[PG NUMBER]


                                  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, 2008

                          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                  (I.R.S. Employer Identification
 incorporation or organization)                            Number)

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

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


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 a large  accelerated  filer, an
accelerated filer, a non-accelerated  filer, or a smaller reporting company. See
definitions  of "large  accelerated  filer,"  "accelerated  filer" and  "smaller
reporting company" in Rule 12b-2 of the Exchange Act.

<TABLE>
<CAPTION>
<S>                          <C>                     <C>                         <C>
Large accelerated filer [ ]   Accelerated filer [X]   Non-accelerated filer [ ]   Smaller reporting company [ ]
</TABLE>

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


                      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:

                19,743,557 shares outstanding as of July 31, 2008

<PAGE>

                          MISSION WEST PROPERTIES, INC.

                                    FORM 10-Q
                       FOR THE QUARTER ENDED JUNE 30, 2008


<TABLE>
<CAPTION>
                                      INDEX

PART I        FINANCIAL INFORMATION                                                                                 PAGE
                                                                                                                    ----
<S>          <C>                                                                                                    <C>
   Item 1.    Condensed Consolidated Financial Statements:

              Condensed Consolidated Balance Sheets as of June 30, 2008 (unaudited)
              and December 31, 2007...................................................................................2

              Condensed Consolidated Statements of Operations for the three
              and six months ended June 30, 2008 and 2007 (unaudited).................................................3

              Condensed Consolidated Statements of Cash Flows for the
              six months ended June 30, 2008 and 2007 (unaudited).....................................................4

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

   Item 2.    Management's Discussion and Analysis of Financial
              Condition and Results of Operations....................................................................12

   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 1A.   Risk Factors...........................................................................................25

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

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

   SIGNATURES........................................................................................................26
</TABLE>

   EXHIBITS

     Exhibit 31.1 -  Certification  Pursuant to Rule 13a-14(a) of the Securities
                     Exchange Act of 1934
     Exhibit 31.2 -  Certification  Pursuant to Rule 13a-14(a) of the Securities
                     Exchange Act of 1934
     Exhibit 31.3 -  Certification  Pursuant to Rule 13a-14(a) of the Securities
                     Exchange Act of 1934
     Exhibit 32   -  Certification  of CEO  and  CFO Pursuant to  18 U.S.C.  ss.
                     1350,  as Adopted Pursuant to ss. 906 of the Sarbanes-Oxley
                     Act of 2002

                                     - 1 -

<PAGE>

PART I - FINANCIAL INFORMATION
ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                          MISSION WEST PROPERTIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
           (dollars in thousands, except share and per share amounts)
                                   ---------
<TABLE>
<CAPTION>
                                                                                    June 30, 2008          December 31, 2007
                                                                                 ---------------------   ----------------------
                                                                                     (unaudited)
                                     ASSETS
Real estate:
<S>                                                                                  <C>                     <C>
    Land                                                                              $  320,911              $  312,152
    Buildings and improvements                                                           792,886                 764,665
    Real estate related intangible assets                                                  3,240                   2,119
                                                                                 ---------------------   ----------------------
       Total investments in real estate                                                1,117,037               1,078,936
    Less accumulated depreciation and amortization                                      (168,124)               (156,819)
                                                                                 ---------------------   ----------------------
       Total investments in real estate, net                                             948,913                 922,117
Cash and cash equivalents                                                                    769                  23,691
Restricted cash                                                                           45,535                  65,509
Deferred rent receivable, net                                                             16,420                  14,833
Investment in unconsolidated joint venture                                                 2,625                   2,735
Other assets, net                                                                         25,588                  25,000
                                                                                 ---------------------   ----------------------
       Total assets                                                                   $1,039,850              $1,053,885
                                                                                 =====================   ======================

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
    Mortgage notes payable                                                            $  332,001              $  337,520
    Note payable (related parties)                                                         1,923                       -
    Mortgage note payable (related parties)                                                8,997                   9,224
    Revolving line of credit                                                               8,244                       -
    Interest payable                                                                       1,360                   1,331
    Security deposits                                                                      4,977                   4,754
    Deferred rental income                                                                 5,383                   3,302
    Dividends and distributions payable                                                   21,054                  16,832
    Accounts payable and accrued expenses                                                 16,174                  15,618
                                                                                 ---------------------   ----------------------
       Total liabilities                                                                 400,113                 388,581
                                                                                 ---------------------   ----------------------

Commitments and contingencies (Note 9)

Minority interests                                                                       504,668                 526,626
                                                                                 ---------------------   ----------------------

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,
      19,743,557 and 19,664,087 shares issued and outstanding
      at June 30, 2008 and December 31, 2007                                                  20                      20
    Additional paid-in capital                                                           154,056                 153,024
    Distributions in excess of accumulated earnings                                      (19,007)                (14,366)
                                                                                 ---------------------   ----------------------
     Total stockholders' equity                                                          135,069                 138,678
                                                                                 ---------------------   ----------------------
     Total liabilities and stockholders' equity                                       $1,039,850              $1,053,885
                                                                                 =====================   ======================
</TABLE>

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

                                     - 2 -

<PAGE>



                          MISSION WEST PROPERTIES, INC
                 CONDENSED 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,
                                                     -------------------------------------- ----------------------------------------
                                                           2008                2007                2008                 2007
                                                     ------------------ ------------------- -------------------- -------------------
Revenues:
<S>                                                    <C>                 <C>                 <C>                  <C>
   Rental revenue from real estate                         $19,359            $21,148             $38,356               $42,350
   Above market lease intangible asset amortization              -                  -                   -                (4,091)
   Tenant reimbursements                                     3,710              3,240               7,293                 6,454
   Lease termination fees                                        -                168               1,921                10,277
   Other income, including interest                            464                958               1,249                 4,015
                                                     ------------------ ------------------- -------------------- -------------------
        Total revenues                                      23,533             25,514              48,819                59,005
                                                     ------------------ ------------------- -------------------- -------------------
Expenses:
   Property operating, maintenance and real estate taxes     5,511              4,558              10,398                 9,078
   Interest                                                  4,956              5,045               9,884                10,114
   Interest (related parties)                                  280                182                 716                   366
   General and administrative                                  674                673               1,347                 1,387
   Depreciation and amortization of real estate              5,682              5,398              11,305                11,552
                                                     ------------------ ------------------- -------------------- -------------------
        Total expenses                                      17,103             15,856              33,650                32,497
                                                     ------------------ ------------------- -------------------- -------------------
Income before equity in earnings of unconsolidated
   joint venture and minority interests                      6,430              9,658              15,169                26,508
Equity in earnings of unconsolidated joint venture             407                350                 789                   686
Minority interests                                          (5,478)            (8,007)            (12,717)              (21,827)
                                                     ------------------ ------------------- -------------------- -------------------
   Income from continuing operations                         1,359              2,001               3,241                 5,367
                                                     ------------------ ------------------- -------------------- -------------------

Discontinued operations, net of minority interests:
Income attributable to discontinued operations                   -                  3                   -                    12
                                                     ------------------ ------------------- -------------------- -------------------
   Income from discontinued operations                           -                  3                   -                    12
                                                     ------------------ ------------------- -------------------- -------------------

Net income to common stockholders                           $1,359             $2,004             $ 3,241               $ 5,379
                                                     ================== =================== ==================== ===================
Net income to minority interests                            $5,478             $8,039             $12,717               $21,918
                                                     ================== =================== ==================== ===================
Income per common share from continuing operations:
   Basic                                                     $0.07              $0.10                $0.16               $0.27
                                                     ================== =================== ==================== ===================
   Diluted                                                   $0.07              $0.10                $0.16               $0.27
                                                     ================== =================== ==================== ===================
Income per common share from discontinued operations:
   Basic                                                         -                  -                    -                   -
                                                     ================== =================== ==================== ===================
   Diluted                                                       -                  -                    -                   -
                                                     ================== =================== ==================== ===================
Net income per common share to common stockholders:
   Basic                                                     $0.07              $0.10                $0.16               $0.27
                                                     ================== =================== ==================== ===================
   Diluted                                                   $0.07              $0.10                $0.16               $0.27
                                                     ================== =================== ==================== ===================
Weighted average shares of
  common stock outstanding (basic)                      19,695,988          19,639,928          19,681,797           19,611,515
                                                     ================== =================== ==================== ===================
Weighted average shares of
  common stock outstanding (diluted)                    19,902,304          20,020,596          19,766,535           19,956,752
                                                     ================== =================== ==================== ===================
</TABLE>

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

                                     - 3 -
<PAGE>



                          MISSION WEST PROPERTIES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)
                                   (unaudited)
                                    ---------
<TABLE>
<CAPTION>
                                                                                                 Six months ended June 30,
                                                                                           ---------------------------------------
                                                                                                  2008                2007
                                                                                           ------------------- -------------------
Cash flows from operating activities:
<S>                                                                                             <C>                 <C>
     Net income                                                                                   $3,241              $5,379
     Adjustments to reconcile net income to net cash provided by operating activities:
            Minority interests income                                                             12,717              21,918
            Minority interest distributions                                                      (12,717)            (21,918)
            Depreciation and amortization of real estate and in-place leases                      11,305              11,664
            Amortization of acquired above market lease                                                -               4,091
            Equity in earnings of unconsolidated joint venture                                      (789)               (687)
            Distributions from unconsolidated joint venture                                          900               1,100
            Interest earned on restricted cash                                                      (633)               (592)
            Lease termination fee related to restricted cash                                       4,830               3,264
            Stock-based compensation expense                                                         242                 316
            Other                                                                                     66                 131
     Changes in operating assets and liabilities:
            Deferred rent receivable                                                              (1,587)              1,701
            Other assets                                                                            (588)             (1,263)
            Interest payable                                                                          29                 (32)
            Security deposits                                                                        223                (389)
            Deferred rental income                                                                 2,081                  17
            Accounts payable and accrued expenses                                                    556                (266)
                                                                                           ------------------- -------------------
     Net cash provided by operating activities                                                    19,876              24,434
                                                                                           ------------------- -------------------
Cash flows from investing activities:
     Improvements to real estate assets                                                           (2,337)             (2,409)
     Purchase of real estate                                                                     (35,764)            (43,191)
     Restricted cash released for purchase of real estate                                          8,082              43,191
     Excess restricted cash                                                                        7,654                 630
                                                                                           ------------------- -------------------
     Net cash used in investing activities                                                       (22,365)             (1,779)
                                                                                           ------------------- -------------------
Cash flows from financing activities:
    Principal payments on mortgage notes payable                                                  (5,519)             (5,222)
    Principal payments on mortgage note payable (related parties)                                   (227)               (211)
    Proceeds from real estate purchase financing (related parties)                                19,423                   -
    Payments on real estate purchase financing (related parties)                                 (17,500)                  -
    Proceeds from note payable (related parties)                                                   3,000                   -
    Payment on note payable (related parties)                                                     (3,000)                  -
    Proceeds from line of credit                                                                   8,244                   -
    Payment of loan fees and costs                                                                   (26)                  -
    Proceeds from exercise of stock options                                                          735                   -
    Minority interest distributions in excess of earnings                                        (18,483)             (5,703)
    Dividends paid to common stockholders                                                         (7,080)             (6,251)
                                                                                           ------------------- -------------------
     Net cash used in financing activities                                                       (20,433)            (17,387)
                                                                                           ------------------- -------------------
     Net (decrease) increase in cash and cash equivalents                                        (22,922)              5,268
Cash and cash equivalents, beginning of period                                                    23,691              33,785
                                                                                           ------------------- -------------------
Cash and cash equivalents, end of period                                                         $   769             $39,053
                                                                                           =================== ===================
Supplemental information:
    Cash paid for interest                                                                       $10,572             $10,372
                                                                                           =================== ===================
Supplemental schedule of non-cash investing and financing activities:
    Debt from seller in connection with real estate purchase (related parties)                   $19,068                   -
                                                                                           =================== ===================
    Issuance of common stock upon conversion of O.P. units                                       $    54             $ 2,606
                                                                                           =================== ===================
</TABLE>

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

                                     - 4 -
<PAGE>


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

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 research and development  ("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. 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, 2008,  the Company owns a  controlling  general  partnership
     interest of 19.96%,  21.79%,  16.27% and 12.49% 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 an 18.71%
     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 111
     R&D/office properties, all of which are located in the 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, 2008 and 2007.

     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  Statement of
     Financial  Accounting  Standards  ("SFAS")  No.  131,   "Disclosures  about
     Segments of an Enterprise and Related Information," purposes.

2.   BASIS OF PRESENTATION

     PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
     The  accompanying   unaudited  interim  condensed   consolidated  financial
     statements of the Company have been prepared in accordance  with Rule 10-01
     of Regulation S-X  promulgated  by the  Securities and Exchange  Commission
     ("SEC")  and,  therefore,  do not include  all  information  and  footnotes
     necessary  for a  fair  presentation  of  financial  position,  results  of
     operations  and  cash  flows  in  conformity  with  accounting   principles
     generally  accepted in the United States of America.  In the opinion of the
     Company, however, the accompanying unaudited interim condensed consolidated
     financial  statements  contain all  adjustments,  consisting only of normal
     recurring   adjustments,   necessary  to  present   fairly  the   Company's
     consolidated  financial  position as of June 30, 2008,  their  consolidated
     results of operations  for the three and six months ended June 30, 2008 and
     2007, and their cash flows for the six months ended June 30, 2008 and 2007.
     All   significant   inter-company   balances   have  been   eliminated   in
     consolidation.  The condensed  consolidated financial statements as of June
     30, 2008 and for the three and six months  ended June 30, 2008 and 2007 and
     related footnote  disclosures are unaudited.  The results of operations for
     the three and six months ended June 30, 2008 are not necessarily indicative
     of the results to be expected for the entire year.

     The December 31, 2007 condensed consolidated balance sheet data was derived
     from audited  financial  statements,  but does not include all  disclosures
     required by accounting  principles  generally accepted in the United States
     of America.

     The Company consolidates all variable interest entities ("VIE") in which it
     is  deemed  to  be  the  primary   beneficiary  in  accordance   with  FASB
     Interpretation No. 46R, "Consolidation of Variable Interest Entities" ("FIN
     46R").  As of  June  30,  2008,  the  Company  consolidated  one VIE in the
     accompanying  condensed  consolidated  balance sheets in connection with an
     assignment of a lease  agreement with an unrelated  party,  M&M Real Estate
     Control &  Restructuring,  LLC. See Note 3 for further  discussion  of this
     transaction.

                                     - 5 -

<PAGE>


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

     STOCK-BASED OPTION COMPENSATION ACCOUNTING
     The FASB issued SFAS No. 123R,  "Share-Based  Payment" ("SFAS 123R"), which
     addresses the  accounting  for stock  options.  SFAS 123R requires that the
     cost of all employee,  director and consultant  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 123R is an
     amendment  to SFAS 123,  "Accounting  for  Stock-Based  Compensation,"  and
     supersedes  Accounting  Principles  Board Opinion No. 25,  "Accounting  for
     Stock Issued to Employees" ("APB 25"). SFAS 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. At June 30, 2008, the Company had one stock-based compensation plan.
     The Company adopted the requirements of SFAS 123R effective January 1, 2006
     using the modified  prospective method of transition.  The adoption of this
     standard  did  not  have  a  material  effect  on the  Company's  condensed
     consolidated statements of operations, cash flows or financial position.

     In the second quarter of 2008,  options to purchase 86,250 shares held by a
     former member of the Board of Directors lapsed without exercise.

     The  following  table  shows the  activity  and detail for the 2004  Equity
     Incentive Plan.

<TABLE>
<CAPTION>
                                                                  Weighted Average
                                                2004 Equity         Option Price
                                               Incentive Plan         Per Share
                                               ---------------    ------------------
<S>                                             <C>                    <C>
          Balance, December 31, 2007             1,747,100             $11.13
              Options granted                    1,025,000             $ 9.51
              Options exercised                   (73,750)             $ 9.98
              Options forfeited                   (86,250)             $10.86
                                               --------------
          Balance, June 30, 2008                 2,612,100             $10.54
                                               ==============
</TABLE>

     The Company measures  compensation cost for its stock options at fair value
     on the date of grant and recognizes  compensation  expense  relating to the
     remaining  unvested  portion of  outstanding  stock  options at the time of
     adoption  ratably over the vesting period,  generally four years.  The fair
     value of the Company's stock options is determined using the  Black-Scholes
     option  pricing  model.  Compensation  expense  related  to  the  Company's
     share-based  awards is included in general and  administrative  expenses in
     the Company's accompanying condensed consolidated statements of operations.
     Under SFAS 123R, the Company recorded approximately $96 and $157 of expense
     for the  three  months  ended  June 30,  2008 and 2007,  respectively,  and
     approximately $242 and $316 for share-based compensation relating to grants
     of  stock  options  for the six  months  ended  June  30,  2008  and  2007,
     respectively.

     As of June 30, 2008,  the total amount of  unrecognized  compensation  cost
     related to unvested share-based compensation arrangements granted under the
     compensation  plan was  approximately  $744.  This cost is  expected  to be
     recognized over a weighted-average period of 3.05 years.

     MINORITY INTERESTS
     Minority  interests   represent  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.  As of
     June 30, 2008,  these interests  accounted for  approximately  81.3% of the
     ownership  interests  in the real  estate  operations  of the  Company on a
     consolidated  weighted average basis.  The amount of minority  interests in
     net  income  is  calculated  by  taking  the net  income  of the  operating
     partnerships (on a stand-alone basis) multiplied by the respective weighted
     average minority interests ownership percentage.

     Allocation  of  corporate  general  and  administrative   expenses  to  the
     operating  partnerships  is  performed  based  upon  shares  and  operating
     partnership units outstanding for each operating partnership in relation to
     the total for all four operating partnerships.

     RECLASSIFICATIONS
     Certain  reclassifications  have been made to the previously  reported 2007
     condensed consolidated financial statements in order to conform to the 2008
     presentation.

     The following notes,  which present interim  disclosures as required by the
     SEC, highlight  significant  changes to the notes to the Company's December
     31,  2007  audited  consolidated  financial  statements  and should be read
     together  with the  consolidated  financial  statements  and notes  thereto
     included in the  Company's  2007 Annual  Report on Form 10-K filed on March
     14, 2008.

                                     - 6 -

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

     ACCOUNTING PRONOUNCEMENTS
     In  September  2006,  the FASB issued SFAS 157,  "Fair Value  Measurements"
     ("SFAS  157").  SFAS 157 defines fair value,  establishes  a framework  for
     measuring fair value and expands disclosures about fair value measurements.
     SFAS 157 applies  under other  accounting  pronouncements  that  require or
     permit  fair  value  measurements.  Accordingly,  this  statement  does not
     require  any new fair  value  measurements.  This  guidance  was  issued to
     increase  consistency and  comparability in fair value  measurements and to
     expand  disclosures  about fair value  measurements.  SFAS  establishes and
     requires disclosure of fair value hierarchy that distinguishes between data
     obtained from sources independent of the reporting entity and the reporting
     entity's own assumptions about market  participant  assumptions.  The three
     levels of  hierarchy  are 1) using  quoted  prices in  active  markets  for
     identical assets and liabilities,  2) "significant other observable inputs"
     and 3) "significant  unobservable  inputs".  "Significant  other observable
     inputs" can include  quoted  prices for similar  assets or  liabilities  in
     active  markets,  as well as inputs  that are  observable  for the asset or
     liability,  such as interest rates, foreign exchange rates and yield curves
     that are observable at commonly quoted intervals. "Significant unobservable
     inputs" are  typically  based on an entity's own  assumptions,  as there is
     little,  if  any,  related  market  activity.  SFAS  157 is  effective  for
     financial  statements  issued for fiscal years beginning after November 15,
     2007.  Adoption  on January  1, 2008 did not have a material  effect on the
     Company's  consolidated  financial  statements.  The  FASB has  approved  a
     one-year deferral for the implementation of the statement for non-financial
     assets and  non-financial  liabilities  that are recognized or disclosed at
     fair value in the financial statements on a nonrecurring basis. The Company
     believes  that the  impact  of these  items  will  not be  material  to its
     consolidated financial statements.

     In February  2007,  the FASB issued  SFAS 159,  "The Fair Value  Option for
     Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 provides
     companies  with  an  option  to  report  selected   financial   assets  and
     liabilities  at  fair  value.  SFAS  159's  objective  is  to  reduce  both
     complexity in accounting  for financial  instruments  and the volatility in
     earnings caused by measuring  related assets and  liabilities  differently.
     SFAS 159 is  effective  for  financial  statements  issued for fiscal years
     beginning  after  November  15,  2007.  The Company  adopted  SFAS 159 on a
     prospective  basis on January 1, 2008. The  implementation  of SFAS 159 did
     not  have  a  material  impact  on  the  Company's  consolidated  financial
     statements.

     In  December  2007,  the FASB  issued SFAS 141  (Revised  2007),  "Business
     Combinations"  ("SFAS  141R").  SFAS 141R will  change the  accounting  for
     business  combinations.  Under  SFAS  141R,  an  acquiring  entity  will be
     required to recognize all the assets acquired and liabilities  assumed in a
     transaction  at the  acquisition  date fair value with limited  exceptions.
     SFAS 141R will change the  accounting  treatment and disclosure for certain
     specific  items  in  a  business  combination.   SFAS  141R  requires  that
     acquisition-related  costs and restructuring costs be recognized separately
     from the business  combination and expensed as incurred.  SFAS 141R applies
     prospectively to business combinations for which the acquisition date is on
     or after the beginning of the first annual reporting period beginning on or
     after  December  15, 2008.  Early  adoption is  prohibited.  The Company is
     currently  evaluating  the impact  SFAS 141R will have on its  consolidated
     financial statements.

     In December  2007, the FASB issued SFAS 160,  "Noncontrolling  Interests in
     Consolidated  Financial  Statements"  ("SFAS 160").  SFAS 160 requires that
     noncontrolling  interests  be  presented  as a  component  of  consolidated
     stockholders'  equity,  eliminates "minority interest accounting" such that
     the amount of net income attributable to the noncontrolling  interests will
     be  presented  as part  of  consolidated  net  income  on the  consolidated
     statement  of  operations  and not as a  separate  component  of income and
     expenses.  SFAS 160 is  effective  for fiscal  years  beginning on or after
     December 15, 2008.  Early adoption is prohibited.  The Company is currently
     evaluating  the  impact  SFAS 160 will have on its  consolidated  financial
     statements.

3.   VARIABLE INTEREST ENTITY

     Under FIN 46R, a variable interest entity must be consolidated by a company
     if it is  subject  to a  majority  of the  entity's  expected  losses or is
     entitled to receive a majority of the entity's expected residual returns or
     both. In addition,  FIN 46R requires  disclosures  about variable  interest
     entities that a company is not required to consolidate, but in which it has
     a significant variable interest.

     Under  FIN  46R,  for an  entity  to  qualify  as a VIE  one or more of the
     following three characteristics must exist:

     1.   The equity  investment at risk is not  sufficient to permit the entity
          to finance its activities  without additional  subordinated  financial
          support by any parties, including the equity holders.
     2.   The  equity  investors  lack  one or more of the  following  essential
          characteristics of a controlling financial interest:

          a.   The  direct  or  indirect  ability  to make  decisions  about the
               entity's activities through voting or similar rights.
          b.   The obligation to absorb the expected loss of the entity.
          c.   The right to receive the expected residual returns of the entity.

     3.   The equity investors have voting rights that are not  proportionate to
          their economic interests,  and the activities of the entity involve or
          are conducted on behalf of an investor with a disproportionately small
          voting interest.

                                     - 7 -
<PAGE>
                         MISSION WEST PROPERTIES, INC.
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
         (dollars in thousands, except per share and per square footage)
                                   (unaudited)

     In August  2007,  one of the  Company's  tenants,  Ciena,  entered  into an
     assignment  of lease  agreement  with an unrelated  party,  M&M Real Estate
     Control &  Restructuring,  LLC  ("M&M"),  in  connection  with  leases  for
     approximately 445,000 rentable square feet located in San Jose, California.
     As a  result  of the  Assignment,  M&M  assumed  all of  Ciena's  remaining
     obligations  under  these  leases  and  received  a payment  from  Ciena of
     $53,000, of which $7,000 was reserved for tenant improvements.  At the same
     time, the Company  entered into a consent for assignment of lease with both
     parties and a mutual release agreement with Ciena, pursuant to which all of
     Ciena's obligations under these leases were effectively transferred to M&M.
     M&M is  obligated to continue to perform all of the  obligations  under the
     assumed  Ciena  leases  and has the  right  to  sublease  any or all of the
     445,000  rentable  square feet  vacated by Ciena for the  remainder  of the
     current lease term, which expire in 2011. Under the terms of the assignment
     of  lease  agreement,   the  Company  received  monthly  rent  payments  of
     approximately $789 from July 2007 through June 2008, is receiving $818 from
     July 2008 through June 2009,  will receive $849 from July 2009 through June
     2010, $881 from July 2010 through June 2011 and $915 from July 2011 through
     December 2011. Based upon the provisions of FIN 46R, the Company determined
     that M&M is a variable interest entity. The Company further determined that
     it is the  primary  beneficiary  of  this  variable  interest  entity,  and
     therefore has consolidated  this entity for financial  reporting  purposes.
     Upon consolidation, the Company recognized a gross lease termination fee of
     $46,000 in August 2007.

     Factors  considered  by the  Company in  determining  whether M&M should be
     considered a VIE for financial reporting purposes included the following:

     -    No equity was contributed by the partners in the formation of M&M.
     -    At  present,  the  assigned  leases  are  the  only  properties  under
          management by M&M.
     -    M&M does not have an operating  history that  demonstrates its ability
          to finance its activities  without additional  subordinated  financial
          support.
     -    All revenues,  other than interest  income,  are generated by M&M from
          the Company in the form of fees or commissions.

     The Company  remains at risk with respect to the assigned leases because if
     M&M's operating  expenses exceed its interest income,  fees and commissions
     there would be  insufficient  funds to meet the assigned  lease  obligation
     without additional  financial support from equity holders or other parties.
     The Company,  which had released the original  tenants from its obligations
     under the leases,  would have to absorb the majority of any loss, making it
     the primary beneficiary of M&M's activities.

4.   RESTRICTED CASH

     Restricted cash totaled  approximately $45,535 as of June 30, 2008. Of this
     amount,  approximately  $44,035  represents  cash  held by M&M Real  Estate
     Control & Restructuring,  LLC, a consolidated  variable interest entity, or
     VIE.  The Company does not have  possession  or control over these funds or
     any right to receive them except in  accordance  with the payment  terms of
     the lease  agreement  that has been assigned to the VIE. The balance of the
     restricted  cash is a $1,500  certificate  of  deposit  held by  Prudential
     Insurance Company of America as collateral  securing the Company's mortgage
     loan.  The  certificate of deposit was provided by the Company in the third
     quarter  of  2007  to  replace  two  buildings  sold  by the  Company  that
     previously served as collateral.

5.   STOCK TRANSACTIONS

     During the six months ended June 30, 2008, stock options to purchase 70,000
     and 3,750  shares of common  stock were  exercised  at $10.00 and $9.51 per
     share, respectively. Total proceeds to the Company were approximately $735.
     During the same  period,  two limited  partners  exchanged a total of 5,720
     O.P.  units for 5,720 shares of the Company's  common stock under the terms
     of the Exchange Rights Agreement among the Company and all limited partners
     of  the  operating   partnerships   resulting  in  a  reclassification   of
     approximately  $54 from minority  interests to additional  paid-in capital.
     Neither the Company nor the  operating  partnerships  received any proceeds
     from the issuance of the common stock in exchange for O.P. units.

6.   DISCONTINUED OPERATIONS

     The  Company  adopted  SFAS No.  144,  "Accounting  for the  Impairment  or
     Disposal of Long-Lived  Assets"  ("SFAS 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 is
     classified  as  discontinued   operations  in  the  condensed  consolidated
     statements of operations. Prior period condensed consolidated statements of
     operations  presented in this report have been  reclassified to reflect the
     income or loss  related  to  properties  that were  sold and  presented  as
     discontinued  operations in 2007. All periods presented in this report will
     likely  require  further  reclassification  in future  periods if there are
     properties held for sale or property sales occur.

     In the third  quarter of 2007,  the Company  sold two R&D  properties  that
     qualified as discontinued  operations.  Condensed results of operations for
     these  properties  for the three and six months  ended June 30, 2007 are as
     follows:

                                     - 8 -
<PAGE>

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


<TABLE>
<CAPTION>
                                                               Three Months Ended June 30,       Six Months Ended June 30,
                                                             ------------------------------    -----------------------------
                                                                 2008              2007            2008             2007
                                                             -------------    -------------    ------------     ------------
                                                                                 (dollars in thousands)
                                                                                       (unaudited)
         Revenues
<S>                                                              <C>             <C>               <C>             <C>
            Rental revenue from real estate                        -              $135               -              $271
            Tenant reimbursements                                  -                14               -                27
                                                             -------------    -------------    ------------     ------------
               Total revenues                                      -               149               -               298
                                                             -------------    -------------    ------------     ------------
         Expenses
            Property operating, maintenance and real estate taxes  -                58               -                83
            Depreciation of real estate                            -                56               -               112
                                                             -------------    -------------    ------------     ------------
              Total expenses                                       -               114               -               195
                                                             -------------    -------------    ------------     ------------

         Income from discontinued operations                       -                35               -               103
         Minority interest in earnings attributable to
            discontinued operations                                -               (32)              -               (91)
                                                             -------------    -------------    ------------     ------------
         Income from discontinued operations                       -              $  3               -              $ 12
                                                             =============    =============    ============     ============
</TABLE>

7.   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.

     The computation for weighted average shares is detailed below:

<TABLE>
<CAPTION>
                                                            Three Months Ended June 30,            Six Months Ended June 30,
                                                         ---------------------------------     ---------------------------------
                                                               2008              2007               2008               2007
                                                         ---------------    --------------     --------------    ---------------
<S>                                                       <C>                <C>                <C>                <C>
         Weighted average shares outstanding (basic)       19,695,988         19,639,928         19,681,797         19,611,515
         Incremental shares from assumed option exercise      206,316            380,668             84,738            345,237
                                                         ---------------    --------------     --------------    ---------------
         Weighted average shares outstanding (diluted)     19,902,304         20,020,596         19,766,535         19,956,752
                                                         ===============    ==============     ==============    ===============
</TABLE>

     At June 30,  2008,  outstanding  options to  purchase  1,040,000  shares of
     common stock 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  closing price of the  Company's  common
     stock during the period. 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, 2008 and
     2007 was 85,528,215 and 85,009,699, respectively.

8.   RELATED PARTY TRANSACTIONS

     As of June 30, 2008, the Berg Group owned  77,902,384 O.P. units.  The Berg
     Group's  combined  ownership of O.P. units and shares of common stock as of
     June 30, 2008 represented  approximately 74% of the total equity interests,
     assuming conversion of all O.P. units outstanding into the Company's common
     stock.

     As of June 30, 2008, debt in the amount of approximately $8,997 was due the
     Berg Group under a mortgage  note  established  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 mortgage
     note was  approximately  $174 and $182 for the three  months ended June 30,
     2008 and 2007,  respectively,  and $349 and $366 for the six  months  ended
     June 30, 2008 and 2007, respectively.

     As of June 30, 2008, debt in the amount of approximately $1,923 was due the
     Berg Group under a short-term  note payable  established on January 1, 2008
     in connection with the acquisition of 5981 Optical Court.  The note payable
     bears  interest at LIBOR plus 2% and is due  September  30, 2008.  Interest
     expense  incurred in connection  with the loan was  approximately  $106 and
     $355 for the three and six months ended June 30, 2008, respectively.

     During  the first six  months  of 2008 and 2007,  Carl E. Berg or  entities
     controlled by him held financial  interests in several companies that lease
     space from the operating  partnerships,  which include  companies where Mr.
     Berg has a greater  than 10%  ownership  interest.  These  related  tenants
     contributed  approximately  $307 and $361 in rental  revenue  for the three
     months  ended June 30,  2008 and 2007,  respectively,  and $614 and $721 in
     rental   revenue  for  the  six  months  ended  June  30,  2008  and  2007,
     respectively.

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

     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.
     Currently their share ownership is below a level at which rent from related
     tenants would be excluded in determining compliance with REIT qualification
     tests.

     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 has recorded this portion of
     the  purchase  price  paid to the  Berg  Group  in  "Other  assets"  on its
     condensed  consolidated balance sheets. The Berg Group is in the process of
     satisfying this commitment to complete certain tenant improvements.

     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 has recorded
     this portion of the purchase price paid to the Berg Group in "Other assets"
     on its  condensed  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
     for the Company's headquarters.  Rental amounts and overhead reimbursements
     paid  to Berg & Berg  Enterprises  were  approximately  $30 and $24 for the
     three  months ended June 30, 2008 and 2007,  respectively,  and $54 and $47
     for the six months ended June 30, 2008 and 2007, respectively.

9.   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 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 the  following  legal
     proceedings and it believes that the ultimate outcome of these  proceedings
     will not have a material  adverse  effect on its  operating  results,  cash
     flows or financial condition.

     Mission West Properties,  L.P. v. Republic Properties  Corporation,  et al.
     Santa Clara County Superior Court, Case No. CV 796249.  Republic Properties
     Corporation  ("RPC") is a former 50% partner with Mission West  Properties,
     L.P. in the Hellyer Avenue Limited  Partnership  ("Hellyer LP"),  which was
     formed  in July  2000.  Under  the  terms  of the  Hellyer  LP  partnership
     agreement  and other  related  contracts,  Mission  West  Properties,  L.P.
     ("MWP") had the right to obtain RPC's entire  interest in Hellyer LP in the
     event of certain payment defaults which occurred in August 2000. Therefore,
     on September 1, 2000, MWP, as the general partner of Hellyer LP, ceased all
     allocations  of income and cash flow to RPC and  exercised  the right under
     the   partnership   agreement  to  cancel  RPC's  entire  interest  in  the
     partnership.  Following  discussions  with and approval by the  Independent
     Directors Committee,  the Company authorized the transfer of RPC's interest
     in Hellyer LP to Berg & Berg Enterprises, Inc. ("BBE"). Under the Berg Land
     Holdings Option Agreement and the Acquisition Agreement dated as of May 14,
     1998,  the  Independent  Directors  Committee  had the  right,  but not the
     obligation,   to   reacquire   the   property   interest  and  the  related
     distributions  related to the property  interest at any time.  The transfer
     was effective as of September 1, 2000. On November 20, 2000,  RPC commenced
     a lawsuit  against MWP in the Circuit Court of Maryland for Baltimore City.
     After  lengthy  litigation,  which  included  a  trial  on the  merits  and
     subsequent  appeals,  in April  2006  Maryland's  highest  court  upheld an
     earlier  Maryland  Appeals  Court ruling in favor of MWP,  finding that the
     Circuit Court of Maryland could not assert personal  jurisdiction  over MWP
     in the RPC suit.  The Court  vacated the judgment and decision in the trial
     court and dismissed the entire  Maryland suit. In February 2001,  while the
     Maryland  case was  pending,  the Company  filed a suit  against RPC in the
     Superior  Court of the State of  California  for the County of Santa Clara.
     The case was  stayed  pending  resolution  of the  Maryland  case,  and the
     Company dismissed its suit on March 4, 2005. In April 2005, RPC submitted a
     motion  asking the Superior  Court to reinstate  the case,  which the Court
     granted on May 25, 2005. On July 5, 2006,  RPC filed a  cross-complaint  in
     the case seeking  partnership  distributions to which the Company demurred.
     The  Court   sustained  the   Company's   demurrer  with  leave  to  amend.
     Subsequently,  RPC filed an amended  complaint  and the  Company  submitted
     another demurrer seeking  dismissal of the claims on statute of limitations
     grounds.  On February 20, 2007, the Court overruled the Company's demurrer.
     The Company sought a writ from the California State Court of Appeal for the
     Sixth  District to direct the lower court to reverse its decision,  but the
     petition for the writ was denied. In April 2008, the Company filed a motion
     for summary  judgment in the California  Superior Court which was denied. A
     trial in the California Superior Court will commence in late 2008.

     Since the  inception  of Hellyer  LP, the  Company  has  accounted  for the
     properties  owned  by  the  partnership  on  a  consolidated   basis,  with
     reductions  for the minority  interest held by the minority  partner (first
     RPC and then BBE). In each period,  the Company has accrued amounts payable
     by Hellyer LP to the  minority  interest  partner,  including  BBE prior to
     payment. BBE's share of earnings allocated to its 50% minority interest was
     approximately  $0.4 million in the first six months of 2008 and 2007. As of
     June 30, 2008,

                                     - 10 -
<PAGE>
                         MISSION WEST PROPERTIES, INC.
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
         (dollars in thousands, except per share and per square footage)
                                   (unaudited)


     accumulated cash flow distributions from Hellyer LP totaling  approximately
     $4.9  million  were  accrued  and  distributed  to  BBE.  If the  Company's
     litigation  with RPC is  ultimately  decided in RPC's  favor,  the  Company
     anticipates  that BBE may be required to return  RPC's  former  interest in
     Hellyer  LP and  all  prior  distributions  to  RPC.  As a  result  of this
     uncertainty, in October 2003, the Company recorded such distributions as an
     account  receivable  from BBE,  which is included in "Other  assets" on the
     Company's  consolidated  balance sheets, with an offsetting account payable
     to BBE.

     If the  litigation  is  ultimately  decided  in favor of the  Company,  the
     Independent  Directors  Committee of the Board of Directors  has the right,
     but not the obligation,  to acquire on behalf of the Company the former RPC
     interest  and  related  distributions  from BBE under the terms of the Berg
     Land Holdings Option  Agreement and the Acquisition  Agreement  between the
     Company and the Berg Group.

     GUARANTEES AND INDEMNITIES
     Under its articles 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 recorded no liabilities for these  agreements
     as of June 30, 2008.

     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  typically agrees to indemnify and hold
     harmless  the  indemnified  party for losses  suffered  or  incurred by the
     indemnified  party as a result of certain  kinds of activities or inactions
     of  the  Company.   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 recorded no  liabilities  for these  agreements  as of June 30,
     2008.

     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.

     ASSET DISPOSITIONS SUBJECT TO CERTAIN CONDITIONS
     The  Company has  entered  into sales  agreements  with  unrelated  parties
     subject to  numerous  material  conditions,  including  but not  limited to
     re-zoning of the property and negotiating certain agreements with the local
     municipality  acceptable to the buyer. As a result of the conditions agreed
     to by the Company and the respective  buyers,  these assets do not meet the
     criteria  set forth in SFAS 144 to be  classified  as assets held for sale.
     The following  summarizes  the assets for which the Company has an executed
     sales  contract  as of June  30,  2008  that is  subject  to such  material
     conditions:

<TABLE>
<CAPTION>
        Property                   Number of Buildings   Rentable Square Feet    Acres   Sales Price
        --------                   -------------------   --------------------    -----   -----------
<S>                                        <C>                 <C>              <C>       <C>
        McCandless Drive
        Milpitas, California                8                   427,000          23.03     $76,500
</TABLE>

10.  SUBSEQUENT EVENTS

     On July 3, 2008,  the Company  paid  dividends of $0.20 per share of common
     stock to all common stockholders of record as of June 30, 2008. On the same
     date, the operating partnerships paid a distribution of $0.20 per O.P. unit
     to all  holders  of  O.P.  units.  Aggregate  dividends  and  distributions
     amounted to approximately $21,054.

     On July 3, 2008, a short-term  note payable in the amount of  approximately
     $12,760  was  issued to the Berg  Group in  connection  with the  quarterly
     distributions.  The note payable bears interest at LIBOR plus 2% and is due
     September 30, 2008.

                                     - 11 -

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


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  condensed
consolidated financial statements and notes thereto under Part I, Item 1 of this
Report and our  audited  consolidated  financial  statements  and notes  thereto
contained  in our  Annual  Report  on Form  10-K as of and  for the  year  ended
December 31, 2007.  The results for the three and six months ended June 30, 2008
are not  necessarily  indicative  of the results to be  expected  for the entire
fiscal year ending December 31, 2008.

FORWARD-LOOKING INFORMATION

This quarterly report on Form 10-Q 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 are
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 or would cause actual results in the future to differ  materially from
any of our  forward-looking  statements  include,  but are not  limited  to, the
following:

     -    economic conditions generally and the real estate market specifically,
     -    the occupancy rates of the properties,
     -    rental rates on new and renewed leases,
     -    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,
     -    changes in general  accounting  principles,  policies  and  guidelines
          applicable to REITs, and
     -    ability to timely refinance maturing debt obligations and the terms of
          any such refinancing.

These risks and  uncertainties,  together with the other risks  described  under
Part I, Item 1A - "Risk Factors" of our 2007 Annual Report on Form 10-K and from
time to time in our other reports and documents  filed with the  Securities  and
Exchange Commission ("SEC"), 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,
2008, we owned and managed 111  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, 2008, two tenants individually lease in excess of
300,000 rentable square feet from us: Microsoft Corporation and Apple, Inc.

For  federal  income  tax  purposes,   we  have  operated  as  a   self-managed,
self-administered  and fully  integrated real estate  investment  trust ("REIT")
since the beginning of 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
-    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.

                                     - 12 -
<PAGE>

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. Historically, the Silicon Valley R&D property market has fluctuated
with the local economy.  After  fast-paced  growth in 1999 and 2000, the Silicon
Valley economy and business  activity slowed markedly from 2001 through 2006 and
have been  growing  slowly since then.  According  to a recent  report by NAI BT
Commercial  Real Estate (the "BT Report"),  the vacancy rate for Silicon  Valley
R&D  property was  approximately  16.6% in late 2007 and 16.0% at the end of the
second quarter of 2008. Total vacant R&D square footage in Silicon Valley at the
end of the second quarter of 2008 amounted to approximately  24.7 million square
feet,  of which 15.4%,  or 3.8 million  square  feet,  was being  offered  under
subleases.  According to the BT Report,  total positive net absorption (which is
the  computation  of gross square  footage  leased less gross new square footage
vacated for the period  presented) in 2007 amounted to approximately 3.5 million
square  feet,  and in the first six months of 2008 there was total  positive net
absorption of  approximately  0.16 million square feet. Also according to the BT
Report,  the average asking market rent per square foot at the end of the second
quarter of 2008 was $1.29  compared with $1.26 in late 2007.  The Silicon Valley
R&D property market is characterized by a substantial number of submarkets, with
rent and vacancy rates varying by submarket and location  within each submarket,
however, and individual properties within any particular submarket presently may
be leased above or below the current  average  asking market rental rates within
that submarket and the region as a whole.

Our  occupancy  rate at June 30, 2008 was 64.9%  compared with 67.8% at June 30,
2007. 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
191,000  rentable  square  feet  are  expiring  prior  to the end of  2008.  The
properties  subject to these  leases may take  anywhere  from 24 to 36 months or
longer to re-lease.  We believe  that the average 2008 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.

Despite our strategic focus on single tenant  properties and leases, in order to
meet market  conditions,  we have been, and expect to continue leasing less than
the entire  premises of some of our R&D  properties to a single tenant from time
to time. Leasing our R&D properties,  which generally have been built for single
tenant  occupancy,  to multiple  tenants  can  increase  our  leasing  costs and
operating expenses and reduce the profitability of our leasing activities.

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; if we restructure existing leases and lower existing
rents in order to retain  tenants for an extended  term;  or if we increase  our
lease costs and operating expenses substantially to accommodate multiple tenants
in our R&D properties, our results of operations and cash flows will be affected
adversely. 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 condensed  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  condensed  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
condensed   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 ("SFAS") No.
141,  "Business  Combinations"  ("SFAS 141"),  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
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 and  below  market in place  leases,  and the
determination  of their useful lives are guided by a combination of SFAS 141 and
management's  estimates.  Amortization  expense of above and below  market lease
intangible  asset is offset against rental revenue in the revenue  section while
amortization   of  in-place  lease  value   intangible   asset  is  included  in
depreciation  and  amortization  of real  estate in the  expense  section of our
condensed consolidated statements of

                                     - 13 -
<PAGE>

operations.  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 SFAS No. 144, "Accounting for
the Impairment and Disposal of Long-Lived  Assets" ("SFAS 144"). If the carrying
amount of the asset exceeds its  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,  the remaining lease term, whether or
not the tenant is currently occupying our building, 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.  We recognize these properties and 100%
of their operating results in our condensed  consolidated  financial statements,
with appropriate  allocation to minority interests,  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.

STOCK-BASED  COMPENSATION.  In December 2004,  the FASB issued SFAS 123R,  which
addresses the accounting for stock options.  SFAS 123R requires that the cost of
all  employee,   director  and  consultant  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 123R is an amendment to
SFAS 123 and  supersedes  APB 25. SFAS 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. We have
adopted  the  requirements  of SFAS 123R  effective  January  1, 2006  using the
modified prospective method of transition.  Accordingly,  prior periods have not
been restated.  The adoption of this standard did not have a material  effect on
our condensed  consolidated  statements  of  operations  or financial  position.
Compensation  cost under SFAS 123R may differ due to different  assumptions  and
treatment of forfeitures.

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 condensed 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,  cease
operations or are likely to seek a negotiated settlement of their obligation. 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

                                     - 14 -
<PAGE>

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.

SFAS No. 66,  "Accounting  for Sales of Real Estate"  ("SFAS  66"),  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 when the tenant no longer has the right to occupy 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. We cannot predict or forecast the
timing or amounts of future lease termination fees.

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 regard 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.

                                     - 15 -

<PAGE>


RESULTS OF OPERATIONS

COMPARISON  OF THE THREE AND SIX MONTHS  ENDED JUNE 30,  2008 WITH THE THREE AND
SIX MONTHS ENDED JUNE 30, 2007

As of  June  30,  2008,  through  our  controlling  interests  in the  operating
partnerships,  we  owned  111  properties  totaling  approximately  8.0  million
rentable  square feet compared with 110 properties  totaling  approximately  7.8
million  rentable square feet owned by us as of June 30, 2007. This represents a
net increase of  approximately  2.6% in total  rentable  square  footage,  as we
acquired  three  R&D/office   properties  consisting  of  approximately  284,000
rentable  square  feet  and  sold  two  R&D/office   properties   consisting  of
approximately  87,000  rentable  square  feet since the second  quarter of 2007.
Included  in the 8.0 million  rentable  square  feet are  approximately  854,000
rentable  square feet (or 16 buildings)  that we are seeking to have rezoned for
residential development.

Rental revenue from real estate for the three and six months ended June 30, 2008
compared with the same three- and six-month periods in 2007 was as follows:

<TABLE>
<CAPTION>
                                   Three Months Ended June 30,
                                 --------------------------------
                                                                                           % Change by
                                     2008              2007              $ Change         Property Group
                                 -------------     --------------     ---------------     ---------------
                                               (dollars in thousands)

<S>                                <C>               <C>                <C>                  <C>
       Same Property (1)            $18,452           $21,126            ($2,674)             (12.7%)
       2007 Acquisitions                  6                22                (16)             (73.0%)
       2008 Acquisitions                901                 -                901              100.0%
                                 -------------     --------------     ---------------
          Total                     $19,359           $21,148            ($1,789)              (8.5%)
                                 =============     ==============     ===============
</TABLE>


<TABLE>
<CAPTION>
                                    Six Months Ended June 30,
                                 --------------------------------
                                                                                           % Change by
                                     2008              2007              $ Change         Property Group
                                 -------------     --------------     ---------------     ---------------
                                               (dollars in thousands)

<S>                                <C>               <C>                <C>                  <C>
       Same Property (1)            $36,751           $42,329            ($5,578)             (13.2%)
       2007 Acquisitions                 20                21                 (1)              (4.8%)
       2008 Acquisitions              1,585                 -              1,585              100.0%
                                 -------------     --------------     ---------------
          Total                     $38,356           $42,350            ($3,994)              (9.4%)
                                 =============     ==============     ===============
</TABLE>

(1)  "Same Property" is defined as properties  owned by us prior to 2007 that we
     still owned as of June 30, 2008.

RENTAL REVENUE FROM REAL ESTATE FROM CONTINUING OPERATIONS
For the quarter ended June 30, 2008,  rental revenue from real estate  decreased
by  approximately  ($1.8) million,  or (8.5%),  from $21.1 million for the three
months ended June 30, 2007 to $19.4  million for the three months ended June 30,
2008.  For the six months ended June 30, 2008,  rental  revenue from real estate
decreased by approximately ($4.0) million, or (9.4%), from $42.4 million for the
six months  ended June 30, 2007 to $38.4  million for the six months  ended June
30,  2008.  The  decline in rental  revenue  resulted  primarily  from  renewing
existing  leases at lower  rental  rates and the loss of several  tenants due to
lease terminations,  relocation or cessation of their operations in 2007, all of
which resulted from current adverse market conditions.  Total rental revenue was
reduced by  amortization  expense of  approximately  ($4.1)  million for the six
months ended June 30, 2007 for an above-market  lease  intangible asset acquired
pursuant to a lease termination. That resulted in the write-off of all remaining
above-market  lease  intangible  asset.  Our occupancy rate at June 30, 2008 was
approximately 64.9%, compared with approximately 67.8% at June 30, 2007.

EQUITY IN EARNINGS FROM UNCONSOLIDATED JOINT VENTURE
As of June 30,  2008,  we held  investments  in  three  R&D  buildings  totaling
approximately  466,600  rentable  square feet  through an  unconsolidated  joint
venture,  TBI-MWP,  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, 2008,  we recorded  equity in earnings  from the  unconsolidated  joint
venture of approximately $0.41 million compared with equity in earnings of $0.35
million for the same period in 2007.  For the  six-month  periods ended June 30,
2008 and 2007,  equity in earnings  from the  unconsolidated  joint  venture was
approximately $0.79 million and $0.69 million,  respectively. The occupancy rate
for the  properties  owned by this joint  venture at June 30,  2008 and 2007 was
100%.

LEASE TERMINATION INCOME
Lease  termination  fee income  for the three  months  ended  June 30,  2007 was
approximately  $0.2  million.  Lease  termination  fee income for the six months
ended June 30, 2008 and 2007 were  approximately $1.9 million and $10.3 million,
respectively.  These lease  termination fees were paid by tenants who terminated
their lease  obligations  before the end of the contractual term of the lease by
agreement with us. We do not consider those transactions to be recurring items.

OTHER INCOME FROM CONTINUING OPERATIONS
Other income of  approximately  $0.5 million for the three months ended June 30,
2008  included  approximately  $0.2 million from  interest and $0.3 million from
management fees and  miscellaneous  income.  Other income of approximately  $1.0
million for the three months

                                     - 16 -
<PAGE>

ended June 30, 2007  included  approximately  $0.5 million from  interest,  $0.3
million from management fees and $0.2 million from security deposit  forfeitures
and miscellaneous  income.  For the six months ended June 30, 2008, other income
of approximately $1.3 million included  approximately $0.8 million from interest
and $0.5 million from  management  fees and  miscellaneous  income.  For the six
months ended June 30, 2007, other income of approximately  $4.0 million included
approximately  $1.6  million from a forfeited  deposit  under a contract for the
sale of property, $1.3 million from interest, $0.6 million from management fees,
$0.3 million from a bankruptcy  settlement  claim and $0.2 million from security
deposit forfeitures and miscellaneous income.

EXPENSES FROM CONTINUING OPERATIONS
Property  operating  expenses and real estate taxes during the second quarter of
2008 increased by  approximately  $1.0 million,  or 20.9%,  from $4.5 million to
$5.5 million for the three  months  ended June 30, 2007 and 2008,  respectively.
The increase in 2008 was  primarily  attributable  to increases in utility usage
and  repair  and  maintenance  expenses.   Tenant  reimbursements  increased  by
approximately  $0.5  million,  or 14.5%,  from $3.2 million for the three months
ended June 30, 2007 to $3.7 million for the three months ended June 30, 2008 due
to  reimbursements  of recurring  operating  expenses.  Certain expenses such as
property  insurance,  real estate taxes, and other fixed operating  expenses are
not recoverable from vacant properties.  For the six months ended June 30, 2008,
property  operating  expenses and real estate taxes  increased by  approximately
$1.3 million, or 14.5%, from $9.1 million for the six months ended June 30, 2007
to  $10.4  million  for  the  six  months  ended  June  30,  2008.  General  and
administrative  expenses remained the same at approximately $0.7 million for the
three months ended June 30, 2008 and 2007, and $1.3 million and $1.4 million for
the six months ended June 30, 2008 and 2007, respectively.

Real estate  depreciation  and amortization  expense  increased by approximately
$0.3  million,  or 5.3%,  from $5.4 million to $5.7 million for the three months
ended June 30,  2007 and 2008,  respectively.  The  increase  resulted  from the
acquisition of two R&D properties and additional tenant  improvements since June
30,  2007.  Real estate  depreciation  and  amortization  expense  decreased  by
approximately ($0.3) million, or (2.1%), from $11.6 million to $11.3 million for
the six months ended June 30, 2007 and 2008,  respectively.  Such expense in the
first six months of 2007 included  additional  amortization  expense relating to
in-place lease value  intangible  asset pursuant to SFAS 141 in connection  with
two lease terminations that did not recur in 2008.

Interest expense was approximately  $5.0 million for the three months ended June
30, 2008 and 2007. Interest expense (related parties) increased by approximately
$0.1  million,  or 53.8%,  from $0.2 million for the three months ended June 30,
2007 to $0.3  million  for the three  months  ended June 30,  2008 due to higher
related party debt incurred in the quarter just ended.  Total debt  outstanding,
including  amounts  due  related  parties,  decreased  by  approximately  ($1.1)
million, or (0.3%), from $352.3 million as of June 30, 2007 to $351.2 million as
of June 30, 2008.

INCOME FROM DISCONTINUED OPERATIONS
The following table depicts the amounts of income from  discontinued  operations
for the three and six months ended June 30, 2007.

<TABLE>
<CAPTION>
                                                               Three Months Ended June 30,       Six Months Ended June 30,
                                                              ----------------------------     -----------------------------
                                                                 2008             2007             2008             2007
                                                              -----------     ------------     ------------     ------------
                                                                                  (dollars in thousands)
                                                                                       (unaudited)
<S>                                                                <C>           <C>                <C>           <C>
         Income attributable to discontinued operations             -             $35                -             $103
         Minority interests in earnings attributable to
             discontinued operations                                -             (32)               -              (91)
                                                              -----------     ------------     ------------     ------------
         Income from discontinued operations                        -             $ 3                -             $ 12
                                                              ===========     ============     ============     ============
</TABLE>

In the third quarter of 2007, we sold two R&D properties, and in accordance with
our adoption of SFAS 144, classified them as discontinued operations. The income
to common  stockholders  attributable  to  discontinued  operations  from  these
properties  for the three and six months  ended June 30, 2007 was  approximately
$3,000 and $12,000, respectively.

NET INCOME TO COMMON STOCKHOLDERS AND NET INCOME TO MINORITY INTERESTS
Net income to common stockholders  decreased by approximately ($0.6) million, or
(32.1%),  from $2.0  million  for the three  months  ended June 30, 2007 to $1.4
million for the same period in 2008.  The  minority  interest  portion of income
decreased by approximately ($2.5) million, or (31.9%), from $8.0 million for the
three months ended June 30, 2007 to $5.5 million for the three months ended June
30, 2008. The decrease in the quarter's net income for both common  stockholders
and minority  interests  was  primarily  due to lower rental  revenue and higher
operating  expenses in the second quarter of 2008. For the six months ended June
30, 2008 and 2007,  the minority  interest  portion of income was  approximately
$12.7  million  and  $21.8  million,  respectively,  and net  income  to  common
stockholders was approximately $3.2 million and $5.4 million,  respectively. The
combination of lower rental  revenue,  lower  termination  fee income and higher
operating   expenses  led  to  the  decrease  in  net  income  for  both  common
stockholders and minority interests in the first half of 2008.

Minority  interest  in net income has been  calculated  by  multiplying  the net
income of the operating  partnerships (on a stand-alone basis) by the respective
minority  interest  ownership  percentage.   Minority  interests  represent  the
ownership  interest of all limited partners in the operating  partnerships taken
as a whole, which was approximately 81% as of June 30, 2008 and 2007.

                                     - 17 -

<PAGE>


CHANGES IN FINANCIAL CONDITION

The most  significant  changes in our financial  condition during the six months
ended June 30, 2008 resulted from the acquisition of two R&D properties. At June
30,  2008,  total  investments  in  real  estate  increased  on a net  basis  by
approximately  $38.1  million from  December 31, 2007  primarily  due to two R&D
property  acquisitions  consisting of approximately 186,000 rentable square feet
located  in the  Silicon  Valley  and  the  construction  of  additional  tenant
improvements.

Total stockholders'  equity, net, decreased by approximately ($3.6) million from
December 31, 2007.  We obtained  additional  capital from the issuance of 73,750
and 5,720 shares of our common stock for stock option exercises and the exchange
of O.P.  units,  respectively,  which  increased  additional  paid-in capital by
approximately $0.9 million. Share-based compensation relating to grants of stock
options  increased  additional  paid-in capital by  approximately  $0.1 million.
Stockholders' equity was reduced during the most recent quarter by distributions
in excess of accumulated earnings of approximately ($4.6) million.

LIQUIDITY AND CAPITAL RESOURCES

We expect a slight increase in operating cash flows from our operating  property
portfolio  in 2008  compared  with  2007  primarily  from new  leases,  periodic
payments  from M&M Real  Estate  Control &  Restructuring  relating to the Ciena
lease  termination  in 2007 (see Note 3 above)  and an  additional  early  lease
termination.   If  we  are  unable  to  lease  a  significant   portion  of  the
approximately  191,000  rentable  square  feet  scheduled  to expire  during the
remainder of 2008 or an equivalent  amount of our currently  available  space of
approximately  2.8 million  rentable  square feet,  however,  our operating cash
flows after 2008 may be affected adversely. With the expectation of lower rental
revenues for the  remainder of 2008,  we expect our  properties'  net  operating
income to show a  year-over-year  decline  compared  with 2007  driven by excess
capacity of commercial  office and R&D space in the Silicon Valley.  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.  Cash flows from lease terminations
are  non-recurring  and to maintain or increase cash flows in the future we must
re-lease our vacant properties.

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,  as well as borrowings
under our line of credit with Heritage Bank of Commerce ("HBC"). We expect these
sources  of  liquidity  to  be  adequate  to  meet  projected  distributions  to
stockholders and other presently anticipated liquidity  requirements in 2008. 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  cash and  investments,  long-term  secured and  unsecured
indebtedness,  and potentially,  the issuance of additional equity securities by
us. We expect our total  interest  expense to  increase  through  new  financing
activities.

In the first half of 2008, cash and cash equivalents  decreased by approximately
($22.9) million from $23.7 million as of December 31, 2007 to $0.8 million as of
June 30, 2008.

As of June 30, 2008,  restricted cash totaled  approximately  $45.5 million.  Of
this  amount,   approximately   $44.0  million   represents  cash  held  by  our
consolidated VIE from the Ciena lease  termination in the third quarter of 2007.
We do not  possess or  control  these  funds or have any rights to receive  them
except as provided in the applicable agreements, however. We include this in our
restricted  cash under the  principles  of FIN 46R. The  remaining  $1.5 million
represents a certificate of deposit which represents a portion of our collateral
securing the Prudential  Insurance  mortgage loan,  which we placed in escrow in
October 2007 as a substitution  for two properties that we sold. We expect these
funds to be returned to us in October 2008. The restricted cash is not available
for distribution to stockholders.

DISTRIBUTIONS
On July 3, 2008,  we paid  dividends  of $0.20 per share of common  stock to all
common  stockholders  of  record  as of June 30,  2008.  On the same  date,  the
operating partnerships paid a distribution of $0.20 per O.P. unit to all holders
of O.P. units.  Aggregate dividends and distributions  amounted to approximately
$21.1  million.  For the  remainder  of 2008,  we expect to maintain our current
quarterly dividend payment rate to common  stockholders and O.P. unit holders of
$0.20 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
We currently  have a $17.5 million  unsecured  revolving line of credit with HBC
established  in April  2008.  The  revolving  line of credit  carries a variable
interest rate based on the one-month LIBOR plus 1.75% per annum and matures June
15,  2009.  We are in the  process  of  increasing  that  line of  credit to $30
million.

At June 30, 2008, we had total  indebtedness  of  approximately  $351.1 million,
including $332.0 million of fixed rate mortgage debt, $8.2 million under the HBC
line of credit,  $9.0 million debt under the Berg Group  mortgage  note (related
parties)  and $1.9  million  debt  under the Berg Group  note  payable  (related
parties), as detailed in the table below. The Prudential Insurance, Northwestern
Mutual,  Allianz and HBC loans  contain  certain  financial  loan and  reporting
covenants as defined in the loan  agreements.  As of June 30,  2008,  we were in
compliance with these loan covenants.

                                     - 18 -
<PAGE>

Our mortgage  loan from  Prudential  Insurance  Company of America,  which had a
principal balance of approximately  $111.3 million as of June 30, 2008,  matures
on October 15, 2008. We are currently  evaluating and examining the  refinancing
options available to us and are seeking favorable proposals for replacement.  We
expect to be able to refinance  this debt prior to maturity.  We currently  have
not secured a commitment for  replacement  financing,  however,  and replacement
financing is not assured. Failure to refinance this debt prior to maturity, with
either short-term or long-term borrowings,  would have a material adverse effect
on our financial  conditions and would prevent the payment or  distributions  to
stockholders and O.P unit holders until we have refinanced it.

CONTRACTUAL OBLIGATIONS
The following table  identifies the contractual  obligations as of June 30, 2008
that will impact our liquidity and cash flow in future periods:
<TABLE>
<CAPTION>

                                   --------------------------------------------------------------------------------------------
                                       2008         2009         2010          2011          2012      Thereafter      Total
                                   --------------------------------------------------------------------------------------------
                                                                      (dollars in thousands)
<S>                                <C>          <C>           <C>          <C>            <C>         <C>          <C>
    Debt Obligations (1)            $117,764     $17,806       $10,105      $10,681        $11,032     $183,777     $351,165
    Operating Lease Obligations (2)       60          30             -            -              -            -           90
                                   ------------ ------------ ------------- ------------ ------------- ------------ ------------
    Total                           $117,824     $17,836       $10,105      $10,681        $11,032     $183,777     $351,255
                                   ============ ============ ============= ============ ============= ============ ============
</TABLE>

(1)  Our debt obligations are set forth in detail in the schedule below.
(2)  Our operating lease  obligations  relate to a lease of our corporate office
     facility from a related party.

                                     - 19 -
<PAGE>


The following table sets forth information regarding debt outstanding as of June
30, 2008:


<TABLE>
<CAPTION>
                                                                                                           Interest      Maturity
          Debt Description                           Collateral Properties                Balance            Date          Rate
------------------------------------------  ---------------------------------------  ------------------  ------------- ------------
                                                                                   (dollars in thousands)
Line of Credit:
<S>                                        <C>                                          <C>                 <C>           <C>
Heritage Bank of Commerce                   Not Applicable                                 $8,244             6/09           (3)
                                                                                     ------------------

Note Payable (related parties):             Not Applicable                                  1,923             9/08           (4)
                                                                                     ------------------

Mortgage Note Payable (related parties):    5300 & 5350 Hellyer Avenue, San Jose, CA        8,997             6/10         7.65%
                                                                                     ------------------
Mortgage Notes Payable (1):
Prudential Insurance Company of America (2) 10300 Bubb Road, Cupertino, CA                111,256            10/08         6.56%
                                            10500 N. De Anza Boulevard, Cupertino, CA
                                            4050 Starboard Drive, Fremont, CA
                                            45738 Northport Loop, Fremont, CA
                                            450 National Avenue, Mountain View, CA
                                            6311 San Ignacio Avenue, San Jose, CA
                                            6321 San Ignacio Avenue, San Jose, CA
                                            6325 San Ignacio Avenue, San Jose, CA
                                            6331 San Ignacio Avenue, San Jose, CA
                                            6341 San Ignacio Avenue, San Jose, CA
                                            6351 San Ignacio Avenue, 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
                                            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 Co. (5)  1750 Automation Parkway, San Jose, CA          83,160             1/13         5.64%
                                            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 Avenue, San Jose, CA
                                            2251 Lawson Lane, Santa Clara, CA
                                            1325 McCandless Drive, Milpitas, CA
                                            1650-1690 McCandless Drive, Milpitas, CA
                                            20605-20705 Valley Green Dr., Cupertino, CA

Allianz Life Ins. Co. (Allianz Loan I)(6)   5900 Optical Court, San Jose, CA               23,423             8/25         5.56%


Allianz Life Ins. Co. (Allianz Loan II)(6)  5325-5345 Hellyer Avenue, San Jose, CA        114,162             8/25         5.22%
                                            1768 Automation Parkway, San Jose, CA
                                            2880 Scott Boulevard, Santa Clara, CA
                                            2890 Scott Boulevard, Santa Clara, CA
                                            2800 Scott Boulevard, Santa Clara, CA
                                            20400 Mariani Avenue, Cupertino, CA
                                            10450-10460 Bubb Road, Cupertino, CA
                                                                                     ------------------
                                                                                          332,001
                                                                                     ------------------
TOTAL                                                                                    $351,165
                                                                                     ==================
</TABLE>

(1)  Mortgage notes payable generally require monthly  installments of principal
     and interest ranging from  approximately  $177,000 to $840,000 over various
     terms extending  through the year 2025. The weighted  average interest rate
     of mortgage notes payable was 5.85% at June 30, 2008.
(2)  The  Prudential  Insurance  loan is  payable  in  monthly  installments  of
     approximately  $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 $12,000,000 of this debt. Costs and
     fees incurred with obtaining this loan aggregated  approximately  $900,000,
     which were deferred and amortized over the loan period.
(3)  Loan  carries a  variable  interest  rate equal to LIBOR  plus  1.75%.  The
     interest  rate at June 30, 2008 was 4.26%.  The  Heritage  Bank of Commerce
     ("HBC")  line of  credit  contains  certain  financial  loan and  reporting
     covenants as defined in the loan agreements, including minimum tangible net
     worth and debt service  coverage  ratio.  As of June 30,  2008,  we were in
     compliance with these loan covenants.
(4)  Loan  carries a  variable  interest  rate  equal to LIBOR  plus  2.0%.  The
     interest rate at June 30, 2008 was 4.47%.
(5)  The Northwestern  loan is payable in monthly  installments of approximately
     $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.
(6)  The  Allianz  loans  are  payable  in  monthly  aggregate  installments  of
     approximately  $1,017,000,  which includes  principal (based upon a 20-year
     amortization)  and interest.  Costs and fees incurred with obtaining  these
     loans  aggregated  approximately   $1,089,000,   which  were  deferred  and
     amortized  over  the  loan  periods.  The  Allianz  loans  contain  certain
     customary covenants as defined in the loan agreements. As of June 30, 2008,
     we were in compliance with these loan covenants.

                                     - 20 -

<PAGE>


At June 30,  2008,  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 $10.96 per share on June 30, 2008) on a fully  diluted  basis,  including the
conversion of all O.P. units into common stock, was approximately 23.3%. On June
30, 2008, the last trading day in the quarter,  total market  capitalization was
approximately $1.50 billion.

At June 30, 2008, the outstanding  balance remaining under certain notes that we
owed to the operating  partnerships was approximately $2.0 million. The due date
of these notes has been extended to September 30, 2009. 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  condensed  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 interests as reported on the condensed  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, 2008 WITH THE SIX MONTHS ENDED JUNE
30, 2007

Net cash provided by operating activities for the six months ended June 30, 2008
was approximately  $19.9 million compared with $24.4 million for the same period
in 2007.  Cash  flow  decreases  came  primarily  from  lower  rental  and lease
termination  fee income,  a forfeited  deposit  under a contract for the sale of
property in 2007 that did not recur in 2008,  and  insurance  premiums that were
paid in full for the entire year 2008 instead of through installment payments as
in 2007.

Net cash used in investing  activities was approximately  $22.4 million and $1.8
million for the six months ended June 30, 2008 and 2007, respectively. Cash used
in  investing  activities  during the six months  ended  June 30,  2008  related
principally to the  acquisition of one R&D property at 5981 Optical Court in San
Jose,  California  and one R&D  property  at 2904  Orchard  Parkway in San Jose,
California for a total of approximately  $35.8 million.  The acquisition at 2904
Orchard Parkway was completed as a tax-deferred  exchange transaction  involving
our former R&D  property  at 1170 Morse  Avenue in  Sunnyvale,  California.  The
remaining excess  restricted cash of approximately  $7.7 million was transferred
to our general cash account.  Capital  expenditures for real estate improvements
were approximately $2.3 million for the six months ended June 30, 2008.

Net cash used in investing  activities during the six months ended June 30, 2007
related  principally to the acquisition of 50 acres of vacant land at the Morgan
Hill Ranch in Morgan Hill,  California  for  approximately  $25.5  million,  the
acquisition  of five  acres of vacant  land at the  Morgan  Hill Ranch in Morgan
Hill, California for approximately $2.3 million and the acquisition of three R&D
properties at Montague  Expressway  in Milpitas,  California  for  approximately
$15.4 million. All three acquisitions were completed as a tax-deferred  exchange
transaction  involving our former R&D properties at 2033-2243 Samaritan Drive in
San Jose, California. The remaining excess restricted cash of approximately $0.6
million was transferred to our general cash account.  Capital  expenditures  for
real estate  improvements  were  approximately  $2.4  million for the six months
ended June 30, 2007.

Net cash used in financing  activities was  approximately  $20.4 million for the
six months ended June 30, 2008 compared with approximately $17.4 million for the
six months ended June 30, 2007. During the first six months of 2008, we financed
approximately  $22.4 million in short-term  debt,  received  approximately  $8.2
million from our line of credit,  received approximately $0.7 million from stock
option exercises,  paid  approximately  $26.2 million towards  outstanding debt,
paid  approximately  $7.0 million of dividends to common  stockholders  and paid
approximately $18.5 million to minority interests for distributions in excess of
earnings.  During the same period in 2007,  we paid  approximately  $5.4 million
towards outstanding debt, paid approximately $6.3 million of dividends to common
stockholders  and paid  approximately  $5.7  million to minority  interests  for
distributions in excess of earnings.

Under the condensed consolidated statement of cash flows in the quarterly report
on Form 10Q for the  quarterly  period ended June 30,  2007,  filed on August 8,
2007, an inadvertent error was discovered under "supplemental  information." The
cash paid for  interest  for the six months ended June 30, 2007 should have been
reported at  approximately  $10.4 million.  The reported amount of approximately
$4.2 million  represented  the cash paid for interest for the three months ended
June 30, 2007.

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 to be an appropriate supplemental measure
of our operating and financial performance because when compared year over year,
it reflects  the impact to  operations  from trends in occupancy  rates,  rental
rates, operating costs, general and administrative  expenses and interest costs,
providing a perspective not immediately  apparent from net income.  In addition,
management  believes that FFO provides  useful  information  about our financial
performance  when compared with other REITs because FFO is generally  recognized
as the industry  standard for reporting the operations

                                     - 21 -
<PAGE>

of REITs. In addition to the disclosure of operating earnings per share, we will
continue  to use FFO as a measure  of our  performance.  FFO  should  neither 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 represented by O.P.
Units 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.

FFO for the three and six months ended June 30, 2008 and 2007, as reconciled to
net income to common stockholders, are summarized in the following table:

<TABLE>
<CAPTION>
                                                    Three Months Ended June 30,                    Six Months Ended June 30,
                                             -----------------------------------------     -----------------------------------------
                                                    2008                   2007                   2008                   2007
                                             ------------------     ------------------     ------------------     ------------------
                                                       (dollars in thousands)                        (dollars in thousands)
<S>                                             <C>                    <C>                    <C>                    <C>
Net income to common stockholders                $ 1,359                $ 2,004                $ 3,241                $ 5,379
Add:
  Minority interests (1)                           5,415                  7,922                 12,543                 21,677
  Depreciation and amortization of real estate (2) 6,275                  6,028                 12,488                 12,803
                                             ------------------     ------------------     ------------------     ------------------
FFO                                              $13,049                $15,954                $28,272                $39,859
                                             ==================     ==================     ==================     ==================
</TABLE>

(1)  Minority  interests in net income is calculated by taking the net income of
     the  operating  partnerships  (on a  stand-alone  basis)  multiplied by the
     respective  weighted  average  minority  interests  ownership   percentage.
     Minority  interests for third parties totaling  approximately  $63 and $117
     for the three months ended June 30, 2008 and 2007,  respectively,  and $174
     and $241 for the six  months  ended June 30,  2008 and 2007,  respectively,
     were deducted from total minority interests in calculating FFO.
(2)  Includes our portion of  depreciation  and  amortization of real estate and
     leasing   commissions  from  our  unconsolidated   joint  venture  totaling
     approximately  $189 for the three months ended June 30, 2008 and 2007,  and
     $379 for the six months  ended June 30, 2008 and 2007.  Also  includes  our
     amortization of leasing  commissions of approximately $404 and $384 for the
     three months ended June 30, 2008 and 2007, respectively,  and $805 and $760
     for the six months ended June 30, 2008 and 2007, respectively. Amortization
     of leasing commissions is included in the property  operating,  maintenance
     and  real  estate  taxes  line  item  in  the  our  condensed  consolidated
     statements of operations.

The decrease in FFO  year-over-year  was primarily due to lower rental and lease
termination fee income in 2008.

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 ability to refinance maturing debt obligations;
-    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;
-    the amount of our annual debt service requirements;
-    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.

                                     - 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
variable rate debt 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, 2008. 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 fixed rate debt,  we
estimate fair value by using  discounted  cash flow analyses  based on borrowing
rates for similar kinds of borrowing arrangements.

For fixed rate debt,  the table  presents the  assumption  that the  outstanding
principal balance at June 30, 2008 will be paid according to scheduled principal
payments and that we will not prepay any of the outstanding principal balance.

For variable rate debt, the table presents the assumption  that the  outstanding
principal balance at June 30, 2008 will be paid upon maturity.

<TABLE>
<CAPTION>

                                     Six Months             Year Ending December 31,
                                     Remaining  ----------------------------------------------
                                       2008       2009        2010         2011        2012     Thereafter    Total     Fair Value
                                   ------------------------------------------------------------------------------------------------
                                                                          (dollars in thousands)
 Fixed Rate Debt:
<S>                                 <C>         <C>         <C>         <C>         <C>         <C>        <C>          <C>
   Secured notes payable             $115,842    $9,561      $10,105     $10,681     $11,032     $183,777   $340,998     $444,096
   Weighted average interest rate       5.85%     5.85%        5.85%       5.85%       5.85%        5.85%

 Variable Rate Debt:
   Unsecured debt                    $  1,923    $8,244            -           -           -           -    $ 10,167     $ 10,167
   Weighted average interest rate       4.47%     4.26%
</TABLE>

The primary market risks we face are interest rate fluctuations. 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.  We had no interest
rate caps or interest  rate swap  contracts at June 30, 2008.  The only variable
debt that we had as of June 30, 2008 was approximately $10.2 million owed to the
Heritage Bank of Commerce and Berg Group. This represented approximately 2.9% of
the total $351.2  million of  outstanding  debt as of June 30, 2008.  All of our
debt is denominated in United States dollars.

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,  2008,  a 1%
increase or decrease in interest  rates on our  approximately  $10.2  million of
floating rate debt would decrease or increase, respectively, six months earnings
and cash  flows  by  approximately  $51,000,  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  designed  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 and procedures.

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 (as defined in
Rule 13a-15(e) or Rule 15d-15(e)) were effective as of June 30, 2008.

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, our internal control over financial reporting.

                                     - 24 -

<PAGE>


PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Legal  proceedings are  incorporated  herein by reference from Part I "Item 1. -
Notes to Condensed  Consolidated Financial Statements - Note 9 - Commitments and
Contingencies."

ITEM 1A. RISK FACTORS

While we  attempt  to  identify,  manage and  mitigate  risks and  uncertainties
associated with our business to the extent  practical  under the  circumstances,
some level of risk and  uncertainty  will always be present.  In addition to the
other  information  contained in this report,  you should  carefully  review the
factors  discussed  under Item 1A of our annual report on Form 10-K for the year
ended  December  31, 2007 which  describes  some of the risks and  uncertainties
associated with our business.  These risks and uncertainties  have the potential
to materially affect our business,  financial condition,  results of operations,
cash  flows,  and  future  prospects.  Additional  risks and  uncertainties  not
presently  known to us or that we currently deem  immaterial also may impair our
business operations.

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

     a)   The 2008 Annual Meeting of Stockholders of the Company was held on May
          22, 2008 in which  proxies  representing  18,874,162  shares of common
          stocks,  or 96.0% of the total  outstanding  shares,  were present and
          voted.

     b)   At the 2008 Annual Meeting of Stockholders,  Carl E. Berg,  William A.
          Hasler, Lawrence B. Helzel, Raymond V. Marino and Martin S. Roher were
          elected as directors for the ensuing year, all of whom were serving on
          the board of directors  at the time of the meeting,  except for Martin
          S. Roher who was newly elected in 2008.

     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                      17,891,578               982,584                    -
          William A. Hasler                 18,283,601               590,561                    -
          Lawrence B. Helzel                18,312,370               561,792                    -
          Raymond V. Marino                 18,696,539               177,623                    -
          Martin S. Roher                   18,748,625               125,537                    -
</TABLE>

Proposal No. 2:  Ratification  of the selection of the accounting  firm of Burr,
Pilger & Mayer, LLP as the Company's  independent  registered  public accounting
firm for the year ending December 31, 2008. There were 18,844,451 votes in favor
of the proposal, 12,369 votes against the proposal and 17,341 abstentions.

ITEM 6.  EXHIBITS
<TABLE>
<CAPTION>

<S>     <C>      <C>
         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
</TABLE>

                                     - 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 7, 2008                 By:    /s/ Carl E. Berg
                                        ----------------------------------------
                                        Carl E. Berg
                                        Chief Executive Officer


Date: August 7, 2008                 By:    /s/ Wayne N. Pham
                                        ----------------------------------------
                                        Wayne N. Pham
                                        Vice President of Finance and Controller
                                        (Principal Accounting Officer and Duly
                                        Authorized Officer)

                                     - 26 -