<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   -----------

                                    Form 10-Q


(MarkOne)

[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the quarterly period ended September 30, 1998; or

[ ]  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 1-8383


                             Mission West Properties
             (Exact name of registrant as specified in its charter)

            California                              95-2635431
 (State or other jurisdiction of         (I.R.S. Employer Identification
  incorporation or organization)                     Number)

                               10050 Bandley Drive
                        Cupertino, California 95014-2188
                   (Address of principal executive offices)

     Registrant's telephone number, including area code is (408) 725-0700
                                  -----------

          Securities registered pursuant to Section 12(b) of the Act:

       Title of Each Class               Name of Each Exchange on Which
       Common, no par value                         Registered
                                             American Stock Exchange
                                          Pacific Exchange, Incorporated

          Securities registered pursuant to Section 12(g) of the Act:

                                      None

                                  -----------

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.

         (1) Yes   X     No             (2) Yes  X      No
                 ------     -----               -----      -----


Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

       Common Stock no par value               1,698,536 shares
     ------------------------------      ------------------------------
     ------------------------------      ------------------------------
                (Class)                   (Outstanding at October 15,
                                                     1998)


                                      -1-
<PAGE>



                             Mission West Properties

                                    FORM 10-Q
                   FOR THE QUARTER ENDED SEPTEMBER 30, 1998




                                      INDEX

<TABLE>
<CAPTION>
                                                                    Page
Part I  Financial Information

 Item 1 Financial Statements:

<S>                                                                 <C>  
        Consolidated Balance Sheets as of September 30, 1998
        and December 31, 1997........................................3

        Consolidated Statements of Operations for the three
        and nine months ended September 30, 1998 and 1997............4

        Consolidated Statements of Cash Flows for the
        nine months ended September 30, 1998 and 1997................5

        Notes to Consolidated Financial Statements...................6

 Item 2 Management's Discussion and Analysis of Financial
        Condition and Results of Operations.........................11


Part II Other Information

 Item 5 Other Information...........................................16

 Item 6 Exhibits and Reports on Form 8-K............................16


Signatures..........................................................17
</TABLE>

                                      -2-
<PAGE>

===============================================================================
Part I - Financial Information

ITEM 1
CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                             MISSION WEST PROPERTIES
                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)
                                     -----
                                             September    December 31,
                                             30, 1998         1997
                                           -------------- --------------
                                            (Unaudited)
                  ASSETS
<S>                                          <C>             <C>
Real estate assets, at cost
  Land                                         $86,715             -
  Buildings and improvements                   422,043             -
                                           -------------- --------------
                                               508,758             -
  Less accumulated depreciation                 (2,638)            -
                                           -------------- --------------
   Net real estate assets                      506,120             -

Cash and cash equivalents                        2,777        $5,569
Deferred rent                                      752             -
Other assets                                     2,559           194
                                           -------------- --------------
  Total assets                                $512,208        $5,763
                                           ============== ==============

   LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Lines of credit                              $39,044
  Mortgage notes payable                       162,222             -
  Mortgage notes payable (related parties)      18,780             -
  Interest payable (related parties)             3,183             -
  Security deposits                              1,793             -
  Prepaid rental income                          3,127             -
  Accounts payable and accrued expenses          3,375          $552
                                           -------------- --------------
   Total liabilities                           231,524           552

Minority interest                              273,740             -
Shareholders' equity:
  Common stock, no par value, 200,000,000
    shares authorized 1,698,536 and
    1,501,104 shares issued and
    outstanding at September 30, 1998
    and December 31, 1997, respectively         27,596        26,707
  Less, amounts receivable on private
    placement                                     (941)         (334)
                                           -------------- --------------
                                                26,655        26,373
  Accumulated (deficit) in excess of
    dividends paid                             (19,711)      (21,162)
                                           -------------- --------------
   Total shareholders' equity                    6,944         5,211
                                           -------------- --------------
   Total liabilities and shareholders'
     equity                                   $512,208        $5,763
                                           ============== ==============
</TABLE>
              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.

                                      -3-
<PAGE>

<TABLE>
<CAPTION>
                             MISSION WEST PROPERTIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
                                   (unaudited)
                                    ---------

                            Three months ended       Nine months ended
                               September 30,           September 30,
                          ------------------------ -----------------------
                             1998        1997         1998        1997
                          ----------- ------------ ----------- -----------
<S>                       <C>         <C>          <C>         <C>
Revenue:
  Rental revenues from
    real estate             $13,317           -      $13,317        $741
  Tenant reimbursements       2,101           -        2,101           -
  Other income, including
    interest                    37         $43          178         302
                          ----------- ------------ ----------- -----------
                             15,455          43       15,596       1,043
                          ----------- ------------ ----------- -----------

Expenses:
  Operating expenses          1,296         262        1,296         363
  Real estate taxes           1,373           -        1,373           -
  Depreciation of real
    estate                    2,638           -        2,638         131
  General and
    administrative              279         295          846         721
  Interest                    1,167           -        1,167         178
  Interest (related
    parties)                  3,183           -        3,183           -
                          ----------- ------------ ----------- -----------
   Total expenses             9,936         557       10,503       1,393
                          ----------- ------------ ----------- -----------

Income/(loss) before gain
  on sale of real estate,
  income taxes and
  minority interest           5,519        (514)       5,093        (350)
Gain on sale of real
  estate                          -          60            -       4,736
                          ----------- ------------ ----------- -----------
Income/(loss) before
  income taxes and
  minority interest           5,519        (454)       5,093       4,386
(Benefit)/provision for
  income taxes                    -        (204)           -       1,181
                          ----------- ------------ ----------- -----------
Income before minority
  interest                    5,519        (250)       5,093       3,205
Minority interest            (5,389)          -       (5,389)          -
                          ----------- ------------ ----------- -----------
  Net income/(loss)            $130       $(250)       $(296)     $3,205
                          =========== ============ =========== ===========
Basic and diluted net
  income / (loss) per
   share                      $0.08      $(2.19)      $(0.18)     $44.83
                          =========== ============ =========== ===========
Weighted average number
  of common shares
  outstanding (basic and
  diluted)                1,698,536     114,126    1,634,220      71,492
                          ============ =========== =========== ===========
</TABLE>

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

                                       -4-
<PAGE>


<TABLE>
<CAPTION>
                             MISSION WEST PROPERTIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    (in thousands, except per share amounts)
                                   (unaudited)
                                     -----

                                                       Nine months
                                                    ended September 30,
                                                    ------------------
                                                      1998      1997
                                                    --------  --------
Cash flows from operating activities:
<S>                                                <C>       <C>
  Net (loss) / income                                 $(296)   $3,205
  Adjustments to reconcile net income to net cash
    used in operating activities:
    Minority interest                                 5,389         -
    Net gain on sale of real estate assets                -    (4,736)
    Depreciation                                      2,638       131
    Tax effect of cancelled stock options                 -       (33)
  Changes in assets and liabilities:
    Deferred rent                                      (752)        -
    Other assets                                     (2,001)    1,725
    Interest payable (related parties)                3,183         -
    Security deposits                                    52         -
    Prepaid rental income                               449         -
    Accounts payable and accrued liabilities          1,974    (1,634)
                                                    --------  --------
   Net cash provided by (used in) operating
     activities                                      10,636    (1,342)
                                                    --------  --------
Cash flows from investing activities:
  Improvements to real estate assets                   (118)        -
  Net proceeds from sales of real estate                  -    46,443
                                                    --------  --------
   Net cash (used in) provided by investing
     activities                                        (118)   46,443
                                                    --------  --------
Cash flows from financing activities:
  Proceeds from mortgage notes payable              130,000         -
  Principal payments on mortgage notes payable      (14,553)  (30,753)
  Principal payments on mortgage notes payable
    (related parties)                              (129,039)        -
  Proceeds from issuance of common stock                293       876
  Proceeds from stock options exercised                   -       759
  Repurchase of common stock                            (11)        -
  Dividends paid                                          -   (13,798)
                                                    --------  --------
   Net cash (used in) financing activities          (13,310)  (42,916)
                                                    --------  --------
   Net (decrease) increase in cash and cash
     equivalents                                     (2,792)    2,185
Cash and cash equivalents, beginning                  5,569     3,164
                                                    --------  --------
Cash and cash equivalents, ending                    $2,777    $5,349
                                                    ========  ========
Supplemental information:
  Cash paid for interest                             $1,073      $178
                                                    ========  ========
  Cash paid for income taxes                           $115    $1,099
                                                    ========  ========
Supplemental schedule of non-cash investing
  and financing activities:
  Note receivable in connection with the issuance
    of Common Stock                                    $900         -
                                                    ========  ========
  Assumption of lines of credit                     $39,044         -
                                                    ========  ========
</TABLE>

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

                                      -5-
<PAGE>


                             MISSION WEST PROPERTIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (in thousands, except per share amounts)
                                   (unaudited)
                                      -----

1.    ACQUISITIONS

The Company  completed its  acquisition of the sole general  partner  interests,
representing approximately 12.11% of the total partnership interests, in each of
four existing limited  partnerships  (referred to collectively as the "Operating
Partnerships") owning approximately 4.34 million square feet of leased buildings
used for office,  research and  development,  light  manufacturing  and assembly
located in the portion of the San Francisco Bay Area known as "Silicon  Valley",
effective  as of July 1, 1998.  The Company  effected  the closing by issuing to
each of the  Operating  Partnerships  a  demand  note  ("Demand  Note")  bearing
interest at a rate of 7.25% per annum.  The total principal amount of the Demand
Notes issued in  conjunction  with the  Partnership  Closing was  $35,200.  Each
demand note is payable no later than July 1, 2000.

Prior to the  Company's  acquisition  of its general  partner  interests  in the
Operating Partnerships, three of the four partnerships (Mission West Properties,
L.P., Mission West Properties, L.P. I, and Mission West Properties L.P. II) were
controlled   by  Carl  E.  Berg  and  his  brother  Clyde  J.  Berg  (the  "Berg
Properties").  The fourth Operating Partnership,  Mission West Properties,  L.P.
III, was previously  controlled by John T.  Kontrabecki,  another Silicon Valley
developer,  as its sole  general  partner,  and Carl and Clyde Berg owned 50% of
that partnership as limited partners.

The  acquisition  was  accounted  for as a  purchase  with  the  results  of the
Operating  Partnerships included from July 1, 1998. The fair value of the assets
acquired was $509,004 and liabilities assumed totaled $238,907.

The pro forma  results  listed below are  unaudited  and assume the  acquisition
occurred at the beginning of each period presented:
<TABLE>
<CAPTION>

                                                  Nine          Nine
                                                 Months        Months
                                                  Ended         Ended
                                                September     September
                                                30, 1998      30, 1997
                                               ------------  ------------
      <S>                                        <C>          <C>
      Total Revenues                             $46,093      $39,230
                                               ------------  ------------
      Expenses:
        Operating expenses                         7,099        6,247
        General and administrative                   846          721
        Interest  expense (including related
          parties)                                11,682       11,860
        Depreciation and amortization              7,936        7,936
                                               ------------  ------------
         Total expenses                           27,563       26,764
                                               ------------  ------------
      Income before minority interest, gain
        on sale of real estate and income taxes   18,530       12,466
      Minority interest                           18,129       12,799
                                               ------------  ------------
      Income / (loss) before gain on sale of
        real estate and income taxes                 401         (333)
      Gain on sale of real estate                      -        4,736
                                               ------------  ------------
      Income / (loss) before income taxes           $401       $4,403
      (Provision) for income taxes                     -       (1,181)
                                               ------------  ------------
      Net income                                    $401       $3,222
                                               ============  ============
      Basic and diluted net income per share       $0.25       $45.07
                                               ============  ============
</TABLE>

2.    SUMMARY OF SIGNIFICANT POLICIES

      BASIS OF PRESENTATION:

      The accompanying consolidated financial statements include the accounts of
      the Company and its  subsidiaries,  including the Operating  Partnerships.
      All   significant   intercompany   balances   have  been   eliminated   in
      consolidation.

      The financial  statements  have been prepared in accordance with generally
      accepted accounting principles applicable to interim financial information
      and pursuant to the rules and  regulations  of the Securities and Exchange
      Commission.  Accordingly,  certain  information  and footnote  disclosures
      normally  included in financial  statements  prepared in  accordance  with
      generally  accepted  accounting  principles have been condensed or omitted
      pursuant  to such  rules  and  regulations.  However,  in the  opinion  of
      management,   all   adjustments,   consisting  only  of  normal  recurring
      adjustments,  necessary for a fair  presentation  have been

                                      -6-

<PAGE>

     included.  The  Company  presumes  that  users  of  the  interim  financial
     information  herein  have  read or have  access  to the  audited  financial
     statements  for  the  preceding  fiscal  year  and  that  the  adequacy  of
     additional  disclosure  needed for a fair presentation may be determined in
     that context.

      REVENUE RECOGNITION:

      Rental income is recognized on a straight-line  method of accounting under
      which  contractual rent payment  increases are recognized  evenly over the
      lease term.  Certain  lease  agreements  contain  terms which  provide for
      additional rents based on reimbursement of certain costs. These additional
      rents are reflected on the accrual basis.

      RENTAL PROPERTY:

      Property and equipment is stated at the lower of cost or fair value.  Cost
      includes  expenditures for  improvements or replacements.  Maintenance and
      repairs  are charged to expense as  incurred.  Gains and losses from sales
      are  included  in  income  in  accordance   with  Statement  of  Financial
      Accounting Standard No. 66, Accounting for Sales of Real
      Estate.

      Investments in real estate are stated at the lower of depreciated  cost or
      estimated  fair value.  On a  property-by-property  basis,  fair value for
      financial  reporting  purposes is  periodically  evaluated  by the Company
      using   undiscounted   cash  flows.  If  any  potential   impairments  are
      identified, they are measured by the property's fair value based on either
      the property's expected net cash flow or sales comparables, less estimated
      carrying  costs  throughout  the  anticipated  holding  period,  plus  the
      estimated  sales  proceeds  from  the  ultimate  disposition.  Should  the
      carrying value of a property  exceed the estimated fair value, a provision
      for the decrease in net realizable value is recorded. Estimated fair value
      is not  necessarily an indication of the  property's  current value or the
      amount  that  would be  realized  upon  the  ultimate  disposition.  As of
      September 30, 1998, no  properties  had carrying  values that exceeded the
      estimated fair values.

      DEPRECIATION:

      Depreciation  is computed  using the  straight-line  method over estimated
      useful lives of 40 years for buildings and improvements.

      NET INCOME PER SHARE:

      The  computation of net income per share is based on the weighted  average
      number of common  shares  outstanding  during  the  period.  Common  stock
      options and other potentially diluted securities have not been included in
      the  computation  since their inclusion would have no effect on net income
      per share.

      INCOME TAXES:

      The  Company  intends  to qualify  and elect to be taxed as a real  estate
      investment  trust under the  Internal  Revenue  Code of 1986,  as amended,
      commencing with the taxable year ending December 31, 1998. Accordingly, no
      provision  has been made for federal  income  taxes for the three and nine
      month periods ended September 30, 1998.


                                      -7-
<PAGE>


3.    DEBT

The following table sets forth certain information regarding debt outstanding as
of September 30, 1998:
<TABLE>
<CAPTION>

     Debt Description               Collateral Properties                Balance      Maturity Date    Interest Rate
---------------------------- -------------------------------------- ---------------- --------------- ------------------
                                                                    ($ in thousands)
LINES OF CREDIT:
<S>                          <C>                                      <C>                <C>              <C>
Wells Fargo                  1810 McCandless Drive, Milpitas, CA        $39,044           10/99            (1)
                             1740 McCandless Drive, Milpitas, CA
                             1680 McCandless Drive, Milpitas, CA
                             1600 McCandless Drive, Milpitas, CA
                             1500 McCandless Drive, Milpitas, CA
                             1450 McCandless Drive, Milpitas, CA
                             1350 McCandless Drive, Milpitas, CA
                             1325 McCandless Drive, Milpitas, CA
                             1425 McCandless Drive, Milpitas, CA
                             1526 McCandless Drive, Milpitas, CA
                             1575 McCandless Drive, Milpitas, CA
                             1625 McCandless Drive, Milpitas, CA
                             1745 McCandless Drive, Milpitas, CA
                             1765 McCandless Drive, Milpitas, CA

MORTGAGE NOTES PAYABLE (RELATED PARTIES):
                             2033-2043 Samaritan, San Jose, CA           18,780            3/99             7.25%
                             2133 Samaritan, San Jose, CA
                             2233-2243 Samaritan, San Jose, CA

MORTGAGE NOTES PAYABLE:
Great West Life & Annuity
Insurance Company            6320 San Ignacio Ave., San Jose, CA          7,769            2/04             7.0%

Great West Life & Annuity
Insurance Company            6540 Via del Oro, San Jose, CA               3,707            5/04             7.0%
                             6385 San Ignacio Ave., San Jose, CA

National Electrical          
Contractors Association
Pension Benefit
Trust Fund                   2251 Lawson Lane, Santa Clara, CA            4,625            1/09              -

Prudential Capital Group     20400 Mariani, Cupertino, CA                 2,065            3/09             8.75%

New York Life Insurance
Company                      10440 Bubb Road, Cupertino, CA                 436            8/09             9.625%


Home Savings & Loan
Association                  10460 Bubb Road, Cupertino, CA                 536            1/07             9.5%

Amdahl Corporation           3120 Scott, Santa Clara, CA                  6,993            3/14             9.5%

Citicorp U.S.A. Inc.         2800 Bayview Drive, Fremont, CA              3,105            4/00            (2)

Mellon Mortgage Company      3530 Bassett, Santa Clara, CA                2,986            6/01             8.125%

Prudential Secured Loan      10300 Bubb, Cupertino, CA                  130,000           10/08             6.56%
                            
                             10500 N. DeAnza, Cupertino, CA
                             4050 Starboard, Fremont, CA
                             45700 Northpoint Loop, Fremont, CA
                             45738 Northpoint Loop, Fremont, CA
                             450-460 National, Mountain View, CA
                             4949 Hellyer, San Jose, CA
                             6311 San Ignacio, San Jose, CA
                             6321 San Ignacio, San Jose, CA
                             6325 San Ignacio, San Jose, CA
                             6331 San Ignacio, San Jose, CA
                             6341 San Ignacio, San Jose, CA
                             6351 San Ignacio, San Jose, CA
                             3236 Scott, Santa Clara, CA
                             3560 Bassett, Santa Clara, CA
                             3570 Bassett, Santa Clara, CA
                             3580 Bassett, Santa Clara, CA
                             1135 Kern, Sunnyvale, CA
                             1212 Bordeaux, Sunnyvale, CA
                             1230 E. Arques, Sunnyvale, CA
                             1250 E. Arques, Sunnyvale, CA
                             1170 Morse, Sunnyvale, CA
                             3540 Bassett, Santa Clara, CA
                             3542 Bassett, Santa Clara, CA
                             3544 Bassett, Santa  Clara, CA
                             3550 Bassett, Santa Clara, CA
                                                                    ----------------
Mortgage Notes Payable Sub-total                                        162,222
                                                                    ================
Total                                                                  $220,046
                                                                    ================
</TABLE>


(1)The  lesser  of Wells  Fargo  prime  rate in  effect on the first day of each
   calendar  month,  or the LIBOR or the Wells Fargo Purchased Funds Rate quoted
   on the first day of each  calendar  month plus 1.65%.  Average  rates for the
   nine months ended September 30, 1998 and the year ended December 31, 1997 was
   7.25%.

(2) One month LIBOR plus 1.625% adjusted monthly.


On September 23, 1998,  the Company,  in its capacity as the general  partner of
the Operating Partnerships, obtained a loan from Prudential Insurance Company of
America in the amount of $130,000. The loan is cross-collateralized  and secured
by a single deed of trust  encumbering 18 properties  improved with 24 buildings
and consisting of  approximately  1.7 million square feet of space, all of which
are owned by the Operating Partnerships. The loan bears interest at a fixed rate
of 6.56% per annum and is payable in monthly installments of $827 which includes
principal (based upon a 30 year amortization) and interest.  The net proceeds of
the loans were used to pay off  approximately  $14,553 of mortgage notes payable
with the remaining amount used to reduce the outstanding  principal balance owed
under the mortgage notes payable (related parties).

                                      -8-
<PAGE>

Costs and fees  incurred  in  connection  with  obtaining  this loan  aggregated
approximately $900.

On September 30, 1998, the Operating  Partnerships  assumed lines of credit with
Wells Fargo Bank N.A.  (the "Wells Fargo  Line") from the Berg Group.  The Wells
Fargo Line matures  October  1999 and bears  interest at the lesser of the Wells
Fargo prime rate in effect on the first day of each calendar  month, or LIBOR or
the Wells Fargo Funds Rate quoted on the first day of each  calendar  month plus
1.65%.  Borrowings outstanding at September 30, 1998 were $39,044.  Availability
under the Wells  Fargo  Line was  $60,956.  The Wells  Fargo  Line is  currently
collateralized by 14 properties owned the Operating Partnerships.

Scheduled principal payments on debt, are as follows:

<TABLE>
<CAPTION>
                                                  Lines    Mortgage     Mortgage
                                                   of       Notes        Notes        Total
                                                 Credit    Payable      Payable
                                                                       (Related
                                                                       Parties)
                                                --------  ---------  --------------  -------
      <S>                                       <C>       <C>        <C>            <C> 
      Three months ending December 31, 1998                   $475                      $475
      Year ending December 31, 1999              $39,044     2,479       $18,780      60,303
      Year ending December 31, 2000                          5,776                     5,776
      Year ending December 31, 2001                          5,488                     5,488
      Year ending December 31, 2002                          2,966                     2,966
      Year ending December 31, 2003                          3,196                     3,196
      Thereafter                                           141,842                   141,842
                                                ========  =========  ==============  =======
                                                $39,044   $162,222       $18,780    $220,046
                                                ========  =========  ==============  =======
</TABLE>

4.    RELATED PARTY TRANSACTIONS

As a  result  of the  acquisition  of the  Company's  sole  general  partnership
interest in the Operating Partnerships,  the Company's outstanding debt includes
amounts  payable to BBE which are  collateralized  by certain of the  properties
owned by the Operating  Partnerships.  This amount is included in mortgage notes
payable (related  parties) on the consolidated  balance sheet.  Such amounts are
due March 1999 and accrue  interest at a rate equal to that charged on the Wells
Fargo Line.  Interest  expense  incurred in connection with this debt was $3,183
for the three and nine  months  ended  September  30,  1998 and is  included  in
interest expense (related  parties) in the consolidated  financial  statement of
operations.

The  Company  currently  leases  space  owned by Berg & Berg  Enterprises,  Inc.
("BBE"),  an  affiliate  of Carl E. Berg and Clyde J. Berg.  Rental  amounts and
overhead  reimbursements  paid to BBE were $20 and $40 for the three  months and
nine months ended September 30, 1998, respectively.

5. MINORITY INTEREST

Minority  interest  represents the separate  private  ownership in the amount of
87.89% of the Operating  Partnerships.  Minority interest has been calculated in
accordance with EITF 94-4. A reconciliation of minority interest as shown on the
face of the consolidated statements of operations is as follows:

<TABLE>
<CAPTION>
                                                            Three Months
                                                               Ended
                                                             September
                                                              30, 1998
                                                           --------------
      <S>                                                      <C>
      Income before minority interest                           $5,519
      Interest income on Demand Notes                              613
                                                           --------------
      Income attributable to Operating Partnerships             $6,132
      Minority interest ownership percent                       87.89%
                                                           ==============
      Income attributable to minority interest                  $5,389
                                                           ==============
</TABLE>

The minority  interest for the three months ended September 30, 1998 is the same
as that for the nine months ended September 30, 1998 because the Company did not
acquire its interests in the Operating Partnerships until July 1, 1998

In order to effect the closing of the Company's  acquisition of the sole general
partnership interests in the Operating Partnerships,  the Company issued to each
of the  partnerships  a Demand Note which bears  interest at a rate of 7.25% and
the total principal amount of the Demand Notes issued was $35,200. Subsequent to
July 1, 1998,  the Company has made a partial  payment of  approximately  $1,331
under the Demand Notes, which have been eliminated in consolidation.

                                      -9-

<PAGE>

The  stand-alone  financial  statements  of the Operating  Partnerships  include
interest  income due from the Company  related to $35,200 of Demand Notes.  Such
interest  income  (interest  expense to the Company) has been  eliminated in the
consolidated statements of operations.


6.    ISSUANCE OF COMMON STOCK

On March 30, 1998,  the Company  issued  200,000 shares of common stock at $4.50
per share to an  executive  officer of the Company in  exchange  for a $900 note
receivable payable to the Company.  The note is a full recourse  promissory note
bearing  interest  at 5.59% and is  collateralized  by a pledge  of the  shares.
Interest is payable annually and principal is due March 30, 2003.

During the second quarter of 1998,  the Company  received total payments of $293
relating to amounts  receivable from the private  placements of shares of Common
Stock in November 1997.


                                      -10-
<PAGE>

===============================================================================
ITEM 2
MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS
(in  thousands,  except  share,  square  footage  and limited  partnership  unit
amounts)

This Management's  Discussion and Analysis of Financial Condition and Results of
Operations  should  be read  in  conjunction  with  the  accompanying  condensed
consolidated  financial  statements and notes thereto  contained  herein and the
Company's  consolidated  financial statements and notes thereto contained in the
Company's  Annual Report on Form 10-K as of and for the year ended  December 31,
1997. The results for the three and nine month periods ended  September 30, 1998
are not  necessarily  indicative  of the results to be  expected  for the entire
fiscal  year  ending  December  31,  1998.  The  following  discussion  includes
forward-looking statements, including but not limited to statements with respect
to the Company's  future financial  performance,  operating  results,  plans and
objectives.   Actual  results  may  differ   materially   from  those  currently
anticipated depending upon a variety of factors, including those described below
under the sub-heading, "Forward-Looking Information."

OVERVIEW

Shareholders  previously approved the sale of substantially all of the assets of
the  Company  and the  distribution  of the net  proceeds  of sale on a pro rata
basis. Subsequent to the distribution,  Carl E. Berg approached the Company with
a proposal to purchase  the  Company,  and,  rather than  dissolve  the Company,
continue  the  business  of the  Company  with  a  portfolio  of new  investment
properties.  After the  purchase of shares in the  Company by one of Mr.  Berg's
entities  and  other  accredited  investors  and the final  distribution  to all
previous  shareholders in October 1997, the AMEX halted trading of the Company's
Common  Stock   because  the  Company  no  longer  met  AMEX   minimum   listing
requirements.

In May 1998, the Company,  Mr. Berg, members of his immediate family and certain
entities which they control (the "Berg Group") and certain other persons entered
into an agreement (the "Acquisition  Agreement")  providing,  among other things
for the Company's  acquisition  of interests as the sole general  partner in the
four existing limited  partnerships  (referred to collectively as the "Operating
Partnerships"),  which hold  approximately  4.34 million rentable square feet of
office/research and development/manufacturing  space ("R&D Property") located in
the portion of the San Francisco Bay Area known as "Silicon  Valley,"  effective
as of July 1, 1998, as well as rights to acquire  additional R&D Properties,  as
described below, after shareholder  approval.  In July 1998, the Company and all
parties  to  the  Acquisition  Agreement  agreed  to  consummate  the  Company's
acquisition  of the general  partner  interests in the  Operating  Partnerships,
effective  for financial  statement and income tax and reporting  purposes as of
July 1, 1998 (the  "Partnership  Closing")  to enable  the  Company  to  include
results  of  operations,  assets  and  other  financial  data for the  Operating
Partnerships with the Company's consolidated financial statements for the second
half of 1998. The Company effected the Partnership Closing by issuing to each of
the Operating  Partnerships a demand note ("Demand Note") bearing 7.25% interest
aggregating $35.2 million of principal, as provided in the Acquisition Agreement
as amended by the  parties  effective  as of July 1, 1998.  Each  Demand Note is
payable no later than July 1, 2000.

As a  consequence  of the  Partnership  Closing,  the Company now  controls  the
Operating  Partnerships,  all of which  are  governed  by the  Delaware  Revised
Uniform   Limited   Partnership  Act   ("DRULPA").   The  individual   Operating
Partnerships  are named  Mission West  Properties,  L.P.  ("MWP"),  Mission West
Properties,  L.P. I ("MWP I"), Mission West  Properties,  L.P. II ("MWP II") and
Mission  West  Properties,  L.P. III ("MWP III").  MWP was  organized  under the
DRULPA in 1995; MWP I and MWP II were general  partnerships  formed more than 15
years ago which converted to limited  partnerships  under the DRULPA in December
1997;  and MWP III was formed in 1983 as a California  limited  partnership  and
converted to a Delaware limited  partnership under the DRULPA at the Partnership
Closing.  No new entity  has been  created in  connection  with the  Partnership
Closing,  and the Company does not intend to create a new entity to conclude any
aspect of such  closing.  All limited  partnership  interests  in the  Operating
Partnerships  were  converted  into  59,479,633  units  of  limited  partnership
interest  ("L.P.  Units") in connection  with the  Partnership  Closing.  In the
aggregate those L.P. Units represent  ownership of  approximately  87.89% of the
Operating Partnerships.

Prior to the Partnership Closing,  MWP, MWP I and MWP II were controlled by Carl
E. Berg and his  brother  Clyde J. Berg,  who have been  engaged in  developing,
owning, operating, acquiring and selling Silicon Valley R&D Properties under the
name  "Berg & Berg  Developers"  ("Berg & Berg")  for  nearly 30 years.  Another
Silicon Valley developer, John T. Kontrabecki ("Kontrabecki") controlled MWP III
as its sole general partner prior to the Partnership Closing, and Carl and Clyde
Berg owned 50% of that partnership as limited partners. Prior to the Partnership
Closing,  certain members of the Berg Group held R&D Properties  outside of MWP,
MWP I and MWP

                                      -11-
<PAGE>

II, and Mr.  Kontrabecki  was a general  partner in two other  partnerships  (in
which members of the Berg Group held substantial limited partner interests).  To
consolidate title to those R&D Properties in a single entity, the parties agreed
pursuant  to the  Acquisition  Agreement  to  contribute  their  respective  R&D
Properties to MWP in exchange for L.P.  Units.  By amendment to the  Acquisition
Agreement,  all  the  proposed  transfers  to MWP  occurred  at the  Partnership
Closing,  except for the  conveyance  of  certain  R&D  Properties  representing
approximately  0.144 million  rentable  square feet (the  "Fremont  Properties")
which was consummated in September, 1998.

Of the total R&D  Properties  rentable  square footage owned and operated by the
Operating   Partnerships   following  the  Partnerships'   Closing,   properties
representing  approximately  3.78  million  rentable  square  feet were owned or
controlled by members of the Berg Group and constitute the historical properties
managed by Berg & Berg (the "Berg Properties"). Other R&D Properties, consisting
of approximately 0.56 million rentable square feet, (the "Acquired  Properties")
represent the Fremont  Properties and certain R&D Properties  (the  "Kontrabecki
Properties")  held by the three limited  partnerships  previously  controlled by
Kontrabecki.

Under the Acquisition  Agreement,  all L.P. Units in the Operating  Partnerships
may be exchanged for shares of Common Stock of the Company pursuant to the terms
of an Exchange Rights  Agreement (the "Exchange  Rights  Agreement").  Under the
terms of the Acquisition  Agreement,  the Operating Partnerships and the Company
also have agreed to the terms of a Pending Projects  Acquisition  Agreement (the
"Pending Projects Acquisition Agreement"),  which permits the acquisition by the
Operating  Partnerships of approximately one million additional  rentable square
feet upon the  completion  and  leasing of a number of the  Pending  Development
Projects  owned  by  certain  members  of  the  Berg  Group  and  under  current
development by Berg & Berg Enterprises, Inc. ("BBE").

The owners of the Pending  Development  Projects  may obtain  cash,  or at their
option L.P.  Units.  A total of 33,919,072  L.P. Units may be issued in exchange
for the Pending  Development  Projects.  Subject to shareholder  approval of the
Pending  Projects  Acquisition  Agreement,  those  units  may be  exchanged  for
33,919,072 shares of Common Stock pursuant to the Exchange Rights Agreement.  On
August 6, 1998,  Berg & Berg and Microsoft  Corporation  ("Microsoft")  signed a
lease  with  respect  to an  approximate  515,000  square  foot  property  to be
constructed by Microsoft on L'Avenida in Mountain View,  California,  one of the
sites  comprising  the Pending  Development  Projects.  Microsoft  controls  the
construction  of this  facility,  which is  scheduled  to be completed in phases
between  March and May 1999.  The Company will acquire the R&D  Properties to be
built on the L'Avenida site when and if construction  has been completed and the
buildings  have been fully leased.  Upon any  acquisition  by the Company of the
Pending  Development  Projects,  their  owners may elect to receive cash or L.P.
Units from the Operating Partnerships.  The Acquisition Agreement also gives the
Company an option to acquire, through the Operating Partnerships, any future R&D
Property  developments  on  approximately  162 net acres of Silicon  Valley land
owned by certain members of the Berg Group (the "Berg Land Holdings")  under the
terms of the Berg Land Holdings Option Agreement (the "Option  Agreement").  The
owners of the Berg Land  Holdings may elect to receive cash or L.P.  Units.  The
Company will not acquire any of these  properties  directly,  but rather will do
this through the Operating Partnership.

In May 1998,  the Company  entered into binding  agreements,  subject to certain
conditions,  to sell  6,495,058  shares  of  Common  Stock at $4.50 per share to
accredited  investors  in  two  private  placement  transactions  ("the  Private
Placement"),  following  shareholder  approval as required by AMEX. Of the total
number of shares to be sold in the  Private  Placement,  5,800,000  shares  were
offered in a placement managed by Ingalls & Snyder LLC ("Ingalls & Snyder"). The
purchasers  of such shares have agreed to pay a placement fee of $0.05 per share
to Ingalls & Snyder, for which the company has no liability. The Company intends
to call a special meeting of shareholders (the "Special Meeting") to approve the
Private  Placement,  ratify the  Company's  acquisition  of its general  partner
interest in the Operating Partnerships, approve the Pending Projects Acquisition
Agreement,  approve  the  Option  Agreement,  approve  the  issuance  of  up  to
93,398,705  shares of Common  Stock in exchange for L.P.  Units  pursuant to the
Exchange Rights  Agreement and approve the Company's  reincorporation  under the
laws of the State of Maryland  through a merger with the Company's  wholly-owned
subsidiary Mission West Properties, Inc. (the "Reincorporation Merger").


RESULTS OF OPERATIONS

COMPARISON OF THE THREE AND NINE MONTH  PERIODS ENDED  SEPTEMBER 30, 1998 TO THE
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997.

The Company's  acquisition  of the  Properties  during the third quarter of 1998
substantially  altered the Company's  operations.  As a  consequence,  operating
results for that  three-month  period and the nine-month  period ended September
30,  1998 are not  meaningfully  comparable  to  operating  results for the same
periods of 1997.

                                      -12-
<PAGE>

For the period from July 1, 1998 to September  30, 1998,  rental  revenues  from
real estate were $13,317,  which included a positive adjustment of $752 in order
to reflect rental revenues on a straight-line basis. Tenant  reimbursements were
$2,101, and other income, including interest, was $37. Expenses in the three and
nine  months  ended  September  30,  1998 of $9,936  and  10,503,  respectively,
includes  $9,657 of costs related  directly to the Company's  acquisition of its
general partnership interest in the Operating  Partnerships,  with the remaining
$279 and $846 resulting from general and administrative costs.

Income  before  minority  interest  was $5,519 and $5,093 for the three and nine
months ended September 30, 1998,  respectively.  Minority interest in income was
$5,389 for the three and nine months ended September 30, 1998,  resulting in net
income of $130 and a net loss of $(296)  for those same  periods,  respectively.
Minority interest  represents the limited partners' ownership interest of 87.89%
in the Operating Partnerships, as calculated in accordance with EITF 94-4.

During the nine month period  ended  September  30,  1997,  the Company sold its
entire real estate portfolio of 11 properties. Of the 11 real estate properties,
nine properties  ("the nine  properties")  were sold during the first quarter of
1997.  The nine  properties  consisted  of  occupied  office,  light  industrial
buildings and vacant land in Chandler,  Arizona.  The  remaining two  properties
were sold in the second  quarter of 1997 and consisted of  leaseholds,  together
with hangar and office buildings,  thereon,  comprising approximately 25 percent
of the land at Palomar-McClellan Airport in San Diego, California.

Upon completion of the sale of the nine properties, the Company received $47,200
in cash,  from which it repaid all debt  encumbering  the  properties  (thus the
elimination of all future  interest  expense) and paid a majority of the related
transaction  and  closing  costs,  including  $3,000  in  "break-up"  fees  from
previously  terminated  sales  transactions.  Upon  completing  the  sale of the
remaining two  properties in the second  quarter of 1997,  the Company  received
$3,000 cash,  from which related  transaction  and closing costs were paid.  The
Company recognized a net gain on the sale of the eleven properties of $4,676.

The  Company  declared  a special  dividend  of $9.00 per share to  shareholders
during  February 1997. That dividend  represented  the available  portion of the
proceeds from the sale of the nine properties.

Following the sale of all 11 properties, coupled with the cash dividends paid to
shareholders, only cash and receivables were left in the Company and, therefore,
the  resulting  corporate  entity  had  insignificant   revenue-generating   and
cash-generating  capabilities and minimal operations, aside from interest income
and general and administrative expenses, until the acquisition of the Properties
at the Partnership Closing in July 1998.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 1998,  the Company had total  indebtedness  remaining on the
Properties of approximately $220,000. The $130,000 Prudential Secured Loan bears
an interest rate of 6.56%,  maturing October 15, 2008, and is payable in monthly
installments of principal  (based upon a 30 year  amortization)  and interest of
$827. The Company has paid total fees of  approximately  $900 in connection with
this loan.  The Company also has $60,956  available to borrow under two lines of
credit with Wells Fargo Bank N.A.  (the "Wells Fargo Line")  totaling  $100,000,
which the Company and the  Operating  Partnerships  assumed  from the Berg Group
effective  September 30, 1998.  The Wells Fargo Line expires in October 1999 and
is secured by 14 Properties. The Company has additional secured loans (including
related party loans) totaling $51,000, which are secured by 13 Properties.

HISTORICAL CASH FLOWS

Net cash provided by operating  activities  for the nine months ended  September
30,  1998 was  $10,636  compared  to net cash used in  operating  activities  of
$(1,342)  for the same  period in 1997.  The change  was a direct  result of the
Company's acquisition of a 12.11% general partnership interests in the Operating
Partnerships.

Net cash used in  investing  activities  was  $(118) for the nine  months  ended
September  30, 1998  compared to net cash  provided by investing  activities  of
$46,443 for the same period in 1997.  Cash used in investing  activities  during
1998 related solely to improvements made to existing real estate assets acquired
as part of the  Company's  investment in the  Operating  Partnerships.  Net cash
provided by investing  activities in 1997 related  solely to the sales  proceeds
realized by the  Company on the final  disposition  of its real estate  holdings
held prior to 1998.

Net cash used in financing  activities  was  $(13,310) for the nine months ended
September  30, 1998  compared to $(42,916)  for the same period in 1997.  During
1998,  the Company  reduced  debt  outstanding  by utilizing  proceeds

                                      -13-
<PAGE>

from new  borrowings  and cash  provided by operating  activities.  For the nine
months ended  September 30, 1997, the Company paid off all debt which existed at
that time, and also made dividend payments aggregating $13,798.

CAPITAL EXPENDITURES

The  Properties  require  periodic  investments  of capital  for  tenant-related
capital expenditures and for general capital  improvements.  For the years ended
December 31, 1993 through  December 31, 1997, the recurring  tenant  improvement
costs and  leasing  commissions  incurred  with  respect to new leases and lease
renewals of the Berg Properties averaged  approximately $1,500 annually.  Of the
Acquired  Properties,  83,902  square  feet of space is subject  to leases  that
expire  between  January 1, 1998 and December  31,  2001.  The Company will have
approximately 416,000 square feet under expiring leases annually from January 1,
1998 through December 31, 2000. The Company expects that the average annual cost
of  recurring  tenant  improvements  and  leasing  commissions,  related  to the
properties,  will be approximately  $1,500 from January 1, 1998 through December
31, 2000. It expects to recover substantially all of these sums from the tenants
under the new or renewed leases through  increases in rental rates.  The Company
expects to meet its long-term liquidity requirements for the funding of property
development,  property  acquisitions  and other material  non-recurring  capital
improvements  through  long-term  secured  and  unsecured  indebtedness  and the
issuance of additional equity securities by the Company.

FUNDS FROM OPERATIONS

As  defined  by the  National  Association  of  Real  Estate  Investment  Trusts
("NAREIT"),  FFO  represents  net income  (loss)  before  minority  interest  of
unitholders (computed in accordance with GAAP), excluding gains (or losses) from
debt restructuring and sales of property,  plus real estate related depreciation
and  amortization  (excluding  amortization  of  deferred  financing  costs  and
depreciation of non-real estate assets) and after adjustments for unconsolidated
partnerships and joint ventures. Management considers FFO an appropriate measure
of performance  of an equity REIT because,  along with cash flows from operating
activities, financing activities and investing activities, it provides investors
with an  understanding  of the Company's  ability to incur and service debt, and
make capital  expenditures.  FFO should not be considered as an alternative  for
net  income as a measure of  profitability  nor is it  comparable  to cash flows
provided by operating activities  determined in accordance with GAAP. FFO is not
comparable  to  similarly  entitled  items  reported  by other REITs that do not
define them exactly as the Company defines FFO.

<TABLE>
<CAPTION>
                                      For the      For the Nine    Pro Forma
                                       Three          Months         Nine
                                       Months         Ended         Months
                                       Ended        September        Ended
                                     September      30, 1998       September
                                     30, 1998                       30, 1998
                                   -------------  -------------  ------------
     Funds from Operations:
     <S>                              <C>           <C>            <C>
     Net income / (loss)                $130          $(296)          $401
        Add back:
         Minority interest             5,389          5,389         18,129
         Real estate depreciation      2,638          2,638          7,936
                                   -------------  -------------  ------------
     Total funds from operations      $8,157         $7,731        $26,466
                                   =============  =============  ============
</TABLE>

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

The  Company  does  not  believe  recently  issued  accounting   standards  will
materially impact on the Company's financial statements.

YEAR 2000

The Company  utilizes  computer  software for its  corporate  and real  property
accounting  records and to prepare its financial  statements.  The vendor of the
Company's current principal  software  accounting system has advised the Company
that it will provide a Year 2000  compliant  software  upgrade to the Company in
early 1999.  If necessary,  the Company  could  prepare all required  accounting
entries manually without incurring material additional operating expenses.

Conceivably,  tenants of the Properties  could  experience  delays in processing
their accounting  records and making required lease payments,  if they encounter
Year 2000 compliance problems. The Company does not believe that any such delays
would have a material adverse effect on the Company.

                                      -14-
<PAGE>

FORWARD LOOKING INFORMATION

This quarterly report contains forward-looking  statements within the meaning of
the federal securities laws. The Company intends such forward-looking statements
to be covered  by the safe  harbor  provisions  for  forward-looking  statements
contained in the Private  Securities  Reform Act of 1995,  and is including this
statement  for  purposes  of  complying  with  these  safe  harbor   provisions.
Forward-looking statements,  which are based on certain assumptions and describe
future  plans,  strategies  and  expectations  of  the  Company,  are  generally
identifiable by use of the words "believe,"  "expect,"  "intend,"  "anticipate,"
"estimate,"  "project" or similar expressions.  The Company's ability to predict
results  or the  actual  effect  of future  plans or  strategies  is  inherently
uncertain.  Factors which could have a material adverse effect on the operations
and future prospects of the Company include, but are not limited to, changes in:
economic  conditions   generally  and  the  real  estate  market   specifically,
legislative or regulatory provisions affecting the Company (including changes to
laws governing the taxation of REITs),  availability of capital, interest rates,
competition,  supply of and demand for office and  industrial  properties in the
Company's current and proposed market areas, and general accounting  principles,
policies and  guidelines  applicable  to REITs.  These risks and  uncertainties,
together  with the other  risks  described  from  time to time in the  Company's
reports and documents filed with the Securities and Exchange Commission,  should
be considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements.

                                      -15-
<PAGE>

===============================================================================
PART II - OTHER INFORMATION

ITEM 2
CHANGES IN SECURITIES AND USE OF PROCEEDS

The  information  provided in Part I,  "Management's  Discussion and Analysis of
Financial  Condition  and Results of Operations - Overview" is  incorporated  by
reference in response to this item.

ITEM 5
OTHER INFORMATION

RECENT DEVELOPMENTS

The Company's Form S-4 Registration  Statement No.  333-52835,  filed on May 15,
1998,  as amended on October 27,  1998 (the "S-4  Registration  Statement"),  is
incorporated  by  reference  into  this  Form  10-Q.  The  section  of  the  S-4
Registration  Statement entitled "RISK FACTORS" is specifically  incorporated by
reference into Item 2 Part I, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K

      a.   EXHIBITS

           None.

      b.   REPORTS ON FORM 8-K

           During the quarter  ended  September  30, 1998,  the Company filed no
           reports on Form 8-K.

                                      -16-
<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 thereto duly authorized.


                                  Mission West Properties
                                  (Registrant)


Date: October 27, 1998            By: /s/ Marianne K. Aguiar
                                  ---------------------------
                                  Marianne K. Aguiar
                                  Vice President of Finance and Controller
                                  (Principal Accounting Officer)

                                      -17-