SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                                   (Mark One)
            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                    For Fiscal Year Ended: December 31, 2000

                                       OR

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

                        For the transition period from to

                           Commission File No. 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
 Incorporation or organization)                        Identification Number)

10050 Bandley Drive, Cupertino CA                              95014
(Address of principal executive offices)                    (Zip Code)

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

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

           Securities Registered Pursuant to Section 12(b) of the Act:

  Title of each class                 Name of each exchange on which registered
 ---------------------               -------------------------------------------
Common Stock, par value                       American Stock Exchange
    $.001 per share                           Pacific Exchange, Inc.


           Securities Registered Pursuant to Section 12(g) of the Act:
                                      NONE

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

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

         The aggregate  market value of the voting stock held by  non-affiliates
of the  registrant,  based upon the  closing  sale price of the Common  Stock on
March 28, 2001, as reported on the American Stock  Exchange,  was  approximately
$13.00.  As of March 28, 2001 there were 17,049,953  shares of the  Registrant's
Common Stock outstanding.

<PAGE>

                           FORWARD LOOKING INFORMATION

This annual report contains forward-looking statements within the meaning of the
federal securities laws. We intend such forward-looking statements to be covered
by the safe harbor provisions for  forward-looking  statements  contained in the
Private  Securities  Litigation  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 us, are generally  identifiable by
use  of the  words  "believe,"  "expect,"  "intend,"  "anticipate,"  "estimate,"
"project" or similar  expressions.  Our ability to predict results or the actual
effect of future plans or  strategies  is  inherently  uncertain.  Factors which
could have a material  adverse effect on the operations and future  prospects of
the Company  include,  but are not limited to, changes in:  economic  conditions
generally and the real estate  market  specifically,  legislative  or regulatory
provisions  affecting us  (including  changes to laws  governing the taxation of
REITs),  availability  of capital,  interest rates,  competition,  supply of and
demand for office and industrial  properties in our current and proposed  market
areas, and general accounting principles,  policies and guidelines applicable to
REITs.  These risks and  uncertainties,  together with the other risks described
from time to time in our reports and  documents  filed with the  Securities  and
Exchange  Commission,   should  be  considered  in  evaluating   forward-looking
statements and undue reliance should not be placed on such statements.  See Part
I, Item 1, "Risk Factors."


                                     - i -
<PAGE>

                          MISSION WEST PROPERTIES, INC.

                          2000 FORM 10-K ANNUAL REPORT
<TABLE>
<CAPTION>

                                Table of Contents


                                                    PART I
                                                    ------
                                                                                                Page No.
<S>            <C>                                                                                <C>
Item 1.         Business                                                                           1
Item 2.         Properties                                                                         16
Item 3.         Legal Proceedings                                                                  21
Item 4.         Submission of Matters to a Vote of Security Holders                                21

                                                   PART II
                                                   -------
Item 5.         Market for the Registrant's Common Equity and Related Stockholder Matters          22

Item 6.         Selected Financial Data                                                            23
Item 7.         Management's Discussion and Analysis of Financial
                Condition and Results of Operations                                                25
Item 7A.        Quantitative and Qualitative Disclosures about Market Risk                         38
Item 8.         Financial Statements and Supplementary Data                                        39
Item 9.         Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure                                                66

                                                   PART III
                                                   --------
Item 10.        Directors and Executive Officers of the Registrant                                 67
Item 11.        Executive Compensation                                                             67
Item 12.        Security Ownership of Certain Beneficial Owners and Management                     67
Item 13.        Certain Relationships and Related Transactions                                     67

                                                   PART IV
                                                   -------
Item 14.        Exhibits, Financial Statements, Schedules and Reports
                on Form 8-K                                                                        68
                Signatures                                                                         70
</TABLE>


                                     - ii -
<PAGE>

PART I

ITEM 1.   BUSINESS

     ORGANIZATION AND GENERAL BUSINESS DESCRIPTION

     Mission West Properties,  Inc. (the "Company") acquires,  markets,  leases,
     and manages R&D properties, primarily located in the Silicon Valley portion
     of the San  Francisco  Bay Area.  As of  December  31,  2000,  we owned and
     managed 89 properties  totaling  approximately  6.2 million rentable square
     feet of R&D  properties  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
     properties  in the  Silicon  Valley.  The four  tenants  who lease the most
     square  footage from us are Microsoft  Corporation,  Amdahl  Corporation (a
     subsidiary of Fujitsu  Limited),  Apple  Computer,  Inc. and Cisco Systems,
     Inc. For federal  income tax purposes we have  operated as a  self-managed,
     self-administered   and  fully  integrated  real  estate  investment  trust
     ("REIT") since 1999.

     Prior to July 1, 1998,  most of our properties  were under the ownership or
     control of Carl E. Berg,  his brother  Clyde J. Berg,  the members of their
     respective  immediate families,  and certain entities in which Carl E. Berg
     and/or Clyde J. Berg held  controlling  or other  ownership  interests (the
     "Berg Group").  We acquired these properties as of July 1, 1998 by becoming
     the general partner of each of the four operating partnerships in an UPREIT
     transaction.   At  that  time,  we  also  acquired  ten   properties   with
     approximately  560,000  rentable  square feet from  entities  controlled by
     third parties in which Berg Group members were significant owners.

     Through  various  property  acquisition  agreements with the Berg Group, we
     have the right to purchase, on pre-negotiated terms, R&D and other types of
     office and light industrial  properties that the Berg Group develops in the
     future.   With  in-house   development,   architectural   and  construction
     personnel,  the Berg  Group  continues  to  focus  on a full  range of land
     acquisition,  development and  construction  activities for R&D properties,
     often  build-to-suit,  to meet the  demands of Silicon  Valley  information
     technology companies.  As the developer,  the Berg Group takes on the risks
     of  purchasing  the  land,  obtaining  regulatory  approvals  and  permits,
     financing construction and leasing the properties. Since September 1998, we
     have acquired  approximately  1,841,570  additional rentable square feet of
     R&D properties from the Berg Group under these agreements.

     OUR RELATIONSHIP WITH THE BERG GROUP

     Through a series of  transactions  occurring  between May 1997 and December
     1998,  we have  become the  vehicle  for  substantially  all of the Silicon
     Valley  R&D  property  activities  of the Berg  Group.  We are the  general
     partner   pursuant  to  the   partnership   agreements   of  the  operating
     partnerships   and,  along  with  members  of  the  Berg  Group  and  other
     individuals,  are  party  to an  exchange  rights  agreement,  the  pending
     projects acquisition agreement and the Berg land holdings option agreement.
     Each agreement  defines the material rights and  obligations  among us, the
     Berg Group  members,  and other  parties to those  agreements.  Among other
     things, these agreements give us rights to:

     -    control the operating partnerships;

     -    acquire, on pre-negotiated terms, existing,  identified R&D properties
          under development by the Berg Group;

     -    acquire, on pre-negotiated  terms, all future R&D properties developed
          by the Berg Group on land  currently  owned or acquired in the future;
          and

     -    acquire R&D, office and industrial  properties  identified by the Berg
          Group in California, Oregon and Washington.

Under these agreements,  our charter or our bylaws, the Berg Group has the right
to:

     -    designate  two of five  nominees  for  director  to be  elected by our
          stockholders,  subject  to the Berg  Group's  maintenance  of  certain
          ownership interests;

     -    participate in our securities offerings;


                                     - 1 -
<PAGE>

     -    exchange their O.P. Units for our common stock;

     -    vote on major  transactions,  subject  to its  maintenance  of certain
          ownership interests; and

     -    prevent us from selling properties when the sale will have adverse tax
          consequences to the Berg Group members.

     To comply with REIT  requirements that restrict the percentage of the total
     value of our stock that may be owned by five or fewer individuals to 50% or
     less, our charter generally  prohibits the direct or indirect  ownership of
     more than 9% of our common stock by any  stockholder.  This limit  excludes
     the Berg Group, which has an aggregate  ownership limit of 20%.  Currently,
     the Berg Group members  collectively  own less than 1% of the  outstanding
     shares of our common stock.

     Carl E. Berg, the Company's  President and Chief Executive  Officer and the
     controlling  member of the Berg Group,  has been engaged in the development
     and long-term  ownership of Silicon Valley real estate for approximately 30
     years,  most recently  through Berg & Berg  Developers  ("Berg & Berg"),  a
     general  partnership  of Carl E. Berg and Clyde J. Berg. In 1969,  Mr. Berg
     foresaw the rising demand for efficient,  multi-purpose  facilities for the
     rapidly  growing  information  technology  industry in the Silicon  Valley.
     Since 1972,  in addition to his real estate  activities,  Mr. Berg also has
     been actively  involved in venture capital  investments in many information
     technology  companies in the Silicon  Valley,  including  such companies as
     Amdahl   Corporation,   Sun  Microsystems,   Inc.,  and  Integrated  Device
     Technologies,  Inc.  He  serves  on the  boards of  directors  of  numerous
     information  technology  companies.  These  activities have helped Mr. Berg
     develop  a  detailed  understanding  of the  real  estate  requirements  of
     information  technology companies,  acquire valuable market information and
     increase   his  name   recognition   within   the   venture   capital   and
     entrepreneurial communities.  These activities also manifest his commitment
     to the growth and success of Silicon Valley companies.  We believe that Mr.
     Berg's substantial knowledge of and contacts in the information  technology
     industry provide a significant benefit to the Company.

     BUSINESS STRATEGY

     Our acquisition and growth 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 properties that provide attractive initial yields and
          significant potential for growth in cash-flow;

     -    focusing  on  general  purpose,   single-tenant   Silicon  Valley  R&D
          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.

     ACQUIRING PROPERTIES DEVELOPED BY THE BERG GROUP

     We anticipate that most of our growth in the  foreseeable  future will come
     from the acquisition of new R&D properties that are either  currently under
     development  or to be  developed  in the future by the Berg  Group.  During
     2001, we expect to acquire a total of  approximately  1,809,000  additional
     rentable square feet currently under  development.  These acquisitions will
     be completed on pre-negotiated terms under the pending projects acquisition
     agreement,  as amended  by the  supplemental  agreement,  and the Berg land
     holdings  option  agreement.  In addition to the projects  currently  under
     development,  the Berg land holdings option agreement gives us the right to
     acquire future developments by the Berg Group on up to 257 additional acres
     of land  currently  controlled  by the  Berg  Group,  which  could  support
     approximately 4.06 million square feet of new developments.  Under the Berg
     land holdings option agreement, we also have an option to purchase all land
     acquired, directly or indirectly, by Carl E. Berg or Clyde J. Berg that has
     not been approved with completed buildings and which is zoned for, intended
     for or appropriate for research and development,  office and/or  industrial
     development or use in the states of California,

     Oregon  and  Washington.  We expect  to  exercise  this  option in order to
     acquire an  approximate  50%  interest in a joint  venture  established  to
     develop  approximately  961,000  rentable  square  feet on 62 acres held by
     TBI-Mission  West,  LLC, in which the Berg Group holds a 50%  interest.  We
     will not manage this joint  venture.  In addition,  Carl E. Berg has agreed
     not to directly or indirectly  acquire or develop any real  property  zoned
     for office,  industrial or R&D use in the states of California,  Oregon and
     Washington without first disclosing and making the acquisition  opportunity
     available to us. Our independent

                                     - 2 -
<PAGE>

     directors  committee  will decide  whether we will  pursue the  opportunity
     presented to us by Mr. Berg. This  restriction will expire when there is no
     Berg Group  nominee on our board of directors  and the Berg  Group's  fully
     diluted ownership percentage,  which is calculated based on all outstanding
     shares  of common  stock and all  shares  of  common  stock  that  could be
     acquired upon the exercise of all outstanding options to acquire our voting
     stock,  as well as all shares of common stock issuable upon exchange of all
     O.P. Units, falls below 25%.

     PENDING PROJECTS ACQUISITION  AGREEMENT.  In December 1998, we entered into
     the pending projects acquisition  agreement with members of the Berg Group,
     under  which  we held  the  right  to  acquire  approximately  1.0  million
     additional rentable square feet upon the completion and leasing of a number
     of pending development  projects. By December 31, 2000, we had acquired all
     of these projects.  The last project under the pending projects acquisition
     agreement  was  acquired  on  December  1,  2000,  and  the  agreement  was
     terminated on that date. The agreement  permitted the Berg Group members to
     obtain cash or, at their option,  O.P. Units for their equity  interests in
     the  properties.  We  had  reserved  and  registered  for  issuance  up  to
     33,919,072  shares of our  common  stock  upon  exchange  of up to the same
     number of O.P.  Units  issuable  in exchange  for the  pending  development
     projects,  of which a total of  20,028,176  O.P.  Units were issued for new
     properties  acquired under the agreement.  We acquired the pending projects
     upon the following terms:

     -    The  acquisition  price was  payable  in cash or, at the option of the
          Berg Group, in O.P. Units valued at $4.50 per O.P. Unit, which was the
          price per share of our common stock in May 1998, when we agreed to the
          terms of the pending projects acquisition agreement.

     -    The Berg Group built and delivered each completed and fully-leased R&D
          property  in  the  pending  development   projects  to  the  operating
          partnerships  at an  acquisition  price equal to the  average  monthly
          rental rate per square  foot over the term of the lease  divided by an
          agreed upon  capitalization rate between 14% and 17%, minus the amount
          of debt encumbering the property.

     -    The closing for the acquisition of an individual R&D property occurred
          only when the building was fully completed and leased.

     -    The leases each contained reasonable terms and conditions,  comparable
          to arm's length leasing transactions between unrelated parties.

     -    All  actions  taken  by us  under  the  pending  projects  acquisition
          agreement   were  approved  by  a  majority  of  the  members  of  the
          independent directors committee of our board of directors.



     For a discussion of risks associated with the pending projects  acquisition
     agreement  and related  transactions,  please  refer to this Item 1., "Risk
     Factors  - Our  contractual  business  relationships  with the  Berg  Group
     present  additional   conflicts  of  interests  which  may  result  in  the
     realization of economic  benefits or the deferral of tax liabilities by the
     Berg Group without equivalent benefits to our stockholders."

     BERG LAND  HOLDINGS  OPTION  AGREEMENT.  We  believe  that  control of high
     quality,  developable  land is an important  strategic factor for continued
     success in the Silicon Valley market. In December 1998, we entered into the
     Berg land  holdings  option  agreement  under  which we have the  option to
     acquire any future R&D,  office and  industrial  property  developed by the
     Berg  Group on land  currently  owned,  optioned,  or  acquired  for  these
     purposes in the future, directly or indirectly, by Carl E. Berg or Clyde J.
     Berg. As of December 31, 2000, we had  acquired eight leased R&D properties
     totaling approximately 826,000 rentable square feet under this agreement at
     a cost of approximately  $80.6 million,  for which we issued 4,325,358 O.P.
     Units and assumed debt of approximately $43.1 million.  The principal terms
     of the agreement include the following:

     -    So long as the Berg Group members and their affiliates own or have the
          right to acquire shares  representing at least 65% of our common stock
          on a fully  diluted  basis,  we will have the  option to  acquire  any
          building developed by any member of the Berg Group on the land subject
          to the  agreement at such time as the  building has been leased.  Upon
          our exercise of the option, the option price will equal the sum of:

          1.   the full construction cost of the building; plus
          2.   10% of the full construction cost of the building; plus
          3.   interest  at  LIBOR  plus  1.65%,  on  the  amount  of  the  full
               construction  cost of the  building  for the period from the date
               funds were  disbursed  by the  developer  to the close of escrow;
               plus
          4.   the  original  acquisition  cost  of  the  parcel  on  which  the
               improvements  will be  constructed,  which  range  from  $8.50 to
               $20.00 per square foot for land currently  owned or under option;
               plus

                                     - 3 -
<PAGE>


          5.   10% per annum of the amount of the original  acquisition  cost of
               the parcel  from the later of  January  1, 1998 and the  seller's
               acquisition date, to the close of escrow; minus
          6.   the  aggregate  principal  amount  of all  debt  encumbering  the
               acquired property.

     -    The  acquisition  cost,  net of any debt,  will be payable in cash, or
          O.P.  Units  valued at the average  closing  price of our common stock
          over the 30-trading-day  period preceding the acquisition or, in cash,
          at the option of the Berg Group.

     -    We also must assume all tax assessments.

     -    If we elect not to exercise the option with  respect to any  property,
          the Berg Group may hold and lease the property for its own account, or
          may sell it to a third party.

     -    All action taken by us under the Berg land holdings  option  agreement
          must be  approved  by a majority  of the  members  of the  independent
          directors committee of our board of directors.

     The following  table  presents  certain  information  concerning  currently
     identified  land or  projects  that we have the right to acquire  under the
     Berg land holdings option agreement.

<TABLE>
<CAPTION>

                                                              APPROXIMATE
                                                             RENTABLE AREA           ANTICIPATED            TOTAL ESTIMATED
      PROPERTY                            NET ACRES          (SQUARE FEET)         ACQUISITION DATE         ACQUISITION COST
      ------------------------------ -------------------- ------------------- --------------------------- ---------------------
      UNDER DEVELOPMENT:                                                                                  (dollars in thousands)
<S>                                          <C>            <C>                      <C>                    <C>
      Hellyer Vista (Phase I)                   6              131,500                Q1 2001                $   16,500
      Hellyer III (Phase I)                     7              117,740                Q2 2001                    14,400
      Creekside                                 5               65,000                Q2 2001                     9,000
      Morgan Hill (JV I) (1)                   13              211,000                Q2 2001                    22,000
      Silver Creek                             18              346,000                Q3 2001                    40,500
      Caspian (Phase II)                        5              100,000                Q2 2001                    14,900
      5550 Hellyer                              6               79,800                Q3 2001                    10,200
      5535 Hellyer                              6              125,000                Q4 2001                    15,400
      Morgan Hill (JV IV) (1)                  12              160,000                Q4 2001                    17,500
      5750 Hellyer                              7               73,312                Q3 2001                    10,100
      Morgan Hill (JV II) (1)                   4               60,000                Q4 2001                     5,700
      Morgan Hill (JV III) (1)                  3               40,000                Q4 2001                     4,000
      Piercy & Hellyer                          8              130,000                Q4 2001                    14,900
      Piercy & Hellyer                          4               65,000                Q4 2001                     8,696
      Piercy & Hellyer                          7              105,000                Q4 2001                    13,200
                                     -------------------- -------------------                             ---------------------
                     SUBTOTAL                 111            1,809,352                                       $  216,996
                                     ==================== ===================                             =====================

      AVAILABLE LAND:
      Morgan Hill (1)                          30              490,000
      King Ranch                               15              248,500
      Piercy & Hellyer                         28              458,000
      Fremont & Cushing                        24              387,000
      Evergreen                               160            2,480,000
                                     -------------------- -------------------
                    SUBTOTAL                  257            4,063,500
                                     -------------------- -------------------
      TOTAL                                   368            5,872,852
                                     ==================== ===================
</TABLE>

(1)  The Company  expects to own an approximate  50% interest in the partnership
     that will develop the  property.  The property will be operated and managed
     by the other partner.

                                     - 4 -
<PAGE>

     The time  required to  complete  the  leasing of  developments  varies from
     property to property. The acquisition dates and acquisition costs set forth
     in the table are only estimates by management.  Generally, the Company will
     not acquire any of the above  projects  until they are fully  completed and
     leased.  There can be no assurance that the acquisition date and final cost
     to the Company as  indicated  above will be  realized.  No estimate  can be
     given at this time as to our total cost to acquire  projects under the Berg
     land holdings option agreement, or can we be certain of the period in which
     we will acquire any of the projects.

     Although we expect to acquire the new properties  available to us under the
     terms of the Berg land holdings option agreement, there can be no assurance
     that  we  actually  will  consummate  any  of  the  intended  transactions,
     including  all of  those  discussed  above.  Furthermore,  we have  not yet
     determined  the  means  by  which  we  would  acquire  and pay for any such
     properties  or the  impact  of any of  the  acquisitions  on our  business,
     results  of   operations,   financial   condition  or  available  cash  for
     distribution.   See  Item  1.,  "Risk  Factors - Our  contractual  business
     relationships with the Berg Group present additional  conflicts of interest
     which may result in the realization of economic benefits or the deferral of
     tax  liabilities  by the Berg  Group  without  equivalent  benefits  to our
     stockholders."

     OPPORTUNISTIC ACQUISITIONS

     In addition to our  principal  opportunities  under the Berg land  holdings
     option  agreement,  we believe  our  acquisitions  experience,  established
     network of real estate,  information  technology  professionals and overall
     financial  condition  will continue to provide  opportunities  for external
     growth.  In  general,  we  will  seek  opportunistic  acquisitions  of high
     quality,  well located  Silicon Valley R&D  properties in situations  where
     illiquidity or inadequate  management permit their acquisition at favorable
     prices,  and where our  management  skills and knowledge of Silicon  Valley
     submarkets  may  facilitate   increases  in  cash  flow  and  asset  value.
     Furthermore,  our use of the operating  partnership  structure allows us to
     offer  prospective  sellers the  opportunity to contribute  properties on a
     tax-deferred  basis  in  exchange  for  O.P.  Units.  Although  we have not
     consummated any  transactions  like this since our July 1, 1998 acquisition
     of the Berg  Group  properties,  this  capacity  to  complete  tax-deferred
     transactions  with sellers of real property further enhances our ability to
     acquire additional properties.

     FOCUS ON SINGLE TENANT SILICON VALLEY R&D PROPERTIES

     We intend to continue to emphasize the acquisition of single-tenant  rather
     than  multi-tenant  properties,  a  practice  that has  contributed  to the
     relatively  low turnover and high  occupancy  rates on our  properties.  We
     believe that the  relatively  small number of tenants (98) occupying our 89
     properties,  mostly  under the  triple-net  lease  structure,  allows us to
     efficiently  manage the  properties and to serve our tenants' needs without
     extensive  in-house  staff  or the  assistance  of a  third-party  property
     management organization. In addition, this emphasis allows us to incur less
     expense for tenant  improvements and leasing commissions than multi-tenant,
     high  turnover  property  owners.  This  strategy also reduces the time and
     expense  associated with obtaining  building permits and other governmental
     approvals.  We believe that the relatively stable,  extended  relationships
     that we have  developed  with our key tenants are valuable in the expansion
     of our business.

     OPERATIONS

     We operate as a self-administered,  self-advised and self-managed REIT with
     our own employees.  Generally, as the sole general partner of the operating
     partnerships,   we  control  the  business  and  assets  of  the  operating
     partnerships  and  have  full  and  complete   authority,   discretion  and
     responsibility with respect to the operating  partnerships'  operations and
     transactions,   including,   without   limitation,   acquiring   additional
     properties,  borrowing funds,  raising new capital,  leasing  buildings and
     selecting and supervising all agents of the operating partnerships.

     Although  most of our leases are triple net and  building  maintenance  and
     tenant  improvements are the  responsibility  of the tenants,  from time to
     time we may be required to  undertake  construction  and repair work at our
     properties.  We will bid all major work  competitively  to  subcontractors.
     Members of the Berg Group may  participate in the  competitive  bidding for
     the work.

     We generally will market the  properties and negotiate  leases with tenants
     ourselves.  We  make  the  availability  of  our  properties  known  to the
     brokerage  community to garner  their  assistance  in locating  prospective
     tenants.  As a  result,  we expect to  retain  our  policy of paying  fixed
     commissions to tenants' brokers.

     We  believe  that  our  business  practices  provide  us  with  competitive
     advantages, including-

     -    EXTERNAL  DEVELOPMENT  AFFILIATE.  We have the option to purchase  all
          future R&D, office, industrial property developments of the Berg Group
          under the Berg land holdings  option  agreement on land currently held
          or acquired

                                     - 5 -
<PAGE>

          directly or  indirectly by Carl E. Berg or Clyde J. Berg that is zoned
          for those  purposes and located in  California,  Oregon and Washington
          following  completion  and lease-up of the  property.  Our option will
          terminate when the Berg Group's  ownership  percentage falls below 65%
          of our common stock calculated on a fully diluted basis.  Carl E. Berg
          has agreed to refer to us, and not acquire through the Berg Group, all
          opportunities  to  acquire  the same kinds of real  property  in these
          states that he identifies in the future,  until the Berg Group's fully
          diluted  ownership  percentage  falls  below  25% and there is no Berg
          Group nominee on our board of  directors.  The  acquisition  terms and
          conditions  for  the  existing  and  identified   projects  have  been
          pre-negotiated  and are documented under the Berg land holdings option
          agreement. This relationship provides us with the economic benefits of
          development while eliminating  development and initial lease-up risks.
          It  also  provides  us  with  access  to one of the  most  experienced
          development  teams  in the  Silicon  Valley  without  the  expense  of
          maintaining development personnel.

     -    LEAN, EXPERIENCED  ORGANIZATION.  In part because of its primary focus
          on  Silicon  Valley,  its  experience  with the  special  real  estate
          requirements  of  information  technology  tenants  and the  long-term
          triple-net  structure of its leases, we are able to conduct and expand
          our  business  with  a  small  management  team  comprised  of  highly
          qualified and  experienced  professionals  working within a relatively
          flat  organizational  structure.  We believe that the leanness and our
          experience  will  enable us to rapidly  assess  and  respond to market
          opportunities and tenant needs, control operating expenses and develop
          and maintain excellent  relationships with tenants. We further believe
          that these  advantages  translate into  significantly  lower costs for
          operations  and give us the  ability,  along with the Berg  Group,  to
          compete  favorably  with  other R&D  property  developers  in  Silicon
          Valley,  especially for build-to-suit  projects subject to competitive
          bidding.  Furthermore,  a lower  cost  structure  should  allow  us to
          generate better returns from  properties  whose value can be increased
          through appropriate remodeling and efficient property management.

     -    SOUND PROPERTY MANAGEMENT PRACTICES. For each property, the management
          team, along with the Berg Group staff,  develops a specific  marketing
          and property  management program. We select vendors and subcontractors
          on a  competitive  bid basis from a select  group of highly  qualified
          firms  with  whom we  maintain  ongoing  relationships  and  carefully
          supervise their work.


     OPERATING PARTNERSHIP AGREEMENTS

     MANAGEMENT

     The  operating  partnerships  consist  of four  separate  Delaware  limited
     partnerships  engaged  in  the  combined  operation  and  ownership  of our
     properties.  The  operating  partnership  agreements  are  identical in all
     material  respects  for all four of the  limited  partnerships.  Generally,
     pursuant to the operating partnership agreement, we act as the sole general
     partner of the operating partnerships,  in which capacity we have exclusive
     control of the business and assets of the operating  partnerships  and full
     and complete  authority,  discretion and responsibility with respect to the
     operating  partnerships'  operations and transactions,  including,  without
     limitation, acquisitions of additional properties, borrowing funds, raising
     new capital,  leasing  buildings,  as well as selecting and supervising all
     employees and agents of the operating  partnerships.  Through our authority
     to manage our business and affairs,  our board of directors will direct the
     business of the operating partnerships.

     Notwithstanding  our effective control of the operating  partnerships,  the
     consent of the limited  partners holding a majority of the outstanding O.P.
     Units is required with respect to certain  extraordinary  actions involving
     the operating partnerships, including:

     -    the   amendment,   modification   or   termination  of  the  operating
          partnership agreements;

     -    a general  assignment for the benefit of creditors or the  appointment
          of a  custodian,  receiver  or  trustee  for any of the  assets of the
          operating partnerships;

     -    the  institution  of any  proceeding  for  bankruptcy of the operating
          partnerships;

     -    the transfer of any general  partnership  interests  in the  operating
          partnerships,  including, with certain exceptions, transfers attendant
          to any merger, consolidation or liquidation of our corporation;

     -    the admission of any additional or substitute  general  partner in the
          operating partnerships; and

     -    a change of control of the operating partnerships.

                                     - 6 -
<PAGE>

     The Berg Group holds a substantial  majority of the outstanding O.P. Units.
     In  addition,  until  the  ownership  interest  of the Berg  Group  and its
     affiliates is less than 15% of the common stock on a fully  diluted  basis,
     which is calculated based on all outstanding shares of common stock and all
     shares of common  stock that could be  acquired  upon the  exercise  of all
     outstanding  options to acquire our voting stock,  as well as all shares of
     common stock issuable upon exchange of all O.P.  Units,  the consent of the
     limited  partners  holding a majority of the outstanding O.P. Units is also
     required with respect to:

     -    the liquidation of the operating partnerships;

     -    the sale or other transfer of all or  substantially  all of the assets
          of  the  operating  partnerships  and  certain  mergers  and  business
          combinations  resulting in the complete disposition of all O.P. Units;
          and

     -    the issuance of limited  partnership  interests having seniority as to
          distributions, assets and voting over the O.P. Units.

     TRANSFERABILITY OF O.P. UNITS

     The operating  partnership agreement provides that the limited partners may
     transfer  their O.P.  Units,  subject to  certain  limitations.  Except for
     certain  transfers  by the  limited  partners  to or from  certain of their
     affiliates,  however, all transfers may be made only with our prior written
     consent as the sole general partner of the operating partnerships.

     In addition,  no transfer of O.P. Units by the limited partners may be made
     in violation of certain  regulatory and other restrictions set forth in the
     operating  partnership  agreement.  Except in the case of certain permitted
     transfers  to or from  certain  affiliates  of the  limited  partners,  the
     exchange  rights,  the put rights,  rights to  participate in future equity
     financings  and  provisions  requiring  the  approval  of  certain  limited
     partners for certain  matters will no longer be applicable to O.P. Units so
     transferred,  and the  transferee  will  not have any  rights  to  nominate
     persons to our board of directors.

     ADDITIONAL CAPITAL CONTRIBUTIONS AND LOANS

     Each  operating  partnership  agreement  provides  that,  if the  operating
     partnership requires additional funds to pursue its investment  objectives,
     we may fund such  investments  by raising  additional  equity  capital  and
     making a capital contribution to the operating partnerships or by borrowing
     such funds and  lending  the net  proceeds  of such loans to the  operating
     partnerships.   If  we  intend  to  provide   additional  funds  through  a
     contribution  to  capital  and  purchase  of units of  general  partnership
     interest,  the limited  partners will have the right to participate in such
     funding on a pro rata,  pari passu  basis and to  acquire  additional  O.P.
     Units. If the limited  partners do not  participate in such  financing,  we
     will acquire additional units of general  partnership  interest.  In either
     case,  the  number of  additional  units of  partnership  interest  will be
     increased based upon the amount of the additional capital contributions and
     the value of the operating  partnerships as of the date such  contributions
     are made.

     In addition, as general partner of the operating partnerships,  we have the
     ability to cause the operating partnerships to issue additional O.P. Units.
     In the event that the operating  partnerships issue new O.P. Units for cash
     but not property,  the limited partners will have the right to purchase new
     O.P.  Units at the price we offer in the  transaction  giving  rise to such
     participation  right in order,  and to the extent  necessary,  to  maintain
     their respective percentage interests in the operating partnerships.

     EXCHANGE RIGHTS, PUT RIGHTS AND REGISTRATION RIGHTS

     Under the exchange rights  agreement  between us and the limited  partners,
     the limited partners have exchange rights that generally became exercisable
     on December 29, 1999. The exchange rights  agreement  permits every limited
     partner to tender O.P. Units to us, and at our election,  to receive common
     stock on a one-for-one  basis at  then-current  market value, an equivalent
     amount of cash, or a  combination  of cash and common stock in exchange for
     the O.P. Units tendered,  subject to the 9% overall ownership limit imposed
     on non-Berg Group stockholders  under our charter document,  or the overall
     20% Berg Group ownership  limit, as the case may be. For more  information,
     please  refer to this Item 1., "Risk  Factors - Failure to satisfy  federal
     income tax  requirements for REITs could reduce our  distributions,  reduce
     our  income  and cause our stock  price to fall."  This  exchange  ratio is
     subject to adjustment for stock splits, stock dividends,  recapitalizations
     of our common stock and similar  types of corporate  actions.  In addition,
     once in each  12-month  period  beginning  each  December  29, the  limited
     partners, other than Mr. Berg and Clyde J. Berg, have the right to exchange
     their O.P. Units for shares of common stock, subject to the ownership limit
     in our charter, and to exercise a put right to sell their O.P. Units to the
     operating  partnerships at a price equal to the average market price of the
     common stock for the 10-trading day period  immediately  preceding the date
     of  tender.  Upon  any  exercise  of the  put  rights,  we  will  have  the
     opportunity  for a period of 15 days to elect to fund the  purchase  of the
     O.P.  Units  and  purchase  additional  general  partner  interests  in the
     operating  partnerships  for cash,  unless the  purchase  price  exceeds $1
     million in the aggregate for all tendering limited partners, in which case,
     the operating partnerships or we shall be entitled to reduce proportionally
     the number of O.P. Units to be acquired from each tendering limited partner
     so that the total purchase price is not more than $1 million.

                                     - 7 -
<PAGE>

     The shares  issued in exchange for the O.P.  Units  outstanding  at July 1,
     1998 and the O.P. Units issued pursuant to the pending projects acquisition
     agreement   have  been   registered  and  generally  may  be  sold  without
     restriction  if  they  are  acquired  by  limited  partners  that  are  not
     affiliates,  as defined  under SEC Rule 144.  For more  information  please
     refer to this Item 1.,  "Risk  Factors - Shares  eligible  for future  sale
     could affect the market price of our stock." The exchange rights  agreement
     gives the holders of O.P.  Units the right to participate in any registered
     public offering of the common stock initiated by us to the extent of 25% of
     the total shares sold in the offering upon  converting O.P. Units to shares
     of common stock, but subject to the underwriters' unlimited right to reduce
     the  participation of all selling  stockholders.  The holders of O.P. Units
     will be able to  request  resale  registrations  of shares of common  stock
     acquired on exchange of O.P. Units on a Form S-3, or any equivalent form of
     registration  statement.  We are  obligated to effect no more than two such
     registrations in any 12-month  period.  We are obligated to assist the O.P.
     Unit holders in obtaining a firm commitment underwriting agreement for such
     resale from a qualified  investment-banking  firm. If  registration on Form
     S-3, or an equivalent  form,  is not  available for any reason,  we will be
     obligated to effect a registration of the shares to be acquired on exercise
     of  the  exchange  rights  on  Form  S-11,  or an  equivalent  form,  in an
     underwritten  public offering,  upon demand by the holders of no fewer than
     500,000  O.P.  Units.  All  holders  of  O.P.  Units  will be  entitled  to
     participate  in  such  registration.   We  will  bear  all  costs  of  such
     registrations  other  than  selling  expenses,  including  commissions  and
     separate  counsels' fees of the O.P. Unit holders.  We will not be required
     to effect any  registration  for resale on Form S-3, or equivalent  form of
     common stock shares  issuable to the holder of O.P. Units if the request is
     for less than 250,000 shares.

     OTHER MATTERS

     The   operating   partnership   agreements   require  that  the   operating
     partnerships  be  operated  in a manner  that will enable us to satisfy the
     requirements for being classified as a REIT and to avoid any federal income
     or excise tax liability.

     The  operating  partnership   agreements  provide  that  the  combined  net
     operating cash flow from all of the operating partnerships,  as well as net
     sales and refinancing  proceeds,  will be distributed  from time to time as
     determined  by our  board  of  directors,  but  not  less  frequently  than
     quarterly,  pro rata in accordance with the partners'  percentage interests
     in the operating partnerships, taken as a whole. This provision is intended
     to cause  the  periodic  distributions  per O.P.  Unit and per share of our
     common stock to be equal. As a consequence of this  provision,  the capital
     interest of a partner in each of the operating partnerships,  including our
     capital interests,  might at times differ  significantly from the partner's
     percentage  interest  in the net  income  and cash  flow of that  operating
     partnership.  We do not believe that such differences would have a material
     impact  on  our  business,  financial  condition  or  funds  available  for
     distributions ("FAD"), however.

     Pursuant  to  the   operating   partnership   agreements,   the   operating
     partnerships will also assume and pay when due, or reimburse us for payment
     of, certain costs and expenses  relating to our continuity of existence and
     operations.

     The operating partnership  agreements provide that, upon the exercise of an
     outstanding  option under the 1997 option plan, we may purchase  additional
     general partner interests in the operating partnerships by contributing the
     exercise  proceeds to the operating  partnerships.  Our increased  interest
     shall be equal to the percentage of outstanding  shares of common stock and
     O.P. Units on an as-converted basis represented by the shares acquired upon
     exercise of the option.

     TERM

     The  operating  partnerships  will  continue in full force and effect until
     December  31, 2048 or until sooner  dissolved  pursuant to the terms of the
     operating partnership agreement.

     EMPLOYEES

     As of March  29,  2001,  we  employed six people,  all of whom  work at our
     executive offices at 10050 Bandley Drive, Cupertino, California, 95014.

     FACILITIES

     We  sublease  office  space  from Berg & Berg  Enterprises,  Inc.  at 10050
     Bandley  Drive and share  clerical  staff  and  other  overhead  on what we
     consider to be very favorable  terms.  The total monthly rent payable by us
     to the Berg & Berg Enterprises, Inc. is $6,720.

                                     - 8 -
<PAGE>

     RISK FACTORS

     You should carefully consider the following risks,  together with the other
     information  contained  elsewhere in this Form 10-K.  The  following  risks
     relate  principally  to our  business and the industry in which we operate.
     the risks and uncertainties classified below are not the only ones we face.

     WE ARE DEPENDENT ON CARL E. BERG,  AND IF WE LOSE HIS SERVICES OUR BUSINESS
     MAY BE HARMED AND OUR STOCK PRICE COULD FALL.

     We are  substantially  dependent  upon the  leadership of Carl E. Berg, our
     Chairman,   President  and  Chief  Executive  Officer.  Losing  Mr.  Berg's
     knowledge  and  abilities  could  have a  material  adverse  effect  on our
     business and the value of our common stock. Mr. Berg manages our day-to-day
     operations  and devotes a  significant  portion of his time to our affairs,
     but he has a number  of other  business  interests  as  well.  These  other
     activities reduce Mr. Berg's attention to our business.

     MR. BERG AND HIS AFFILIATES  EFFECTIVELY  CONTROL OUR  CORPORATION  AND THE
     OPERATING  PARTNERSHIPS  AND MAY ACT IN WAYS  THAT ARE  DISADVANTAGEOUS  TO
     OTHER STOCKHOLDERS.

     SPECIAL BOARD VOTING PROVISIONS.  Our governing corporate documents,  which
     are our articles of amendment and restatement,  or charter, and our bylaws,
     provide  substantial  control  rights for the Berg Group.  The Berg Group's
     control  of our  corporation  means  that the  value  and  returns  from an
     investment  in the  Company's  common stock are subject to the Berg Group's
     exercise of its rights. These rights include a requirement that Mr. Berg or
     his designee as director  approve certain  fundamental  corporate  actions,
     including   amendments   to  our   charter   and  bylaws  and  any  merger,
     consolidation  or  sale  of all or  substantially  all  of our  assets.  In
     addition,  our  bylaws  provide  that a  quorum  necessary  to hold a valid
     meeting of the board of directors  must  include Mr. Berg or his  designee.
     The rights  described in the two preceding  sentences apply only as long as
     the  Berg  Group  members  and  their  affiliates,  other  than  us and the
     operating partnerships, beneficially own, in the aggregate, at least 15% of
     our outstanding  shares of common stock on a fully diluted basis,  which is
     calculated  based on all outstanding  shares of common stock and all shares
     of common stock that could be acquired upon the exercise of all outstanding
     options to acquire our voting stock,  as well as all shares of common stock
     issuable upon exchange of all O.P. Units. Also, directors representing more
     than 75% of the entire board of directors  must approve  other  significant
     transactions,  such as incurring debt above certain  amounts and conducting
     business  other  than  through  the  operating  partnerships.  Without  the
     approval of Mr. Berg or his designee,  board of directors  approval that we
     may need for actions that might result in a sale of your stock at a premium
     or raising  additional capital when needed could be difficult or impossible
     to obtain.

     BOARD OF DIRECTORS REPRESENTATION. The Berg Group members have the right to
     designate two of the director nominees  submitted by our board of directors
     to stockholders  for election,  as long as the Berg Group members and their
     affiliates, other than us and the operating partnerships, beneficially own,
     in the aggregate, at least 15% of our outstanding shares of common stock on
     a fully diluted basis,  which is calculated based on all outstanding shares
     of common stock and all shares of common stock that could be acquired  upon
     the exercise of all  outstanding  options to acquire our voting  stock,  as
     well as all  shares of common  stock  issuable  upon  exchange  of all O.P.
     Units.  If the fully diluted  ownership of the Berg Group members and their
     affiliates, other than us and the operating partnerships,  is less than 15%
     but is at least 10% of the common  stock,  the Berg Group  members have the
     right to designate one of the director  nominees  submitted by our board of
     directors to  stockholders  for election.  Its right to designate  director
     nominees affords the Berg Group substantial  control and influence over the
     management  and direction of our  corporation.  The Berg Group's  interests
     could conflict with the interests of our stockholders,  and could adversely
     affect the price of our common stock.

     SUBSTANTIAL  OWNERSHIP  INTEREST.  The Berg Group currently owns O.P. Units
     representing  approximately  78.8% of the equity interests in the operating
     partnerships  and  approximately  78.4% of our equity  interests on a fully
     diluted  basis,  which is  calculated  based on all  outstanding  shares of
     common stock and all shares of common stock that could be acquired upon the
     exercise of all outstanding options to acquire our voting stock, as well as
     all shares of common stock  issuable upon exchange of all O.P.  Units.  The
     O.P.  Units  may be  converted  into  shares of common  stock,  subject  to
     limitations  set forth in our  charter and other  agreements  with the Berg
     Group,   and  upon  conversion   would  represent  voting  control  of  our
     corporation. The Berg Group's ability to exchange its O.P. Units for common
     stock permits it to exert  substantial  influence  over the  management and
     direction of our  corporation.  This influence  increases our dependence on
     the Berg Group.

     LIMITED  PARTNER  APPROVAL  RIGHTS.  Mr. Berg and other  limited  partners,
     including other members of the Berg Group,  may restrict our operations and
     activities  through  rights  provided  under the terms of the  amended  and
     restated  agreement  of  limited  partnership  which  governs  each  of the
     operating  partnerships  and  our  legal  relationship  to  each  operating
     partnership  as its

                                     - 9 -
<PAGE>

     general partner. Matters requiring approval of the holders of a majority of
     the O.P. Units, which necessarily would include the Berg Group, include the
     following:

     -    the  amendment,  modification  or  termination of any of the operating
          partnership agreements;

     -    the  transfer of any  general  partnership  interest in the  operating
          partnerships,  including, with certain exceptions, transfers attendant
          to any merger, consolidation or liquidation of our corporation;

     -    the admission of any additional or substitute  general partners in the
          operating partnerships;

     -    any other change of control of the operating partnerships;

     -    a general  assignment for the benefit of creditors or the  appointment
          of a  custodian,  receiver  or  trustee  for any of the  assets of the
          operating partnerships; and

     -    the  institution  of  any  bankruptcy  proceeding  for  any  operating
          partnership.

     In addition, as long as the Berg Group members and their affiliates,  other
     than us and the operating partnerships, beneficially own, in the aggregate,
     at least 15% of the  outstanding  shares of common stock on a fully diluted
     basis,  which is calculated based on all outstanding shares of common stock
     and all shares of common stock that could be acquired  upon the exercise of
     all outstanding  options to acquire our voting stock, as well as all shares
     of common stock  issuable upon exchange of all O.P.  Units,  the consent of
     the  limited  partners  holding  the right to vote a majority  of the total
     number of O.P. Units outstanding is also required with respect to:

     -    the sale or other transfer of all or  substantially  all of the assets
          of  the  operating  partnerships  and  certain  mergers  and  business
          combinations resulting in the complete disposition of all O.P. Units;

     -    the issuance of limited partnership interests senior to the O.P. Units
          as to distributions, assets and voting; and

     -    the liquidation of the operating partnerships.

     The liquidity of an investment in the Company's common stock, including our
     ability to respond to acquisition  offers,  will be subject to the exercise
     of these rights.

     OUR  CONTRACTUAL  BUSINESS   RELATIONSHIPS  WITH  THE  BERG  GROUP  PRESENT
     ADDITIONAL  CONFLICTS OF INTEREST,  WHICH MAY RESULT IN THE  REALIZATION OF
     ECONOMIC  BENEFITS  OR THE  DEFERRAL OF TAX  LIABILITIES  BY THE BERG GROUP
     WITHOUT EQUIVALENT BENEFITS TO OUR STOCKHOLDERS.

     Our  contracts  with the Berg Group  provide it with  interests  that could
     conflict with those of our other stockholders, including the following:

     -    our headquarters are leased from an entity owned by the Berg Group, to
          whom we pay rent of $6,720 per month;

     -    the Berg Group is  permitted  to  conduct  real  estate  and  business
          activities other than our business;

     -    if we decline  an  opportunity  that has been  offered to us, the Berg
          Group may pursue it,  which  would  reduce the amount of time that Mr.
          Berg could  devote to our affairs and could result in the Berg Group's
          development  of  properties  that  compete  with  our  properties  for
          tenants;

     -    in general, we have agreed to limit the liability of the Berg Group to
          our  corporation  and our  stockholders  arising from the Berg Group's
          pursuit of these other opportunities;

     -    we acquired most of our  properties  from the Berg Group on terms that
          were not  negotiated  at  arm's  length  and  without  many  customary
          representations  and  warranties  that  we  would  have  sought  in an
          acquisition from an unrelated party; and

     -    we have  assumed  liability  for debt to the Berg  Group  and debt for
          which the Berg Group was liable.


                                     - 10 -
<PAGE>

     The Berg Group has agreed that the independent  directors  committee of our
     board of directors must approve all new transactions  between us and any of
     its  members,  or  between  us and any  entity  in  which  it  directly  or
     indirectly owns 5% or more of the equity interests, including the operating
     partnerships for this purpose.  This committee  currently consists of three
     directors who are independent of the Berg Group.

     EXCLUDED PROPERTIES.  With our prior knowledge, the Berg Group retained two
     R&D properties in Scotts Valley,  Santa Cruz County,  California,  in which
     the operating  partnerships and we have no ownership  interest.  Efforts of
     the Berg Group to lease these other properties could interfere with similar
     efforts on our behalf.

     BERG LAND HOLDINGS.  The Berg Group owns several parcels of unimproved land
     in the Silicon Valley that the operating partnerships and we have the right
     to acquire under the terms of the Berg land holdings option  agreement.  We
     have agreed to pay an amount  based on pre-negotiated  terms for any of the
     properties that we do acquire.  We must pay the  acquisition  price in cash
     unless the Berg Group  elects,  in its  discretion,  to receive O.P.  Units
     valued at the average  market  price of a share of common  stock during the
     30-day period  preceding the acquisition  date. At the time of acquisition,
     which is subject to the approval of the independent  directors committee of
     our board of directors,  these properties may be encumbered by debt that we
     or the operating  partnerships will be required to assume or repay. The use
     of our cash or an increase in our  indebtedness to acquire these properties
     could have a material adverse effect on our financial condition, results of
     operations and ability to make cash distributions to our stockholders.

     TAX CONSEQUENCES OF SALE OF PROPERTIES. Because many of our properties have
     unrealized  taxable gain, a sale of those  properties  could create adverse
     income tax consequences for limited partners of the operating partnerships.
     We have agreed  with Carl E. Berg,  Clyde J. Berg and John  Kontrabecki,  a
     limited  partner  in some of the  operating  partnerships,  that  prior  to
     December  29,  2008,  each  of  them  may  prevent  us  and  the  operating
     partnerships  from selling or transferring  any of the properties that were
     acquired from them in our July 1998 UPREIT acquisition if the proposed sale
     or  other  transfer  will  be  a  taxable  transaction.  As a  result,  our
     opportunities to sell these  properties may be limited.  If we need to sell
     any of these  properties  to raise cash to service  our debt,  acquire  new
     properties,  pay cash  distributions  to  stockholders or for other working
     capital purposes,  we may be unable to do so. These restrictions could harm
     our business and cause our stock price to fall.

     TERMS OF TRANSFERS:  ENFORCEMENT OF AGREEMENT OF LIMITED  PARTNERSHIP.  The
     terms of the pending projects acquisition agreement, the Berg land holdings
     option agreement,  the partnership  agreement of each operating partnership
     and other material  agreements through which we have acquired our interests
     in the operating partnerships and the properties formerly controlled by the
     Berg Group were not determined through arm's-length  negotiations and could
     be less  favorable to us than those  obtained from an unrelated  party.  In
     addition,  Mr. Berg and  representatives  of the Berg Group  sitting on our
     board of directors may be subject to conflicts of interests with respect to
     their  obligations as our directors to enforce the terms of the partnership
     agreement of each operating partnership when such terms conflict with their
     personal  interests.  The terms of our  charter  and  bylaws  also were not
     determined  through  arm's-length   negotiations.   Some  of  these  terms,
     including representations and warranties applicable to acquired properties,
     are  not  as  favorable  as  those  that  we  would  have  sought   through
     arm's-length   negotiations  with  unrelated  parties.   As  a  result,  an
     investment in our common stock may involve risks not found in businesses in
     which the  terms of  material  agreements  have  been  negotiated  at arm's
     length.

     RELATED PARTY DEBT. As of December 31, 2000, we had borrowed  approximately
     $50.9  million  under our $75.0 million line of credit with the Berg Group,
     which is secured by seven of our properties and expires March 2002. We have
     the right to draw on the line of credit and are liable for repayment of all
     amounts owing under the line of credit.  The line of credit bears  interest
     at an annual  rate of LIBOR  plus 1.30  percent.  We are also  liable for a
     mortgage  loan of $11.8  million  that we  assumed in  connection  with our
     acquisition  of a property that we acquired in May 2000 under the Berg land
     holdings option agreement.  If we are unable to repay our debts to the Berg
     Group when due,  the Berg Group  could take  action to enforce  our payment
     obligations.  Loan  defaults of this type could  materially  and  adversely
     affect our business,  financial condition and our results of operations and
     cause our stock  price to fall.  They also  could  result in a  substantial
     reduction in the amount of cash distributions to our stockholders. In turn,
     if we fail to meet the minimum distributions test because of a loan default
     or another reason, we could lose our REIT classification for federal income
     tax purposes.  For more information please refer to "Risk Factors - Failure
     to satisfy  federal  income tax  requirements  for REITs  could  reduce our
     distributions, reduce our income and cause our stock price to fall."

     OUR OPTION TO ACQUIRE R&D  PROPERTIES  DEVELOPED ON EXISTING  LAND AND LAND
     ACQUIRED  IN THE  FUTURE BY THE BERG  GROUP  WILL  TERMINATE  WHEN THE BERG
     GROUP'S OWNERSHIP INTEREST HAS BEEN REDUCED.

     The Berg land holdings option agreement, as amended, which provides us with
     significant benefits and opportunities to acquire additional R&D properties
     from the Berg Group,  will expire when the Berg Group and their  affiliates
     (excluding  us and the  operating  partnerships)  own less  than 65% of our
     common stock on a fully diluted  basis,  which is  calculated  based on all
     outstanding  shares of common  stock and all  shares of common  stock  that
     could be acquired upon the exercise of all

                                     - 11 -
<PAGE>

     outstanding  options to  acquire  our  voting  stock,  as well as shares of
     common stock issuable upon exchange of all O.P.  Units.  Termination of the
     Berg land  holdings  option  agreement  could result in  limitation  of our
     growth, which could cause our stock price to fall.

     WE MAY CHANGE OUR INVESTMENT AND FINANCING  POLICIES AND INCREASE YOUR RISK
     WITHOUT STOCKHOLDER APPROVAL.

     Our board of directors  determines the investment and financing policies of
     the operating  partnerships  and our policies with respect to certain other
     activities,   including   our   business   growth,   debt   capitalization,
     distribution and operating policies. Our board of directors may amend these
     policies at any time without a vote of the  stockholders.  Changes in these
     policies could materially adversely affect our financial condition, results
     of operations and ability to make cash  distributions to our  stockholders,
     which could harm our business  and cause our stock price to fall.  For more
     information please refer to Item 7., "Management's  Discussion and Analysis
     of Financial Condition and Results of Operations - Policies with Respect to
     Certain Activities."

     ANTI-TAKEOVER  PROVISIONS IN OUR CHARTER COULD PREVENT  ACQUISITIONS OF OUR
     STOCK AT A SUBSTANTIAL PREMIUM.

     Provisions  of our charter and our bylaws could  delay,  defer or prevent a
     transaction  or a  change  in  control  of our  corporation,  or a  similar
     transaction,  that might  involve a premium  price for our shares of common
     stock or otherwise be in the best interests of our stockholders. Provisions
     of the Maryland  general  corporation  law,  which would apply to potential
     business   combinations  with  acquirers  other  than  the  Berg  Group  or
     stockholders  who invested in us in December  1998,  also could prevent the
     acquisition of our stock for a premium, as discussed in "Certain Provisions
     of Maryland Law and of our Charter and Bylaws."

     AN  INVESTMENT  IN  OUR  STOCK   INVOLVES  RISKS  RELATED  TO  REAL  ESTATE
     INVESTMENTS THAT COULD HARM OUR BUSINESS AND CAUSE OUR STOCK PRICE TO FALL.

     RENTAL  INCOME  VARIES.  Real property  investments  are subject to varying
     degrees of risk.  Investment  returns available from equity  investments in
     real estate depend in large part on the amount of income earned and capital
     appreciation,  which  our  properties  generate,  as  well  as our  related
     expenses incurred. If our properties do not generate revenues sufficient to
     meet operating expenses, debt service and capital expenditures,  our income
     and ability to make  distributions  to our  stockholders  will be adversely
     affected.  Income from our  properties  may also be  adversely  affected by
     general economic  conditions,  local economic conditions such as oversupply
     of commercial real estate,  the attractiveness of our properties to tenants
     and prospective tenants,  competition from other available rental property,
     our ability to provide  adequate  maintenance  and  insurance,  the cost of
     tenant  improvements,  leasing  commissions and tenant  inducements and the
     potential of increased operating costs, including real estate taxes.

     EXPENDITURES FOR PROPERTY  OWNERSHIP ARE FIXED.  Income from properties and
     real estate values are also affected by a variety of other factors, such as
     governmental regulations and applicable laws, including real estate, zoning
     and tax laws,  interest  rate  levels and the  availability  of  financing.
     Various  significant  expenditures  associated  with an  investment in real
     estate,  such as  mortgage  payments,  real  estate  taxes and  maintenance
     expenses, generally are not reduced when circumstances cause a reduction in
     revenue from the investment.  Thus, our operating results and our cash flow
     may decline materially if our rental income is reduced.

     ILLIQUIDITY.  Real estate investments are relatively illiquid, which limits
     our ability to restructure our portfolio in response to changes in economic
     or other conditions.

     GEOGRAPHIC CONCENTRATION. All of our properties are located in the southern
     portion of the San Francisco Bay Area commonly  referred to as the "Silicon
     Valley."  The Silicon  Valley  economy has been strong for the past several
     years, but future  increases in values and rents for our properties  depend
     to a significant extent on the health of this region's economy.

     LOSS OF KEY  TENANTS.  Single  tenants,  many of whom are  large,  publicly
     traded  information  technology  companies,  occupy most of our properties.
     Losing a key tenant could  adversely  affect our operating  results and our
     ability to make  distributions  to  stockholders if we are unable to obtain
     replacement tenants promptly.

     TENANT  BANKRUPTCIES.   Key  tenants  could  seek  the  protection  of  the
     bankruptcy  laws,  which could result in the rejection and  termination  of
     their leases, thereby causing a reduction in our income.

     OUR  SUBSTANTIAL  INDEBTEDNESS.  Our  properties are subject to substantial
     indebtedness. If we are unable to make required mortgage payments, we could
     sustain  a  loss  as a  result  of  foreclosure  on our  properties  by the
     mortgagor.  Failure to renew or replace  the Berg Group line of credit when
     it expires in March 2002 would  materially  affect our  business and affect
     our ability

                                     - 12 -
<PAGE>

     to pay dividends to stockholders. We cannot assure you that we will be able
     to obtain a replacement line of credit with terms similar to the Berg Group
     line of credit,  or at all.  Our cost of  borrowing  funds  could  increase
     substantially  after the Berg Group line of credit expires. We have adopted
     a policy  of  maintaining  a  consolidated  ratio  of debt to total  market
     capitalization,  which  includes  for this  purpose the market value of all
     shares of common stock for which  outstanding O.P. Units are  exchangeable,
     of less than 50%.  This ratio may not be exceeded  without the  approval of
     more than 75% of our entire board of directors.  Our board of directors may
     vote to change  this  policy,  however,  and we could  become  more  highly
     leveraged, resulting in an increased risk of default on our obligations and
     an increase in debt service  requirements  that could adversely  affect our
     financial  condition,  our  operating  results  and  our  ability  to  make
     distributions to our stockholders.

     ENVIRONMENTAL  CLEAN-UP  LIABILITIES.  Our  properties  may  expose  us  to
     liabilities  under applicable  environmental and health and safety laws. If
     these liabilities are material,  our financial condition and ability to pay
     cash distributions may be affected  adversely,  which would cause our stock
     price to fall.

     UNINSURED  LOSSES.  We may sustain uninsured losses with respect to some of
     our properties.  If these losses are material, our financial condition, our
     operating results and our ability to make distributions to our stockholders
     may be affected adversely.

     EARTHQUAKE  DAMAGES ARE  UNINSURED.  All of our  properties  are located in
     areas that are subject to earthquake  activity.  Our insurance  policies do
     not cover damage caused by seismic activity,  although they do cover losses
     from fires after an earthquake. We generally do not consider such insurance
     coverage  to  be  economical.  If  an  earthquake  occurs  and  results  in
     substantial damage to our properties, we could lose our investment in those
     properties,  which  loss  would  have  a  material  adverse  effect  on our
     financial  condition,  our  operating  results  and  our  ability  to  make
     distributions to our stockholders.

     FAILURE TO SATISFY FEDERAL INCOME TAX  REQUIREMENTS  FOR REITS COULD REDUCE
     OUR DISTRIBUTIONS, REDUCE OUR INCOME AND CAUSE OUR STOCK PRICE TO FALL.

     FAILURE TO QUALIFY AS A REIT.  Although  we  currently  operate in a manner
     designed  to enable us to  qualify  and  maintain  our REIT  status,  it is
     possible that economic,  market,  legal,  tax or other  considerations  may
     cause us to fail to qualify  as a REIT or may cause our board of  directors
     either to refrain from making the REIT  election or to revoke that election
     once made. To maintain REIT status,  we must meet certain tests for income,
     assets,  distributions  to  stockholders,  ownership  interests,  and other
     significant  conditions.  If we fail to  qualify  as a REIT in any  taxable
     year,  we  will  not  be  allowed  a  deduction  for  distributions  to our
     stockholders  in  computing  our  taxable  income  and would be  subject to
     federal income tax,  including any applicable  alternative  minimum tax, on
     our taxable income at regular  corporate  rates.  Moreover,  unless we were
     entitled to relief under  certain  provisions  of the tax laws, we would be
     disqualified  from treatment as a REIT for the four taxable years following
     the year in which our qualification was lost. As a result,  funds available
     for distribution to our stockholders would be reduced for each of the years
     involved  and,  in  addition,  we  would  no  longer  be  required  to make
     distributions to our stockholders.

     REIT DISTRIBUTION REQUIREMENTS. To maintain REIT status, we must distribute
     as a dividend to our  stockholders  at least 95% of our  otherwise  taxable
     income, after certain adjustments, with respect to each tax year. Effective
     January  1,  2001,  this  requirement  was  changed  to  90%,  the  minimum
     percentage  that we must  distribute  to our  stockholders.  We may also be
     subject to a 4% non-deductible excise tax in the event our distributions to
     stockholders  fail to meet certain  other  requirements.  Failure to comply
     with these  requirements could result in our income being subject to tax at
     regular corporate rates and could cause us to be liable for the excise tax.

     OWNERSHIP  LIMIT NECESSARY TO MAINTAIN REIT  QUALIFICATION.  As a REIT, the
     federal tax laws  restrict the  percentage  of the total value of our stock
     that may be owned by five or fewer  individuals to 50% or less. Our charter
     generally prohibits the direct or indirect ownership of more than 9% of our
     common stock by any stockholder.  This limit excludes the Berg Group, which
     has an aggregate  ownership limit of 20%. In addition,  as permitted by our
     charter,  our board of directors  has  authorized an exception to two other
     stockholders that permits them to collectively own, directly or indirectly,
     up to 18.5% of our common stock on an aggregate basis, subject to the terms
     of  an  ownership  limit  exemption  agreement.  In  general,  our  charter
     prohibits  the  transfer  of  shares  that  result  in a loss  of our  REIT
     qualification  and provides  that any such  transfer or any other  transfer
     that causes a stockholder to exceed the ownership  limit will result in the
     shares  being  automatically  transferred  to a trust for the  benefit of a
     charitable  beneficiary.  Accordingly,  in the event  that  either the Berg
     Group  or the  two  stockholders  increase  their  stock  ownership  in our
     corporation,  a stockholder who acquires  shares of our common stock,  even
     though  his,  her or its  aggregate  ownership  may be less than 9%, may be
     required to transfer a portion of that stockholder's shares to such a trust
     in order to preserve our status as a REIT.

                                     - 13 -
<PAGE>

     STOCKHOLDERS ARE NOT ASSURED OF RECEIVING CASH DISTRIBUTIONS FROM US.

     Our  income  will  consist  primarily  of our  share of the  income  of the
     operating  partnerships,  and our cash flow will  consist  primarily of our
     share of  distributions  from the operating  partnerships.  Differences  in
     timing  between  the  receipt of income  and the  payment  of  expenses  in
     arriving  at our  taxable  income or the  taxable  income of the  operating
     partnerships  and the effect of required debt  amortization  payments could
     require us to borrow funds, directly or through the operating partnerships,
     on a short-term basis to meet our intended distribution policy.

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

     -    the amount of cash available for distribution;

     -    the operating partnerships' financial condition;

     -    whether to reinvest funds rather than to distribute such funds;

     -    the operating partnerships' capital expenditures;

     -    the effects of new property acquisitions, including acquisitions under
          our existing agreements with the Berg Group;

     -    the annual distribution  requirements under the REIT provisions of the
          federal income tax laws; and

     -    such other factors as our board of directors deems relevant.

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

     OUR PROPERTIES COULD BE SUBJECT TO PROPERTY TAX REASSESSMENTS.

     We do not  believe  that  any  of  our  acquisitions  of  interests  in the
     operating partnerships has resulted in a statutory change in ownership that
     could give rise to a  reassessment  of any of our properties for California
     property tax purposes. We cannot assure you, however, that county assessors
     or other tax  administrative  agencies  in  California  will not attempt to
     assert  that  such a change  occurred  as a result  of these  transactions.
     Although  we  believe  that  such  a  challenge  would  not  be  successful
     ultimately,  we cannot  assure you  regarding  the  outcome of any  related
     dispute or proceeding. A reassessment could result in increased real estate
     taxes on our properties  that, as a practical  matter,  we may be unable to
     pass  through to our tenants in full.  This could reduce our net income and
     our funds available for distribution and cause our stock price to fall.

     OUR  OBLIGATION  TO PURCHASE  TENDERED  O.P.  UNITS  COULD  REDUCE OUR CASH
     DISTRIBUTIONS.

     Each of the limited partners of the operating partnerships,  other than Mr.
     Berg and  Clyde J.  Berg,  has the  annual  right  to cause  the  operating
     partnerships  to purchase the limited  partner's  O.P.  Units at a purchase
     price  based on the  average  market  value  of the  common  stock  for the
     ten-trading-day  period  immediately  preceding the date of tender.  Upon a
     limited  partner's  exercise of any such right,  we will have the option to
     purchase the tendered O.P. Units with available cash, borrowed funds or the
     proceeds of an offering of newly issued shares of common  stock.  These put
     rights became  exercisable  on December 29, 1999,  and are  available  once
     during a 12-month  period.  If the total  purchase  price of the O.P. Units
     tendered by all of the  eligible  limited  partners in one year  exceeds $1
     million,  the  operating  partnerships  or we will be  entitled  to  reduce
     proportionately the number of O.P. Units to be acquired from each tendering
     limited  partner  so that the  total  purchase  price  does not  exceed  $1
     million.  The  exercise  of these put  rights may reduce the amount of cash
     that we have  available to distribute to our  stockholders  and could cause
     our stock price to fall.

     In addition,  after  December  1999, all O.P. Unit holders may tender their
     O.P.  Units to us for  shares of  common  stock on a  one-for-one  basis at
     then-current market value or an equivalent amount in cash, at our election.
     If we elect to pay cash for the O.P.  Units,  our  liquidity may be reduced
     and we may lack  sufficient  funds to  continue  paying  the  amount of our
     anticipated or historical  cash  distributions.  This could cause our stock
     price to fall.

     SHARES ELIGIBLE FOR FUTURE SALE COULD AFFECT THE MARKET PRICE OF OUR STOCK.

     We cannot predict the effect, if any, that future sales of shares of common
     stock,  or the  availability  of shares for future sale,  could have on the
     market price of the common stock.  As of December 31, 2000 all  outstanding
     shares of our common stock,

                                     - 14 -
<PAGE>

     other than shares  controlled by affiliates,  were eligible for sale in the
     public market  without  resale  restrictions  under the federal  securities
     laws. Sales of substantial amounts of common stock, including shares issued
     in connection  with the exercise of the exchange rights held by the limited
     partners of the operating  partnerships,  or the perception that such sales
     could occur, could adversely affect prevailing market prices for the common
     stock. Additional shares of common stock may be issued to limited partners,
     subject to the  applicable  REIT  qualification  ownership  limit,  if they
     exchange  their O.P.  Units for shares of common  stock  pursuant  to their
     exchange  rights,  or may be sold by us to raise funds required to purchase
     such O.P.  Units if the limited  partners  elect to tender O.P. Units to us
     using their put rights. Shares of stock controlled by our affiliates may be
     sold subject to Rule 144, including the limitation under Rule 144(c) on the
     number of shares that may be sold within a three-month period.

     MARKET INTEREST RATES MAY REDUCE THE VALUE OF THE COMMON STOCK.

     One of the factors that investors consider important in deciding whether to
     buy or sell shares of a REIT is the distribution  rate on such shares, as a
     percentage of the price of such shares,  relative to market interest rates.
     If market interest rates go up,  prospective  purchasers of REIT shares may
     expect a  higher  distribution  rate.  Higher  interest  rates  would  not,
     however,  increase the funds available for us to distribute,  and, in fact,
     would likely  increase our borrowing costs and decrease funds available for
     distribution.  Thus,  higher market interest rates could cause the price of
     our common stock to fall.

                                     - 15 -

<PAGE>

ITEM 2.   PROPERTIES

     GEOGRAPHIC AND TENANT FOCUS

     We focus on the facility  requirements of information  technology companies
     in the  Silicon  Valley,  which  include  space for  office,  research  and
     development,  light  manufacturing and assembly.  With the Silicon Valley's
     highly  educated  and skilled  work force,  history of numerous  successful
     start-up  companies  and large  contingent  of venture  capital  firms,  we
     believe that this region will continue to spawn  successful new high-growth
     industries and entrepreneurial businesses to an extent matched nowhere else
     in the United States. We believe that our focus and thorough  understanding
     of the Silicon Valley real estate market enable us to:

     -    anticipate trends in the market;

     -    identify and  concentrate  our efforts on the most  favorably  located
          sub-markets;

     -    take  advantage  of  our   experience   and  extensive   contacts  and
          relationships with local government agencies,  real estate brokers and
          subcontractors, as well as with tenants and prospective tenants; and

     -    identify strong tenants.

     All of  our  properties  are  general-purpose  R&D  properties  located  in
     desirable  sub-markets of the Silicon  Valley.  Many of our properties have
     been  developed  for or leased to single  tenants,  many of whom are large,
     publicly traded information technology companies. Most of our major tenants
     have occupied our  properties for many years under  triple-net  leases that
     require the tenant to pay  substantially  all  operating  costs,  including
     property insurance, real estate taxes and general operating costs.

     LEASING

     The current  leases for the  properties  typically  have terms ranging from
     three to ten years.  Most of the leases provide for fixed  periodic  rental
     increases.  Substantially  all of the leases are triple-net leases pursuant
     to which the tenant is required to pay  substantially  all of the operating
     expenses of the  property,  property  taxes and  insurance,  including  all
     maintenance and repairs,  excluding only certain  structural repairs to the
     building  shell.  Most of the leases contain renewal options that allow the
     tenant to extend the lease based on adjustments to then  prevailing  market
     rates,  or based on fixed  rental  adjustments,  which may be below  market
     rates.

     PROPERTY PORTFOLIO

     All of our properties  are R&D  properties.  Generally,  our properties are
     one- to four-story buildings of tilt-up concrete construction,  have 3.5 or
     more  parking  spaces per thousand  rentable  square  feet,  clear  ceiling
     heights  of less than 18 feet,  and range in size  from  18,000 to  515,000
     rentable  square  feet.  Most of the office  space is open and suitable for
     configuration  to meet the  tenants'  requirements  with the use of movable
     dividers.

     The  following  table  sets  forth  certain  information  relating  to  our
     properties as of December 31, 2000.
<TABLE>
<CAPTION>


                                                                                                        Major
                                       Total      Percentage     Average                               Tenants'
                          No. of      Rentable   Leased as of     2000                                 Rentable        2000 Annual
      Location          Properties     Sq. Ft.   Dec 31, 2000   Occupancy   Major Tenants               Sq. Ft.        Base Rents(1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>       <C>            <C>           <C>                                 <C>             <C>
5300-5350 Hellyer           2         160,000        100%          100%     Stellex Microwave Systems  160,000         $1,920,000(2)

10401-10411 Bubb Road       1          20,330        100%          100%     Celerity Systems            20,330            454,366

2001 Logic                  1          72,426        100%          100%     Xilinx, Inc.                72,426          1,998,960

45365 Northport Loop West   1          64,218        100%          100%     JNI Corporation             19,727            303,501(2)
                                                                            Mattson Technology          31,641

45700 Northport Loop East   1          47,570        100%          100%     Phillips Electronics        47,570            726,732

45738 Northport Loop West   1          44,256        100%          100%     EIC Corporation             44,256            548,622

4050 Starboard Drive        1          52,232        100%          100%     Flash Electronics, Inc.     52,232            783,480


                                     - 16 -
<PAGE>
                                                                                                        Major
                                       Total      Percentage     Average                               Tenants'
                          No. of      Rentable   Leased as of     2000                                 Rentable        2000 Annual
      Location          Properties     Sq. Ft.   Dec 31, 2000   Occupancy   Major Tenants               Sq. Ft.        Base Rents(1)
------------------------------------------------------------------------------------------------------------------------------------
3501 W. Warren Avenue-      1          67,864        100%          100%     Storage Way                 51,864          1,243,644
46600 Fremont Blvd.

48800 Milmont Drive         1          53,000        100%          100%     Premisys Communications     53,000            606,480

4750 Patrick Henry Drive    1          65,780        100%          100%     Intertrust Networking       65,780          1,479,787

4949 Hellyer Avenue         1         200,484        100%          100%     Cisco Systems Inc.         200,484          2,081,700

Triangle Technology Park    7         416,927        100%           99%     JDS Uniphase               152,362          5,732,247
                                                                            Intevac Corporation        119,583
                                                                            Xicom Technology, Inc.      47,480
                                                                            Celestica                   34,248
                                                                            Webango                     25,350

5850-5870 Hellyer Avenue    1         109,715        100%          100%     Clear Logic, Inc.           64,805          1,533,486
                                                                            Gadzoox Networks, Inc.      44,910

800 Branham Lane            1         239,000        100%          100%     Candescent Technology      239,000          2,725,180(2)

5400 Hellyer Avenue         1          77,184        100%          100%     Jetstream Communications    77,184            703,920(2)

5749 Fontanoso Way          1          77,700        100%          100%     Cisco Systems, Inc.         77,700          1,228,431

1065 L'Avenida              5         515,700        100%          100%     Microsoft Corporation      515,700         18,803,453

1750 Automation Parkway     1          80,641        100%          100%     JDS Uniphase                80,641          1,666,064

1756 Automation Parkway     1          80,640        100%          100%     JDS Uniphase                80,640          1,712,886(2)

1762 Automation Parkway     1          61,100        100%          100%     JDS Uniphase                61,100          1,134,001(2)

1768 Automation Parkway     1         110,592        100%          100%     JDS Uniphase               110,592            253,600(2)

255 Caspian Drive           1          98,500        100%          100%     Global Centers, Inc.        98,500          1,507,050(2)

2251 Lawson Lane            1         125,000        100%          100%     Amdahl Corporation         125,000          1,384,538

1230 East Arques            1          60,000        100%          100%     Amdahl Corporation          60,000            305,672

1250 Arques                 4         200,000        100%          100%     Amdahl Corporation         200,000            755,923

3120 Scott Blvd.            1          75,000        100%          100%     Amdahl Corporation          75,000          1,238,081

20400 Mariani Avenue        1         105,000        100%          100%     Behring Diagnostics        105,000          1,030,050

10500 De Anza Blvd.         1         211,000        100%          100%     Apple Computer, Inc.       211,000          4,338,840

20605-705 Valley Green Dr.  2         142,000        100%          100%     Apple Computer, Inc.       142,000          1,975,382

10300 Bubb Road             1          23,400        100%          100%     Apple Computer, Inc.        23,400            395,460

10440 Bubb Road             1          19,500        100%          100%     Linotext Digital Color      19,500            252,720

10460 Bubb Road             1          45,460        100%          100%     Luminous Networks, Inc.     45,460          1,177,044

1135 Kern Avenue            1          18,300        100%          100%     Davicom Semiconductor, Inc. 18,300            302,205

1190 Morse Ave/             1          28,350        100%          100%     Coptec West                 28,350            339,636
405 Tasman Avenue

450 National Avenue         1          36,100        100%           92%     ePeople                     36,100            909,386

3301 Olcott Street          1          64,500        100%          100%     NEC Electronics, Inc.       64,500          1,136,248

2800 Bayview Avenue         1          59,736        100%          100%     Concept System Design, Inc. 59,736            655,160

6850 Santa Teresa Blvd.     1          30,000        100%           83%     Valiant Networks, Inc.      30,000            475,800



                                     - 17 -
<PAGE>
                                                                                                        Major
                                       Total      Percentage     Average                               Tenants'
                          No. of      Rentable   Leased as of     2000                                 Rentable        2000 Annual
      Location          Properties     Sq. Ft.   Dec 31, 2000   Occupancy   Major Tenants               Sq. Ft.        Base Rents(1)
------------------------------------------------------------------------------------------------------------------------------------
6810 Santa Teresa Blvd.     1          54,996        100%          100%     Polaris, Inc.               54,996          1,121,330

140-150 Great Oaks Blvd./   2         105,300        100%          100%     Atcor Corporation           52,000          1,081,156
6781 Via Del Oro                                                            Amtech Corporation          31,500

6540-6541 Via Del Oro/      2          66,600        100%          100%     Exsil Incorporated          20,076            784,598
6385-6387 San Ignacio Ave.                                                  Alcatel Network Systems,    17,400
                                                                            Inc.
                                                                            Modutek Corporation         17,400

6311-6351 San Ignacio Ave.  5         360,254        100%          100%     On Command Video           131,320          4,075,733
                                                                            Magic Manufacturing, Inc.   66,042
                                                                            Avnet, Inc.                 53,494
                                                                            Photon Dynamics             50,400
                                                                            Teledex Corporation         30,000

6320-6360 San Ignacio Ave.  1         157,292        100%          100%     Bell Sports, Inc.           63,638          1,628,329
                                                                            Delrina/Symantec Corp.      45,000


2610 N. First St. &         2         170,810        100%          100%     County of Santa Clara       93,984          2,198,097
75 E. Trimble Road                                                          Comerica Bank               63,310

2033-2243 Samaritan Drive   3         235,122        100%          100%     Condor Systems             110,490          3,566,546
                                                                            Texas Instruments           48,677
                                                                            State Farm Insurance        23,801

1170 Morse Avenue           1          34,750        100%          100%     CA Parkinsons Foundation    34,750            394,664

3236 Scott Blvd.            1          54,672        100%          100%     Celeritek Systems, Inc.     54,672            753,657

1212 Bordeaux Lane          1          71,800        100%          100%     ESL Incorporated            71,800          1,296,978

McCandless Technology Park 14         705,956         93%           98%     Larscom, Inc.              118,708          9,937,337
                                                                            Arrow Electronics, Inc.     92,862
                                                                            Sherpa Corporation          50,768
                                                                            Chartered Semiconductor     45,312
                                                                            Panasonic Industrial Co.    40,970
                                                                            Kent Electronics Corp.      39,800
                                                                            Promptu Systems Corp.       26,663

1600 Memorex Drive          1         107,500        100%          100%     Sasco Electric             107,500            736,449

1650 Richard Avenue         1          52,800        100%          100%     Forward Technology          52,800            706,099

1700 Richard Avenue         1          58,783        100%          100%     IXC Communications          58,783            579,012

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

             TOTAL         89       6,195,840                                                                         $94,679,720
                         ====================                                                                      =================

</TABLE>

(1)  Annual  cash rents do not  include  any effect  for  recognition  of rental
     income on the  straight-line  method of  accounting  required by  generally
     accepted  accounting   principles  under  which  contractual  rent  payment
     increases are recognized evenly over the lease term.

(2)  The property was purchased  during 2000. The 2000 Annual Base Rent reflects
     rent received from the date of acquisition through December 31, 2000.


     We own 100% of all of the  properties,  except for one of the  buildings in
     the Triangle  Technology  Park,  which is owned by a joint venture in which
     we, through an operating  partnership,  own a 75% interest, the property at
     10401-10411  Bubb  Road,  which is owned by a joint  venture  in which  we,
     through an operating partnership,  own an 83.33% interest, and the property
     at 5300  Hellyer  Avenue,  which is owned by a joint  venture  in which we,
     through an operating partnership, own a 50% interest.

     We continue to operate at  consistently  high occupancy  levels.  Occupancy
     levels are indicative of the strength of our local real estate markets, the
     continuing  demand  for  space  and our  abilities  to keep the  properties
     leased.


                                     - 18 -

<PAGE>
     LEASE EXPIRATIONS

     The following table sets forth a schedule of the lease  expirations for the
     properties  beginning with 2001, assuming that none of the tenants exercise
     existing renewal options or termination  rights.  The table excludes 51,602
     rentable square feet that was vacant as of December 31, 2000.
<TABLE>
<CAPTION>

                 Number of                                                                Percentage of Total Annual
Year of Lease     Leases        Rentable Square Footage       2001 Annual Base Rent        Base Rent Represented By
 Expiration      Expiring     Subject to Expiring Leases    Under Expiring Leases (1)         Expiring Leases (2)
--------------------------------------------------------------------------------------------------------------------
<S>                <C>             <C>                        <C>                                   <C>
   2001             26                737,507                  $  10,628,242                         10.5%

   2002             19                872,472                     13,333,781                         13.1%

   2003             13                468,266                      6,036,013                          6.0%

   2004             18                985,313                     11,543,083                         11.4%

   2005             19                865,759                     14,250,534                         14.0%

   2006              7                821,420                     23,988,152                         23.6%

   2007             13                682,809                     13,841,582                         13.6%

   2008              1                125,000                      1,338,523                          1.3%

   2009              1                 58,783                        584,064                          0.6%

   2010              1                 66,042                      1,040,980                          1.0%

   2015              2                258,500                      4,932,666                          4.9%
               -----------------------------------------------------------------------------------------------------
                   120              5,941,871                  $ 101,517,620                          100%
               =====================================================================================================
</TABLE>


(1)  The base rent for leases  expiring is based on January 2001  monthly  rents
     multiplied by 12.
(2)  Based upon 2001 annual rents as discussed in Note (1).

     RECENT DEVELOPMENTS

     In January 2001,  we acquired a newly  constructed  R&D property  leased to
     Celestica,  Inc.  on  Hellyer  Avenue  in San Jose,  California  consisting
     131,500 square feet of rentable  space under the Berg land holdings  option
     agreement.  Pursuant  to the  Berg  land  holdings  option  agreement,  the
     acquisition  cost is based on the full  construction  cost of the building,
     10% of the full construction cost of the building,  and other factors.  The
     Berg Group is  currently  evaluating  its total  construction  costs due to
     delayed  billings  by its  vendors.  Details of the  acquisition  cannot be
     determined at this time.

     In January  2001, we completed the sale of the R&D property at 4949 Hellyer
     Avenue,  San Jose,  California to Cisco Systems,  Inc, which  exercised its
     purchase option in November 2000. We realized a gain of $3.1 million on the
     total sale price of $23.1 million.  Cisco Systems,  Inc. also exercised its
     purchase  option in November  2000 to purchase  the R&D property at 5713-49
     Fontanoso Way, San Jose,  California.  The sale is expected to occur in the
     fourth quarter of 2001.

     ENVIRONMENTAL MATTERS

     To date, compliance with laws and regulations relating to the protection of
     the environment,  including those regarding the discharge of materials into
     the  environment  has  not  had  any  material  effects  upon  our  capital
     expenditures, earnings or competitive position.

     Under various federal, state and local laws, ordinances and regulations, an
     owner or  operator  of real  property  may be held  liable for the costs of
     removal or remediation of certain hazardous or toxic substances  located on
     or in the  property.  Such laws  often  impose  liability  on the owner and
     expose the owner to governmental  proceedings without regard to whether the
     owner knew of, or was  responsible  for, the  presence of the  hazardous or
     toxic substances.  The cost of any required  remediation or removal of such
     substances may be substantial. In addition, the owner's liability as to any
     specific  property is  generally  not limited and could exceed the value of
     the property and/or the aggregate assets of the owner.

     The presence of such substances,

                                     - 19 -
<PAGE>

     or the failure to properly  remove or remediate such  substances,  may also
     adversely  affect the  owner's  ability to sell or rent the  property or to
     borrow using the property as collateral.  Persons who arrange for treatment
     or the disposal of hazardous or toxic substances may also be liable for the
     costs of any  required  remediation  or removal of the  hazardous  or toxic
     substances  at a disposal  facility,  regardless of whether the facility is
     owned or operated by such owner or entity. In connection with the ownership
     of the  properties  or the  treatment  or  disposal of  hazardous  or toxic
     substances, we may be liable for such costs.

     Some of our  properties  are  leased,  in part,  to  businesses,  including
     manufacturers  that  use,  store or  otherwise  handle  hazardous  or toxic
     substances  in  their  business  operations.   These  operations  create  a
     potential  for the release of hazardous or toxic  substances.  In addition,
     groundwater   contaminated  by  chemicals  used  in  various  manufacturing
     processes,  including  semiconductor  fabrication,  underlies a significant
     portion of  northeastern  Santa Clara County,  where many of our properties
     are located.

     Environmental  laws also govern the  presence,  maintenance  and removal of
     asbestos.  These  laws  require  that  owners  or  operators  of  buildings
     containing  asbestos  properly manage and maintain the asbestos,  that they
     adequately  inform or train those who may come into contact  with  asbestos
     and that they undertake  special  precautions,  including  removal or other
     abatement in the event that  asbestos is  disturbed  during  renovation  or
     demolition  of a building.  These laws may impose  fines and  penalties  on
     building owners or operators for failure to comply with these  requirements
     and may allow third  parties to seek  recovery from owners or operators for
     personal injury  associated with exposure to asbestos fibers.  We are aware
     that there are  asbestos-containing  materials, or ACMs, present at several
     of the properties,  primarily in floor coverings.  We believe that the ACMs
     present at these  properties  are  generally in good  condition and that no
     ACMs  are  present  at  the  remaining  properties.  We  believe  we are in
     compliance  in all material  respects with all present  federal,  state and
     local  laws  relating  to ACMs and that if we were  given  limited  time to
     remove all ACMs present at the  properties,  the cost of such removal would
     not have a material adverse effect on our financial  condition,  results of
     operations and ability to make cash distributions to our stockholders.

     Phase I  assessments  are  intended to discover  and  evaluate  information
     regarding  the  environmental   condition  of  the  surveyed  property  and
     surrounding properties.  Phase I assessments generally include a historical
     review, a public records review,  an investigation of the surveyed site and
     surrounding  properties  and the  preparation  and  issuance  of a  written
     report,  but do not include soil sampling or subsurface  investigations and
     typically do not include an asbestos survey. Environmental assessments have
     been conducted for about half of the properties.

     The environmental investigations that have been conducted on our properties
     have not revealed any environmental  liability that we believe would have a
     material adverse effect on our financial  condition,  results of operations
     and assets, and we are not aware of any such liability.  Nonetheless, it is
     possible that there are material environmental  liabilities of which we are
     unaware. We cannot assure you 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 us.


                                     - 20 -
<PAGE>


ITEM 3.   LEGAL PROCEEDINGS

     Neither the operating  partnerships,  the  properties nor we are subject to
     any material  litigation nor, to our knowledge,  is any material litigation
     threatened against the operating  partnerships,  the properties or us. From
     time to time, we are engaged in legal  proceedings  arising in the ordinary
     course of our business,  and we do not consider any of such  proceedings to
     have  material  adverse  effect on our cash flows,  financial  condition or
     results of operations.

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

     No  matters  were  submitted  to a vote of  stockholders  during the fourth
     quarter of the year ended December 31, 2000.



                                     - 21 -

<PAGE>

PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     Our common stock is listed on the American Stock Exchange  ("AMEX") and the
     Pacific Exchange,  Inc. and trades under the symbol "MSW." The high and low
     sale prices per share of common  stock during each quarter of 2000 and 1999
     were as follows:
<TABLE>
<CAPTION>


                                         2000                              1999
                            -----------------------------     -----------------------------
                                High             Low               High            Low
                            -------------   -------------     -------------   -------------
<S>                           <C>             <C>               <C>             <C>
     1st Quarter                  $9            $7 1/8            $7 1/8          $6 3/8
     2nd Quarter               $10 5/8         $8 5/16            $8 3/4            $7
     3rd Quarter                 $14             $10              $8 5/8          $7 3/8
     4th Quarter               $14 5/8         $12 7/8           $8 5/16         $7 3/16
</TABLE>


     As of March 28,  2001,  the number of holders of record of the common stock
     was 270.  We declared  and paid  dividends  in each fiscal  during 2000 and
     1999.  We expect to pay  quarterly  dividends  during 2001.  The  following
     tables show information for quarterly dividends for years 2000 and 1999.
<TABLE>
<CAPTION>
                                                 2000
                             ----------------------------------------------
                                Record          Payment         Dividend
                                 Date            Date           per Share
                             --------------  --------------  --------------
<S>                           <C>             <C>                <C>
     1st Quarter               03/31/00        04/10/00           $0.15
     2nd Quarter               06/28/00        07/07/00           $0.17
     3rd Quarter               09/29/00        10/10/00           $0.17
     4th Quarter               12/29/00        01/10/01           $0.19
                                                             --------------
                    Total                                         $0.68
                                                             ==============
</TABLE>

     For  federal  income tax  purposes,  we have  characterized  the  dividends
     declared in 2000 as 100% ordinary income.

<TABLE>
<CAPTION>

                                                 1999
                             ----------------------------------------------
                                Record          Payment         Dividend
                                 Date            Date           per Share
                             -------------   -------------     ------------
<S>                           <C>             <C>                <C>
     1st Quarter               04/15/99        04/30/99           $0.12
     2nd Quarter               06/21/99        07/02/99           $0.14
     3rd Quarter               09/30/99        10/11/99           $0.15
     4th Quarter               12/30/99        01/10/00           $0.15
                                                               ------------
                    Total                                         $0.56
                                                               ============
</TABLE>

     For  federal  income tax  purposes,  we have  characterized  the  dividends
     declared in 1999 as 93% ordinary income and 7% as return of capital.

     The  closing  price of our common  stock on  December  29,  2000,  the last
     trading day, was $13.88 per share.

                                     - 22 -

<PAGE>


ITEM 6.   SELECTED FINANCIAL DATA

     The following table sets forth selected  historical  financial  information
     for  Mission  West  Properties,  Inc.  See  Part II - Item 7  "Management's
     Discussion and Analysis of Financial  Conditions and Results of Operations"
     - Overview and Company History for discussion of business  combinations and
     property  dispositions  that  materially  affect the  comparability  of the
     selected financial data.  Selected  consolidated  financial data is derived
     from the audited financial statements and notes thereto (see Part II - Item
     8 "Consolidated Financial Statements and Supplementary Data," below) and is
     as follows:
<TABLE>
<CAPTION>

                                                                                         One Month
                                                     Year Ended December 31,               Ended         Year Ended November 30,
                                          -------------------------------------------   December 31,  -----------------------------
                                              2000           1999           1998           1997           1997           1996
                                          -------------  -------------  -------------  -------------  -------------  --------------
<S>                                        <C>            <C>            <C>            <C>            <C>            <C>
OPERATING DATA:                                                            (dollars in thousands)
Revenue:
     Rental revenues                        $ 99,567       $73,726        $27,285         $    -         $ 1,376       $ 7,065
     Tenant reimbursements                    14,635        11,047          4,193              -               -             -
     Other                                     1,742         1,220            278             27             359           348
                                          -------------  -------------  -------------  -------------  -------------  --------------
Total revenues                               115,944        85,993         31,756             27           1,735         7,413
                                          -------------  -------------  -------------  -------------  -------------  --------------

Expenses:
     Property operating and
       maintenance and real estate taxes      15,025        11,467          4,821              -             246         1,643
     Interest                                  8,290        11,623          4,685              -             425         3,045
     Interest (related parties)                4,475         2,246          3,511              -               -             -
     General and administrative expenses       1,065         1,185          1,501            139           1,467           991
     Depreciation and amortization            15,456        13,156          5,410             -              246         1,369
                                          -------------  -------------  -------------  -------------  -------------  --------------
                                              44,311        39,677         19,928            139           2,384         7,048
                                          -------------  -------------  -------------  -------------  -------------  --------------
     Income before gain (loss) on sale of real
       estate assets, minority interest and
       income taxes                           71,633        46,316         11,828           (112)           (649)          365
     Gain (loss) on sale                           -             -              -              -           4,736          (306)
     Income (loss) before minority
       interest and income taxes              71,633        46,316         11,828           (112)          4,087            59
     Minority interest                        59,054        39,785         12,049              -               -             -
                                          -------------  -------------  -------------  -------------  -------------  --------------
     Income (loss) before income taxes        12,579         6,531           (221)          (112)          4,087            59
     (Benefit) provision for income taxes          -             -              -            (38)          1,043            24
                                          -------------  -------------  -------------  -------------  -------------  --------------
       Net income (loss)                    $ 12,579       $ 6,531        $  (221)        $  (74)        $ 3,044       $    35
                                          =============  =============  =============  =============  =============  ==============

     Basic income (loss) per share (1)          $.73          $.52          $(.13)         $(.05)         $18.48          $.77
     Diluted income (loss) per share (1)        $.72          $.52          $(.13)         $(.05)         $18.48          $.72

PROPERTY AND OTHER DATA (2):
     Total properties, end of period             89             80             71
     Total square feet, end of period         6,196          5,307          4,519
     Average monthly rental revenue
       per square foot (3)                    $1.36          $1.16          $0.95
     Occupancy at end of period                  99%            99%            99%

FUNDS FROM OPERATIONS (2) (4):              $86,303        $59,079        $17,238

     Cash flow from operations              $84,580        $60,298        $16,264           $(46)        $(1,000)       $1,221
     Cash flow from investing                (2,736)       (12,084)          (118)             -          46,198         2,528
     Cash flow from financing               (83,706)       (41,920)       (21,469)           150         (42,844)       (1,204)

                                                               December 31,                           November 30,
                                          ---------------------------------------------------------- -------------
                                              2000           1999          1998           1997           1996
                                          ------------  -------------  ------------   -------------  -------------
                                                                    (dollars in thousands)
BALANCE SHEET DATA (5):
     Real estate assets, net of
       accumulated depreciation            $807,456       $697,616       $516,029      $       -         $46,285
     Total assets                           826,910        712,704        519,866          5,763          46,324
     Line of credit - related parties        50,886              -              -              -               -
     Debt                                   132,055        133,952        184,389              -          30,753
     Debt - related parties                  11,643         31,193         20,752              -               -
     Total liabilities                      255,505        215,212        213,234            552          32,142
     Minority interest                      469,332        396,810        273,379              -               -
     Stockholders' equity                   102,073        100,682         33,253          5,211          14,182

     Common stock outstanding            17,025,365     16,972,374      8,218,594      1,501,104          45,704
     O.P. Units issued and outstanding   83,576,027     76,205,789     60,151,697              -               -
</TABLE>

                                     - 23 -
<PAGE>


(1)  As adjusted for the 1 for 30 reverse stock split in November 1997.
(2)  Property and other data shown only as of December 31, 2000, 1999 and 1998.
(3)  Average  monthly  rental  revenue  per square foot has been  determined  by
     taking the total base rent for the period,  divided by the number of months
     in the period, and then divided by the total square feet of occupied space.
(4)  As defined by the National  Association  of Real Estate  Investment  Trusts
     ("NAREIT"),  FFO represents net income (loss) before  minority  interest of
     unit  holders  (computed  in  accordance  with GAAP),  excluding  gains (or
     losses) from debt  restructuring  and sales of  property,  plus real estate
     related depreciation and amortization  (excluding  amortization of deferred
     financing  costs and  depreciation  of  non-real  estate  assets) and after
     adjustments for unconsolidated partnerships and joint ventures.  Management
     considers  FFO an  appropriate  measure of  performance  of an equity  REIT
     because,  along  with  cash  flows  from  operating  activities,  financing
     activities  and  investing  activities,   it  provides  investors  with  an
     understanding  of our  ability to incur and service  debt and make  capital
     expenditures. FFO should not be considered as an alternative for net income
     as a measure of profitability or is it comparable to cash flows provided by
     operating  activities  determined  in  accordance  with  GAAP.  FFO  is not
     comparable to similarly  entitled items reported by other REITs that do not
     define them  exactly as we define FFO.  See Part II - Item 7  "Management's
     Discussion and Analysis of Financial Condition and Results of Operations" -
     Certain Policies.
(5)  Balance sheet information for 1997 is shown as of December 31, 1997.

                                     - 24 -
<PAGE>


ITEM 7.   MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION
          AND RESULTS OF OPERATIONS

     The following discussion includes forward-looking statements, including but
     not limited to statements with respect to the future financial performance,
     operating  results,  plans and objectives of Mission West Properties,  Inc.
     Actual  results  may differ  materially  from those  currently  anticipated
     depending upon a variety of factors,  including those described in Part I -
     Item 1 "Business - Risk Factors."

     OVERVIEW

     In May 1998,  we, the Berg Group  members,  John  Kontrabecki,  and certain
     other persons entered into an  acquisition agreement providing, among other
     things, for our acquisition of interests as the sole general partner in the
     operating  partnerships.  At the  time,  the  operating  partnerships  held
     approximately  4.34 million rentable square feet of R&D property located in
     Silicon  Valley.  The agreement also provided for the parties to enter into
     the pending projects acquisition  agreement,  the Berg land holdings option
     agreement  and  the  exchange  rights  agreement,   following   stockholder
     approval.  Effective  July 1, 1998, we consummated  our  acquisition of the
     general partnership  interests in the operating  partnerships.  We effected
     our purchase of the general partnership interests by issuing to each of the
     operating  partnerships a demand note bearing  interest at 7.25% per annum,
     aggregating  $35.2 million of principal  payable no later than July 1, 2000
     (the  "Demand  Notes").  Effective  July 1, 1998,  all limited  partnership
     interests in the operating partnerships were converted into 59,479,633 O.P.
     Units,  representing  ownership of  approximately  87.89% of the  operating
     partnerships,  upon consummation of the acquisition.  Each O.P. Unit may be
     exchanged for one share of common stock pursuant to certain exchange rights
     and is treated as a share of common stock on a fully diluted basis and also
     represents our minority ownership interests. At December 31, 2000, we owned
     a 16.92% general partnership interest in the operating partnerships,  taken
     as a whole, on a weighted average basis.

     On December 29, 1998, we sold  6,495,058  shares of common stock at a price
     of $4.50 per share to a number of accredited  investors to complete our May
     1998 private placements.  The aggregate proceeds,  net of fees and offering
     costs,  of  approximately  $27.8  million  were  used to pay  down  amounts
     outstanding under the Demand Notes due to the operating partnerships.  Also
     as of  December  29,  1998,  we and the limited  partners in the  operating
     partnerships  entered into the exchange  rights  agreement,  and we entered
     into the pending projects acquisition  agreement and the Berg land holdings
     option agreement with the Berg Group and other sellers.

     In July 1999,  we completed a public  offering of  8,680,000  shares of our
     common stock at $8.25 per share.  The net proceeds of  approximately  $66.9
     million,  after deducting  underwriting discounts and other offering costs,
     were used primarily to repay indebtedness.

     At December 31, 2000, the  outstanding  balance under the Demand Notes owed
     to the  operating  partnerships  was $1.18  million.  The  Company  and the
     operating  partnerships  have  agreed to extend  the due date of the demand
     notes to September 30, 2001. The principal of the Demand Notes,  along with
     the  interest   expense,   which  is  interest   income  to  the  operating
     partnerships,  is  eliminated in  consolidation  and is not included in the
     corresponding  line items  within the  consolidated  financial  statements.
     However, the interest income earned by the operating partnerships, which is
     interest  expense to us, in  connection  with this debt, is included in the
     calculation of minority interest as reported on the consolidated  statement
     of  operations,  thereby  reducing our net income by this same  amount.  At
     present, our only means for repayment of this debt is through distributions
     received  from the  operating  partnerships  in  excess  of the  amount  of
     dividends to be paid to our stockholders.

     COMPANY HISTORY

     Our original  predecessor was formed in 1969 as Palomar Mortgage Investors,
     a California business trust. It operated as a REIT,  investing primarily in
     short-term and intermediate-term construction and development loans secured
     by first trust deeds on real property.  In 1974, Palomar Mortgage Investors
     terminated  new loan  activity  and,  in 1975,  changed its name to Mission
     Investment Trust. In 1979,  Mission  Investment Trust terminated its status
     as a REIT and began to develop and market the properties  that it owned. In
     1982,  Mission West  Properties was  incorporated as a successor to Mission
     Investment Trust.

     In January and May 1997,  we sold all of our real estate  assets to Spieker
     Properties, L.P. for approximately $50.5 million in cash. In February 1997,
     we paid a special  dividend of $9.00 per share to our  stockholders.  After
     the sale of assets and the  payment of the  dividend  to  stockholders,  we
     retained  only  nominal  assets.  The  board of  directors  and  management
     considered  available  strategic  alternatives for the remaining  corporate
     entity,  including possible business or asset acquisitions or combinations,
     a sale of the corporate entity, and outright liquidation.


                                     - 25 -
<PAGE>

     Subsequently,  we accepted a proposal by the Berg Group to acquire  control
     of the corporation as a vehicle to acquire R&D properties,  or interests in
     entities owning such  properties,  from the Berg Group. On May 27, 1997, we
     entered  into a  stock  purchase  agreement  with  the  Berg  Group,  which
     transferred  most of its share purchase rights to  unaffiliated  accredited
     investors.  The  transaction  was  completed on September 2, 1997, at which
     time all of our existing officers and directors resigned and the Berg Group
     and the other investors acquired a 79.6% controlling  ownership position as
     a group.

     On October 20, 1997, we paid a further  distribution  of $3.30 per share to
     our  stockholders  from available cash,  including  approximately  $900,000
     received in the September 1997 transaction.  No portion of the distribution
     was paid on shares  acquired  by the Berg  Group and its  co-investors.  In
     connection  with that  distribution,  the AMEX halted trading of the common
     stock on October 20,  1997.  Neither the AMEX nor we set a deadline for the
     resumption of trading,  nor did the AMEX provide  guidance beyond declaring
     its desire that we have a firm commitment to acquire a controlling interest
     in the R&D  properties of the Berg Group and to raise  additional  capital.
     Our sale of common stock under two May 1998 private placements, the pending
     projects acquisition  agreement and the Berg land holdings option agreement
     between  us and the Berg  Group,  and our  reincorporation  in the State of
     Maryland.  On December 8, 1998, the AMEX recommenced  trading of our common
     stock.

     On December 28, 1998,  our  stockholders  approved and ratified our sale of
     common stock under two May 1998 private  placements,  the pending  projects
     acquisition  agreement and the Berg land holdings option agreement  between
     us and the Berg Group, and our reincorporation in the State of Maryland. On
     December 8, 1998,  the AMEX  recommenced  trading of our common stock.  Our
     reincorporation  under the laws of the State of Maryland through the merger
     of Mission West Properties into Mission West Properties,  Inc.  occurred on
     December  30,  1998,  at which time all shares  that had been issued by our
     predecessor  California corporation and remained outstanding were converted
     into shares of our common stock on a one-for-one basis.

     We have two wholly  owned  corporate  subsidiaries,  MIT Realty,  Inc.  and
     Mission West Executive Aircraft Center. Both corporations are inactive.

     RESULTS OF OPERATIONS

     COMPARISON OF THE YEAR ENDED  DECEMBER 31, 2000 TO THE YEAR ENDED  DECEMBER
     31, 1999.

     As of December  31,  2000,  we,  through our  controlling  interests in the
     operating  partnerships,  owned 89 properties  totaling  approximately  6.2
     million square feet compared to 80 properties  totaling  approximately  5.3
     million square feet as of December 31, 1999.  This  represented an increase
     of approximately  17% in total rentable square footage from the prior year.
     The increase  resulted  from the following  acquisitions  under the pending
     projects acquisition agreement and the Berg land holdings option agreement:
<TABLE>
<CAPTION>

           Date of                                                Rentable Square
         Acquisition                   Address                        Footage
     -------------------    -------------------------------     ------------------
<S>       <C>                <C>                                    <C>
            1/00              1756 Automation Parkway                 80,640
            3/00              800 Branham Lane East                  239,000
            4/00              1762 Automation Parkway                 61,100
            4/00              255 Caspian Way                         98,500
            5/00              5300 & 5350 Hellyer Avenue (1)         160,000
            7/00              5400 Hellyer Avenue                     77,184
           10/00              45365 Northport Loop                    64,218
           12/00              1768 Automation Parkway                110,592
                                                                ------------------
                                                                     891,234
                                                                ==================
</TABLE>

(1)  Two buildings were acquired at this location.

                                     - 26 -
<PAGE>

     The following table depicts the amounts of rental  revenues  represented by
     our historical  properties and our acquired  properties  since July 1, 1998
     for the years ended December 31, 2000 and 1999.
<TABLE>
<CAPTION>

                                                           December 31,
                                  -------------------------------------------------------------------
                                      2000             1999            $ Change          % Change
                                  -------------    -------------     -------------    ---------------
                                               (Dollars in thousands)
<S>                                 <C>              <C>               <C>                 <C>
     Same Property (1)               $59,304          $54,194           $ 5,110               9.4%
     1998 Acquisitions                 2,330            2,342              (12)               (.5%)
     1999 Acquisitions                25,635           17,190             8,445              49.1%
     2000 Acquisitions                12,298                -            12,298             100.0%
                                  -------------    -------------     -------------
                                     $99,567          $73,726           $25,841              35.0%
                                  =============    =============     =============
</TABLE>


     (1)  "Same Property" is defined as properties  owned as of July 1, 1998 and
          still owned as of December 31, 2000.

     As of December 31, 2000 and 1999, we owned a general  partnership  interest
     of 18.15%,  21.36%, 15.38% and 12.21% and 20.28%, 21.32%, 15.33% and 12.18%
     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 are the operating partnerships.  We owned a 16.92% and
     18.28 general partnership interest in the operating partnerships,  taken as
     a whole,  on a weighted  average  basis as of  December  31, 2000 and 1999,
     respectively.

     In 2000, we focused on maximizing the value of our real estate portfolio by
     increasing the cash flow from our properties by increasing  effective rents
     and  maintaining  high  occupancy  levels.  For the year ended December 31,
     2000, our rental  revenues from real estate  increased by $25.8 million, or
     35%,  which  included an increase of  approximately  $4.9 million over base
     rental revenues to reflect rental revenues on a straight-line  basis,  from
     $73.7 million for the year ended December 31, 1999 to $99.5 million for the
     same period of 2000. Of the $25.8 million increase in rental revenues, $5.1
     million resulted from the Company's "Same Property" portfolio, $8.4 million
     resulted  from  newly  developed  properties  acquired  in 1999,  and $12.3
     million  resulted from newly developed  properties  acquired in 2000. These
     increases were primarily  attributable to increased rental rates and a high
     average occupancy level of 99%.

     The following  table reflects the increase in property  operating  expenses
     and real estate taxes for the year ended  December  31, 2000 over  property
     operating  expenses and real estate  taxes for the year ended  December 31,
     1999.
<TABLE>
<CAPTION>

                                                             December 31,
                                  -------------------------------------------------------------------
                                       2000            1999            $ Change          % Change
                                  -------------    -------------     -------------    ---------------
                                               (Dollars in thousands)
<S>                                 <C>              <C>                 <C>               <C>
     Same Property (1)               $11,228          $ 9,882             $1,346             13.6%
     1998 Acquisitions                   271              291                (20)            (6.9%)
     1999 Acquisitions                 2,813            1,294              1,519            117.4%
     2000 Acquisitions                   713                -                713            100.0%
                                  -------------    -------------     -------------
                                     $15,025          $11,467             $3,558             31.0%
                                  =============    =============     =============
</TABLE>

     (1)  "Same Property" is defined as properties  owned as of July 1, 1998 and
          still owned as of December 31, 2000.

     Tenant reimbursements increased by $3.6 million, or 33%, from $11.0 million
     for the year ended  December  31, 1999 to $14.6  million for the year ended
     December 31, 2000.  Operating expenses and real estate taxes, on a combined
     basis,  increased  by $3.5  million  or 31%,  from  $11.5  million to $15.0
     million for the years ended  December 31, 1999 and 2000,  respectively.  Of
     the $3.5 million  increase in property  operating  expenses and real estate
     taxes, $1.3 million resulted from the Company's "Same Property"  portfolio,
     $1.5 million  resulted from  properties  acquired in 1999, and $0.7 million
     resulted from properties  acquired in 2000. The overall  increase in tenant
     reimbursements,  property  operating  expenses  and  real  estate  taxes is
     primarily  a result  of the  growth  in the  total  square  footage  of the
     Company's  portfolio  of  properties  during  the  periods  presented.  The
     increases  experienced are consistent with the increase in rental revenues.
     Other income,  including interest,  was approximately $1.7 million and $1.2
     million for the years ended December 31, 2000 and 1999,  respectively.  The
     $0.5  million  increase  was due to the  sale of  securities.  General  and
     administrative  expenses  decreased by $120,000 from $1.18 million to $1.06
     million for the years ended December 31, 1999 and 2000, respectively.

     Interest expense decreased by $3.3 million,  or 28%, from $11.6 million for
     the year  ended  December  31,  1999 to $8.3  million  for the  year  ended
     December 31, 2000,  primarily  due to the repayment of the Wells Fargo line
     of credit in 1999.  Interest  expense (related  parties)  increased by $2.2
     million, or 100%, from $2.2 million for the year ended December 31, 1999 to
     $4.4 million for the year ended December 31, 2000. The increase in interest
     expense (related  parties) was attributable to our substitution of the Berg
     Group line of credit for the Wells Fargo line of credit, and our use of the
     new credit  line for the nine

                                     - 27 -

<PAGE>
     acquisitions  in 2000.  Interest rates also increased in the second half of
     the year.  On a combined  basis,  total  interest  expense  decreased  $1.1
     million  from  December  31,  1999 to  December  31,  2000  because  of the
     repayment  of the  Wells  Fargo  line of  credit.  As a result  of nine R&D
     property acquisitions since December 31, 1999, debt outstanding,  including
     amounts due related parties, had increased by $29.5 million, or 17.9%, from
     $165.1 million as of December 31, 1999 to $194.6 million as of December 31,
     2000. Management expects interest expense to increase as additional debt is
     incurred in connection with new property acquisitions.

     Depreciation  expense increased by $2.3 million, or 17%, from $13.2 million
     to  $15.5  million  for  the  years  ended  December  31,  2000  and  1999,
     respectively.  The increase was attributable to the acquisition of nine R&D
     properties  comprised of  approximately  891,000 rentable square feet since
     December 31, 1999.

     Our income attributed to minority interest  increased by $19.3 million,  or
     48%,  from $39.8  million  for the year ended  December  31,  1999 to $59.1
     million for the year ended  December 31, 2000.  Net income to  shareholders
     increased  by $6.1  million,  or 94%,  from $6.5 million for the year ended
     December  31,  1999 to $12.6  million  for year ended  December  31,  2000.
     Minority interest  represents the limited partners'  ownership  interest of
     83.08% and 81.72%, on a weighted average basis, as of December 31, 2000 and
     1999,  respectively,  in the  operating  partnerships.  The increase in the
     minority interest  percentage resulted from the issuance of additional O.P.
     Units in connection with the  acquisition of nine new properties  under the
     pending  projects  acquisition  agreement and the Berg land holdings option
     agreement.

     COMPARISON OF THE YEAR ENDED  DECEMBER 31, 1999 TO THE YEAR ENDED  DECEMBER
     31, 1998.

     Our  acquisition  of the general  partnership  interests  in the  operating
     partnerships  during the third  quarter of 1998  substantially  altered our
     operations. As a consequence, operating results for the year ended December
     31, 1999 are not fully  comparable  to our  operating  results for the same
     period of 1998.

     As of December 31, 1999, we owned a general partnership interest of 20.28%,
     21.32%,  15.33% and 12.18% 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 are the operating partnerships.
     We  owned  an  18.28%  general   partnership   interest  in  the  operating
     partnerships,  taken as a whole, on a weighted average basis as of December
     31, 1999.  As of December 31, 1998, we owned a 12.02%  general  partnership
     interest in the  operating  partnerships,  taken as a whole,  on a weighted
     average basis. The acquisition of the general partnership  interests in the
     operating  partnerships  in July 1998 was accounted for as a purchase.  Our
     consolidated operating results for the year ended December 31, 1998 include
     the  results  of  operations,  assets  and  other  financial  data  for the
     operating  partnerships  from July 1, 1998 through December 31, 1998. Thus,
     the results of  operations  for the year ended  December 31, 1998,  include
     only six months of activity for our current real estate operations.

     The year ended  December 31, 1999 was our first full year of operation with
     the R&D properties acquired from the Berg Group and others in July 1998.

     For the year ended December 31, 1999, our rental  revenues from real estate
     were   approximately   $73.7   million,   which  included  an  increase  of
     approximately  $4.3  million  over base rental  revenues to reflect  rental
     revenues on a straight-line basis. Tenant reimbursements were approximately
     $11.0 million, and other income, including interest, was approximately $1.2
     million.  Included in other  income is a gain of $393,000  from the sale of
     securities.  Total  expenses for the year ended  December  31,  1999,  were
     approximately  $39.7 million,  of which approximately $38.5 million related
     directly to our real estate operations. General and administrative expenses
     accounted for the remainder of the expenses. For the six-month period ended
     December 31, 1998, our rental revenues from real estate were  approximately
     $27.3 million,  which included an adjustment  for  straight-lined  rents of
     approximately $1.6 million.  Tenant  reimbursements were $4.2 million,  and
     other income,  including interest,  totaled approximately  $278,000.  Total
     expenses for 1998  reached  almost $20.0  million,  of which  approximately
     $18.4 million  related  directly to newly acquired real estate  operations.
     General and  administrative  expenses  accounted  for the  remainder of our
     expenses.

     Our income attributed to minority interest was approximately $39.8 million,
     resulting  in net income of  approximately  $6.5 million for the year ended
     December 31, 1999.  The minority  interest's  portion of our income for the
     six-month period ended December 31, 1998 was  approximately  $12.0 million,
     resulting  in a  consolidated  net  loss  of  $221,000.  Minority  interest
     represents  the  limited  partners'  ownership  interest  in the  operating
     partnerships  of 81.72%,  on a weighted  average  basis as of December  31,
     1999, and 87.98%, on a weighted average basis as of December 31, 1998.

                                     - 28 -
<PAGE>


     CHANGES IN FINANCIAL CONDITION

     YEAR ENDED DECEMBER 31, 2000.

     During 2000 we acquired nine R&D properties, all located in Silicon Valley.
     These  acquisitions  added  approximately  891,000  square feet of rentable
     space and were  acquired  from the Berg Group under the Berg land  holdings
     option agreement and the pending projects acquisition agreement.  The total
     gross acquisition price for these nine properties was approximately  $122.9
     million.  We financed these  acquisitions  by borrowing $39.9 million under
     our line of credit from the Berg group,  issuing an $11.8  million  note to
     the  Berg  Group,   assuming  other   liabilities  of  $2.6  million,   and
     issuing7,370,238 O.P. Units to various members of the Berg Group.

     In May  2000,  we  entered  into a  joint  venture  and  acquired  two  R&D
     properties of  approximately  160,000  square feet located at 5300 and 5350
     Hellyer Avenue in San Jose,  California  from the Berg Group under the Berg
     land holdings option agreement. These properties are operated, managed, and
     owned by a partnership, Hellyer Avenue Limited Partnership, in which one of
     the operating partnerships owns a 50% interest. The total acquisition price
     for these  properties  was $17.2 million.  We acquired these  properties by
     issuing an $11.8  million  note  secured by the property to the Berg Group,
     issuing  659,223  O.P.  Units to  various  members of the Berg  Group,  and
     assuming other liabilities of $774,000. The mortgage note bears interest at
     7.65%,  and is due in ten years with principal  payments  amortized over 20
     years.  Included  in  the  acquisition  price  were  construction  fees  of
     $600,000, loan fees of $380,000 and commission fees of $275,000.

     Also in May  2000,  we  entered  into a  ten-year  lease  with ONI  Systems
     Corporation  ("ONI") for 444,500  square feet of space to be constructed by
     the Berg  Group on land that is subject  to the Berg land  holdings  option
     agreement.  As  partial  consideration  for the lease,  we were  allowed to
     purchase 100,000 shares of ONI common stock in its initial public offering.
     We  purchased  and then sold all of the shares and realized net proceeds of
     $6.3  million.  Of this amount,  we recognized  $501,000  during the second
     quarter with the balance  deferred as prepaid  rent that we are  amortizing
     ratably over the ten-year lease term.

     In November  2000,  Cisco Systems Inc.  exercised  its purchase  options to
     purchase the  properties  it is  currently  leasing from us at 4949 Hellyer
     Avenue,  San  Jose,   California  and  5713-49  Fontanoso  Way,  San  Jose,
     California,   comprising   200,484  and  77,700   rentable   square   feet,
     respectively. The sale at 4949 Hellyer Avenue was completed in January 2001
     and the sale of 5713-49  Fontanoso Way will close in the fourth  quarter of
     2001.

     During the year ended  December 31, 2000,  stock options were  exercised to
     purchase a total of 52,991  shares of common  stock,  consisting  of 39,237
     shares  exercised at $4.50 per share and 13,754  shares  exercised at $8.25
     per share. Total proceeds to the Company were approximately $290,000.

     YEAR ENDED DECEMBER 31, 1999.

     During 1999, we acquired nine newly constructed R&D properties, all located
     in Silicon Valley.  These acquisitions added  approximately  788,000 square
     feet of rentable space and were acquired from the Berg Group under the Berg
     land  holdings  option  agreement  and  the  pending  projects  acquisition
     agreement.  The total gross acquisition price for these five properties was
     approximately  $193.6  million.  We  financed  these  acquisitions  by  the
     operating partnerships' assumption of $36.4 million of debt due Berg & Berg
     Enterprises,  Inc., the assumption by the operating  partnerships  of other
     liabilities  of $32.8  million  (including  the  assumption of the sellers'
     obligation  to  reimburse  Microsoft   Corporation  for  shell  and  tenant
     improvements  of $32.1 million) and, the issuance of 16,311,232 O.P. Units,
     of which 15,420,564 O.P. Units were issued to members of the Berg Group.

     Michael Anderson, our former Vice President,  Chief Operating Officer and a
     director,  resigned  from the  Company  effective  April 30,  1999.  We had
     previously  issued  200,000  shares of our common stock to Mr.  Anderson in
     exchange  for a note  receivable  payable  to us  for  $900,000.  Upon  Mr.
     Anderson's  resignation,  we  purchased  117,361 of the  200,000  shares of
     common  stock,   and  canceled  the  related  share   purchase   obligation
     representing  $528,000 of the original $900,000 note receivable.  We waived
     interest  expense of  approximately  $32,000 due on the portion of the note
     receivable  relating to the canceled shares.  The remaining $372,000 of the
     note receivable was paid in full during the second quarter of 1999.

     In July 1999,  we completed a public  offering of  8,680,000  shares of our
     common stock at $8.25 per share.  The net proceeds of  approximately  $66.9
     million,  after deducting  underwriting discounts and other offering costs,
     were used to reduce  the  outstanding  balance  on the Wells  Fargo line by
     approximately  $41.0  million and to reimburse  Microsoft  Corporation  for
     approximately  $25.0  million  for shell  and  tenant  improvements  on the
     Microsoft  project.  The remaining net proceeds of  approximately  $900,000
     were retained for general corporate purposes.

                                     - 29 -
<PAGE>

     During the third quarter of 1999, we entered into a new lease agreement for
     2001 Logic Drive with Xilinx Incorporated  ("Xilinx").  The lease agreement
     included  an option  granted  to  Xilinx  to  purchase  the  building  at a
     predetermined  price.  In September  1999,  in  accordance  with the option
     provisions  of  the  lease  agreement,  Xilinx  paid  to  us a  deposit  of
     approximately $21.6 million to secure its option right. Xilinx can exercise
     the option only  between  April 30, 2000 and July 31,  2000.  In July 2000,
     Xilinx and the  Company  agreed to extend  the option  period for two years
     until July 31, 2002.  Xilinx and the Company  further  agreed to reduce the
     deposit by $167,000 per month commencing August 1, 2000 until the later of:
     (1) the  transfer of title to the  property to Xilinx or (2) July 31, 2002.
     Upon exercise of the option,  the Company must refund the remaining deposit
     amount and Xilinx  must  deposit  into escrow  funds equal to the  purchase
     price. In the event Xilinx does not exercise its option, we must refund the
     remaining deposit to Xilinx, without interest.

     During the year ended December 31, 1999, options were exercised for a total
     of 191,920 shares.  The exercise price for all options  exercised was $4.50
     per share and total proceeds to the Company were approximately $863,000.

     YEAR ENDED DECEMBER 31, 1998.

     On  September  23,  1998,  in our  capacity as the  general  partner of the
     operating  partnerships,  we  obtained  a loan  from  Prudential  Insurance
     Company of America in the amount of $130.0 million (the "Prudential Loan").
     We used the net proceeds of the loan to repay  approximately  $14.2 million
     of mortgage  notes  payable,  and used the  remaining  amount to reduce the
     outstanding principal balance owing under the mortgage notes payable to the
     Berg Group, which is a related party. The loan is cross  collateralized and
     secured by a single deed of trust  encumbering 18 properties  improved with
     24 buildings and  consisting of  approximately  1.7 million  square feet of
     rentable space, all of which are owned by the operating  partnerships.  The
     loan bears interest at a fixed rate of 6.56% per annum,  matures on October
     15, 2008 and is payable in monthly installments of approximately  $827,000,
     which includes principal, based upon a 30-year amortization,  and interest.
     The  Prudential  Loan has a  substantial  prepayment  penalty.  The loan is
     nonrecourse  to the operating  partnerships  and us, except with respect to
     certain matters such as environmental  liability relating to the encumbered
     properties,  the  payment  of taxes and  assessments  with  respect  to the
     encumbered  properties,  the  responsibility to return security deposits to
     the  tenants  of  the  encumbered  properties,  insurance  or  condemnation
     proceeds that are not properly applied under the terms of the loan, damages
     that result from early  termination or amendment to specified major leases,
     waste of the subject  properties,  bankruptcy  or  insolvency of any of the
     operating  partnerships or us, and any fraud or misrepresentations by us or
     the operating  partnerships in connection with the loan. In addition,  some
     limited partners have guaranteed portions of the loan.

     On September 30, 1998, the operating  partnerships assumed a $100.0 million
     line of credit with Wells Fargo Bank, N.A. from the Berg Group. The line of
     credit was  subsequently  reduced to $50 million in October 1999. The Wells
     Fargo line matured February 29, 2000 and bore interest at the lesser of (a)
     the Wells  Fargo  prime  rate in  effect on the first day of each  calendar
     month;  (b) LIBOR plus  1.65%;  or (c) the Wells Fargo Funds Rate quoted on
     the first day of each calendar month plus 1.65%.  Borrowings outstanding at
     December 31, 1998 were approximately $27.2 million.

     During the  fourth  quarter of 1998,  we closed on the  acquisition  of two
     newly constructed R&D properties  located on Richard Avenue in Santa Clara,
     California and Hellyer Avenue in San Jose,  California.  These acquisitions
     added approximately 163,000 square feet of rentable space and were acquired
     from the Berg Group under the Berg land holdings  option  agreement and the
     pending projects acquisition  agreement.  The total gross acquisition price
     for these two  properties  was  approximately  $13.7  million.  Through the
     operating  partnerships,  we assumed approximately $9.6 million of debt due
     Berg & Berg  Enterprises,  Inc.  and  issued  672,064  L.P.  Units of which
     618,684 were issued to various members of the Berg Group.

     On March 30, 1998, Michael J. Anderson, our former Vice President and Chief
     Operating  Officer,  purchased  200,000 shares of common stock at $4.50 per
     share in exchange for a $900,000 note payable to us and due March 30, 2003.
     The note was a full recourse  promissory note bearing interest at an annual
     rate  of  5.59%  and  was   collateralized  by  a  pledge  of  the  shares.
     Additionally,  in December 1998, Mr. Anderson acquired 25,000 shares of our
     common stock upon partial  exercise of his option grant. The exercise price
     was $4.50 per share.

     On December 29, 1998, we completed  the sale of 6,495,058  shares of common
     stock at a price of $4.50 per share to a number of accredited  investors in
     two May 1998 private placements. The aggregate proceeds to us, net of a fee
     and offering costs, were approximately  $27.8 million. We used the proceeds
     to pay  outstanding  amounts  under the Demand Notes owed to the  operating
     partnerships. Offering costs included 200,000 shares of common stock issued
     for services rendered with the placement of such shares.

                                     - 30 -
<PAGE>
     LIQUIDITY AND CAPITAL RESOURCES

     We  expect  our  principal   source  of  liquidity  for   distributions  to
     stockholders,  debt service,  leasing  commissions  and  recurring  capital
     expenditures to be Funds from Operations ("FFO"),  and the borrowings under
     the  line of  credit  with the Berg  Group.  We  expect  these  sources  of
     liquidity to be adequate to meet projected  distributions  to  stockholders
     and other presently anticipated  liquidity  requirements in 2001. We expect
     to meet our long-term  liquidity  requirements  for the funding of property
     development, property acquisitions and other material non-recurring capital
     improvements  through long-term secured and unsecured  indebtedness and the
     issuance of additional equity securities by us.

     Our $50 million Wells Fargo line of credit expired on February 29, 2000 and
     was repaid with  proceeds from and replaced by a $50 million line of credit
     from the Berg Group. The Wells Fargo line of credit was  collateralized  by
     14 of our  properties  and was  guaranteed  by Mr. Berg and  certain  other
     members of the Berg Group.  On April 1, 2000,  the $50 million  credit line
     with the Berg  Group was  increased  to $75  million  with all other  terms
     remaining   the  same.   The  Berg  Group  line  of  credit  is   currently
     collateralized  by seven  properties,  bears  interest  at LIBOR  plus 1.30
     percent,  and matures in March 2002. The interest rate was 7.5% at December
     31,  2000.  We believe that the terms of the Berg Group line of credit were
     more  favorable than those  available from Wells Fargo or similar  lenders.
     See  Item  1.,  "Business  -  Risk  Factors  -  Our  contractual   business
     relationships with the Berg Group presents additional conflicts of interest
     which may result in the realization of economic benefits or the deferral of
     tax  liabilities  by the Berg  Group  without  equivalent  benefits  to our
     stockholders."

     At December  31, 2000, we had total  indebtedness of  approximately  $194.6
     million, including approximately $143.7 million of fixed rate mortgage debt
     and  approximately  $50.9  million  under the line of credit  from the Berg
     Group,  as to which the  interest  rate varies  with LIBOR.  Of total fixed
     debt, the Prudential Loan represented approximately $126.8 million.

     As of December 31, 2000,  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 $13.88 per share on December 29, 2000) on a fully diluted
     basis,  including the conversion of all O.P.  Units into common stock,  was
     approximately  12.2%.  On December 29,  2000,  the last trading day for the
     year, total market capitalization was approximately $1.6 billion.

                                     - 31 -
<PAGE>
     The  following  table  sets  forth  certain   information   regarding  debt
     outstanding as of December 31, 2000.
<TABLE>
<CAPTION>


                                                                                      AT DECEMBER 31,    MATURITY     INTEREST
            DEBT DESCRIPTION                        COLLATERAL PROPERTIES                   2000           DATE         RATE
-----------------------------------------  ----------------------------------------  -----------------  ----------  ------------
                                                                                        ($ in thousands)
<S>                                       <C>                                                 <C>         <C>          <C>
Line of Credit:
Berg Group (related parties)               2033-2043 Samaritan Drive, San Jose, CA            $ 50,886      3/02         (1)
                                                                                     -----------------
                                           2133 Samaritan Drive, San Jose, CA
                                           2233-2243 Samaritan Drive, San Jose, CA
                                           1310-1450 McCandless Drive, Milpitas, CA
                                           1315-1375 McCandless Drive, Milpitas, CA
                                           1650-1690 McCandless Drive, Milpitas, CA
                                           1795-1845 McCandless Drive, Milpitas, CA

Mortgage Notes Payable (related parties):  5300-5350 Hellyer Avenue, San Jose, CA               11,643      6/10        7.650%
                                                                                     -----------------
Mortgage Notes Payable: (2)
Prudential Capital Group                   20400 Mariani Avenue, Cupertino, CA                   1,756      4/09        8.750%
New York Life Insurance Company            10440 Bubb Road, Cupertino, CA                          377      9/09        9.625%
Home Savings & Loan Association            10460 Bubb Road, Cupertino, CA                          423     12/06        9.500%
Mellon Mortgage Company                    3530 Bassett Street, Santa Clara, CA                  2,735      6/01        8.125%
Prudential Insurance Co. of America (3)    10300 Bubb Road, Cupertino, CA                      126,764     10/08        6.560%
                                           10500 N. DeAnza  Blvd, Cupertino, CA
                                           4050 Starboard Drive, Fremont, CA
                                           45700 Northport Loop, Fremont, CA
                                           45738 Northport Loop, Fremont, CA
                                           450-460 National Ave, Mountain View, CA
                                           4949 Hellyer Avenue, San Jose, 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 Blvd, Santa Clara, CA
                                           3560 Bassett Street, Santa Clara, CA
                                           3570 Bassett Street, Santa Clara, CA
                                           3580 Bassett Street, Santa Clara, CA
                                           1135 Kern Avenue, Sunnyvale, CA
                                           1212 Bordeaux Lane, Sunnyvale, CA
                                           1230 E. Arques, Sunnyvale, CA
                                           1250 E. Arques, Sunnyvale, CA
                                           1170 Morse Avenue, Sunnyvale, CA
                                           3540 Bassett Street, Santa Clara, CA
                                           3542 Bassett Street, Santa Clara, CA
                                           3544 Bassett Street, Santa Clara, CA
                                           3550 Bassett Street, Santa Clara, CA
                                                                                     -----------------
Mortgage Notes Payable                                                                         132,055
                                                                                     -----------------
TOTAL                                                                                         $194,584
                                                                                     =================
</TABLE>

(1)  The debt owed to the Berg Group under the line of credit carries a variable
     interest  rate equal to LIBOR plus 1.30  percent  and is payable in full in
     March 2002. The interest rate was 7.5% at December 31, 2000.

(2)  Mortgage notes payable generally  require monthly  installments of interest
     and  principal  over various  terms  extending  through the year 2009.  The
     weighted  average  interest  rate of  mortgage  notes  payable was 6.64% at
     December 31, 2000 and 1999.

(3)  The  Prudential  Loan is  payable in monthly  installments  of $827,  which
     includes principal (based upon a 30-year  amortization) and interest.  John
     Kontrabecki,  one of the limited  partners,  has  guaranteed  approximately
     $12.0 million of this debt.  Costs and fees incurred  with  obtaining  this
     loan aggregated approximately $900.

                                     - 32 -
<PAGE>

     The following table presents certain  information  concerning  projects for
     which  development  has commenced that we might acquire under the Berg land
     holdings option agreement during 2001. The total acquisition cost of all of
     these projects is estimated  currently at approximately  $217 million.  For
     more information, please review Item 1., "Acquiring Properties Developed by
     the Berg Group."
<TABLE>
<CAPTION>


                                                             APPROXIMATE
                                                            RENTABLE AREA
      PROPERTY                            NET ACRES         (SQUARE FEET)
      ------------------------------ -------------------- -------------------
<S>                                          <C>            <C>
      UNDER DEVELOPMENT:
      Hellyer Vista (Phase I)                   6              131,500
      Hellyer III (Phase I)                     7              117,740
      Creekside                                 5               65,000
      Morgan Hill (JV I) (1)                   13              211,000
      Silver Creek                             18              346,000
      Caspian (Phase II)                        5              100,000
      5550 Hellyer                              6               79,800
      5535 Hellyer                              6              125,000
      Morgan Hill (JV IV) (1)                  12              160,000
      5750 Hellyer                              7               73,312
      Morgan Hill (JV II) (1)                   4               60,000
      Morgan Hill (JV III) (1)                  3               40,000
      Piercy & Hellyer                          8              130,000
      Piercy & Hellyer                          4               65,000
      Piercy & Hellyer                          7              105,000
                                     -------------------- -------------------
           TOTAL                              111            1,809,352
                                     ==================== ===================
</TABLE>

(1)  The Company  expects to own an approximate  50% interest in the partnership
     that will develop the  property.  The property will be operated and managed
     by the other partner.

     HISTORICAL CASH FLOWS

     Net cash provided by operating  activities  for the year ended December 31,
     2000 was  approximately  $84.6  million,  compared to net cash  provided in
     operating  activities  of  approximately  $60.3  million for the year ended
     December 31, 1999. The change was a direct result of the nine  acquisitions
     and rent increases during the year.

     In May 2000, we entered into a ten-year lease with ONI Systems  Corporation
     ("ONI") for  444,500  square  feet of space to be  constructed  by the Berg
     Group on land that is subject to the Berg land holdings  option  agreement.
     As partial consideration for the lease, we were allowed to purchase 100,000
     shares of ONI common stock in its initial public offering. We purchased and
     then sold all of the shares and realized net proceeds of approximately $6.3
     million, which we used for debt payments.

     Net cash used in investing  activities was  approximately  $2.7 million for
     the year ended  December 31,  2000,  compared to net cash used in investing
     activities  of  approximately   $12.1  million.   Cash  used  in  investing
     activities  during  2000  related to  improvements  and  additions  made to
     existing real estate assets.

     Net cash used in financing  activities was approximately  $83.7 million for
     the year ended  December  31, 2000, compared to $41.9  million for the year
     ended December 31, 1999. During 2000, we paid our debt outstanding and made
     distributions  to holders of our  common  stock and O.P Units by  utilizing
     cash generated from operating  activities.  For the year ended December 31,
     2000, we paid dividends to our stockholders  and made  distributions to the
     O.P Unit holders totaling $12.9 million.

     Net cash provided by operating  activities  for the year ended December 31,
     1999  was  approximately  $60.3  million,  compared  to net  cash  used  in
     operating  activities  of  approximately  $16.3  million for the year ended
     December 31, 1998. The change was a direct result of our acquisition of our
     general  partnership  interests in the  operating  partnerships  during the
     third quarter of 1998.

                                     - 33 -
<PAGE>

     Net cash used in investing  activities was approximately  $12.1 million for
     the year ended  December 31,  1999,  compared to net cash used in investing
     activities of approximately  $118,000 ended December 31, 1998. Cash used in
     investing  activities  during 1999 related to improvements made to existing
     real estate  assets,  as well as to payments made to Microsoft  Corporation
     for shell and  tenant  improvements,  which  were  partially  offset by the
     receipt of $21.6  million for a  refundable  option  payment.  Cash used in
     investing  activities  during 1998 related solely to  improvements  made to
     existing  real  estate  assets  acquired as part of our  investment  in the
     operating partnerships.

     Net cash used in financing  activities was approximately  $41.9 million for
     the year ended  December  31, 1999  compared to $21.5  million for the year
     ended  December 31,  1998.  During 1999,  we reduced  debt  outstanding  by
     utilizing net proceeds from the  underwritten  public offering of 8,680,000
     shares of common stock for net  proceeds of $66.9  million and by utilizing
     cash  provided by  operating  activities.  For the year ended  December 31,
     1999, we paid dividends to our stockholders  and made  distributions to our
     O.P Unit  holders  totaling  $6.5  million.  During  1998,  we reduced debt
     outstanding by utilizing  proceeds from new borrowings,  issuing  6,495,058
     shares of common stock for net proceeds of approximately  $28.1 million and
     utilizing cash provided by operating activities.

     CAPITAL EXPENDITURES

     The properties  require periodic  investments of capital for tenant-related
     capital  expenditures and for general capital  improvements.  For the years
     ended  December 31, 1995 through  December 31, 2000,  the recurring  tenant
     improvement  costs and leasing  commissions  incurred  with  respect to new
     leases and lease renewals of the properties  previously owned or controlled
     by members of the Berg Group averaged approximately $1.75 million annually.
     We will have  approximately  737,507  rentable  square feet under  expiring
     leases from January 1, 2001 through  December 31, 2001.  We expect that the
     average  annual  cost  of  recurring   tenant   improvements   and  leasing
     commissions,  related  to  these  properties,  will be  approximately  $3.0
     million during 2001. We believe we will recover  substantially all of these
     sums from the tenants under the new or renewed leases through  increases in
     rental rates. Until we actually sign the leases,  however, we cannot assure
     you that this will occur.  Capital  expenditures may fluctuate in any given
     period subject to the nature,  extent, and timing of improvements  required
     to be made to the  properties.  Tenant  improvements  and leasing costs may
     also  fluctuate in any given period year depending upon factors such as the
     property,  the term of the lease,  the type of lease and the overall market
     conditions.  We expect to meet our long-term liquidity requirements for the
     funding of property  acquisitions and other material  non-recurring capital
     improvements  through long-term secured and unsecured  indebtedness and the
     issuance of  additional  equity  securities  by the Company,  but cannot be
     assured that we will be able to meet our  requirements on favorable  terms.
     See "Policy with Respect to Certain Activities - Financing Policies."

     FUNDS FROM OPERATIONS

     As defined by the National  Association  of Real Estate  Investment  Trusts
     ("NAREIT"),  FFO represents net income (loss) before  minority  interest of
     O.P unit holders, computed in accordance with generally accepted accounting
     principles,  excluding gains (or losses) from debt  restructuring and sales
     of  property,  plus real  estate  related  depreciation  and  amortization,
     excluding  amortization  of deferred  financing  costs and  depreciation of
     non-real  estate  assets,   and  after   adjustments   for   unconsolidated
     partnerships  and joint ventures.  Management  considers FFO an appropriate
     measure of  performance  of an equity REIT  because,  along with cash flows
     from operating  activities,  financing activities and investing activities,
     it provides  investors  with an  understanding  of our ability to incur and
     service debt and make capital expenditures. FFO should not be considered as
     an  alternative  for net  income as a measure  of  profitability  nor is it
     comparable  to cash flows  provided by operating  activities  determined in
     accordance  with  generally  accepted  accounting  principles,  nor  is FFO
     necessarily indicative of funds available to meet our cash needs, including
     our need to make cash distributions to satisfy REIT requirements.

     Our  definition  of FFO also  assumes  conversion  at the  beginning of the
     period of all convertible  securities,  including  minority  interests that
     might be exchanged for common stock.  Our 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.

                                     - 34 -

<PAGE>


     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 years
     ended December 31, 2000 and 1999 is as follows:

<TABLE>
<CAPTION>

                                                              For the Year Ended December 31,
                                               -----------------------------------------------------------
                                                         2000                              1999
                                               --------------------------       --------------------------
                                                                 (dollars in thousands)
<S>                                                     <C>                              <C>
     Net income                                          $12,579                          $ 6,531
     Add:
         Minority Interest (1)                            58,769                           39,785
         Depreciation                                     15,456                           13,156
     Less:
         Gain/(Loss) on sale of security                     501                            (393)
                                               --------------------------       --------------------------
     FFO                                                 $86,303                          $59,079
                                               ==========================       ==========================
</TABLE>


(1)  The  minority  interest  for  unrelated  parties  was  deducted  from total
     minority interest in calculating FFO.

     OVERVIEW OF DISTRIBUTION POLICY

     We intend to make  regular  quarterly  distributions  to  holders of common
     stock  based on our funds  available  for  distribution  ("FAD"),  which is
     calculated as FFO less straight-lined  rents, leasing  commissions paid and
     capital expenditures made during the respective period. Our ability to make
     such  distributions  will be affected by numerous factors  including,  most
     importantly, the receipt of distributions from the operating partnerships.

     FAD  does  not  represent  cash  generated  from  operating  activities  in
     accordance  with  generally  accepted  accounting  principles  and  is  not
     necessarily  indicative  of cash  available to fund cash needs.  The actual
     return that we will realize and the amount  available for  distributions to
     stockholders  will be  affected  by a  number  of  factors,  including  the
     revenues received from our properties, our operating expenses, the interest
     expense  incurred  on  borrowings  and planned  and  unanticipated  capital
     expenditures.

     We anticipate that cash available for distribution will exceed earnings and
     profits for federal  income tax  purposes,  as the latter figure takes into
     account non-cash expenses,  such as depreciation and amortization,  that we
     will incur. Distributions,  other than capital gain distributions, by us to
     the extent of our current and accumulated  earnings and profits for federal
     income tax  purposes  most likely will be taxable to U.S.  stockholders  as
     ordinary  dividend  income  unless a  stockholder  is a tax-exempt  entity.
     Distributions  in excess of earnings and profits  generally will be treated
     as a non-taxable  reduction of the U.S.  stockholder's  basis in the common
     stock to the extent of such basis,  and  thereafter  as taxable  gain.  The
     percentage of such distributions in excess of earnings and profits, if any,
     may vary from period to period.

     Distributions  will be determined by our board of directors and will depend
     on actual FAD, our financial condition,  capital  requirements,  the annual
     distribution  requirements  under the REIT  provisions of the Code and such
     other factors as the board of directors deems relevant. For a discussion of
     the risk that we will not meet our  distribution  objectives,  see Part I -
     Item 1 "Business - Risk  Factors--Stockholders are not assured of receiving
     cash  distributions  from us." The  calculation  of FAD for the years ended
     December 31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>


                                                           For the Year Ended December 31,
                                            -----------------------------------------------------------
                                                      2000                             1999
                                            --------------------------       --------------------------
                                                                (dollars in thousands)
<S>                                                  <C>                              <C>
     FFO                                              $86,303                          $59,079
     Less:
         Straight-lined rents                           4,905                            4,340
         Leasing commissions                            1,401                              434
         Capital expenditures                           1,400                              708
                                            --------------------------       --------------------------
     FAD                                              $78,597                          $53,597
                                            ==========================       ==========================
</TABLE>
                                     - 35 -
<PAGE>


     For year 2000, the total  distributions  of $0.68 per share of common stock
     are to be  classified  for income tax  purposes  as 100%  ordinary  income.
     Distributions  that are declared and recorded  during the calendar year and
     paid  within  30 days of the end of the year are  included  in that  year's
     distributions.

     POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

     We have adopted policies with respect to investment,  financing,  conflicts
     of interest and other  activities.  These policies have been  formulated by
     our board of  directors,  are set forth in our charter,  bylaws,  operating
     partnership agreements or agreements with the Berg Group, and generally may
     be amended or revised from time to time,  subject to  applicable  agreement
     terms,  at the  discretion of the board of directors  without a vote of the
     stockholders. Among other things, these policies provide that:

     -    so long as the Berg Group members and their affiliates,  other than us
          and the operating partnerships, beneficially own, in the aggregate, at
          least 15% of the outstanding shares of common stock on a fully diluted
          basis,  which is calculated based on all outstanding  shares of common
          stock and all shares of common  stock that could be acquired  upon the
          exercise of all  outstanding  options to acquire our voting stock,  as
          well as all shares of common stock  issuable upon exchange of all O.P.
          Units, the approval of a majority of our directors,  including Carl E.
          Berg or his  designee as a director,  and of the holders of a majority
          of the O.P.  Units is required  for us to take title to assets,  other
          than   temporarily  in  connection   with  an  acquisition   prior  to
          contributing such assets to the operating partnerships,  or to conduct
          business other than through the operating  partnerships,  or for us or
          the operating  partnerships  to engage in any business  other than the
          ownership,  construction,  development  and  operation  of real estate
          properties,  or for certain fundamental  corporate actions,  including
          amendments  to  our  charter,  bylaws  or  any  operating  partnership
          agreement   and  any   merger,   consolidation   or  sale  of  all  or
          substantially  all  of  our  assets  or the  assets  of the  operating
          partnerships;

     -    changes in certain policies with respect to conflicts of interest must
          be consistent with legal requirements;

     -    certain  policies  with respect to  competition  by the Berg Group are
          imposed  pursuant to  provisions  of the  acquisition  agreement  that
          cannot be amended or waived  without the  approval of the  independent
          directors committee of our board of directors;

     -    we cannot take any action intended to terminate our qualification as a
          REIT  without  the  approval  of more than 75% of the entire  board of
          directors; and

     -    we cannot undertake  certain other specified  transactions,  including
          the issuance of debt securities, and borrowings in excess of specified
          limits,  or the  amendment  of our  charter  and  bylaws,  without the
          approval of more than 75% of the entire board of directors.


     INVESTMENT POLICIES

     We expect to pursue our  business  and  investment  objectives  principally
     through  the  direct  ownership  by  the  operating   partnerships  of  our
     properties  and  future  acquired  properties.  Development  or  investment
     activities  are not limited to any specified  percentage of our assets.  We
     may also  participate  with other entities in property  ownership,  through
     joint ventures or other types of  co-ownership.  Equity  investments may be
     subject to existing  mortgage  financing and other  indebtedness  that have
     priority over our equity interests.

     While we will  emphasize  equity  real estate  investments,  we may, in our
     discretion and subject to the percentage  ownership  limitations  and gross
     income tests necessary for REIT qualification, invest in mortgage and other
     real estate interests, including securities of other real estate investment
     trusts. We have not previously invested in mortgages or securities of other
     real estate investment  trusts, and we do not have any present intention to
     make such investments.

     FINANCING POLICIES

     To the extent that our board of  directors  determines  to seek  additional
     capital,  we may raise such capital through  additional  equity  offerings,
     debt financing or retention of cash flow, or through a combination of these
     sources,  after  consideration  of  provisions  of the Code  requiring  the
     distribution  by a REIT of a certain  percentage of its taxable  income and
     taking into account  taxes that would be imposed on  undistributed  taxable
     income. It is our present intention that any additional  borrowings will be
     made through the operating  partnerships,  although we may incur borrowings
     that would be reloaned to the  operating  partnerships.  Borrowings  may be
     unsecured  or may be secured  by any or all of our  assets,  the  operating
     partnerships or any existing or new property,  and may have full or limited
     recourse to all or any portion of our assets, the operating partnerships or
     any existing or new property.

                                     - 36 -
<PAGE>

     We have not established any limit on the number or amount of mortgages that
     may be placed on any single property or on our portfolio as a whole. We may
     also determine to finance  acquisitions  through the exchange of properties
     or the issuance of additional  O.P.  Units in the  operating  partnerships,
     shares of common stock or other securities.

     In the event that the board of  directors  determines  to raise  additional
     equity capital,  it has the authority,  without  stockholder  approval,  to
     issue additional  shares of common stock,  preferred stock or other capital
     stock,  including  securities senior to the common stock, in any manner and
     on such terms and for such consideration it deems appropriate, including in
     exchange  for  property.  In the event  that we issue any  shares of common
     stock or securities  convertible  into or exchangeable or exercisable  for,
     shares of common stock, subject to limited exceptions, such as the issuance
     of common  stock  pursuant  to any stock  incentive  plan  adopted by us or
     pursuant to limited  partners'  exercise of the exchange  rights or the put
     rights,  the limited  partners will have the right to purchase common stock
     or such  securities  in  order  to  maintain  their  respective  percentage
     interests  in us on a  fully  diluted  basis.  If the  board  of  directors
     determines that we will raise additional equity capital to fund investments
     by the  operating  partnerships,  we  will  contribute  such  funds  to the
     operating  partnerships  as a  contribution  to  capital  and  purchase  of
     additional general  partnership  interest;  however,  holders of O.P. Units
     will have the right to participate in such funding on a pro rata basis.  In
     the event  that  holders of O.P.  Units  sell  their O.P.  Units to us upon
     exercise of their put rights, we are authorized to raise the funds for such
     purchase by issuing  additional shares of common stock.  Alternatively,  we
     may issue  additional  shares of common  stock in exchange for the tendered
     O.P. Units.

     Our  board of  directors  also has the  authority  to cause  the  operating
     partnerships to issue additional O.P. Units in any manner and on such terms
     and for such consideration, as it deems appropriate,  including in exchange
     for property.  In the event that the operating  partnerships issue new O.P.
     Units for cash, but not property,  the limited  partners holding O.P. Units
     in an operating  partnership  will have the right to purchase O.P. Units in
     order, and to the extent necessary, to maintain their respective percentage
     interests  in that  operating  partnership.  The  new  O.P.  Units  will be
     exchangeable  for common stock  pursuant to the  exchange  rights or may be
     tendered to us pursuant to the put rights.

     DISPOSITION POLICIES

     We  have  no  current  intention  of  disposing  of any of our  properties,
     although  we  reserve  the  right to do so.  The tax  basis of the  limited
     partners in the properties in the operating  partnerships is  substantially
     less than current fair market value. Accordingly,  prior to the disposition
     of  their  O.P.  Units,  upon a  disposition  of any of the  properties,  a
     disproportionately  large share of the gain for federal income tax purposes
     would be allocated to the limited partners.  For a more detailed discussion
     of these tax effects,  see "Federal Income Tax  Considerations- Tax Aspects
     of the Operating Partnerships." Consequently, it may be in the interests of
     the limited  partners  that we continue to hold the  properties in order to
     defer  such  taxable  gain.  In  light of this tax  effect,  the  operating
     partnership  agreements provide that, until January 2009, or until the Berg
     Group  members  and  their  affiliates,  other  than us and  the  operating
     partnerships,  beneficially  own,  in the  aggregate,  less than 15% of the
     outstanding  shares  of common  stock on a fully  diluted  basis,  which is
     calculated  based on all outstanding  shares of common stock and all shares
     of common stock that could be acquired upon the exercise of all outstanding
     options to acquire our voting stock,  as well as all shares of common stock
     issuable upon exchange of all O.P. Units, if earlier, Mr. Berg and Clyde J.
     Berg may prohibit the operating  partnerships  from disposing of properties
     which  they  designate  in a taxable  transaction.  Mr.  Kontrabecki  has a
     similar  right with  respect to seven of the  properties,  which right will
     lapse before the end of the  ten-year  period if his  beneficial  ownership
     interest falls below 750,000 O.P. Units.  The limited  partners may seek to
     cause us to retain the  properties  even when such action may not be in the
     interests  of some,  or a  majority,  of our  stockholders.  The  operating
     partnerships will be able to effect "tax-free,"  like-kind  exchanges under
     Section  1031  of  the  Code,  or  in  connection  with  other  non-taxable
     transactions,  such as a  contribution  of property  to a new  partnership,
     without  obtaining  the prior  written  consent of these  individuals.  The
     approval  of a  majority  of  our  directors,  including  Mr.  Berg  or his
     designee,  will be required to sell all or substantially all of our assets.
     The consent of the holders of a majority of the O.P. Units will be required
     to effect a sale or sales of all,  or  substantially  all, of the assets of
     any of the operating partnerships.

     IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

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

                                     - 37 -

<PAGE>


ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We use fixed and variable rate debt to finance our operations. Our exposure
     to market risk for  changes in  interest  rates  relates  primarily  to our
     current and future  debt  obligations.  We are  vulnerable  to  significant
     fluctuations  of interest  rates on our floating rate debt,  and pricing on
     our  future  debt.  The  following  table  provides  information  about the
     principal  cash  flows,  weighted  average  interest  rates,  and  expected
     maturity  dates for debt  outstanding  as of December 31, 2000. The current
     terms of this debt are described in Item 7.,  "Management's  Discussion and
     Analysis of Financial  Condition  and Results of Operations - Liquidity and
     Capital  Resources."  Average interest rates are based on implied LIBOR for
     the respective time period.  Fair value  approximates  book value for fixed
     rate  debt.  Of  the  projected   fair  value  of  secured  notes  payable,
     approximately $126.8 million represents the Prudential secured loan.

     For  variable  rate  debt,  the  table  presents  the  assumption  that the
     outstanding  principal  balance  at  December  31,  2000  will be paid upon
     maturity in March 2002.

     For fixed rate debt, the table presents the assumption that the outstanding
     principal  balance at December 31, 2000 will be paid according to scheduled
     principal  payments  and that we will  not  prepay  any of the  outstanding
     principal balance.
<TABLE>
<CAPTION>



                                                2001       2002       2003      2004      2005   Thereafter    Total   Fair Value
                                                ----       ----       ----      ----      ----   ----------    -----   ----------
<S>                                          <C>       <C>         <C>       <C>       <C>       <C>       <C>          <C>
VARIABLE RATE DEBT:                                                         (dollars in thousands)
   Secured notes payable (related parties)              $50,886                                             $ 50,886     $ 50,886
   Average interest rate                                  7.72%

FIXED RATE DEBT:
   Secured notes payable                      $4,911     $2,334     $2,502    $2,683    $2,877    $128,391  $143,698     $143,698
   Average interest rate                       6.72%      6.72%      6.72%     6.72%     6.72%       6.72%

</TABLE>

     The variable rate debt represented  26.2% and 18.9% and the fixed rate debt
     represented  73.8% and 81.1% of all debt  outstanding  for the years  ended
     December 31, 2000 and 1999, respectively. All of the debt is denominated in
     United States dollars. The weighted average interest rate for variable rate
     debt was  approximately  7.72% and 7.06% for the years ended  December  31,
     2000 and 1999,  respectively.  The weighted average interest rate for fixed
     rate debt was  approximately  6.72% and 6.64% for the years ended  December
     31, 2000 and 1999, respectively.

     The primary market risk we face is the risk of interest rate  fluctuations.
     During 2000, the primary market risk we faced was the market risk resulting
     from increasing  LIBOR based interest rates.  The Berg Group line of credit
     is tied  to a LIBOR  based  interest  rate  that  was  approximately  $50.1
     million,  or 26.2%,  of the total $194.6 million of debt as of December 31,
     2000. 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. At December 31, 2000, we had no interest caps or swaps.

                                     - 38 -
<PAGE>


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>

                          MISSION WEST PROPERTIES, INC.

                          INDEX TO FINANCIAL STATEMENTS

                                                                                                                   PAGE
                                                                                                                 ---------
<S>                                                                                                                <C>
Report of Independent Accountants                                                                                   40
Consolidated Balance Sheets of Mission West Properties, Inc. at December 31, 2000 and 1999                          41
Consolidated Statements of Operations of Mission West Properties, Inc. for the years ended                          42
    December 31, 2000, 1999 and 1998
Consolidated Statements of Changes in Stockholders' Equity of Mission West Properties, Inc.                         43
    for the years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows of Mission West Properties, Inc. for the years ended                          44
    December 31, 2000, 1999 and 1998
Notes to the Consolidated Financial Statements                                                                      45
Supplemental Financial Information                                                                                  58
Report of Independent Accountants                                                                                   59
Schedule III: Real Estate and Accumulated Depreciation of Mission West Properties, Inc. as of                       61
    December 31, 2000
Schedule III: Real Estate and Accumulated Depreciation of Mission West Properties, Inc. as of                       63
    December 31, 1999

</TABLE>

                                     - 39 -
<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS



     To the Board of Directors and Stockholders
     of Mission West Properties, Inc.

     In our  opinion,  the  accompanying  consolidated  balance  sheets  and the
     related consolidated statements of operations,  of stockholders' equity and
     of cash flows  present  fairly,  in all material  respects,  the  financial
     position  of  Mission  West  Properties,  Inc.  and its  subsidiaries  (the
     "Company")  at  December  31,  2000  and  1999,  and the  results  of their
     operations and their cash flows for the years ended December 31, 2000, 1999
     and 1998, in conformity with accounting  principles  generally  accepted in
     the  United  States  of  America.   These  financial   statements  are  the
     responsibility  of  the  Company's  management;  our  responsibility  is to
     express an opinion on these financial  statements  based on our audits.  We
     conducted  our  audits of these  statements  in  accordance  with  auditing
     standards  generally accepted in the United States of America which require
     that we plan and perform  the audit to obtain  reasonable  assurance  about
     whether the  financial  statements  are free of material  misstatement.  An
     audit includes examining,  on a test basis, evidence supporting the amounts
     and  disclosures  in the financial  statements,  assessing  the  accounting
     principles  used  and  significant   estimates  made  by  management,   and
     evaluating the overall financial  statement  presentation.  We believe that
     our audits provide a reasonable basis for our opinion.


     PricewaterhouseCoopers LLP

     San Francisco, California
     January 21, 2001


                                     - 40 -

<PAGE>


                          MISSION WEST PROPERTIES, INC.
                           CONSOLIDATED BALANCE SHEETS
             (Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>

                                     ASSETS
                                                                                        December 31,
                                                                         -------------------------------------------
                                                                                2000                   1999
                                                                         --------------------  ---------------------
<S>                                                                               <C>                    <C>
Real estate assets:
  Land                                                                             $ 187,219              $ 149,416
  Buildings and improvements                                                         654,259                566,766
                                                                         --------------------  ---------------------
                                                                                     841,478                716,182
  Less accumulated depreciation                                                      (34,022)               (18,566)
                                                                         --------------------  ---------------------
Net real estate assets                                                               807,456                697,616

Cash and cash equivalents                                                              4,691                  6,553
Deferred rent                                                                         10,869                  5,964
Other assets (net of accumulated amortization of
    $706 and $275 at December 31, 2000 and 1999, respectively)                         3,894                  2,571
                                                                         --------------------  ---------------------
  Total assets                                                                     $ 826,910              $ 712,704
                                                                         ====================  =====================


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Line of Credit (related parties)                                                    $ 50,886              $       -
Mortgage notes payable                                                               132,055                133,952
Mortgage notes payable (related parties)                                              11,643                 31,193
Interest payable                                                                         347                  1,005
Security deposits                                                                      4,801                  2,335
Prepaid rental income                                                                 11,298                  7,802
Dividends/distributions payable                                                       19,115                 14,019
Refundable option payment                                                             20,835                 21,564
Accounts payable and accrued expenses                                                  4,525                  3,342
                                                                         --------------------  ---------------------
  Total liabilities                                                                  255,505                215,212
                                                                         --------------------  ---------------------

Commitments and contingencies (Notes 4, 6, 13 and 15)

Minority interest                                                                    469,332                396,810

Stockholders' equity:
Preferred stock, no par value, 200,000 shares authorized,
    none issued and outstanding                                                            -                      -
Common stock, $.001 par value at December 31, 2000 and 1999,
    200,000,000 shares authorized, 17,025,365 shares and 16,972,374
    shares issued and outstanding at December 31, 2000 and 1999,
    respectively                                                                          17                     17

Paid-in capital                                                                      123,136                122,746
Accumulated deficit                                                                  (21,080)               (22,081)
                                                                         --------------------  ---------------------
  Total stockholders' equity                                                         102,073                100,682
                                                                         --------------------  ---------------------
  Total liabilities and stockholders' equity                                       $ 826,910              $ 712,704
                                                                         ====================  =====================
</TABLE>



                 See notes to consolidated financial statements

                                     - 41 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>


                                                              Year Ended December 31,
                                              --------------------------------------------------------
                                                    2000               1999               1998
                                              -----------------  ------------------ ------------------
<S>                                                 <C>                 <C>               <C>
Revenue:
Rental revenues from real estate                     $  99,567           $  73,726         $   27,285
Tenant reimbursements                                   14,635              11,047              4,193
Other income, including interest                         1,742               1,220                278
                                              -----------------  ------------------ ------------------
                                                       115,944              85,993             31,756
Expenses:
Property operating, maintenance and real
    estate taxes                                        15,025              11,467              4,821
Interest                                                 8,290              11,623              4,685
Interest (related parties)                               4,475               2,246              3,511
General and administrative expenses                      1,065               1,185              1,501
Depreciation                                            15,456              13,156              5,410
                                              -----------------  ------------------ ------------------
                                                        44,311              39,677             19,928
                                              -----------------  ------------------ ------------------
Income before minority interest                         71,633              46,316             11,828
Minority interest                                       59,054              39,785             12,049
                                              -----------------  ------------------ ------------------
Net income (loss)                                    $  12,579            $  6,531         $     (221)
                                              =================  ================== ==================
Per share amounts:
Basic net income (loss) per share                    $    0.73            $   0.52         $    (0.13)
                                              =================  ================== ==================
Diluted net income (loss) per share                  $    0.72            $   0.52         $    (0.13)
                                              =================  ================== ==================

</TABLE>


                 See notes to consolidated financial statements

                                     - 42 -

<PAGE>


                          MISSION WEST PROPERTIES, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                    (Dollars in thousands, except share data)

<TABLE>
<CAPTION>


                                                                                     Amounts
                                                                                    Receivable
                                                                                        on                              Total
                                             Shares of Common    Common    Paid-in   Private     Accumulated        Stockholders'
                                             Stock Outstanding    Stock    Capital   Placement     Deficit             Equity
                                            -----------------------------------------------------------------    -----------------

<S>                                            <C>              <C>      <C>         <C>         <C>                  <C>
Balance, December 31, 1997                       1,501,104                $ 26,707    $ (334)     $ (21,162)           $   5,211
Issuance of common stock upon option
  exercise                                         225,000                   1,013      (900)                                113
Issuance of common stock upon private
  placement                                      6,495,058                  27,827                                        27,827
Amounts received from 1997 private
  placements                                                                             334                                 334
Odd lot tender offer                                (2,568)                    (11)                                          (11)
Net (loss)                                                                                             (221)                (221)
Reincorporation (Note 1)                                         $  8           (8)                                            -
                                            -----------------------------------------------------------------    -----------------
Balance, December 31, 1998                       8,218,594          8       55,528      (900)       (21,383)              33,253
Issuance of common stock upon option
  exercise                                         191,920                     863                                           863
Issuance of common stock from public
 offering                                        8,680,000          9       66,891                                        66,900
Odd lot tender offer                                  (779)                     (8)                                           (8)
Repurchase of common stock                        (117,361)                   (528)      528                                   -
Amounts received from 1998 private
  placements                                                                             372                                 372
Dividends declared                                                                                   (7,229)              (7,229)
Net income                                                                                            6,531                6,531
                                            -----------------------------------------------------------------    -----------------
Balance, December 31, 1999                      16,972,374         17      122,746         -        (22,081)             100,682
Issuance of common stock upon option
  exercise                                          52,991                     390                                           390
Dividends declared                                                                                  (11,578)             (11,578)
Net income                                                                                           12,579               12,579
                                            -----------------------------------------------------------------    -----------------
Balance, December 31, 2000                      17,025,365       $ 17     $123,136         -      $ (21,080)           $ 102,073
                                            =================================================================    =================

</TABLE>



                 See notes to consolidated financial statements

                                     - 43 -

<PAGE>


                          MISSION WEST PROPERTIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)

<TABLE>
<CAPTION>


                                                                   Year Ended December 31,
                                                           2000             1999              1998
                                                      ---------------- ----------------  ----------------
<S>                                                      <C>              <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                         $  12,579        $   6,531          $   (221)
Adjustments to reconcile net income (loss) to net
          cash provided by operating activities:
     Minority interest                                       59,054           39,785            12,049
     Depreciation                                            15,456           13,156             5,410
     Other                                                     (364)               -                 -
Change in operating assets and liabilities:
     Deferred rent                                           (4,905)          (4,340)           (1,624)
     Other assets                                              (942)            (604)           (1,594)
     Interest payable                                          (658)             373               632
     Security deposits                                        1,854              127               218
     Prepaid rental income                                    3,064            4,555               812
     Accounts payable and accrued expenses                     (558)             714               582
                                                      ---------------- ----------------  ----------------
     Net cash provided by operating activities               84,580           60,298            16,264
                                                      ---------------- ----------------  ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to real estate                                  (2,007)         (33,648)             (118)
Refundable option payment                                      (729)          21,564                 -
                                                      ---------------- ----------------  ----------------
     Net cash used in investing activities                   (2,736)         (12,084)             (118)
                                                      ---------------- ----------------  ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on line of credit                                  -          (27,201)          (11,843)
Proceeds from mortgage notes payable                              -                -           130,000
Principal payments on mortgage notes payable                 (1,897)         (23,236)          (19,586)
Principal payments on mortgage notes payable
  (related parties)                                            (149)         (53,068)         (148,279)
Net payments under line of credit (related parties)         (69,015)               -                 -
Payments on receivable from private placements                    -              372                 -
Net proceeds from issuance of common stock                        -           66,900            28,161
Net proceeds from exercise of stock options                     290              863               113
Repurchase of common stock                                        -               (8)              (11)
Minority interest distributions                              (2,048)          (1,844)              (24)
Dividends                                                   (10,887)          (4,685)                -
                                                      ---------------- ----------------  ----------------
     Net cash used in financing activities                  (83,706)         (41,907)          (21,469)
                                                      ---------------- ----------------  ----------------
     Net (decrease) increase in cash and cash equivalents    (1,862)           6,307            (5,323)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                  6,553              246             5,569
                                                      ---------------- ----------------  ----------------
CASH AND CASH EQUIVALENTS, END OF YEAR                    $   4,691        $   6,553          $    246
                                                      ================ ================  ================

</TABLE>

         Please refer to Note 14 for supplemental cash flow information.


                 See notes to consolidated financial statements

                                     - 44 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Dollars in thousands, except share and per share data)


1.   ORGANIZATIONS AND FORMATION OF THE COMPANY

     Mission  West  Properties,  Inc.  ("the  Company")  is a fully  integrated,
     self-managed real estate company that acquires and manages  office/research
     and development/manufacturing  ("R&D") properties in the portion of the San
     Francisco Bay Area commonly  referred to as Silicon  Valley.  In July 1998,
     the  Company  acquired  control  of  four  existing  limited   partnerships
     (referred to collectively as the "operating partnerships"), by becoming the
     sole  general  partner  in each one  effective  July 1, 1998 for  financial
     accounting  and  reporting  purposes  ("the   Acquisition").   The  Company
     purchased  an  approximate   12.11%  interest  in  each  of  the  operating
     partnerships.  The Company effected the purchase of its general partnership
     interests by issuing to the operating  partnerships  separate  demand notes
     bearing  interest  at 7.25%  per  annum  (the  "Demand  Notes").  The total
     principal  amount of the Demand  Notes  issued  was  $35,200.  All  limited
     partnership  interests in the operating  partnerships  were  converted into
     59,479,633  units of limited  partnership  interest ("O.P.  Units"),  which
     represented an ownership interest of approximately  87.89% of the operating
     partnerships. The operating partnerships are the vehicles through which the
     Company  will own its  assets,  will  make  its  future  acquisitions,  and
     generally conduct 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 December 31, 2000, the Company owns a general partnership interest of
     18.15%, 21.36%, 15.38% and 12.21% 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,  for a  16.92%  general  partnership
     interest in the  operating  partnerships,  taken as a whole,  on a weighted
     average basis.

     The Company,  through the operating partnerships,  owns interests in 89 R&D
     properties, all of which are located in the Silicon Valley.


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     PRINCIPLES OF CONSOLIDATION AND FINANCIAL STATEMENT PRESENTATION:

     The accompanying  consolidated financial statements include the accounts of
     the Company and its controlled  subsidiaries,  the operating  partnerships,
     which  include  a  50%  joint  venture  (the  "Company").  All  significant
     intercompany transactions have been eliminated in consolidation.

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  ("GAAP") in the United  States of America
     requires  management  to make  estimates  and  assumptions  that affect the
     reported  amounts of assets and  liabilities  and  disclosure of contingent
     assets and  liabilities  at the dates of the financial  statements  and the
     reported  amounts of revenue and  expenses  during the  reporting  periods.
     Actual results could differ from those estimates.

     REAL ESTATE ASSETS:

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

     The Company  reviews real estate assets for impairment  whenever  events or
     changes in circumstances  indicate that the carrying amount of an asset may
     not be  recoverable.  If the  carrying  amount  of the  asset  exceeds  its
     estimated  undiscounted net cash flow,  before  interest,  the Company will
     recognize an impairment  loss equal to the difference  between its carrying
     amount  and its 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 and economic  factors.
     Therefore,  it is reasonably  possible that a change in estimate  resulting
     from judgments as to future events could occur which would affect

                                     - 45 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)


     the recorded amounts of the property. As of December 31, 2000 and 1999, the
     properties' carrying values did not exceed the estimated fair values.

     DEPRECIATION:

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

     CASH AND CASH EQUIVALENTS:

     The Company  considers  highly liquid  short-term  investments with initial
     maturities of three months or less to be cash equivalents.

     Cash  and  cash  equivalents  are  primarily  held  in a  single  financial
     institution,  and at times,  such  balances may be in excess of the Federal
     Deposit Insurance Corporation insurance limit.

     OTHER ASSETS:

     Included  in  other  assets  are  costs   associated  with  obtaining  debt
     financing.  Such costs are being  amortized over the term of the associated
     debt, by a method that approximates the effective interest method.

     REVENUE RECOGNITION:

     Rental  income 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. The difference  between  recognized
     rental  income and rental cash receipts is recorded as deferred rent on the
     balance  sheet.  Certain  lease  agreements  contain terms that provide for
     additional rents based on reimbursement of certain costs.  These additional
     rents are reflected on the accrual basis.

     INCOME TAXES:

     The Company has been taxed as a real estate investment trust ("REIT") under
     the Internal Revenue Code of 1986, as amended, (the "Code") commencing with
     the  taxable  year ended  December  31,  1999.  In order for the Company to
     qualify as a REIT,  it must  distribute  annually  at least 95% of its REIT
     taxable income, as defined in the Code, to its stockholders and comply with
     certain other requirements. Effective January 1, 2001, this requirement was
     changed to 90%, the minimum  percentage that the Company must distribute to
     its  stockholders.  Accordingly,  for the years ended December 31, 2000 and
     1999,  no  provision  for  federal  income  taxes has been  included in the
     accompanying consolidated financial statements.

     For the year ended December 31, 2000, the Company's total dividends paid or
     payable to the  stockholders  represent 100% ordinary income for income tax
     purposes.

     For the year ended  December 31, 1998,  income taxes were  accounted for in
     accordance with SFAS No. 109, ACCOUNTING FOR INCOME TAXES.  Deferred income
     taxes were provided for all temporary  differences  and operating  loss and
     tax credit carry forwards.  Deferred tax assets were reduced by a valuation
     allowance  when, in the opinion of management,  it was more likely than not
     that some  portion or all of the deferred tax assets would not be realized.
     Deferred  tax assets  and  liabilities  were  adjusted  for the  effects of
     changes in tax laws and rates on the date of enactment.

     The Company had no tax liability for the year ended December 31, 1998.

     NET INCOME PER SHARE:

     The  computation  of net income per share is based on the weighted  average
     number of common shares outstanding during the period. Diluted earnings per
     share  amounts  are based  upon the  weighted  average of common and common
     equivalent shares outstanding during the year.

                                     - 46 -
<PAGE>


                         MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

     ACCOUNTING FOR STOCK-BASED COMPENSATION:

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

     FAIR VALUE OF FINANCIAL INSTRUMENTS:

     The Company's financial instruments include cash, receivables, payables and
     debt.  Considerable  judgment is required  in  interpreting  market data to
     develop  estimates  of fair value.  Accordingly,  the  estimates  presented
     herein are not necessarily indicative of the amounts that the Company 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.

     Based on borrowing rates currently  available to the Company,  the carrying
     amount of  mortgage  debt and the line of credit,  approximate  fair value.
     Cash, receivables and payables are also carried at amounts that approximate
     fair value due to their short-term maturities.

     CONCENTRATION OF CREDIT RISK

     The Company's  properties are not geographically  diverse,  and our tenants
     operate  primarily in the information  technology  industry.  Additionally,
     because  the  properties  are  leased to 98  tenants,  default by any major
     tenant could  significantly  impact the results of the consolidated  total.
     One tenant,  Microsoft  Corporation,  accounted for approximately 19.9% and
     18.0% of the  Company's  rental  revenues for the years ended  December 31,
     2000 and 1999,  respectively,  with the next largest tenant  accounting for
     6.7% and 9.1%, respectively,  of total rental revenues.  Rental income from
     Microsoft  Corporation was $18,803 and $13,249 for the years ended December
     31, 2000 and 1999, respectively.  Future minimum rents from this tenant are
     $111,694.  For the year ended  December 31,  1998,  Apple  Computers,  Inc.
     accounted for  approximately  12.2% of the Company's rental revenues,  with
     the next  largest  tenant  accounting  for 6.6% of total  rental  revenues.
     However,  management believes the risk of default is reduced because of the
     nature of these properties for ongoing tenant operations.


3.   ACQUISITION

     The  Acquisition  was  accounted  for as a purchase with the results of the
     operating  partnerships  included from July 1, 1998.  The fair value of the
     assets acquired was $507,807 and liabilities assumed totaled $239,903.

     The pro forma results listed below are unaudited and assume the Acquisition
     occurred at the beginning of the period.

<TABLE>
<CAPTION>

                                                                        Pro Forma Year
                                                                     Ended December 31,
                                                                            1998
                                                                     --------------------

<S>                                                                       <C>
            Total Revenues                                                 $ 62,253
                                                                     --------------------

            Expenses:
              Operating, maintenance and real estate taxes                    9,251
              Interest expenses (including related parties)                  17,631
              General and administrative expenses                             1,501
              Depreciation and amortization                                  10,781
                                                                     --------------------
                                                                             39,164
                                                                     --------------------
            Income before minority interest, gain on sale of real
                estate and income taxes                                      23,089
            Minority interest                                                22,541
                                                                     --------------------
            Income before gain on real estate and income taxes                  548
            Gain on sale of real estate                                           -
                                                                     --------------------
            Income before income taxes                                          548
            Provision for income taxes                                          142
                                                                     --------------------
            Net income                                                     $    408
                                                                     ====================
            Basic and diluted net income per share                         $    .24
                                                                     ====================
</TABLE>
                                     - 47 -

<PAGE>

                         MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

4.   STOCK TRANSACTIONS

     On December 29, 1998, the Company completed the sale of 6,495,058 shares of
     common  stock,  at a price of $4.50  per  share to a number  of  accredited
     investors in two separate private placements. The aggregate proceeds to the
     Company,  net of fees and offering costs,  were $27,827.  The proceeds were
     used to pay a portion of the outstanding amounts under the Demand Notes due
     the operating  partnerships.  As of December 31, 2000 and 1999,  $1,186 and
     $1,103,  respectively,  remained  outstanding  under the Demand Notes.  The
     Demand  Notes,  along with the  interest  expense  (interest  income to the
     operating  partnerships),  are  eliminated  in  consolidation  and  are not
     included in the corresponding line items within the consolidated  financial
     statements.

     The limited partners of the operating partnerships have the right to tender
     their  O.P.  Units to the  Company  for  shares of common  stock or, at the
     Company's election, for cash. Each of the limited partners of the operating
     partnerships  (other  than Carl E. Berg and Clyde J.  Berg) has the  annual
     right to  exercise  put  rights  and cause the  operating  partnerships  to
     purchase a portion of the limited  partner's O.P. Units at a purchase price
     based on the average  market value of the common  stock for the  10-trading
     day period immediately  preceding the date of tender,  generally limited to
     one-third  of the  aggregate  number of O.P.  Units  owned by each  limited
     partner.  Upon the  exercise  of any such right by a limited  partner,  the
     Company  will have the option to  purchase  the  tendered  O.P.  Units with
     available  cash,  borrowed  funds or the  proceeds  of an offering of newly
     issued shares of common stock.  These put rights are available once a year.
     If the  total  purchase  price of the  O.P.  Units  tendered  by all of the
     eligible  limited  partners in one year exceeds $1 million,  the Company or
     the operating  partnerships will be entitled to reduce  proportionately the
     number of O.P. Units to be acquired from each tendering  limited partner so
     that the total  purchase  price does not exceed $1  million.  There were no
     O.P. Units tendered in 2000 or 1999.

     On March 30, 1998,  the Company  issued  200,000  shares of common stock at
     $4.50 per share to Michael Anderson, Chief Operating Officer and a director
     of the  Company,  in  exchange  for a $900 note  receivable  payable to the
     Company.  The note was a full recourse  promissory note bearing interest at
     5.59% and was collateralized by a pledge of the shares. Effective April 30,
     1999,  Mr.  Anderson  resigned  from  the  Company.   Upon  Mr.  Anderson's
     resignation,  the Company,  in accordance  with the terms of its agreements
     with Mr.  Anderson,  repurchased and  subsequently  canceled 117,361 of the
     200,000 shares of common stock, representing $528 of the original $900 note
     receivable.  The remaining  portion of the note receivable in the amount of
     $372 was paid in full.

     During the second and fourth  quarters of 1998, the Company  received total
     payments of $334 relating to amounts receivable from the private placements
     of shares of common stock in November 1997.

     In July 1999, the Company  completed a public offering at 8,680,000  shares
     of its common stock at $8.25 per share.  The net proceeds of  approximately
     $66,900,  after deducting  underwriting discounts and other offering costs,
     were used to reduce  the  outstanding  balance  on the line of credit  with
     Wells Fargo Bank, N.A. ("Wells Fargo line") by approximately $41,000 and to
     reimburse  Microsoft  Corporation for  approximately  $25,000 for shell and
     tenant improvements on the Microsoft project. The remaining net proceeds of
     approximately $900 were retained for general corporate purposes.

     During the year ended December 31, 2000, options were exercised for a total
     of 52,991 shares. Options to purchase 39,237 shares were exercised at $4.50
     per share and options to purchase 13,754 shares were exercised at $8.25 per
     share. Total proceeds to the Company were $290.


5.   MINORITY INTEREST

     Minority  interest   represents  the  separate  private  ownership  of  the
     operating   partnerships,   by  the  Berg  Group  and  other  non-affiliate
     interests.  In total,  these interests  account for 83.08% and 81.72%, on a
     weighted  average  basis,  of the  ownership  interests  in the real estate
     operations  of the Company as of December 31, 2000 and 1999,  respectively.
     Minority  interest in earnings has been calculated by taking the net income
     of the operating  partnerships (on a stand-alone  basis)  multiplied by the
     respective minority interest ownership percentage.

     There are three  properties  (owned through three separate joint  ventures)
     for  which  100%  of  the  ownership  is  not  held  within  the  operating
     partnerships.  The  operating  partnerships  own an 83.33%  interest in the
     first joint venture, a 75% interest in the second joint venture,  and a 50%
     interest in the third joint venture. For the years ended December 31, 2000,
     1999,  and the period of July 1, 1998 through  December  31,  1998,  income
     associated with the interests held by the  non-affiliated  third parties of
     these properties is $481, $113, and $42, respectively.

                                     - 48 -
<PAGE>

                         MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

6.   REAL ESTATE

     PENDING PROJECTS ACQUISITION AGREEMENT
     The Company had entered  into the pending  projects  acquisition  agreement
     under which the Company would acquire,  through the operating partnerships,
     approximately  one  million  additional   rentable  square  feet  upon  the
     completion and leasing of a number of pending development projects owned by
     certain members of the Berg Group. As of December 31, 2000, the Company had
     completed all twelve  acquisitions  under the pending projects  acquisition
     agreement   representing  1,015,252  rentable  square  feet  (see  Property
     Acquisitions  below).  The  pending  projects  acquisition   agreement  was
     terminated  in  December  2000  when the  last  property  contemplated  for
     development was completed, leased and purchased by the Company.

     The pending  projects  acquisition  agreement  provided  for the Company to
     purchase the proposed properties once each building was fully completed and
     leased.  The  Company  entered  into  the  purchase  agreement  and  became
     obligated to purchase  such  properties  only when the above  criteria were
     met.  If  such  development  properties  were  not  approved,  constructed,
     completed  and/or  leased,  the Company had no obligation to purchase them.
     During the development,  construction  and lease-up of the properties,  the
     Berg  Group  retained  all  risks and  rewards  of  ownership.  The risk of
     construction  cost overruns,  financial  carrying costs and other potential
     delay  costs  of  development,  construction  and  leasing  were  the  sole
     responsibility  of the Berg Group.  The Company  provided no capital in the
     form of equity or debt to the Berg Group in connection with the development
     of the  properties  and had no  input  as to the  design,  construction  or
     leasing of the projects. Each individual property acquisition agreement was
     not  entered  into and the  acquisitions  were not  consummated  until  the
     property was fully completed and leased. Once those conditions were met the
     Company  purchased  the  building.  Upon the  consummation  of the purchase
     transaction,  the property was recorded on the  Company's  balance sheet at
     the  fair  market  value  of the  consideration  exchanged  at the date the
     transaction was consummated.

     The sellers of the pending development projects may have elected to receive
     cash or O.P. Units at a value of $4.50 per unit,  which was set in May 1998
     based on the $4.50 per share price of the Company's  common stock agreed to
     in private placement transactions at that time. The acquisition value to be
     received by the sellers was fixed based upon the  capitalized  rental value
     of the  property  when  fully  completed  and  leased  or  approved  by the
     independent  directors committee if the sellers elected to receive cash. If
     the sellers elected to receive O.P.  Units,  which were issued at $4.50 per
     unit,  the  acquisition  value would be based upon the  capitalized  rental
     value of the property when fully  completed and leased and the value of the
     Company's  common  stock on the date of  acquisition,  or  approved  by the
     independent directors committee. The underlying value of the O.P. Units was
     the variable  impacting the acquisition  value. Since the value of the O.P.
     Units was fixed at $4.50 per unit,  for the  purposes  of  calculating  the
     number of units to be distributed to the sellers, any increase in the value
     of the O.P. Units increased the  acquisition  price paid by the Company for
     the individual  properties  based on the value of the O.P Units at the time
     the  acquisitions  were  closed.  As the market  value  price of a share of
     common stock exceeded the $4.50 price for much of the period  subsequent to
     May 1998,  this  valuation  represented  a  substantial  discount  from the
     current market value of the common stock that may be issued in exchange for
     these O.P. Units.  Because the value of the properties  increased as rental
     rates increased,  more O.P. Units were distributed than contemplated during
     the negotiation of the original pending projects  acquisition  agreement in
     May 1998. Under GAAP, the acquisition cost in the form of O.P. Units issued
     were valued  based upon the current  market value of the  Company's  common
     stock on the date  the  acquisition  closed.  Consequently,  the  Company's
     actual accounting cost of these acquisitions  depended in large part on the
     percentage of the fixed  acquisition value paid for by the issuance of O.P.
     Units and the price of the  Company's  common  stock on the  closing of the
     acquisition. For properties acquired during 2000 and 1999 under the pending
     projects acquisition  agreement,  the difference resulted in an increase of
     approximately $68.0 million in the acquisition cost for accounting purposes
     compared  to the  fixed  acquisition  value  contemplated  at the  time the
     agreement was entered into.

     BERG LAND HOLDINGS OPTION AGREEMENT
     Under the terms of the Berg land holdings  option  agreement,  the Company,
     through the  operating  partnerships,  has the option to acquire any future
     R&D  property  developed  by the  Berg  Group  on land  currently  owned or
     optioned,  or  acquired  for these  purposes  in the  future,  directly  or
     indirectly,  by Carl E.  Berg or Clyde  J.  Berg.  At  present,  there  are
     approximately  368 acres of  Silicon  Valley  land,  including  land  under
     development,  owned directly or under 50% joint venture by certain  members
     of the Berg Group that are  subject to the terms of the Berg land  holdings
     option  agreement.  The owners of the future R&D property  developments may
     obtain cash or, at their option,  O.P. Units valued at the average  closing
     price  of the  shares  of  common  stock  over  the  30-trading-day  period
     preceding the  acquisition  date. To date, the Company has completed  eight
     acquisitions  under the Berg land holdings  option  agreement  representing
     approximately  826,317  rentable  square  feet (see  Property  Acquisitions
     below).  Upon the  Company's  exercise of an option to purchase  any of the
     future R&D property developments,  the acquisition price will equal the sum
     of (a) the full construction cost of the building; plus (b) 10% of the full
     construction  cost of

                                     - 49 -

<PAGE>
                         MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

     the building; plus (c) interest at LIBOR (London Interbank Offer Rate) plus
     1.65% on the amount of the full  construction  cost of the building for the
     period from the date funds were  disbursed by the developer to the close of
     escrow;  plus (d) the original  acquisition cost of the parcel on which the
     improvements  will be  constructed,  which  range  from $8.50 to $20.00 per
     square foot for land currently owned;  plus (e) 10% per annum of the amount
     of the original acquisition cost of the parcel from the later of January 1,
     1998 and the seller's  acquisition date to the close of escrow;  minus (f);
     the  aggregate  principal  amount  of all  debt  encumbering  the  acquired
     property,  or a lesser  amount as  approved  by the  independent  directors
     committee.

     No  estimate  can be given at this time as to the total cost to the Company
     to acquire projects under the Berg land holdings option  agreement,  or the
     timing as to when the Company will acquire such projects. However, the Berg
     Group is currently  constructing  21  properties  with a total of 1,809,352
     rentable  square feet that the Company has the right to acquire  under this
     agreement.  Of the 21 properties,  six are approximately 50% joint ventures
     consisting of  approximately  471,000  rentable square feet. As of December
     31, 2000, the estimated acquisition value to the operating partnerships for
     these 21 projects is approximately  $217.0 million.  The final  acquisition
     price of these 21 properties could differ significantly from this estimate.
     In addition to projects  currently under  development,  the Company has the
     right  to  acquire  future  developments  by the  Berg  Group  on up to 257
     additional  acres of land  currently  controlled  by the Berg Group,  which
     could support  approximately  4.06 million square feet of new developments.
     Under the Berg land holdings  option  agreement,  as long as the Berg Group
     ownership in the Company and the operating partnerships taken as a whole is
     at least 65%, the Company also has an option to purchase all land acquired,
     directly  or  indirectly,  by Carl E. Berg or Clyde J.  Berg in the  future
     which has not been  improved  with  completed  buildings and which is zoned
     for,  intended for or  appropriate  for research  and  development,  office
     and/or industrial  development or use in the states of California,  Oregon,
     and Washington.

     PROPERTY ACQUISITIONS (UNAUDITED)
     As of December 31, 2000,  the Company had  acquired  twenty R&D  properties
     under its agreements with the Berg Group. All twenty of these  acquisitions
     are currently 100% occupied by one or more tenants.

     The following table provides unaudited information as to the estimated fair
     market value, calculated using an estimated  capitalization rate based upon
     the first year's cash rent,  and the actual  acquisition  price paid by the
     operating partnerships:
<TABLE>
<CAPTION>


                                             First
                                           Year's Rent           Rentable
                                           Per Square             Square             Estimated             Acquisition
                    Property                  Foot                Footage            Fair Value               Price
              ------------------------- -----------------    ----------------     ----------------     -------------------
<S>                                         <C>                <C>                   <C>                     <C>
              2000 ACQUISITIONS
              1756 Automation Pkwy           $1.81                 80,640             $ 16,367                $ 14,594
              800 Branham Lane               $1.14                239,000               32,054                  18,359
              255 Caspian Way                $1.70                 98,500               20,094                  11,637
              1762 Automation Pkwy           $2.75                 61,100               20,196                  17,029
              5300-50 Hellyer Ave            $1.60                160,000               30,720                  17,184
              5400 Hellyer Ave               $1.52                 77,184               14,078                   8,598
              45365 Northport Loop           $1.58                 64,218               12,140                   8,158
              1768 Automation Pkwy           $2.31                110,592               30,432                  27,316
                                                             ----------------     ----------------     -------------------
                  Subtotal                                        891,234              176,081                 122,875
                                                             ----------------     ----------------     -------------------

              1999 ACQUISITIONS
              6810 Santa Teresa Blvd         $1.38                 54,996                9,107                   8,558
              1065 L'Avenida                 $2.95                515,700              182,558                 156,107
              1750 Automation Pkwy           $1.69                 80,640               16,354                  15,963
              1700 Richard Ave               $0.80                 58,783                5,940                   5,756
              5749 Fontanoso Way             $1.30                 77,700               12,121                   7,169
                                                             ----------------     ----------------     -------------------
                  Subtotal                                        787,819              226,080                 193,553
                                                             ----------------     ----------------     -------------------
              1998 ACQUISITIONS
              1650 Richard Ave               $1.06                 52,800                6,716                   4,198
              5850 Hellyer Ave               $0.99                109,715               13,034                   9,494
                                                             ----------------     ----------------     -------------------
                  Subtotal                                        162,515               19,750                  13,692
                                                             ----------------     ----------------     -------------------
              Total                                             1,841,568             $421,911                $330,120
                                                             ================     ================     ===================
</TABLE>


                                     - 50 -
<PAGE>
                         MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)


     During the third  quarter of 1999,  the  Company  entered  into a new lease
     agreement  for 2001 Logic Drive with Xilinx  Incorporated  ("Xilinx").  The
     lease  agreement  includes  an option  granted  to Xilinx to  purchase  the
     building at a  predetermined  price.  In September 1999, in accordance with
     the option  provisions of the lease agreement,  Xilinx paid to us a deposit
     of approximately $21.6 million to secure its option right. Originally,  the
     option was  exercisable  only between  April 30, 2000 and July 31, 2000. In
     July 2000,  Xilinx and the Company  agreed to extend the option  period for
     two years until July 31,  2002.  Xilinx and the Company  further  agreed to
     reduce the  deposit by $167 per month  commencing  August 1, 2000 until the
     later of: (1) the  transfer of title to the  property to Xilinx or (2) July
     31,  2002.  Upon  exercise  of the  option,  the  Company  must  refund the
     remaining deposit amount and Xilinx must deposit into escrow funds equal to
     the purchase price.  In the event Xilinx does not exercise its option,  the
     Company  must  refund the  remaining  deposit  in full to  Xilinx,  without
     interest.

                                     - 51 -
<PAGE>
                         MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

7.   DEBT

     The  following  table  sets  forth  certain   information   regarding  debt
     outstanding as of December 31, 2000 and 1999.
<TABLE>
<CAPTION>


                                                                                     Balance               Maturity      Interest
        Debt Description                  Collateral Properties                   At December 31,            Date          Rate
----------------------------------  -------------------------------          --------------------------  ------------  ------------
                                                                                 2000         1999
                                                                             ------------  ------------
<S>                                <C>                                        <C>           <C>             <C>           <C>
Line of Credit:
Berg Group (related parties)        2033-2043 Samaritan Drive, San Jose, CA    $ 50,886            -          3/02           (1)
                                                                             ------------  ------------
                                    2133 Samaritan Drive, San Jose, CA
                                    2233-2243 Samaritan  Drive, San Jose, CA
                                    1310-1450 McCandless Drive, Milpitas, CA
                                    1315-1375 McCandless Drive, Milpitas, CA
                                    1650-1690 McCandless Drive, Milpitas, CA
                                    1795-1845 McCandless Drive, Milpitas, CA

Mortgage  Notes Payable  (related   5300-5350 Hellyer Avenue, San Jose, CA
parties):                                                                        11,643       31,193(2)       6/10         7.650%
                                                                             ------------  ------------

Mortgage Notes Payable: (3)
Prudential Capital Group            20400 Mariani Avenue, Cupertino, CA           1,756        1,902          4/09         8.750%
New York Life Insurance Company     10440 Bubb Road, Cupertino, CA                  377          405          9/09         9.625%
Home Savings & Loan Association     10460 Bubb Road, Cupertino, CA                  423          477         12/06         9.500%
Mellon Mortgage Company             3530 Bassett Street, Santa Clara, CA          2,735        2,853          6/01         8.125%
Prudential  Insurance  Company of   10300 Bubb Road, Cupertino, CA              126,764      128,315         10/08         6.560%
America (4)                         10500 N. DeAnza Blvd, Cupertino, CA
                                    4050 Starboard Drive, Fremont, CA
                                    45700 Northport Loop, Fremont, CA
                                    45738 Northport Loop, Fremont, CA
                                    450-460 National Ave, Mountain View, CA
                                    4949 Hellyer Avenue, San Jose, 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 Blvd, Santa Clara, CA
                                    3560 Bassett Street, Santa Clara, CA
                                    3570 Bassett Street, Santa Clara, CA
                                    3580 Bassett Street, Santa Clara, CA
                                    1135 Kern Avenue, Sunnyvale, CA
                                    1212 Bordeaux Lane, Sunnyvale, CA
                                    1230 E. Arques, Sunnyvale, CA
                                    1250 E. Arques, Sunnyvale, CA
                                    1170 Morse Avenue, Sunnyvale, CA
                                    3540 Bassett Street, Santa Clara, CA
                                    3542 Bassett Street, Santa Clara, CA
                                    3544 Bassett Street, Santa Clara, CA
                                    3550 Bassett Street, Santa Clara, CA
                                                                             ------------  ------------
Mortgage Notes Payable                                                          132,055      133,952
                                                                             ------------  ------------
Total                                                                          $194,584     $165,145
                                                                             ============  ============
</TABLE>


(1)  The debt owed to the Berg Group under the line of credit carries a variable
     interest  rate equal to LIBOR plus 1.30  percent  and is payable in full in
     March 2002. The interest rate was 7.5% at December 31, 2000..

(2)  There was no set repayment plan  associated  with this debt;  payments were
     made to Berg & Berg Enterprises, Inc. on demand.

(3)  Mortgage notes payable generally  require monthly  installments of interest
     and  principal  over various  terms  extending  through the year 2009.  The
     weighted  average  interest  rate of  mortgage  notes  payable was 6.64% at
     December 31, 2000 and 1999.

(4)  The  Prudential  Loan is  payable in monthly  installments  of $827,  which
     includes principal (based upon a 30-year  amortization) and interest.  John
     Kontrabecki,  one of the limited  partners,  has  guaranteed  approximately
     $12,000 of this debt.  Costs and fees  incurred  with  obtaining  this loan
     aggregated approximately $900.


     Scheduled principal payments on debt for the years ending are as follows:
<TABLE>
<CAPTION>

                                                           Mortgage Notes Payable      Berg Group Credit
                                                             (Including Related               Line               Total
                                                                  Parties)              (Related Parties)
                                                           -----------------------    ---------------------    -----------

<S>                                                           <C>                             <C>              <C>
               December 31, 2001                               $  4,911                                         $  4,911
               December 31, 2002                                  2,334                        $50,886            53,220
               December 31, 2003                                  2,502                                            2,502
               December 31, 2004                                  2,683                                            2,683
               December 31, 2005                                  2,877                                            2,877
               Thereafter                                       128,391                                          128,391
                                                           -----------------------    ---------------------    -----------
                                                               $143,698                        $50,886          $194,584
                                                           =======================    =====================    ===========
</TABLE>

                                     - 52 -

<PAGE>
                         MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

8.   OPERATING PARTNERSHIP DISTRIBUTIONS

     During 2000, the Company, as general partner of the operating partnerships,
     declared quarterly distributions  aggregating $0.68 per O.P. Unit for total
     distributions of $66,993,  including $19,115 payable in January 2001. Total
     distributions  attributable  to O.P. Units owned by various  members of the
     Berg Group were  $52,478.  The entire  amount was  treated as a draw on the
     Berg Group line of credit.

     During 1999, the Company, as general partner of the operating partnerships,
     declared quarterly distributions  aggregating $0.56 per O.P. Unit for total
     distributions of $47,705,  including $13,975 payable in January 2000. Total
     distributions  attributable  to O.P. Units owned by various  members of the
     Berg Group were $38,090.  Of this amount,  $27,307 was converted to related
     party debt  during the year ended  December  31,  1999,  and the  remaining
     distributions  of $10,783 were  borrowed from the Berg Group line of credit
     in January 2000.

     On December 28,  1998,  the Company,  as general  partner of the  operating
     partnerships,  declared  a $0.17  per  O.P.  Unit  distribution  for  total
     distributions  of  $11,633.  Of this  amount,  $9,599  was owed to  various
     members  of the Berg  Group and was  converted  to  related  party  debt on
     December  31,  1998.  The  Company  received  $1,408 that was used to repay
     amounts   outstanding   under  the  Demand  Notes  owed  to  the  operating
     partnerships.  A  distribution  in the amount of $298 was  attributable  to
     units held by John  Kontrabecki and was applied against amounts owed by him
     to the operating partnerships as of December 31, 1998. The remaining amount
     of $328, which was owed to other O.P. Unit holders was included in accounts
     payable  and  accrued  expenses  in the  consolidated  balance  sheet as of
     December 31, 1998. The $328 was paid in January 1999.


9.   STOCK-BASED COMPENSATION PLANS

     The  Company's  1997  Stock  Option  Plan  was  approved  by the  Company's
     shareholders  on November 10, 1997.  The 1997 Stock Option Plan was adopted
     so that the  Company may  attract  and retain the high  quality  employees,
     consultants and directors  necessary to build the Company's  infrastructure
     and to provide ongoing incentives to the Company's employees in the form of
     options  to  purchase  the  Company's  common  stock  by  enabling  them to
     participate in the Company's success.

     The  1997  Stock  Option  Plan  provides  for the  granting  to  employees,
     including  officers (whether or not they are directors) of "incentive stock
     options"  within  the  meaning  of  Section  422 of the  Code,  and for the
     granting of non-statutory  options to employees,  consultants and directors
     of the Company. Options to purchase a maximum of 5,500,000 shares of common
     stock may be granted under the 1997 Stock Option Plan, subject to equitable
     adjustments to reflect certain corporate events.  During 2000, options were
     granted to five employees and three directors  totaling 256,000 and 96,000,
     respectively,  which become exercisable in quarterly  installments equal to
     1/16th of the underlying shares beginning on the first month anniversary of
     the grant date.  Additionally,  during  2000,  one  employee was granted an
     option for 80,000  shares that  become  exercisable  as  follows:  a) 8,000
     shares on March 14,  2001;  b) each  month  thereafter  for 36  months,  an
     additional  2,000 shares.  All options  granted to employees in 1998 become
     exercisable  as follows:  a) six months from date of grant,  6.25%;  b) one
     year from date of grant, an additional 12.50%; c) each month thereafter for
     36 months,  an additional  2.26%.  Each option has a term of six years from
     the date of grant subject to earlier  termination in certain events related
     to  termination  of  employment.  Options  granted to directors will become
     exercisable cumulatively with respect to 1/48th of the underlying shares on
     the first day of each month  following  the date of grant.  Generally,  the
     options must be exercised  while the optionee is a director of the Company.
     The option  price is equal to the fair market  value of the common stock on
     the date of grant.

     The remaining  contractual lives of unexercised  options granted range from
     January 2004 to October 2006. All options granted during 2000 have a $13.00
     and $8.25 option price per share.

                                     - 53 -

<PAGE>
                         MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

     The following table shows the activity and detail for the 1997 Stock Option
     Plan.
<TABLE>
<CAPTION>


                                              1997 Stock         Option Price
                                             Option Plan          Per Share
                                            --------------    ------------------
<S>                                          <C>                    <C>
     Balance, December 31, 1998                 680,000
        Options granted                         337,000               $8.25
        Options exercised                      (191,920)
        Options cancelled                      (299,722)
                                            --------------
     Balance, December 31, 1999                 525,358
        Options granted                          80,000               $8.25
        Options granted                         352,000              $13.00
        Options exercised                       (52,991)
        Options cancelled                      (113,867)
                                            --------------
     Balance, December 31, 2000                 790,500
                                            ==============
</TABLE>

     As of December 31, 2000,  4,239,589  additional  options were available for
     grant.  None of the options  granted are contingent  upon the attainment of
     performance  goals or subject to other  restrictions.  As of  December  31,
     2000,  outstanding  options to purchase 158,527 shares of common stock were
     exercisable.

     The Company  applies APB 25 and related  interpretations  in accounting for
     its stock-based  compensation plans.  Accordingly,  no compensation expense
     has  been  recognized  for  its   stock-based   compensation   plans.   Had
     compensation  cost for the  Company's  stock option  plans been  determined
     based upon the fair value at the grant date for awards  under  these  plans
     consistent with the methodology  prescribed under SFAS No. 123, "Accounting
     for Stock-Based  Compensation," the Company's net income and net income per
     share would have been  decreased by  approximately  $634 or $.04 per share,
     resulting in a total  consolidated net income of $11,945 or $0.68 per share
     on a diluted  basis,  for the year ended  December 31, 2000.  The estimated
     fair value of the options  granted  during 2000 ranged from $9.32 to $14.56
     per share on the date of grant using the Black-Scholes option pricing model
     with the following assumptions: dividend yield of 8%, volatility of 25.37%,
     risk free rates of 5.70% to 6.61% and an expected life of 4 years.  For the
     year ended  December 31, 1999,  the Company's net income and net income per
     share would have been  decreased by  approximately  $132 or $.02 per share,
     resulting in a total  consolidated net income of $6,399 or $0.51 per share.
     The estimated  fair value of the options  granted during 1999 was $9.20 per
     share on the date of grant using the  Black-Scholes  option  pricing  model
     with the following assumptions: dividend yield of 8%, volatility of 24.56%,
     risk free rate of 5.65% and an expected life of 5 years. For the year ended
     December 31, 1998, the Company's net loss and net loss per share would have
     been  increased  by  approximately  $146 or $.09 per share,  resulting in a
     total  consolidated  net loss of $367 or $.21 per share. The estimated fair
     value of the  options  granted  during  1998 ranged from $4.95 to $5.01 per
     share on the date of grant using the  Black-Scholes  option  pricing  model
     with the following assumptions: dividend yield of 8%, volatility of 24.07%,
     risk free rates of 4.53% to 5.72% and an expected life of 5 years.

     The Company has adopted an employee  investment  plan (the  "Plan"),  under
     Section 401(k) of the Internal Revenue Code.  Employees who are at least 21
     years old and who have  completed  six months of  eligibility  service  may
     become participants in the Plan. Each participant may make contributions to
     the Plan through salary deferrals in amounts of at least 1% to a maximum of
     15% of the  participant's  compensation,  subject  to  certain  limitations
     imposed by the Internal Revenue Code. The Company  contributes an amount up
     to  15%  of  the  participant's   compensation   contributed,   based  upon
     management's discretion.  A participant's  contribution to the Plan is 100%
     vested and nonforfeitable.  A participant will become vested in 100% of the
     Company's  contributions after two years of eligible service. For the years
     ended  December 31, 2000 and 1999,  the Company  recognized  $40 and $46 of
     expense  for  employer  contributions  made in  connection  with this plan,
     respectively.


10.  NET INCOME PER SHARE

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

                                     - 54 -
<PAGE>
                         MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)


     The computation for weighted average shares is detailed below:
<TABLE>
<CAPTION>

                                                     Year Ended            Year Ended            Year Ended
                                                     December 31,          December 31,          December 31,
                                                        2000                  1999                  1998
                                                  ------------------    ------------------    -----------------
<S>                                                 <C>                   <C>                   <C>
Weighted average shares outstanding (basic)          17,016,660            12,553,854            1,688,059
Incremental shares from assumed option exercise         493,990               104,586               22,730
                                                  ------------------    ------------------    -----------------
Weighted average shares outstanding (diluted)        17,510,650            12,658,440            1,710,789
                                                  ==================    ==================    =================
</TABLE>


     The  outstanding  O.P. Units have been excluded from the diluted net income
     per share  calculation as there would be no effect on the amounts since the
     minority interests' share of income would also be added back to net income.
     O.P. Units  outstanding  at December 31, 2000 and 1999 were  83,576,027 and
     76,205,789, respectively.


11.  OTHER INCOME

     IN May 2000, we entered into a ten-year lease with ONI Systems  Corporation
     ("ONI") for  444,500  square  feet of space to be  constructed  by the Berg
     Group on land that is subject to the Berg land holdings  option  agreement.
     As partial consideration for the lease, we were allowed to purchase 100,000
     shares of ONI common stock in its initial public offering. We purchased and
     then sold all of the shares and realized net proceeds of $6.3  million.  Of
     this amount,  we  recognized  $501,000  during the second  quarter with the
     balance  deferred as prepaid rent that we are  amortizing  ratably over the
     ten-year  lease term. We may on occasion  receive equity  instruments  from
     tenants that may lease our properties, in the course of our business.


12.  RELATED PARTY TRANSACTIONS

     As of December  31,  2000 and 1999,  the Berg Group  owned  79,255,425  and
     71,885,187 O.P. Units, respectively, of the total 83,576,027 and 76,205,789
     O.P. Units issued and outstanding,  respectively.  Along with the Company's
     common  shares owned by the Berg Group,  the Berg  Group's  interest in the
     Company  represents  78.8% and 77.2% of the Company as of December 31, 2000
     and 1999,  respectively,  assuming conversion of the O.P. Units into common
     shares of the Company.

     During  2000 the  Company  acquired  nine R&D  properties,  all  located in
     Silicon Valley. These acquisitions added approximately  891,000 square feet
     of rentable space and were acquired from the Berg Group under the Berg land
     holdings option agreement and the pending projects  acquisition  agreement.
     The  total  gross   acquisition   price  for  these  nine   properties  was
     approximately  $122.9 million.  The Company financed these  acquisitions by
     borrowing  $39.9  million  under  our line of credit  from the Berg  group,
     issuing an $11.8 million note to the Berg Group, assuming other liabilities
     of $2.6 million, and issuing 7,370,238 O.P. Units to various members of the
     Berg Group.

     In connection with the Acquisition, through the operating partnerships, the
     Company assumed certain  liabilities  that included amounts due to the Berg
     Group in the amount of $1,989 for  management  fees and  interest  expense.
     Such amounts were paid as of December 31, 1998.

     As of  December  31,  2000 and  1999,  debt in the  amount of  $50,886  and
     $31,193,  respectively,  was due the Berg  Group  under the line of credit.
     This amount includes $51,732 and $36,380 of debt assumed in connection with
     the  acquisitions  of  properties  from  the Berg  Group in 2000 and  1999,
     respectively  (see  Note  6).  Additionally,  during  2000  and  1999,  the
     operating  partnerships declared  distributions of $0.68 and $0.56 per O.P.
     Unit,  respectively.  The amount of these distributions  payable to various
     members of the Berg Group was  $48,202  and  $27,307  during 2000 and 1999,
     respectively.  Interest  expense  incurred in connection  with debt due the
     Berg Group was $3,914,  $2,246 and $3,511 for the years ended  December 31,
     2000, 1999 and 1998, respectively.

     As of  December  31,  2000,  debt in the amount of $11,643 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 ten years with principal payments amortized over 20 years.

                                     - 55 -
<PAGE>

                         MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

     Carl E. Berg has a  significant  financial  interest  in one  company  that
     leases space from the operating partnerships. This company occupies, in the
     aggregate,  5,862 square feet at a rate of $0.93 per square foot per month.
     This lease was in effect prior to the Company's  acquisition of its general
     partnership interests. The lease expires in 2001.

     The Company currently leases space owned by Berg & Berg  Enterprises,  Inc.
     an affiliate of Carl E. Berg and Clyde J. Berg. Rental amounts and overhead
     reimbursements paid to Berg & Berg Enterprises, Inc. were $80 for the years
     ended December 31, 2000 and 1999.

13.  FUTURE MINIMUM RENTS

     The Company,  through the operating partnerships,  owns interests in 89 R&D
     properties  that are  leased to tenants  under net  operating  leases  with
     initial  terms  extending to the year 2015,  and are  typically  subject to
     fixed  increases.  Generally,  the leases grant  tenants  renewal  options.
     Future minimum rentals under  non-cancelable  operating  leases,  excluding
     tenant reimbursements of expenses, as of December 31, 2000, are as follows:
<TABLE>
<CAPTION>


<S>                                                                  <C>
             2001                                                     $ 101,353
             2002                                                        94,353
             2003                                                        87,847
             2004                                                        82,217
             2005                                                        68,040
          Thereafter                                                    118,608
                                                                    ------------
                  Total                                               $ 552,418
                                                                    ============
</TABLE>
14.  SUPPLEMENTAL CASH FLOW INFORMATION

     Cash paid for interest was $12,676,  $13,406 and $7,540 for the years ended
     December 31, 2000, 1999, and 1998, respectively.

     In  connection  with the  Acquisition,  the Company,  through the operating
     partnerships,  acquired  assets with a fair value of  $507,807  and assumed
     liabilities of $239,903 effective July 1, 1998.

     The Company  assumed the Wells Fargo line of credit on  September  30, 1998
     from the Berg Group. As of that date, the outstanding  balance on the Wells
     Fargo line of credit was $39,044.  In connection with this assumption,  the
     Company retired $39,044 of related party debt due Berg & Berg  Enterprises,
     Inc.

     In connection with the property  acquisitions,  the Company assumed $51,732
     and  $36,380  of  related  party  debt due the Berg  Group,  assumed  other
     liabilities  of $2,636 and $126, and issued  7,370,238 and 16,311,232  O.P.
     Units for a total  acquisition value of $122,875 and $193,553 for the years
     ended December 31, 2000 and 1999, respectively.

     Amounts  of  $48,202,  $27,307  and  $9,599  were  due the Berg  Group  for
     distributions declared to O.P. Unit holders during the years ended December
     31, 2000, 1999, and 1998, respectively.

15.  COMMITMENTS AND CONTINGENCIES

     The Company and the operating partnerships,  from time to time, are parties
     to litigation arising out of the normal course of business. Management does
     not expect that such matters  would have a material  adverse  effect on the
     cash flows, consolidated financial position or results of operations of the
     Company.

     Insurance policies currently maintained by the Company do not cover seismic
     activity, although they do cover losses from fires after an earthquake.


                                     - 56 -

<PAGE>

                         MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

16.  SUBSEQUENT EVENTS (UNAUDITED)

     In January 2001,  we acquired a newly  constructed  R&D property  leased to
     Celestica,  Inc.  on  Hellyer  Avenue  in San Jose,  California  consisting
     131,500 square feet of rentable  space under the Berg land holdings  option
     agreement.  Pursuant  to the  Berg  land  holdings  option  agreement,  the
     acquisition  cost is based on the full  construction  cost of the building,
     10% of the full construction cost of the building,  and other factors.  The
     Berg Group is  currently  evaluating  its total  construction  costs due to
     delayed  billings  by its  vendors.  Details of the  acquisition  cannot be
     determined at this time.

     In January  2001, we completed the sale of the R&D property at 4949 Hellyer
     Avenue,  San Jose,  California to Cisco Systems,  Inc, which  exercised its
     option in November  2000.  We realized a gain of $3.1  million on the total
     sale price of $23.1 million.  Cisco Systems, Inc. also exercised its option
     in November 2000 to purchase the R&D property at 5713-49 Fontanoso Way, San
     Jose,  California.  The sale is expected to occur in the fourth  quarter of
     2001.

     In January  2001,  the Company  paid  dividends  aggregating  $3,236 to its
     common  stockholders  which were  payable to  stockholders  of record as of
     December 31, 2000.

                                     - 57 -
<PAGE>
                         MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)


     SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)


     Quarterly financial  information for the year ended December 31, 2000 is as
     follows:

<TABLE>
<CAPTION>


                                                        First            Second            Third            Fourth
                                                     ------------      -----------       -----------      ------------
<S>                                               <C>               <C>               <C>              <C>
       Revenue                                     $      21,235     $     23,899      $     26,822     $      27,611

       Income before minority interest             $      14,463     $     16,555      $     19,362     $      21,253

       Net Income                                  $       2,631     $      2,930      $      3,357     $       3,661

       Per share data:
          Basic net income per share               $        0.15     $       0.17      $       0.20     $        0.21
          Diluted net income per share             $        0.15     $       0.17      $       0.20     $        0.21
       Weighted average number of common shares
          outstanding (basic)                         16,990,353       17,025,365        17,025,365        17,025,365
       Weighted average number of common shares
          outstanding (diluted)                       17,389,409       17,113,346        17,191,306        17,249,144
</TABLE>



     Quarterly financial  information for the year ended December 31, 1999 is as
     follows:

<TABLE>
<CAPTION>


                                                        First            Second            Third            Fourth
                                                     ------------      -----------       -----------      ------------
<S>                                               <C>               <C>               <C>              <C>
       Revenue                                     $      14,027     $     18,376      $     20,517     $      20,806

       Income before minority interest             $       7,605     $     10,552      $     13,488     $      14,671

       Net Income                                  $         881     $      1,065      $      2,178     $       2,407

       Per share data:
          Basic net income per share               $        0.11     $       0.13      $       0.13     $        0.15
          Diluted net income per share             $        0.10     $       0.13      $       0.13     $        0.15
       Weighted average number of common shares
          outstanding (basic)                          8,227,261        8,166,977        16,715,354        16,964,086
       Weighted average number of common shares
          outstanding (diluted)                        8,415,412        8,305,603        16,808,181        17,056,913

</TABLE>

                                     - 58 -



<PAGE>


                      Report of Independent Accountants on
                          Financial Statement Schedules


     To the Board of Directors and Stockholders
     of Mission West Properties, Inc.

     Our audits of the  consolidated  financial  statements  referred  to in our
     report  dated  January 21, 2001  included in this Form 10-K of Mission West
     Properties,  Inc. also included audits of the financial statement schedules
     listed in Item  14(a)(2) of this Form 10-K.  In our opinion,  the financial
     statement  schedules  presents  fairly,  in  all  material  respects,   the
     information  set forth  therein when read in  conjunction  with the related
     consolidated financial statements.

     PricewaterhouseCoopers LLP

     San Francisco, California
     January 21, 2001

                                     - 59 -
<PAGE>









                               INTENTIONALLY BLANK







                                     - 60 -
<PAGE>







                          MISSION WEST PROPERTIES, INC.
                                  Schedule III
                    Real Estate and Accumulated Depreciation
                                December 31, 2000
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                                       Initial Cost
                                                                  ------------------------      Cost
                                                   December 31,                Buildings    Subsequent to
                                                      2000                        and       Construction/
Property Name                      City            Encumbrances      Land     Improvements   Acquisition
-----------------------------------------------   --------------  ----------  ------------  -------------
<S>                               <C>              <C>             <C>          <C>              <C>
5300 Hellyer Avenue                San Jose    E    $   11,643      $ 5,742      $ 11,442
10401-10411 Bubb Road              Cupertino   A                        632         3,078
2001 Logic Drive                   Cupertino                          2,288        11,134
45365 Northport Loop               Fremont                            2,447         5,711         $  11
47000 Northport Loop               Fremont                     B      1,184         5,760             7
45738 Northport Loop               Fremont                     B        891         4,338             5
4050 Starboard Drive               Fremont                     B      1,329         6,467             8
3501 W. Warren Ave/Fremont Blvd.   Fremont                            1,866         9,082
48800 Milmont Blvd                 Fremont                            1,013         4,932
4750 Patrick Henry Drive           Santa Clara                        1,604         7,805           153
4949 Hellyer Avenue                San Jose                    B      3,593        17,484            61
3520 Bassett Street                Santa Clara C                      1,104         5,371
3530 Bassett Street                Santa Clara C,D       2,735          849         4,133
5850-5870 Hellyer Avenue           San Jose                           2,787         6,502
800 Branham Lane East              San Jose                           5,508        12,851
5400 Hellyer Avenue                San Jose                           3,238         5,358
5749 Fontanoso Way                 San Jose                           2,572         4,597            49
1065-1105 L'Avenida                Mountain View                     46,832       109,275            65
1750 Automation Parkway            San Jose                           4,789        11,174           315
1756 Automation Parkway            San Jose                           4,378        10,216            15
1762 Automation Parkway            San Jose                           4,804        12,224
1768 Automation Parkway            San Jose                           8,195        19,121
255 Caspian Drive                  Sunnyvale                          3,491         8,146
2251 Lawson Lane                   Santa Clara                        1,952         9,498
1230 E. Arques                     Sunnyvale                            540         2,628
1250 E. Arques                     Sunnyvale                          1,335         6,499
3120 Scott Blvd                    Santa Clara                        2,044         9,948
20400 Mariani Avenue               Cupertino             1,756        1,670         8,125
10500 De Anza Blvd                 Cupertino                   B      7,666        37,304
20605-705 Valley Green Dr.         Cupertino                          3,490        16,984
10300 Bubb Road                    Cupertino                   B        635         3,090
10440 Bubb Road                    Cupertino               377          434         2,112
10460 Bubb Road                    Cupertino               423          994         4,838         1,158
1135 Kern Avenue                   Sunnyvale                            407         1,982
405 Tasman Drive                   Sunnyvale                            550         2,676
450 National Avenue                Mountain View               B        611         2,973
3301 Olcott Street                 Santa Clara                        1,846         8,984
2800 Bayview Avenue                Fremont                            1,070         5,205
6850 Santa Teresa Blvd             San Jose                             377         1,836           780
6810 Santa Teresa Blvd             San Jose                           2,567         5,991            12
140-160 Great Oaks Blvd            San Jose                           1,402         6,822           158
6541 Via del Oro/6385 San Ignacio  San Jose                           1,039         5,057
6311-6351 San Ignacio Avenue       San Jose                    B      6,246        30,396            94
6320-6360 San Ignacio Avenue       San Jose                           2,616        12,732           197
75 E. Trimble Rd./2610 N. First St San Jose                           3,477        16,919            82
2033-2243 Samaritan Drive          San Jose             50,886 F      5,046        24,556
1170 Morse Avenue                  Sunnyvale                   B        658         3,201
3236 Scott Blvd                    Santa Clara                 B      1,234         6,005
1212 Bordeaux Lane                 Sunnyvale                          2,250        10,948
1325-1810 McCandless Drive         Milpitas                    F     13,994        66,213           225
1600 Memorex Drive                 Santa Clara                        1,221         5,940
1688 Richard Avenue                Santa Clara                        1,248         2,913             6
1700 Richard Avenue                Santa Clara                        1,727         4,030
3506-3510 Bassett Street           Santa Clara C                        943         4,591            99
3540-3544 Bassett Street           Santa Clara C               B      1,565         7,615           189
3550 Bassett Street                Santa Clara C               B      1,079         5,251            33
3560 Bassett Street                Santa Clara C               B      1,075         5,233             8
3570-3580 Bassett Street           Santa Clara C               B      1,075         5,233
          Prudential Capital Group Loan                126,764 B
                                                  --------------- ----------  ------------  -------------
                                                     $  194,584    $187,219      $650,529       $ 3,730
                                                  =============== ==========  ============  =============
</TABLE>


<PAGE>


                          MISSION WEST PROPERTIES, INC.
                                  Schedule III
                    Real Estate and Accumulated Depreciation
                                December 31, 2000
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                            Total Cost
                                                    -------------------------
                                                                 Buildings
                                                                    And                      Accumulated     Date of    Depreciable
Property Name                      City                Land     Improvements      Total      Depreciation  Acquisition     Life
-----------------------------------------------     ----------  -------------  ------------  ------------  -----------  ------------
<S>                               <C>               <C>           <C>             <C>            <C>          <C>        <C>
5300 Hellyer Avenue                San Jose    E     $  5,742      $  11,442       $17,184        $  179       5/00       40 Years
10401-10411 Bubb Road              Cupertino   A          632          3,078         3,710           194       7/98       40 Years
2001 Logic Drive                   Cupertino            2,288         11,134        13,422           697       7/98       40 Years
45365 Northport Loop               Fremont              2,447          5,722         8,169            36      10/00       40 Years
47000 Northport Loop               Fremont              1,184          5,767         6,951           362       7/98       40 Years
45738 Northport Loop               Fremont                891          4,343         5,234           274       7/98       40 Years
4050 Starboard Drive               Fremont              1,329          6,475         7,804           407       7/98       40 Years
3501 W. Warren Ave/Fremont Blvd.   Fremont              1,866          9,082        10,948           570       7/98       40 Years
48800 Milmont Blvd                 Fremont              1,013          4,932         5,945           310       7/98       40 Years
4750 Patrick Henry Drive           Santa Clara          1,604          7,958         9,562           495       7/98       40 Years
4949 Hellyer Avenue                San Jose             3,593         17,545        21,138         1,098       7/98       40 Years
3520 Bassett Street                Santa Clara C        1,104          5,371         6,475           337       7/98       40 Years
3530 Bassett Street                Santa Clara C,D        849          4,133         4,982           260       7/98       40 Years
5850-5870 Hellyer Avenue           San Jose             2,787          6,502         9,289           355      11/98       40 Years
800 Branham Lane East              San Jose             5,508         12,851        18,359           268       3/00       40 Years
5400 Hellyer Avenue                San Jose             3,238          5,358         8,596            67       7/00       40 Years
5749 Fontanoso Way                 San Jose             2,572          4,646         7,218           145      10/99       40 Years
1065-1105 L'Avenida                Mountain View       46,832        109,340       156,172         4,782       4/99       40 Years
1750 Automation Parkway            San Jose             4,789         11,489        16,278           431       7/99       40 Years
1756 Automation Parkway            San Jose             4,378         10,231        14,609           256       1/00       40 Years
1762 Automation Parkway            San Jose             4,804         12,224        17,028           229       4/00       40 Years
1768 Automation Parkway            San Jose             8,195         19,121        27,316            40      12/00       40 Years
255 Caspian Drive                  Sunnyvale            3,491          8,146        11,637           153       4/00       40 Years
2251 Lawson Lane                   Santa Clara          1,952          9,498        11,450           595       7/98       40 Years
1230 E. Arques                     Sunnyvale              540          2,628         3,168           167       7/98       40 Years
1250 E. Arques                     Sunnyvale            1,335          6,499         7,834           407       7/98       40 Years
3120 Scott Blvd                    Santa Clara          2,044          9,948        11,992           624       7/98       40 Years
20400 Mariani Avenue               Cupertino            1,670          8,125         9,795           510       7/98       40 Years
10500 De Anza Blvd                 Cupertino            7,666         37,304        44,970         2,335       7/98       40 Years
20605-705 Valley Green Dr.         Cupertino            3,490         16,984        20,474         1,065       7/98       40 Years
10300 Bubb Road                    Cupertino              635          3,090         3,725           195       7/98       40 Years
10440 Bubb Road                    Cupertino              434          2,112         2,546           134       7/98       40 Years
10460 Bubb Road                    Cupertino              994          5,996         6,991           335       7/98       40 Years
1135 Kern Avenue                   Sunnyvale              407          1,982         2,389           127       7/98       40 Years
405 Tasman Drive                   Sunnyvale              550          2,676         3,226           169       7/98       40 Years
450 National Avenue                Mountain View          611          2,973         3,584           187       7/98       40 Years
3301 Olcott Street                 Santa Clara          1,846          8,984        10,830           564       7/98       40 Years
2800 Bayview Avenue                Fremont              1,070          5,205         6,275           327       7/98       40 Years
6850 Santa Teresa Blvd             San Jose               377          2,616         2,993           136       7/98       40 Years
6810 Santa Teresa Blvd             San Jose             2,567          6,003         8,570           276       3/99       40 Years
140-160 Great Oaks Blvd            San Jose             1,402          6,980         8,382           432       7/98       40 Years
6541 Via del Oro/6385 San Ignacio  San Jose             1,039          5,057         6,096           317       7/98       40 Years
6311-6351 San Ignacio Avenue       San Jose             6,246         30,490        36,736         1,904       7/98       40 Years
6320-6360 San Ignacio Avenue       San Jose             2,616         12,929        15,545           802       7/98       40 Years
75 E. Trimble Rd./2610 N. First St San Jose             3,477         17,001        20,478         1,061       7/98       40 Years
2033-2243 Samaritan Drive          San Jose             5,046         24,556        29,602         1,538       7/98       40 Years
1170 Morse Avenue                  Sunnyvale              658          3,201         3,859           202       7/98       40 Years
3236 Scott Blvd                    Santa Clara          1,234          6,005         7,239           377       7/98       40 Years
1212 Bordeaux Lane                 Sunnyvale            2,250         10,948        13,198           687       7/98       40 Years
1325-1810 McCandless Drive         Milpitas            13,994         66,438        80,432         4,169       7/98       40 Years
1600 Memorex Drive                 Santa Clara          1,221          5,940         7,161           348       7/98       40 Years
1688 Richard Avenue                Santa Clara          1,248          2,919         4,167           181       9/98       40 Years
1700 Richard Avenue                Santa Clara          1,727          4,030         5,757           143       8/99       40 Years
3506-3510 Bassett Street           Santa Clara C          943          4,690         5,633           291       7/98       40 Years
3540-3544 Bassett Street           Santa Clara C        1,565          7,804         9,368           483       7/98       40 Years
3550 Bassett Street                Santa Clara C        1,079          5,284         6,363           331       7/98       40 Years
3560 Bassett Street                Santa Clara C        1,075          5,241         6,316           329       7/98       40 Years
3570-3580 Bassett Street           Santa Clara C        1,075          5,233         6,308           329       7/98       40 Years
          Prudential Capital Group Loan
                                                    ----------  -------------  ------------  ------------
                                                     $187,219       $654,259      $841,478      $34,022
                                                    ==========  =============  ============  ============
</TABLE>

                                     - 61 -

<PAGE>



(A)  16.67% of this property's ownership is held by unaffiliated parties outside
     the operating partnerships or the Company.

(B)  Encumbered by the $126,764  Prudential  Capital Group loan - full amount of
     loan shown at the bottom of the schedule.

(C)  Part of the property group referred to as Triangle Technology Park.

(D)  25% of this property's  ownership is held by  unaffiliated  parties outside
     the operating partnerships or the Company.

(E)  50% of this property's  ownership is held by  unaffiliated  parties outside
     the operating partnerships or the Company.

(F)  Four properties at McCandless Drive, in addition to the three properties at
     Samaritan  Drive,  are  encumbered  by the $50,886  debt due the Berg Group
     under the line of credit.

                                     - 62 -

<PAGE>



                          MISSION WEST PROPERTIES, INC.
                                  Schedule III
                    Real Estate and Accumulated Depreciation
                                December 31, 1999
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                           Initial Cost
                                                                     --------------------------      Cost
                                                      December 31,                  Buildings    Subsequent to
                                                         1999                          and       Construction/
Property Name                      City              Encumbrances       Land       Improvements   Acquisition
-------------------------------------------------    -------------   -----------   ------------  -------------
<S>                               <C>                   <C>           <C>            <C>              <C>
10401-10411 Bubb Road              Cupertino   A                       $    632       $  3,078
2001 Logic Drive                   Cupertino                              2,288         11,134
47000 Northport Loop               Fremont                       B        1,184          5,760         $    7
45738 Northport Loop               Fremont                       B          891          4,338              5
4050 Starboard Drive               Fremont                       B        1,329          6,467              8
3501 W. Warren Ave/Fremont Blvd    Fremont                                1,866          9,082
48800 Milmont Blvd                 Fremont                                1,013          4,932
4750 Patrick Henry Drive           Santa Clara                            1,604          7,805            153
4949 Hellyer Avenue                San Jose                      B        3,593         17,484             61
3520 Bassett Street                Santa Clara C                          1,104          5,371
3530 Bassett Street                Santa Clara C         $  2,853           849          4,133
5850-5870 Hellyer Avenue           San Jose                               2,787          6,502
5749 Fontanoso Way                 San Jose                               2,572          4,597
1065-1105 L'Avenida                Mountain View                         46,832        109,275
1750 Automation Parkway            San Jose                               4,789         11,174            315
2251 Lawson Lane                   Santa Clara                            1,952          9,498
1230 E. Arques                     Sunnyvale                                540          2,628
1250 E. Arques                     Sunnyvale                              1,335          6,499
3120 Scott Blvd                    Santa Clara                            2,044          9,948
20400 Mariani Avenue               Cupertino                1,902         1,670          8,125
10500 De Anza Blvd                 Cupertino                     B        7,666         37,304
20605-705 Valley Green Dr.         Cupertino                              3,490         16,984
10300 Bubb Road                    Cupertino                     B          635          3,090
10440 Bubb Road                    Cupertino                  405           434          2,112
10460 Bubb Road                    Cupertino                  477           994          4,838             30
1135 Kern Avenue                   Sunnyvale                                407          1,982
405 Tasman Drive                   Sunnyvale                                550          2,676
450 National Avenue                Mountain View                 B          611          2,973
3301 Olcott Street                 Santa Clara                            1,846          8,984
2800 Bayview Avenue                Fremont                                1,070          5,205
6850 Santa Teresa Blvd             San Jose                                 377          1,836             27
6810 Santa Teresa Blvd             San Jose                               2,567          5,991             47
140-160 Great Oaks Blvd            San Jose                               1,402          6,822             91
6541 Via del Oro/6385 San Ignacio  San Jose                               1,039          5,057
6311-6351 San Ignacio              San Jose                      B        6,246         30,396             21
6320-6360 San Ignacio              San Jose                               2,616         12,732            197
75 E. Trimble Road/2610 N. First StSan Jose                               3,477         16,919
2033-2243 Samaritan Drive          San Jose                31,193         5,046         24,556
1170 Morse Avenue                  Sunnyvale                     B          658          3,201
3236 Scott Blvd                    Santa Clara                   B        1,234          6,005
1212 Bordeaux Lane                 Sunnyvale                              2,250         10,948
1325-1810 McCandless Dr.           Milpitas                              13,994         66,213            230
1600 Memorex Drive                 Santa Clara                            1,221          5,940
1688 Richard Avenue                Santa Clara                            1,248          2,912              7
1700 Richard Avenue                Santa Clara                            1,727          4,029
3506-3510 Bassett Street           Santa Clara C                            943          4,591             52
3540-3544 Bassett Street           Santa Clara C                 B        1,565          7,615             57
3550 Bassett Street                Santa Clara C                 B        1,079          5,251
3560 Bassett Street                Santa Clara C                 B        1,075          5,233
3570-3580 Bassett Street           Santa Clara C                 B        1,075          5,233
          Prudential Capital Group Loan                   128,315B
                                                     -------------   ------------  ------------  -------------
                                                         $165,145      $149,416       $565,458         $1,308
                                                     =============   ============  ============  =============
</TABLE>

<PAGE>

                         MISSION WEST PROPERTIES, INC.
                                  Schedule III
                    Real Estate and Accumulated Depreciation
                                December 31, 1999
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                           Total Cost
                                                     -----------------------
                                                                  Buildings
                                                                    and                    Accumulated     Date of    Depreciable
Property Name                      City                 Land    Improvements     Total     Depreciation  Acquisition     Life
-------------------------------------------------    ---------  ------------  -----------  ------------  -----------  ------------
<S>                               <C>               <C>           <C>          <C>            <C>           <C>        <C>
10401-10411 Bubb Road              Cupertino   A     $    632      $  3,078     $  3,710       $   117       7/98       40 Years
2001 Logic Drive                   Cupertino            2,288        11,134       13,422           419       7/98       40 Years
47000 Northport Loop               Fremont              1,184         5,767        6,951           218       7/98       40 Years
45738 Northport Loop               Fremont                891         4,343        5,234           165       7/98       40 Years
4050 Starboard Drive               Fremont              1,329         6,475        7,804           245       7/98       40 Years
3501 W. Warren Ave/Fremont Blvd    Fremont              1,866         9,082       10,948           343       7/98       40 Years
48800 Milmont Blvd                 Fremont              1,013         4,932        5,945           187       7/98       40 Years
4750 Patrick Henry Drive           Santa Clara          1,604         7,958        9,562           296       7/98       40 Years
4949 Hellyer Avenue                San Jose             3,593        17,545       21,138           659       7/98       40 Years
3520 Bassett Street                Santa Clara C        1,104         5,371        6,475           203       7/98       40 Years
3530 Bassett Street                Santa Clara C          849         4,133        4,982           157       7/98       40 Years
5850-5870 Hellyer Avenue           San Jose             2,787         6,502        9,289           192      11/98       40 Years
5749 Fontanoso Way                 San Jose             2,572         4,597        7,169            29      10/99       40 Years
1065-1105 L'Avenida                Mountain View       46,832       109,275      156,107         2,049       4/99       40 Years
1750 Automation Parkway            San Jose             4,789        11,489       16,278           144       7/99       40 Years
2251 Lawson Lane                   Santa Clara          1,952         9,498       11,450           358       7/98       40 Years
1230 E. Arques                     Sunnyvale              540         2,628        3,168           101       7/98       40 Years
1250 E. Arques                     Sunnyvale            1,335         6,499        7,834           245       7/98       40 Years
3120 Scott Blvd                    Santa Clara          2,044         9,948       11,992           375       7/98       40 Years
20400 Mariani Avenue               Cupertino            1,670         8,125        9,795           307       7/98       40 Years
10500 De Anza Blvd                 Cupertino            7,666        37,304       44,970         1,401       7/98       40 Years
20605-705 Valley Green Dr.         Cupertino            3,490        16,984       20,474           639       7/98       40 Years
10300 Bubb Road                    Cupertino              635         3,090        3,725           118       7/98       40 Years
10440 Bubb Road                    Cupertino              434         2,112        2,546            81       7/98       40 Years
10460 Bubb Road                    Cupertino              994         4,868        5,862           185       7/98       40 Years
1135 Kern Avenue                   Sunnyvale              407         1,982        2,389            77       7/98       40 Years
405 Tasman Drive                   Sunnyvale              550         2,676        3,226           102       7/98       40 Years
450 National Avenue                Mountain View          611         2,973        3,584           113       7/98       40 Years
3301 Olcott Street                 Santa Clara          1,846         8,984       10,830           339       7/98       40 Years
2800 Bayview Avenue                Fremont              1,070         5,205        6,275           197       7/98       40 Years
6850 Santa Teresa Blvd             San Jose               377         1,863        2,240            71       7/98       40 Years
6810 Santa Teresa Blvd             San Jose             2,567         6,038        8,605           126       3/99       40 Years
140-160 Great Oaks Blvd            San Jose             1,402         6,913        8,315           258       7/98       40 Years
6541 Via del Oro/6385 San Ignacio  San Jose             1,039         5,057        6,096           191       7/98       40 Years
6311-6351 San Ignacio              San Jose             6,246        30,417       36,663         1,142       7/98       40 Years
6320-6360 San Ignacio              San Jose             2,616        12,929       15,545           479       7/98       40 Years
75 E. Trimble Road/2610 N. First StSan Jose             3,477        16,919       20,396           636       7/98       40 Years
2033-2243 Samaritan Drive          San Jose             5,046        24,556       29,602           924       7/98       40 Years
1170 Morse Avenue                  Sunnyvale              658         3,201        3,859           122       7/98       40 Years
3236 Scott Blvd                    Santa Clara          1,234         6,005        7,239           227       7/98       40 Years
1212 Bordeaux Lane                 Sunnyvale            2,250        10,948       13,198           413       7/98       40 Years
1325-1810 McCandless Dr.           Milpitas            13,994        66,443       80,437         2,510       7/98       40 Years
1600 Memorex Drive                 Santa Clara          1,221         5,940        7,161           199       7/98       40 Years
1688 Richard Avenue                Santa Clara          1,248         2,919        4,167           108       9/98       40 Years
1700 Richard Avenue                Santa Clara          1,727         4,029        5,756            42       8/99       40 Years
3506-3510 Bassett Street           Santa Clara C          943         4,643        5,586           174       7/98       40 Years
3540-3544 Bassett Street           Santa Clara C        1,565         7,672        9,237           288       7/98       40 Years
3550 Bassett Street                Santa Clara C        1,079         5,251        6,330           199       7/98       40 Years
3560 Bassett Street                Santa Clara C        1,075         5,233        6,308           198       7/98       40 Years
3570-3580 Bassett Street           Santa Clara C        1,075         5,233        6,308           198       7/98       40 Years
          Prudential Capital Group Loan
                                                     ---------  ------------  -----------  ------------
                                                     $149,416      $566,766     $716,182        $18,566
                                                     =========  ============  ===========  ============
</TABLE>

                                     - 63 -
<PAGE>

(A)  16.67% of this property's ownership is held by unaffiliated parties outside
     the operating partnerships or the Company

(B)  Encumbered by the $128,315  Prudential  Capital Group loan - full amount of
     loan shown at the bottom of the schedule.

(C)  Part of the property group referred to as Triangle Technology Park

(D)  25% of this property's  ownership is held by  unaffiliated  parties outside
     the operating partnerships or the Company.

                                     - 64 -
<PAGE>




                          MISSION WEST PROPERTIES, INC.
                              NOTE TO SCHEDULE III
                           December 31, 2000 and 1999
                             (Dollars in thousands)

1.   Reconciliation of real estate and accumulated depreciation:
<TABLE>
<CAPTION>


                                                              2000                       1999
                                                     ------------------------   ------------------------
<S>                                                       <C>                        <C>
     Real estate investments:
          Balance at beginning of year                     $  716,182                 $  521,439
          Additions                                           125,296                    194,743
          Dispositions                                              -                          -
                                                     ------------------------   ------------------------
          Balance at end of year                           $  841,478                 $  716,182
                                                     ========================   ========================

     Accumulated depreciation:
          Balance at beginning of year                     $   18,566                 $    5,410
          Additions                                            15,456                     13,156
          Dispositions                                              -                          -
                                                     ------------------------   ------------------------
          Balance at end of year                           $   34,022                 $   18,566
                                                     ========================   ========================

</TABLE>

                                     - 65 -
<PAGE>


ITEM 9.    CHANGES  IN  AND DISAGREEMENTS  WITH ACCOUNTANTS  ON  ACCOUNTING  AND
           FINANCIAL DISCLOSURE

           Not applicable.

                                     - 66 -
<PAGE>


PART  III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The  information  required by Item 10 is incorporated by reference from the
     sections  titled  "Directors  and Executive  Officers"  and "Section  16(a)
     Beneficial  Ownership  Reporting  Compliance"  in the Company's  definitive
     proxy statement for its annual stockholders' meeting.

ITEM 11.   EXECUTIVE COMPENSATION

     The  information  required by Item 11 is incorporated by reference from the
     section titled "Executive  Compensation" in the Company's  definitive proxy
     statement for its annual  stockholders'  meeting,  excluding,  however, the
     sections titled "Executive Compensation - Performance Graph" and "Executive
     Compensation  -  Report  on  Executive  Compensation  by  the  Compensation
     Committee of the Board of  Directors,"  none of which are  incorporated  by
     reference in response to this item.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  information  required by Item 12 is incorporated by reference from the
     sections  titled  "Share  Ownership"  in  the  Company's  definitive  proxy
     statement for its annual stockholders' meeting.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required by Item 13 is incorporated by reference from the
     sections titled "Certain  Relationships  and Related  Transactions"  in the
     Company's definitive proxy statement for its annual stockholders' meeting.


                                     - 67 -
<PAGE>




PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K


     Exhibits required by Item 601 of Regulation S-K.
<TABLE>
<CAPTION>

                                  EXHIBIT INDEX

<S>               <C>
3.2.1+             Articles of Amendment and Restatement of Mission West Properties, Inc.
3.2.2+             Restated Bylaws of Mission West Properties, Inc.
10.1.1**           Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P.
10.1.2**           Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P. I
10.1.3**           Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P. II
10.1.4**           Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P. III
10.2**             Exchange Rights Agreement between Mission West Properties and the Limited Partners
10.3.1*            1997 Stock Option Plan
10.3.2*            Form of Incentive Stock Option Agreement
10.3.3*            Form of Non-statutory Stock Option Agreement
10.3.4*            Form of Directors Stock Option Agreement
10.4.1*            Acquisition Agreement, dated as of May 14, 1998, among Mission West Properties, certain partnerships and the Berg
                   Group (as defined therein)
10.4.2*            Amendment of Acquisition Agreement, dated as of July 1, 1998
10.4.3*            Form of Partnership Interest Purchase Demand Note
10.5.1*            Stock Purchase Agreement dated as of May 4, 1998, between Mission West Properties and the purchasers of Common
                   Stock in a private placement of 5,800,000 shares and Subscription Agreement relating to same
10.5.2*            Stock Purchase Agreement dated as of May 4, 1998 between Mission West Properties and the purchasers of Common
                   Stock in a private placement of 695,058 shares and Subscription Agreement relating to same
10.5.3**           Form of Registration Rights Agreement for purchasers, who acquired shares of Common Stock under the May 4, 1998
                   Stock Purchase Agreements (filed as Exhibits 10.8 to Post-effective Amendment No. 1 to S-4 Registration Statement
                   filed on Form S-3 on February 11, 1999. Commission File No. 333-52835-99)
10.6**             Pending Projects Acquisition Agreement among Mission West Properties, the Operating Partnership and the
                   Berg Group
10.7**             Berg Land Holdings Option Agreement between Mission West Properties and certain members of the Berg Group
10.8*              Berg & Berg Enterprises, Inc. Sublease Agreement
10.9++             Amended and Restated Stock Option Agreement for Michael J. Anderson (200,000 shares of Common Stock)
10.10*             Restricted Stock Purchase Agreement for Michael J. Anderson (200,000 shares of Common Stock)
10.11*             Promissory Note from Michael J. Anderson
10.12*             Lease Agreement with Apple Computer, Inc.
10.13*             Lease Agreement with Cisco Systems, Inc,
10.14*             Lease Agreement with Amdahl Corporation
10.15*             Prudential Promissory Note
10.16*             Prudential Deed of Trust
10.17*             Prudential Certificate Regarding Distribution
10.18*             Prudential Guaranty
10.19+             Waiver Agreement
10.20**            Ownership Limit Exemption Agreement dated December 29, 1999 between Mission West Properties and Dan and
                   Paul McCarthy
10.21x             Lease Agreement with Microsoft Corporation
10.22x             Contribution Agreement
10.23xx            Assumption Agreement for Wells Fargo Line of Credit
10.24xx            Form of secured note payable to the Berg Group
10.25xx            Form of deed of trust granted to the Berg Group
10.26xx            Supplemental Agreement among Mission West Properties, Inc., Carl E. Berg and Clyde J. Berg
10.27              Revolving Credit - $75,000,000 Secured Promissory Note

                                     - 68 -

<PAGE>

10.28              Deed of Trust Securing Revolving Promissory Note
21.1++             Subsidiaries of the Registrant
24.1xx             Powers of Attorney (included in the signature page on page ___ of this report)
27.1               Financial Data Schedule
</TABLE>


*    Incorporated  herein  by  reference  to the  same-numbered  exhibit  to the
     Company's  Registration  Statement  on Form S-4  filed on May 15,  1998 and
     declared effective on November 23, 1998
**   Incorporated  herein  by  reference  to the  same-numbered  exhibit  to the
     Company's  Post-effective Amendment No. 1 to Registration Statement on Form
     S-4  filed  on  Form  S-3  on  February  11,  1999.  (Commission  File  No.
     333-52835-99).
+    Incorporated herein by reference to the same-numbered  exhibit to Amendment
     No. 4 to the Registration  Statement on Form S-4 filed on November 16, 1998
     and declared effective on November 23, 1998.
++   Incorporated herein by reference to the same-numbered exhibit to the annual
     report on Form 10-K for 1998 filed on March 31, 1999.
x    Incorporated  herein by reference to the  same-numbered  exhibit to current
     report on Form 8-K filed on May 14, 1999 (Commission File No. 000-25235).
xx   Incorporated  herein  by  reference  to the  same-numbered  exhibit  to the
     Registration  Statement on Form S-11 filed on June 8, 1999 (Commission File
     No. 333-80203).


     (b)  Reports on Form 8-K.

The  registrant has not filed any reports on Form 8-K during the last quarter of
the period covered by this report.

                                     - 69 -
<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  of the  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                         MISSION WEST PROPERTIES, INC.

Date: March 30, 2001                     By: /s/ CARL E. BERG
                                            ----------------------
                                            Carl E. Berg
                                            Chairman of the Board, Chief
                                            Executive Officer, President and
                                            Director

Date: March 30, 2001                     By: /s/ WAYNE N. PHAM
                                            ----------------------
                                            Wayne N. Pham
                                            Vice President of Finance and
                                            Controller (Principal Accounting
                                            Officer)

KNOW ALL PERSONS BY THESE  PRESENTS,  that each person whose  signature  appears
below constitutes and appoints Carl E. Berg his true and lawful attorney-in-fact
with the power of  substitution,  to sign any  amendments to this Report on Form
10-K  and to file the  same,  with  exhibits  thereto  and  other  documents  in
connection  therewith,  with the  Securities  and  Exchange  Commission,  hereby
ratifying and confirming all that each of said  attorney-in-fact,  or his or her
substitute, may do or choose to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.

     Signature                         Title                          Date

/s/  CARL E. BERG
-----------------------
Carl E. Berg                Chairman of the Board, Chief          March 30, 2001
                            Executive Officer, President and
                            Director
/s/  JOHN C. BOLGER
-----------------------
John C. Bolger              Director                              March 30, 2001

/s/  WILLIAM A. HASLER
-----------------------
William A. Hasler           Director                              March 30, 2001

/s/  LAWRENCE B. HELZEL
-----------------------
Lawrence B. Helzel          Director                              March 30, 2001



                                     - 70 -
<PAGE>


EXHIBIT 10.27


                                REVOLVING CREDIT
                             SECURED PROMISSORY NOTE
                                    ("Note")

$75,000,000.00                                                     March 1, 2000

FOR  VALUE  RECEIVED,   Mission  West  Properties,   L.P.,  a  Delaware  limited
partnership,  Mission West Properties,  L.P. I, a Delaware limited  partnership,
Mission West Properties  L.P. II, a Delaware  limited  partnership,  and Mission
West  Properties,   L.P.  III,  a  Delaware  limited  partnership  (collectively
"Borrower"),  promises  to pay to the order of Berg & Berg  Enterprises,  LLC, a
California limited liability company ("Lender") or its assigns, at 10050 Bandley
Drive, Cupertino, California 95014, or at such other place as the holder of this
Note may from time to time designate,  the principal sum of Seventy-Five Million
Dollars  ($75,000,000.00) (the "Credit Amount") or so much of that sum as may be
advanced  under  this Note from time to time by any  holder,  plus  interest  as
computed herein.

Interest on the principal sum of this Note from time to time outstanding will be
computed  from the date of each  advance of  principal  at LIBOR plus 1.30% (the
"Applicable  Interest Rate").  Interest will be computed on the basis of a three
hundred sixty (360) day year and the actual  number of days elapsed,  which will
result in the payment of more interest than if a 365-day year were used.

All accrued and unpaid  principal and interest shall be due and payable no later
than March 1, 2002.

Advances under this Note may be drawn by Borrower, up to the Credit Amount, upon
not less than 5 days notice to Lender.

Each payment shall be credited  first on the interest then due and the remainder
on the principal sum.

The undersigned  agrees that the holder of this Note may,  without notice to the
undersigned  and without  affecting  the  liability of the  undersigned,  accept
additional or substitute  security for this Note, or release any security or any
party liable for this Note, or extend or renew this Note.

If the  undersigned consists of more than one person or entity,  their liability
and obligations under this Note will be joint and several.  Borrower jointly and
severally waives diligence,  presentment, protest and demand, notice of protest,
dishonor and  non-payment of this Note,  expressly  agrees that this Note or any
payment  hereunder,  may be  extended  from time to time,  and  consents  to the
acceptance of further security for this Note, including other types of security,
all without in any way affecting  the  liability of the  Borrower.  The right to
plead any and all  statutes  of  limitations  as a defense to any demand on this
Note, or on any guaranty hereof,  or to any agreement to pay the same, or to any
demand  secured by the Deed of Trust,  or other  security,  securing  this Note,
against Borrower,  the holder of any property encumbered by the Deed of Trust or
other  instrument  securing  this  Note,  and any  guarantors  or  sureties,  is
expressly waived by each and all said parties.

All amounts  payable  under this Note are payable in lawful  money of the United
States, free from any offset, deduction or counterclaim.  Checks will constitute
payment only when collected.

Upon any  default in the  payment of any amounts due under this Note or upon any
default under the Deed of Trust, the holder may, at its option and upon ten (10)
days' written notice to the undersigned, declare the entire unpaid principal sum
of this Note together with all accrued interest to be due and payable  provided,
however, that if the undersigned should cure such default under this Note or the
Deed of Trust within the time period described above, the right of the holder to
declare the entire  unpaid  principal sum of this Note together with all accrued
interest immediately due and payable shall terminate as to such default as if no
such default occurred.

The undersigned  agrees to pay all costs of collection when incurred,  including
but not  limited  to  reasonable  attorneys'  fees.  If any  suit or  action  is
instituted to enforce this Note, the undersigned promises to pay, in addition to
the costs and disbursements  otherwise allowed by law, such sum as the court may
adjudge as reasonable attorneys' fees in such suit or action.

This Note may be prepaid in whole or in part at any time without penalty.  Until
the maturity  date,  including all  extensions  thereof,  amounts  repaid may be
subsequently advanced under this Note, up to the Credit Amount.

This Note will be governed by the laws of the State of California.

This Note is a  non-recourse  loan secured by a Deed of Trust and  Assignment of
Rents (the "Deed of Trust")  executed by the  undersigned in favor of Lender and
covering  real  property  located  in San  Jose,  California.  The Deed of Trust
contains provisions for the acceleration of the maturity of this Note.

         Mission West Properties, L.P.,
         Mission West Properties, L.P. I,
         Mission West Properties, L.P. II, and
         Mission West Properties, L.P. III

         By: Mission West Properties, Inc., their general partner


            /s/ Carl E. Berg
            -----------------------------------------
            By: Carl E. Berg, President