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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 JUNE 30, 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; 6,651,210 shares outstanding at August 3, 2004.



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KENNEDY-WILSON, INC.



INDEX TO QUARTERLY REPORT ON FORM 10-Q



JUNE 30, 2004



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|           |  |                                                                                                                |  |     
|---------- |  | -------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                                |  | Page
|PART I     |  | Financial Information                                                                                          |  |     
|           |  |                                                                                                               
|Item 1.    |  | Financial Statements                                                                                           |  |     
|           |  |                                                                                                               
|           |  | Consolidated Balance Sheets as of June 30, 2004 (Unaudited) and December 31, 2003                              |  | 3   
|           |  |                                                                                                               
|           |  | Consolidated Statements of Income for the Three-and Six-Month Periods ended June 30, 2004 and 2003 (Unaudited) |  | 4   
|           |  |                                                                                                               
|           |  | Consolidated Statements of Cash Flow for the Six-Month Periods ended June 30, 2004 and 2003 (Unaudited)        |  | 5   
|           |  |                                                                                                               
|           |  | Notes to Consolidated Financial Statements (Unaudited)                                                         |  | 7   
|           |  |                                                                                                               
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                          |  | 15  
|           |  |                                                                                                               
|Item 3.    |  | Quantitative and Qualitative Disclosure about Market Risk                                                      |  | 20  
|           |  |                                                                                                               
|Item 4.    |  | Controls and Procedures                                                                                        |  | 20  
|           |  |                                                                                                               
|PART II    |  | Other Information                                                                                              |  |     
|           |  |                                                                                                               
|Item 1.    |  | Legal Proccedings                                                                                              |  | 20  
|           |  |                                                                                                               
|Item 2.    |  | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities                               |  | 20  
|           |  |                                                                                                               
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                               |  | 21  
|           | 
|SIGNATURES |  | 21                                                                                                            



2



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PART 1  FINANCIAL INFORMATION



|Item 1. | FINANCIAL STATEMENTS
|------- | --------------------



Kennedy-Wilson, Inc. and Subsidiaries

Consolidated Balance Sheets



|                                                                                                                                                                           |  |               |             |   |                  |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                                           |  | June 30, 2004 |             |   | December 31,2003 |  
|                                                                                                                                                                           |  | (Unaudited)   |             |   |                  |  
|Assets                                                                                                                                                                     |  |               |             |   |                  |   |             |  
|Cash and cash equivalents                                                                                                                                                  |  | $             | 8,586,000   |   |                  | $ | 6,293,000   |  
|Accounts receivable                                                                                                                                                        |  |               | 3,510,000   |   |                  |   | 3,691,000   |  
|Notes receivable                                                                                                                                                           |  |               | 31,915,000  |   |                  |   | 27,213,000  |  
|Real estate held for sale                                                                                                                                                  |  |               | 8,789,000   |   |                  |   | 16,969,000  |  
|Investments in joint ventures                                                                                                                                              |  |               | 44,870,000  |   |                  |   | 47,336,000  |  
|Contracts and other assets, net                                                                                                                                            |  |               | 7,376,000   |   |                  |   | 7,796,000   |  
|Goodwill, net                                                                                                                                                              |  |               | 23,965,000  |   |                  |   | 23,965,000  |  
|                                                                                                                                                                           |  |               |             |   |                  |   |             |  
|Total Assets                                                                                                                                                               |  | $             | 129,011,000 |   |                  | $ | 133,263,000 |  
|                                                                                                                                                                           |  |               |             |   |                  |   |             |  
|Liabilities and Stockholders Equity                                                                                                                                       |  |               |             |   |                  |   |             |  
|Liabilities                                                                                                                                                                |  |               |             |   |                  |   |             |  
|Accounts payable                                                                                                                                                           |  | $             | 305,000     |   |                  | $ | 358,000     |  
|Accrued expenses and other liabilities                                                                                                                                     |  |               | 4,379,000   |   |                  |   | 2,634,000   |  
|Accrued salaries and benefits                                                                                                                                              |  |               | 1,850,000   |   |                  |   | 3,643,000   |  
|Deferred and accrued income taxes                                                                                                                                          |  |               | 5,142,000   |   |                  |   | 5,337,000   |  
|Notes payable                                                                                                                                                              |  |               | 33,226,000  |   |                  |   | 21,734,000  |  
|Borrowings under lines of credit                                                                                                                                           |  |               | 23,957,000  |   |                  |   | 16,209,000  |  
|Mortgage loans payable                                                                                                                                                     |  |               | 7,844,000   |   |                  |   | 16,026,000  |  
|Senior unsecured notes                                                                                                                                                     |  |               | 6,667,000   |   |                  |   | 8,333,000   |  
|Subordinated debt                                                                                                                                                          |  |               |            |   |                  |   | 2,773,000   |  
|                                                                                                                                                                           |  |               |             |   |                  |   |             |  
|Total liabilities                                                                                                                                                          |  |               | 83,370,000  |   |                  |   | 77,047,000  |  
|                                                                                                                                                                           |  |               |             |   |                  |   |             |  
|Commitments and Contingencies                                                                                                                                              |  |               |             |   |                  |   |             |  
|Stockholders Equity                                                                                                                                                       |  |               |             |   |                  |   |             |  
|Preferred stock, $0.01 par value: 5,000,000 shares authorized; none issued as of June 30, 2004 and December 31, 2003                                                       |  |               |            |   |                  |   |            |  
|Common stock, $0.01 par value: 50,000,000 shares authorized; 7,138,613 and 8,840,484 shares issued and outstanding as of June 30, 2004 and
December 31, 2003, respectively |  |               | 71,000      |   |                  |   | 88,000      |  
|Additional paid-in capital                                                                                                                                                 |  |               | 33,120,000  |   |                  |   | 46,081,000  |  
|Restricted stock  deferred compensation                                                                                                                                   |  |               | (6,111,000  | ) |                  |   | (6,618,000  | )
|Retained earnings                                                                                                                                                          |  |               | 18,561,000  |   |                  |   | 16,665,000  |  
|                                                                                                                                                                           |  |               |             |   |                  |   |             |  
|Total stockholders equity                                                                                                                                                 |  |               | 45,641,000  |   |                  |   | 56,216,000  |  
|                                                                                                                                                                           |  |               |             |   |                  |   |             |  
|Total Liabilities and Stockholders Equity                                                                                                                                 |  | $             | 129,011,000 |   |                  | $ | 133,263,000 |  
|                                                                                                                                                                           |  |               |             |   |                  |   |             |  



See accompanying notes
to consolidated financial statements.



3



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Kennedy-Wilson, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)



|                                                                                                |  |                             |           |   |                           |   |            |      |  |   |            |   |  |   |            |  
|----------------------------------------------------------------------------------------------- |  | --------------------------- | --------- | - | ------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                |  | Three months ended June 30, |           |   | Six months ended June 30, |  
|                                                                                                |  | 2004                        |           |   | 2003                      |   |            | 2004 |  |   | 2003       |  
|Revenue                                                                                         |  |                             |           |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Property management and leasing fees                                                            |  | $                           | 3,158,000 |   |                           | $ | 3,458,000  |      |  | $ | 6,477,000  |   |  | $ | 7,154,000  |  
|Property management and leasing fees  affiliated joint ventures                                |  |                             | 1,263,000 |   |                           |   | 806,000    |      |  |   | 2,387,000  |   |  |   | 1,802,000  |  
|Commissions                                                                                     |  |                             | 213,000   |   |                           |   |           |      |  |   | 1,681,000  |   |  |   | 644,000    |  
|Commissions  affiliated joints ventures                                                        |  |                             | 1,291,000 |   |                           |   | 709,000    |      |  |   | 3,044,000  |   |  |   | 848,000    |  
|Sales of residential real estate                                                                |  |                             | 1,870,000 |   |                           |   |           |      |  |   | 10,820,000 |   |  |   |           |  
|Interest and other income                                                                       |  |                             | 1,074,000 |   |                           |   | 1,232,000  |      |  |   | 1,910,000  |   |  |   | 1,916,000  |  
|                                                                                                |  |                             |           |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Total revenue                                                                                   |  |                             | 8,869,000 |   |                           |   | 6,205,000  |      |  |   | 26,319,000 |   |  |   | 12,364,000 |  
|                                                                                                |  |                             |           |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Operating Expenses                                                                              |  |                             |           |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Commissions and marketing expenses                                                              |  |                             | 564,000   |   |                           |   | 866,000    |      |  |   | 1,845,000  |   |  |   | 1,745,000  |  
|Compensation and related expenses                                                               |  |                             | 4,140,000 |   |                           |   | 4,634,000  |      |  |   | 9,472,000  |   |  |   | 8,950,000  |  
|General and administrative                                                                      |  |                             | 2,095,000 |   |                           |   | 3,361,000  |      |  |   | 3,907,000  |   |  |   | 5,577,000  |  
|Cost of residential real estate sold                                                            |  |                             | 1,637,000 |   |                           |   |           |      |  |   | 9,463,000  |   |  |   |           |  
|Depreciation and amortization                                                                   |  |                             | 556,000   |   |                           |   | 786,000    |      |  |   | 1,113,000  |   |  |   | 1,480,000  |  
|                                                                                                |  |                             |           |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Total operating expenses                                                                        |  |                             | 8,992,000 |   |                           |   | 9,647,000  |      |  |   | 25,800,000 |   |  |   | 17,752,000 |  
|Equity in joint venture income                                                                  |  |                             | 1,842,000 |   |                           |   | 19,000     |      |  |   | 4,407,000  |   |  |   | 585,000    |  
|                                                                                                |  |                             |           |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Total operating income (loss)                                                                   |  |                             | 1,719,000 |   |                           |   | (3,423,000 | )    |  |   | 4,926,000  |   |  |   | (4,803,000 | )
|Non-operating income (expense)                                                                  |  |                             |           |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Gain on sale of stock of subsidiary                                                             |  |                             |          |   |                           |   | 11,419,000 |      |  |   |           |   |  |   | 14,933,000 |  
|Interest expense                                                                                |  |                             | (858,000  | ) |                           |   | (270,000   | )    |  |   | (1,773,000 | ) |  |   | (776,000   | )
|Valuation adjustment  warrants                                                                 |  |                             |          |   |                           |   |           |      |  |   |           |   |  |   | 35,000     |  
|Loss on extinguishment of debt                                                                  |  |                             |          |   |                           |   | (514,000   | )    |  |   |           |   |  |   | (968,000   | )
|                                                                                                |  |                             |           |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Income from continuing operations before provision for income taxes and discontinued operations |  |                             | 861,000   |   |                           |   | 7,212,000  |      |  |   | 3,153,000  |   |  |   | 8,421,000  |  
|Provision for income taxes                                                                      |  |                             | (344,000  | ) |                           |   | (2,875,000 | )    |  |   | (1,261,000 | ) |  |   | (3,339,000 | )
|                                                                                                |  |                             |           |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Income from continuing operations                                                               |  |                             | 517,000   |   |                           |   | 4,337,000  |      |  |   | 1,892,000  |   |  |   | 5,082,000  |  
|Discontinued operations:                                                                        |  |                             |           |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Income (loss) from discontinued operations, net of tax                                          |  |                             | (10,000   | ) |                           |   | 3,000      |      |  |   | (70,000    | ) |  |   | 4,000      |  
|Gain (loss) on sale of real estate held for sale, net of tax                                    |  |                             | (22,000   | ) |                           |   |           |      |  |   | 74,000     |   |  |   |           |  
|                                                                                                |  |                             |           |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Net Income                                                                                      |  | $                           | 485,000   |   |                           | $ | 4,340,000  |      |  | $ | 1,896,000  |   |  | $ | 5,086,000  |  
|                                                                                                |  |                             |           |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Basic earnings per share                                                                        |  |                             |           |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Income from continuing operations                                                               |  | $                           | 0.09      |   |                           | $ | 0.52       |      |  | $ | 0.31       |   |  | $ | 0.57       |  
|Income (loss) from discontinued operations                                                      |  |                             | (0.01     | ) |                           |   | 0.00       |      |  |   | 0.00       |   |  |   | 0.00       |  
|                                                                                                |  |                             |           |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Net income                                                                                      |  | $                           | 0.08      |   |                           | $ | 0.52       |      |  | $ | 0.31       |   |  | $ | 0.57       |  
|                                                                                                |  |                             |           |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Basic weighted average shares                                                                   |  |                             | 5,942,109 |   |                           |   | 8,421,085  |      |  |   | 6,121,162  |   |  |   | 8,940,037  |  
|Diluted earnings per share                                                                      |  |                             |           |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Income from continuing operations                                                               |  | $                           | 0.08      |   |                           | $ | 0.51       |      |  | $ | 0.28       |   |  | $ | 0.57       |  
|Income (loss) from discontinued operations                                                      |  |                             | 0.00      |   |                           |   | 0.00       |      |  |   | 0.00       |   |  |   | 0.00       |  
|                                                                                                |  |                             |           |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Net income                                                                                      |  | $                           | 0.08      |   |                           | $ | 0.51       |      |  | $ | 0.28       |   |  | $ | 0.57       |  
|                                                                                                |  |                             |           |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Diluted weighted average shares                                                                 |  |                             | 6,642,585 |   |                           |   | 8,473,471  |      |  |   | 6,776,810  |   |  |   | 8,978,217  |  



See accompanying notes
to consolidated financial statements.



4



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Kennedy-Wilson, Inc. and Subsidiaries

Consolidated Statements of Cash Flow

(Unaudited)



|                                                                                                 |  |                           |            |   |      |   |             |  
|------------------------------------------------------------------------------------------------ |  | ------------------------- | ---------- | - | ---- | - | ----------- | -
|                                                                                                 |  | Six months ended June 30, |           
|                                                                                                 |  | 2004                      |            |   | 2003 |  
|Cash flows from operating activities:                                                            |  |                           |            |   |      |   |             |  
|Income from continuing operations                                                                |  | $                         | 1,892,000  |   |      | $ | 5,082,000   |  
|Income (loss) from discontinued operations, net of tax                                           |  |                           | (70,000    | ) |      |   | 4,000       |  
|Gain on disposition of real estate held for sale, net of tax                                     |  |                           | 74,000     |   |      |   |            |  
|Adjustments to reconcile net income to net cash used in operating activities:                    |  |                           |            |   |      |   |             |  
|Depreciation and amortization                                                                    |  |                           | 1,113,000  |   |      |   | 1,480,000   |  
|Gain on sale of real estate held for sale                                                        |  |                           | (1,542,000 | ) |      |   |            |  
|Equity in joint venture income                                                                   |  |                           | (4,407,000 | ) |      |   | (591,000    | )
|Gain on sale of stock of subsidiary                                                              |  |                           |           |   |      |   | (14,933,000 | )
|Valuation adjustment  warrants                                                                  |  |                           |           |   |      |   | (35,000     | )
|Loss on extinguishment of debt  non-cash                                                        |  |                           |           |   |      |   | 394,000     |  
|Amortization of deferred compensation                                                            |  |                           | 507,000    |   |      |   | 507,000     |  
|Change in assets and liabilities:                                                                |  |                           |            |   |      |   |             |  
|Accounts receivable                                                                              |  |                           | 181,000    |   |      |   | 1,140,000   |  
|Contracts and other assets                                                                       |  |                           | (693,000   | ) |      |   | (111,000    | )
|Accounts payable                                                                                 |  |                           | (53,000    | ) |      |   | (157,000    | )
|Accrued expenses and other liabilities                                                           |  |                           | (243,000   | ) |      |   | 1,046,000   |  
|                                                                                                 |  |                           |            |   |      |   |             |  
|Net cash used in operating activities                                                            |  |                           | (3,241,000 | ) |      |   | (6,174,000  | )
|                                                                                                 |  |                           |            |   |      |   |             |  
|Cash flows from investing activities:                                                            |  |                           |            |   |      |   |             |  
|Purchases of notes receivable and redemption of joint venture partner in note receivable venture |  |                           | (9,364,000 | ) |      |   | (12,289,000 | )
|Collections of notes receivable                                                                  |  |                           | 4,662,000  |   |      |   | 8,506,000   |  
|Purchase of contracts and other assets                                                           |  |                           |           |   |      |   | (55,000     | )
|Additions to real estate held for sale                                                           |  |                           | (1,631,000 | ) |      |   |            |  
|Proceeds from the sale of real estate held for sale                                              |  |                           | 11,353,000 |   |      |   |            |  
|Contributions to joint ventures                                                                  |  |                           | (9,243,000 | ) |      |   | (2,957,000  | )
|Distributions from joint ventures                                                                |  |                           | 16,116,000 |   |      |   | 1,399,000   |  
|Proceeds from sale of investment in Kennedy-Wilson Japan                                         |  |                           |           |   |      |   | 26,551,000  |  
|Cash  restricted increase                                                                       |  |                           |           |   |      |   | 42,000      |  
|                                                                                                 |  |                           |            |   |      |   |             |  
|Net cash provided by investing activities                                                        |  |                           | 11,893,000 |   |      |   | 21,197,000  |  
|                                                                                                 |  |                           |            |   |      |   |             |  
|Cash flow from financing activities:                                                             |  |                           |            |   |      |   |             |  
|Borrowings under notes payable                                                                   |  |                           | 9,446,000  |   |      |   | 10,474,000  |  
|Repayment of notes payable                                                                       |  |                           | (8,447,000 | ) |      |   | (12,553,000 | )
|Net borrowings (repayments) under lines of credit                                                |  |                           | 7,748,000  |   |      |   | (8,761,000  | )
|Borrowings under mortgage loans payable                                                          |  |                           | 80,000     |   |      |   |            |  
|Repayment of mortgage loans payable                                                              |  |                           | (8,262,000 | ) |      |   |            |  
|Borrowings under senior unsecured notes                                                          |  |                           |           |   |      |   | 5,000,000   |  
|Repayment of senior unsecured notes                                                              |  |                           | (1,666,000 | ) |      |   | (10,000,000 | )
|Repayment of subordinated debt                                                                   |  |                           | (2,773,000 | ) |      |   |            |  
|Repurchase of common stock                                                                       |  |                           | (2,485,000 | ) |      |   | (5,966,000  | )
|                                                                                                 |  |                           |            |   |      |   |             |  
|Net cash used in financing activities                                                            |  |                           | (6,359,000 | ) |      |   | (21,806,000 | )
|                                                                                                 |  |                           |            |   |      |   |             |  
|Accumulated other comprehensive lossforeign currency translation                                |  |                           |           |   |      |   | (35,000     | )
|                                                                                                 |  |                           |            |   |      |   |             |  
|Net increase (decrease) in cash and cash equivalents                                             |  |                           | 2,293,000  |   |      |   | (6,818,000  | )
|Cash and cash equivalents, beginning of year                                                     |  |                           | 6,293,000  |   |      |   | 11,852,000  |  
|                                                                                                 |  |                           |            |   |      |   |             |  
|Cash and cash equivalents, end of year                                                           |  | $                         | 8,586,000  |   |      | $ | 5,034,000   |  
|                                                                                                 |  |                           |            |   |      |   |             |  



5



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Kennedy-Wilson, Inc. and Subsidiaries

Consolidated Statements of Cash Flow (continued)

(Unaudited)



Supplemental disclosure of non-cash financing activity:



In the first quarter of 2004, stock was repurchased by issuing a note payable in the amount
of $10,493,000.



See accompanying notes to consolidated
financial statements.



6



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Kennedy-Wilson, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three and Six Months ended June 30, 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- and six-month periods ended June 30,
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. Income statement items denominated in foreign currencies are translated at average rates of exchange for the period presented.



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, 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. The Company recognizes revenue on real estate sales in situations where the Company provides financing to the buyer at the
close of escrow when the buyer has made an adequate initial investment, the collectibility of the related financing representing the remainder of the sales price is reasonably assured and the Company has no further obligations with respect to the
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



7



---

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. The depreciation of real estate ceases when the real
estate is classified as being held for sale.



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.



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. No impairment losses were recorded by the Company in the three- and six-month periods ended June 30, 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- and six-month periods ended June 30, 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 three- and six-month periods ended June 30, 2004 reduced interest expense by $187,000 and $372,000,



8



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respectively, compared to a reduction of $644,000 and $1.3 million for the three- and six-month periods ended June 30, 2003, respectively.



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 includes the dilutive impact of restricted stock and 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.



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 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.



9



---

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



|                                                                                                                                            |  |                             |          |   |                           |   |           |      |  |   |           |   |  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | -------- | - | ------------------------- | - | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                                                                                                            |  | Three months ended June 30, |          |   | Six months ended June 30, |  
|                                                                                                                                            |  | 2004                        |          |   | 2003                      |   |           | 2004 |  |   | 2003      |  
|Net income, as reported                                                                                                                     |  | $                           | 485,000  |   |                           | $ | 4,340,000 |      |  | $ | 1,896,000 |   |  | $ | 5,086,000 |  
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects                                  |  |                             | 152,000  |   |                           |   | 152,000   |      |  |   | 304,000   |   |  |   | 304,000   |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                             | (167,000 | ) |                           |   | (178,000  | )    |  |   | (334,000  | ) |  |   | (361,000  | )
|                                                                                                                                            |  |                             |          |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Net income, pro-forma                                                                                                                       |  | $                           | 470,000  |   |                           | $ | 4,314,000 |      |  | $ | 1,866,000 |   |  | $ | 5,029,000 |  
|                                                                                                                                            |  |                             |          |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Net income per share:                                                                                                                       |  |                             |          |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Basic  as reported                                                                                                                         |  | $                           | 0.08     |   |                           | $ | 0.52      |      |  | $ | 0.31      |   |  | $ | 0.57      |  
|Basic  pro-forma                                                                                                                           |  | $                           | 0.08     |   |                           | $ | 0.51      |      |  | $ | 0.30      |   |  | $ | 0.56      |  
|Diluted  as reported                                                                                                                       |  | $                           | 0.08     |   |                           | $ | 0.51      |      |  | $ | 0.28      |   |  | $ | 0.57      |  
|Diluted  pro-forma                                                                                                                         |  | $                           | 0.07     |   |                           | $ | 0.51      |      |  | $ | 0.28      |   |  | $ | 0.56      |  



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.



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. Investments in joint ventures also include internet investments accounted for under the cost method.



During the second quarter of 2004, the Company entered into several joint venture investments
described as follows: 1) a 324-unit apartment project, 76-unit apartment project and an adjacent 6-acre parcel of land held for future development in San Antonio, Texas, 2) a 624-unit apartment project located in Rancho Cucamonga, California, and 3)
a note receivable collateralized by a 92-acre residential development in Texas that was platted and engineered for 301 single-family residential lots.



Also in the second quarter of 2004, the Company refinanced an investment held in a joint venture and received cash in excess of the Companys basis in the investment
in the amount of $1,675,000, which is included in accrued expenses and other liabilities.



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 $34 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.



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.



10



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NOTE 5  SENIOR UNSECURED NOTES



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



NOTE 6  SUBORDINATED DEBT



During the second quarter of 2004, the Company repaid its subordinated debt
in the amount of $2,773,000.



NOTE 7 
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 three- and six-month periods ended June 30, 2004, the Company repurchased approximately 67,000 and 427,000 additional shares of its common stock, respectively,
for total consideration of $447,000 and $2,485,000, respectively.



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



NOTE 8  COMPREHENSIVE INCOME



Comprehensive income consists of
net income and other comprehensive income. Accumulated other comprehensive income consists of foreign currency translation adjustments. During the three- and six-month periods ended June 30, 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- and six-month periods ended June 30, 2003, which results from the $35,000 (net of tax benefit) foreign currency
translation adjustment in the first quarter of 2003. The following table provides a summary of the comprehensive income:



|                                                |  |                            |         |                          |   |           |  |      |           |  |   |           |  
|----------------------------------------------- |  | -------------------------- | ------- | ------------------------ | - | --------- |  | ---- | --------- |  | - | --------- | -
|                                                |  | Three months endedJune 30, |         | Six months endedJune 30, |  
|                                                |  | 2004                       |         | 2003                     |   | 2004      |  | 2003 |          
|Net income                                      |  | $                          | 485,000 |                          | $ | 4,340,000 |  | $    | 1,896,000 |  | $ | 5,086,000 |  
|Foreign currency translation loss, net of taxes |  |                            |        |                          |   |          |  |      |          |  |   | (35,000   | )
|                                                |  |                            |         |                          |   |           |  |      |           |  |   |           |  
|Comprehensive income                            |  | $                          | 485,000 |                          | $ | 4,340,000 |  | $    | 1,896,000 |  | $ | 5,051,000 |  
|                                                |  |                            |         |                          |   |           |  |      |           |  |   |           |  



11



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NOTE 9  SEGMENT INFORMATION



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



The following tables summarize the Companys continuing
operations by segment for the three- and six-month periods ended June 30, 2004 and balance sheet data as of June 30, 2004:



|                                                                           |  |                                  |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|-------------------------------------------------------------------------- |  | -------------------------------- | ---------- | --------- | - | ----------- |  | --------- | ---------- |  | ------------ | ---------- | - |  | - | ----------- | -
|                                                                           |  | Three months ended June 30, 2004 |           
|                                                                           |  | PropertyManagement               |            | Brokerage |   | Investments |  | Corporate |            |  | Consolidated |           
|Property management and leasing fees                                       |  | $                                | 4,269,000  |           | $ | 152,000     |  | $         |           |  | $            |           |   |  | $ | 4,421,000   |  
|Commissions                                                                |  |                                  | 1,143,000  |           |   | 328,000     |  |           | 33,000     |  |              |           |   |  |   | 1,504,000   |  
|Sales of residential real estate                                           |  |                                  |           |           |   |            |  |           | 1,870,000  |  |              |           |   |  |   | 1,870,000   |  
|Interest and other income                                                  |  |                                  | 254,000    |           |   |            |  |           | 810,000    |  |              | 10,000     |   |  |   | 1,074,000   |  
|                                                                           |  |                                  |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Total revenue                                                              |  |                                  | 5,666,000  |           |   | 480,000     |  |           | 2,713,000  |  |              | 10,000     |   |  |   | 8,869,000   |  
|                                                                           |  |                                  |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Cost of real estate sold                                                   |  |                                  |           |           |   |            |  |           | 1,637,000  |  |              |           |   |  |   | 1,637,000   |  
|Operating expenses                                                         |  |                                  | 4,526,000  |           |   | 429,000     |  |           | 404,000    |  |              | 1,996,000  |   |  |   | 7,355,000   |  
|                                                                           |  |                                  |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Total operating expenses                                                   |  |                                  | 4,526,000  |           |   | 429,000     |  |           | 2,041,000  |  |              | 1,996,000  |   |  |   | 8,992,000   |  
|Equity in joint venture income (loss)                                      |  |                                  | 109,000    |           |   |            |  |           | 1,733,000  |  |              |           |   |  |   | 1,842,000   |  
|                                                                           |  |                                  |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Total operating income (loss)                                              |  |                                  | 1,249,000  |           |   | 51,000      |  |           | 2,405,000  |  |              | (1,986,000 | ) |  |   | 1,719,000   |  
|Non-operating income (expense)                                             |  |                                  |           |           |   |            |  |           |           |  |              | (858,000   | ) |  |   | (858,000    | )
|                                                                           |  |                                  |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Income (loss) from continuing operations before provision for income taxes |  | $                                | 1,249,000  |           | $ | 51,000      |  | $         | 2,405,000  |  | $            | (2,844,000 | ) |  | $ | 861,000     |  
|                                                                           |  |                                  |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|                                                                           | 
|                                                                           |  | Six months ended June 30, 2004   |           
|                                                                           |  | PropertyManagement               |            | Brokerage |   | Investments |  | Corporate |            |  | Consolidated |           
|Property management and leasing fees                                       |  | $                                | 8,496,000  |           | $ | 368,000     |  | $         |           |  | $            |           |   |  | $ | 8,864,000   |  
|Commissions                                                                |  |                                  | 2,082,000  |           |   | 2,375,000   |  |           | 268,000    |  |              |           |   |  |   | 4,725,000   |  
|Sales of residential real estate                                           |  |                                  |           |           |   |            |  |           | 10,820,000 |  |              |           |   |  |   | 10,820,000  |  
|Interest and other income                                                  |  |                                  | 254,000    |           |   |            |  |           | 1,479,000  |  |              | 177,000    |   |  |   | 1,910,000   |  
|                                                                           |  |                                  |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Total revenue                                                              |  |                                  | 10,832,000 |           |   | 2,743,000   |  |           | 12,567,000 |  |              | 177,000    |   |  |   | 26,319,000  |  
|                                                                           |  |                                  |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Cost of real estate sold                                                   |  |                                  |           |           |   |            |  |           | 9,463,000  |  |              |           |   |  |   | 9,463,000   |  
|Operating expenses                                                         |  |                                  | 9,316,000  |           |   | 1,325,000   |  |           | 803,000    |  |              | 4,893,000  |   |  |   | 16,337,000  |  
|                                                                           |  |                                  |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Total operating expenses                                                   |  |                                  | 9,316,000  |           |   | 1,325,000   |  |           | 10,266,000 |  |              | 4,893,000  |   |  |   | 25,800,000  |  
|Equity in joint venture income (loss)                                      |  |                                  | 1,480,000  |           |   |            |  |           | 2,927,000  |  |              |           |   |  |   | 4,407,000   |  
|                                                                           |  |                                  |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Total operating income (loss)                                              |  |                                  | 2,996,000  |           |   | 1,418,000   |  |           | 5,228,000  |  |              | (4,716,000 | ) |  |   | 4,926,000   |  
|Non-operating income (expense)                                             |  |                                  |           |           |   |            |  |           |           |  |              | (1,773,000 | ) |  |   | (1,773,000  | )
|                                                                           |  |                                  |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Income (loss) from continuing operations before provision for income taxes |  | $                                | 2,996,000  |           | $ | 1,418,000   |  | $         | 5,228,000  |  | $            | (6,489,000 | ) |  | $ | 3,153,000   |  
|                                                                           |  |                                  |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  
|Total assets                                                               |  | $                                | 6,552,000  |           | $ | 6,515,000   |  | $         | 84,343,000 |  | $            | 31,601,000 |   |  | $ | 129,011,000 |  
|                                                                           |  |                                  |            |           |   |             |  |           |            |  |              |            |   |  |   |             |  



12



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The following tables summarize the Companys continuing operations by segment for the three- and six-month periods
ended June 30, 2003 and balance sheet data as of June 30, 2003:



|                                                                           |  |                                  |           |   |           |   |           |             |  |   |            |   |  |              |            |   |  |   |             |  
|-------------------------------------------------------------------------- |  | -------------------------------- | --------- | - | --------- | - | --------- | ----------- |  | - | ---------- | - |  | ------------ | ---------- | - |  | - | ----------- | -
|                                                                           |  | Three months ended June 30, 2003 |          
|                                                                           |  | PropertyManagement               |           |   | Brokerage |   |           | Investments |  |   | Corporate  |   |  | Consolidated |           
|Property management and leasing fees                                       |  | $                                | 3,996,000 |   |           | $ | 243,000   |             |  | $ | (21,000    | ) |  | $            | 46,000     |   |  | $ | 4,264,000   |  
|Commissions                                                                |  |                                  | 854,000   |   |           |   | (145,000  | )           |  |   |           |   |  |              |           |   |  |   | 709,000     |  
|Interest and other income                                                  |  |                                  |          |   |           |   |          |             |  |   | 1,190,000  |   |  |              | 42,000     |   |  |   | 1,232,000   |  
|                                                                           |  |                                  |           |   |           |   |           |             |  |   |            |   |  |              |            |   |  |   |             |  
|Total revenue                                                              |  |                                  | 4,850,000 |   |           |   | 98,000    |             |  |   | 1,169,000  |   |  |              | 88,000     |   |  |   | 6,205,000   |  
|                                                                           |  |                                  |           |   |           |   |           |             |  |   |            |   |  |              |            |   |  |   |             |  
|Operating expenses                                                         |  |                                  | 4,242,000 |   |           |   | 369,000   |             |  |   | 862,000    |   |  |              | 4,174,000  |   |  |   | 9,647,000   |  
|Equity in joint venture income (loss)                                      |  |                                  | (102,000  | ) |           |   | 100,000   |             |  |   | 21,000     |   |  |              |           |   |  |   | 19,000      |  
|                                                                           |  |                                  |           |   |           |   |           |             |  |   |            |   |  |              |            |   |  |   |             |  
|Total operating income (loss)                                              |  |                                  | 506,000   |   |           |   | (171,000  | )           |  |   | 328,000    |   |  |              | (4,086,000 | ) |  |   | (3,423,000  | )
|Non-operating income (expense)                                             |  |                                  | 75,000    |   |           |   |          |             |  |   | (75,000    | ) |  |              | 10,635,000 |   |  |   | 10,635,000  |  
|                                                                           |  |                                  |           |   |           |   |           |             |  |   |            |   |  |              |            |   |  |   |             |  
|Income (loss) from continuing operations before provision for income taxes |  | $                                | 581,000   |   |           | $ | (171,000  | )           |  | $ | 253,000    |   |  | $            | 6,549,000  |   |  | $ | 7,212,000   |  
|                                                                           |  |                                  |           |   |           |   |           |             |  |   |            |   |  |              |            |   |  |   |             |  
|                                                                           | 
|                                                                           |  | Six months ended June 30, 2003   |          
|                                                                           |  | PropertyManagement               |           |   | Brokerage |   |           | Investments |  |   | Corporate  |   |  | Consolidated |           
|Property management and leasing fees                                       |  | $                                | 8,381,000 |   |           | $ | 491,000   |             |  | $ | 51,000     |   |  | $            | 33,000     |   |  | $ | 8,956,000   |  
|Commissions                                                                |  |                                  | 1,293,000 |   |           |   | 60,000    |             |  |   | 139,000    |   |  |              |           |   |  |   | 1,492,000   |  
|Interest and other income                                                  |  |                                  |          |   |           |   |          |             |  |   | 1,890,000  |   |  |              | 26,000     |   |  |   | 1,916,000   |  
|                                                                           |  |                                  |           |   |           |   |           |             |  |   |            |   |  |              |            |   |  |   |             |  
|Total revenue                                                              |  |                                  | 9,674,000 |   |           |   | 551,000   |             |  |   | 2,080,000  |   |  |              | 59,000     |   |  |   | 12,364,000  |  
|                                                                           |  |                                  |           |   |           |   |           |             |  |   |            |   |  |              |            |   |  |   |             |  
|Operating expenses                                                         |  |                                  | 8,943,000 |   |           |   | 750,000   |             |  |   | 1,412,000  |   |  |              | 6,647,000  |   |  |   | 17,752,000  |  
|Equity in joint venture income (loss)                                      |  |                                  | (77,000   | ) |           |   | 157,000   |             |  |   | 505,000    |   |  |              |           |   |  |   | 585,000     |  
|                                                                           |  |                                  |           |   |           |   |           |             |  |   |            |   |  |              |            |   |  |   |             |  
|Total operating income (loss)                                              |  |                                  | 654,000   |   |           |   | (42,000   | )           |  |   | 1,173,000  |   |  |              | (6,588,000 | ) |  |   | (4,803,000  | )
|Non-operating income                                                       |  |                                  |          |   |           |   |          |             |  |   |           |   |  |              | 13,224,000 |   |  |   | 13,224,000  |  
|                                                                           |  |                                  |           |   |           |   |           |             |  |   |            |   |  |              |            |   |  |   |             |  
|Income (loss) from continuing operations before provision for income taxes |  | $                                | 654,000   |   |           | $ | (42,000   | )           |  | $ | 1,173,000  |   |  | $            | 6,636,000  |   |  | $ | 8,421,000   |  
|                                                                           |  |                                  |           |   |           |   |           |             |  |   |            |   |  |              |            |   |  |   |             |  
|Total assets                                                               |  | $                                | 9,238,000 |   |           | $ | 3,906,000 |             |  | $ | 75,853,000 |   |  | $            | 25,078,000 |   |  | $ | 114,075,000 |  
|                                                                           |  |                                  |           |   |           |   |           |             |  |   |            |   |  |              |            |   |  |   |             |  



13



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NOTE 10  EARNINGS PER SHARE



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



|                                           |  |                             |           |                           |      |   |           |  |      |           |  |   |          
|------------------------------------------ |  | --------------------------- | --------- | ------------------------- | ---- | - | --------- |  | ---- | --------- |  | - | ---------
|                                           |  | Three months ended June 30, |           | Six months ended June 30,
|                                           |  | 2004                        |           |                           | 2003 |   | 2004      |  | 2003
|Income from continuing operations          |  | $                           | 517,000   |                           |      | $ | 4,337,000 |  | $    | 1,892,000 |  | $ | 5,082,000
|Income (loss) from discontinued operations |  |                             | (32,000   | )                         |      |   | 3,000     |  |      | 4,000     |  |   | 4,000    
|                                           |  |                             |           |                           |      |   |           |  |      |           |  |   |          
|Net income                                 |  | $                           | 485,000   |                           |      | $ | 4,340,000 |  | $    | 1,896,000 |  | $ | 5,086,000
|                                           |  |                             |           |                           |      |   |           |  |      |           |  |   |          
|Basic earnings per share:                  |  |                             |           |                           |      |   |           |  |      |           |  |   |          
|Income from continuing operations          |  | $                           | 0.09      |                           |      | $ | 0.52      |  | $    | 0.31      |  | $ | 0.57     
|Income (loss) from discontinued operations |  |                             | (0.01     | )                         |      |   | 0.00      |  |      | 0.00      |  |   | 0.00     
|                                           |  |                             |           |                           |      |   |           |  |      |           |  |   |          
|Net income                                 |  | $                           | 0.08      |                           |      | $ | 0.52      |  | $    | 0.31      |  | $ | 0.57     
|                                           |  |                             |           |                           |      |   |           |  |      |           |  |   |          
|Weighted average shares                    |  |                             | 5,942,109 |                           |      |   | 8,421,085 |  |      | 6,121,162 |  |   | 8,940,037
|Diluted earnings per share:                |  |                             |           |                           |      |   |           |  |      |           |  |   |          
|Income from continuing operations          |  | $                           | 0.08      |                           |      | $ | 0.51      |  | $    | 0.28      |  | $ | 0.57     
|Income (loss) from discontinued operations |  |                             | 0.00      |                           |      |   | 0.00      |  |      | 0.00      |  |   | 0.00     
|                                           |  |                             |           |                           |      |   |           |  |      |           |  |   |          
|Net income                                 |  | $                           | 0.08      |                           |      | $ | 0.51      |  | $    | 0.28      |  | $ | 0.57     
|                                           |  |                             |           |                           |      |   |           |  |      |           |  |   |          
|Weighted average shares                    |  |                             | 5,942,109 |                           |      |   | 8,421,085 |  |      | 6,121,162 |  |   | 8,940,037
|Restricted stock - unvested                |  |                             | 319,916   |                           |      |   |          |  |      | 279,367   |  |   |         
|Options and warrants                       |  |                             | 380,560   |                           |      |   | 52,386    |  |      | 376,281   |  |   | 38,180   
|                                           |  |                             |           |                           |      |   |           |  |      |           |  |   |          
|Total diluted shares                       |  |                             | 6,642,585 |                           |      |   | 8,473,471 |  |      | 6,776,810 |  |   | 8,978,217
|                                           |  |                             |           |                           |      |   |           |  |      |           |  |   |          



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



|                            |  |                            |  |                           |  |         |  |          
|--------------------------- |  | -------------------------- |  | ------------------------- |  | ------- |  | ---------
|                            |  | Three months endedJune 30, |  | Six months ended June 30,
|                            |  | 2004                       |  | 2003                      |  | 2004    |  | 2003     
|Restricted stock - unvested |  | 909,360                    |  | 1,424,276                 |  | 974,284 |  | 1,448,514
|Options                     |  | 124,830                    |  | 547,270                   |  | 124,830 |  | 714,983  
|Warrants                    |  | 198,039                    |  | 727,727                   |  | 198,039 |  | 727,727  



NOTE
11  SUBSEQUENT EVENTS



In July 2004, the Company agreed to acquire from
an institutional investor 1,018,900 shares of the Companys common stock for a total purchase price of $7.9 million. On July 26, 2004 the Company bought 500,000 of these shares for approximately $3.9 million. The purchase of the remaining
shares will occur in installments through December 2004, or sooner at the Companys option.



In July 2004, the Company entered into a loan agreement for borrowings of up to $5.0 million, which matures in July 2005. The interest rate is variable and set at prime, 4.25% on the initial advance.



14



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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 was included in equity income. During the third quarter of 2003, the Company sold its remaining shares and no longer has an ownership interest in KWJ.



COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003



Total operating revenue for the three months ended June 30, 2004 increased
43% to $8.9 million compared to $6.2 million for the three months ended June 30, 2003. Total operating expenses for the three months ended June 30, 2004 decreased 6.8% to $9.0 million compared to $9.6 million for the same period in 2003. Net income
for the second quarters of 2004 and 2003 was $485,000 and $4.3 million, respectively.



REVENUE



Property management and leasing operations generated $4.4 million of revenue (including related party fees of $1.3 million), in the second quarter of 2004, representing
49.9% of total revenue, compared to $4.3 million (including related party fees of $806,000), and 68.7% of total revenue for the same period in 2003. During the second quarter of 2004, property management revenue, which includes property management
and leasing revenue, asset management, construction management, and engineering services, increased 3.7% compared to the second quarter of 2003 due to additional property management assignments, particularly those generated by the Companys
joint venture investments.



Brokerage commission revenue for the second quarter
of 2004 was $1.5 million (including related party fees of $1.3 million), representing 17% of total revenue compared to $709,000 (all of which were related party fees) and 11.4% of total revenue for the second quarter of 2003. Commission revenue for
the second quarter of 2004 increased 112% compared to commission revenue generated during the same period of 2003 primarily due to acquisition fees earned from joint venture investments.



15



---

Sales of residential real estate were $1.9 million for the three months ended June 30, 2004 representing the sale of two
of the remaining three lots of a 13-lot undeveloped residential land parcel located in Thousand Oaks, California. There was no similar revenue in 2003.



Interest and other income totaled $1.1 million for the three months ended June 30, 2004, representing 12.1% of total revenue compared to $1.2 million and 19.9% of total
revenue for the same period in 2003. This decrease related to fewer note settlements during the second quarter of 2004 as compared to the same period of 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.



OPERATING EXPENSES



Brokerage commissions and marketing expenses were $564,000 for the three months ended June 30, 2004, compared to $866,000 for the same period in 2003 due to a decrease in
payment of brokerage sales commissions. Typically, the Company pays out 40% to 60% of the gross commission to brokers and employees.



Compensation and related expenses were $4.1 million for the second quarter of 2004, a decrease of 10.7% when compared to $4.6 million for the second quarter of 2003. The
higher cost during the second quarter of 2003 related to discretionary bonuses paid during the period.



General and administrative expenses decreased 37.7% to $2.1 million for the second quarter of 2004, compared to $3.4 million in the same period in 2003. During the second quarter of 2003, the Company incurred
non-recurring legal expense for the settlement of disputes relating to a development project and an employment contract. There were no such expenses incurred during the second quarter of 2004.



Cost of residential real estate sold was $1.6 million for the second quarter of 2004 and
relates to the sales of residential real estate discussed above.



Depreciation
and amortization expense decreased 29.3% to $556,000 for the three months ended June 30, 2004, as compared to $786,000 for the same period in 2003. The decrease results from assets becoming fully depreciated since the second 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 $1.8 million for the second quarter of 2004, compared to $19,000 realized in the second quarter of 2003. Equity income for the second quarter of 2004 included $1.6 million related to the sale of a commercial building in
Los Angeles which the Company held in a joint venture investment. During the second quarter of 2003 the Company realized $170,000 from its investment in Kennedy-Wilson Japan.



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 $11.4 million for the second quarter of 2003.



Interest expense was $858,000 for the three months ended June 30, 2004, compared to $270,000 during the same period in 2003. While the cash paid for interest expense in the second quarter of 2004 was higher than it
was for the same period of 2003, the interest capitalized during the second quarter of 2004 reduced interest expense by $187,000 compared to a reduction of $644,000 for the second 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.



16



---

There was no loss on extinguishment of debt during the second quarter of 2004, as compared to a loss in the amount of
$514,000 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 second quarter of 2003.



The provision for income taxes was $344,000 for the second quarter of 2004, compared to $2.9
million for the same period in 2003. The higher provision in 2003 related to the increased income resulting primarily from the gain on the sale of the Japan subsidiarys shares of stock. The effective tax rate for the second quarters of both
2004 and 2003 was 40%.



Loss from discontinued operations for the second
quarter of 2004 was $10,000, net of tax benefit, compared to income of $3,000, net of taxes, 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.



The
disposition of real estate held for sale resulted in a loss of $22,000 for the second quarter of 2004, net of tax benefit. This loss related to the sale of a property that had collateralized a non-performing loan upon which the Company foreclosed in
2003.



COMPARISON OF THE SIX MONTHS ENDED JUNE
30, 2004 AND 2003



Total revenue for the six months ended June 30, 2004
increased 113% to $26.3 million, as compared to $12.4 million for the six months ended June 30, 2003. Total operating expenses for the six months ended June 30, 2004 were $25.8 million compared to $17.8 million for the same period in 2003. Net
income for the six months ended June 30, 2004 was $1.9 million, compared to $5.1 million for the same period in 2003.



REVENUE



Property management and leasing operations generated $8.9 million of revenue (including $2.4 million of related party fees) in the first six months of 2004, representing
33.7% of total revenue as compared to $9.0 million (including $1.8 million in related party fees) and 72.4% of total revenue for the same period in 2003.



Brokerage commission revenue for the first six months of 2004 was $4.7 million (including $3.0 million of related party fees) representing 18% of total revenue, compared
to brokerage commission revenue for the same period of 2003 of $1.5 million (including $848,000 of related party fees) representing 12.1 % of total revenue. The increase was due to a commission generated from the sale of a commercial development,
several acquisition fees related to properties acquired in joint venture investments and the sales commission related to the sale of a joint venture investment.



Sales of residential real estate were $10.8 million in the first six months of 2004. This revenue relates to the sale of 12 lots of a 13-lot undeveloped residential
land parcel located in Thousand Oaks, California. There was no similar revenue in 2003.



Interest and other income for the first six months of both 2004 and 2003 totaled $1.9 million. 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.



OPERATING EXPENSES



Brokerage commissions and marketing expenses were
$1.8 million for the six months ended June 30, 2004 compared to $1.7 million during the same period in 2003.



17



---

Compensation and related expenses were $9.5 million for the first six months of 2004 representing a 5.8% increase from
$9.0 million for the same period 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 $3.9 million for the first six months of 2004, compared to $5.6 million of expense during the same period in 2003. The
increased expense during the first six months of 2003 related to non-recurring legal expense for the settlement of disputes relating to a development project and an employment contract.



Cost of residential real estate sold was $9.5 million for the first six months of 2004 and relates to the sales of residential real estate
discussed above.



Depreciation and amortization expense was $1.1 million for
the six months ended June 30, 2004 compared to $1.5 million during the same period of 2003. Most of the change results from assets becoming fully depreciated during 2003 without significant additions of new depreciable assets during 2004.



EQUITY IN JOINT VENTURE INCOME



Equity in joint venture income totaled $4.4 million for the first six months of 2004
compared to $585,000 realized in the same period of 2003. For 2004 the equity income related to the sale of two apartment projects and one commercial building held in joint venture investments compared to no sales during the same period in 2003.
During the first six months of 2003, the Company realized $610,000 in income from its investment in Kennedy-Wilson Japan.



NON-OPERATING ITEMS



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
$14.9 million for the first six months of 2003.



Interest expense was $1.8
million for the first six months of 2004, compared to $776,000 during the same period in 2003. Cash paid for interest expense during the first six months of 2004 was higher than cash paid for interest expense during the first six months of 2003,
however, the interest capitalized during the first six months of 2004 reduced interest expense by $372,000 compared to a reduction of $1.3 million for the same period in 2003.



The provision for income taxes was $1.3 million for the first six months of 2004, compared to $3.3 million for the same period of 2003 due
to the decrease in income before taxes.



Loss from discontinued operations for
the first six months of 2004 was $70,000, net of tax benefit, compared to income of $4,000, net of taxes, for the same period in 2003. The discontinued operations included 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 six months of 2004 generated income of $74,000, net of taxes. This gain related to the sale of two commercial properties that had collateralized non-performing loans upon which
the Company foreclosed in 2003.



18



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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 six months ended June 30, 2004 was $3.2 million, compared to $6.2 million for the same period in 2003. In 2004, income from
operations of $1.9 million is offset by the exclusion of the gain on sale of real estate held for sale of $1.5 and equity in joint venture income of $4.4 million. Although net income for the first six months of 2003 was $5.1 million, net cash
generated from operations excludes gains on the sale of the shares of Kennedy-Wilson Japan of $14.9 million, which is included as an investing activity.



Cash provided by investing activities during the six months ended June 30, 2004 was $11.9 million, compared to $21.2 million for the same period in 2003. In 2004, the
Company received net proceeds from sales of real estate of $9.7 million and net distributions from joint ventures of $6.9 million, offset by net acquisitions of note pools in the amount of $4.7 million. In 2003, the Company received $26.6 million in
proceeds from the sale of shares in Kennedy-Wilson Japan, offset by the acquisitions of note pools, redemption of a joint venture partner in a note receivable venture and net contributions to joint ventures of $5.3 million.



Cash used in financing activities was $6.4 million for the first six months of 2004, compared
to $21.8 million for the same period of 2003. In 2004, the Company had net repayment of borrowings of $3.9 million and $2.5 million in repurchases of shares of Company stock. In 2003, the Company had net repayment of borrowings of $15.8 million and
$6.0 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.



Our contractual commitments related to debt
maturities are consistent with those described in the Companys Form 10-K for the year ended December 31, 2003.



19



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|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 in 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 the Companys disclosure controls and procedures (as defined in Exchange Act Rule 13a-15 and
15(d)-15) as of the end of the period covered by this report was carried out under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be
included in the Companys periodic Securities and Exchange Commission filings. There have been no significant changes in the Companys internal controls or in other factors that could significantly affect these controls subsequent to the
evaluation date.



PART II  OTHER INFORMATION



|Item 1. | LEGAL PROCEEDINGS
|------- | -----------------



On April 26, 2004, Paul Senior (Senior) filed a shareholder derivative suit in the Superior Court of the State of California, County of Los Angeles on behalf of the Company against the Companys
current Board of Directors and three former members of the Board of Directors. The Senior complaint alleges, among other things, that the defendants breached their fiduciary duties to the Company and wasted corporate assets and seeks declaratory
relief, compensatory damages, the imposition of a constructive trust, injunctive relief and attorneys fees and costs. The parties to the lawsuit have engaged in settlement negotiations over the course of the past two months. Although there can
be no assurance that a settlement will be reached, we do not believe that an unfavorable outcome of the dispute would have a material adverse effect on the Companys results of operations, liquidity or financial position. The Company believes
the claims are without merit and is prepared to vigorously defend the action if a settlement cannot be reached.



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



ISSUER PURCHASES OF EQUITY SECURITIES (1)



|                    |  |                                   |  |                                |      |                                                                                   |        |                                                                                 |        
|------------------- |  | --------------------------------- |  | ------------------------------ | ---- | --------------------------------------------------------------------------------- | ------ | ------------------------------------------------------------------------------- | -------
|Period              |  | (a) TotalNumber ofSharesPurchased |  | (b) AveragePrice Paidper Share |      | (c) Total Number of SharesPurchased as Part of PubliclyAnnounced Plans orPrograms |        | (d) Maximum Number ofShares that May Yet BePurchased Under thePlans or Programs
|04/01/04  04/30/04 |  | 15,309                            |  | $                              | 6.74 |                                                                                   | 15,309 |                                                                                 | 224,033
|05/01/04  05/31/04 |  | 34,005                            |  | $                              | 6.52 |                                                                                   | 34,005 |                                                                                 | 190,028
|06/01/04  06/30/04 |  | 18,600                            |  | $                              | 6.81 |                                                                                   | 18,600 |                                                                                 | 171,428
|                    |  |                                   |  |                                |      |                                                                                   |        |                                                                                 |        
|Total               |  | 67,914                            |  | $                              | 6.65 |                                                                                   | 67,914 |                                                                                 |        
|                    |  |                                   |  |                                |      |                                                                                   |        |                                                                                 |        



|(1) | In June 2003, our Board of Directors approved a common stock repurchase program allowing us
to purchase 500,000 shares of our common stock from time to time in the open market and in negotiated transactions.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20



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|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



Form 8-K dated May 10, 2004 and filed on May 12, 2004,
reporting a press release announcing the Companys results for the quarter ended March 31, 2004.



SIGNATURES



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: August 12, 2004                             
|                                                  
|/s/ Freeman A. Lyle                               
|Freeman A. Lyle                                   
|Executive Vice President & Chief Financial Officer
|(Principal Financial and Accounting Officer)      



21