##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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



FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004



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



(310) 887-6400

(Registrants telephone number, including area code)



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Indicate by
check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes x No ̈



Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).



Yes ̈No x



Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: Common stock, $.01 par value; 7,190,787 shares outstanding at May 4, 2004.



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##### Table of Contents

KENNEDY-WILSON, INC.



INDEX TO QUARTERLY REPORT ON FORM 10-Q



MARCH
31, 2004



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|        |  |                                                                                                            |  |     
|------- |  | ---------------------------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                                            |  | Page
|PART I  |  | Financial Information                                                                                      |  |     
|        |  |                                                                                                           
|Item 1. |  | Financial Statements                                                                                       |  |     
|        |  |                                                                                                           
|        |  | Consolidated Balance Sheets as of March 31, 2004 (Unaudited) and December 31, 2003                         |  | 3   
|        |  |                                                                                                           
|        |  | Consolidated Statements of Income for the Three-Month Periods ended March 31, 2004 and 2003 (Unaudited)    |  | 4   
|        |  |                                                                                                           
|        |  | Consolidated Statements of Cash Flow for the Three-Month Periods ended March 31, 2004 and 2003 (Unaudited) |  | 5   
|        |  |                                                                                                           
|        |  | Notes to Consolidated Financial Statements (Unaudited)                                                     |  | 6   
|        |  |                                                                                                           
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                      |  | 13  
|        |  |                                                                                                           
|Item 3. |  | Quantitative and Qualitative Disclosure about Market Risk                                                  |  | 16  
|        |  |                                                                                                           
|Item 4. |  | Controls and Procedures                                                                                    |  | 16  
|        |  |                                                                                                           
|PART II |  | Other Information                                                                                          |  |     
|        |  |                                                                                                           
|Item 2. |  | Changes in Securities, Use Of Proceeds and Issuer Purchases of Equity Securities                           |  | 17  
|        |  |                                                                                                           
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                           |  | 17  



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##### Table of Contents

Kennedy-Wilson, Inc. and Subsidiaries

Consolidated Balance Sheets



|                                                                                                                                                                            |  |                |             |   |                  |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                                            |  | March 31, 2004 |             |   | December 31,2003 |  
|                                                                                                                                                                            |  | (Unaudited)    |             |   |                  |  
|Assets                                                                                                                                                                      |  |                |             |   |                  |   |             |  
|Cash and cash equivalents                                                                                                                                                   |  | $              | 7,215,000   |   |                  | $ | 6,293,000   |  
|Accounts receivable                                                                                                                                                         |  |                | 3,726,000   |   |                  |   | 3,691,000   |  
|Notes receivable                                                                                                                                                            |  |                | 33,436,000  |   |                  |   | 27,213,000  |  
|Real estate held for sale                                                                                                                                                   |  |                | 10,507,000  |   |                  |   | 16,969,000  |  
|Investments in joint ventures                                                                                                                                               |  |                | 50,698,000  |   |                  |   | 47,336,000  |  
|Contracts and other assets, net                                                                                                                                             |  |                | 7,024,000   |   |                  |   | 7,796,000   |  
|Goodwill, net                                                                                                                                                               |  |                | 23,965,000  |   |                  |   | 23,965,000  |  
|                                                                                                                                                                            |  |                |             |   |                  |   |             |  
|Total Assets                                                                                                                                                                |  | $              | 136,571,000 |   |                  | $ | 133,263,000 |  
|                                                                                                                                                                            |  |                |             |   |                  |   |             |  
|Liabilities and Stockholders Equity                                                                                                                                        |  |                |             |   |                  |   |             |  
|Liabilities                                                                                                                                                                 |  |                |             |   |                  |   |             |  
|Accounts payable                                                                                                                                                            |  | $              | 345,000     |   |                  | $ | 358,000     |  
|Accrued expenses and other liabilities                                                                                                                                      |  |                | 2,737,000   |   |                  |   | 2,634,000   |  
|Accrued salaries and benefits                                                                                                                                               |  |                | 3,737,000   |   |                  |   | 3,643,000   |  
|Deferred and accrued income taxes                                                                                                                                           |  |                | 4,819,000   |   |                  |   | 5,337,000   |  
|Notes payable                                                                                                                                                               |  |                | 35,884,000  |   |                  |   | 21,734,000  |  
|Borrowings under lines of credit                                                                                                                                            |  |                | 26,392,000  |   |                  |   | 16,209,000  |  
|Mortgage loans payable                                                                                                                                                      |  |                | 7,863,000   |   |                  |   | 16,026,000  |  
|Senior unsecured notes                                                                                                                                                      |  |                | 6,667,000   |   |                  |   | 8,333,000   |  
|Subordinated debt                                                                                                                                                           |  |                | 2,773,000   |   |                  |   | 2,773,000   |  
|                                                                                                                                                                            |  |                |             |   |                  |   |             |  
|Total liabilities                                                                                                                                                           |  |                | 91,217,000  |   |                  |   | 77,047,000  |  
|                                                                                                                                                                            |  |                |             |   |                  |   |             |  
|Commitments and Contingencies                                                                                                                                               |  |                |             |   |                  |   |             |  
|Stockholders Equity                                                                                                                                                        |  |                |             |   |                  |   |             |  
|Preferred stock, $0.01 par value: 5,000,000 shares authorized; none issued as of March 31, 2004 and December 31, 2003                                                       |  |                |            |   |                  |   |            |  
|Common stock, $0.01 par value: 50,000,000 shares authorized; 7,206,527 and 8,840,484 shares issued and outstanding as of March 31, 2004 and
December 31, 2003, respectively |  |                | 72,000      |   |                  |   | 88,000      |  
|Additional paid-in capital                                                                                                                                                  |  |                | 33,571,000  |   |                  |   | 46,081,000  |  
|Restricted stock  deferred compensation                                                                                                                                    |  |                | (6,365,000  | ) |                  |   | (6,618,000  | )
|Retained earnings                                                                                                                                                           |  |                | 18,076,000  |   |                  |   | 16,665,000  |  
|                                                                                                                                                                            |  |                |             |   |                  |   |             |  
|Total stockholders equity                                                                                                                                                  |  |                | 45,354,000  |   |                  |   | 56,216,000  |  
|                                                                                                                                                                            |  |                |             |   |                  |   |             |  
|Total Liabilities and Stockholders Equity                                                                                                                                  |  | $              | 136,571,000 |   |                  | $ | 133,263,000 |  
|                                                                                                                                                                            |  |                |             |   |                  |   |             |  



See accompanying notes
to consolidated financial statements.



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Kennedy-Wilson, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)



|                                                                                                |  |                              |            |   |      |   |            |  
|----------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                                |  | Three months ended March 31, |           
|                                                                                                |  | 2004                         |            |   | 2003 |  
|Revenue                                                                                         |  |                              |            |   |      |   |            |  
|Property management and leasing fees                                                            |  | $                            | 3,319,000  |   |      | $ | 3,696,000  |  
|Property management and leasing fees  affiliated joint ventures                                |  |                              | 1,124,000  |   |      |   | 996,000    |  
|Commissions                                                                                     |  |                              | 1,468,000  |   |      |   | 644,000    |  
|Commissions  affiliated joint ventures                                                         |  |                              | 1,753,000  |   |      |   | 139,000    |  
|Sales of residential real estate                                                                |  |                              | 8,950,000  |   |      |   |           |  
|Interest and other income                                                                       |  |                              | 836,000    |   |      |   | 684,000    |  
|                                                                                                |  |                              |            |   |      |   |            |  
|Total revenue                                                                                   |  |                              | 17,450,000 |   |      |   | 6,159,000  |  
|                                                                                                |  |                              |            |   |      |   |            |  
|Operating Expenses                                                                              |  |                              |            |   |      |   |            |  
|Commissions and marketing expenses                                                              |  |                              | 1,281,000  |   |      |   | 879,000    |  
|Compensation and related expenses                                                               |  |                              | 5,332,000  |   |      |   | 4,316,000  |  
|General and administrative                                                                      |  |                              | 1,812,000  |   |      |   | 2,216,000  |  
|Cost of residential real estate sold                                                            |  |                              | 7,826,000  |   |      |   |           |  
|Depreciation and amortization                                                                   |  |                              | 557,000    |   |      |   | 694,000    |  
|                                                                                                |  |                              |            |   |      |   |            |  
|Total operating expenses                                                                        |  |                              | 16,808,000 |   |      |   | 8,105,000  |  
|Equity in joint venture income                                                                  |  |                              | 2,565,000  |   |      |   | 566,000    |  
|                                                                                                |  |                              |            |   |      |   |            |  
|Total operating income (loss)                                                                   |  |                              | 3,207,000  |   |      |   | (1,380,000 | )
|Non-operating income (expense)                                                                  |  |                              |            |   |      |   |            |  
|Gain on sale of stock of subsidiary                                                             |  |                              |           |   |      |   | 3,514,000  |  
|Interest expense                                                                                |  |                              | (915,000   | ) |      |   | (506,000   | )
|Valuation adjustment  warrants                                                                 |  |                              |           |   |      |   | 35,000     |  
|Loss on extinguishment of debt                                                                  |  |                              |           |   |      |   | (454,000   | )
|                                                                                                |  |                              |            |   |      |   |            |  
|Income from continuing operations before provision for income taxes and discontinued operations |  |                              | 2,292,000  |   |      |   | 1,209,000  |  
|Provision for income taxes                                                                      |  |                              | (917,000   | ) |      |   | (464,000   | )
|                                                                                                |  |                              |            |   |      |   |            |  
|Income from continuing operations                                                               |  |                              | 1,375,000  |   |      |   | 745,000    |  
|Income (loss) from discontinued operations, net of tax                                          |  |                              | (60,000    | ) |      |   | 1,000      |  
|Gain on sale of real estate held for sale, net of tax                                           |  |                              | 96,000     |   |      |   |           |  
|                                                                                                |  |                              |            |   |      |   |            |  
|Net Income                                                                                      |  | $                            | 1,411,000  |   |      | $ | 746,000    |  
|                                                                                                |  |                              |            |   |      |   |            |  
|Basic earnings per share                                                                        |  |                              |            |   |      |   |            |  
|Income from continuing operations                                                               |  | $                            | 0.20       |   |      | $ | 0.08       |  
|Income from discontinued operations                                                             |  |                              | 0.01       |   |      |   | 0.00       |  
|                                                                                                |  |                              |            |   |      |   |            |  
|Net income                                                                                      |  | $                            | 0.21       |   |      | $ | 0.08       |  
|                                                                                                |  |                              |            |   |      |   |            |  
|Basic weighted average shares                                                                   |  |                              | 6,676,483  |   |      |   | 9,513,581  |  
|Diluted earnings per share                                                                      |  |                              |            |   |      |   |            |  
|Income from continuing operations                                                               |  | $                            | 0.19       |   |      | $ | 0.08       |  
|Income from discontinued operations                                                             |  |                              | 0.01       |   |      |   | 0.00       |  
|                                                                                                |  |                              |            |   |      |   |            |  
|Net income                                                                                      |  | $                            | 0.20       |   |      | $ | 0.08       |  
|                                                                                                |  |                              |            |   |      |   |            |  
|Diluted weighted average shares                                                                 |  |                              | 7,048,411  |   |      |   | 9,537,397  |  



See accompanying notes
to consolidated financial statements.



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Kennedy-Wilson, Inc. and Subsidiaries

Consolidated Statements of Cash Flow

(Unaudited)



|                                                                                                 |  |                              |            |   |      |   |             |  
|------------------------------------------------------------------------------------------------ |  | ---------------------------- | ---------- | - | ---- | - | ----------- | -
|                                                                                                 |  | Three months ended March 31, |           
|                                                                                                 |  | 2004                         |            |   | 2003 |  
|Cash flows from operating activities:                                                            |  |                              |            |   |      |   |             |  
|Income from continuing operations                                                                |  | $                            | 1,375,000  |   |      | $ | 745,000     |  
|Income (loss) from discontinued operations                                                       |  |                              | (60,000    | ) |      |   | 1,000       |  
|Gain on disposition of real estate held for sale, net of tax                                     |  |                              | 96,000     |   |      |   |            |  
|Adjustments to reconcile net income to net cash used in operating activities:                    |  |                              |            |   |      |   |             |  
|Depreciation and amortization                                                                    |  |                              | 557,000    |   |      |   | 694,000     |  
|Gain on sale of real estate held for sale                                                        |  |                              | (1,284,000 | ) |      |   |            |  
|Equity in joint venture income                                                                   |  |                              | (2,565,000 | ) |      |   | (566,000    | )
|Gain on sale of stock of subsidiary                                                              |  |                              |           |   |      |   | (3,514,000  | )
|Valuation adjustment  warrants                                                                  |  |                              |           |   |      |   | (35,000     | )
|Loss on extinguishment of debt  non-cash                                                        |  |                              |           |   |      |   | 199,000     |  
|Amortization of deferred compensation                                                            |  |                              | 253,000    |   |      |   | 253,000     |  
|Change in assets and liabilities:                                                                |  |                              |            |   |      |   |             |  
|Accounts receivable                                                                              |  |                              | (35,000    | ) |      |   | 516,000     |  
|Contracts and other assets                                                                       |  |                              | 215,000    |   |      |   | (215,000    | )
|Accounts payable                                                                                 |  |                              | (13,000    | ) |      |   | (339,000    | )
|Accrued expenses and other liabilities                                                           |  |                              | (321,000   | ) |      |   | (380,000    | )
|                                                                                                 |  |                              |            |   |      |   |             |  
|Net cash used in operating activities                                                            |  |                              | (1,782,000 | ) |      |   | (2,641,000  | )
|                                                                                                 |  |                              |            |   |      |   |             |  
|Cash flows from investing activities:                                                            |  |                              |            |   |      |   |             |  
|Purchases of notes receivable and redemption of joint venture partner in note receivable venture |  |                              | (8,200,000 | ) |      |   | (11,093,000 | )
|Collections of notes receivable                                                                  |  |                              | 1,977,000  |   |      |   | 1,990,000   |  
|Additions to real estate held for sale                                                           |  |                              | (1,864,000 | ) |      |   | (7,520,000  | )
|Proceeds from the sale of real estate held for sale                                              |  |                              | 9,610,000  |   |      |   |            |  
|Contributions to joint ventures                                                                  |  |                              | (5,511,000 | ) |      |   | (874,000    | )
|Distributions from joint ventures                                                                |  |                              | 4,714,000  |   |      |   | 1,500,000   |  
|Proceeds from sale of investment in Kennedy-Wilson Japan                                         |  |                              |           |   |      |   | 6,249,000   |  
|Cash from consolidation of subsidiary                                                            |  |                              |           |   |      |   | 1,483,000   |  
|Cash  restricted increase                                                                       |  |                              |           |   |      |   | (917,000    | )
|                                                                                                 |  |                              |            |   |      |   |             |  
|Net cash provided by (used in) investing activities                                              |  |                              | 726,000    |   |      |   | (9,182,000  | )
|                                                                                                 |  |                              |            |   |      |   |             |  
|Cash flow from financing activities:                                                             |  |                              |            |   |      |   |             |  
|Borrowings under notes payable                                                                   |  |                              | 6,272,000  |   |      |   | 8,974,000   |  
|Repayment of notes payable                                                                       |  |                              | (2,615,000 | ) |      |   | (5,168,000  | )
|Joint venture financing                                                                          |  |                              |           |   |      |   | 5,580,000   |  
|Net borrowings (repayments) under lines of credit                                                |  |                              | 10,183,000 |   |      |   | (1,781,000  | )
|Borrowings under mortgage loans payable                                                          |  |                              | 80,000     |   |      |   | 1,900,000   |  
|Repayment of mortgage loans payable                                                              |  |                              | (8,243,000 | ) |      |   |            |  
|Borrowings under senior unsecured notes                                                          |  |                              |           |   |      |   | 5,000,000   |  
|Repayment of senior unsecured notes                                                              |  |                              | (1,666,000 | ) |      |   | (5,000,000  | )
|Repurchase of common stock                                                                       |  |                              | (2,033,000 | ) |      |   | (1,642,000  | )
|                                                                                                 |  |                              |            |   |      |   |             |  
|Net cash provided by financing activities                                                        |  |                              | 1,978,000  |   |      |   | 7,863,000   |  
|                                                                                                 |  |                              |            |   |      |   |             |  
|Accumulated other comprehensive lossforeign currency translation                                |  |                              |           |   |      |   | (35,000     | )
|                                                                                                 |  |                              |            |   |      |   |             |  
|Net increase (decrease) in cash and cash equivalents                                             |  |                              | 922,000    |   |      |   | (3,995,000  | )
|Cash and cash equivalents, beginning of year                                                     |  |                              | 6,293,000  |   |      |   | 11,852,000  |  
|                                                                                                 |  |                              |            |   |      |   |             |  
|Cash and cash equivalents, end of year                                                           |  | $                            | 7,215,000  |   |      | $ | 7,857,000   |  
|                                                                                                 |  |                              |            |   |      |   |             |  



Supplemental disclosure of non-cash
financing activity:



Stock was repurchased by issuing a note payable in the
amount of $10,493,000.



See accompanying notes to consolidated
financial statements.



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Kennedy-Wilson, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2004 and 2003

(Unaudited)



NOTE 1  ACCOUNTING POLICIES



The Companys unaudited interim financial statements have been prepared in conformity with generally accepted accounting principles used in the preparation of the
Companys annual financial statements. In the opinion of the Company, all adjustments, consisting of normal and recurring items, necessary for a fair presentation of the results of operations for the three-month periods ended March 31, 2004 and
2003 have been made. The results of operations for these periods are not necessarily indicative of results that might be expected for the full year. The interim statements are condensed and do not include some of the information necessary for a more
complete understanding of the financial data. Accordingly, your attention is directed to the footnote disclosures found in the Companys 2003 Annual Report on Form 10-K.



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



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



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



REVENUE RECOGNITION  The Companys real estate services revenues are recorded when the related services are performed. In the case of real estate sales
commissions, this generally occurs when the sale closes escrow. Property management fees are recognized over time as earned based upon the terms of the management agreement.



Leasing commission revenues are accounted for in accordance with the provisions of Securities and Exchange Commission (SEC)
Staff Accounting Bulletin 104. Accordingly, leasing commissions that are payable upon tenant occupancy, payment of rent or other events beyond the Companys control are recognized upon the occurrence of such events. In accordance with EITF
99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, the Company records brokerage commission revenues and expenses on a gross basis. Of the criteria listed in the EITF, the Company is the primary obligor in the transaction,
does not have inventory risk, performs all, or part, of the service, has credit risk, and has wide latitude in establishing the price of services rendered and discretion in selection of agents and determination of service specifications.



Residential real estate sales revenue and gains on sale of commercial property are
recognized at the close of escrow when title to the real property passes to the buyer. The Company follows the requirements for profit recognition as set forth by Statement of Financial Accounting Standards No. 66, Accounting for Sales of Real
Estate.



Revenues on notes receivable are recognized on an effective
interest basis under the provisions of Practice Bulletin 6 where cash received is accreted into interest income over the estimated holding period. When the



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##### Table of Contents

future cash flows of a note can not be reasonably estimated, cash payments are applied to the cost basis until fully recovered before any revenue is
recognized.



REAL ESTATE HELD FOR SALE  The Company has classified
separately on the balance sheet the real estate assets which are held for sale. Assets held for sale principally include those which management, having the proper level of authority to effect a plan of disposal, has implemented such plan, which is
likely to result in the sale of the property within one year. In accordance with SFAS 144, the results of the operations of those properties are reported as discontinued operations, net of taxes.



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



The Company evaluates each of its investments in unconsolidated real estate and technology entities on a periodic basis for evidence of
impairment. Impairment losses are recognized whenever events or changes in circumstances indicate declines in value of an investment below carrying value and the related undiscounted cash flows are not sufficient to recover the assets carrying
amount. No impairment losses were recorded by the Company in the three-month periods ended March 31, 2004 and 2003.



In accordance with SEC Staff Accounting Bulletin No. 51 (SAB 51), the Company records gains as a result of equity transactions by its subsidiaries in the
consolidated statements of operations.



GOODWILL  Goodwill is reviewed
for impairment annually in the fourth quarter of each year, and more frequently if there is a triggering event, by Company management in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets. During the three-month periods ended March 31, 2004 and 2003, there were no triggering events identified that would indicate a need of review for impairment.



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



LONG-LIVED ASSETS  The Company reviews long-lived assets, except goodwill, for impairment whenever events or changes in circumstances indicate that an assets carrying value may exceed the undiscounted expected future cash flows
to be derived from that asset. Whenever undiscounted expected future cash flows are less than the carrying value, the asset is reduced to an amount equal to the net present value of the expected future cash flows and an impairment loss is
recognized. The Company evaluates its long-lived assets in the fourth quarter of every year.



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



CAPITALIZED INTEREST  The Company capitalizes interest in accordance with Statement of
Financial Accounting Standards No. 58, Capitalization of Interest Cost in Financial Statements That Include Investments Accounted for Under the Equity Method (an amendment of FASB Statement No. 34), for qualifying equity investments. Interest is
capitalized on investment assets that are undergoing construction or entitlement activities in preparation for their planned principal operations. An appropriate interest rate is applied to the Companys cash investment in the qualifying asset.
The interest is credited against interest expense and added to the basis in the investment. Interest is capitalized when the development or entitlement activity commences and ceases when the investment has begun its planned principal operations.
Interest capitalized during the first quarter of 2004 reduced interest expense by $185,000, compared to a reduction of $616,000 for the first quarter of 2003.



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EARNINGS PER SHARE  Basic earnings per share is computed based upon the weighted average number of shares of common
stock outstanding during the periods presented. Diluted earnings per share is computed based upon the weighted average number of shares of common stock and dilutive securities outstanding during the periods presented. The weighted average number of
shares outstanding for the diluted earnings per share computation also includes the dilutive impact of options and warrants to purchase common stock which were outstanding during the period calculated by the treasury stock method.



RECENT ACCOUNTING PRONOUNCEMENTS  In December 2003, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standard No. 132 (revised 2003), Employers Disclosure about Pensions and Other Postretirement Benefits(SFAS No. 132 Revised), which revised employers
disclosures about pension plans and other postretirement benefit plans. SFAS No. 132 Revised does not change the measurement or recognition of those plans required by Financial Accounting Standards Board Statements No. 87, Employers
Accounting for Pensions, No. 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,and No. 106, Employers Accounting for Postretirement Benefits Other than
Pensions. SFAS No. 132 Revised retains the disclosure requirements contained in Financial Accounting Standards Board Statement No. 132, Employers Disclosures about Pensions and Other Postretirement Benefits,which it replaces. SFAS
No. 132 Revised requires additional disclosures to those in the original statement about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The adoption
of SFAS No. 132 Revised had no impact on the Companys financial position or results of operations.



In December 2002, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB 51 (FIN 46). The primary objectives of FIN 46 are to provide
guidance on the identification of entities for which control is achieved through means other than through voting right (variable interest entities, or VIEs) and how to determine when and which business enterprise should consolidate the VIE (the
primary beneficiary). In December 2003, the FASB modified and issued a revised Interpretation (FIN 46R). FIN 46R clarifies the interpretations scope and also extends the requirement to apply its provisions to investments created
prior to January 31, 2003 until the end of the Companys first quarter in 2004. The Companys implementation of the provisions of FIN 46R did not have a material impact on the Companys financial position or results of operations.



In November 2002, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB
Interpretation No. 34 (FIN 45). FIN 45 requires that upon issuance of a guarantee, the entity must recognize a liability for the fair value of the obligation it assumes under that guarantee. FIN 45 requires disclosure about each
guarantee even if the likelihood of the guarantors having to make any payments under the guarantee is remote. The Company has certain guarantees associated with loans secured by assets held in various joint venture partnerships. The maximum
potential amount of future payments (undiscounted) the Company could be required to make under the guarantees is approximately $29 million. The guarantees expire through 2006 and the Companys performance under the guarantees would be required
to the extent there is a shortfall in liquidation between the principal amount of the loan and the net sales proceeds of the property. The Company also has a leasing guarantee agreement which expires in 2009. The maximum amount that the Company
could be responsible for under the guarantee is approximately $1.9 million. All such guarantees existed at December 31, 2003 and the Company has not recognized any liability for such guarantees at March 31, 2004.



STOCK-BASED EMPLOYEE COMPENSATION  Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure (SFAS 148) amends Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), to provide
alternative methods of transition for a voluntary change from the intrinsic-value-based method of recognizing stock compensation under Accounting Principles Board Opinion No. 25, Accounting



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for Stock Issued to Employees (APB 25), to the SFAS 123 fair-value-based method of accounting for stock-based employee compensation. SFAS
148 also amends SFAS 123 to require more prominent disclosure in interim and annual financial statements of the effect of all stock-based compensation. The Company continues to apply the intrinsic-value method under APB 25 in accounting for its
plans and discloses the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee and non-employee compensation.



In accordance with APB 25 and related interpretations, compensation expense for stock options
is recognized in income based on the excess, if any, of the quoted market price of the stock at the grant date of the award or other measurement date over the amount an employee must pay to acquire the stock. Generally, the exercise price for stock
options granted to employees equals or exceeds the fair market value of the Companys common stock at the date of grant, thereby resulting in no recognition of compensation expense by the Company. For awards that generate compensation expense
as defined under APB 25, the Company calculates the amount of compensation expense and recognizes the expense over the vesting period of the award.



The pro-forma results of expensing the estimated fair value of stock options is as follows:



|                                                                                                                                            |  |                              |           |   |      |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | --------- | - | ---- | - | -------- | -
|                                                                                                                                            |  | Three months ended March 31, |          
|                                                                                                                                            |  | 2004                         |           |   | 2003 |  
|Net income, as reported                                                                                                                     |  | $                            | 1,411,000 |   |      | $ | 746,000  |  
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects                                  |  |                              | 152,000   |   |      |   | 156,000  |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                              | (167,000  | ) |      |   | (183,000 | )
|                                                                                                                                            |  |                              |           |   |      |   |          |  
|Net income, pro-forma                                                                                                                       |  | $                            | 1,396,000 |   |      | $ | 719,000  |  
|                                                                                                                                            |  |                              |           |   |      |   |          |  
|Net income per share:                                                                                                                       |  |                              |           |   |      |   |          |  
|Basic  as reported                                                                                                                         |  | $                            | 0.21      |   |      | $ | 0.08     |  
|Basic  pro-forma                                                                                                                           |  | $                            | 0.21      |   |      | $ | 0.08     |  
|Diluted  as reported                                                                                                                       |  | $                            | 0.20      |   |      | $ | 0.08     |  
|Diluted  pro-forma                                                                                                                         |  | $                            | 0.20      |   |      | $ | 0.08     |  



NOTE
2  NOTES RECEIVABLE



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



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##### Table of Contents

NOTE 3  INVESTMENTS IN JOINT VENTURES



The Company has a number of partnership and joint venture interests, generally ranging from
2% to 50%, that were formed to acquire, manage, develop and/or sell real estate. The Company has significant influence over these entities, but not voting control and accordingly, these investments are accounted for under the equity method.
Investments in joint ventures also include internet investments accounted for under the cost method.



NOTE 4  NOTES PAYABLE



Notes payable were incurred primarily in connection with the acquisition of discounted loan portfolios and in connection with two stock repurchases.



NOTE 5  SENIOR UNSECURED NOTES



During the first quarter of 2004, the Company repaid $1,666,000 of the senior unsecured
notes.



NOTE 6  CAPITAL STOCK
TRANSACTIONS



In January 2004, the Company entered into an agreement with a
former employee to purchase 1,274,237 million shares of the Companys common stock. The Company issued an unsecured note in the amount of $12.5 million, which has a zero percent stated interest and will be paid in eight installments through
March 2007. Using an imputed interest rate of 8% on the note, the present value of the purchase price is approximately $10.5 million.



During the first quarter of 2004, the Company repurchased approximately 360,000 additional shares of its common stock. The total consideration of these share repurchases
was approximately $2 million.



All of the shares repurchased by the Company
have been retired.



NOTE 7 
COMPREHENSIVE INCOME



Comprehensive income consists of net income and other
comprehensive income. Accumulated other comprehensive income consists of foreign currency translation adjustments. During the first quarter of 2004, there was no foreign currency translation adjustment. The tax benefit associated with items included
in other comprehensive income for the Company was $22,000 for the three-month period ended March 31, 2003, which results from the $35,000 (net of tax benefit) foreign currency translation adjustment in the first quarter. The following table provides
a summary of the comprehensive income:



|                                                |  |                             |           |      |   |         |  
|----------------------------------------------- |  | --------------------------- | --------- | ---- | - | ------- | -
|                                                |  | Three months endedMarch 31, |          
|                                                |  | 2004                        |           | 2003 |  
|Net income                                      |  | $                           | 1,411,000 |      | $ | 746,000 |  
|Foreign currency translation loss, net of taxes |  |                             |          |      |   | (35,000 | )
|                                                |  |                             |           |      |   |         |  
|Comprehensive income                            |  | $                           | 1,411,000 |      | $ | 711,000 |  
|                                                |  |                             |           |      |   |         |  



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NOTE 8  SEGMENT INFORMATION



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



The following tables summarize the Companys continuing
operations by segment for the three-month period ended March 31, 2004 and balance sheet data as of March 31, 2004.



|                                                                           |  |                                           |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|-------------------------------------------------------------------------- |  | ----------------------------------------- | ---------- | --------- | - | ----------- |  | --------- | ---------- |  | ------------ | ---------- | - |  | - | ----------- | -
|                                                                           |  | For the three months ended March 31, 2004 |           
|                                                                           |  | PropertyManagement                        |            | Brokerage |   | Investments |  | Corporate |            |  | Consolidated |           
|Property management and leasing fees                                       |  | $                                         | 4,227,000  |           | $ | 216,000     |  |           |            |  |              |            |   |  | $ | 4,443,000   |  
|Commissions                                                                |  |                                           | 939,000    |           |   | 2,047,000   |  | $         | 235,000    |  |              |            |   |  |   | 3,221,000   |  
|Sales of residential real estate                                           |  |                                           |           |           |   |            |  |           | 8,950,000  |  |              |            |   |  |   | 8,950,000   |  
|Interest and other income                                                  |  |                                           |           |           |   |            |  |           | 669,000    |  | $            | 167,000    |   |  |   | 836,000     |  
|                                                                           |  |                                           |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Total revenue                                                              |  |                                           | 5,166,000  |           |   | 2,263,000   |  |           | 9,854,000  |  |              | 167,000    |   |  |   | 17,450,000  |  
|                                                                           |  |                                           |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Cost of real estate sold                                                   |  |                                           |           |           |   |            |  |           | 7,826,000  |  |              |           |   |  |   | 7,826,000   |  
|Operating expenses                                                         |  |                                           | 4,790,000  |           |   | 896,000     |  |           | 399,000    |  |              | 2,897,000  |   |  |   | 8,982,000   |  
|                                                                           |  |                                           |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Total operating expenses                                                   |  |                                           | 4,790,000  |           |   | 896,000     |  |           | 8,225,000  |  |              | 2,897,000  |   |  |   | 16,808,000  |  
|Equity in joint venture income (loss)                                      |  |                                           | 1,371,000  |           |   |            |  |           | 1,194,000  |  |              |           |   |  |   | 2,565,000   |  
|                                                                           |  |                                           |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Total operating income (loss)                                              |  |                                           | 1,747,000  |           |   | 1,367,000   |  |           | 2,823,000  |  |              | (2,730,000 | ) |  |   | 3,207,000   |  
|Non-operating income (expense)                                             |  |                                           |           |           |   |            |  |           |           |  |              | (915,000   | ) |  |   | (915,000    | )
|                                                                           |  |                                           |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Income (loss) from continuing operations before provision for income taxes |  | $                                         | 1,747,000  |           | $ | 1,367,000   |  | $         | 2,823,000  |  | $            | (3,645,000 | ) |  | $ | 2,292,000   |  
|                                                                           |  |                                           |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Total assets                                                               |  | $                                         | 12,991,000 |           | $ | 6,384,000   |  | $         | 86,086,000 |  | $            | 31,110,000 |   |  | $ | 136,571,000 |  
|                                                                           |  |                                           |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  



The following tables summarize the
Companys continuing operations by segment for the three-month periods ended March 31, 2003 and balance sheet data as of March 31, 2003.



|                                                                           |  |                                           |           |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|-------------------------------------------------------------------------- |  | ----------------------------------------- | --------- | --------- | - | ----------- |  | --------- | ---------- |  | ------------ | ---------- | - |  | - | ----------- | -
|                                                                           |  | For the three months ended March 31, 2003 |          
|                                                                           |  | PropertyManagement                        |           | Brokerage |   | Investments |  | Corporate |            |  | Consolidated |           
|Property management and leasing fees                                       |  | $                                         | 4,133,000 |           | $ | 248,000     |  | $         | 324,000    |  | $            | (13,000    | ) |  | $ | 4,692,000   |  
|Commissions                                                                |  |                                           | 439,000   |           |   | 205,000     |  |           | 139,000    |  |              |           |   |  |   | 783,000     |  
|Sale of residential real estate                                            |  |                                           |          |           |   |            |  |           |           |  |              |           |   |  |   |            |  
|Interest and other income                                                  |  |                                           |          |           |   |            |  |           | 700,000    |  |              | (16,000    | ) |  |   | 684,000     |  
|                                                                           |  |                                           |           |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Total revenue                                                              |  |                                           | 4,572,000 |           |   | 453,000     |  |           | 1,163,000  |  |              | (29,000    | ) |  |   | 6,159,000   |  
|                                                                           |  |                                           |           |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Operating expenses                                                         |  |                                           | 4,463,000 |           |   | 381,000     |  |           | 788,000    |  |              | 2,473,000  |   |  |   | 8,105,000   |  
|Equity in joint venture income (loss)                                      |  |                                           |          |           |   | 57,000      |  |           | 509,000    |  |              |           |   |  |   | 566,000     |  
|                                                                           |  |                                           |           |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Total operating income (loss)                                              |  |                                           | 109,000   |           |   | 129,000     |  |           | 884,000    |  |              | (2,502,000 | ) |  |   | (1,380,000  | )
|Non-operating income (expense)                                             |  |                                           |          |           |   |            |  |           |           |  |              | 2,589,000  |   |  |   | 2,589,000   |  
|                                                                           |  |                                           |           |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Income (loss) from continuing operations before provision for income taxes |  | $                                         | 109,000   |           | $ | 129,000     |  | $         | 884,000    |  | $            | 87,000     |   |  | $ | 1,209,000   |  
|                                                                           |  |                                           |           |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Total assets                                                               |  | $                                         | 9,828,000 |           | $ | 5,374,000   |  | $         | 96,950,000 |  | $            | 34,415,000 |   |  | $ | 146,567,000 |  
|                                                                           |  |                                           |           |           |   |             |  |           |            |  |              |            |   |  |   |             |  



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NOTE 9  EARNINGS PER SHARE



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



|                                           |  |                              |           |      |   |          
|------------------------------------------ |  | ---------------------------- | --------- | ---- | - | ---------
|                                           |  | Three months ended March 31,
|                                           |  | 2004                         |           | 2003
|Income from continuing operations          |  | $                            | 1,375,000 |      | $ | 745,000  
|Income from discontinued operations        |  |                              | 36,000    |      |   | 1,000    
|                                           |  |                              |           |      |   |          
|Net income                                 |  | $                            | 1,411,000 |      | $ | 746,000  
|                                           |  |                              |           |      |   |          
|Basic earnings per share:                  |  |                              |           |      |   |          
|Income from continuing operations          |  | $                            | 0.20      |      | $ | 0.08     
|Income (loss) from discontinued operations |  |                              | 0.01      |      |   | 0.00     
|                                           |  |                              |           |      |   |          
|Net income                                 |  | $                            | 0.21      |      | $ | 0.08     
|                                           |  |                              |           |      |   |          
|Weighted average shares                    |  |                              | 6,676,483 |      |   | 9,513,581
|Diluted earnings per share:                |  |                              |           |      |   |          
|Income from continuing operations          |  | $                            | 0.19      |      | $ | 0.08     
|Income from discontinued operations        |  |                              | 0.01      |      |   | 0.00     
|                                           |  |                              |           |      |   |          
|Net income                                 |  | $                            | 0.20      |      | $ | 0.08     
|                                           |  |                              |           |      |   |          
|Weighted average shares                    |  |                              | 6,676,483 |      |   | 9,513,581
|Options and warrants                       |  |                              | 371,928   |      |   | 23,816   
|                                           |  |                              |           |      |   |          
|Total diluted shares                       |  |                              | 7,048,411 |      |   | 9,537,397
|                                           |  |                              |           |      |   |          



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



|                            |  |                             |  |          
|--------------------------- |  | --------------------------- |  | ---------
|                            |  | Three months endedMarch 31,
|                            |  | 2004                        |  | 2003     
|Options                     |  | 162,330                     |  | 884,560  
|Warrants                    |  | 198,039                     |  | 727,727  
|Restricted stock - unvested |  | 901,700                     |  | 1,424,812



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



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.



OVERVIEW



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



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



The investment in Kennedy-Wilson Japan (KWJ) was accounted for on the equity
method during 2003 and the Companys share of the net income of KWJ is included in equity income. During the third quarter of 2003, the Company sold its remaining shares and no longer has an ownership in KWJ.



COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003



Total revenue for the three months ended March 31, 2004 increased to approximately $17.5
million compared to approximately $6.2 million for the three months ended March 31, 2003. Total operating expenses for the three months ended March 31, 2004 were approximately $16.8 million compared to approximately $8.1 million for the same period
in 2003. Net income for the first quarters of 2004 and 2003 was approximately $1.4 million and $746,000, respectively.



REVENUE



Property management and leasing operations generated approximately $4.4 million of revenue (including affiliated joint venture fees of $1.1 million), in the first quarter of 2004, representing 25% of our total revenue, compared to
approximately $4.7 million (including affiliated joint venture fees of approximately $1 million), and 76% of total revenue for the same period in 2003. Property management and leasing revenue declined 5% due, in part, to a decline in leasing
commission revenue, construction management and development fees, and engineering services.



Commission revenue for the first quarter of 2004 was approximately $3.2 million (including affiliated joint venture fees of approximately $1.8 million), representing 18% of total revenue compared to $783,000
(including affiliated joint venture fees of $139,000) and 13% of total revenue for the first quarter of 2003. Commission revenue from third-parties of approximately $1.5 million in the first quarter of 2004 included a commission earned in the amount
of approximately $700,000 from the sale of a large commercial complex compared to commissions earned in 2003 on several smaller transactions. Commissions from related parties were comprised of net acquisition fees on six new real estate investments
in the approximate amount of $1.8 million in the first quarter of 2004 compared to $139,000 for one new investment acquisition during the same period in 2003.



Sales of residential real estate were approximately $9 million in the first three months of 2004. This revenue relates to the sale of 10 lots of an 13-lot undeveloped
residential land parcel located in Thousand Oaks, California. There was no similar revenue in 2003.



Interest and other income increased 22% to $836,000 for the three months ended March 31, 2004, compared to $684,000 for the same period in 2003. Interest and other income includes accretion of discounts on acquired
loan portfolios, interest on corporate notes receivable that are held as a result of investment sales, interest on cash investments and other miscellaneous sources of revenue. The accretion of discounts on loan portfolios are accounted for under the
interest method, which provides that the accretable discount be recorded as interest income over the life of the loans. The increase in revenue is due, for the most part, to the addition of four loan pools purchased since March 2003.



13



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OPERATING EXPENSES



Operating expenses for the first three months of 2004 were approximately $16.8 million compared to approximately $8.1 million for the same period in 2003.



Brokerage commissions and marketing expenses were approximately $1.3 million for the three
months ended March 31, 2004, compared to approximately $879,000 for the same period in 2003. The increase in expense corresponds to the increase in brokerage commission revenue discussed above. Typically, the Company pays out approximately 40% to
60% of the gross commission to brokers and employees.



Cost of residential real
estate sold was $7.8 million for the first quarter of 2004 and relates to the sales of residential real estate discussed above.



Compensation and related expenses were approximately $5.3 million for the first quarter of 2004, compared to approximately $4.3 million for the first quarter of 2003. The
increased expense is primarily related to the accrual of discretionary bonuses during the first quarter of 2004.



General and administrative expenses were approximately $1.8 million for the first quarter of 2004, a decrease of 18% when compared to approximately $2.2 million for the
same period in 2003. This reduction is associated with decreases in legal, rent and consultant expenses. The decrease reflects the Companys commitment to implementing cost effective measures.



Depreciation and amortization expense was $557,000 for the three months ended March 31, 2004,
a decrease of 20% when compared to expense of $694,000 for the same period of 2003. This decrease results from assets becoming fully depreciated since the first quarter of 2003 without significant additions of new depreciable assets during the same
period.



EQUITY IN JOINT VENTURE INCOME



Equity in joint venture income totaled approximately $2.6 million for the first quarter in
2004, compared to $566,000 realized in the first quarter of 2003. Included in the first quarter of 2004 are gains from the sale of two residential apartment projects held in joint ventures that totaled approximately $2.8 million. In the first
quarter of 2003, the Company realized approximately $440,000 in income from its investment in Kennedy Wilson Japan. During the third quarter of 2003, the Company sold all of its stock in Kennedy Wilson Japan so there was no such income realized in
2004.



NON-OPERATING ITEMS



As previously mentioned, the Company sold all of its remaining stock in Kennedy Wilson Japan
during 2003, therefore, there was no gain on the sale of stock of subsidiary in 2004 as compared to approximately $3.5 million for the first quarter of 2003.



Interest expense was $915,000 for the three months ended March 31, 2004, compared to $506,000 during the same period in 2003. While the cash paid for interest expense in
the first quarter in 2004 was slightly less than it was for the same period in 2003, the interest capitalized during the first quarter in 2004 reduced interest expense by $185,000, compared to a reduction of $616,000 for the first quarter of 2003.
The capitalized interest was reduced because two large projects under development became ready for their intended use at the end of 2003 and the capitalization of interest expense ceased. Also, during 2003 the 12% senior unsecured notes were repaid
and the valuation adjustment for the related warrants was eliminated.



There
was no gain or loss on extinguishment of debt during the first three months of 2004, as compared to a loss in the amount of $454,000 related primarily to prepayment penalties and write-off of unamortized capitalized loan fees associated with the
early retirement of a portion of the 12% senior notes payable in the first quarter of 2003.



The provision for income taxes was $735,000 for the first quarter in 2004, compared to approximately $464,000 for the same period in 2003. The effective tax rate for the first quarter of 2004 was 40% as compared to
38% for the same period in 2003.



14



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##### Table of Contents

Loss from discontinued operations for the first quarter of 2004 was $60,000, net of tax benefit, compared to income of
$1,000 for the same period in 2003. The discontinued operations include the results of those properties for which management has implemented a plan of disposal that is likely to result in the sale of the properties within one year.



Gain on disposition of real estate held for sale for the first quarter of 2004 generated
income of $96,000, net of tax expense. This gain related to the sale of a commercial property that had collateralized a non-performing loan upon which the Company foreclosed in 2003.



LIQUIDITY AND CAPITAL RESOURCES



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



Cash used in
operating activities during the three months ended March 31, 2004 was approximately $1.8 million, compared to approximately $2.6 million for the same period in 2003. In 2004, income from operations of approximately $1.4 million is offset by the
exclusion of the gain on sale of real estate held for sale of approximately $1.3 and equity in joint venture income of approximately $2.6 million. Although net income for the first three months of 2003 was $746,000, net cash generated from
operations excludes gains on the sale of the shares of Kennedy-Wilson Japan of approximately $3.5 million, which is included as an investing activity.



Cash provided by investing activities during the three months ended March 31, 2004 was $726,000, compared to approximately $9.2 million of cash used in investing
activities for the same period in 2003. In 2004, the Company had net sales of real estate of approximately $7.7 million, offset by net acquisitions of note pools in the approximate amount of $6.2 million. In 2003, the Company had net acquisitions of
note pools, redemption of joint venture partner in note receivable venture and acquisition of real estate of approximately $16.6 million, offset by approximately $6.2 million in proceeds received from the sale of shares in Kennedy-Wilson Japan and
an increase in cash of approximately $1.5 million as a result of the consolidation of a subsidiary.



Cash provided by financing activities was approximately $2 million for the first three months of 2004, compared to approximately $7.9 million for the same period of 2003. In 2004, the Company had net borrowings of
approximately $4 million, offset by approximately $2 million in repurchases of Company shares. In 2003, the Company had net borrowings of $9.5 million, offset by approximately $1.6 million in repurchases of shares of Company stock.



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



Our need, if any, to raise additional funds to meet our working capital and capital requirements will depend on numerous factors, including
the success and pace of the implementation of our strategy for growth. We regularly monitor capital raising alternatives to be able to take advantage of other available avenues to support our working capital and investment needs, including strategic
partnerships and other alliances, bank borrowings, and the sale of equity or debt securities. We intend to retain earnings to finance our growth and, therefore, do not anticipate paying any dividends.



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##### Table of Contents

|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, 2003.



|Item 4. | CONTROLS AND PROCEDURES
|------- | -----------------------



An evaluation of the effectiveness of the design and operation of Kennedy-Wilson, Inc.s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 was
carried out under the supervision and with the participation of Kennedy-Wilson, Inc.s management, including Kennedy-Wilson, Inc.s Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that Kennedy-Wilson, Inc.s disclosure controls and procedures are effective in timely alerting them to material information relating to Kennedy-Wilson, Inc. required to be included in
Kennedy-Wilson, Inc.s periodic Securities and Exchange Commission filings. There have been no significant changes in Kennedy-Wilson, Inc.s internal controls or in other factors that could significantly affect these controls subsequent to
the evaluation date.



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##### Table of Contents

PART II  OTHER INFORMATION



|Item 2. | CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | --------------------------------------------------------------------------------



ISSUER PURCHASES OF EQUITY SECURITIES



|                  |  |                               |  |                            |      |                                                                               |        |                                                                             |        
|----------------- |  | ----------------------------- |  | -------------------------- | ---- | ----------------------------------------------------------------------------- | ------ | --------------------------------------------------------------------------- | -------
|                  |  | (a)                           |  | (b)                        |      | (c)                                                                           |        | (d)                                                                        
|Period            |  | TotalNumber ofSharesPurchased |  | AveragePrice Paidper Share |      | Total Number of SharesPurchased as Part ofPublicly AnnouncedPlans or Programs |        | Maximum Number ofShares that May Yet BePurchased Under thePlans or Programs
|01/09/0401/30/04 |  | 1,615,557                     |  | $                          | 7.68 |                                                                               | 2,000  |                                                                             | 257,742
|02/02/0402/24/04 |  | 11,600                        |  | $                          | 6.63 |                                                                               | 11,600 |                                                                             | 246,142
|03/09/0403/12/04 |  | 6,800                         |  | $                          | 6.54 |                                                                               | 6,800  |                                                                             | 239,342
|                  |  |                               |  |                            |      |                                                                               |        |                                                                             |        
|Total             |  | 1,633,957                     |  | $                          | 7.67 |                                                                               | 20,400 |                                                                             |        
|                  |  |                               |  |                            |      |                                                                               |        |                                                                             |        



The stock buyback plan
of up to 500,000 shares was announced in June 2003.



|Item 6. | EXHIBITS AND REPORTS ON FORM 8-K
|------- | --------------------------------



(a) Exhibits



The following exhibits are included herein:



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



(b) Reports on Form
8-K



None



SIGNATURE



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



KENNEDY-WILSON, INC.Registrant




|                                                                                                                |  |  |  | 
|--------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Date: May 14, 2004                                                                                              |  |  |  | 
|                                                                                                                |  | 
|/s/    FREEMAN A. LYLE                                                                                          |  |  |  | 
|                                                                                                                |  |  |  | 
|Freeman A. Lyle Executive Vice President & Chief Financial Officer (Principal Financial and Accounting
Officer) |  |  |  | 



17