UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   -----------

                                    Form 10-Q


             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005

                          COMMISSION FILE NUMBER 1-8383


                          MISSION WEST PROPERTIES, INC.
             (Exact name of registrant as specified in its charter)

                Maryland                                     95-2635431
                --------                                     ----------
(State or other jurisdiction of incorporation    (I.R.S. Employer Identification
            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
                                   -----------


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

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]


                      APPLICABLE ONLY TO CORPORATE ISSUERS

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

                18,352,691 shares outstanding as of July 31, 2005




<PAGE>

                          MISSION WEST PROPERTIES, INC.

                                    FORM 10-Q
                       FOR THE QUARTER ENDED JUNE 30, 2005


                                      INDEX
<TABLE>
<CAPTION>
                                                                                                                    PAGE

PART I        FINANCIAL INFORMATION

<S>          <C>                                                                                                    <C>
   Item 1.    Financial Statements:

              Consolidated Balance Sheets as of June 30, 2005 (unaudited)
              and December 31, 2004 ..................................................................................2

              Consolidated Statements of Operations for the
              three and six months ended June 30, 2005 and 2004 (unaudited)...........................................3

              Consolidated Statements of Cash Flows for the
              six months ended June 30, 2005 and 2004 (unaudited).....................................................4

              Notes to Consolidated Financial Statements (unaudited)..................................................5

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

   Item 3.    Quantitative and Qualitative Disclosures about Market Risk.............................................23

   Item 4.    Controls and Procedures................................................................................24


PART II       OTHER INFORMATION

   Item 1.    Legal Proceedings......................................................................................25

   Item 4.    Submission of Matters to a Vote of Security Voters.....................................................25

   Item 6.    Exhibits ..............................................................................................25

SIGNATURES...........................................................................................................26

</TABLE>

Exhibit Index

Certifications:

Section 1350 Certificates
Certificate pursuant to Section 906 of the Sarbanes Oxley Act of 2002

                                     - 1 -

<PAGE>

PART I - FINANCIAL INFORMATION
ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

                          MISSION WEST PROPERTIES, INC.
                           CONSOLIDATED BALANCE SHEETS
           (dollars in thousands, except share and per share amounts)
                                    ---------
<TABLE>
<CAPTION>
                                                                                    June 30, 2005          December 31, 2004
                                                                                 ---------------------   ----------------------
                                     ASSETS                                           (unaudited)
<S>                                                                                  <C>                     <C>
Real estate assets, at cost:
    Land                                                                              $  277,647              $  273,663
    Buildings and improvements                                                           778,277                 770,757
    Real estate related intangible assets                                                 17,410                  18,284
                                                                                 ---------------------   ----------------------
       Total investments in properties                                                 1,073,334               1,062,704
    Less accumulated depreciation and amortization                                      (120,623)               (110,062)
    Assets held for sale, net of accumulated depreciation of $1,578 at 12/31/04                -                   8,221
                                                                                 ---------------------   ----------------------
       Net investments in properties                                                     952,711                 960,863
Cash and cash equivalents                                                                  1,565                   1,519
Restricted cash                                                                            1,551                   1,551
Note receivable, net of deferred gain on sale of real estate of $1,345 at 6/30/05          2,715                       -
Deferred rent receivable, net of $2,000 allowance at 6/30/05 and 12/31/04                 19,401                  18,511
Investment in unconsolidated joint venture                                                 3,436                   3,559
Other assets, net of accumulated amortization of $6,737 and $5,667
    at 6/30/05 and 12/31/04, respectively                                                 26,258                  19,653
                                                                                 ---------------------   ----------------------
       Total assets                                                                  $ 1,007,637             $ 1,005,656
                                                                                 =====================   ======================

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
    Line of credit (related parties)                                                 $       444             $     9,560
    Revolving line of credit                                                              19,172                  24,208
    Mortgage notes payable                                                               314,506                 292,822
    Mortgage notes payable (related parties)                                              10,239                  10,420
    Interest payable                                                                         327                     327
    Security deposits                                                                      8,509                   8,544
    Deferred rental income                                                                 9,290                  11,038
    Liabilities related to assets held for sale                                                -                      14
    Dividend/distribution payable                                                         16,718                  16,718
    Accounts payable and accrued expenses                                                  7,215                   6,704
                                                                                 ---------------------   ----------------------
       Total liabilities                                                                 386,420                 380,355

Commitments and contingencies

Minority interests                                                                       506,208                 512,089

Stockholders' equity:
    Preferred stock, $.001 par value, 20,000,000 shares authorized,
       none issued and outstanding                                                             -                       -
    Common stock, $.001 par value, 200,000,000 shares authorized,
       18,352,691 and 18,097,191 shares issued and outstanding
       at 6/30/05 and 12/31/04, respectively                                                  18                      18
    Paid-in-capital                                                                      137,067                 134,539
    Accumulated deficit                                                                  (22,076)                (21,345)
                                                                                 ---------------------   ----------------------
     Total stockholders' equity                                                          115,009                 113,212
                                                                                 ---------------------   ----------------------
     Total liabilities and stockholders' equity                                      $ 1,007,637             $ 1,005,656
                                                                                 =====================   ======================
</TABLE>

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

                                     - 2 -
<PAGE>


                          MISSION WEST PROPERTIES, INC
                      CONSOLIDATED STATEMENTS OF OPERATIONS
           (dollars in thousands, except share and per share amounts)
                                   (unaudited)
                                    ---------

<TABLE>
<CAPTION>
                                                               Three months ended June 30,            Six months ended June 30,
                                                                2005                2004               2005              2004
                                                         ------------------ ------------------- ------------------ -----------------
Revenues:
<S>                                                          <C>               <C>               <C>                 <C>
   Rental revenue from real estate                               $25,104           $29,821           $51,351             $61,032
   Tenant reimbursements                                           3,594             3,716             7,222               7,883
   Other income, including lease terminations,
       settlements and interest                                    2,289             4,612             2,592               5,005
                                                         ------------------ ------------------- ------------------ -----------------
        Total revenues                                            30,987            38,149             61,165             73,920
                                                         ------------------ ------------------- ------------------ -----------------

Expenses:
   Property operating, maintenance and real estate taxes           4,129             5,133              9,019             10,586
   Interest                                                        5,905             4,220             10,552              8,583
   Interest (related parties)                                        243               252                549                504
   General and administrative                                        443               885              1,118              1,233
   Depreciation and amortization of real estate                    5,369             5,611             10,942             11,052
                                                         ------------------ ------------------- ------------------ -----------------
        Total expenses                                            16,089            16,101             32,180             31,958
                                                         ------------------ ------------------- ------------------ -----------------
Income before equity in earnings of unconsolidated
   joint venture and minority interests                           14,898            22,048             28,985             41,962
Equity in earnings of unconsolidated joint venture                   393               627                387              1,218
Minority interests                                               (12,594)          (18,871)           (24,272)           (35,915)
                                                         ------------------ ------------------- ------------------ -----------------
   Income from continuing operations                               2,697             3,804              5,100              7,265
                                                         ------------------ ------------------- ------------------ -----------------

Discontinued operations, net minority interests:
Gain from disposal of discontinued operations                          -                 -                 14                  -
(Loss)/income attributable to discontinued operations                 (2)               (9)               (12)                53
                                                         ------------------ ------------------- ------------------ -----------------
    (Loss)/income from discontinued operations                        (2)               (9)                 2                 53
                                                         ------------------ ------------------- ------------------ -----------------

Net income to common stockholders                                $ 2,695           $ 3,795            $ 5,102            $ 7,318
                                                         ================== =================== ================== =================
Net income to minority interests                                 $12,587           $18,838            $24,282            $36,108
                                                         ================== =================== ================== =================
Income per share from continuing operations:
    Basic                                                          $0.15             $0.21              $0.28              $0.40
                                                         ================== =================== ================== =================
    Diluted                                                        $0.15             $0.21              $0.28              $0.40
                                                         ================== =================== ================== =================
Income per share from discontinued operations:
    Basic                                                              -                 -                  -              $0.01
                                                         ================== =================== ================== =================
    Diluted                                                            -                 -                  -                  -
                                                         ================== =================== ================== =================
Net income per share to common stockholders:
    Basic                                                          $0.15             $0.21              $0.28              $0.41
                                                         ================== =================== ================== =================
    Diluted                                                        $0.15             $0.21              $0.28              $0.40
                                                         ================== =================== ================== =================
Weighted average shares of
    common stock outstanding (basic)                          18,257,982        18,016,356         18,184,661         17,992,886
                                                         ================== =================== ================== =================
Weighted average shares of
    common stock outstanding (diluted)                        18,283,058        18,079,139         18,229,245         18,075,734
                                                         ================== =================== ================== =================
</TABLE>

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

                                      - 3 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)
                                   (unaudited)
                                    ---------

<TABLE>
<CAPTION>
                                                                                                    Six months ended June 30,
                                                                                                     2005                2004
                                                                                             ------------------- -------------------
Cash flows from operating activities:
<S>                                                                                             <C>                  <C>
     Income from continuing operations                                                           $   5,100            $   7,265
     Adjustments to reconcile net income to net cash provided by operating activities:
            Gain from disposal of discontinued operations                                               14                    -
            (Loss)/income attributable to discontinued operations                                      (12)                  53
            Minority interests                                                                      24,282               36,108
            Depreciation and amortization of real estate and in place leases                        10,976               11,216
            Amortization of above market rent intangible asset                                         944                  944
            Gain on sale of real estate                                                                (63)                   -
            Equity in earnings of unconsolidated joint venture                                        (387)              (1,218)
            Distributions from unconsolidated joint venture                                            510                1,000
     Changes in operating assets and liabilities, net of liabilities assumed:
            Deferred rent receivable                                                                  (890)                 148
            Other assets                                                                            (6,605)                 (21)
            Interest payable                                                                             -                   (2)
            Security deposits                                                                          (35)                (348)
            Deferred rental income                                                                  (1,748)               1,458
            Accounts payable and accrued expenses                                                      510                  644
                                                                                             ------------------- -------------------
     Net cash provided by operating activities                                                      32,596               57,247
                                                                                             ------------------- -------------------

Cash flows from investing activities:
     Improvements to real estate assets                                                               (637)                (370)
     Proceeds from sales of real estate                                                              8,387                    -
     Purchase of real estate                                                                       (14,183)                   -
                                                                                             ------------------- -------------------
     Net cash used in investing activities                                                          (6,433)                (370)
                                                                                             ------------------- -------------------

Cash flows from financing activities:
    Proceeds from mortgage loan                                                                     25,800                    -
    Principal payments on mortgage notes payable                                                    (4,116)              (2,608)
    Principal payments on mortgage notes payable (related parties)                                    (181)                (168)
    Net payments under line of credit (related parties)                                             (9,116)              (4,619)
    Net payments under revolving line of credit                                                     (5,036)              (1,452)
    Proceeds from stock options exercised                                                              330                  165
    Minority interest distributions                                                                (27,999)             (41,849)
    Dividends                                                                                       (5,799)              (8,618)
                                                                                             ------------------- -------------------
     Net cash used in financing activities                                                         (26,117)             (59,149)
                                                                                             ------------------- -------------------
     Net increase/(decrease) in cash and cash equivalents                                               46               (2,272)
Cash and cash equivalents, beginning of period                                                       1,519                4,129
                                                                                             ------------------- -------------------
Cash and cash equivalents, end of period                                                         $   1,565            $   1,857
                                                                                             =================== ===================
Supplemental information:
     Cash paid for interest                                                                      $  10,038            $   8,934
                                                                                             =================== ===================
Supplemental schedule of non-cash investing and financing activities:
     Issuance of common stock upon conversion of O.P. units                                      $   2,197            $   1,895
     Issuance of note receiveable from sale of real estate                                       $   4,060            $       -
                                                                                             =================== ===================
</TABLE>

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

                                     - 4 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (dollars in thousands, except share, per share, O.P. units and
                          per square footage amounts)
                                   (unaudited)

     The Company's consolidated financial statements have been prepared pursuant
     to the Securities and Exchange  Commission's ("SEC") rules and regulations.
     The following notes,  which present interim  disclosures as required by the
     SEC, highlight  significant  changes to the notes to the Company's December
     31,  2004  audited  consolidated  financial  statements  and should be read
     together with the financial  statements  and notes thereto  included in the
     Company's Form 10-K. The results of operations for the three and six months
     ended June 30,  2005 are not  necessarily  indicative  of the results to be
     expected for the entire year.

1.   Organization and Formation of the Company

     Mission  West  Properties,  Inc.  ("the  Company")  is a fully  integrated,
     self-administered  and  self-managed  real estate company that acquires and
     manages R&D/office  properties in the portion of the San Francisco Bay Area
     commonly referred to as Silicon Valley. In July 1998, the Company purchased
     an approximate  12.11% of four existing limited  partnerships  (referred to
     collectively as the "operating partnerships") and obtained control of these
     partnerships  by becoming  the sole general  partner in each one  effective
     July 1, 1998 for financial  accounting and reporting purposes.  The Company
     purchased  an  approximate   12.11%  interest  in  each  of  the  operating
     partnerships.   All  limited   partnership   interests  in  the   operating
     partnerships were converted into 59,479,633 operating  partnership ("O.P.")
     units,  which  represented  a limited  partnership  ownership  interest  of
     approximately   87.89%  of  the  operating   partnerships.   The  operating
     partnerships  are the  vehicles  through  which the Company  holds its real
     estate investments,  makes real estate acquisitions, and generally conducts
     its business.

     On December 30, 1998, the Company was reincorporated  under the laws of the
     State of Maryland  through a merger with and into Mission West  Properties,
     Inc. Accordingly,  shares of the former company, Mission West Properties, a
     California  corporation  (no par),  which were  outstanding at December 30,
     1998,  were  converted  into  shares of common  stock  ($.001 par value per
     share) on a one-for-one basis.

     As of June 30, 2005,  the Company owns a  controlling  general  partnership
     interest of 17.34%,  21.63%,  16.14% and 12.38% in Mission West Properties,
     L.P., Mission West Properties, L.P. I, Mission West Properties, L.P. II and
     Mission West Properties, L.P. III, respectively,  which represents a 17.40%
     general  partnership  interest in the  operating  partnerships,  taken as a
     whole, on a consolidated weighted average basis.

     Through the operating  partnerships,  the Company owns interests in 108 R&D
     properties, all of which are located in Silicon Valley.

     The  Company  has  elected to be taxed as a real  estate  investment  trust
     ("REIT") under the Internal Revenue Code of 1986, as amended.  Accordingly,
     no  provision  has been made for income  taxes for the three and six months
     ended June 30, 2005.

     BUSINESS SEGMENT INFORMATION
     The  Company's   primary  business  is  the  ownership  and  management  of
     R&D/office  real  estate  with a  geographic  concentration  in the Silicon
     Valley  of the  San  Francisco  Bay  Area.  Accordingly,  the  Company  has
     concluded it  currently  has a single  reportable  segment for SFAS No. 131
     purposes.

2.   Basis of Presentation

     PRINCIPLES OF CONSOLIDATION AND FINANCIAL STATEMENT PRESENTATION
     The accompanying  consolidated financial statements include the accounts of
     Mission West Properties,  Inc. and its controlled  subsidiaries,  including
     the operating partnerships. All significant intercompany balances have been
     eliminated in consolidation.  The consolidated  financial  statements as of
     and for the three and six months  ended June 30,  2005 and 2004 and related
     footnote  disclosures  are unaudited.  In the opinion of  management,  such
     financial   statements  reflect  all  adjustments   necessary  for  a  fair
     presentation of the results of the interim  periods.  All such  adjustments
     are of a normal recurring nature.

     MINORITY INTERESTS
     Minority  interest   represents  the  separate  private  ownership  of  the
     operating  partnerships  by the Berg Group  (defined  as Carl E. Berg,  his
     brother Clyde J. Berg, members of their respective immediate families,  and
     certain entities they control) and other non-affiliate interests. In total,
     these interests account for approximately 83% of the ownership interests in
     the real estate  operations  of the Company as of June 30,  2005.  Minority
     interest  in net  income  is  calculated  by taking  the net  income of the
     operating   partnerships  (on  a  stand-alone   basis)  multiplied  by  the
     respective minority interest ownership percentage.

     RECLASSIFICATIONS
     Certain  reclassifications  have been made to the previously  reported 2004
     statements in order to conform to the 2005 presentation.

                                     - 5 -

<PAGE>


                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
         (dollars in thousands, except share, per share, O.P. units and
                          per square footage amounts)
                                   (unaudited)

     ACCOUNTING FOR STOCK-BASED COMPENSATION
     SFAS No. 123, "Accounting for Stock-Based  Compensation,"  encourages,  but
     does not require  companies  to record  compensation  cost for  stock-based
     employee  compensation  plans at fair  value.  The  Company  has  chosen to
     continue to account for stock-based  compensation using the intrinsic value
     method  prescribed in Accounting  Principles  Board Opinion ("APB") No. 25,
     "Accounting  for Stock Issued to  Employees"  and related  interpretations.
     Accordingly, compensation cost for stock options is measured as the excess,
     if any, of the quoted  market price of the  Company's  stock at the date of
     the grant over the amount an employee must pay to acquire the stock.

     The  following  table   illustrates  the  unaudited  pro  forma  effect  on
     consolidated net income  available to common  stockholders and consolidated
     earnings  per  share if the fair  value  method  had  been  applied  to all
     outstanding  and unvested  stock options for the three and six months ended
     June 30, 2005 and 2004.

<TABLE>
<CAPTION>
                                                              Three Months Ended June 30,         Six Months Ended June 30,
                                                                 2005             2004              2005             2004
                                                            ---------------  ---------------   ---------------  ---------------
                                                                      (dollars in thousands, except per share data)
<S>                                                             <C>             <C>                <C>             <C>
      Historical net income to common stockholders               $2,695          $3,795             $5,102          $7,318
      Deduct compensation expense for stock options determined
           under fair value based method                            (40)            (44)               (59)            (88)
      Allocation of expense to minority interest                     33              36                 48              73
                                                            ---------------  ---------------   ---------------  ---------------
      Pro forma net income to common stockholders                $2,688          $3,787             $5,091          $7,303
                                                            ===============  ===============   ===============  ===============

      Earnings per share - basic:
      Historical net income to common stockholders                $0.15           $0.21              $0.28            $0.41
      Pro forma net income to common stockholders                 $0.15           $0.21              $0.28            $0.41
      Earnings per share - diluted:
      Historical net income to common stockholders                $0.15           $0.21              $0.28            $0.40
      Pro forma net income to common stockholders                 $0.15           $0.21              $0.28            $0.40
</TABLE>


     Options were granted to four employees and three directors totaling 710,000
     during the second quarter 2005, which vests monthly for 33 months,  subject
     to continued employment or other service to the Company.  Each option grant
     has a term  of six  years  from  the  date  of  grant  subject  to  earlier
     termination in certain  events  related to  termination of employment.  The
     options were granted at an exercise price of $10.00 per share.

     On April 27, 2005,  the  Company's  Compensation  Committee of the Board of
     Directors,  in accordance with the provisions of the 2004 Equity  Incentive
     Plan,  unanimously  approved the  following  awards of dividend  equivalent
     rights  ("DER's"),  each such DER representing the current right to receive
     the dividend paid on one share of the Company's common stock,  when paid by
     the Company:

     -    The  non-employee  outside  directors  will each receive  45,000 DER's
          effective  as of the  second  quarter of 2005,  which  will  remain in
          effect as long as the  individual  continues  to serve on the Board of
          Directors; and

     -    Key  employees of the Company  will  receive a total of 155,000  DER's
          effective  as of the  second  quarter of 2005,  which  will  remain in
          effect as long as they continue to be employed by the Company.

     A total of 290,000 DER's were awarded by the  Company's  Board of Directors
     on April  27,  2005.  In the  second  quarter  2005,  the  Company  accrued
     approximately $46 for DER compensention  expense. The Company expects these
     awards to result in additional annual  compensation  expense of $186, based
     on the most recent quarterly dividend of $0.16 per share of common stock.

3.   STOCK TRANSACTIONS

     During the six months ended June 30, 2005, stock options to purchase 40,000
     shares of common stock were exercised at $8.25 per share. Total proceeds to
     the  Company  were $330.  During the same  period,  four  limited  partners
     exchanged  215,500 O.P.  units for 215,500  shares of the Company's  common
     stock under the terms of the December 1998 Exchange Rights  Agreement among
     the Company and all limited partners of the operating partnerships.

                                     - 6 -

<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
         (dollars in thousands, except share, per share, O.P. units and
                          per square footage amounts)
                                   (unaudited)

4.   Discontinued Operations

     Effective  January  1,  2002,  the  Company  adopted  SFAS No.  144,  which
     addresses  financial  accounting  and  reporting  for  the  impairment  and
     disposal of long lived assets.  In general,  income or loss attributable to
     the operations and sale of property and the operations  related to property
     held for sale are classified as discontinued operations in the consolidated
     statements  of  operations.   Prior  period   consolidated   statements  of
     operations  presented in this report have been  reclassified to reflect the
     income or loss  related to  properties  that were held for sale or sold and
     presented as discontinued  operations during the three and six months ended
     June 30,  2005.  Additionally,  all periods  presented  in this report will
     likely  require  further  reclassification  in future periods if additional
     properties are held for sale or property sales occur.

     As of June 30, 2005,  there were no properties under contract to be sold or
     otherwise  disposed  of which  would  qualify  as an asset held for sale or
     discontinued operation.

     During the first  quarter of 2005,  the Company sold two  properties  for a
     combined sales price of $12,750.  Condensed results of operations for these
     properties for the three and six months ended June 30, 2005 and 2004 are as
     follows:

<TABLE>
<CAPTION>
                                                               Three Months Ended June 30,       Six Months Ended June 30,
                                                                 2005             2004             2005             2004
                                                              --------------------------------------------------------------
                                                                                  (dollars in thousands)
                                                                                       (unaudited)
      Revenues
<S>                                                            <C>              <C>            <C>              <C>
         Rental revenue from real estate                             -           $  79          $   14           $   445
         Tenant reimbursements                                       -              23               1                73
         Other income                                                -               1               -                 1
                                                              -----------     ------------     ------------     ------------
            Total revenues                                           -             103              15               519
                                                              -----------     ------------     ------------     ------------

      Expenses
         Property operating, maintenance and real estate taxes  $   10              63              33               109
         Depreciation                                                -              82              33               164
                                                              -----------     ------------     ------------     ------------
           Total expenses                                           10             145              66               273
                                                              -----------     ------------     ------------     ------------

      (Loss)/income from discontinued operations                   (10)            (42)            (51)              246
      Gain on disposition of property                                -               -              63                 -
      Minority interest in (loss)/earnings attributable to
         discontinued operations                                     8              33             (10)             (193)
                                                              -----------     ------------     ------------     ------------
      (Loss)/income from discontinued operations               ($    2)         ($   9)         $    2           $    53
                                                              ===========     ============     ============     ============
</TABLE>

     For the three and six months  ended  June 30,  2005 and 2004,  income  from
     discontinued  operations  included  results  of  operations  from  the  two
     properties that were sold in the first quarter of 2005.

     A deferred gain of approximately $1,400 was recorded on one of the disposed
     properties. The gain will be recognized as revenue based on the installment
     method of profit recognition  because the purchaser of the property did not
     make a  sufficiently  large  down  payment  under  Statement  of  Financial
     Accounting  Standards No. 66 ("SFAS No. 66"),  Accounting for Sales of Real
     Estate. SFAS No. 66 establishes accounting standards for recognizing profit
     or  loss  on  sales  of  real  estate.  Gain  on  the  sale  is  recognized
     proportionately  as  the  seller  receives  payments  from  the  purchaser.
     Interest income is recognized on an accrual basis,  when  appropriate.  The
     Company  recorded a $63 gain in the first quarter 2005,  and the balance of
     the expected gain has been deferred.

     As of June 30, 2005, the note receivable from one of the property sales was
     approximately  $2,715,  net of the expected  deferred  gain on sale of real
     estate of $1,345.

5.   NET INCOME PER SHARE

     Basic  operating net income per share is computed by dividing net income by
     the weighted  average number of common shares  outstanding  for the period.
     Diluted  operating  net income per share is computed by dividing net income
     by the sum of the weighted-average  number of common shares outstanding for
     the period plus the assumed  exercise of all dilutive  securities using the
     treasury stock method.

                                     - 7 -

<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
         (dollars in thousands, except share, per share, O.P. units and
                          per square footage amounts)
                                   (unaudited)

     The computation for weighted average shares is detailed below:

<TABLE>
<CAPTION>
                                                            Three Months Ended June 30,            Six Months Ended June 30,
                                                               2005              2004               2005               2004
                                                         ---------------    --------------     --------------    ---------------
<S>                                                       <C>               <C>                 <C>                <C>
         Weighted average shares outstanding (basic)       18,257,982        18,016,356          18,184,661         17,992,886
         Incremental shares from assumed option exercise       25,076            62,783              44,584             82,848
                                                         ---------------    --------------     --------------    ---------------
         Weighted average shares outstanding (diluted)     18,283,058        18,079,139          18,229,245         18,075,734
                                                         ===============    ==============     ==============    ===============
</TABLE>

     Outstanding options to purchase 647,000 and 272,000 shares in 2005 and 2004
     were  excluded from the  computation  of diluted net income per share under
     the treasury  stock method  because the option  exercise  price was greater
     than the weighted  average  exercise  price of the  Company's  common stock
     during the  respective  periods.  The  outstanding  O.P.  units,  which are
     exchangeable at the unit holder's  option,  subject to certain  conditions,
     for shares of common stock on a  one-for-one  basis have been excluded from
     the diluted net income per share  calculation,  as there would be no effect
     on the  calculation  after adding the minority  interests'  share of income
     back to net income.  The total number of O.P. units outstanding at June 30,
     2005 and 2004 was 86,169,195 and 86,418,195, respectively.

6.   RELATED PARTY TRANSACTIONS

     As of June 30, 2005, the Berg Group owned  77,572,028 O.P. units.  The Berg
     Group's  combined  ownership of O.P. units and shares of common stock as of
     June 30, 2005 represented  approximately 74% of the total equity interests,
     assuming  conversion of the  86,169,195  O.P.  units  outstanding  into the
     Company's common stock.

     The Berg Group has  extended to the  Company a $20,000  line of credit that
     bears  interest  at LIBOR plus  1.30%,  or 4.99% as of June 30,  2005,  and
     matures in March  2006.  The  Company  believes  that the terms of the Berg
     Group  line  of  credit  are  more  favorable  than  those  available  from
     commercial lenders. As of June 30, 2005, debt in the amount of $444 was due
     the Berg Group under the line of credit,  and debt in the amount of $10,239
     was due the Berg Group under a mortgage note established on May 15, 2000 in
     connection with the acquisition of a 50% interest in Hellyer Avenue Limited
     Partnership,  the obligor under the mortgage  note. The mortgage note bears
     interest at 7.65% and is due in June 2010 with principal payments amortized
     over 20 years.  Interest expense incurred in connection with the Berg Group
     line of credit  and  mortgage  note was $243 and $252 for the three  months
     ended June 30, 2005 and 2004,  respectively,  and $549 and $504 for the six
     months ended June 30, 2005 and 2004, respectively.

     During  the first six  months  of 2005 and 2004,  Carl E. Berg or  entities
     controlled by Mr. Berg held financial  interests in several  companies that
     lease space from the operating partnerships,  which include three companies
     in which Mr. Berg has a greater than 10% ownership interest.  These related
     tenants occupy  approximately  48,000 square feet and contributed  $193 and
     $217 in rental  revenue  during the three  months  ended June 30,  2005 and
     2004,  respectively,  and $409 and $433 in rental  revenue  during  the six
     months  ended June 30,  2005 and 2004,  respectively.  Under the  Company's
     charter,  bylaws and agreements with the Berg Group, the individual members
     of the Berg Group are  prohibited  from  acquiring or holding shares of the
     Company's common stock if such acquisition would result in their beneficial
     ownership  percentage of the Company's  common stock causing the Company to
     violate any REIT qualification requirement.

     The Berg Group has an approximately  $2,500  commitment to complete certain
     tenant  improvements in connection  with the Company's 2002  acquisition of
     5345 Hellyer Avenue in San Jose.  The Company  recorded this portion of the
     purchase price paid to the Berg Group as an Other Asset on its Consolidated
     Balance Sheets. The Berg Group plans to satisfy this commitment to complete
     certain tenant  improvements  when  requested by the Company  following the
     approval of the Independent  Directors  Committee of the Company's board of
     directors (the "Independent Directors Committee").

     The Berg  Group has an  approximately  $7,500  commitment  to  complete  an
     approximately  75,000 to 90,000 square foot building in connection with the
     Company's 2001  acquisition of 245 Caspian in Sunnyvale  which is comprised
     of approximately  three acres of unimproved land. The Company recorded this
     portion of the  purchase  price paid to the Berg Group as an Other Asset on
     its  Consolidated  Balance  Sheets.  The Berg Group  plans to satisfy  this
     commitment to construct a building when requested by the Company  following
     the approval of the Independent Directors Committee.

     The Company currently leases office space owned by Berg & Berg Enterprises,
     Inc.,  an affiliate of Carl E. Berg and Clyde J. Berg.  Rental  amounts and
     overhead reimbursements paid to Berg & Berg Enterprises,  Inc. were $23 for
     each of the  three-month  periods  ended June 30, 2005 and 2004 and $45 for
     each of the six-month periods ended June 30, 2005 and 2004.

7.   COMMITMENTS AND CONTINGENCIES

     Neither  the  operating  partnerships,  the  Company's  properties  nor the
     Company  are  subject to any  material  litigation  nor,  to the  Company's
     knowledge,  is any material  litigation  threatened  against the  operating
     partnerships, the properties or the Company. From

                                     - 8 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
         (dollars in thousands, except share, per share, O.P. units and
                          per square footage amounts)
                                   (unaudited)

     time to time,  the Company is engaged in legal  proceedings  arising in the
     ordinary  course of  business.  The  Company  does not  expect  any of such
     proceedings to have a material adverse effect on its cash flows,  financial
     condition or results of operations. The Company is currently involved in or
     has recently concluded the following legal  proceedings,  which it believes
     the  ultimate   outcome  will  have  no  material  adverse  effect  on  its
     consolidated financial statements.

     Republic Properties  Corporation  ("RPC") v. Mission West Properties,  L.P.
     ("MWP"),  in the Circuit  Court of  Maryland  for  Baltimore  City Case No.
     24-C-00-005675.  RPC is a former partner with Mission West Properties, L.P.
     in the Hellyer Avenue Limited  Partnership  ("Hellyer  LP"). In April 2004,
     the Circuit Court for Baltimore City,  Maryland issued a Memorandum Opinion
     in  the  case  and  awarded  damages  of  approximately  $934  to  the  RPC
     plaintiffs,  which  represented  a  liability  of the  Company or MWP.  The
     Company  has a  receivable  from a Berg Group  affiliate  for the amount of
     distributions it received as the successor to RPC's interest in the Hellyer
     LP, which exceeds the amount of the damages  awarded to the RPC parties and
     would be used to pay those damages in the event the decision of the Circuit
     Court is upheld  ultimately.  The Company has never  accounted  for the 50%
     interest  in Hellyer LP that is claimed by RPC as an asset of the  Company.
     In February 2001, the Company filed a suit against RPC in Superior Court of
     the State of  California  for the County of Santa  Clara Case No. CV 796249
     which was stayed  pending  resolution of the Maryland  case. In March 2005,
     the Company  voluntarily  dismissed its California  suit. On March 1, 2005,
     the Maryland Appeals Court ruled in favor of Mission West Properties, L.P.,
     finding that the Circuit  Court of Maryland  lacked  personal  jurisdiction
     over MWP. In April 2005, the decision of the Maryland  Appeals Court became
     final,  and the Company  obtained a court order for the release of a $1,551
     bond, which it posted to remove an attachment order issued to RPC. In April
     2005,  RPC  submitted  a  motion  to the  Superior  Court  of the  State of
     California  effectively asking the court to prevent MWP from dismissing the
     previously  dismissed  California  suit. In July 2005, the Maryland Supreme
     Court agreed to hear an appeal filed by RPC, which is scheduled to occur in
     December 2005.

     In January 2004, the Global Crossing Estate Representative,  for itself and
     the Liquidating Trustee of the Global Crossing Liquidating Trust v. Mission
     West Properties filed an action in United States  Bankruptcy Court Southern
     District of New York Case No.  02-40188  (REG)  asserting  that payments of
     approximately  $815 made in the ordinary  course of business within 90 days
     of the Global  Crossing  bankruptcy  filing were preference  payments.  The
     Company has engaged legal counsel to defend itself in this claim and intend
     to  vigorously  contest the matter.  On February 9, 2005,  the Court held a
     hearing  to  consider  the  objection  filed with  respect to Mission  West
     Properties'  claim.  In April 2005,  the Company filed a motion for summary
     judgment in the United States  Bankruptcy  Court  Southern  District of New
     York  requesting the Court to dismiss the preference  claim. A hearing date
     for the motion for summary judgment has not been scheduled.

     GUARANTEES AND INDEMNITIES
     Under its certificate of incorporation  and bylaws,  the Company has agreed
     to indemnify its officers and directors for certain  events or  occurrences
     arising as a result of the officer or director's  serving in such capacity.
     The  maximum  potential  amount of future  payments  the  Company  could be
     required to make under these indemnification  agreements is unlimited.  The
     Company  believes  the  estimated  fair  value  of  these   indemnification
     agreements is minimal and has no liabilities  recorded for these agreements
     as of June 30, 2005.

     The  Company  also  enters  into   indemnification   provisions  under  its
     agreements  with  other  companies  in the  ordinary  course  of  business,
     typically with lenders, joint venture partners,  contractors,  and tenants.
     Under these provisions the Company generally indemnifies and holds harmless
     the  indemnified  party for losses  suffered or incurred by the indemnified
     party  as a  result  of the  Company's  activities.  These  indemnification
     provisions generally survive termination of the underlying  agreement.  The
     maximum  potential  amount of future payments the Company could be required
     to make under these indemnification  provisions is unlimited.  To date, the
     Company has not incurred material costs to defend lawsuits or settle claims
     related  to these  indemnification  agreements.  As a result,  the  Company
     believes  the  estimated  fair  value  of  these   agreements  is  minimal.
     Accordingly,  the Company has no liabilities  recorded for these agreements
     as of June 30, 2005.

     SEISMIC ACTIVITY
     The Company's  properties  are located in an active seismic area of Silicon
     Valley. Insurance policies currently maintained by the Company do not cover
     seismic  activity,  although  they do  cover  losses  from  fires  after an
     earthquake.

     ENVIRONMENTAL ISSUES
     The environmental  investigations that have been conducted on the Company's
     properties have not revealed any  environmental  liability that the Company
     believes would have a material  adverse effect on its financial  condition,
     results of operations and assets,  and the Company is not aware of any such
     liability.   Nonetheless,   it  is   possible   that  there  are   material
     environmental liabilities of which the Company is unaware. In addition, the
     Company cannot assure that future laws, ordinances, or regulations will not
     impose  any  material   environmental   liability,   or  that  the  current
     environmental  condition of the  properties  has not been,  or will not be,
     affected by tenants and  occupants of the  properties,  by the condition of
     properties in the vicinity of the properties, or by third parties unrelated
     to the Company.

                                     - 9 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
         (dollars in thousands, except share, per share, O.P. units and
                          per square footage amounts)
                                   (unaudited)

     BERG LAND HOLDINGS OPTION AGREEMENT
     On April 27, 2005,  the Berg Group  disclosed  that they  received an offer
     from an unrelated  party to purchase a portion of the Piercy & Hellyer land
     comprised  of  approximately  10 acres  in San  Jose,  California,  that is
     subject to the Berg Land Holdings  Option  Agreement with the Company.  The
     prospective  purchaser has disclosed that they intend to develop "for sale"
     industrial type buildings.  In light of the  overcapacity in the market and
     the Company's  current  inventory of available  buildings for lease in this
     submarket,  the Independent  Directors Committee,  which is responsible for
     reviewing,   evaluating  and   authorizing   action  with  respect  to  any
     transaction  between us and any member of the Berg  Group,  has  authorized
     removal of this  approximately 10 acre parcel of land from the scope of the
     Berg Land Holdings Option Agreement,  subject to the completion of the sale
     to the  unrelated  party.  In making this  determination,  the  Independent
     Directors  Committee  considered a number of factors,  including  risks and
     other  potentially  adverse  consequences  that  could be  associated  with
     acquiring  undeveloped  land  for  future  development.  In the  event  the
     approximately  10 acre parcel of land is not sold to this unrelated  party,
     the  parcel  would not be deemed to be  removed  from the scope of the Berg
     Land Holdings  Option  Agreement and it would remain eligible for potential
     future acquisition under the Berg Land Holdings Option Agreement.

8.   MORTGAGE NOTES PAYABLE

     ALLIANZ LOAN I
     On April 6, 2005, the Company obtained a $25,800 secured mortgage loan from
     Allianz Life  Insurance  Company of North America  ("Allianz  Loan I"). The
     Allianz Loan I matures on April 10, 2020,  and must be paid in full at that
     time,  unless  payment is accelerated by reason of a default or sale of the
     property  that secures the loan.  This loan bears a fixed  interest rate at
     5.56% and principal payments are amortized over 20 years. The mortgage loan
     is secured by one  property.  The Company paid  approximately  $251 in loan
     fees and financing  costs,  which are being amortized over the 15 year loan
     period, and used the proceeds primarily to pay down short-term debt and the
     Berg Group line of credit.

     INTEREST RATE DERIVATIVE
     During the second  quarter of 2005, we entered into cash flow interest rate
     derivative  as a means to hedge  exposure to an increase in interest  rates
     prior to securing a loan  commitment  in connection  with a refinancing  of
     certain  variable rate debt to fixed rate long term mortgage  debt. In June
     2005, the Company secured a 20 year fixed rate mortgage loan commitment for
     $125,000 at 5.22% annual interest rate and closed the derivative  contracts
     shortly  thereafter.  Since the interest rate derivative  contracts did not
     qualify as a designated  cash flow interest  rate hedge in accordance  with
     Statement  of  Financial  Accounting  Standards  No. 133 ("SFAS No.  133"),
     Accounting for Derivative  Instruments and Hedging Activities,  the Company
     recorded an  approximately  $834  charge to interest  expense in the second
     quarter of 2005.

9.   SUBSEQUENT EVENTS

     On July 7, 2005,  the Company  paid  dividends of $0.16 per share of common
     stock to all common stockholders of record as of June 30, 2005. On the same
     date, the operating partnerships paid a distribution of $0.16 per O.P. unit
     to all holders of O.P. units.

     On July 26, 2005,  the Company  obtained a $125,000  secured  mortgage loan
     from Allianz Life Insurance Company of North America ("Allianz")  ("Allianz
     Loan II").  The Allianz Loan II matures on July 10, 2025,  and must be paid
     in full at that time,  unless payment is accelerated by reason of a default
     or sale of one or more of the  properties  that secure the loan.  This loan
     bears a fixed  interest rate of 5.22% and principal  payments are amortized
     over 20 years. The loan can be prepaid subject to certain yield maintenance
     provisions  and is  assumable  with the payment of an  assumption  fee. The
     mortgage   loan  is  secured  by  eight   properties.   The  Company   paid
     approximately  $800  in  loan  fees  and  financing  costs,  which  will be
     amortized over the 20 year loan period. The proceeds will be used primarily
     to repay short-term debt,  retire one long-term  mortgage debt,  reduce the
     balance of the Cupertino  National Bank and Berg Group lines of credit, and
     for other working  capital needs.  In connection  with the Allianz Loan II,
     the Company  entered into a "Loan  Modification  Agreement" with Allianz on
     July 26, 2005, which extends the  amortization  period and maturity date of
     the $25,800 secured mortgage Allianz Loan I from April 10, 2020 to July 10,
     2025. The Allianz Loans I and II now contain cross-default provisions.

     The  Company  entered  into a "Change in Terms  Agreement"  with  Cupertino
     National Bank on July 22, 2005, which reduced the maximum  borrowing amount
     on the  Company's  revolving  line of credit  facility  with that bank from
     $40,000 to $9,000.

                                     - 10 -
<PAGE>

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
     OF OPERATIONS

This Management's  Discussion and Analysis of Financial Condition and Results of
Operations  should be read in  conjunction  with the  accompanying  consolidated
financial  statements and notes thereto  contained  herein and our  consolidated
financial  statements  and notes thereto  contained in our Annual Report on Form
10-K as of and for the year ended  December 31, 2004.  The results for the three
and six months ended June 30, 2005 are not necessarily indicative of the results
to be  expected  for the entire  fiscal  year  ending  December  31,  2005.  The
following  discussion  includes  forward-looking  statements,  including but not
limited  to,  statements  with  respect  to our  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 under the sub-heading, "Forward-Looking Information."

FORWARD-LOOKING INFORMATION

This quarterly report contains forward-looking  statements within the meaning of
the federal  securities  laws. We intend 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.  Additionally,  all  disclosures  under  Part  I,  Item  3
constitute  forward-looking  statements.  Our ability to predict  results or the
actual effect of future plans or strategies is inherently uncertain.

Factors that could have a material  adverse  effect on our operations and future
prospects include, but are not limited to, the following:

-    economic conditions generally and the real estate market specifically,
-    legislative or regulatory  provisions  (including changes to laws governing
     the taxation of REITs),
-    availability of capital,
-    interest rates,
-    competition,
-    supply of and  demand  for R&D,  office and  industrial  properties  in our
     current and proposed market areas,
-    tenant defaults and bankruptcies,
-    lease term expirations and renewals, and
-    changes  in  general   accounting   principles,   policies  and  guidelines
     applicable to REITs.

In addition, the actual timing of development,  construction, and leasing on any
projects  that we  believe  we may  acquire  in the  future  under the Berg Land
Holdings  Option  Agreement is  presently  unknown,  and reliance  should not be
placed  on  the   estimates   concerning   these   projects.   These  risks  and
uncertainties,  together with the other risks described from time to time in our
reports and other 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.

OVERVIEW

We acquire,  market, lease, and manage R&D/office properties,  primarily located
in the Silicon  Valley  portion of the San  Francisco  Bay Area.  As of June 30,
2005, we owned and managed 108  properties  totaling  approximately  8.0 million
rentable   square  feet  through  four   limited   partnerships,   or  operating
partnerships,  for which we are the sole general partner. This class of property
is designed  for research  and  development  and office uses and, in some cases,
includes space for light manufacturing operations with loading docks. We believe
that we have one of the  largest  portfolios  of  R&D/office  properties  in the
Silicon  Valley.  As of June 30, 2005, the six tenants who each leased in excess
of 300,000  rentable  square feet from us were  Microsoft  Corporation,  Fujitsu
America (a  subsidiary  of  Fujitsu  Limited),  JDS  Uniphase  Corporation,  NEC
Electronics America, Inc. (a subsidiary of NEC Electronics  Corporation),  Ciena
Corporation  and Apple Computer,  Inc. For federal income tax purposes,  we have
operated as a self-managed,  self-administered  and fully integrated real estate
investment trust ("REIT") since fiscal 1999.

Our  acquisition,  growth and  operating  strategy  incorporates  the  following
elements:

-    working  with  the Berg  Group to take  advantage  of their  abilities  and
     resources to pursue  development  opportunities  which we have an option to
     acquire, on pre-negotiated terms, upon completion and leasing;
-    capitalizing   on   opportunistic   acquisitions   from  third  parties  of
     high-quality  R&D/office  properties that provide attractive initial yields
     and significant potential for growth in cash-flow;
-    focusing  on  general  purpose,  single-tenant  Silicon  Valley  R&D/office
     properties for  information  technology  companies in order to maintain low
     operating costs, reduce tenant turnover and capitalize on our relationships
     with these  companies  and our  extensive  knowledge  of their real  estate
     needs; and

                                     - 11 -
<PAGE>

-    maintaining prudent financial management  principles that emphasize current
     cash flow while building  long-term  value,  the  acquisition of pre-leased
     properties to reduce  development  and leasing risks and the maintenance of
     sufficient liquidity to acquire and finance properties on desirable terms.

CURRENT ECONOMIC ENVIRONMENT

All of our  properties  are  located in the  Northern  California  area known as
Silicon  Valley,  which  generally  consists of portions of Santa Clara  County,
Southwestern  Alameda  County,  Southeastern  San Mateo County and Eastern Santa
Cruz  County.  The Silicon  Valley  economy and  business  activity  have slowed
markedly since 2001 after fast-paced growth in 1999 and 2000. The Silicon Valley
R&D  property  market  has  historically  fluctuated  with  the  local  economy.
According to a recent  report by BT  Commercial  Real Estate,  vacancy rates for
Silicon Valley R&D property were  approximately  22.4% in late 2004 and 21.0% at
the end of the second  quarter 2005.  Total vacant R&D square footage in Silicon
Valley at the end of the second  quarter of 2005 amounted to 32.3 million square
feet,  of which 24.5%,  or 7.9 million  square  feet,  was being  offered  under
subleases.  Total  negative net  absorption  (which is the  computation of gross
square  footage  leased  less gross new square  footage  vacated  for the period
presented) in 2004 amounted to approximately  (0.3) million square feet.  During
the  first six  months of 2005,  there was  total  positive  net  absorption  of
approximately  1.5 million  square feet.  Average  asking market rent per square
foot has  decreased  from  $0.88 in late 2004 to $0.87 at the end of the  second
quarter of 2005, although individual  properties within any particular submarket
presently may be leased above or below the current  average asking market rental
rates within that  submarket.  The impact of the rental  market  decline has not
been  uniform  throughout  the area,  however.  The Silicon  Valley R&D property
market has been characterized by a substantial  number of submarkets,  with rent
and vacancy rates varying by submarket and location within each submarket.

Our  occupancy  rate at June 30,  2005 was 65.7%  compared  to 71.6% at June 30,
2004. We believe that our occupancy rate could decline  further going forward if
key tenants seek the protection of bankruptcy  laws,  consolidate  operations or
discontinue  operations.  In  addition,  leases  with  respect to  approximately
190,000  rentable  square  feet  are  expiring  prior  to the end of  2005.  The
properties  subject to these  leases may take  anywhere  from 24 to 36 months or
longer to re-lease.  We believe  that the average 2005 renewal  rental rates for
our properties will be approximately equal to, or perhaps,  below current market
rents,  but we cannot  give any  assurance  that  leases will be renewed or that
available  space will be re-leased at rental rates equal to or above the current
quoted  market  rates.  If we are unable to lease a  significant  portion of any
vacant space or space subject to expiring leases;  if we experience  significant
tenant defaults as a result of the current economic downturn; if we are not able
to lease space at or above current market rates;  or if we restructure  existing
leases and lower existing rents in order to retain tenants for an extended term,
our  results  of  operations   and  cash  flows  will  be  adversely   affected.
Furthermore,  in this  event it is  probable  that our board of  directors  will
reduce the  quarterly  dividend  on the common  stock and the  outstanding  O.P.
units.  Our  operating  results and ability to pay  dividends at current  levels
remain  subject to a number of material  risks,  as indicated  under the caption
"Forward-Looking  Information"  above and in the section entitled "Risk Factors"
in our most recent annual report on Form 10-K.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare the consolidated  financial  statements in conformity with accounting
principles  generally  accepted in the United States of America ("GAAP"),  which
requires us to make certain estimates, judgments and assumptions that affect the
reported  amounts  in  the  accompanying   consolidated   financial  statements,
disclosure  of  contingent   assets  and  liabilities  and  related   footnotes.
Accounting and disclosure  decisions with respect to material  transactions that
are subject to significant  management judgments or estimates include impairment
of long lived assets,  deferred rent reserves,  and allocation of purchase price
relating to property  acquisitions and the related  depreciable  lives assigned.
Actual results may differ from these estimates  under  different  assumptions or
conditions.

Critical  accounting  policies are defined as those that require  management  to
make  estimates,   judgments  and  assumptions,   giving  due  consideration  to
materiality,  in certain  circumstances  that  affect  amounts  reported  in the
consolidated   financial  statements,   and  potentially  result  in  materially
different  results under different  conditions and assumptions.  We believe that
the following best describe our critical accounting policies:

BUSINESS  COMBINATIONS.  Statement of  Financial  Accounting  Standards  No. 141
("SFAS No.  141"),  Business  Combinations,  was  effective  July 1,  2001.  The
acquisition costs of each property acquired prior to July 1, 2001 were allocated
only to building,  land and leasing commissions with building depreciation being
computed  based on an estimated  weighted  average  composite  useful life of 40
years and leasing  commission  amortization  being computed over the term of the
lease.  Acquisitions of properties made subsequent to the effective date of SFAS
No. 141 are based on an allocation of the  acquisition  cost to land,  building,
tenant improvements,  and intangibles for at market, including lease origination
and  lease  up  period  costs,  and  above  market  in  place  leases,  and  the
determination  of their useful lives are guided by a combination of SFAS No. 141
and management's estimates. If we do not appropriately allocate these components
or we incorrectly estimate the useful lives of these components, our computation
of  depreciation  and  amortization  expense may not  appropriately  reflect the
actual impact of these costs over future periods, which will affect net income.

IMPAIRMENT OF  LONG-LIVED  ASSETS.  We review real estate assets for  impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be  recoverable  in  accordance  with  Statement  of  Financial
Accounting Standards No. 144 ("SFAS No. 144"), Accounting for the Impairment and
Disposal of Long-Lived  Assets.  If the carrying amount of the asset exceeds its

                                     - 12 -
<PAGE>

estimated  undiscounted  net cash flow,  before  interest,  we will recognize an
impairment  loss equal to the  difference  between its  carrying  amount and its
estimated fair value. If impairment is recognized,  the reduced  carrying amount
of the asset will be accounted for as its new cost. For a depreciable asset, the
new cost will be depreciated over the asset's remaining useful life.  Generally,
fair values are estimated using discounted cash flow, replacement cost or market
comparison analyses. The process of evaluating for impairment requires estimates
as to future events and conditions, which are subject to varying market factors,
such  as the  vacancy  rates,  future  rental  rates,  lease  periods,  deferred
maintenance  and operating  costs for R&D  facilities in the Silicon Valley area
and related  submarkets.  Therefore,  it is reasonably possible that a change in
estimate  resulting  from  judgments as to future events could occur which would
affect the recorded amounts of the property.

ALLOWANCE  FOR  DOUBTFUL  ACCOUNTS  AND  DEFERRED  RENT.  We must  estimate  the
uncollectibility  of our  accounts  receivable  based on the  evaluation  of our
tenants'  financial  position,  analyses  of  accounts  receivable  and  current
economic  trends.  We also make estimates for reserves against our deferred rent
receivable  for  existing  tenants  with the  potential  of  early  termination,
bankruptcy  or  ceasing  operations.  We  charge  or credit  rental  income  for
increases or decreases to our deferred rent reserves. Our estimates are based on
our  review  of  tenants'  payment  histories,   publicly  available   financial
information and such additional  information about their financial  condition as
tenants  provide  to us.  The  information  available  to us  might  lead  us to
overstate or understate these reserve amounts. The use of different estimates or
assumptions could produce different results. Moreover, actual future collections
of accounts  receivable or reductions  in future  reported  rental income due to
tenant  bankruptcies or other business failures could differ materially from our
estimates.

CONSOLIDATED  JOINT VENTURES.  We, through an operating  partnership,  own three
properties that are in joint ventures of which we have controlling interests. We
manage and operate all three properties. The recognition of these properties and
their  operating  results  are  100%  reflected  on our  consolidated  financial
statements,  with appropriate  allocation to minority interest,  because we have
operational  and financial  control of the  investments.  We make  judgments and
assumptions  about the estimated  monthly payments made to our minority interest
joint  venture  partners,  which  are  reported  with our  periodic  results  of
operations.  Actual  results may differ  from these  estimates  under  different
assumptions or conditions.

INVESTMENT  IN   UNCONSOLIDATED   JOINT   VENTURE.   We,  through  an  operating
partnership,  have a 50%  non-controlling  limited  partnership  interest in one
unconsolidated joint venture.  This investment is not consolidated because we do
not exercise  significant control over major operating and financial  decisions.
We  account  for  this  joint  venture  interest  using  the  equity  method  of
accounting.

FAIR VALUE OF FINANCIAL INSTRUMENTS.  Our financial instruments include cash and
cash equivalents,  accounts receivable, accounts payable, and debt. Considerable
judgment is required in  interpreting  market data to develop  estimates of fair
value. Our estimates of fair value are not necessarily indicative of the amounts
that we could realize in a current market exchange.  The use of different market
assumptions  and/or  estimation  methodologies may have a material effect on the
estimated fair value amounts.  Cash and cash equivalents,  accounts  receivable,
and accounts payable are carried at amounts that  approximate  their fair values
due to their  short-term  maturities.  The carrying amounts of our variable rate
debt  approximate  fair value since the interest rates on these  instruments are
equivalent  to rates  currently  offered to us. For fixed rate debt, we estimate
fair value by using  discounted  cash flow analyses based on borrowing rates for
similar kinds of borrowing arrangements.

REVENUE RECOGNITION. Rental revenue is recognized on the straight-line method of
accounting  required by GAAP under which  contractual rent payment increases are
recognized evenly over the lease term,  regardless of when the rent payments are
received by us. The difference  between recognized rental income and rental cash
receipts is recorded as Deferred  Rent  Receivable on the  consolidated  balance
sheets.

Rental revenue is affected if existing tenants  terminate or amend their leases.
We try to  identify  tenants  who may be likely to declare  bankruptcy  or cease
operations.  By anticipating these events in advance, we expect to take steps to
minimize  their  impact on our  reported  results of  operations  through  lease
renegotiations,  reserves against deferred rent, and other appropriate measures.
Our judgments and estimations  about tenants' capacity to continue to meet their
lease   obligations  will  affect  the  rental  revenue   recognized.   Material
differences  may result in the amount and timing of our rental  revenue  for any
period if we made different judgments or estimations.

Statement of Financial Accounting  Standards No. 66 ("SFAS No. 66"),  Accounting
for Sales of Real  Estate,  establishes  accounting  standards  for  recognizing
profit or loss on sales of real estate.  The gain on the sale is only recognized
proportionately  as the seller  receives  payments from the purchaser.  Interest
income is recognized on an accrual basis, when appropriate.

Lease  termination  fees are  recognized  as other income when there is a signed
termination  letter agreement,  all of the conditions of the agreement have been
met, and the tenant is no longer occupying the property.  These fees are paid by
tenants  who want to  terminate  their lease  obligations  before the end of the
contractual term of the lease.  There is no way of predicting or forecasting the
timing or amounts of future lease termination fees.

                                     - 13 -

<PAGE>


We recognize income from rent, tenant  reimbursements and lease termination fees
and other income once all of the following  criteria are met in accordance  with
SEC Staff Accounting Bulletin 104:

-    the agreement has been fully executed and delivered;
-    services have been rendered;
-    the amount is fixed and determinable; and
-    collectibility is reasonably assured.

With  regards  to  critical  accounting  policies,  where  applicable,  we  have
explained  and  discussed  the  criteria  for   identification   and  selection,
methodology in application and impact on the financial statements with the Audit
Committee  of our Board of  Directors.  The Audit  Committee  has  reviewed  the
critical accounting policies we identified.

                                     - 14 -
<PAGE>


RESULTS OF OPERATIONS

COMPARISON  OF THE THREE AND SIX MONTHS ENDED JUNE 30, 2005 TO THE THREE AND SIX
MONTHS ENDED JUNE 30, 2004

As of  June  30,  2005,  through  our  controlling  interests  in the  operating
partnerships,  we  owned  108  properties  totaling  approximately  8.0  million
rentable  square feet  compared to 109  properties  totaling  approximately  7.9
million  rentable square feet owned by us as of June 30, 2004. This represents a
net  increase  of  approximately  1% in total  rentable  square  footage,  as we
acquired one property  consisting of approximately  203,800 rentable square feet
and disposed of two  properties  consisting of  approximately  103,350  rentable
square feet during the first quarter of 2005.

RENTAL REVENUE FROM REAL ESTATE FROM CONTINUING OPERATIONS
For the quarter ended June 30, 2005,  rental revenue from real estate  decreased
by  approximately  ($4.7)  million,  or 15.8%,  from $29.8 million for the three
months ended June 30, 2004 to $25.1 million for the same period of 2005. For the
six months ended June 30,  2005,  rental  revenue from real estate  decreased by
approximately  ($9.7) million,  or 15.9%,  from $61.0 million for the six months
ended June 30, 2004 to $51.3 million for the six months ended June 30,  2005.The
decline in rental  revenue was primarily a result of the lower rental rate under
the new Microsoft blend and extend lease,  which was signed in the first quarter
of 2005 and accounted for over half the decline.  Other factors  attributing  to
the decline in rental revenue were lower rental rates on new leases and renewals
and the loss of several tenants due to their bankruptcy, relocation or cessation
of operations  since June 30, 2004,  all of which  resulted from adverse  market
conditions.  Our occupancy rate at June 30, 2005 was approximately 66%, compared
to  approximately  72% at June 30, 2004. Due to an over supply of R&D properties
and competition  from other landlords in the Silicon Valley,  our occupancy rate
may drop further if the 190,000  rentable square feet scheduled to expire during
the remainder of 2005 is not renewed or re-leased.

EQUITY IN EARNINGS FROM UNCONSOLIDATED JOINT VENTURE
As of June 30, 2005, we had investments in four R&D buildings,  totaling 593,000
rentable square feet, through an unconsolidated joint venture, TBI-MSW, in which
we acquired a 50%  interest  in January  2003 from the Berg Group under the Berg
Land Holdings Option Agreement.  We have a non-controlling  limited  partnership
interest in this joint venture,  which we account for using the equity method of
accounting.  For the three  months ended June 30,  2005,  we recorded  equity in
earnings from the  unconsolidated  joint venture of  approximately  $0.4 million
compared to equity in earnings of $0.6 million for the same period in 2004.  Our
equity in earnings from this unconsolidated joint venture declined in the second
quarter of 2005 due to lower rents received as a result of lower occupancy rate.
For the six-month  periods ended June 30, 2005 and 2004, equity in earnings from
the  unconsolidated  joint  venture  was  approximately  $0.4  million  and $1.2
million,  respectively.  The decline in equity in earnings  from  unconsolidated
joint  venture for the  six-month  period ended June 30, 2005  resulted from the
write-offs  of leasing  commission  and tenant  improvements  for a tenant  that
terminated  its  lease  agreement  as well as  lower  rents  received  from  the
properties of this joint  venture.  The occupancy  rate for these  properties at
June 30, 2005 was approximately 78.7% compared to 100% at June 30, 2004.

OTHER INCOME FROM CONTINUING OPERATIONS
Other income decreased to approximately  $2.3 million for the three months ended
June 30, 2005 from $4.6  million for the second  quarter of 2004.  Approximately
$2.0  million  and  $3.7  million  of  termination  fee  and  tenant  bankruptcy
settlement  income  accounted for other income in the second quarter of 2005 and
2004,  respectively.  For the six  months  ended June 30,  2005 and 2004,  other
income was $2.6 million and $5.0 million, respectively. We realized higher lease
termination  fee and  tenant  bankruptcy  settlement  income in 2004.  We do not
consider these transactions to be recurring items.

EXPENSES FROM CONTINUING OPERATIONS
Property  operating  expenses and real estate taxes during the second quarter of
2005 decreased by approximately  ($1.0) million,  or 19.6%, from $5.1 million to
$4.1 million for the three  months  ended June 30, 2004 and 2005,  respectively,
due primarily to the lower occupancy rate on our properties,  the disposition of
two properties during the first quarter of 2005 and property tax refunds. Tenant
reimbursements  decreased by  approximately  ($0.1) million,  or 2.7%, from $3.7
million for the three  months  ended June 30, 2004 to $3.6 million for the three
months ended June 30, 2005.  Property  operating  expenses and real estate taxes
decreased by approximately  ($1.6) million, or 15.1%, from $10.6 million to $9.0
million for the six months  ended June 30, 2004 and 2005,  respectively,  due to
lower  repair and  maintenance  expenses  and real estate  taxes to our existing
properties.  Tenant reimbursements decreased by approximately ($0.7) million, or
8.9%,  from $7.9  million for the six months ended June 30, 2004 to $7.2 million
for the six months  ended June 30, 2005.  The decrease in tenant  reimbursements
for both periods ended June 30, 2005 as compared to the same periods in 2004 was
due to lower occupancy. Certain expenses such as property insurance, real estate
taxes,  and other fixed  expenses are not  recoverable  from vacant  properties.
General and administrative  expenses decreased by approximately  ($0.4) million,
or 44.4%,  from $0.9 million to $0.5 million for the three months ended June 30,
2004 and 2005,  respectively.  For the six months  ended June 30, 2004 and 2005,
general and administrative  expenses decreased by approximately  ($0.1) million,
or 8.3%,  from $1.2  million to $1.1  million,  respectively.  The  decrease  in
general and  administrative  expenses  for the quarter and the six months  ended
June  30,  2005 was  primarily  a  result  of  incurring  additional  legal  and
accounting expenses in connection with the resignation of PricewaterhouseCoopers
LLP, our former independent  accountants,  and the need to re-audit consolidated
financial  statements  for years 2001 and 2002 and audit 2003 results during the
second quarter of 2004, which did not recur in 2005.

                                     - 15 -
<PAGE>

Real estate  depreciation  and amortization  expense  decreased by approximately
($0.2) million,  or 3.6%, from $5.6 million to $5.4 million for the three months
ended  June 30,  2004 and  2005,  respectively.  Depreciation  and  amortization
expense of real estate decreased by approximately  ($0.1) million, or 1.0%, from
$11.0  million to $10.9 million for the six months ended June 30, 2004 and 2005,
respectively.  The decrease for both periods ended June 30, 2005 compared to the
same  periods in 2004  reflected  the  write-off of a remaining  in-place  lease
intangible  asset due to lease  termination  in the second  quarter 2004 and the
disposition of two properties during the first quarter 2005.

Interest expense  increased by approximately  $1.7 million,  or 40.5%, from $4.2
million for the three  months  ended June 30, 2004 to $5.9 million for the three
months ended June 30, 2005.  Interest expense (related  parties) remained stable
at approximately  $0.25 million for the current  three-month  period compared to
the same  period one year ago.  Total debt  outstanding,  including  amounts due
related parties,  increased by approximately $12.4 million, or 3.7%, from $332.0
million  as of June 30,  2004 to $344.4  million  as of June 30,  2005.  Overall
interest  expense,  including  amounts paid to related parties,  for the quarter
ended June 30, 2005 increased by approximately $1.7 million compared to the same
quarter a year ago  principally due to a cash flow interest rate derivative loss
of approximately  $0.8 million,  higher interest rates on the variable rate debt
and the  substitution of new debt at slightly higher rates for borrowings  under
the Berg Group line of credit.

Interest expense  increased by approximately  $2.0 million,  or 23.3%, from $8.6
million  for the six months  ended June 30,  2004 to $10.6  million  for the six
months  ended  June  30,  2005.  The  increase  in  interest   expense  resulted
principally from losses taken from a cash flow interest rate derivative,  higher
interest rates on variable rate debt, and a new $25.8 million  secured  mortgage
loan from Allianz Life  Insurance  Company  ("Allianz Loan I") obtained in early
April 2005, which  substituted for lower interest rate debt under the Berg Group
line of credit.  Interest expense (related  parties)  increased by approximately
$45,000,  or 8.9%,  from  $504,000  for the six months  ended  June 30,  2004 to
$549,000 for the six months ended June 30, 2005 due to higher interest rates.

INCOME FROM DISCONTINUED OPERATIONS
The following table depicts the amounts of income from  discontinued  operations
for the three and six months ended June 30, 2005 and 2004.

<TABLE>
<CAPTION>
                                                              Three Months Ended June 30,        Six Months Ended June 30,
                                                                 2005             2004             2005             2004
                                                              --------------------------------------------------------------
                                                                                  (dollars in thousands)
                                                                                       (unaudited)
<S>                                                            <C>             <C>               <C>               <C>
         Gain from disposal of property                             -               -             $  63                 -
         (Loss)/income attributable to discontinued operations  ($ 10)          ($ 42)              (51)            $ 246
         Minority interest in (loss)/earnings attributable
            to discontinued operations                              8              33               (10)             (193)

                                                              -----------     ------------     ------------     ------------
         (Loss)/income from discontinued operations             ($  2)          ($  9)            $   2             $  53
                                                              ===========     ============     ============     ============
</TABLE>

In  accordance  with our adoption of SFAS No. 144, in the first  quarter 2005 we
sold and classified as  discontinued  operations  two  properties  consisting of
103,350  rentable  square feet and recorded a gain of $63,000,  of which $14,000
and $49,000 were  attributable to common  stockholders  and minority  interests,
respectively.   The  (loss)  to  common   stockholders  and  minority  interests
attributable to discontinued  operations from these two properties for the three
months ended June 30, 2005 and 2004 was  approximately  ($2,000)  and  ($8,000),
respectively,  and ($9,000) and  ($33,000),  respectively.  The income to common
stockholders and minority interests attributable to discontinued operations from
these  two  properties  for the six  months  ended  June  30,  2005 and 2004 was
approximately  $2,000 and  $10,000,  respectively,  and  $53,000  and  $193,000,
respectively.

NET INCOME TO COMMON STOCKHOLDERS AND NET INCOME TO MINORITY INTEREST
Minority  interest in net income has been calculated by taking the net income of
the operating partnerships (on a stand-alone basis) multiplied by the respective
minority  interest  ownership  percentage.   Minority  interest  represents  the
ownership  interest of all limited partners in the operating  partnerships taken
as a whole,  which was  approximately  82% and 83% as of June 30, 2005 and 2004,
respectively.

Net income to common stockholders  decreased by approximately ($1.1) million, or
28.9%,  from $3.8  million  for the three  months  ended  June 30,  2004 to $2.7
million for the same period in 2005.  The  minority  interest  portion of income
decreased by approximately  ($6.2) million, or 33.0%, from $18.8 million for the
three  months  ended June 30, 2004 to $12.6  million for the three  months ended
June 30,  2005.  For the six months  ended June 30, 2005 and 2004,  the minority
interest  portion of income was  approximately  $24.3 million and $36.1 million,
respectively,  resulting in net income to common  stockholders of  approximately
$5.1  million  and $7.3  million,  respectively.  The  decline in net income and
minority  interest  portion of income was primarily due to lower rental revenue,
the existence of higher  termination fee and settlement  income in 2004 that did
not recur in 2005,  increases  in interest  expense and higher  non-reimbursable
operating expenses from vacant properties.

                                     - 16 -
<PAGE>


CHANGES IN FINANCIAL CONDITION

The most  significant  changes in our financial  condition during the six months
ended June 30, 2005  resulted from the  disposition  of two R&D  properties  and
acquisition  of one  R&D  property.  In  addition,  total  stockholders'  equity
increased  from the  exchange of O.P.  units for common  stock and stock  option
exercises.

At June  30,  2005,  total  investments  in  properties  had a net  increase  of
approximately $10.6 million from December 31, 2004 from one property acquisition
and two property dispositions.  During the first six months of 2005, we acquired
one vacant R&D property representing  approximately 203,800 rentable square feet
located  in the  Silicon  Valley.  The  purchase  price  for this  property  was
approximately $14.0 million.  We also disposed of two R&D properties  consisting
of  approximately  103,350  rentable  square  feet  for a total  sales  price of
approximately $12.8 million. One of the disposed properties was classified as an
asset held for sale at December 31, 2004 for $8.2 million.

Total  stockholders'  equity,  net, increased by approximately $1.8 million from
December  31, 2004 as we obtained  additional  capital from the exchange of O.P.
units for shares of our common stock and stock option exercises, while incurring
a deficit of approximately ($0.7) million due to dividends declared in excess of
net income for the  period.  During the first six months of 2005,  four  limited
partners  exchanged  215,500 O.P.  units for 215,500  shares of our common stock
under the Exchange  Rights  Agreement  among us and the limited  partners in the
operating  partnerships.  The newly issued shares  increased  additional paid in
capital by approximately $2.5 million.

LIQUIDITY AND CAPITAL RESOURCES

We expect a  continued  decline  in  operating  cash  flows  from our  operating
property  portfolio  in 2005 as compared to 2004.  The  reduction  in cash flows
reflects the overall  reduced  demand for R&D space,  lower rental rates for new
and renewed leases,  and an increase in vacant  properties in 2005. In addition,
if we are unable to lease a  significant  portion of the  approximately  190,000
rentable  square feet  scheduled  to expire  during the  remainder of 2005 or an
equivalent amount of our currently  available space of approximately 2.8 million
rentable square feet, our operating cash flows may be affected  adversely.  With
the  expectation  of lower  revenues for the  remainder  of 2005,  we expect the
properties'  net  operating  income to continue to show year over year  declines
when  compared to 2004.  As noted  above,  we expect  cash flows from  operating
activities to continue to show declines primarily driven by the general downturn
in the Silicon  Valley's economy in recent years, the softening of the Company's
market specifically,  and the expected weaker performance of our properties.  We
are also subject to risks of decreased  occupancy  through  tenant  defaults and
bankruptcies and potential reduction in rental rates upon renewal of properties,
which would result in reduced cash flow from operations. It is reasonably likely
that vacancy  rates may continue to increase and  effective  rental rates on new
and renewed leases may continue to decrease.

We expect our principal  source of liquidity for  distributions  to stockholders
and O.P. unit holders,  debt service,  leasing commissions and recurring capital
expenditures  to come from cash  provided by  operations  and/or the  borrowings
under the lines of credit with the Berg Group and  Cupertino  National  Bank. We
expect these sources of liquidity to be adequate to meet projected distributions
to stockholders and other presently anticipated liquidity  requirements in 2005.
We  expect to meet our  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 us. We have the ability to meet
short-term  obligations or other  liquidity  needs based on lines of credit with
the Berg Group and Cupertino National Bank. We expect our total interest expense
to increase as interest rates rise and through new financing activities.  In the
remainder of 2005, we will be obligated to make payments totaling  approximately
$4.5 million of debt  principal  under mortgage notes without regard to any debt
refinancing or new debt obligations that we might incur, or optional payments of
debt principal.

DISTRIBUTIONS
On July 7, 2005,  we paid  dividends  of $0.16 per share of common  stock to all
common  stockholders  of  record  as of June 30,  2005.  On the same  date,  the
operating partnerships paid a distribution of $0.16 per O.P. unit to all holders
of O.P.  units.  For the  remainder  of 2005,  we expect to maintain our current
quarterly dividend payment rate to common  shareholders and O.P. unit holders of
$0.16 per share.  However,  distributions  are declared at the discretion of our
Board of Directors and are subject to actual cash  available  for  distribution,
our financial  condition,  capital  requirements and such other factors,  as our
Board of Directors deems relevant.

DEBT
At June 30, 2005, we had total indebtedness of $344.4 million,  including $237.1
million of fixed rate mortgage debt, $10.2 million under the Berg Group mortgage
note  (related  parties),  $77.4  million  under the Citicorp  USA  ("Citicorp")
mortgage loan,  $19.2 million under the Cupertino  National Bank ("CNB") line of
credit,  and $0.5 million under the Berg Group line of credit (related parties),
as detailed in the table  below.  The CNB and  Citicorp  loans  contain  certain
financial loan and reporting covenants as defined in the loan agreements.  As of
June 30, 2005, we were in compliance with these loan covenants.

On April 6, 2005, we obtained a $25.8 million secured mortgage loan from Allianz
Life  Insurance  Company of North America  ("Allianz Loan I") that bears a fixed
interest rate at 5.56% and matures in 15 years with principal payments amortized
over  20  years.  The  mortgage  loan  is  secured  by  one  property.  We  paid
approximately  $251,000  in loan  fees and  financing  costs,  which  are  being
amortized over the 15 year loan period,  and used the proceeds  primarily to pay
down short-term debt and the Berg Group line of credit.

                                     - 17 -
<PAGE>

On July 26, 2005, we obtained a $125 million secured  mortgage loan from Allianz
Life Insurance Company of North America ("Allianz Loan II"). The Allianz Loan II
matures on July 10, 2025, and must be paid in full at that time,  unless payment
is  accelerated  by reason of a default or sale of one or more of the properties
that  secure  the  loan.  This  loan  bears a fixed  interest  rate of 5.22% and
principal  payments are amortized over 20 years. The loan can be prepaid subject
to certain yield maintenance  provisions and is assumable with the payment of an
assumption  fee.  The  mortgage  loan is  secured by eight  properties.  We paid
approximately  $0.8  million  in loan fees and  financing  costs,  which will be
amortized  over the 20 year loan period.  The proceeds will be used primarily to
repay the Citicorp loan,  retire the Washington  Mutual loan, reduce the balance
of the CNB and Berg Group lines of credit,  and for other working capital needs.
In  connection  with the Allianz Loan II, we entered  into a "Loan  Modification
Agreement"  with Allianz  Life  Insurance  Company of North  America on July 26,
2005,  which  extends the  amortization  period and  maturity  date of the $25.8
million secured  mortgage loan entered into with Allianz Life Insurance  Company
of North America on April 6, 2005 ("Allianz Loan I") from April 10, 2020 to July
10, 2025. The Allianz Loans I and II now contain cross-default provisions.

On July 22, 2005, we entered into a "Change in Terms  Agreement"  with Cupertino
National  Bank,  which  reduced the maximum  borrowing  amount on the  Company's
revolving line of credit facility with that bank from $40 million to $9 million.

                                     - 18 -
<PAGE>


The following table sets forth information regarding debt outstanding as of June
30, 2005:
<TABLE>
<CAPTION>

                                                                                                            Maturity      Interest
            Debt Description                           Collateral Properties                Balance           Date          Rate
---------------------------------------------- -------------------------------------- ------------------  ------------- ------------
                                                                                   (dollars in thousands)
Line of Credit:
<S>                                            <C>                                       <C>                  <C>         <C>
Berg Group (related parties)                   2033-2043 Samaritan Dr., San Jose, CA       $     444            3/06          (1)
                                               2133 Samaritan Dr., San Jose, CA       ------------------
                                               2233-2243 Samaritan Dr., San Jose, CA
                                               1310-1450 McCandless Dr., Milpitas, CA
                                               1795-1845 McCandless Dr., Milpitas, CA

Cupertino National Bank                        Not Applicable                                 19,172           11/06          (4)
                                                                                      ------------------

Mortgage Notes Payable (related parties):      5300 & 5350 Hellyer Avenue, San Jose, CA       10,239            6/10       7.650%

                                                                                      ------------------
Mortgage Notes Payable (2):
Washington Mutual                              10460 Bubb Road, Cupertino, CA                    113           12/06       9.500%
Prudential Insurance Company of America (3)    10300 Bubb Road, Cupertino, CA                118,383           10/08       6.560%
                                               10500 N. De Anza Blvd., Cupertino, CA
                                               4050 Starboard Drive, Fremont, CA
                                               45700 Northport Loop, Fremont, CA
                                               45738 Northport Loop, Fremont, CA
                                               450 National Avenue, Mountain View, CA
                                               6311 San Ignacio Ave., San Jose, CA
                                               6321 San Ignacio Ave., San Jose, CA
                                               6325 San Ignacio Ave., San Jose, CA
                                               6331 San Ignacio Ave., San Jose, CA
                                               6341 San Ignacio Ave., San Jose, CA
                                               6351 San Ignacio Ave., San Jose, CA
                                               3236 Scott Boulevard, Santa Clara, CA
                                               3560 Bassett Street, Santa Clara, CA
                                               3570 Bassett Street, Santa Clara, CA
                                               3580 Bassett Street, Santa Clara, CA
                                               1135 Kern Avenue, Sunnyvale, CA
                                               1212 Bordeaux Lane, Sunnyvale, CA
                                               1230 E. Arques, Sunnyvale, CA
                                               1250 E. Arques, Sunnyvale, CA
                                               1170 Morse Avenue, Sunnyvale, CA
                                               1600 Memorex Drive, Santa Clara, CA
                                               1688 Richard Avenue, Santa Clara, CA
                                               1700 Richard Avenue, Santa Clara, CA
                                               3540 Bassett Street, Santa Clara, CA
                                               3542 Bassett Street, Santa Clara, CA
                                               3544 Bassett Street, Santa Clara, CA
                                               3550 Bassett Street, Santa Clara, CA

Northwestern Mutual Life Insurance Company (5) 1750 Automation Parkway, San Jose, CA          92,967            1/13       5.640%
                                               1756 Automation Parkway, San Jose, CA
                                               1762 Automation Parkway, San Jose, CA
                                               6320 San Ignacio Avenue, San Jose, CA
                                               6540-6541 Via Del Oro, San Jose, CA
                                               6385-6387 San Ignacio Ave., San Jose, CA
                                               2251 Lawson Lane, Santa Clara, CA
                                               1325 McCandless Dr., Milpitas, CA
                                               1650-1690 McCandless Dr., Milpitas, CA
                                               20605-20705 Valley Green Dr., Cupertino, CA

Citicorp USA, Inc.                             2001 Walsh Avenue, Santa Clara, CA             77,420            9/06          (4)
                                               2880 Scott Boulevard, Santa Clara, CA
                                               2890 Scott Boulevard, Santa Clara, CA
                                               2770-2800 Scott Blvd., Santa Clara, CA
                                               2300 Central Expy., Santa Clara, CA
                                               2220 Central Expy., Santa Clara, CA
                                               2330 Central Expy,, Santa Clara, CA
                                               20400 Mariani Avenue, Cupertino, CA

Allianz Life Insurance Company                 5900 Optical Court, San Jose, CA               25,623            4/20       5.560%

                                                                                      --------------------
Mortgage Notes Payable Subtotal                                                              314,506
                                                                                      --------------------
TOTAL                                                                                       $344,361
</TABLE>


(1)  The debt owed to the Berg Group under the line of credit carries a variable
     interest  rate  equal to LIBOR  plus  1.30% and is payable in full in March
     2006. The interest rate at June 30, 2005 was 4.99%.
(2)  Mortgage notes payable generally  require monthly  installments of interest
     and principal  ranging from $8,000 to $827,000 over various terms extending
     through the year 2020. The weighted average interest rate of mortgage notes
     payable was 5.91% at June 30, 2005.
(3)  The  Prudential  Insurance  loan is  payable  in  monthly  installments  of
     $827,000,  which includes principal (based upon a 30-year amortization) and
     interest.  A  limited  partner  who is not a member  of the Berg  Group has
     guaranteed  approximately  $12.0  million  of this  debt.  Costs  and  fees
     incurred with obtaining this loan aggregated  approximately $900,000, which
     were deferred and amortized over the loan period.
(4)  Interest rate equal to LIBOR plus 2%. The interest  rates for the Cupertino
     National Bank line of credit and the Citicorp  USA,  Inc.  mortgage loan at
     June 30, 2005 were 5.13% and 5.14%,  respectively.  The Cupertino  National
     Bank line of credit and Citicorp USA, Inc. loan contain  certain  financial
     loan and reporting covenants as defined in the loan agreements.  As of June
     30, 2005, the Company was in compliance with these loan covenants.
(5)  The Northwestern loan is payable in monthly installments of $696,000, which
     includes principal (based upon a 20-year amortization) and interest.  Costs
     and  fees  incurred  with  obtaining  this  loan  aggregated  approximately
     $675,000, which were deferred and amortized over the loan period.

                                     - 19 -
<PAGE>

At June 30,  2005,  our  debt to total  market  capitalization  ratio,  which is
computed  as our  total  debt  outstanding  divided  by the  sum of  total  debt
outstanding  plus the market value of common stock (based upon the closing price
of $10.27 per share on June 30, 2005) on a fully  diluted  basis,  including the
conversion of all O.P. units into common stock, was approximately 24.3%. On June
30, 2005, the last trading day for the quarter,  total market capitalization was
approximately $1.4 billion.

At June 30, 2005, the outstanding  balance remaining under certain notes that we
owed to the operating partnerships was $1.6 million. The due date of these notes
has been  extended to September 30, 2006.  The principal  amount of these notes,
along with the  interest  expense,  which is  interest  income to the  operating
partnerships,  is  eliminated  in  consolidation  and  is  not  included  in the
corresponding line items within the consolidated financial statements.  However,
the interest  income  earned by the  operating  partnerships,  which is interest
expense to us, in connection  with this debt, is included in the  calculation of
minority  interest as  reported on the  consolidated  statement  of  operations,
thereby reducing our net income by this same amount. At present,  our only means
for  repayment  of this debt is through  distributions  that we receive from the
operating  partnerships that are in excess of the amount of dividends to be paid
to our stockholders or by raising additional equity capital.

HISTORICAL CASH FLOWS

COMPARISON  OF THE SIX MONTHS  ENDED JUNE 30, 2005 TO THE SIX MONTHS  ENDED JUNE
30, 2004

Net cash provided by operating activities for the six months ended June 30, 2005
was $32.6  million  compared to $57.2  million for the same period in 2004.  The
decline resulted  primarily from the reduction in tenant expense  reimbursements
and  decrease in rental  revenue  from our current  portfolio of property due to
tenant lease obligation defaults, tenant re-locations, decrease in occupancy and
lower rent  renewal  rates  during the last six months of 2004 and the first six
months of 2005.  The  decline in cash flow from  operating  activities  was also
caused by payments of leasing  commissions which amounted to approximately  $4.0
million,  including  approximately $2.9 million with respect to the modification
and extension of our lease with Microsoft.

Net cash used in  investing  activities  was  approximately  ($6.4)  million and
($0.4)  million for the six months  ended June 30, 2005 and 2004,  respectively.
Cash used in  investing  activities  during the six months  ended June 30,  2005
related  principally  to the  acquisition of the property at 5521 Hellyer Avenue
for $14.2 million and the disposition of two existing  properties for a total of
$8.4 million.  We partially financed one of the sales with a note receivable for
approximately $4.1 million,  which has been reflected as a non-cash transaction.
Capital  expenditures  relating to real estate  improvements were  approximately
$0.6  million and $0.4  million for the six months ended June 30, 2005 and 2004,
respectively.

Net cash used in  financing  activities  was ($26.1)  million for the six months
ended June 30, 2005  compared to ($59.1)  million for the six months  ended June
30, 2004.  During the first six months of 2005, we received $25.8 million from a
new mortgage loan,  used $18.5 million to pay  outstanding  debt, and paid $28.0
million for minority  interest  distributions  and $5.8 million for dividends to
common  stockholders.  During the same period in 2004,  we used $8.8  million to
repay outstanding  debt, $41.8 million for minority  interest  distributions and
$8.6 million for dividends to common stockholders.

FUNDS FROM OPERATIONS ("FFO")

FFO is a non-GAAP financial measurement used by real estate investment trusts to
measure and compare operating performance.  As defined by NAREIT, FFO represents
net income (loss)  before  minority  interest of O.P. unit holders,  computed in
accordance with GAAP, plus non-recurring events other than "extraordinary items"
under  GAAP,  excluding  gains and losses  from sales of  depreciable  operating
properties,  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.  FFO does include  impairment  losses for properties held for sale and
held for use. 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 our  ability  to incur  and  service  debt  and  make  capital
expenditures.  With the emphasis on the  disclosure  of  operating  earnings per
share, we will continue to use FFO as a measure of our  performance.  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, nor is FFO necessarily indicative of funds available to
meet our cash needs,  including the need to make cash  distributions  to satisfy
REIT  requirements.  For  example,  FFO is not  adjusted  for  payments  of debt
principal required under our debt service obligations.

Our definition of FFO also assumes  conversion at the beginning of the period of
all convertible securities, including minority interests that might be exchanged
for common stock.  FFO does not represent the amount  available for management's
discretionary  use;  as such  funds may be needed  for  capital  replacement  or
expansion, debt service obligations or other commitments and uncertainties.

Furthermore, FFO is not comparable to similarly entitled items reported by other
REITs that do not define FFO exactly as we do.

                                     - 20 -
<PAGE>

FFO for the three and six months ended June 30, 2005 and 2004,  as reconciled to
net income to common stockholders, are summarized in the following tables:

<TABLE>
<CAPTION>
                                                    Three Months Ended June 30,                    Six Months Ended June 30,
                                                    2005                   2004                   2005                   2004
                                             ------------------     ------------------     ------------------     ------------------
                                                       (dollars in thousands)                        (dollars in thousands)
<S>                                             <C>                    <C>                   <C>                    <C>
Net income to common stockholders                $ 2,695                $ 3,795               $ 5,102                $ 7,318
Add:
   Minority interests (1)                         12,453                 18,706                24,028                 35,850
   Depreciation & amortization of real estate (2)  5,993                  6,240                12,382                 12,650
Less:
   Gain on sale of asset                               -                      -                  (63)                      -
                                             ------------------     ------------------     ------------------     ------------------
FFO                                              $21,141                $28,741               $41,449                $55,818
                                             ==================     ==================     ==================     ==================
</TABLE>

(1)  The minority  interest for third parties totaling $133,000 and $132,000 for
     the three months ended June 30, 2005 and 2004,  respectively,  and $254,000
     and $258,000 for the six months ended June 30, 2005 and 2004, respectively,
     was deducted from total minority interest in calculating FFO.
(2)  Includes our portion of  depreciation  and  amortization of real estate and
     leasing commissions from our unconsolidated joint venture totaling $210,000
     and   $218,000  for  the  three  months  ended  June  30,  2005  and  2004,
     respectively,  and  $564,000  and 437,000 for the six months ended June 30,
     2005  and  2004,  respectively.   Also  includes  amortization  of  leasing
     commissions  of $414,000  and  $328,000 for the three months ended June 30,
     2005 and 2004,  respectively,  and  $842,000 and 997,000 for the six months
     ended  June 30,  2005  and  2004,  respectively.  Amortization  of  leasing
     commissions  is included in the property  operating,  maintenance  and real
     estate  taxes  line  item  in  the  Company's  consolidated  statements  of
     operations.

DISTRIBUTION POLICY

Our board of directors  determines the amount and timing of distributions to our
stockholders.  The board of directors will consider many factors prior to making
any distributions, including the following:

-    the amount of cash available for distribution;
-    our financial condition;
-    whether to reinvest funds rather than to distribute such funds;
-    our committed and projected capital expenditures;
-    the  amount  of cash  required  for new  property  acquisitions,  including
     acquisitions under existing agreements with the Berg Group;
-    prospects  of tenant  renewals  and  re-leases  of  properties  subject  to
     expiring leases;
-    cash  required  for  re-leasing  activities;   o  the  annual  distribution
     requirements under the REIT provisions of the federal income tax laws; and
-    such other factors as the board of directors deems relevant.

We  cannot  assure  you  that we will be  able  to  meet or  maintain  our  cash
distribution objectives.


IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

We do not believe recently issued  accounting  standards will materially  impact
our financial position, results of operations, or cash flows.

In December 2004, the FASB issued SFAS No. 123R,  "Share-Based  Payment," ("SFAS
No.  123R") which  addresses  the  accounting  for  employee and director  stock
options.  Statement  123R  requires  that the cost of all  employee and director
stock  options,  as well as other  equity-based  compensation  arrangements,  be
reflected in the financial  statements  based on the estimated fair value of the
awards. SFAS No. 123R is an amendment to SFAS No. 123 and supersedes APB Opinion
No. 25 ("APB No. 25").  SFAS No. 123R is applicable to any award that is settled
or  measured  in  stock,  including  stock  options,   restricted  stock,  stock
appreciation  rights,  stock units, and employee stock purchase plans.  SFAS No.
123R will be effective  for public  companies  starting  with the first  interim
period  commencing  after June 15, 2005. On April 14, 2005,  the SEC announced a
new rule that delays the  implementation of SFAS No. 123R until the beginning of
the next fiscal year that begins  after  December  15,  2005.  We will adopt the
requirements  of SFAS No. 123R  beginning  2006.  We expect that the adoption of
this  standard  will reduce our net income and earnings per share;  however,  it
will have no impact on cash flow.  Although we have not yet  determined  whether
the  adoption of SFAS No.  123R will  result in amounts  that are similar to the
current  pro  forma  disclosures  under  SFAS No.  123,  we are  evaluating  the
requirements under SFAS No. 123R including the valuation methods and support for
the  assumptions  that underlie the  valuation of the awards and the  transition
methods (modified  prospective  transition method or the modified  retrospective
transition method).

In December  2004,  the FASB issued SFAS No.  153,  "Exchanges  of  Non-monetary
Assets"  ("SFAS No.  153").  SFAS No. 153 amends the guidance in APB Opinion No.
29,  "Accounting for Non-monetary  Transactions" to eliminate certain exceptions
to the principle that exchanges of non-monetary  assets be measured based on the
fair value of the assets  exchanged.  SFAS No. 153  eliminates the exception for
non-monetary  exchanges  of similar  productive  assets and  replaces  it with a
general  exception  for  exchanges  of  non-monetary  assets  that  do not  have
commercial  substance.  This  statement  is  effective  for  non-monetary  asset
exchanges in fiscal years  beginning  after June

                                     - 21 -
<PAGE>


15, 2005.  The adoption of SFAS No. 153 is not expected to have an impact on our
consolidated results of operations, financial position or cash flows.

                                     - 22 -
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not generally hold market risk sensitive instruments for trading purposes.
We use fixed and variable rate debt to finance our  operations.  Our exposure to
market risk for changes in interest  rates relates  primarily to our current and
future debt  obligations.  We are  vulnerable  to  significant  fluctuations  of
interest  rates on our  floating  rate debt and pricing on our future  debt.  We
manage our market risk by  monitoring  interest  rates where we try to recognize
the  unpredictability  of the financial  markets and seek to reduce  potentially
adverse effect on the results of our operations.  This takes frequent evaluation
of available  lending rates and examination of  opportunities to reduce interest
expense  through new sources of debt financing.  Several  factors  affecting the
interest rate risk include governmental monetary and tax policies,  domestic and
international  economics  and other  factors  that are beyond our  control.  The
following table provides  information  about the principal cash flows,  weighted
average interest rates,  and expected  maturity dates for debt outstanding as of
June  30,  2005.  The  current  terms  of this  debt  are  described  in Item 2,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Liquidity and Capital Resources."

For variable rate debt, the table presents the assumption  that the  outstanding
principal balance at June 30, 2005 will be paid upon maturity.

For fixed rate debt,  the table  presents the  assumption  that the  outstanding
principal balance at June 30, 2005 will be paid according to scheduled principal
payments and that we will not prepay any of the outstanding principal balance.


<TABLE>
<CAPTION>
                                  Six Months           Year Ending December 31,
                                  Remaining  ----------------------------------------------
                                     2005        2006        2007       2008        2009     Thereafter     Total     Fair Value
                                  -----------------------------------------------------------------------------------------------
                                                                   (dollars in thousands)
<S>                                <C>         <C>         <C>       <C>           <C>       <C>           <C>         <C>
Variable Rate Debt:
  Secured and unsecured debt        $1,290      $95,746          -           -           -           -      $97,036     $97,036
  Weighted average interest rate     5.14%        5.14%
Fixed Rate Debt:
  Secured notes payable             $3,236       $6,796     $7,148    $117,518      $5,273    $107,354     $247,325    $276,104
  Weighted average interest rate     6.16%        6.16%      6.16%       6.16%       6.16%       6.16%
</TABLE>

The primary  market  risks we face are  interest  rate  fluctuations.  Principal
amounts  outstanding under the Berg Group line of credit, the CNB line of credit
and the Citicorp  mortgage loan,  which are tied to a LIBOR based interest rate,
were approximately $0.4 million,  $19.2 million and $77.4 million, or 0.1%, 5.6%
and 22.5%,  respectively,  of the total $344.4 million of outstanding debt as of
June 30,  2005.  As a result,  we pay lower  rates of  interest  in  periods  of
decreasing  interest rates and higher rates of interest in periods of increasing
interest rates. All of our debt is denominated in United States dollars.  We had
no interest rate caps or interest rate swap contracts at June 30, 2005.

During  the  second  quarter of 2005 we  entered  into cash flow  interest  rate
derivative as a means to hedge  exposure to an increase in interest  rates prior
to  securing a loan  commitment  in  connection  with a  refinancing  of certain
variable  rate debt to fixed rate long term  mortgage  debt.  In June 2005,  the
Company  secured a 20 year fixed rate mortgage loan  commitment for $125 million
at 5.22%  annual  interest  rate and closed  the  derivative  contracts  shortly
thereafter.  Since the interest rate  derivative  contracts did not qualify as a
designated  cash flow interest  rate hedge in  accordance  with SFAS No. 133, we
recorded an approximately  $0.8 million charge to interest expense in the second
quarter of 2005.

The  following  discussion  of  market  risk  is  based  solely  on  a  possible
hypothetical  change in future market  conditions  related to our  variable-rate
debt. It includes "forward-looking statements," as previously defined, regarding
market risk, but we are not forecasting the occurrence of these market changes.

Based on the amount of  variable  debt  outstanding  as of June 30,  2005,  a 1%
increase or decrease in  interest  rates on our $97.0  million of floating  rate
debt would  decrease or  increase,  respectively,  six months  earnings and cash
flows by approximately  $0.5 million,  as a result of the increased or decreased
interest  expense  associated  with the  change  in rate,  and would not have an
impact on the fair value of the floating rate debt. This amount is determined by
considering the impact of hypothetical interest rates on our borrowing cost. Due
to the uncertainty of  fluctuations  in interest rates and the specific  actions
that  might be taken by us to  mitigate  such  fluctuations  and their  possible
effects, the foregoing  sensitivity analysis assumes no changes to our financial
structure.

                                     - 23 -

<PAGE>


ITEM 4. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES
We strive to maintain  disclosure  controls and procedures  that are designed to
ensure that information  required to be disclosed in our Exchange Act reports is
recorded,  processed,  summarized and reported within the time periods specified
in the SEC's  rules and forms,  and that such  information  is  accumulated  and
communicated to our management,  including our chief executive officer and chief
financial  officer,  as  appropriate,  to allow for timely  decisions  regarding
required  disclosure.  In designing and evaluating  the disclosure  controls and
procedures,  management  recognizes that any controls and procedures,  no matter
how well  designated  and  operated,  can provide only  reasonable  assurance of
achieving the desired control objectives and management  necessarily is required
to apply its judgment in evaluating the  cost-benefit  relationship  of possible
controls.

As  required  by SEC Rule  13a-15(b)  we  conducted  an  evaluation,  under  the
supervision and with the  participation  of our management,  including our Chief
Executive Officer, President and Vice President of Finance, of the effectiveness
of the design and operation of our  disclosure  controls and  procedures.  Based
upon that evaluation,  the Chief Executive Officer, President and Vice President
of Finance  concluded that our disclosure  controls and procedures are effective
in timely  alerting them to material  information  relating to us (including our
subsidiaries) required to be included in our periodic SEC filings.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There was no material  change in our internal  control over financial  reporting
during the last fiscal  quarter that has materially  affected,  or is reasonably
likely to materially affect,  internal control over financial reporting. We have
determined that our internal  control over financial  reporting was effective as
of June 30, 2005.

                                     - 24 -

<PAGE>


PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

Legal  proceedings are  incorporated  herein by reference from Part 1 "Item 1. -
Financial Statements - Note 7 - Commitments and Contingencies."


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     a)   The annual meeting of  stockholders of the Company was held on June 1,
          2005 in which proxies representing 10,111,522 shares of common stocks,
          or 55.2% of the total outstanding shares, voted.

     b)   At the annual meeting of  stockholders,  Carl E. Berg, John C. Bolger,
          William A.  Hasler,  Lawrence  B.  Helzel,  and Raymond V. Marino were
          elected as directors for the ensuing year, all of whom were serving on
          the board of directors at the time of the meeting.

     c)   The following proposals were voted upon at the meeting:

          Proposal No. 1: Election of Directors

<TABLE>
<CAPTION>
                                        Total Vote for Each       Total Vote Withheld
          Directors                          Director              from Each Director         Total Abstentions
          ---------------------------- ----------------------     ----------------------    ----------------------
<S>                                         <C>                      <C>                          <C>
          Carl E. Berg                       7,828,984                2,158,570                    123,968
          John C. Bolger                     9,820,463                  167,091                    123,968
          William A. Hasler                  7,355,599                2,631,955                    123,968
          Lawrence B. Helzel                 9,829,463                  158,091                    123,968
          Raymond V. Marino                  7,682,163                2,305,391                    123,968
</TABLE>

          Proposal No. 2:  Ratification  of the selection of the accounting firm
          of BDO Seidman,  LLP as the Company's  independent  registered  public
          accounting  firm for the year  ended  December  31,  2005.  There were
          10,000,258  votes in favor of the proposal,  110,221 votes against the
          proposal and 1,043 abstentions.


ITEM 6. EXHIBITS


     a.   Exhibits

          10.51 Allianz Loan II Secured Installment Note dated July 26, 2005
          10.52 Allianz  Loan II  Deed  of  Trust,  Security  Agreement, Fixture
                Filing with Absolute Assignment of Rents dated July 26, 2005
          10.53 Allianz Loan II Limited Guaranty dated July 26, 2005
          10.54 Allianz Loan II Loan Modification Agreement dated July 26, 2005
          31.1  Section 1350 Certificate of CEO
          31.2  Section 1350 Certificate of President & COO
          31.3  Section 1350 Certificate of Principal Financial Officer
          32    Certification  pursuant to Section 906 of the Sarbanes-Oxley Act
                of 2002

                                     - 25 -

<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, Inc.
                                    (Registrant)


Date: August 9, 2005                By:    /s/ Carl E. Berg
                                    --------------------------------------------
                                    Carl E. Berg
                                    Chief Executive Officer


Date: August 9, 2005                By:    /s/ Wayne N. Pham
                                    --------------------------------------------
                                    Wayne N. Pham
                                    Vice President of Finance and Controller
                                    (Principal Accounting Officer and Duly
                                    Authorized Officer)

                                     - 26 -