |   | For the
six months ended June 30, 2000
|                                         |  |   |                                       
|                                         |  |   | Property                               |  |           |   |             |  |           |   |              |  |  |   |            |   |  |  
|                                         |  |   | Management                             |  | Brokerage |   | Investments |  | Corporate |   | Consolidated
|                                         |  |   |                                        |  |           |   |             |  |           |   |             
|Property management
and leasing fees     |  | $ | 16,329,000                             |  |           | $ | 620,000     |  |           |   |              |  |  |   |            |   |  | $ | 16,949,000 | 
|                                        
|                                        
|                                        
|                                        
|Commissions                              |  |   | 3,144,000                              |  |           |   | 4,980,000   |  |           | $ | 510,000      |  |  |   |            |   |  |   | 8,634,000  | 
|                                        
|                                        
|                                        
|                                        
|Sales of residential
real estate         |  |   |                                        |  |           |   |             |  |           |   | 25,692,000   |  |  |   |            |   |  |   | 25,692,000 | 
|                                        
|                                        
|                                        
|                                        
|Other                                    |  |   |                                        |  |           |   | 1,362,000   |  |           |   | 3,704,000    |  |  | $ | 558,000    |   |  |   | 5,624,000  | 
|                                         |  |   |                                        |  |           |   |             |  |           |   |              |  |  |   |            |   |  |   |            | 
|Total revenue                            |  |   | 19,473,000                             |  |           |   | 6,962,000   |  |           |   | 29,906,000   |  |  |   | 558,000    |   |  |   | 56,899,000 | 
|                                        
|                                        
|                                        
|                                        
|Operating expenses                       |  |   | 15,301,000                             |  |           |   | 3,259,000   |  |           |   | 26,256,000   |  |  |   | 8,038,000  |   |  |   | 52,854,000 | 
|                                         |  |   |                                        |  |           |   |             |  |           |   |              |  |  |   |            |   |  |   |            | 
|Income before provision
for income taxes |  | $ | 4,172,000                              |  |           | $ | 3,703,000   |  |           | $ | 3,650,000    |  |  | $ | (7,480,000 | ) |  | $ | 4,045,000  | 
|                                         |  |   |                                        |  |           |   |             |  |           |   |              |  |  |   |            |   |  |   |            | 



9



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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 international real estate services and investment company. We
provide property management and leasing services, asset management, commercial
and residential brokerage, and auction services to clients primarily in the
U.S. and Japan. Our clients include financial institutions, major
corporations, real estate developers, insurance companies and governmental
agencies. We also invest in commercial and residential real estate, as well as
individual and pools of distressed notes both in the U.S. and Japan.

COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000

TOTAL REVENUE

Total revenue for the three months ended June 30, 2001 was approximately $17.5
million, compared to $18.2 million during the same period in 2000. Earnings
before taxes for the three months ended June 30, 2001 were approximately $1.0
million, compared to $1.8 million for the same period in 2000. Net income for
the three months ended June 30, 2001 was $633,000, compared to $1.2 million for
the same period in 2000.

Property management and leasing operations generated approximately $7.9 million
of revenue in the second quarter of 2001, representing 45% of our total revenue
as compared to approximately $8.5 million and 46% of total revenue for the same
period in 2000. As of June 30, 2001, we had under management a portfolio of
approximately 70 million square feet of commercial, industrial and apartment
properties located in 24 states and Japan.

Brokerage commission revenue for the second quarter of 2001 was approximately
$3.3 million, representing 19% of total revenue, compared to approximately $5.0
million and 28% of total revenue for the second quarter of 2000.

Sales of residential real estate were approximately $4.0 million for the three
months ended June 30, 2001, representing 23% of total revenue compared to
approximately $2.7 million for the same three months in 2000. Revenue for the
three months ended June 30, 2001 represents the sale of 17 units in a 109-unit,
single family residential development near Palm Springs, California. This
compares to sales in the second quarter of 2000 of ten units in the same single
family residential development mentioned above and a single family home in West
Los Angeles. The sales of residential real estate for both years reflect our
continuing strategy to sell upon completion of planned improvements, rather
than holding for speculation.

Equity in income of joint venture investments totaled approximately $1.8
million for the second quarter in 2001, or 10% of total revenue compared to
$669,000 realized in the second quarter of 2000. The increase was due
primarily to the increased income from our joint venture investments in Japan.

Gain on restructured notes totaled $80,000 for the three months ended June 30,
2001, compared to $880,000 for the same period in 2000. The decrease reflects
the fact that most of the large notes have been settled or restructured and we
are now in the process of settling the smaller notes.



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Our strategy to collect the note balances consists of either restructuring the
note to performing status, negotiating a payoff, or foreclosing and selling the
related collateral.

TOTAL OPERATING EXPENSES

Operating expenses for the second quarter of 2001 were approximately $16.5
million, compared to approximately $16.4 million for the same period in 2000.
Compensation and general and administrative expenses decreased by $2.9 million,
which represents a 25% reduction from the same quarter last year, due to our
continuing cost reduction initiatives.

Brokerage commissions and marketing expenses increased to $1.7 million for the
three months ended June 30, 2001, as a result of the increased broker
commission expense associated with brokerage and leasing commission revenue.

Cost of residential real estate sold was approximately $4.0 million for the
three months ended June 30, 2001, compared to approximately $2.6 million for
the same period in 2000. The increase correlates with the increased revenues
from the sales of residential real estate discussed above.

Compensation and related expenses were approximately $5.8 million for the
second quarter of 2001, representing a 22% decrease from approximately $7.5
million for the second quarter of 2000. The decrease was primarily a result of
the cost reduction initiatives mentioned above.

General and administrative expenses were approximately $2.9 million for the
second quarter of 2001, representing a 29% decrease from the same period in
2000 expenses of approximately $4.1 million. Again, the decrease was due
primarily to the continuing cost reduction initiatives.

Depreciation and amortization expense was $1 million for the three months ended
June 30, 2001, compared to $762,000 for the same period of 2000.

Interest expense was approximately $1 million for the second quarter of 2001,
compared to approximately $1.4 million during the same period in 2000,
representing a 26% decrease.

The provision for income taxes was $388,000 for the second quarter in 2001,
compared to $617,000 for the second quarter of 2000, as a result of the change
in income before provision for income taxes.

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000

TOTAL REVENUE

Total revenue for the six months ended June 30, 2001 was approximately $35.2
million, as compared to $56.9 million during the same period in 2000. Earnings
before taxes for the six months ended June 30, 2001 were approximately $1.6
million, compared to $4.0 million for the same period in 2000. Net income for
the six months ended June 30, 2001 was approximately $1.0 million, compared to
approximately $2.9 million for the same period in 2000.

Property management and leasing operations generated approximately $16.1
million of revenue in the first six months of 2001, representing 46% of our



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total revenue as compared to approximately $16.9 million for the same period in
2000.

Brokerage commission revenue for the first six months of 2001 was $7.0 million,
representing 20% of total revenue, compared to brokerage commission revenue for
the same period of 2000 of approximately $8.6 million.

Sales of residential real estate were approximately $8.6 million for the six
months ended June 30, 2001, representing 24% of total revenue compared to
approximately $25.7 million for the same period in 2000. Revenue for the first
six months of 2001 represents the sale of 36 units in a 109-unit, single family
residential development near Palm Springs, California. This compares to sales
in the same period of 2000 of three projects, a 53-unit condominium complex in
West Los Angeles, 25 units in the same single family residential development
mentioned above and two single family homes in West Los Angeles.

Equity in income of joint venture investments totaled approximately $2.6
million for the first six months of 2001, or 7% of total revenue compared to
$2.0 million realized in the same period of 2000. The increase was due
primarily to the increased income from our joint venture investments in Japan.

Gain on sale of commercial real estate totaled $281,000 for the six months
ended June 30, 2001. There was no such similar gain in the same period of
2000.

Gain on restructured notes was $47,000 for the six months ended June 30, 2001
compared to approximately $2.3 million for the same period in 2000. The
decrease reflects the fact that most of the large notes have been settled or
restructured and we are now in the process of settling the smaller notes. Our
strategy to collect the note balances consists of either restructuring the note
to performing status, negotiating a payoff, or foreclosing and selling the
related collateral.

TOTAL OPERATING EXPENSES

Operating expenses for the first six months of 2001 were approximately $33.5
million, representing a 37% decrease from $52.9 million for the same period in
2000. The decrease was due, in part, to aggressive cost reduction initiatives
that reduced compensation and general and administrative expenses by $6.3
million, or 26%, compared to the same period last year. Total expenses also
decreased due to the reduced costs related to the sales of residential real
estate as discussed above.

Brokerage commissions and marketing expenses were $3.7 million for the six
months ended June 30, 2001 compared to $1.4 million during the same period of
2000, as a result of the increased broker commission expense associated with
brokerage and leasing commission revenue.

Cost of residential real estate sold was approximately $8.3 million for the six
months ended June 30, 2001, a 64% decrease from approximately $22.9 million for
the same period in 2000. The decrease correlates with the decreased revenues
from the sales of residential real estate discussed above.

Compensation and related expenses were approximately $12.2 million for the
first six months of 2001, representing a 22% decrease from approximately



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$15.6 million for the same period of 2000. The decrease was primarily a result
of the continuing cost reduction initiatives mentioned above.

General and administrative expenses were approximately $5.6 million for the
first six months of 2001, representing a 34% decrease from the same period in
2000 expenses of approximately $8.5 million. Again, the decrease is due
primarily to the continuing cost reduction initiatives.

Depreciation and amortization expense was $1.9 million for the six months ended
June 30, 2001 compared to $1.7 million during the same period of 2000.

Interest expense was approximately $1.8 million for the first six months of
2001, compared to approximately $2.9 million during the same period in 2000,
representing a 38% decrease.

The provision for income taxes was $624,000 for the first six months of 2001,
compared to approximately $1.2 million for the same period of 2000, as a result
of the change in income before provision for income taxes.

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity and capital resource requirements include expenditures for
distressed note pools, the acquisition of property management portfolios, real
estate held for sale, 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 investments in real estate
are typically financed by mortgage loans secured primarily by that real estate.
These mortgage loans are generally nonrecourse in that, in the event of
default, recourse will be limited to the mortgaged property serving as
collateral, subject to certain exceptions that are standard in the real estate
industry.

Cash used in operating activities during the six months ended June 30, 2001 was
approximately $277,000, compared to approximately $8.3 million in cash used in
operating activities for the same period in 2000. The change included a
decrease in accrued expenses offset by a decrease in accounts receivable.

Cash provided by investing activities during the six months ended June 30, 2001
was approximately $7.3 million, compared to approximately $697,000 in cash
provided by investing activities during the same period in 2000. The change
resulted primarily from the sale of residential real estate.

Cash used in financing activities was approximately $751,000 for the first six
months of 2001, compared to cash provided by financing activities for the same
period of 2000 of approximately $8.0 million. The change resulted, in part,
from a reduction in mortgage loans payable in 2001 and the issuance of senior
unsecured notes in 2000.

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 unsecured lines of credit with East-West Bank and



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Tokai Bank, will provide us with sufficient capital requirements for the
foreseeable future.

We intend to retain earnings to finance our growth and, therefore, do not
anticipate paying any dividends. We believe that funds generated from
operations together with existing cash and available credit under our credit
facilities will be sufficient to finance our current operations, planned
investments and internal growth. 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
investment needs, including strategic partnerships and other alliances, bank
borrowings, and the sale of equity or debt securities.




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, 2000.

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.



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PART II  OTHER INFORMATION




Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits



| |     
| | ----
| | None

(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.
|                                                             
|                                                             
|                                                             
|                                                             
|Date: August 10, 2001                                         |  | Registrant          
|                                                             
|/s/  Freeman A. Lyle
________________________________________ |  |                     
|                                                             
|                                                             
|                                                             
|                                                             
|Freeman A. Lyle                                               |  |                     
|                                                             
|                                                             
|                                                             
|                                                             
|Executive Vice President & Chief Financial Officer            |  |                     
|                                                             
|                                                             
|                                                             
|                                                             
|(Principal Financial and Accounting Officer)                  |  |                     



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