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                                     [LOGO]

                           2000 SECOND QUARTER REPORT
<PAGE>
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 10-Q

<TABLE>
<C>        <S>
   /X/     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

                                       OR

<TABLE>
<C>        <S>
   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

                         COMMISSION FILE NUMBER 1-8692

                            ------------------------

                        PACIFIC GATEWAY PROPERTIES, INC.
             (Exact name of Registrant as specified in its charter)

<TABLE>
<S>                                    <C>
              MARYLAND                              04-2816560
   (State or other jurisdiction of                 (IRS Employer
   incorporation or organization)               Identification No.)

       930 MONTGOMERY STREET,
             SUITE 400,
      SAN FRANCISCO, CALIFORNIA                        94133
   (Address of principal executive                  (Zip Code)
              offices)
</TABLE>

       Registrant's telephone number, including area code  (415) 398-4800

                                [NOT APPLICABLE]
   (Former name, former address and former fiscal year, if changed since last
                                    report)

                            ------------------------

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/  No / /

    Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date of July 21, 2000:

    3,933,536 shares of Common Stock, $1.00 par value and 300,000 shares of
Series 1 Convertible Preferred Stock, $1.00 par value.

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<PAGE>
                        PACIFIC GATEWAY PROPERTIES, INC.
                                     INDEX

<TABLE>
<CAPTION>
                                                                             PAGE
                                                                            NUMBER
                                                                           --------
<S>          <C>                                                           <C>
Part I--Financial Information:

    Item 1.  Consolidated Financial Statements (Unaudited)

    Condensed Consolidated Balance Sheets as of June 30, 2000 and                 3
     December 31, 1999...................................................

    Condensed Consolidated Statements of Operations for the Three and Six
     Months Ended June 30, 2000 and 1999.................................         4

    Condensed Consolidated Statement of Stockholders' Equity for the Six
     Months Ended June 30, 2000..........................................         5

    Condensed Consolidated Statements of Cash Flows for the Three and Six
     Months Ended June 30, 2000 and 1999.................................         6

    Notes to Condensed Consolidated Financial Statements.................       7-9

    Item 2.  Management's Discussion and Analysis of Financial Condition
               and Results of Operations.................................     10-14

    Item 3.  Quantitative and Qualitative Disclosures About Market
               Risk......................................................        14

Part II--Other Information:

    Item 1.  Legal Proceedings...........................................        15

    Item 2.  Changes in Security.........................................      None

    Item 3.  Defaults Upon Senior Securities.............................      None

    Item 4.  Submission of Matters to a Vote of Security Holders.........      None

    Item 5.  Other Information...........................................      None

    Item 6.  Exhibits and Reports on Form 8-K............................        15

Signatures...............................................................        16
</TABLE>

                                       2
<PAGE>
                        PACIFIC GATEWAY PROPERTIES, INC.

               CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                AS OF         AS OF
                                                              JUNE 30,    DECEMBER 31,
                                                                2000          1999
                                                              ---------   -------------
<S>                                                           <C>         <C>
ASSETS
Cash and cash equivalents...................................  $  2,439      $  5,609
Restricted cash.............................................     2,089         1,793
Accounts receivable, income taxes receivable and other
  current assets............................................       677           254
Investment properties:......................................    70,510        70,000
  Less-accumulated depreciation.............................   (20,991)      (19,523)
                                                              --------      --------
    Investment properties, net..............................    49,519        50,477
                                                              --------      --------
Capitalized loan costs, net.................................       531           600
Capitalized lease commissions, rent concessions and other
  deferred costs, net.......................................     2,145         2,086
                                                              --------      --------
    Total assets............................................  $ 57,400      $ 60,819
                                                              ========      ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, unearned rental revenue, tenant security
  deposits, accrued dividends, and other current
  liabilities...............................................  $  3,542      $  2,681
Debt related to investment properties.......................    45,267        44,516
Current income taxes payable................................       167         6,551
                                                              --------      --------
    Total liabilities.......................................    48,976        53,748
                                                              --------      --------
STOCKHOLDERS' EQUITY
Common stock $1.00 par value:
  Authorized--10,000,000 shares
  Issued and outstanding--4,052,090 shares as of June 30,
    2000 and December 31, 1999..............................     4,052         4,052
Series 1 Convertible Preferred Stock $1.00 par value, $3,000
  preference in liquidation:
  Authorized, issued and outstanding--300,000 shares........     2,889         2,889
Paid-in-deficit.............................................    (8,968)       (8,968)
Retained earnings...........................................    12,488        11,135
Treasury stock, at cost--118,554 common shares at June 30,
  2000 and December 31, 1999................................    (2,037)       (2,037)
                                                              --------      --------
  Total stockholders' equity................................     8,424         7,071
                                                              --------      --------
    Total liabilities and stockholders' equity..............  $ 57,400      $ 60,819
                                                              ========      ========
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.

                                       3
<PAGE>
                        PACIFIC GATEWAY PROPERTIES, INC.

          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                              FOR THE THREE          FOR THE SIX
                                                                 MONTHS                MONTHS
                                                             ENDED JUNE 30,        ENDED JUNE 30,
                                                           -------------------   -------------------
                                                             2000       1999       2000       1999
                                                           --------   --------   --------   --------
<S>                                                        <C>        <C>        <C>        <C>
INVESTMENT PROPERTIES:
  Rental revenues........................................  $ 4,703    $ 4,460    $ 9,418    $ 8,842
  Operating expenses.....................................   (1,572)    (1,681)    (3,031)    (3,089)
  Interest expense.......................................     (978)      (959)    (1,940)    (1,932)
  Depreciation and amortization..........................     (983)      (950)    (1,991)    (1,874)
                                                           -------    -------    -------    -------
    Investment properties income.........................    1,170        870      2,456      1,947
General and administrative expenses......................     (271)      (414)      (928)      (982)
Merger expenses..........................................     (121)        --       (124)        --
Gain on sale of property, net............................       --         --        323         --
Other income(expense), net...............................       48         85        119        157
                                                           -------    -------    -------    -------
Income before taxes......................................      826        541      1,846      1,122
Income tax (provision) benefit...........................      (24)      (204)       777       (442)
                                                           -------    -------    -------    -------
  Net income.............................................  $   802    $   337    $ 2,623    $   680
                                                           =======    =======    =======    =======
Preferred dividends......................................      (45)       (33)       (90)       (60)
                                                           -------    -------    -------    -------
  Net income available to common stockholders............  $   757    $   304    $ 2,533    $   620
                                                           =======    =======    =======    =======

Income per common share, basic...........................  $  0.19    $  0.08    $  0.64    $  0.16
                                                           =======    =======    =======    =======

Income per common share, diluted.........................  $  0.18    $  0.08    $  0.60    $  0.15
                                                           =======    =======    =======    =======
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.

                                       4
<PAGE>
                        PACIFIC GATEWAY PROPERTIES, INC.

      CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

                     FOR THE SIX MONTHS ENDED JUNE 30, 2000

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                    SERIES 1
                                                   CONVERTIBLE
                                         COMMON     PREFERRED    PAID-IN-   RETAINED   TREASURY
                                         STOCK        STOCK      DEFICIT    EARNINGS    STOCK      TOTAL
                                        --------   -----------   --------   --------   --------   --------
<S>                                     <C>        <C>           <C>        <C>        <C>        <C>
Balance at December 31, 1999..........   $4,052       $2,889     $(8,968)   $11,135    $(2,037)   $ 7,071
  Net income..........................       --           90          --      2,533         --      2,623
  Dividends...........................       --          (90)         --     (1,180)        --     (1,270)
                                         ------       ------     -------    -------    -------    -------
Balance at June 30, 2000..............   $4,052       $2,889     $(8,968)   $12,488    $(2,037)   $ 8,424
                                         ======       ======     =======    =======    =======    =======
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.

                                       5
<PAGE>
                        PACIFIC GATEWAY PROPERTIES, INC.

          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               FOR THE THREE          FOR THE SIX
                                                                  MONTHS                MONTHS
                                                              ENDED JUNE 30,        ENDED JUNE 30,
                                                            -------------------   -------------------
                                                              2000       1999       2000       1999
                                                            --------   --------   --------   --------
<S>                                                         <C>        <C>        <C>        <C>
Cash flow from operating activities:
  Net income..............................................   $  802    $   337    $ 2,623    $   680
  Non-cash revenues and expenses included in net income:
    Depreciation and amortization.........................      983        950      1,991      1,874
    Deferred taxes, net...................................       --        196         --        421
    Gain on sale of property, net.........................       --         --       (323)        --
    Gain on settlement of reimbursement obligation........       --         --         --         (6)
  Change in assets and liabilities:
    Accounts receivable, prepaid taxes and other current
      assets..............................................      157        186        136        (16)
    Current taxes receivable..............................      421         --       (559)        --
    Current taxes payable.................................       (3)               (6,384)        --
    Accounts payable, accrued dividends and other current
      liabilities.........................................     (413)      (251)       225       (403)
                                                             ------    -------    -------    -------
  NET CASH GENERATED BY (USED IN) OPERATING ACTIVITIES....    1,947      1,418     (2,291)     2,550
                                                             ------    -------    -------    -------

Cash flow from investing activities:
  Additions to building and other improvements,
    capitalized lease commissions, rent concessions, and
    other deferred costs..................................     (477)      (715)    (1,022)    (1,003)
  Proceeds from sale of property, net.....................       --         --        323      3,785
  (Increase) decrease in restricted cash..................     (118)       165       (296)       (12)
                                                             ------    -------    -------    -------
  NET CASH GENERATED BY (USED IN) INVESTING ACTIVITIES....     (595)      (550)      (995)     2,770
                                                             ------    -------    -------    -------

Cash flow from financing activities:
  Borrowings under non-revolving line of credit...........       --         --      1,300         --
  Payments on debt........................................     (272)    (1,159)      (549)    (1,426)
  Payment of dividends....................................       --       (467)      (635)      (848)
  Payment to settle reimbursement obligation..............       --         --         --     (4,200)
                                                             ------    -------    -------    -------
  NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.....     (272)    (1,626)       116     (6,474)
                                                             ======    =======    =======    =======

Increase (decrease) in cash and cash equivalents..........    1,080       (758)    (3,170)    (1,154)
Balance at beginning of period............................    1,359      6,139      5,609      6,535
                                                             ------    -------    -------    -------
Balance at end of period..................................   $2,439    $ 5,381    $ 2,439    $ 5,381
                                                             ======    =======    =======    =======

SUPPLEMENTARY DISCLOSURES:
  Cash paid for interest..................................   $  981    $   960    $ 1,987    $ 2,578
                                                             ======    =======    =======    =======
  Cash paid for taxes.....................................   $   27    $     9    $ 6,588    $    10
                                                             ======    =======    =======    =======
  Cash refunded for taxes.................................   $ (421)   $    --    $  (421)   $    --
                                                             ======    =======    =======    =======

NON-CASH TRANSACTIONS:
  Write-off of fully depreciated assets...................   $   --    $    --    $   252    $    --
                                                             ======    =======    =======    =======
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.

                                       6
<PAGE>
                        PACIFIC GATEWAY PROPERTIES, INC.
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
               FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 2000

1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with Pacific Gateway Properties, Inc.'s (the
"Company" or "Pacific Gateway") 1999 Forms 10-K and 10-K/A for the year ended
December 31, 1999 and Forms 10-Q for the quarter ended March 31, 2000 and the
quarter and six months ended June 30, 1999. These statements have been prepared
in accordance with the instructions of the Securities and Exchange Commission
Form 10-Q and do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.

    The Company is a Maryland corporation, formed for the purpose of investing
and managing income producing real estate. The Company elected to be taxed as a
Real Estate Investment Trust ("REIT") beginning in fiscal 1999 and is therefore
required to meet certain asset and income tests, and other requirements, in
order to maintain REIT status as further discussed in Note 2 to the Company's
Condensed Consolidated Financial Statements.

    On October 13, 1999, the Company announced that Prudential Securities
Incorporated had been assisting the Board of Directors in evaluating various
strategic alternatives. Following a lengthy review process, the Board of
Directors determined that it would be in the best interest of the Company's
shareholders to pursue a possible sale or merger. On June 15, 2000, the Company
entered into a definitive agreement to be acquired by Mission Orchard Statutory
Trust ("Mission Orchard"), a private statutory trust which is an affiliate of
Integrated Capital Associates, Inc. PGP Acquisition is a wholly owned subsidiary
of Mission Orchard. PGP Acquisition and Mission Orchard are entities organized
for the purpose of acquiring Pacific Gateway and have not otherwise conducted
any business operations.

    PGP Acquisition will merge with Pacific Gateway, after which Pacific Gateway
will be the surviving corporation and will be wholly owned by Mission Orchard.
As a result of the merger, holders of common and preferred stock of Pacific
Gateway will be entitled to receive an initial cash payment of $12.60 per share
following the closing, and a potential additional cash payment following a
reconciliation between the pro forma closing date balance sheet and the actual
closing date balance sheet and possible adjustments relating to the balance
sheet reconciliation, transaction expenses (which generally will be reflected in
the balance sheet adjustments) and any unanticipated casualty losses. The merger
is subject to the approval of the Company's stockholders, consents from the
Company's lenders, receipt of tenant estoppels, and certain other customary
closing conditions.

    In the opinion of the Company, all material adjustments of a normal
recurring nature considered necessary for a fair presentation of results of
operations for the interim periods have been included. The results of
consolidated operations for the three and six months ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.

RECLASSIFICATIONS

    Certain prior year amounts have been reclassified to be consistent with
current period presentation.

ESTIMATES AND ASSUMPTIONS

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the

                                       7
<PAGE>
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

2.  INCOME TAXES

    In March 2000, the Company determined that it would elect to be taxed as a
REIT pursuant to the Internal Revenue Code, as amended, effective January 1,
1999. In general, a corporation that distributes at least 95% of its REIT
taxable income to shareholders in any taxable year and complies with certain
other requirements (relating primarily to the nature of its assets and the
sources of its revenue) is not subject to federal income taxation to the extent
of the income which it distributes. Management believes that the Company met the
qualification for REIT status in 1999 and for the current period, and intends
for it to continue to meet the qualifications in the future and to distribute
its REIT taxable income to shareholders in the year 2000 and subsequent years to
the extent REIT status is maintained.

    In connection with its election to be taxed as a REIT, the Company elected
to be subject to the "built-in gain" rules. Under these rules, taxes will be
payable to the extent that the net unrealized gains on the Company's assets
(calculated as of the date of conversion to REIT status) are recognized in
taxable dispositions during the ten-year period following the conversion. For
the six months ended June 30, 2000, these net realized gains were approximately
$323,000 which resulted from the sale of the Mountain View property in
March 2000 as further discussed in Note 4 below. A current federal and state tax
liability of approximately $142,000 for "built-in gain" tax has been recognized.
It may however, be necessary to recognize a liability for such taxes in the
future if management's plans and intentions with respect to asset dispositions,
or the related tax laws, change. Management does not expect that the Company
will pay taxes on "built-in gains" on any other of its assets. Based on these
considerations, management does not believe that the Company will be liable for
income taxes at the federal level or in most of the states in which it operates
for so long as REIT status is maintained. Accordingly, the Company has not
recognized deferred taxes at June 30, 2000, and does not expect to provide for
deferred income taxes in the future periods except in certain states and as
noted previously.

    In the first quarter of 2000, the Company recorded a current income tax
receivable of approximately $980,000 resulting from an adjustment to the 1999
tax liability related to the sale of the 410 First Avenue property and the RCA
Amendment as more fully discussed in Note 2 to the Company's 1999 Form 10-K.
Approximately $559,000 of income tax receivables were outstanding as of
June 30, 2000.

    A current tax benefit of approximately $777,000 has been recorded which
consists primarily of a benefit of $980,000 resulting from an adjustment to the
1999 tax liability related to the sale of the 410 First Avenue property and the
RCA Amendment as more fully discussed in the Registrant's 1999 Form 10-K offset
by a tax provision on the built-in gain related to the sale of the Mountain View
land parcel and state taxes.

3.  PER SHARE DATA

    Basic earnings per share is computed as net income available to common
stockholders divided by weighted average shares, excluding the dilutive effects
of stock options and other potentially dilutive securities. Outstanding stock
options and warrants enter into the weighted average shares outstanding when
computing diluted earnings per share using the Treasury Stock Method.

                                       8
<PAGE>
    The number of weighted average common shares and potential common shares
used in the earnings per share calculations are as follows:

<TABLE>
<CAPTION>
                                    FOR THE THREE MONTHS     FOR THE SIX MONTHS
                                       ENDED JUNE 30,          ENDED JUNE 30,
                                    ---------------------   ---------------------
                                      2000        1999        2000        1999
                                    ---------   ---------   ---------   ---------
<S>                                 <C>         <C>         <C>         <C>
Basic.............................  3,933,536   3,933,536   3,933,536   3,933,536
Stock options and Series 1
  Convertible Preferred Stock.....    424,634      95,498     423,982      89,099
                                    ---------   ---------   ---------   ---------
Diluted...........................  4,358,170   4,029,034   4,357,518   4,022,635
                                    =========   =========   =========   =========
</TABLE>

    The Company's Series 1 Convertible Preferred Stock was excluded from diluted
earnings per share for the three and six months ended June 30, 1999 as inclusion
would have been anti-dilutive.

4.  GAIN OF SALE OF MOUNTAIN VIEW PROPERTY

    On March 15, 2000, the Company sold the Mountain View property in Mountain
View, California for approximately $326,000, and incurred selling expenses of
approximately $3,000. The Company had previously written the property down to
zero due to uncertainties related to certain parking easement rights. As a
result, the Company recognized a gain of $323,000 which is included in the gain
on sale of property on the accompanying Condensed Consolidated Statement of
Operations. The net proceeds from the sale were used for general corporate
purposes.

5.  NON-REVOLVING LINE OF CREDIT

    On March 7, 2000, the Company entered into a non-revolving line of credit
with Redwood Bank for $1,300,000. The loan carries a floating interest rate of
prime plus 0.50%, full recourse to the Company, interest only payments during
the first 120 days of the loan, and will amortize on a 36 month schedule
commencing August 10, 2000. The loan matures on December 10, 2000 and is secured
by the stock of a wholly-owned subsidiary. The Company intends to repay the loan
from operating cash flow, additional mortgage borrowings, or a possible asset
sale.

                                       9
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

INTRODUCTION

    Pacific Gateway Properties, Inc. (the "Registrant" or "Pacific Gateway") is
a Maryland corporation that was reincorporated from New York effective
September 1, 1999, and began its operations in April 1984 upon the transfer to
it of certain assets formerly owned by Perini Corporation and the distribution
of shares of the Registrant's common stock to the stockholders of Perini
Corporation in May 1984. The Registrant's overall business plan has been to
assemble a substantial portfolio of income producing properties. The Registrant
historically focused its property acquisitions in the following markets:
Northern California, Arizona, Florida and Massachusetts. The Registrant's
objectives continue to be maximizing net cash flow from operations and achieving
growth through appreciation of asset values. The current strategic plan of the
Registrant is to focus on real estate investments on the West Coast with a
specific emphasis on the San Francisco Bay Area. The current investment emphasis
is on commercial properties which require aggressive management and leasing in
order to maximize their potential values. This strategy is influenced by the
following factors: (1) the Registrant's current property portfolio is
concentrated on the West Coast; and (2) the Registrant believes that geographic
concentration will enhance operational efficiencies.

    On October 13, 1999, the Registrant announced that Prudential Securities
Incorporated had been assisting the Board of Directors in evaluating various
strategic alternatives. Following a lengthy review process, the Board of
Directors determined that it would be in the best interest of the Registrant's
shareholders to pursue a possible sale or merger. On June 15, 2000, the
Registrant entered into a definitive agreement to be acquired by Mission Orchard
Statutory Trust ("Mission Orchard"), a private statutory trust which is an
affiliate of Integrated Capital Associates, Inc. PGP Acquisition and Mission
Orchard are entities organized for the purpose of acquiring Pacific Gateway and
have not otherwise conducted any business operations.

    PGP Acquisition will merge with Pacific Gateway, after which Pacific Gateway
will be the surviving corporation and will be wholly owned by Mission Orchard.
As a result of the merger, holders of common and preferred stock of Pacific
Gateway will be entitled to receive an initial cash payment of $12.60 per share
following the closing, and a potential additional cash payment following a
reconciliation between the pro forma closing date balance sheet and the actual
closing date balance sheet and possible adjustments relating to the balance
sheet reconciliation, transaction expenses (which generally will be reflected in
the balance sheet adjustments) and any unanticipated casualty losses. The merger
is subject to the approval of the Registrant's stockholders, consents from the
Registrant's lenders, receipt of tenant estoppels and certain other customary
closing conditions.

    The following discussion should be read in conjunction with the Registrant's
Forms 10-K and 10-K/A for 1999, quarterly report on Form 10-Q for the quarter
ended March 31, 2000, quarterly reports on Form 10-Q for the quarter and six
months ended June 30, 1999, and in conjunction with the Unaudited Condensed
Consolidated Balance Sheet, Statements of Operations and Cash Flows and the
notes thereto. Unless otherwise defined in this report, or unless the context
otherwise requires, the capitalized words or phrases used in this section either
(i) describe accounting terms that are used as line items in such financial
statements, or (ii) have the meanings ascribed to them in such financial
statements and the notes thereto.

FINANCIAL CONDITION

    CAPITAL IMPROVEMENTS, TENANT IMPROVEMENTS AND OTHER DEFERRED COSTS--During
the three and six months ended June 30, 2000, there were additions to investment
properties amounting to approximately $477,000 and $1,022,000, respectively, for
tenant improvements, capital improvements and other deferred costs which
includes leasing commissions. The Registrant anticipates further additions to
investment properties of approximately $660,000 during the remainder of 2000,
which will be funded from cash, restricted cash, and cash flow generated by
operating activities.

                                       10
<PAGE>
    FINANCING--Approximately $272,000 and $549,000 of debt principal was repaid
in the three and six months ended June 30, 2000, respectively, as scheduled debt
amortization. In addition, on March 7, 2000, the Registrant entered into a
non-revolving line of credit with Redwood Bank for $1,300,000. The loan carries
a floating interest rate of prime plus 0.50%, full recourse to the Registrant,
interest only payments during the first 120 days of the loan, and will amortize
on a 36 month schedule commencing August 10, 2000. The loan matures on
December 10, 2000 and is secured by the stock of a wholly-owned subsidiary. The
purpose of the loan was to provide short term bridge financing for the payment
of income taxes due on Rincon Center. The Registrant intends to repay the loan
from operating cash flow, additional mortgage borrowings, or a possible asset
sale.

MATERIAL CHANGES IN RESULTS OF OPERATIONS

    INVESTMENT PROPERTIES--During the first six months of 2000, the income from
investment properties was $2,456,000 compared to income of $1,947,000 during the
first six months of 1999. During the second quarter of 2000 the income from
investment properties was $1,170,000 compared to income of $870,000 for the
second quarter of 1999. The increase in income from investment properties for
the three and six months ended June 30, 2000 from the prior periods is
attributable to new leases completed during 1999 leading to slightly increased
occupancy and renewal of existing leases at higher rates. Occupancy increased
from approximately 98% at June 30, 1999 to approximately 99% at June 30, 2000.

    The decrease in operating expenses to $3,031,000 for the six months ended
June 30, 2000 as compared to $3,089,000 for the six months ended June 30, 1999
is primarily due to a large tenant vacancy at the South Bay Office Tower
property which was subsequently re-leased in the second quarter of 2000.
Interest expense increased slightly to $1,940,000 during the first six months of
2000 from $1,932,000 during the first six months of 1999 as a result of interest
expense on the non-revolving line of credit. Depreciation and amortization
expense increased from $1,874,000 to $1,991,000 for the six months ending 1999
and 2000, respectively, as a result of commencing depreciation of expenditures
capitalized during 1999 and early 2000 relating to the Registrant's leasing
activities and capital improvement projects.

    GENERAL AND ADMINISTRATIVE EXPENSES--General and administrative expenses in
the first six months of 2000 amounted to $928,000 compared to $982,000 for the
first six months of 1999. General and administrative expenses for the second
quarter of 2000 and 1999 were $271,000 and $414,000, respectively. The decrease
is primarily attributable to a decrease in professional service fees partially
offset by increases in personnel costs.

    MERGER EXPENSES--Merger expenses were approximately $124,000 for the first
six months of 2000, and $121,000 for the quarter ended June 30, 2000. No merger
expenses were incurred in 1999.

    GAIN ON SALE OF PROPERTY, NET--For the six months ended June 30, 2000, the
gain on the sale of the Mountain View property was approximately $323,000, net
of approximately $3,000 in selling expenses, as further discussed in Note 4 to
the Condensed Consolidated Financial Statements. There were no gains on sale of
properties for the three and six months ended June 30, 1999, or the three months
ended June 30, 2000.

    OTHER INCOME, NET--Other income, net, was $119,000 and $157,000 during the
first six months of 2000 and 1999, respectively, which consisted primarily of
interest income. The decrease in interest income is due to lower cash balances
invested subsequent to payment of the 1999 income taxes payable.

    INCOME TAX (PROVISION) BENEFIT--A current tax benefit of approximately
$777,000 has been recorded which consists primarily of a benefit of $980,000
resulting from an adjustment to the 1999 tax liability related to the sale of
the 410 First Avenue property and the RCA Amendment as more fully discussed in
the Registrant's 1999 Form 10-K offset by a tax provision on the built-in gain
related to the sale of the Mountain View land parcel and state taxes.

                                       11
<PAGE>
    In March 2000, the Registrant determined that it would elect to be taxed as
a real estate investment trust (REIT) pursuant to the Internal Revenue Code, as
amended, effective January 1, 1999. In general, a corporation that has made a
REIT election and that distributes at least 95% of its REIT taxable income to
shareholders in any taxable year and complies with certain other requirements
(relating primarily to the nature of its assets and the sources of its revenue)
is not subject to federal income taxation to the extent of the income which it
distributes. Management believes that the Registrant met the qualifications for
REIT status in 1999 and for the current period, and intends for it to continue
to meet the qualifications in the future. As a REIT, the Registrant will be
required to distribute at least 95% of its REIT taxable income to shareholders
in subsequent years to the extent REIT status is maintained.

    In connection with its election to be taxed as a REIT, the Registrant
elected to be subject to the "built-in gain" rules. Under these rules, taxes
will be payable to the extent that the net unrealized gains on the Registrant's
assets (calculated as of the date of conversion to REIT status) are recognized
in taxable dispositions during the ten-year period following conversion. For the
six months ended June 30, 2000, these net realized gains were approximately
$323,000 related to the Mountain View land parcel sale as further discussed in
Note 4 to the Condensed Consolidated Financial Statements. A federal and state
tax liability for "built-in gain" tax has been recognized. It may however, be
necessary to recognize a liability for such taxes in the future if management's
plans and intentions with respect to asset disposition or the related tax laws,
change. Management does not expect that the Registrant will pay taxes on
"built-in gains" on any of its assets. Based on these considerations, management
does not believe that the Registrant will be liable for income taxes at the
federal level or in most states in which it operates for so long as REIT status
is maintained. Accordingly, the Registrant has not recognized deferred taxes at
June 30, 2000, and does not expect to provide for deferred income taxes in
future periods except in certain states and as noted previously. The Registrant
recorded a current tax payable of approximately $167,000 related to a "built-in
gain" tax on the sale of the Mountain View property and amounts due for state
taxes.

LIQUIDITY AND CAPITAL RESOURCES

    As discussed elsewhere in this Form 10-Q and in the Form 8-K filed by the
Registrant on June 19, 2000, the Registrant has entered into an agreement to be
acquired by Mission Orchard Statutory Trust pursuant to a merger with PGP
Acquisition, Inc., a subsidiary of Mission Orchard. The transaction is expected
to be consummated by the fourth quarter of 2000, pending approval of the
Company's shareholders. Upon consummation of the acquisition, the Registrant's
liquidity and capital resources, as described below, can be expected to change.

REGULATION AND SUPERVISION

    Many jurisdictions have adopted laws and regulations relating to the
ownership of real estate. Compliance with these requirements from time to time
may require capital expenditures by the Registrant (for example, expenditures
necessary in order to comply with the Americans with Disabilities Act or changes
in local building or other codes). In addition, the Registrant may from time to
time have to expend capital for environmental control facilities. While the
ownership of real estate may entail environmental risks and liabilities to the
owner, the Registrant's management is sensitive to environmental issues and is
not currently aware of and does not presently expect any material effects on
current or future capital expenditures, earnings or competitive position
resulting from compliance with present federal, state or local environmental
control provisions.

DISCUSSION OF KNOWN TRENDS, EVENTS AND UNCERTAINTIES

    The economic climate for commercial real estate has shown signs that rental
rates and property values have stabilized and in selected markets have improved.
Notwithstanding a stabilizing real estate market, tenants may or may not
continue to renew leases as they expire or may renew on less favorable terms.
Conditions differ in each market in which the Registrant's properties are
located. Because of the

                                       12
<PAGE>
continuing uncertainty of future economic developments in each market, the
impact these developments will have on the Registrant's future cash flow and
results of operations is uncertain.

    Inflation, inflationary expectations and their effect on interest rates may
affect the Registrant in the future by changing the underlying value of the
Registrant's real estate or by impacting the costs of financing the Registrant's
operations.

LIQUIDITY AND CAPITAL RESOURCES

    The bulk of the Registrant's resources are committed to relatively
non-liquid real estate assets. These assets, due to their value and cash flow,
have provided the Registrant with an ability to generate capital as required,
both internally and externally, through asset-based financings. In addition,
since 1992, assets or portions thereof were sold to provide further liquidity.

    The Registrant has taken several actions to generate and conserve cash, as
discussed below, and continues to review and analyze alternative actions. At the
same time, the Registrant is seeking to retain value and identify future
opportunities for investment. At June 30, 2000, the Registrant had approximately
$2.4 million of unrestricted cash, approximately $2.1 million of restricted
cash, investment properties with a net book value of approximately $50 million,
total non-recourse mortgage debt of approximately $45 million and stockholders'
equity of approximately $8.4 million. Additionally, quarterly payments of
dividends to shareholders decreased from approximately $848,000 for the six
months ended June 30, 1999 to approximately $635,000 for the six months ended
June 30, 2000. Given the Registrant's desire to increase its liquidity, the
Registrant has actively pursued the sale of selected real estate assets in the
past, and has restructured and refinanced its mortgage debt. The Registrant
continues to evaluate various alternatives to improve its liquidity through debt
refinancing and the sale of properties which do not fit within its long term
strategy. Funds raised in the preceding fashion would be used for tenant
improvements and other capital requirements, certain mandatory debt reductions,
and general corporate purposes including possible new investments.

    The Registrant is also obligated to fund reserves for building and tenant
improvements, leasing commissions and debt service in connection with its
mortage loans on Walnut Creek Executive Park, North Tucson Business Center and
South Bay Office Tower. Scheduled funding under the various loan agreements
during the twelve month period ending June 30, 2001, will amount to
approximately $385,000 and will be funded from future cash flow generated by
operating activities.

    Additionally, the Registrant is obligated to pay off its non-revolving line
of credit with Redwood Bank of $1,300,000 on or before December 10, 2000, as
previously discussed.

    Scheduled principal maturities on the above described debt during the twelve
month period ending June 30, 2001, will amount to approximately $2,423,000.
Approximately $549,000 of debt principal was repaid in the six months ended
June 30, 2000 as scheduled debt amortization.

    The Registrant's material capital expenditures over the next twelve months
or beyond are expected to be funded from restricted cash or future cash flow
generated by operating activities. Ongoing repair and maintenance expenditures
are expected to be funded from cash flow generated by operating activities.
Future tenant improvements and leasing commissions will be funded from
restricted cash, cash flow generated by operating activities and funds generated
from future debt refinancings or property sales, if any.

    The Registrant continued to experience more stabilized operating results in
its Properties during the first and second quarters of 2000, and based on the
Registrant's current assessment of market and economic factors, expects this
trend to continue. In addition, the completion of certain leasing transactions
has continued to reduce the level of vacancies in the Registrant's portfolio and
the Registrant is continuing to aggressively pursue new leases on currently
available space and renew existing leases as they expire.

                                       13
<PAGE>
FORWARD-LOOKING STATEMENTS; FACTORS THAT MAY AFFECT OPERATING RESULTS

    Certain information included in this Form 10-Q and other materials filed or
to be filed by the Registrant with the Securities and Exchange Commission may
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking information
including statements in this Form 10-Q relating to liquidity and capital
resources and trends in operating results involves known and unforeseen risks,
uncertainties and other factors that may cause actual results or performance to
be materially different from those expressed or implied by such forward-looking
statements. These risks and uncertainties include, but are not limited to,
uncertainties affecting the real estate business generally, such as lease
renewals and the financial stability of tenants, general economic conditions and
conditions in the Registrant's markets, risks relating to acquisitions and
dispositions of properties, risks relating to interest rate levels and
fluctuations, the availability of financing, and regulatory risks. Additionally,
forward-looking statements in this Form 10-Q are subject to consummation of the
merger with a subsidiary of Mission Orchard Statutory Trust which itself is
subject to the satisfaction of certain conditions. Given these and other risks
described elsewhere in this Form 10-Q, investors are cautioned not to place
undue reliance on any forward-looking statements.

ITEM 3.  QUALITATIVE AND QUANTITATIVE INFORMATION ABOUT MARKET RISK

INTEREST RATES

    The Registrant's primary market risk exposure is to changes in interest
rates on its floating rate mortgage loans payable and non-revolving line of
credit. The Registrant does not believe that changes in market interest rates
will have a material impact on the Registrant's earnings or on its ability to
perform its obligations under its two floating rate mortgage loans or its
non-revolving line of credit.

    Approximately 12% of the principal amount of the Registrant's outstanding
debt at June 30, 2000 consisted of variable rate obligations. The Registrant
reviews interest rate exposure in the portfolio quarterly in an effort to
minimize the risk of interest rate fluctuations. The Registrant does not have
any other material market-sensitive financial debt instruments either for
trading or for other purposes. It is not the Registrant's policy to engage in
hedging activities for previously outstanding debt instruments or for
speculative or trading purposes.

    The table below provides information about the Registrant's debt
obligations. The table presents principal cash flows and related weighted
average interest rates by expected maturity dates. Weighted average variable
rates are based on rates in effect at the reporting date.

<TABLE>
<CAPTION>
                                                                    EXPECTED MATURITIES
                                  ---------------------------------------------------------------------------------------
                                                                      (IN THOUSANDS)
                                  ---------------------------------------------------------------------------------------
                                                                                                                   FAIR
                                    2000       2001       2002       2003       2004     THEREAFTER    TOTAL      VALUE
                                  --------   --------   --------   --------   --------   ----------   --------   --------
<S>                               <C>        <C>        <C>        <C>        <C>        <C>          <C>        <C>
Secured Fixed Rate Debt.........   $  517     $1,128     $1,226     $1,333     $1,450     $34,147     $39,801    $39,801
Fixed Interest Rate.............     8.50%      8.50%      8.50%      8.50%      8.50%       8.50%
Secured Variable Rate Debt......   $1,327     $   56     $   61     $   67     $   74     $ 3,881     $ 5,466    $ 5,466
Average Interest Rate...........     8.73%      8.38%      8.38%      8.38%      8.38%       8.38%
                                                                                                                 -------
Total Debt......................                                                                                 $45,267
                                                                                                                 =======
</TABLE>

    The Registrant believes that the interest rates given in the table for fixed
rate borrowings approximate the rates the Registrant could currently obtain for
instruments of similar terms and maturities and that the fair values of such
instruments approximate carrying value at June 30, 2000.

                                       14
<PAGE>
                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

    The Registrant settled its litigation with the County of Santa Clara and the
City of San Jose for the reimbursement of transfer taxes paid by the Registrant
in connection with the recordation of a deed relating to the refinancing of one
of the Registrant's properties. The settlement between the parties was finalized
and executed on May 30, 2000 and provided for the payment of a total sum of
$40,000 to the Registrant by the County of Santa Clara and the City of San Jose,
waiver of appeal rights by the County of Santa Clara, and dismissal of both
actions with prejudice.

    The Registrant is involved in various other claims and lawsuits incidental
to its business. In the opinion of the Registrant, these other claims and
lawsuits in the aggregate will not have a material adverse impact on the
Registrant's financial position or results of operations.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

    a)  Exhibits:

<TABLE>
<CAPTION>
NO.   DESCRIPTION
---   -----------
<C>   <S>
27    Financial Data Schedule
</TABLE>

    b)  Reports on Form 8-K:

       On June 19, 2000, the Registrant filed a report on Form 8-K, reporting
       under Items 5 and 7 on the Agreement and Plan of Merger with Mission
       Orchard Statutory Trust and PGP Acquisition, Inc.

                                       15
<PAGE>
                                   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.

<TABLE>
<S>                                            <C>
                                               PACIFIC GATEWAY PROPERTIES, INC.
                                               Registrant

Date: August 10, 2000                                      /s/ RAYMOND V. MARINO
                                               --------------------------------------------
                                                             Raymond V. Marino
                                                   PRESIDENT AND CHIEF EXECUTIVE OFFICER
                                                (PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER)

Date: August 10, 2000                                      /s/ MELANIE L. ADKINS
                                               --------------------------------------------
                                                             Melanie L. Adkins
                                                           CONTROLLER--CORPORATE
                                                      (PRINCIPAL ACCOUNTING OFFICER)

Date: August 10, 2000                                        /s/ NEIL C. MARCK
                                               --------------------------------------------
                                                               Neil C. Marck
                                                      CONTROLLER--MANAGEMENT COMPANY
                                                      (PRINCIPAL ACCOUNTING OFFICER)
</TABLE>

                                       16