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, 2003

                                       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 $.001                 American Stock Exchange
          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 [ ] NO [X]

     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. [ ]

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

     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 June
30,  2003,  as  reported  on the  American  Stock  Exchange,  was  approximately
$201,700,287.  As of  July  15,  2004,  there  were  18,063,691  shares  of  the
Registrant's Common Stock outstanding.

Documents Incorporated By Reference: None



<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   include  our  discussion  of  "Quantitative   and
Qualitative  Disclosures  about Market Risks" in Item 7A below.  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 the Company  (including changes to laws governing the taxation of Real
Estate Investment Trusts  ("REITs")),  availability of capital,  interest rates,
competition,  supply of and demand for office and  industrial  properties in our
current and proposed market areas, tenant defaults and bankruptcies, and general
accounting principles, policies and guidelines applicable to REITs. In addition,
the actual timing of development, construction, and leasing on the projects that
the Company  believes it may acquire in the future under the Berg Land  Holdings
Option Agreement is unknown presently.  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.
                          2003 FORM 10-K ANNUAL REPORT

                                Table of Contents
<TABLE>
<CAPTION>


                                     PART I
                                                                                                Page No.
<S>            <C>                                                                                  <C>
Item 1.         Business                                                                             1

Item 2.         Properties                                                                           16

Item 3.         Legal Proceedings                                                                    22

Item 4.         Submission of Matters to a Vote of Security Holders                                  22

                                     PART II

Item 5.         Market for the Registrant's Common Equity and Related
                Stockholder Matters                                                                  23

Item 6.         Selected Financial Data                                                              24

Item 7.         Management's Discussion and Analysis of Financial
                Condition and Results of Operations                                                  26

Item 7A.        Quantitative and Qualitative Disclosures about Market Risk                           48

Item 8.         Financial Statements and Supplementary Data                                          49

Item 9.         Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure                                                  84

Item 9A.        Controls and Procedures                                                              84

Item 9B         Other Information                                                                    84

                                    PART III

Item 10.        Directors and Executive Officers of the Registrant                                   85

Item 11.        Executive Compensation                                                               88

Item 12.        Security Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters                                                                  91

Item 13.        Certain Relationships and Related Transactions                                       94

Item 14.        Principal Accountant Fees and Services                                               96

                                     PART IV

Item 15.        Exhibits, Financial Statements, Schedules and Reports
                on Form 8-K                                                                          98

                Signatures                                                                           100

                Rule 13a-14 Certifications                                                           101
</TABLE>


                                       ii
<PAGE>

PART I

ITEM 1. BUSINESS

     ORGANIZATION AND GENERAL BUSINESS DESCRIPTION

     Mission West Properties,  Inc. (the "Company") acquires,  markets,  leases,
     and manages Research and Development ("R&D") properties,  primarily located
     in the Silicon Valley portion of the San Francisco Bay Area. As of December
     31, 2003, we owned and managed 109 properties  totaling  approximately  7.9
     million  rentable  square  feet  of R&D  properties  through  four  limited
     partnerships, or operating partnerships,  for which we are the sole general
     partner.  R&D 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.  There  are  six  tenants  who
     individually  lease in  excess of  300,000  rentable  square  feet from us:
     Microsoft  Corporation,  Fujitsu America (a subsidiary of Fujitsu Limited),
     JDS Uniphase  Corporation,  NEC Electronics America,  Inc. (a subsidiary of
     NEC Electronics  Corporation),  Ciena Corporation and Apple Computer,  Inc.
     For  federal  income  tax  purposes  we have  operated  as a  self-managed,
     self-administered   and  fully  integrated  Real  Estate  Investment  Trust
     ("REIT") since fiscal 1999.

     Prior to July 1, 1998,  most of our properties  were under the ownership or
     control of Carl E. Berg,  his  brother  Clyde J. Berg,  certain  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
     comprising   approximately  560,000  rentable  square  feet  from  entities
     controlled   by  third  parties  in  which  the  Berg  Group  members  were
     significant owners.

     Through  various  property  acquisition  agreements with the Berg Group and
     subject to the approval of the Independent Directors Committee of the Board
     of Directors,  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 and financing construction.  Since September 1998, we have acquired
     approximately  3,135,000  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 became the vehicle for substantially all of the Silicon Valley R&D
     property operating 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 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, subject to approval of the Independent Directors Committee of
          the Board of  Directors,  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, subject to approval of the
          Independent Directors Committee of the Board of Directors.

     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;

     -    exchange their operating  partnership interests ("O.P. Units") for our
          common stock;

                                     - 1 -
<PAGE>

     -    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  Chairman of the Board of Directors 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  35 years,  most  recently  through  Berg & Berg
     Enterprises  ("Berg & 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 board 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,  growth and operating strategy  incorporates the following
     elements:

     -    working with the Berg Group to take  advantage of their  abilities and
          resources to pursue development  opportunities which we have an option
          to acquire, on pre-negotiated terms, upon completion and leasing;

     -    capitalizing  on  opportunistic  acquisitions  from  third  parties of
          high-quality R&D 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,  if any, in rentable square footage
     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.  For  example,  in early 2003 we acquired
     from the Berg Group a 50%  interest in a joint  venture,  TBI-Mission  West
     LLC, which consists of four R&D properties totaling  approximately  593,000
     rentable  square feet. In addition to this project,  the Berg Land Holdings
     Option  Agreement  gives  us the  right  to  acquire  future  R&D  property
     developments  by the  Berg  Group  on up to 84  additional  acres  of  land
     currently  controlled by the Berg Group, which could support  approximately
     1.37 million square feet of new developments. Nevertheless, at this time we
     do not anticipate acquiring any additional newly constructed R&D properties
     from the Berg  Group  for  several  years  because  of the  current  market
     conditions in the Silicon Valley.

     In light of this  overcapacity  in the market,  the Berg Group currently is
     seeking local  government  approval of a proposed  rezoning of the 160-acre
     Evergreen site to permit residential  development on a substantial  portion
     of the site. The Independent Directors Committee,  which is responsible for
     reviewing,   evaluating  and   authorizing   action  with  respect  to  any
     transaction between us and any of the Berg Group, has authorized removal of
     the  Evergreen  site  from  the  scope  of the Berg  Land  Holdings  Option
     Agreement,  subject  to the  completion  of the  rezoning  of the  160-acre
     Evergreen site, or portion thereof, for residential development.  In making
     this determination, the Independent Directors Committee considered a number
     of factors, including risks and other potentially adverse consequences that
     could be associated with large scale  residential  development  activities.
     Any  portion  of the  Evergreen  site that is not  rezoned  as  residential
     property  is not  deemed  to be  removed  from the  scope of the Berg  Land
     Holdings Option  Agreement and would remain  eligible for potential  future
     acquisition under the Berg Land Holdings Option Agreement.


                                     - 2 -
<PAGE>

     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 an  option to
     purchase  all land  acquired,  directly or  indirectly,  by Carl E. Berg or
     Clyde J. Berg that has not been improved with completed buildings and which
     is zoned for, intended for or appropriate for R&D, office and/or industrial
     development or use in the states of California,  Oregon and Washington.  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
     Directors  Committee  decides  whether  we  will  pursue  each  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 ("Fully Diluted"), falls below 25%.

     As of December 31, 2003, we had acquired 20 leased R&D properties  totaling
     approximately 1,992,000 rentable square feet under this agreement at a cost
     of approximately  $205.2 million,  for which we issued 7,933,849 O.P. Units
     and assumed debt of approximately $118 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  Berg  Land  Holdings  Option  Agreement  at  such  time as the
          building has been leased.  Upon our exercise of the option, the option
          price  will  equal  the sum of the  following  or a lesser  amount  as
          approved by the Independent Directors Committee:

          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
          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 property 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,
          including  any  variations  from stated terms  outlined  above must be
          approved  by a majority of the  members of the  Independent  Directors
          Committee of our Board of Directors.

     As a general policy which has been established by the Independent Directors
     Committee, we do not acquire properties under the Berg Land Holdings Option
     Agreement until they have been leased. We are responsible for a significant
     portion  of the  leasing  process  in  connection  with such  acquisitions,
     however.

                                     - 3 -

<PAGE>


     The following  table  presents  certain  information  concerning  currently
     identified  land  that we have the  right to  acquire  under  the Berg Land
     Holdings Option Agreement.

<TABLE>
<CAPTION>

                                                              Approximate Rentable
     Property                              Net Acres            Area (Square Feet)
     -------------------------------- -------------------- --------------------------
<S>                                           <C>                <C>
     AVAILABLE LAND:
     Piercy & Hellyer                          30                   490,000
     Morgan Hill (1)                           18                   288,025
     King Ranch                                12                   207,000
     Fremont & Cushing                         24                   387,000
                                      -------------------- --------------------------
                       TOTAL                   84                 1,372,025
                                      ==================== ==========================
</TABLE>


(1)  We expect to own an approximate 50% interest in the partnership through one
     of our operating partnerships. The property will be operated and managed by
     the other joint venture partner in the entity.

     Although we expect to acquire new properties or joint ventures available to
     us under the terms of the Berg Land Holdings Option  Agreement,  subsequent
     to the approval by the  Independent  Directors  Committee,  there can be no
     assurance   that  we  actually   will   consummate   any  of  the  intended
     transactions. 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,
     Funds From Operation ("FFO") 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."

     Given the downturn in the Silicon  Valley real estate market for R&D/office
     properties, we may not be able to maintain historical levels of growth from
     acquisitions of new developments in the future.

     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  and  information  technology  professionals,  and
     overall  financial  condition  will continue to provide  opportunities  for
     external  growth.  Our April  2003  acquisition  of  approximately  625,000
     rentable square feet of R&D properties in the San Tomas  Technology Park is
     an example of this. 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 historically contributed
     to the relatively low turnover and high occupancy  rates on our properties.
     We believe that the  relatively  small number of tenants (78) occupying our
     109 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.

                                     - 4 -

<PAGE>


     RECENT RENTAL MARKET DEVELOPMENTS

     All of the Company's properties are located in the Northern California area
     known as Silicon  Valley,  which  generally  consists  of portions of Santa
     Clara County,  Southwestern  Alameda County,  Southeastern San Mateo County
     and Eastern  Santa Cruz  County.  The Silicon  Valley  economy and business
     activity slowed markedly during 2001 through 2003 after  fast-paced  growth
     in 1999 and  2000.  In the past  several  years,  the  Silicon  Valley  R&D
     property  market has  fluctuated  with the local  economy.  According  to a
     recent  report by BT  Commercial  Real  Estate,  vacancy  rates for Silicon
     Valley R&D property increased from approximately  21.9% in late 2002 to 23%
     at the end of 2003 and 23% as of June 30,  2004.  Total  vacant  R&D square
     footage in Silicon Valley at the end of the fourth quarter of 2003 amounted
     to 35.6 million square feet, of which 33.7%, or 12 million square feet, was
     sublease space.  Total negative net absorption (which is the computation of
     gross square footage  leased less gross new square footage  vacated for the
     period  presented) in 2002 amounted to approximately  (10.9) million square
     feet.  For the  year  2003,  total  negative  net  absorption  declined  to
     approximately  (4.0)  million  square  feet as  local  economic  conditions
     improved,  but the overall R&D property market did not recover.  The impact
     of vacancies has not been uniform throughout the area, however. The Silicon
     Valley R&D property  market is  characterized  by a  substantial  number of
     submarkets,  with rent and vacancy  rates varying by submarket and location
     within each submarket.  In addition, the time to complete the marketing and
     lease up of vacant space has increased from an average of several months to
     as much as an  average  of 6 to 18  months  as a  result  of the  increased
     vacancy in the  market.  For the years  ended  December  31, 2003 and 2002,
     average occupancy in our portfolio was 80.5% and 90%,  respectively.  Prior
     to the first quarter of 2002, we had achieved  historical average occupancy
     levels  of above  98% since  1999.  We  believe  that  maintaining  average
     occupancy  levels  above  98% will not be  sustainable  given  the  current
     economic  environment,  as  evidenced  by  our  occupancy  level  of 77% at
     December  31, 2003 and 72% at June 30,  2004.  Although  we have  stringent
     lease  underwriting   standards  and  continually  evaluate  the  financial
     capacity of both our prospective and existing tenants to proactively manage
     portfolio  credit  risk,  a  downturn  in  tenants'  businesses  may weaken
     tenants'  financial  conditions  and could  result in defaults  under their
     lease  obligations.  We believe that the average 2003 renewal  rental rates
     for our  properties  will be  approximately  equal  to, or  perhaps,  below
     current rents.  In addition,  leasing  activity for new  build-to-suit  and
     vacated R&D  properties  has slowed  considerably  during the past  several
     years. Leases representing  approximately  863,000 square feet, or 11.7% of
     our 2004  annualized  base rent, are scheduled to expire during 2004. If we
     are unable to lease a  significant  portion  of any  vacant  space or space
     scheduled to expire;  if we  experience  significant  tenant  defaults as a
     result of the  current  economic  downturn;  or if we are not able to lease
     space at or above current market rates,  our results of operations and cash
     flows will be adversely affected.

     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  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.  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.

                                     - 5 -
<PAGE>

     -    LEAN  ORGANIZATION,  EXPERIENCED  TEAM. In part because of our primary
          focus on Silicon  Valley,  our experience with the special real estate
          requirements  of  information  technology  tenants  and the  long-term
          triple-net  structure of our 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 of our
          organization  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, we believe this
          lower  cost  structure  allows  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 limited  partnerships
     engaged in the combined operation and ownership of all our properties.  The
     operating partnership agreements are identical in all material respects for
     all four of the limited  partnerships.  Pursuant to  operating  partnership
     agreements,   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  generally  have 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  directs the
     business of the operating partnerships.

     Notwithstanding  our effective control of the operating  partnerships,  the
     Berg Group holds a substantial  majority of the outstanding  O.P. Units and
     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.

     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,
     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.

                                     - 6 -

<PAGE>


     TRANSFERABILITY OF O.P. UNITS

     The operating partnership  agreements provide 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  agreements.  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 Carl E. Berg and Clyde J. Berg,  may  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 will 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.

     The shares of our common  stock  issuable  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 were registered under the Securities
     Act 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 affect 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

                                     - 7 -

<PAGE>

     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 affect 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 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, 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  Stock  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 agreements.

     EMPLOYEES

     As of July 15,  2004,  we  employed  four  people,  all of whom work at our
     executive offices at 10050 Bandley Drive, Cupertino, California, 95014.

     FACILITIES

     We sublease office space at 10050 Bandley Drive, Cupertino, California from
     Berg & Berg  Enterprises,  Inc. and share clerical staff and other overhead
     on what we consider to be very  favorable  terms.  The total  monthly  rent
     payable by us to Berg & Berg Enterprises, Inc. is $7,520.

     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 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

                                     - 8 -
<PAGE>

     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.  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
     calculated on a Fully Diluted basis. 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  75.1% of the equity interests in the operating
     partnerships  and  approximately  75.1% of our equity  interests on a Fully
     Diluted basis. 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  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,  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.

                                     - 9 -
<PAGE>

     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 $7,520 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.

     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-trading-day  period  preceding  the  acquisition  date.  At the  time of
     acquisition,  which is subject to the approval of the Independent Directors
     Committee  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.  The
     Independent  Directors  Committee  recently  authorized  the  removal  of a
     160-acre  site from the Berg Land  Holdings  Option  Agreement  if the Berg
     Group is able to obtain  residential  development zoning for any portion of
     this land. The Independent Directors Committee determined that this site is
     not  likely to be of future  development  interest  to us,  and so the Berg
     Group is now able to pursue its own residential  development  opportunities
     for this site.  Any  portions of such site that are rezoned as  residential
     will no longer be subject to the Berg Land  Holdings  Option  Agreement and
     will not provide any future benefit to us.

     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 two 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.

                                     - 10 -
<PAGE>

     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, 2003, we had borrowed  approximately
     $6.3  million  under our $20  million  line of credit  with the Berg Group,
     which is  collateralized  by five of our  properties  and  expires in March
     2005.  The line of credit  bears  interest  at an annual rate of LIBOR plus
     1.30%.  The Berg Group has no  obligation to renew this line of credit when
     it  expires,  and we may be unable to obtain a similar  credit  facility on
     comparable terms. We are also liable under a mortgage loan of $10.8 million
     due June 2010 that we assumed in  connection  with our  acquisition  of the
     5300-5350  Hellyer Avenue R&D properties 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.  Potential  actions by the Berg Group to
     enforce these obligations could result in the foreclosure in one or more of
     our properties and a 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 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."

     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.  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

                                     - 11 -
<PAGE>

     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  weakening  for the past few
     years, and future  increases in values and rents for our properties  depend
     to a significant extent on the recovery 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. We
     may lose tenants when existing leases expire because it may be difficult to
     re-lease  the  same  property  due  to  substantial   overcapacity  of  R&D
     properties  in the  Silicon  Valley at present.  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.  Moreover,  to retain key tenants upon the expiration of
     existing  leases we may need to reduce  rents,  which also could  adversely
     affect our operating results and ability to make distributions.

     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 rental income.  Under the
     bankruptcy  laws,  these  tenants may have the right to reject their leases
     with us and our claim for rent will be limited  to the  greater of one year
     or 15% of the total amount giving under the leases upon default, but not to
     exceed three years of the remaining term of the lease following the earlier
     of the petition filing date or the date on which we gained  repossession of
     the  property,  as well as any rent that was unpaid on the earlier of those
     dates.

     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.  When the Berg Group line of credit  expires in March  2005,  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.   Under  our  mortgage  loan   agreements  with
     Northwestern Mutual Life Insurance Company, the payment of all $100 million
     outstanding  could be accelerated  upon the sale or certain other transfers
     of more than 51% of the total  number  of O.P.  Units and  shares of common
     stock of the  Company  held by the  members of the Berg  Group.  We have no
     reason to expect such a sale or transfer in the foreseeable future, but the
     members of the Berg Group have no obligation to us to refrain from any such
     sale  or  other  transfer.  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  could  have  a  material  adverse  effect  on our
     financial  condition,  our  operating  results  and  our  ability  to  make
     distributions to our stockholders.

                                     - 12 -
<PAGE>

     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  distributions  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 90% of our  otherwise  taxable
     income, after certain  adjustments,  with respect to each tax year. We also
     may  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.

     STOCKHOLDERS ARE NOT ASSURED OF RECEIVING CASH DISTRIBUTIONS FROM US.

     Our income  consists  primarily of our share of the income of the operating
     partnerships,  and  our  cash  flow  consists  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;

     -    our projected rental rates and revenues; and

                                     - 13 -
<PAGE>

     -    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 the  acquisition  of any of our  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 distributions 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 Carl
     E. 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,  all O.P.  Unit  holders may tender their O.P.  Units to us in
     exchange 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, 2003, all outstanding
     shares of our common stock,  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  eligible  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(e) on the number of shares that may
     be sold within a three-month period.

     RISKS RELATED TO OUR BUSINESS

     If we are unable to  strengthen  our  internal  controls,  there could be a
     material adverse effect on our operations or financial results.

     In connection with the audit of our consolidated  financial  statements for
     the years ending December 2003,  2002 and 2001, our independent  registered
     public accounting firm, BDO Seidman ("BDO"), identified a material weakness
     in internal controls which led to certain  accounting  adjustments for 2003
     and certain  restatements for 2002 and 2001 as more fully described in Item
     9A of this form 10-K. In addition due to our total head count of four,  BDO
     also identified certain  segregation of duties issues without  compensating
     controls.  To address these issues, we will need to continue to improve our
     financial and managerial  controls and procedures in the future.  If we are
     unable to maintain an adequate  level of financial  processes and controls,
     we may not be able to  accurately  report our  financial  performance  on a
     timely basis and our business and stock price would be harmed.

                                     - 14 -
<PAGE>
     In addition,  we are in the process of instituting  changes to our internal
     procedures  in order to satisfy  the  requirements  of  Section  404 of the
     Sarbanes-Oxley  Act, which requires  annual  management  assessments of the
     effectiveness  of our internal  controls  over  financial  reporting  and a
     report by our  independent  registered  public  accounting  firm addressing
     these  assessments.  If we fail to maintain  the  adequacy of our  internal
     controls, as such standards are modified, supplemented or amended from time
     to time,  we may not be able to ensure  compliance  with Section 404 of the
     Sarbanes-Oxley  Act.  Failure  to  achieve  such  compliance  could  have a
     material adverse effect on our business and stock price.

     THE VALUE AND MARKETABILITY OF OUR COMMON STOCK COULD BE ADVERSELY AFFECTED
     BY ANY FAILURE TO FILE TIMELY  PERIODIC  REPORTS UNDER  FEDERAL  SECURITIES
     LAWS.

     In January 2004, our former independent accountants, PricewaterhouseCoopers
     LLP ("PWC") resigned  without issuing their report of independent  auditors
     for 2003, and subsequent to the date of their  resignation,  advised us not
     to rely on their  reports of  independent  auditors for 2002 and 2001. As a
     direct result of PWC's  actions,  we were unable to timely file this report
     on Form 10-K and report on Form 10-Q for the first quarter of 2004.  Due to
     these  filing  delinquencies  and our  inability  to  promptly  retain  new
     independent accountants, on March 19, 2004, the American Stock Exchange, or
     AMEX, notified us that we were not in compliance with its continued listing
     standards  and  required  us to  submit  a  compliance  form.  Through  the
     appointment of BDO Seidman,  LLP ("BDO") as our new independent  registered
     public  accounting firm and filing of this annual report, we have satisfied
     certain of the conditions of the AMEX compliance  plan. To become compliant
     with the AMEX continued listing standards,  we must also file our quarterly
     reports  on Form 10-Q for the first and  second  quarter of 2004 as soon as
     practicable  following  the  filing  of the Form 10-K for 2003 but no later
     than August 31, 2004.  As a result of the  resignation  of PWC, the Company
     estimates  that  it  will  incur  additional  legal,   administrative   and
     accounting  expenses  of at least  approximately  $750,000,  which  will be
     recorded  as a 2004  expense.  We cannot  assure you that  similar or other
     events  will not occur in the  future,  the result of which may be to delay
     the filing of required periodic reports under the federal  securities laws,
     and cause the delisting of our common stock on AMEX without an  alternative
     stock  exchange or market  listing.  These  events  could hinder or prevent
     trading  of our  common  stock or cause  the price of our  common  stock to
     decline materially. In addition, our late SEC filings constituted events of
     default  under  two of our  loan  arrangements.  Both  lenders  waived  our
     default, but there can be no assurance that a similar default in the future
     would not result in acceleration of one or more of our loan balances, which
     could adversely impact our financial condition, cash flows and stock price.

     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
     distributions.  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 principally on the facility requirements of information technology
     companies in the Silicon Valley, which include space for office, R&D, 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,  following the current significant slow down in the market,  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 enables 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/office  type  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 have terms ranging from one to eleven
     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,  and  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 at or below market rates.

     PROPERTY PORTFOLIO

     All of our properties  are R&D/office  type  properties.  Generally,  these
     properties   are  one-  to   two-story   buildings   of  tilt-up   concrete
     construction,  have on average  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 211,000  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, 2003:

<TABLE>
<CAPTION>

                                                                                                          Major
                                                                                                         Tenants'
                                         Total      Percentage       Average                             Rentable
                              No. of    Rentable   Leased as of       2003                                Sq. Ft.       2003 Annual
Location                    Properties   Sq. Ft.   Dec. 31, 2003    Occupancy    Major Tenants          at 12/31/03    Base Rents(1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>    <C>               <C>            <C>       <C>                    <C>           <C>
5300-5350 Hellyer Avenue (3)     2      160,000         100%           100%      Tyco Electronics        160,000       $ 3,316,116
                                                                                 Corporation

10401-10411 Bubb Road (3)        1       20,330         100%            87%      Celerity Systems, Inc.   20,330           311,909

45365 Northport Loop West        1       64,218          31%            42%      Applied Micro Circuits   19,727           452,657
                                                                                 Corp.

45700 Northport Loop East        1       47,570         100%           100%      Philips Electronics      47,570           789,180

45738 Northport Loop West        1       44,256         100%           100%      EIC Corporation          44,256           584,872

4050 Starboard Drive             1       52,232         100%           100%      Flash Electronics, Inc.  52,232           564,108

3501 W. Warren Avenue &          1       67,864          24%            36%      RIAS Corporation         16,000           480,645
46600 Fremont Blvd.

                                     - 16 -
<PAGE>
                                                                                                            Major
                                                                                                           Tenants'
                                         Total      Percentage       Average                               Rentable
                              No. of    Rentable   Leased as of       2003                                  Sq. Ft.     2003 Annual
Location                    Properties   Sq. Ft.   Dec. 31, 2003    Occupancy    Major Tenants            at 12/31/03  Base Rents(1)
------------------------------------------------------------------------------------------------------------------------------------
48800 Milmont Drive              1       53,000           0%            33%      Vacant                                    216,352

4750 Patrick Henry Drive         1       65,780           0%             0%      Vacant                                          -

Triangle Technology Park (3)     7      416,927          67%            86%      Intevac Corporation       119,583       6,795,064
                                                                                 JDS Uniphase Corporation   50,212
                                                                                 Xicom Technology, Inc.     47,480
                                                                                 Diligent Software          25,350
                                                                                 Systems Corp.              19,600
                                                                                 IXYS Technologies, Inc.

5850-5870 Hellyer Avenue         1      109,715           7%             7%      Silver Creek Valley         7,675         123,996
                                                                                    Church

5750 Hellyer Avenue              1       73,312           0%             0%      Vacant                                         -

800 Embedded Way                 1      239,000           0%             0%      Vacant                                         -

5500-5550 Hellyer Avenue         2      196,534          23%            23%      ACT Electronics, Inc.      46,120         647,986

5400 Hellyer Avenue              1       77,184         100%           100%      Jetstream                  77,184       1,231,496
                                                                                 Communications, Inc.

5325-5345 Hellyer Ave.           2      256,500         100%           100%      Celestica Asia, Inc.      256,500       4,707,096

5905-5965 Silver Creek           4      346,000         100%           100%      CIENA Corporation         346,000       7,839,906

855 Embedded Way                 1       67,912         100%           100%      Lynuxworks, Inc.           67,912       1,317,168

1065 La Avenida Street           5      515,700         100%           100%      Microsoft Corporation     515,700      21,151,328

1750 Automation Parkway          1       80,641         100%           100%      JDS Uniphase Corporation   80,641       1,681,274

1756 Automation Parkway          1       80,640         100%           100%      JDS Uniphase Corporation   80,640       1,919,964

1762 Automation Parkway          1       61,100         100%           100%      JDS Uniphase Corporation   61,100       2,213,980

1768 Automation Parkway          1      110,592         100%           100%      JDS Uniphase Corporation  110,592       3,301,200

255 Caspian Drive                1       98,500           0%             0%      Vacant                                          -

245 Caspian Drive (5)            1            -           0%             0%      Vacant                                          -

5970 Optical Court (2)           1      128,520         100%             0%      Photon Dynamics, Inc.     128,520               -

5900 Optical Court               1      165,000         100%           100%      Stryker Endoscopy         165,000       4,257,000

2630 Orchard Parkway             1       60,633           0%             0%      Vacant                                          -

2610 Orchard Parkway (4)         1       54,093         100%           100%      Cadence Design Systems,    54,093       1,165,712
                                                                                 Inc.

55 West Trimble Road (4)         1       91,722         100%           100%      Cadence Design Systems,    91,722       1,976,368
                                                                                 Inc.

2001 Walsh Avenue (2)            1       80,000         100%           100%      NEC Electronics America,   80,000         530,282
                                                                                 Inc.

2880 Scott Boulevard (2)         1      200,000         100%           100%      NEC Electronics America,  200,000       2,183,251
                                                                                 Inc.

2890 Scott Blvd. (2)             1       75,000         100%           100%      NEC Electronics America,   75,000       1,549,757
                                                                                 Inc.

2800 Scott Blvd. (2)             1       98,430          75%            98%      Nvidia Corporation         73,604       1,159,700

2300 Central Expy. (2)           1       46,338         100%           100%      JDS Uniphase Corporation   46,338       2,305,685

2220 Central Expy. (2)           1       62,522         100%           100%      BRE/San Tomas LLC          62,522         750,000

2330 Central Expy. (2)           1       62,522           0%             0%      Vacant                                          -

2251 Lawson Lane                 1      125,000         100%           100%      Fujitsu IT Holdings, Inc. 125,000       1,454,279

1230 East Arques                 1       60,000         100%           100%      Fujitsu IT Holdings, Inc.  60,000         327,069

1250 East Arques                 4      200,000         100%           100%      Fujitsu IT Holdings, Inc. 200,000         755,923

                                     - 17 -
<PAGE>
                                                                                                          Major
                                                                                                         Tenants'
                                         Total      Percentage       Average                             Rentable
                              No. of    Rentable   Leased as of       2003                                Sq. Ft.       2003 Annual
Location                    Properties   Sq. Ft.   Dec. 31, 2003    Occupancy    Major Tenants          at 12/31/03    Base Rents(1)
------------------------------------------------------------------------------------------------------------------------------------
3120 Scott Blvd.                 1       75,000         100%           100%      Fujitsu IT Holdings, Inc.  75,000       1,238,081

20400 Mariani Avenue             1      105,000         100%           100%      Dade Behring, Inc.        105,000       3,109,050

10500 De Anza Blvd.              1      211,000         100%           100%      Apple Computer, Inc.      211,000       5,206,608

20605-705 Valley Green Dr.       2      142,000         100%           100%      Apple Computer, Inc.      142,000       3,067,198

10300 Bubb Road                  1       23,400         100%           100%      Apple Computer, Inc.       23,400         449,280

10440 Bubb Road                  1       19,500          54%            46%       Lightmaster Systems, Inc. 10,573         127,044

10460 Bubb Road                  1       45,460          67%            81%      Luminous Networks, Inc.    30,460         626,683

1135 Kern Avenue                 1       18,300          50%            62%      Broadmedia, Inc.            9,150         133,365

1190 Morse Avenue &              1       28,350          66%            66%      Coptech West, Inc.         18,750         217,504
405 Tasman Avenue

450 National Avenue              1       36,100         100%           100%      ePeople, Inc.              36,100       1,228,351

3301 Olcott Street               1       64,500           0%             0%      Vacant                                          -

2800 Bayview Avenue              1       59,736           0%            35%      Vacant                                    245,958

6850 Santa Teresa Blvd.          1       30,000          59%            59%      Indala Corporation         17,650         317,700

6810 Santa Teresa Blvd.          1       54,996         100%           100%      Polaris Networks, Inc.     54,996       1,665,601

140-150 Great Oaks Blvd. &       2      105,300          74%            86%      Amtech Microelectronics,   31,500       1,482,173
6781 Via Del Oro                                                                 Inc.
                                                                                 Saint Gobain               21,800
                                                                                 Santa Clara Water          25,000
                                                                                 District

6540-6541 Via Del Oro &          2       66,600          74%            80%      Exsil, Inc.                20,076         820,339
6385-6387 San Ignacio Ave.                                                       Modutek Corporation        17,400

6311-6351 San Ignacio Ave.       5      362,767         100%           100%      On Command Corporation    131,320       6,058,027
                                                                                 Saint Gobain               95,953
                                                                                 Avnet, Inc.                53,494
                                                                                 Photon Dynamics, Inc.      52,000
                                                                                 Teledex, LLC               30,000

6320-6360 San Ignacio Ave.       1      157,292          71%            71%      Nortel Networks Corp,      92,692       3,559,188
                                                                                 Quantum 3D, Inc.           19,600

75 East Trimble Road &           2      170,810         100%           100%      Comerica Bank              93,984       2,679,835
2610 North First Street                                                          County of Santa Clara      70,795

2033-2243 Samaritan Drive        3      235,122          36%            36%      Texas Instruments, Inc.    48,677       3,484,925
                                                                                 State Farm Insurance       23,801
                                                                                 Good Samaritan Hospital    12,286

1170 Morse Avenue                1       39,231         100%           100%      The Parkinson's Institute  39,231         382,624

3236 Scott Blvd.                 1       54,672         100%           100%      Celeritek, Inc.            54,672       1,182,789

1212 Bordeaux Lane               1       71,800         100%           100%      Northrop Grumman           71,800       1,376,148
                                                                                 Corporation

McCandless Technology Park(4)   14      705,956          69%            82%      Larscom, Inc.             118,708
                                                                                 Arrow Electronics, Inc.    92,862      10,846,170
                                                                                 Chartered Semiconductor    45,312
                                                                                 Mfg.
                                                                                 St Assembly Test Services, 33,984
                                                                                 Inc.
                                                                                 USinternetworking, Inc.    27,129
                                                                                 Hermes Microvision, Inc.   25,285
                                                                                 Promise Technology, Inc.   20,331

1600 Memorex Drive               1      107,500         100%           100%      Sasco Electric             84,700         802,816
                                                                                 International Network      22,800
                                                                                 Services

                                     - 18 -
<PAGE>
                                                                                                          Major
                                                                                                         Tenants'
                                         Total      Percentage       Average                             Rentable
                              No. of    Rentable   Leased as of       2003                                Sq. Ft.       2003 Annual
Location                    Properties   Sq. Ft.   Dec. 31, 2003    Occupancy    Major Tenants          at 12/31/03    Base Rents(1)
------------------------------------------------------------------------------------------------------------------------------------
1688 Richard Avenue              1       52,800         100%           100%      NWE Technology, Inc.       52,800         680,175

1700 Richard Avenue              1       58,783         100%           100%      Broadwing Comm Services,   58,783         684,823
                                                                                 Inc.
                             ------------------                                                                       --------------

         TOTAL                 109    7,917,262                                                                       $129,733,778
                             ==================                                                                       ==============
</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 in the United States of America under which
     contractual  rent payment  increases are  recognized  evenly over the lease
     term.
(2)  Properties  were purchased in 2003. The 2003 Annual Base Rent reflects rent
     received from the date of acquisition through December 31, 2003.
(3)  Joint venture properties.
(4)  In April and May 2004 we entered into lease termination agreements with two
     different tenants, Cadence Design Systems, Inc. and Larscom, Inc., who have
     leases  expiring  in 2004 for the sum total of  $2,608,776,  which  will be
     recorded  in other  revenue  in 2004.  With the  execution  of  termination
     agreements with these two tenants, the Company has an additional 264,523 of
     vacant rentable square feet.
(5)  Property  represents  a  commitment  by the  Berg  Group  to  construct  an
     approximate  75,000 to 90,000 square foot building on land acquired  during
     2001.

     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
     properties at 5300-5350 Hellyer Avenue,  which are owned by a joint venture
     in which we, through an operating  partnership,  own a 50% interest,  and a
     Berg affiliate owns the other 50% venture interest.

                                     - 19 -

<PAGE>


     LEASE EXPIRATIONS

     The following table sets forth a schedule of the lease  expirations for the
     properties  beginning with 2004, assuming that none of the tenants exercise
     existing  renewal  options  or  termination   rights.  The  table  excludes
     1,858,180 rentable square feet that was vacant as of December 31, 2003.
<TABLE>
<CAPTION>

                            Number of                                                           Percentage of Total Annual
           Year of Lease     Leases      Rentable Square Footage      2004 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>
               2004 (3)        20                862,817                $ 15,327,915                        11.7%

               2005            21                556,769                  11,216,483                         8.5%

               2006            16              1,244,067                  41,109,897                        31.3%

               2007            18              1,329,355                  26,521,018                        20.2%

               2008             5                274,022                   3,421,098                         2.6%

               2009             8                558,434                   9,658,888                         7.4%

               2010             5                397,514                   7,114,110                         5.4%

               2011             2                602,500                  13,048,878                         9.9%

               2012             1                 73,604                     477,378                         0.4%

            Thereafter          1                160,000                   3,415,600                         2.6%
                           --------------------------------------------------------------------------------------------------

                               97              6,059,082                $131,311,265                         100%
                           ==================================================================================================
</TABLE>


(1)  The base rent for leases  expiring is based on  scheduled  2004  annualized
     cash rents,  which are different than annual rents determined in accordance
     with GAAP.
(2)  Based upon 2004 annualized cash rents as discussed in Note (1).
(3)  In April and May 2004 we entered into lease termination agreements with two
     different tenants, Cadence Design Systems, Inc. and Larscom, Inc., who have
     leases  expiring  in 2004 for the sum total of  $2,608,776,  which  will be
     recorded  in other  revenue  in 2004.  With the  execution  of  termination
     agreements with these two tenants, the Company has an additional 264,523 of
     vacant rentable square feet.


     If we are unable to lease a significant  portion of the available  space or
     space  scheduled to expire in 2004 and thereafter at any of our properties,
     if existing tenants do not renew their leases, or if rental rates decrease,
     our  results of  operations,  financial  condition  and cash flows would be
     adversely affected.

     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, 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

                                     - 20 -
<PAGE>

     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.

                                     - 21 -

<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.  We do not expect any of such proceedings to have a
     material adverse effect on our cash flows,  financial  condition or results
     of operations.  We are currently involved in or have recently concluded the
     following legal  proceedings  which we believe the ultimate  outcome,  will
     have no material adverse affect on our financial statements.

     In early January 2004 we received  $1,836,393 from the Bankruptcy Estate of
     Auspex  Systems,  Inc.,  pursuant to Notice of Order from the United States
     Bankruptcy  Court Northern  District of California  Case No. 03-52596 MM 11
     representing  our final share of the Estate of Auspex  Systems,  Inc. as an
     unsecured  creditor.  This amount was recorded in other revenue  during the
     fourth quarter of 2003.

     Republic Properties  Corporation  ("RPC") v. Mission West Properties,  L.P.
     ("MWP"),  in the Circuit  Court of  Maryland  for  Baltimore  City Case No.
     24-C-00-005675.  RPC is a former partner with Mission West Properties, L.P.
     in the Hellyer Avenue Limited Partnership ("Hellyer LP"). In April 2004 the
     Circuit Court for Baltimore City,  Maryland issued a Memorandum  Opinion in
     the case and awarded damages of $933,548 to the RPC plaintiffs,  which must
     be paid by us or MWP.  The court  denied all  requests by MWP,  including a
     declaration  that  all of RPC's  interests  in  Heller  L.P.  were  validly
     converted to limited  partnership  interests and  transferred to MWP or its
     designee  in  accordance  with the terms of the  Hellyer  L.P.  partnership
     agreement.  The court also denied RPC's request for an injunction  ordering
     the  reinstatement of RPC's  partnership  interests in Hellyer L.P. We have
     appealed the decision to the Maryland  Appeals Court.  Under the pre-appeal
     hearing procedures, the Maryland Appeals Court requires a mediation hearing
     before the parties can appear  before the Appeals  Court.  No date has been
     set for such a hearing.  We do not believe that any further court decisions
     in this case,  for or against us and MWP, will not have a material  adverse
     effect on our business.  We have a receivable  from a Berg Group  affiliate
     for the amount of  distributions  it  received  as the  successor  to RPC's
     interest in the Hellyer LP which exceeds the amount of the damages  awarded
     to the RPC parties and would be used to pay for those  damages in the event
     the decision of the Circuit  Court is upheld  ultimately.  Furthermore,  we
     have never accounted for the 50% interest of RPC as our asset and if RPC is
     deemed to have  retained  that  interest or  reacquires  that  interest our
     balance sheet and financial  condition  would not be impacted.  In February
     2001,  we  filed a suit  against  RPC in  Superior  Court  of the  State of
     California  for the County of Santa Clara Case No. CV 796249 which has been
     stayed pending  resolution of the Maryland case. In July 2004, RPC attached
     our bank  account for  approximately  $1.1  million.  Following a July 2004
     hearing  in  Superior  Court of the State of  California  for the County of
     Santa Clara,  the parties  agreed that we will post a $1.5 million bond and
     RPC will remove the  attachment of our bank account until final  resolution
     of the appeal in Maryland. In February 2001, we filed a suit against RPC in
     Superior  Court of the State of  California  for the County of Santa  Clara
     Case No. CV 796249 which has been stayed pending resolution of the Maryland
     case.

     In January  2004,  we filed the case of Mission  West  Properties,  L.P. v.
     Premisys Communications,  Inc. and Zhone Technologies, Inc. in the Superior
     Court  of the  State of  California  for the  County  of  Alameda  Case No.
     HG03118906 for breach of lease agreement and claimed damages of $1,399,042.
     In April 2004, we settled the matter and received a payment of  $1,100,000.
     This amount was  recorded  in other  revenue  during the second  quarter of
     2004.

     In December 2003, Craig R. Jalbert  Liquidating CEO, as  representative  of
     the Estate of the  Consolidated  Debtors  for ACT  Manufacturing,  Inc.  v.
     Mission West Properties,  L.P. filed an action in United States  Bankruptcy
     Court District of  Massachusetts  Case No.  01-47641  (JBR)  asserting that
     payments of $481,749 made in the ordinary course of business within 90 days
     of the ACT  bankruptcy  filing were  preference  payments.  We have engaged
     legal counsel to defend us in this claim and intend to  vigorously  contest
     the matter.

     In January 2004, the Global Crossing Estate Representative,  for Itself and
     the Liquidating Trustee of the Global Crossing Liquidating Trust v. Mission
     West Properties filed an action in United States  Bankruptcy Court Southern
     District of New York Case No.  02-40188  (REG)  asserting  that payments of
     $815,052  made in the  ordinary  course of  business  within 90 days of the
     Global Crossing bankruptcy filing were preference payments. We have engaged
     legal counsel to defend us in this claim and intend to  vigorously  contest
     the matter.

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, 2003.

                                     - 22 -


<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
     closing  sale  prices per share of common  stock as reported on AMEX during
     each quarter of 2003 and 2002 were as follows:
<TABLE>
<CAPTION>

                                                     2003                              2002
                                         -----------------------------     -----------------------------
                                             High            Low               High            Low
                                         -------------   -------------     -------------   -------------
<S>                                        <C>             <C>               <C>             <C>
                1st Quarter                 $10.25          $9.02             $13.22          $11.10
                2nd Quarter                 $11.95          $9.50             $13.03          $11.91
                3rd Quarter                 $12.74          $11.07            $11.99          $10.31
                4th Quarter                 $13.45          $12.32            $11.20          $9.72
</TABLE>


     On July 15, 2004, there were 215 registered holders of the Company's common
     stock.  We declared and paid dividends in each quarter of 2003 and 2002. We
     expect to pay quarterly  dividends  during 2004. The following  tables show
     information for quarterly dividends for 2003 and 2002.
<TABLE>
<CAPTION>

                                                              2003
                                         -----------------------------------------------
                                            Record          Payment          Dividend
                                             Date            Date            Per Share
                                         -------------   -------------     -------------
<S>                                       <C>             <C>                <C>
                1st Quarter                03/31/03        04/10/03           $0.24
                2nd Quarter                06/30/03        07/10/03            0.24
                3rd Quarter                09/30/03        10/09/03            0.24
                4th Quarter                12/31/03        01/08/04            0.24
                                                                           -------------
                   Total                                                      $0.96
                                                                           =============
</TABLE>


<TABLE>
<CAPTION>

                                                              2002
                                         -----------------------------------------------
                                            Record          Payment          Dividend
                                             Date            Date            Per Share
                                         -------------   -------------     -------------
<S>                                       <C>             <C>                <C>
                1st Quarter                03/29/02        04/11/02           $0.24
                2nd Quarter                06/28/02        07/11/02            0.24
                3rd Quarter                09/30/02        10/10/02            0.24
                4th Quarter                12/31/02        01/09/03            0.24
                                                                           -------------
                   Total                                                      $0.96
                                                                           =============
</TABLE>

     For federal income tax purposes, we have characterized 98% of the dividends
     declared  in 2003 as taxable  ordinary  income and 2% as return of capital.
     For 2002, we have  characterized  100% of the dividends declared as taxable
     ordinary income.

     The  closing  price of our common  stock on  December  31,  2003,  the last
     trading day, was $12.95 per share.

                                     - 23 -

<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.

     This Form 10-K  includes  restatements  of previously  reported  historical
     financial  data and related  descriptions  for the years ended December 31,
     2002  and  2001.  We have  identified  certain  accounting  errors  applied
     historically  to  the  items  described  in  Note  18 to  our  Consolidated
     Financial Statements and concluded that these items have been accounted for
     incorrectly.  As a result, we have made the appropriate  adjustments to our
     previously  issued  consolidated  financial  statements for the years ended
     December 31, 2002 and 2001.

     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>

                                                                                    Year Ended December 31,
                                                          --------------------------------------------------------------------------
                                                               2003           2002            2001           2000           1999
                                                                          (As Restated)   (As Restated)
                                                                               (3)             (3)
                                                          -------------  --------------  -------------  -------------  -------------
                                                                         (dollars in thousands, except per share data)
<S>                                                     <C>             <C>             <C>            <C>            <C>
         OPERATING DATA:
         Revenue:
             Rental revenues                                $130,739       $129,781        $126,229      $  97,568        $72,294
             Tenant reimbursements                            18,871         20,099          17,475         14,548         10,913
             Other income, including interest                  4,527          4,248           2,465          1,241          1,198
                                                          -------------  --------------  -------------  -------------  -------------
         Total revenues                                      154,137        154,128         146,169        113,357         84,405
                                                          -------------  --------------  -------------  -------------  -------------

         Expenses:
              Property operating, maintenance and real        21,365         23,951          18,502         14,932         11,367
         estate taxes
            Interest                                          16,446          9,588           8,704          8,290         11,623
            Interest (related parties)                         1,064          3,422           4,709          4,475          2,246
            General and administrative                         1,325          1,488           1,284          1,065          1,185
            Depreciation and amortization                     20,774         18,313          16,746         15,178         12,878
                                                          -------------  --------------  -------------  -------------  -------------
         Total expenses                                       60,974         56,762          49,945         43,940         39,299
                                                          -------------  --------------  -------------  -------------  -------------
         Income before gain on sales of assets, equity in
         earnings                    of unconsolidated        93,163         97,366          96,224         69,417         45,106
         joint venture and minority interests
            Gain on sales of assets                                -              -          11,453            501              -
            Equity in earnings of unconsolidated joint         3,885              -               -              -              -
         venture
            Minority interests                                80,836         81,316          89,876         57,650         38,755
                                                          -------------  --------------  -------------  -------------  -------------
            Income from continuing operations                 16,212         16,050          17,801         12,268          6,351
         Discontinued operations, net of minority interests:
              Gain from disposal of discontinued                   -          1,018               -              -              -
         operations
              Income attributable to discontinued                  -             47             285            311            180
         operations
                                                          -------------  --------------  -------------  -------------  -------------
                   Income from discontinued operations             -          1,065             285            311            180
                                                          -------------  --------------  -------------  -------------  -------------

         Net income to common stockholders                   $16,212        $17,115         $18,086        $12,579       $  6,531
                                                          =============  ==============  =============  =============  =============
         Net income to minority interests                    $80,836        $86,641         $91,312        $59,054        $39,785
                                                          =============  ==============  =============  =============  =============

            Basic net income from continuing operations        $0.91          $0.92           $1.04          $0.72          $0.51
         per share
            Diluted net income from continuing operations      $0.91          $0.90           $1.01          $0.70          $0.50
         per share

            Basic net income per share                         $0.91          $0.98           $1.06          $0.74          $0.52
            Diluted net income per share                       $0.91          $0.96           $1.03          $0.72          $0.52

            PROPERTY AND OTHER DATA:
            Total properties, end of period (4)                  109            101              97             89             80
            Total square feet, end of period (000's)           7,917          7,164           6,799          6,196          5,307
            Average monthly rental revenue per square           $1.76          $1.71           $1.59          $1.36          $1.16
         foot (1)
            Occupancy at end of period                           77%            84%             97%            99%            99%

            Funds from Operations (2):                      $117,918       $118,444        $115,013        $86,650        $60,007

            Cash flows from operating activities            $116,493       $117,368        $111,157        $84,580        $60,298
            Cash flows from investing activities            (109,983)       (20,744)         (3,040)        (2,736)       (12,084)
            Cash flows from financing activities              (6,860)       (97,455)       (107,498)       (83,706)       (41,920)

                                     - 24 -
<PAGE>


                                                                                         December 31,
                                                          --------------------------------------------------------------------------
                                                               2003            2002            2001          2000           1999
                                                                           (As Restated)  (As Restated)
                                                                                (3)            (3)
                                                          -------------  --------------  -------------  -------------  -------------
                                                                                    (dollars in thousands)
            BALANCE SHEET DATA:
            Real estate assets, net of accum.            $   985,751       $886,122        $857,653       $807,456       $697,616
         depreciation & amort.
            Total assets                                   1,032,632        926,783         909,953        826,910        712,704
              Line of credit - related parties                 6,320         58,792          79,887         50,886              -
              Revolving line of credit                        23,965         23,839               -              -              -
            Loan payable                                           -         20,000               -              -              -
            Debt                                             299,858        125,062         127,416        132,055        133,952
            Debt - related parties                            10,762         11,078          11,371         11,643         31,193
            Total liabilities                                394,324        289,817         286,768        255,505        215,212
              Minority interests                             524,918        526,580         514,810        469,332        396,810
              Stockholders' equity                       $   113,390       $110,386        $108,375       $102,073       $100,682
            Common stock outstanding                      17,894,691     17,487,329      17,329,779     17,025,365     16,972,374
            O.P. Units issued and outstanding             86,398,064     86,474,032      85,762,541     83,576,027     76,205,789
</TABLE>

(1)  Average  monthly  rental  revenue  per square foot has been  determined  by
     taking  the total  cash base rent for the  period  divided by the number of
     months in the period,  and then divided by the average occupied square feet
     in the period.
(2)  Funds From Operations  ("FFO") is a non-GAAP  financial  instrument used by
     REITs to  measure  and  compare  operating  performance.  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),  including  non-recurring  events other
     than  "extraordinary  items"  under  GAAP and  gains and  losses  from debt
     restructuring  and  sales of  discontinued  operations,  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.  We have
     revised our FFO  computations  for 2002 and 2001 for the  inclusion  of the
     amortization  of leasing  commissions in depreciation  and  amortization of
     real estate in order to be comparable to our 2003 FFO  presentation  and to
     more closely conform to the NAREIT's FFO definition. Additionally, our 2003
     FFO calculation  includes our portion of the  depreciation and amortization
     of real estate from our  unconsolidated  joint  venture,  but  excludes the
     amortization of the favorable lease intangible asset, which was recorded as
     a reduction of revenues. 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 neither net income as a measure of profitability  nor is it
     comparable  to cash flows  provided by operating  activities  determined in
     accordance  with GAAP.  FFO is not  comparable to similarly  entitled items
     reported by other  REITs that do not define them  exactly as we define FFO.
     See Part II - Item 7  "Management's  Discussion  and  Analysis of Financial
     Condition  and  Results  of  Operations  -  Funds  from   Operations"   for
     reconciliation  of  our  FFO  figures  to  our  net  income  determined  in
     accordance with GAAP.
(3)  The explanation of these  restatement  adjustments are described in Item 7.
     Management's  Discussion and Analysis of Financial Condition and Results of
     Operations,  and in  Note 18 of the  Notes  to the  Consolidated  Financial
     Statements.   See   "Item  8.   Consolidated   Financial   Statements   and
     Supplementary Data -- Notes to the Consolidated Financial Statements."
(4)  As of December 31, 2003, 2002, 2001 and 2000,  total  properties  include a
     property at 245 Caspian in  Sunnyvale  with no building.  During 2000,  the
     Company paid the Berg Group approximately $7.5 million for their commitment
     to complete an  approximate  75,000 to 90,000  square foot  building on the
     property.

                                     - 25 -
<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 AND BACKGROUND

     Our original  predecessor was formed in 1969 as Palomar Mortgage Investors,
     a California  business trust,  which operated as a mortgage REIT until 1979
     when, under the name of Mission  Investment Trust, it terminated its status
     as a REIT and began to  develop  and market  its own  properties.  In 1982,
     Mission  West  Properties  was  incorporated  as  a  successor  to  Mission
     Investment Trust. In 1997, our predecessor,  Mission West Properties,  sold
     all its real estate  assets and paid a special  dividend of $9.00 per share
     to stockholders, after which it retained only nominal assets. Subsequently,
     the Berg Group acquired  control of the corporation as a vehicle to acquire
     R&D  properties,  or  interests  in entities  owning such  properties  in a
     transaction  completed  September 2, 1997.  At that time the Berg Group and
     the other  investors  acquired an  aggregate  79.6%  controlling  ownership
     position.  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 through the purchase of the general partnership interests, and
     all  limited  partnership  interests  in the  operating  partnerships  were
     converted  into  59,479,633  O.P.  Units,  which  represented  ownership of
     approximately 87.89% of the operating partnerships. Our general partnership
     interests  represented  the  balance  of the  ownership  of  the  operating
     partnerships.  At December 31, 2003, we owned a 17.02% general  partnership
     interest in the  operating  partnerships,  taken as a whole,  on a weighted
     average basis.

     Since  the  beginning  of  calendar  year  1999,  we have  been  taxed as a
     qualified REIT.

     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 outstanding  shares issued
     by our predecessor California corporation were converted into shares of our
     common stock on a one-for-one basis.

     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.

     We have grown through property acquisitions.  Since September 1998, we have
     acquired a total of  approximately  3.9 million rentable square feet of R&D
     buildings under the Pending Project  Acquisition  Agreement,  the Berg Land
     Holdings Option Agreement, and from unrelated third parties. The total cost
     of these properties was  approximately  $619 million.  We issued a total of
     27,962,025 O.P. Units and assumed debt totaling  approximately $308 million
     to acquire them.

     On March 8, 2002, we acquired the  Orchard-Trimble  property  consisting of
     three R&D Properties with a total of approximately  206,500 rentable square
     feet for $31.3 million in cash.  The  acquisition  of those  properties was
     part of a tax-deferred  exchange under section 1031 of the Internal Revenue
     Code.

     On April 9,  2003,  we  acquired  the  36-acre  San Tomas  Technology  Park
     consisting of seven R&D properties  with a total of  approximately  625,000
     rentable square feet for $110 million. We financed that acquisition through
     new debt and an existing line of credit.

     On December  15, 2003,  we acquired a 128,520  square foot fully leased two
     story  office/R&D  building at 5970 Optical Court in San Jose from the Berg
     Group under the Berg Land Holdings Option Agreement.  The total acquisition
     price for this property was $11.2 million.  We financed this acquisition by
     borrowing $9.0 million under an existing line of credit and issuing 169,131
     O.P. Units to various members of the Berg Group.

                                     - 26 -

<PAGE>


     IMPACT OF RESTATEMENTS

     We have restated our previously issued  consolidated  financial  statements
     for the years ended December 31, 2002 and 2001, as well as for the quarters
     ended  March 31,  June 30 and  September  30, 2003 and 2002 and the quarter
     ended  December  31,  2002  (as set  forth  in Note 19 of the  Notes to the
     Consolidated  Financial  Statements.  See "Item 8.  Consolidated  Financial
     Statements and  Supplementary  Data -- Notes to the Consolidated  Financial
     Statements.") for the following items:

     -    We  recorded  additional  amortization  expense  relating  to  certain
          leasing  commissions,  which were  originally  being  amortized over a
          40-year  period.  The additional  amortization  expense  resulted from
          changing the  amortization  period of commissions from 40 years to the
          term of the lease and the  write-off  of certain  unamortized  leasing
          commissions in connection with tenant bankruptcies.
     -    We corrected the purchase  accounting  originally  applied to our 2002
          acquisition  of  the  Orchard-Trimble  property.  In  accordance  with
          Statement of Financial  Accounting  Standards (SFAS) No. 141, Business
          Combinations,  which  became  effective  July 1, 2001,  we allocated a
          portion of the purchase price to in-place lease intangible  assets and
          recorded   additional   amortization   expense   from   changing   the
          amortization  period of these  intangible  assets from 40 years to the
          term of the  lease.
     -    We  recorded   additional   depreciation   expense   relating  to  the
          reclassification  of  certain  real  estate  assets  from  a 40-  year
          depreciable life to a 7 and 25-year depreciable life.
     -    We reclassified the amortization of the above-market  lease intangible
          asset relating to the 2003  acquisition of San Thomas  Technology Park
          from  amortization  expense to an offset to rental  revenues from real
          estate.

     The  aggregate  net  impact of all  restatement  items on the  consolidated
     statements  of  operations  resulted  in a decrease in net income to common
     stockholders compared to previously reported amounts of $386,000 ($0.02 per
     diluted  share) and $49,000  ($0.00 per diluted  share) for the years ended
     December 31, 2002 and 2001,  respectively.  The aggregate net impact of all
     restatement items on the consolidated balance sheet as of December 31, 2002
     was a  decrease  in total  assets of  $2,623,000,  a decrease  in  minority
     interest  of  $2,188,000  and an  increase  in the  accumulated  deficit of
     $435,000.

     The effects of the  restatement  items described above on our net income to
     common shareholders are as follows:

<TABLE>
<CAPTION>
                                                                          For the Year Ended December 31,
                                                                         2002                          2001
                                                                 ---------------------      -----------------------
                                                                               (dollars in thousands)
<S>                                                                  <C>                           <C>
Net income to common stockholders as previously reported              $17,501                       $18,135

Impact of adjustments for:
     Leasing commission amortization                                  (1,765)                         (145)
     Intangible asset amortization                                      (393)                             -
     Depreciation of real estate assets                                 (163)                         (157)
                                                                 ---------------------      -----------------------
Total adjustments                                                     (2,321)                         (302)
                                                                 ---------------------      -----------------------

Minority interest portion of adjustments                                1,935                           253

                                                                 ---------------------      -----------------------
Net income to common stockholders, as restated                        $17,115                       $18,086
                                                                 =====================      =======================
</TABLE>

     Item  6--Selected  Financial  Data and Notes 18 and 19 to our  Consolidated
     Financial  Statements further discuss these restatements and their specific
     impact on our historical consolidated financial statements.

     CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

     Critical  accounting  policies are defined as those that require management
     to make estimates,  judgments and assumptions,  giving due consideration to
     materiality,  in certain  circumstances that affect amounts reported in the
     consolidated  financial

                                     - 27 -
<PAGE>

     statements,  and potentially  result in materially  different results under
     different  conditions and  assumptions.  We believe that the following best
     describe our critical accounting policies:

     REAL ESTATE  ASSETS.  Real estate assets are stated at cost.  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."

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

     IMPAIRMENT  OF  LONG-LIVED   ASSETS.  We  review  real  estate  assets  for
     impairment  whenever events or changes in  circumstances  indicate that the
     carrying  amount  of an asset may not be  recoverable  in  accordance  with
     Statement  of  Financial  Accounting  Standards  No. 144 ("SFAS No.  144"),
     Accounting  for the Impairment  and Disposal of Long-Lived  Assets.  If the
     carrying  amount of the asset exceeds its estimated  undiscounted  net cash
     flow,  before  interest,  we will recognize an impairment loss equal to the
     difference  between its carrying  amount and its estimated  fair value.  If
     impairment is recognized,  the reduced carrying amount of the asset will be
     accounted for as its new cost. For a depreciable  asset,  the new cost will
     be depreciated  over the asset's  remaining  useful life.  Generally,  fair
     values are estimated using discounted cash flow, replacement cost or market
     comparison  analyses.  The process of evaluating  for  impairment  requires
     estimates as to future events and conditions,  which are subject to varying
     market  factors,  such  as the  vacancy  rates,  future  rental  rates  and
     operating  costs for R&D  facilities in the Silicon Valley area and related
     submarkets.  Therefore, it is reasonably possible that a change in estimate
     resulting from judgments as to future events could occur which would affect
     the recorded  amounts of the  property.  To date we have not  recognized an
     impairment of any long-lived assets.

     DISCONTINUED  OPERATIONS:  SFAS No. 144 addresses the financial  accounting
     for discontinued operations and the disposal of long lived assets. SFAS No.
     144 requires that the results of operations and gains or losses on the sale
     of property sold  subsequent to December 31, 2001 that were not  classified
     as held for sale at December 31, 2001 as well as the results of  operations
     from  properties  that  were  classified  as held  for sale  subsequent  to
     December  31, 2001 be  presented  in  discontinued  operations  if both the
     following  criteria  are  met:  (a) the  operation  and  cash  flows of the
     property have been (or will be) eliminated  from the ongoing  operations of
     the Company as a result of the  disposal  transaction;  and (b) the Company
     will not have any significant involvement in the operations of the property
     after the disposal transaction. SFAS 144 also requires prior period results
     of  operations  for  these  properties  to be  restated  and  presented  in
     discontinued operations in prior consolidated statements of operations. The
     application  of SFAS No. 144 to  properties  sold during  2002  resulted in
     discontinued operations  presentation,  with the 2001 results of operations
     being restated for this 2002 disposition.  Properties sold during 2001 have
     been reflected as a gain on sale of assets within continuing operations.

     ALLOWANCE FOR DOUBTFUL ACCOUNTS AND DEFERRED RENT RESERVE.  The preparation
     of the consolidated  financial statements requires us to make estimates and
     assumptions. As such, we must make estimates of the uncollectability of our
     accounts  receivable  based on the  evaluation  of our  tenants'  financial
     position,  analyses of accounts  receivable and current economic trends. We
     also make  estimates for a  straight-line  adjustment  reserve for existing
     tenants with the  potential  of early  termination,  bankruptcy  or ceasing
     operations.  Our  estimates  are based on our  review of  tenants'  payment
     histories,  publicly  available  financial  information and such additional
     information  about their financial  condition as tenants provide to us. The
     information  available to us might lead us to overstate or understate these
     reserve  amounts.  The use of  different  estimates  or  assumptions  could
     produce different results.  Moreover, actual future collections of accounts
     receivable  or reductions  in future  reported  rental income due to tenant
     bankruptcies  or other business  failures could differ  materially from our
     estimates.

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

                                     - 28 -

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

     FAIR VALUE OF FINANCIAL INSTRUMENTS. Our financial instruments include cash
     and cash equivalents,  accounts  receivable,  accounts  payable,  and debt.
     Considerable  judgment is required in  interpreting  market data to develop
     estimates  of  fair  value.  These  estimates   presented  herein  are  not
     necessarily  indicative  of the amounts that we could  realize in a current
     market exchange.  The use of different market assumptions and/or estimation
     methodologies  may have a  material  effect  on the  estimated  fair  value
     amounts.  Cash and cash  equivalents,  accounts  receivable,  and  accounts
     payable are carried at amounts  that  approximate  their fair values due to
     their short-term maturities. The carrying amounts of our variable rate debt
     approximate  fair value since the interest rates on these  instruments  are
     equivalent  to rates  currently  offered to us.  For fixed  rate  debt,  we
     estimate  fair  value by  using  discounted  cash  flow  analyses  based on
     borrowing rates for similar kinds of borrowing arrangements. The fair value
     of our fixed rate debt at December 31, 2003 was approximately $256 million.

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

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

     LEASE  TERMINATION.  Lease termination fees are included in other revenues.
     These  fees  are  paid  by  tenants  who  want  to  terminate  their  lease
     obligations  before the end of the contractual term of the lease.  There is
     no way of predicting or  forecasting  the timing or amounts of future lease
     termination fees.

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

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

                                     - 29 -


<PAGE>


     RESULTS OF OPERATIONS

     COMPARISON OF THE YEAR ENDED  DECEMBER 31, 2003 TO THE YEAR ENDED  DECEMBER
     31, 2002.

     RENTAL REVENUES FROM CONTINUING OPERATIONS
     As of December 31, 2003, through our controlling interests in the operating
     partnerships,  we  owned  109 R&D  properties  totaling  approximately  7.9
     million  rentable  square  feet  compared to 101 such  properties  totaling
     approximately  7.2 million  rentable  square feet as of December  31, 2002.
     This  represented  a net increase of  approximately  10% in total  rentable
     square  footage  from the prior year.  During 2003,  we made the  following
     acquisitions  by purchase of new properties from unrelated third parties or
     under the Berg Land Holdings Option Agreement.
<TABLE>
<CAPTION>

                                                                                  Rentable Square
         Date of Acquisition                      Address                             Footage
         --------------------    -------------------------------------------    -------------------
<S>                             <C>                                                  <C>
                4/03             2001 Walsh Avenue                                     80,000
                4/03             2880 Scott Boulevard                                 200,000
                4/03             2890 Scott Boulevard                                  75,000
                4/03             2770-2800 Scott Boulevard                             98,430
                4/03             2300 Central Expressway                               46,338
                4/03             2220 Central Expressway                               62,522
                4/03             2330 Central Expressway                               62,522
               12/03             5970 Optical Court                                   128,520
                                                                                -------------------
                                      Total                                           753,332
                                                                                ===================
</TABLE>

     The following  table depicts the amounts of rental revenues from continuing
     operations  for the years ended  December 31, 2003 and 2002  represented by
     our historical properties and the properties acquired in each such year and
     the  percentage  of the total  increase in rental  revenues over the period
     that is represented by each group of properties.
<TABLE>
<CAPTION>

                                                  December 31,
                                        ----------------------------------
                                                                                                    % Change by         % of Total
                                             2003                2002             $ Change         Property  Group      Net Change
                                        --------------      --------------     --------------      ---------------    --------------
                                                          (dollars in thousands)
<S>                                        <C>                 <C>                 <C>                   <C>                <C>
         Same Property (1)                  $112,429            $121,404            ($8,975)              (7.4%)             (6.9%)
         2002 Acquisitions (2)                10,212               8,377              1,835               21.9%               1.4%
         2003 Acquisitions (3)                 8,098                   -              8,098                100%               6.2%
                                        --------------      --------------     --------------                         --------------
              Total/Overall                 $130,739            $129,781              $ 958                0.7%               0.7%
                                        ==============      ==============     ==============                         ==============
</TABLE>

(1)  "Same Property" is defined as properties  owned by us prior to 2002 that we
     still owned as of December 31, 2003.
(2)  Operating  rental  revenues for 2002  Acquisitions do not reflect a full 12
     months of  operations  in 2002 because  these  properties  were acquired at
     various times during 2002.
(3)  Operating  rental  revenues for 2003  Acquisitions do not reflect a full 12
     months of  operations  in 2003 because  these  properties  were acquired at
     various times during 2003. 2003 amount includes  approximately $1.4 million
     of above market rent  amortization  against rental revenue from real estate
     in connection with the implementation of SFAS No. 141.

     For the year ended December 31, 2003, our rental  revenues from real estate
     increased by $0.9 million,  or 0.7% from $129.8  million for the year ended
     December 31, 2002 to $130.7  million for the same period in 2003.  Pursuant
     to  SFAS  141,  $1.4  million  of  amortization  expense  with  respect  to
     above-market  leases included in the San Tomas  Technology Park acquisition
     was offset against rental revenue and not separately stated as amortization
     expense.  The $0.9 million  increase in rental  revenues  resulted from new
     property acquisitions,  as "Same Property" rents decreased by ($9.0), rents
     from newly developed properties acquired in 2002 represented an increase of
     $1.8  million and rents from newly  developed  properties  acquired in 2003
     added approximately $8.1 million of new rental revenue.  Approximately $0.3
     million in rental  revenues were  generated  from a property whose revenues
     and operating results were included in discontinued operations for the year
     ended  December 31,  2002.  The decline in rental  revenues  from the "Same
     Property" portfolio was a result from adverse market conditions and loss of
     several  tenants due to  bankruptcy,  cessation  of  operations,  or tenant
     relocation.  Our overall  physical  occupancy rate at December 31, 2003 and
     2002 was approximately 77% and 84%, respectively.

     EQUITY IN EARNINGS FROM UNCONSOLIDATED JOINT VENTURE
     As of December 31, 2003, we had investments in four R&D buildings, totaling
     593,000  rentable  square  feet in  Morgan  Hill,  California,  through  an
     unconsolidated  joint venture with TBI, in which we acquired a 50% interest
     from the Berg  Group in January  2003.  We have a  non-controlling  limited
     partnership interest in this joint venture,  which we account for using the
     equity method of accounting.  For the year ended December 31, 2003,  equity
     in earnings from the  unconsolidated  joint venture was approximately  $3.9
     million,  including  $1.4 million  relating to a gain from the sale of real
     estate, which was acquired from a related party.

                                     - 30 -

     OTHER INCOME
     The  following  table  depicts the amounts of other income from  continuing
     operations for the years ended December 31, 2003 and 2002.
<TABLE>
<CAPTION>

                                                    December 31,
                                          ----------------------------------
                                                                                                      % Change by
                                                2003                2002           $ Change              Group
                                          --------------      --------------     --------------      --------------
                                                           (dollars in thousands)

<S>                                          <C>                 <C>                  <C>                 <C>
         Other income                         $4,527              $4,248               $279                6.6%
</TABLE>

     Other income,  including interest,  was approximately $4.5 million and $4.2
     million  for the years  ended  December  31,  2003 and 2002,  respectively.
     Included in the $4.5  million is  approximately  $2.2  million  from tenant
     bankruptcy settlements.  Included in the $4.2 million is approximately $2.4
     million in termination fees. The $0.3 million increase  represented utility
     rebate and security deposit forfeitures.

     EXPENSES FROM CONTINUING PROPERTY OPERATION
     The  following  table  reflects  the  increase  in property  operating  and
     maintenance  expenses and real estate taxes from continuing  operations for
     the year ended  December 31, 2003 over property  operating and  maintenance
     expenses  and real estate  taxes from  continuing  operations  for the year
     ended  December 31, 2002 and the  percentage of total  increase in expenses
     over the period that is represented by each group of properties.
<TABLE>
<CAPTION>

                                                  December 31,
                                        ----------------------------------

                                            2003                2002                                % Change by         % of Total
                                                            (As Restated)        $ Change          Property Group       Net Change
                                        --------------      --------------     --------------      --------------     --------------
                             (dollars in thousands)

<S>                                       <C>                 <C>               <C>                  <C>                <C>
         Same Property (1)                 $17,989             $22,624           ($4,635)             (20.5%)            (19.3%)
         2002 Acquisitions (2)               1,794               1,327                467               35.2%               1.9%
         2003 Acquisitions (3)               1,582                   -              1,582              100.0%               6.6%
                                        --------------      --------------     --------------                         --------------
              Total/Overall                $21,365             $23,951           ($2,586)             (10.8%)            (10.8%)
                                        ==============      ==============     ==============                         ==============
</TABLE>

(1)  "Same Property" is defined as properties  owned by us prior to 2002 that we
     still owned as of December 31, 2003.
(2)  Operating  expenses  and real  estate  taxes for 2002  Acquisitions  do not
     reflect a full 12 months of  operations  in 2002 because  these  properties
     were acquired at various times during 2002.
(3)  Operating  expenses  and real  estate  taxes for 2003  Acquisitions  do not
     reflect a full 12 months of  operations  in 2003 because  these  properties
     were acquired at various times during 2003.

     Operating expenses and real estate taxes from continuing  operations,  on a
     combined basis, decreased by ($2.6) million, or 10.8%, from $24 million for
     the year  ended  December  31,  2002 to $21.4  million  for the year  ended
     December  31,  2003.  Tenant   reimbursements  from  continuing  operations
     decreased by ($1.2) million, or 6.0%, from $20.1 million for the year ended
     December  31, 2002 to $18.9  million for the year ended  December 31, 2003.
     The overall decrease in tenant reimbursements,  operating expenses and real
     estate taxes is primarily a result of the  reductions in assessed  property
     values on existing  properties  as a result of property tax appeals that we
     filed  under  California's  Proposition  8 and lower  occupancy  during the
     periods  presented.  Reductions in property tax  assessments as a result of
     appeals  filed  under  Proposition  8  can  be  immediately   increased  to
     pre-Proposition  8  assessed  values  when the County  Assessor  determines
     market conditions have improved.  Total operating  expenses and real estate
     taxes exceeded tenant  reimbursements  because of vacancies,  which reached
     approximately  1.8 million  rentable square feet by year-end 2003.  Certain
     expenses such as property  insurance,  real estate  taxes,  and other fixed
     expenses  are not  recoverable  from vacant  properties.  We expect  tenant
     reimbursements  to decrease  further in the coming year as our vacancy rate
     increases.  At June  30,  2004  our  vacancy  rate  was  28%.  General  and
     administrative  expenses  decreased by approximately $0.2 million from $1.5
     million for the year ended  December  31, 2002 to $1.3 million for the year
     ended December 31, 2003,  primarily due to the loss of one employee and the
     decrease of legal fees in 2003.

     The following  table depicts the amounts of depreciation  and  amortization
     expense of real  estate  from  continuing  operations  for the years  ended
     December 31, 2003 and 2002.

<TABLE>
<CAPTION>
                                                    December 31,
                                          ----------------------------------
                                              2003                2002
                                                               (As Restated)        $ Change            % Change
                                          --------------      --------------     --------------      --------------
                                                          (dollars in thousands)

<S>                                         <C>                 <C>                  <C>                  <C>
         Depreciation & amortization         $20,774             $18,313              $2,461               13.4%
</TABLE>

                                     - 31 -
<PAGE>

     Depreciation  and  amortization  expense  of real  estate  from  continuing
     operations  increased by $2.5 million, or 13.4%, from $18.3 million for the
     year ended  December 31, 2002 to $20.8 million for the year ended  December
     31, 2003.  The increase was  attributable  to the  acquisition of eight R&D
     properties  in 2003.  Of the $2.5  million  increase  in  depreciation  and
     amortization  expense of real estate,  approximately $1 million represented
     amortization  expense for in place leases comprising a portion of the value
     of the assets acquired in the acquisitions of the Orchard-Trimble  property
     and the San Tomas Technology  Park.  Depreciation  expense  attributable to
     discontinued  operations  was  approximately  $46,000  for the  year  ended
     December 31, 2002.

     The following table depicts the amounts of interest expense from continuing
     operations for the years ended December 31, 2003 and 2002.

<TABLE>
<CAPTION>
                                                    December 31,
                                          ----------------------------------
                                                                                                      % Change by
                                                2003                2002           $ Change              Group
                                          --------------      --------------     --------------      --------------
                                                           (dollars in thousands)

<S>                                         <C>                 <C>                 <C>                 <C>
         Interest                            $16,446             $ 9,588             $6,858               71.5%
         Interest (related parties)            1,064               3,422             (2,358)             (68.9%)
                                          --------------      --------------     --------------
              Total                          $17,510             $13,010             $4,500               34.6%
                                          ==============      ==============     ==============
</TABLE>

     Interest expense increased by $6.8 million, or 71.5%, from $9.6 million for
     the year  ended  December  31,  2002 to $16.4  million  for the year  ended
     December 31, 2003. The increased expense resulted from additional debt that
     the Company incurred under a new $100 million  collateralized loan obtained
     from   Northwestern   Mutual  Life  Insurance   Company,   an  $80  million
     collateralized loan obtained from Citicorp USA, Inc. and a $40 million line
     of credit  established with Cupertino  National Bank, the proceeds of which
     were used primarily for the acquisition of the San Tomas  Technology  Park.
     Interest expense (related parties)  decreased by ($2.3) million,  or 68.9%,
     from $3.4 million for the year ended  December 31, 2002 to $1.1 million for
     the year ended  December 31, 2003  primarily  due to the  refinancing  of a
     portion  of the  related  party  debt  with the new third  party  financing
     discussed above.

     The new debt  carries a higher  interest  rate than the Berg  Group line of
     credit, which it mainly replaced,  contributing to the increase in interest
     expense  for the year.  We  anticipate  additional  increases  in  interest
     expense as new debt is incurred in connection  with  property  acquisitions
     and we draw on the Cupertino National Bank revolving line of credit.

     NET INCOME TO COMMON STOCKHOLDERS AND NET INCOME TO MINORITY INTERESTS
     The following table depicts the amounts of earnings  attributable to common
     stockholders  and minority  interests for the years ended December 31, 2003
     and 2002.
<TABLE>
<CAPTION>

                                                         December 31,
                                             -------------------------------------
                                                  2003                  2002                                    % Change by
                                                                    (As Restated)          $ Change                Group
                                             ----------------      ---------------      ----------------      ----------------
                                                               (dollars in thousands)

<S>                                              <C>                 <C>                  <C>                      <C>
         Net income to shareholders               $16,212             $ 17,115             ($   903)                (5.3%)
         Net income to minority interests          80,836               86,641               (5,805)                (6.7%)
                                             ----------------      ---------------      ----------------
              Total                               $97,048             $103,756             ($ 6,708)                (6.5%)
                                             ================      ===============      ================
</TABLE>

     As of December 31, 2003 and 2002, we owned a general  partnership  interest
     of 16.95%,  21.61%, 15.98% and 12.37% and 16.68%, 21.46%, 15.46% and 12.27%
     in the four operating partnerships,  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.  We owned a 17.02% and 16.82% general
     partnership interest in the operating partnerships,  taken as a whole, on a
     weighted average basis as of December 31, 2003 and 2002, respectively.  Net
     income to common  stockholders  decreased by ($0.9) million,  or 5.3%, from
     $17.1 million for the year ended December 31, 2002 to $16.2 million for the
     year ended  December  31,  2003.  Our net income  attributable  to minority
     interests  decreased by ($5.8) million, or 6.7%, from $86.6 million for the
     year ended  December 31, 2002 to $80.8 million for the year ended  December
     31, 2003.  Minority  interest  represents the limited  partners'  ownership
     interest of 82.98% and 83.18% in the operating partnerships,  on a weighted
     average basis, as of December 31, 2003 and 2002, respectively. The decrease
     in  the  minority  interest   percentage  resulted  from  the  issuance  of
     additional  shares of common  stock  from the  exchange  of O.P.  Units for
     common  stock  by  minority  interest  holders  and the  exercise  of stock
     options.

                                     - 32 -

<PAGE>


     INCOME FROM DISCONTINUED OPERATIONS
     The  following  table  depicts  the  amounts  of income  from  discontinued
     operations for the year ended December 31, 2002.
<TABLE>
<CAPTION>

                                                            December 31, 2002
                                                          ----------------------
                                                          (dollars in thousands)

<S>                                                                  <C>
         Gain from disposal of discontinued operations                $6,103
         Income attributable to discontinued operations                  287
         Minority interest in earnings attributable
            to discontinued operations                                (5,325)
                                                          ----------------------
              Total income from discontinued operations               $1,065
                                                          ======================
</TABLE>

     In  accordance  with  our  adoption  of SFAS No.  144,  in 2002 we sold and
     classified as  discontinued  operations  one property  consisting of 72,426
     rentable  square feet and  recognized a net gain of $6.1 million,  of which
     $1.0 million and $5.1 million were attributable to common  stockholders and
     minority  interests,  respectively.  The income to common  stockholders and
     minority  interests  attributable  to  discontinued  operations  from  this
     property in 2002 was approximately $47,000 and $240,000, respectively.

     COMPARISON OF THE YEAR ENDED  DECEMBER 31, 2002 TO THE YEAR ENDED  DECEMBER
     31, 2001.

     RENTAL REVENUES FROM CONTINUING OPERATIONS
     As of December 31, 2002, through our controlling interests in the operating
     partnerships,  we  owned  101 R&D  properties  totaling  approximately  7.2
     million square feet compared to 97 such properties  totaling  approximately
     6.78 million  square feet as of December 31, 2001.  This  represented a net
     increase of  approximately  6% in total  rentable  square  footage from the
     prior year. During 2002, we made the following  acquisitions by purchase of
     new  properties  under  the  Berg  Land  Holdings  Option  Agreement  or as
     replacement  property in exchange for existing R&D properties  that we sold
     in 2001 and 2002.

<TABLE>
<CAPTION>
                                                                                  Rentable Square
         Date of Acquisition                       Address                            Footage
         --------------------    -------------------------------------------    -------------------
<S>                             <C>                                                  <C>
                1/02             5345 Hellyer Avenue                                  125,000
                3/02             2630 Orchard Parkway (1)                              60,633
                3/02             2610 Orchard Parkway (1)                              54,093
                3/02             55 West Trimble Road (1)                              91,722
                7/02             5900 Optical Court                                   165,000
                                                                                -------------------
                                      Total                                           496,448
                                                                                ===================
</TABLE>

(1)  Acquired in a tax-deferred exchange for R&D properties located at 5713-5729
     Fontanoso  Way that was sold in year 2001 and 2001 Logic Drive in San Jose,
     California that was sold in year 2002.

     The following  table depicts the amounts of rental revenues from continuing
     operations  for the years ended  December 31, 2002 and 2001  represented by
     our historical properties and the properties acquired in each such year and
     the  percentage  of the total  increase in rental  revenues over the period
     that is represented by each group of properties.

<TABLE>
<CAPTION>
                                                  December 31,
                                        ----------------------------------
                                                                                                    % Change by         % of Total
                                             2002                2001            $ Change          Property Group       Net Change
                                        --------------      --------------     --------------      --------------     --------------
                                                          (dollars in thousands)

<S>                                      <C>                 <C>                 <C>                  <C>                 <C>
         Same Property (1)                $103,076            $112,545            ($9,469)              (8.4%)             (7.5%)
         2001 Acquisitions (2)              18,328              13,684              4,644               33.9%               3.7%
         2002 Acquisitions (3)               8,377                   -              8,377              100.0%               6.6%
                                        --------------      --------------     --------------                         --------------
              Total/Overall               $129,781            $126,229             $3,552                2.8%               2.8%
                                        ==============      ==============     ==============                         ==============
</TABLE>

(1)  "Same Property" is defined as properties  owned by us prior to 2001 that we
     still owned as of December 31, 2002.
(2)  Operating  rental  revenues for 2001  Acquisitions do not reflect a full 12
     months of  operations  in 2001 because  these  properties  were acquired at
     various times during 2001.
(3)  Operating  rental  revenues for 2002  Acquisitions do not reflect a full 12
     months of  operations  in 2002 because  these  properties  were acquired at
     various times during 2002.

     For the year ended December 31, 2002, our rental  revenues from real estate
     increased by $3.5 million,  or 2.8% from $126.2  million for the year ended
     December 31, 2001 to $129.7  million for the same period in 2002.  The $3.5
     million   increase  in  rental   revenues   resulted   from  new   property
     acquisitions,  as "Same Property" rents decreased by ($9.5) million,  rents
     from newly developed  properties  acquired in 2001 represented an increased
     of $4.6 million and rents from newly developed  properties acquired in 2002
     added approximately $8.4 million of new rental revenue.  Approximately $0.3
     million  and  $2.0  million  in  rental  revenues  were  generated  from  a
     discontinued  operation  for the years  ended  December  31, 2002 and 2001,

                                     - 33 -
<PAGE>

     respectively.  The decline in rental  revenues of ($9.5)  million  from the
     "Same Property"  portfolio  resulted from adverse market conditions and the
     loss of several  tenants due to bankruptcy or cessation of operations.  Our
     overall  physical  occupancy  rate  at  December  31,  2002  and  2001  was
     approximately 84% and 97%, respectively.

     OTHER INCOME
     The  following  table  depicts the amounts of other income from  continuing
     operations for the years ended December 31, 2002 and 2001.

<TABLE>
<CAPTION>
                                                    December 31,
                                          ----------------------------------
                                                                                                      % Change by
                                                2002                2001           $ Change              Group
                                          --------------      --------------     --------------      --------------
                                                            (dollars in thousands)

<S>                                          <C>                 <C>               <C>                  <C>
         Other income                         $4,248              $2,465            $1,783               72.3%
</TABLE>

     Other income,  including interest,  was approximately $4.3 million and $2.5
     million for the years ended December 31, 2002 and 2001,  respectively.  The
     $1.8 million increase was primarily from lease termination fees.

     In 2001,  gain from sales of real  estate was $11.5  million,  effected  as
     tax-deferred  Section 1031 exchanges.  Due to the adoption of SFAS No. 144,
     "Accounting for the Impairment or Disposal of Long Lived Assets"  effective
     January 1, 2002, gains from sales of operating properties are classified as
     discontinued operations. In 2002, a gain of approximately $6.1 million from
     the sale of one property  consisting of 72,426 rentable square feet at 2001
     Logic Drive in a Section  1031  exchange has been  classified  as Gain from
     Disposal of Discontinued Operations (see below).

     EXPENSES FROM CONTINUING PROPERTY OPERATIONS
     The  following  table  reflects  the  increase  in property  operating  and
     maintenance  expenses and real estate taxes from continuing  operations for
     the year ended  December 31, 2002 over property  operating and  maintenance
     expenses  and real estate  taxes from  continuing  operations  for the year
     ended  December 31, 2001 and the  percentage of total  increase in expenses
     over the period that is represented by each group of properties.

<TABLE>
<CAPTION>
                                                  December 31,
                                        ----------------------------------
                                            2002                2001                                % Change by         % of Total
                                        (As Restated)       (As Restated)        $ Change          Property Group       Net Change
                                        --------------      --------------     --------------      --------------     --------------
                                                        (dollars in thousands)

<S>                                       <C>                 <C>                 <C>                 <C>                 <C>
         Same Property (1)                 $19,012             $15,894             $3,118               19.6%              16.9%
         2001 Acquisitions (2)               3,612               2,608              1,004               38.5%               5.4%
         2002 Acquisitions (3)               1,327                   -              1,327              100.0%               7.2%
                                        --------------      --------------     --------------                         --------------
              Total/Overall                $23,951             $18,502             $5,449               29.5%              29.5%
                                        ==============      ==============     ==============                         ==============
</TABLE>

(1)  "Same Property" is defined as properties  owned by us prior to 2001 that we
     still owned as of December 31, 2002.
(2)  Operating  expenses  and real  estate  taxes for 2001  Acquisitions  do not
     reflect a full 12 months of  operations  in 2001 because  these  properties
     were acquired at various times during 2001.
(3)  Operating  expenses  and real  estate  taxes for 2002  Acquisitions  do not
     reflect a full 12 months of  operations  in 2002 because  these  properties
     were acquired at various times during 2002.

     Operating expenses and real estate taxes from continuing  operations,  on a
     combined basis, increased by $5.4 million, or 29.5%, from $18.5 million for
     the year  ended  December  31,  2001 to $23.9  million  for the year  ended
     December 31, 2002. Of the $5.4 million  increase in operating  expenses and
     real estate taxes, $3.1 million resulted from the Company's "Same Property"
     portfolio,  $1 million  resulted from properties  acquired in 2001 and $1.3
     million resulted from properties  acquired in 2002.  Tenant  reimbursements
     from continuing  operations  increased by $2.6 million,  or 15%, from $17.5
     million for the year ended  December 31, 2001 to $20.1 million for the year
     ended  December 31, 2002.  The overall  increase in tenant  reimbursements,
     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.  Total  operating  expenses  and real estate
     taxes exceeded tenant  reimbursements  because of vacancies,  which reached
     approximately  1.16  million  square  feet by year-end  2002.  For the same
     reason,  "Same Property" rental revenues  decreased in 2002 over 2001 while
     "Same Property" operating expenses increased in 2002 over 2001. General and
     administrative expenses increased by $0.2 million from $1.3 million for the
     year ended  December 31, 2001 to $1.5  million for the year ended  December
     31, 2002, primarily due to the addition of one new employee in 2001 and the
     increase of legal fees in 2002.

                                     - 34 -

<PAGE>


     The following  table depicts the amounts of depreciation  and  amortization
     expense of real  estate  from  continuing  operations  for the years  ended
     December 31, 2002 and 2001.
<TABLE>
<CAPTION>

                                                    December 31,
                                          ----------------------------------
                                              2002                2001
                                          (As Restated)       (As Restated)         $ Change            % Change
                                          --------------      --------------     --------------      --------------
                                                           (dollars in thousands)

<S>                                         <C>                 <C>                 <C>                   <C>
         Depreciation                        $18,313             $16,746             $1,567                9.4%
</TABLE>

     Depreciation expense from continuing  operations increased by $1.6 million,
     or 9.4%,  from $16.7 million for the year ended  December 31, 2001 to $18.3
     million for the year ended December 31, 2002. The increase was attributable
     to the  acquisition  of five R&D properties in 2002.  Depreciation  expense
     attributable  to  discontinued  operations  was  approximately  $46,000 and
     $278,000 for the years ended December 31, 2002 and 2001, respectively.

     The following table depicts the amounts of interest expense from continuing
     operations for the years ended December 31, 2002 and 2001.

<TABLE>
<CAPTION>
                                                    December 31,
                                          ----------------------------------
                                                                                                      % Change by
                                                2002                2001           $ Change              Group
                                          --------------      --------------     --------------      --------------
                                                            (dollars in thousands)

<S>                                          <C>                <C>                <C>                 <C>
         Interest                            $ 9,588             $ 8,704            $  884               10.2%
         Interest (related parties)            3,422               4,709            (1,287)             (27.3%)
                                          --------------      --------------     --------------
              Total                          $13,010             $13,413           ($  403)              (3.0%)
                                          ==============      ==============     ==============
</TABLE>

     Interest expense increased by $0.9 million, or 10.2%, from $8.7 million for
     the year  ended  December  31,  2001 to $9.6  million  for the  year  ended
     December 31, 2002. The increased expense resulted from additional debt that
     the Company incurred under a new $20 million uncollateralized loan obtained
     from Citicorp USA, Inc. and a $40 million line of credit  established  with
     Cupertino  National Bank.  Interest expense (related parties)  decreased by
     $1.3 million,  or 27.3%,  from $4.7 million for the year ended December 31,
     2001 to $3.4 million for the year ended  December 31, 2002.  As a result of
     five R&D property  acquisitions  totaling  approximately  496,000  rentable
     square  feet in 2002,  debt  outstanding,  including  amounts  due  related
     parties,  increased  by $20.1  million,  or 9%, from  $218.7  million as of
     December 31, 2001 to $238.8 million as of December 31, 2002. Interest rates
     declined in 2002, which lessened the effect of the additional debt on total
     interest expense.

     NET INCOME TO COMMON STOCKHOLDERS AND NET INCOME TO MINORITY INTERESTS
     The following table depicts the amounts of earnings  attributable to common
     stockholders  and minority  interests for the years ended December 31, 2002
     and 2001.

<TABLE>
<CAPTION>
                                                         December 31,
                                             -------------------------------------
                                                  2002                  2001                                    % Change by
                                             (As Restated)          (As Restated)          $ Change                Group
                                             ----------------      ---------------      ----------------      ----------------
                                                               (dollars in thousands)

<S>                                             <C>                  <C>                  <C>                      <C>
         Net income to shareholders              $ 17,115             $ 18,086             ($   971)                (5.4%)
         Net income to minority interests          86,641               91,312               (4,671)                (5.1%)
                                             ----------------      ---------------      ----------------
              Total                              $103,756             $109,398             ($ 5,642)                (5.2%)
                                             ================      ===============      ================
</TABLE>

     As of December 31, 2002 and 2001, we owned a general  partnership  interest
     of 16.68%,  21.46%, 15.46% and 12.27% and 16.54%, 21.41%, 15.42% and 12.24%
     in the four operating partnerships,  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.  We owned a 16.82% and 16.73% general
     partnership interest in the operating partnerships,  taken as a whole, on a
     weighted average basis as of December 31, 2002 and 2001, respectively.  Net
     income to common stockholders  decreased by $1 million, or 5.4%, from $18.1
     million for the year ended  December 31, 2001 to $17.1 million for the year
     ended  December 31, 2002.  Our income  attributable  to minority  interests
     decreased by $4.7 million,  or 5.1%,  from $91.3 million for the year ended
     December  31, 2001 to $86.6  million for the year ended  December 31, 2002.
     Minority interest  represents the limited partners'  ownership  interest of
     83.18%  and 83.27% in the  operating  partnerships,  on a weighted  average
     basis, as of December 31, 2002 and 2001, respectively.  The decrease in the
     minority  interest  percentage  resulted  from the  issuance of  additional
     shares of common stock from the exchange of O.P. Units for shares of common
     stock by minority interest holders and the exercise of stock options.

                                     - 35 -

<PAGE>


     INCOME FROM DISCONTINUED OPERATIONS
     The  following  table  depicts  the  amounts  of income  from  discontinued
     operations for the years ended December 31, 2002 and 2001.

<TABLE>
<CAPTION>
                                                                 December 31,
                                                       ----------------------------------
                                                                                                                % Change by
                                                             2002               2001           $ Change            Group
                                                       --------------     ---------------    --------------    ---------------
                                                                      (dollars in thousands)

<S>                                                          <C>                 <C>               <C>                <C>
         Gain from disposal of discontinued operations        $6,103                   -            $6,103             100.0%
         Income attributable to discontinued operations          287              $1,721            (1,434)            (83.3%)
         Minority interest in earnings attributable to
            discontinued operations                           (5,325)             (1,436)           (3,889)            270.8%
                                                       --------------     ---------------    --------------
              Total income from discontinued operations       $1,065              $  285            $  780             273.7%
                                                       ==============     ===============    ==============
</TABLE>

     In  accordance  with  our  adoption  of SFAS No.  144,  in 2002 we sold and
     classified as  discontinued  operations  one property  consisting of 72,426
     rentable  square feet and  recognized a net gain of $6.1 million,  of which
     $1.0 million and $5.1 million were attributable to common  stockholders and
     minority  interests,  respectively.  The income to common  stockholders and
     minority  interests  attributable  to  discontinued  operations  from  this
     property in 2002 was approximately $47,000 and $240,000,  respectively. For
     2001, the income to common stockholders and minority interests attributable
     to discontinued  operations from this property was  approximately  $285,000
     and $1.4 million,  respectively.  We did not report gains from the disposal
     of  discontinued   operations  or  from  discontinued  operations  for  any
     transactions  in 2001,  since the property sale in 2001 did not qualify for
     discontinued operations presentation under old pre-2002 guidance prescribed
     by Accounting  Principles Board No. 30,  Reporting  Results of Operations -
     Discontinued Events and Extraordinary Items.

     CHANGES IN FINANCIAL CONDITION

     YEAR ENDED DECEMBER 31, 2003.

     The most  significant  changes in our financial  condition in 2003 resulted
     from property  acquisitions.  In addition,  stockholders'  equity increased
     from the  exercise  of stock  options and the  exchange  of O.P.  Units for
     common stock.

     During 2003,  we acquired one R&D property and a 50% interest in the Morgan
     Hill joint venture with TBI from the Berg Group.  Those  acquisitions added
     approximately 129,000 square feet of rentable space and were acquired under
     the Berg Land Holdings Option Agreement.  The total gross acquisition price
     was  approximately   $13.0  million.  We  financed  those  acquisitions  by
     borrowing  $9  million  under  our line of credit  from the Berg  Group and
     issuing  350,163  O.P.  Units to  various  members  of the Berg  Group.  In
     addition to those two purchases,  we also acquired the San Tomas Technology
     Park, which was financed with a combination of an $80 million mortgage note
     at LIBOR plus 200 basis points,  cash reserves,  and cash proceeds from our
     line of  credit  with  Cupertino  National  Bank.  This  acquisition  added
     approximately 625,000 rentable square feet to our portfolio.

     As a result of those property  acquisitions,  debt  outstanding,  including
     amounts due related parties,  increased by $102.1 million,  or 42.8%,  from
     $238.8 million as of December 31, 2002 to $340.9 million as of December 31,
     2003.  Interest rates  continued to remain low in 2003,  which lessened the
     effect of the additional debt on total interest expense. We expect interest
     expense to increase if we acquire  additional  properties or interest rates
     increase in 2004.

     During the year ended  December 31, 2003,  stock options were  exercised to
     purchase a total of 150,362  shares of common  stock,  consisting of 60,362
     shares  exercised at $4.50 per share and 90,000  shares  exercised at $8.25
     per share. Total proceeds to the Company were approximately $1 million.

     In 2003,  three limited partners  exchanged  257,000 O.P. Units for 257,000
     shares of the  Company's  common stock under the terms of the December 1998
     Exchange Rights Agreement among the Company and the limited partners of the
     operating partnerships.

     The proceeds from the exercise of stock options and the  conversion of O.P.
     Units to shares of the Company's  common stock were applied to increase our
     percentage interest as general partner in the operating partnerships.

                                     - 36 -

<PAGE>


     YEAR ENDED DECEMBER 31, 2002.

     The most  significant  changes in our financial  condition in 2002 resulted
     from property acquisitions and exchanges. In addition, stockholders' equity
     increased from the exercise of stock options and the exchange of O.P. Units
     for common stock.

     During  2002,  we acquired  two R&D  properties  from the Berg Group,  both
     located in Silicon Valley.  Those acquisitions added approximately  290,000
     square  feet of  rentable  space  and were  acquired  under  the Berg  Land
     Holdings Option  Agreement.  The total gross  acquisition price for the two
     properties was approximately $31 million. We financed those acquisitions by
     borrowing  $18  million  under our line of credit  from the Berg  Group and
     issuing  835,491  O.P.  Units to  various  members  of the Berg  Group.  In
     addition  to those  two  property  purchases,  we also  acquired  three R&D
     properties  representing  approximately  206,500  rentable square feet from
     Silicon  Valley  Properties,   LLC  for  approximately   $31.3  million  in
     connection with tax-deferred exchanges involving the property sold to Cisco
     Systems, Inc. in late 2001 and property sold to Xilinx, Inc. in early 2002.
     Until we obtained those three  replacement  properties,  the sales proceeds
     from the properties  sold by the Company were designated as restricted cash
     for use in  tax-deferred  property  exchanges.  No debt or O.P.  Units were
     issued to acquire those three properties.

     In March 2002,  we completed  the sale, in a  tax-deferred  exchange,  of a
     72,400  square foot R&D  property  located at 2001 Logic  Drive,  San Jose,
     California to Xilinx,  Inc.,  which had exercised a purchase  option in the
     same month.  We realized a gain of $6.1  million on the total sale price of
     $18.5  million.  Prior  to our  acquisition  of the  replacement  property,
     described in the  preceding  paragraph,  the proceeds from the sale of this
     property  were  designated as  restricted  cash to be used in  tax-deferred
     property exchanges.

     In  connection  with the  restatement  of our 2002  consolidated  financial
     statements, we reclassified  approximately $2.5 million recorded originally
     as Buildings and  Improvements to Other Assets as the amount  represents an
     ongoing commitment from the Berg Group to construct tenant  improvements on
     one of our  buildings.  We also have  reclassified  $1.4  million  recorded
     originally  as Land,  Buildings  and  Improvements  to Real Estate  Related
     Intangible  Assets  from  the  Orchard-Trimble   property   acquisition  in
     accordance with SFAS No. 141. Additionally,  we reclassified  approximately
     $3.0 million  recorded  originally as Buildings and  Improvements  to Other
     Assets, which represents prepaid leasing commissions incurred in connection
     with properties acquired from the Berg Group.

     During the year ended  December 31, 2002,  stock options were  exercised to
     purchase a total of 33,550 shares of common stock at $4.50 per share. Total
     proceeds to the Company were approximately $151, 000.

     In 2002,  three limited partners  exchanged  124,000 O.P. Units for 124,000
     shares of the  Company's  common stock under the terms of the December 1998
     Exchange Rights Agreement among the Company and all limited partners of the
     operating  partnerships.  In addition,  in 2002,  Carl E. Berg gave 155,000
     O.P.  Units to charitable  institutions,  which  exchanged them for 155,000
     shares of the  Company's  common  stock  pursuant  to the  Exchange  Rights
     Agreement in early January 2003.

     The proceeds from the exercise of stock options and the  conversion of O.P.
     Units to shares of the Company's  common stock were applied to increase our
     percentage interest as general partner in the operating partnerships.

     YEAR ENDED DECEMBER 31, 2001.

     The most  significant  changes in our financial  condition in 2001 resulted
     from property acquisitions and exchanges. In addition, stockholders' equity
     increased from the exercise of stock options and the exchange of O.P. Units
     for common stock.

     During 2001,  we  purchased  eight R&D  properties,  all located in Silicon
     Valley.  Those  acquisitions  added  approximately  748,000  square feet of
     rentable  space and were  acquired  from the Berg Group under the Berg Land
     Holdings  Option  Agreement.  The total gross  acquisition  price for these
     eight  properties  was  approximately  $80.7  million.  We  financed  those
     acquisitions  by borrowing  $45.9 million under our line of credit from the
     Berg  Group,  assuming  other  liabilities  of $2.0  million,  and  issuing
     2,422,837 O.P. Units to various  members of the Berg Group.  In addition to
     those  eight  property  purchases  we  also  acquired  two  R&D  properties
     representing approximately 127,000 rentable square feet from the Berg Group
     for approximately  $23.2 million in connection with a tax-deferred  Section
     1031 exchange for properties sold to Cisco Systems,  Inc. in 2001. Until we
     obtained those two  replacement  properties,  the proceeds from the sale of
     properties to Cisco Systems,  Inc. were  classified as restricted  cash for
     use in tax-deferred property exchanges and on our balance sheet at December
     31,  2001.  No debt  or  O.P.  Units  were  issued  to  acquire  those  two
     properties.

                                     - 37 -
<PAGE>

     In January 2001, we completed the sale, in a  tax-deferred  exchange,  of a
     200,484 square foot R&D property located at 4949 Hellyer Avenue,  San Jose,
     California  to Cisco  Systems,  Inc.,  which  had  exercised  an  option to
     purchase  that  property  in  November  2000.  We  realized  a gain of $3.1
     million,  which is included  in gain on sales of assets,  on the total sale
     price of $23.2 million. In September 2001, we also completed the sale, in a
     tax-deferred  exchange,  of a 77,700  square foot R&D  property  located at
     5713-5729 Fontanoso Way, San Jose, California to Cisco Systems, Inc., which
     had also exercised an option to purchase that property in November 2000. We
     realized  a gain of $8.4  million,  which is  included  in gain on sales of
     assets, on the total sale price of $15.4 million.

     During the year ended  December 31, 2001,  stock options were  exercised to
     purchase a total of 68,088  shares of common  stock,  consisting  of 14,588
     shares  exercised at $4.50 per share,  47,500 shares exercised at $8.25 per
     share,  and 6,000 shares  exercised at $13.00 per share.  Total proceeds to
     the Company were approximately $0.5 million.

     Two limited partners exchanged 236,323 O.P. Units for 236,323 shares of the
     Company's common stock under the terms of the Exchange Rights Agreement.

     The proceeds from the exercise of stock options and the conversions of O.P.
     Units to shares of the Company's  common stock were applied to increase our
     percentage interest as general partner in the operating partnerships.

     LIQUIDITY AND CAPITAL RESOURCES

     We  expect  our  principal   source  of  liquidity  for   distributions  to
     stockholders and O.P. Unit holders,  debt service,  leasing commissions and
     recurring  capital  expenditures  to come from cash  provided by operations
     and/or  the  borrowings  under the lines of credit  with the Berg Group and
     Cupertino  National  Bank.  We expect  these  sources  of  liquidity  to be
     adequate  to  meet  projected   distributions  to  stockholders  and  other
     presently anticipated liquidity requirements in 2004. We expect to meet our
     long-term liquidity  requirements for the funding of property  development,
     property acquisitions and other material non-recurring capital improvements
     through  long-term  secured and unsecured  indebtedness and the issuance of
     additional  equity securities by us. We have the ability to meet short-term
     obligations or other liquidity needs based on lines of credit with the Berg
     Group and Cupertino  National  Bank,  assuming  renewal of our existing $40
     million line of credit which expires in September 2004. Despite the current
     weakness in the economy,  we expect our total interest  expense to increase
     as interest  rates rise and as we incur debt  through  acquisitions  of new
     properties and financing activities.  In 2004, we will be obligated to make
     payments  totaling  approximately  $109.6 million of debt  principal  under
     mortgage  notes  without  regard  to  any  debt  refinancing  or  new  debt
     obligations that we might incur, or optional payments of debt principal. We
     anticipate  renewing these obligations,  primarily  Cupertino National Bank
     and  Citicorp  USA, as  described  below.  If we are not able to extend our
     loans  from  Cupertino  National  Bank and  Citicorp,  however,  we will be
     required to finance these loan payments  through other sources that may not
     be readily  avaliable to us on favorable terms.  Our operating  results and
     financial condition could be affected adversely, as a result.

     Effective  January 1, 2003, the Company and the Berg Group mutually  agreed
     to reduce the Berg Group $100  million line of credit to $20 million and to
     reduce the number of  properties  securing the line of credit to five.  The
     Berg Group line of credit  bears  interest at LIBOR plus  1.30%,  which was
     2.52% as of December  31,  2003,  and  matures in March 2005.  Debt of $6.3
     million under this line of credit was  outstanding at December 31, 2003. We
     believe that the terms of the Berg Group line of credit were more favorable
     than  those  available  from  institutional  lenders.  We  are  continually
     evaluating  alternative sources of credit to replace the Berg Group line of
     credit.  There can be no assurance that we will be able to obtain a line of
     credit with terms similar to the Berg Group line of credit, and its cost of
     borrowing  could  increase  substantially.  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."

     On January 9, 2003, we obtained a $100 million  secured  mortgage loan from
     Northwestern Mutual Life Insurance Company ("Northwestern Loan") that bears
     a fixed  interest rate at 5.64% and matures in January 2013 with  principal
     payments amortized over 20 years. The mortgage loan is collateralized by 11
     properties. We paid approximately $675,000 in loan fees and financing costs
     and used the proceeds to primarily  pay down  short-term  debt and the Berg
     Group line of credit.

     On April 9, 2003, we obtained an $80 million short-term  mortgage loan from
     Citicorp USA, Inc.  ("Citicorp  Loan") that bears interest at LIBOR plus 2%
     and originally matured on March 29, 2004. We and Citicorp extended the loan
     to May 27,  2004 and again to  September  6,  2004.  The  mortgage  loan is
     collateralized by seven  properties.  The extension of this loan is subject
     to our  providing  additional  collateral  valued  at not  less  than  $7.6
     million,  which we have  proposed to  Citicorp,  and  Citicorp is currently
     appraising it. We paid $200,000 in financing costs and used the proceeds to
     acquire the San Tomas Technology Park property.

                                     - 38 -
<PAGE>
     In July 2004, the $40 million line of credit with  Cupertino  National Bank
     was scheduled to mature.

     Cupertino  National Bank and Citicorp USA, Inc., have granted extensions of
     the loans to September 2, 2004 and  September 6, 2004,  respectively,  (the
     "Loan Extension Period") pending the completion of our Form 10-K filing for
     2003. We are in the process of renegotiating  the terms and extending these
     loans for an additional  two-year period.  We do not believe that the terms
     of the extended loans will differ  materially  from their current terms. We
     are the borrower under the Cupertino  National Bank line of credit which is
     guaranteed by Mission West  Properties,  L.P. and Mission West  Properties,
     L.P. II. Mission West  Properties,  L.P. is the borrower under the Citicorp
     USA  mortgage  loan  which is  guaranteed  by Carl E.  Berg,  Mission  West

     Properties,  L.P. I,  Mission  West  Properties  L.P.  II and Mission  West
     Properties  L.P.  III.  The  Cupertino  National  Bank line of  credit  and
     Citicorp USA, Inc.  mortgage loan contain certain loan  covenants.  We were
     not in  compliance  with one covenant  pertaining to our late filing of the
     Form  10-K for the year  ending  December  31,  2003 and Form  10-Q for the
     period ending March 31, 2004 (the "Financial  Reporting  Covenants").  Each
     bank has elected not to enforce the Financial  Reporting  Covenants  during
     the Loan Extension Period. Compliance with the Financial Reporting Covenant
     is a condition of the renewal for both loans.

     On January 8, 2004, we paid dividends of $0.24 per share of common stock to
     all common  stockholders  of record as of December  31,  2003.  On the same
     date, the operating partnerships paid a distribution of $0.24 per O.P. Unit
     to all holders of O.P. Units.

     On March 16, 2004, we declared  dividends of $0.24 per common share payable
     on April 8, 2004 to all common stockholders of record on March 31, 2004.

     On June 16, 2004,  we declared  dividends of $0.24 per common share payable
     on July 8, 2004 to all common stockholders of record on June 30, 2004.

     CONTRACTUAL OBLIGATIONS

     The following table  identifies our contractual  obligations as of December
     31, 2003 that will impact our liquidity and cash flow in future periods:
<TABLE>
<CAPTION>

                                           2004       2005         2006          2007          2008      Subsequent       Total
                                        ---------- ----------- ------------- ------------- ------------ ------------- --------------
                                                                         (dollars in thousands)
<S>                                      <C>          <C>            <C>           <C>          <C>         <C>            <C>
         Long-Term Debt Obligations (1)   $109,577     $12,297        $6,245        $6,350       $6,748      $199,688       $340,905
         Operating Lease Obligations(2)         90          90            90            23            -             -            293
         Total                            $109,667     $12,387        $6,335        $6,373       $6,748      $199,688       $341,198
</TABLE>

(1)  Our  long-term  debt  obligations  are set forth in detail in the  schedule
     below.  The  amount  due in 2004  does not  reflect  the  planned  two-year
     extension  of the Citicorp  USA,  Inc. and  Cupertino  National  Bank loans
     described in Liquidity and Capital Resources above.
(2)  Our operating lease  obligations  relate to a lease of our corporate office
     facility from a related party.

     At December 31, 2003, we had total  indebtedness  of  approximately  $340.9
     million, including approximately $230.6 million of fixed rate mortgage debt
     and approximately $110.3 million under the loan from Citicorp USA, Inc. and
     the lines of credit from the Berg Group and Cupertino  National Bank, as to
     which the  interest  rate  varies with  LIBOR.  Of total  fixed  debt,  the
     Prudential and Northwestern loans represented  approximately $121.5 million
     and $97.4  million,  respectively.  The following  table sets forth certain
     information regarding debt outstanding as of December 31, 2003.

                                     - 39 -
<PAGE>
<TABLE>
<CAPTION>

                                                                                            At December 31,    Maturity    Interest
            Debt Description                           Collateral Properties                     2003            Date        Rate
------------------------------------------ ---------------------------------------------- ------------------  ---------- -----------
                                                                                        (dollars in thousands)
LINE OF CREDIT
<S>                                       <C>                                                    <C>            <C>         <C>
Berg Group (related parties)               2033-2043 Samaritan Drive, San Jose, CA                $  6,320        3/05         (1)
                                           2133 Samaritan Drive, San Jose, CA
                                           2233-2243 Samaritan Drive, San Jose, CA
                                           1310-1450 McCandless Drive, Milpitas, CA
                                           1795-1845 McCandless Drive, Milpitas, CA

Cupertino National Bank                    Not Applicable                                           23,965        9/04         (4)

MORTGAGE NOTES PAYABLE (RELATED PARTIES):  5300-5350 Hellyer Avenue, San Jose, CA                   10,762        6/10       7.650%

MORTGAGE NOTES PAYABLE (2):
Prudential Capital Group                   20400 Mariani Avenue, Cupertino, CA                         733       10/06       8.750%
Washington Mutual (Home S&L Association)   10460 Bubb Road, Cupertino, CA                              225       12/06       9.500%
Prudential Insurance Company of America(3) 10300 Bubb Road, Cupertino, CA                          121,455       10/08       6.560%
                                           10500 North De Anza Blvd, Cupertino, CA
                                           4050 Starboard Drive, Fremont, CA
                                           45700 Northport Loop, Fremont, CA
                                           45738 Northport Loop, Fremont, CA
                                           450 National Ave, Mountain View, CA
                                           6311 San Ignacio Avenue, San Jose, CA
                                           6321 San Ignacio Avenue, San Jose, CA
                                           6325 San Ignacio Avenue, San Jose, CA
                                           6331 San Ignacio Avenue, San Jose, CA
                                           6341 San Ignacio Avenue, San Jose, CA
                                           6351 San Ignacio Avenue, San Jose, CA
                                           3236 Scott 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 East Arques, Sunnyvale, CA
                                           1250 East Arques, Sunnyvale, CA
                                           1170 Morse Avenue, Sunnyvale, CA
                                           1600 Memorex Drive, Santa Clara, CA
                                           1688 Richard Avenue, Santa Clara, CA
                                           1700 Richard Avenue, Santa Clara, CA
                                           3540 Bassett Street, Santa Clara, CA
                                           3542 Bassett Street, Santa Clara, CA
                                           3544 Bassett Street, Santa Clara, CA
                                           3550 Bassett Street, Santa Clara, CA

Northwestern Mutual Life Insurance         1750 Automation Parkway, San Jose, CA                    97,445        1/13       5.640%
Company (5)                                1756 Automation Parkway, San Jose, CA
                                           1762 Automation Parkway, San Jose, CA
                                           6320 San Ignacio Avenue, San Jose, CA
                                           6540-6541 Via Del Oro, San Jose, CA
                                           6385-6387 San Ignacio Avenue, San Jose, CA
                                           2251 Lawson Lane, Santa Clara, CA
                                           1325 McCandless Drive, Milpitas, CA
                                           1650-1690 McCandless Drive, Milpitas, CA
                                           20605-20705 Valley Green Drive, Cupertino, CA

Citicorp USA, Inc.                         2001 Walsh Avenue, Santa Clara, CA                       80,000        9/04         (4)
                                           2880 Scott Boulevard, Santa Clara, CA
                                           2890 Scott Boulevard, Santa Clara, CA
                                           2770-2800 Scott Boulevard, Santa Clara, CA
                                           2220 Central Expressway, Santa Clara, CA
                                           2300 Central Expressway, Santa Clara, CA
                                           2330 Central Expressway, Santa Clara, CA
                                                                                             ------------------
Mortgage Notes Payable                                                                             299,858
                                                                                             ------------------
Total                                                                                             $340,905
                                                                                             ==================
</TABLE>

                                     - 40 -

<PAGE>


(1)  The debt owed to the Berg Group under the line of credit carries a variable
     interest  rate  equal to LIBOR  plus  1.30% and is payable in full in March
     2005. The interest rate was 2.52% at December 31, 2003.

(2)  Mortgage notes payable generally  require monthly  installments of interest
     and  principal  over various  terms  extending  through the year 2013.  The
     weighted  average  interest  rate of  mortgage  notes  payable was 6.23% at
     December 31, 2003.

(3)  The Prudential  Insurance 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.

(4)  Interest  rate equal to LIBOR plus 2%. The interest  rate for the Cupertino
     National Bank line of credit and the Citicorp  USA,  Inc.  mortgage loan at
     December 31, 2003 was 3.17%.

(5)  The  Northwestern  loan is payable in monthly  installments of $696,  which
     includes principal (based upon a 20-year amortization) and interest.  Costs
     and fees incurred with obtaining this loan aggregated approximately $675.

     At December 31, 2003, 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 $12.95 per share on December 31, 2003) on a fully  diluted  basis,
     including  the  conversion  of  all  O.P.  Units  into  common  stock,  was
     approximately  20.1%.  On December 31,  2003,  the last trading day for the
     year, total market capitalization was approximately $1.7 billion.

     At December 31, 2003,  the  outstanding  balance  remaining  under  certain
     demand notes that we owed to the operating  partnerships was $1.47 million.
     The due date of the demand notes has been  extended to September  30, 2005.
     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  that we receive from the
     operating  partnerships that are in excess of the amount of dividends to be
     paid to our stockholders.

                                     - 41 -


<PAGE>


     HISTORICAL CASH FLOWS

     COMPARISON OF THE YEAR ENDED  DECEMBER 31, 2003 TO THE YEAR ENDED  DECEMBER
     31, 2002.

     Net cash provided by operating  activities  for the year ended December 31,
     2003 was  approximately  $116.5 million,  compared to approximately  $117.4
     million for the prior year.  The  decrease  in cash  provided by  operating
     activities  resulted  from adverse  market  conditions  and loss of several
     tenants due to bankruptcy,  cessation of operations,  or tenant  relocation
     resulting in increased vacancy rates that offset cash savings.

     Net cash used in investing  activities was approximately ($110) million for
     the year ended December 31, 2003, compared to approximately ($20.7) million
     for the prior year. Cash used in investing  activities  during 2003 related
     to  financing  the  acquisition  of the San Tomas  Technology  Park of $110
     million as well as new equipment and improvements of $1.4 million.

     Net cash used in financing  activities was approximately ($6.9) million for
     the year ended December 31, 2003,  compared to ($97.5) million for the year
     ended  December 31,  2002.  During 2003,  we paid debt  principal  and made
     distributions  to holders of our common stock and O.P. Units utilizing cash
     generated from operating  activities  and other borrowed  funds.  Financing
     activities in 2003 also consisted of a $100 million collateralized mortgage
     loan from  Northwestern  Mutual  Life  Insurance  Company,  an $80  million
     collateralized mortgage loan from Citicorp USA, Inc. and a $40 million line
     of credit  established  with Cupertino  National Bank in July 2002 of which
     $24.0  million  had  been  drawn  as of the year  end.  For the year  ended
     December  31,  2003,  we  paid  dividends  to  our  stockholders  and  made
     distributions  to the  O.P.  Unit  holders  totaling  approximately  $100.1
     million,  compared  to  approximately  $99.7  million  for the  year  ended
     December 31, 2002. Additionally, during 2003, we repaid $61.5 million under
     our  line of  credit  with  the  Berg  Group  and  $20  million  under  our
     uncollateralized loan with Citicorp USA, Inc.

     COMPARISON OF THE YEAR ENDED  DECEMBER 31, 2002 TO THE YEAR ENDED  DECEMBER
     31, 2001.

     Net cash provided by operating  activities  for the year ended December 31,
     2002 was  approximately  $117.4 million,  compared to approximately  $111.2
     million for the prior year.  The increase in cash resulted  from  increased
     rental receipts attributable to newly acquired properties.

     Net cash used in investing activities was approximately ($20.7) million for
     the year ended December 31, 2002, compared to approximately  ($3.0) million
     for the prior year. Cash used in investing  activities  during 2002 related
     to the acquisition of three R&D properties through a tax-deferred  exchange
     transaction  involving  the property sold to Xilinx,  Inc.  pursuant to its
     purchase option as well as new equipment and improvements.

     Net cash used in financing activities was approximately ($97.5) million for
     the year ended December 31, 2002, compared to ($107.5) million for the year
     ended  December 31,  2001.  During 2002,  we paid debt  principal  and made
     distributions  to holders of our common stock and O.P. Units utilizing cash
     generated from operating  activities  and other borrowed  funds.  Financing
     activities in 2002 also  consisted of a $20 million  uncollateralized  loan
     from Citicorp USA, Inc. and a $40 million line of credit  established  with
     Cupertino  National  Bank of which  $23.8  million had been drawn as of the
     year end. For the year ended  December 31, 2002,  we paid  dividends to our
     stockholders  and made  distributions  to the O.P.  Unit  holders  totaling
     approximately  $99.7 million,  compared to approximately  $85.0 million for
     the year ended December 31, 2001.

     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,  2003,  the  recurring
     tenant/building  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  $2.0
     million annually.  We will have approximately  863,000 rentable square feet
     under  expiring  leases in 2004. We expect that the average  annual cost of
     recurring tenant/building improvements and leasing commissions,  related to
     these  properties,  will be  approximately  $2.0 million  during  2004.  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/building  improvements  and  leasing  costs  also  may
     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."

                                     - 42 -
<PAGE>
     FUNDS FROM OPERATIONS

     FFO is a non-GAAP  financial  measurement  used by real  estate  investment
     trusts to measure and compare operating performance.  As defined by NAREIT,
     FFO  represents  net income  (loss) before  minority  interest of O.P. Unit
     holders,  computed in accordance with GAAP, including  non-recurring events
     other than "extraordinary items" under GAAP and gains and losses from sales
     of depreciable operating properties,  plus real estate related depreciation
     and amortization,  excluding  amortization of deferred  financing costs and
     depreciation  of  non-real  estate  assets,   and  after   adjustments  for
     unconsolidated partnerships and joint ventures. Management considers FFO an
     appropriate  measure of performance  of an equity REIT because,  along with
     cash flows from operating  activities,  financing  activities and investing
     activities,  it provides  investors with an understanding of our ability to
     incur and service debt and make capital expenditures.  With the emphasis on
     the disclosure of operating  earnings per share,  we will still continue to
     use FFO as a  measure  of the  Company's  performance.  FFO  should  not be
     considered as an alternative  for net income as a measure of  profitability
     nor is it  comparable  to  cash  flows  provided  by  operating  activities
     determined in accordance  with GAAP, nor is FFO  necessarily  indicative of
     funds  available  to meet our cash needs,  including  our need to make cash
     distributions  to  satisfy  REIT  requirements.  For  example,  FFO  is not
     adjusted for  payments of debt  principal  required  under our debt service
     obligations.

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

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

     We have revised our FFO computations for 2002 and 2001 for the inclusion of
     the amortization of leasing commissions in depreciation and amortization of
     real  estate  in order to be  comparable  to our 2003 FFO  presentation  in
     accordance  with  NAREIT  guidelines  and to more  closely  conform  to the
     NAREIT's FFO definition.  Additionally,  our 2003 FFO calculation  includes
     our portion of the  depreciation  and  amortization of real estate from our
     unconsolidated TBI-MSW joint venture.

     The revised FFO for the years ended December 31, 2003, 2002, 2001, 2000 and
     1999 is as follows:
<TABLE>
<CAPTION>

                                                                            For the Year Ended December 31,
                                                   -------------------------------------------------------------------------------
                                                        2003             2002           2001            2000            1999
                                                                    (As Restated)   (As Restated)
                                                   --------------- --------------- --------------- --------------- ---------------
                                                                                 (dollars in thousands)
<S>                                                   <C>             <C>            <C>               <C>             <C>
Net income to common stockholders (3)                  $ 16,212        $ 17,115        $ 18,086         $12,579         $ 6,531
Add:
    Minority interests (1)                               80,256          86,053          90,662          58,769          39,785
    Depreciation and amortization of real estate(2)      22,850          21,379          17,718          15,803          13,298
Less:
    Gain/(Loss) on sales of joint venture assets          1,400           6,103          11,453             501            (393)
       or assets
                                                   --------------- --------------- --------------- --------------- ---------------
FFO                                                    $117,918        $118,444        $115,013         $86,650         $60,007
                                                   =============== =============== =============== =============== ===============
</TABLE>

(1)  The minority  interest for third parties was deducted  from total  minority
     interest in calculating FFO.
(2)  Also  includes  depreciation  and  amortization  of real  estate  from  our
     unconsolidated joint venture and amortization of leasing commissions.
(3)  Net income to common stockholders is restated for 2002 and 2001

                                     - 43 -

<PAGE>


     The effect of the revision in the FFO  computation  described above for the
     years ended December 31, 2003, 2002, 2001, 2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                                                                             For the Year Ended December 31,

                                                                    2003         2002          2001          2000          1999
                                                                (As Revised) (As Restated) (As Restated) (As Reviewed) (As Reviewed)
                                                                ------------ ------------- ------------- ------------- -------------
                                                                                             (dollars in thousands)
<S>                                                               <C>           <C>           <C>            <C>           <C>
FFO, as previously reported                                        $117,769      $117,360      $114,513       $86,303       $59,079
Less:
  Effect of restatements and reclassifications on the consolidated   (2,562)       (2,321)         (302)            -             -
  statement of operations (1)
Add:
  Additional depreciation and amortization from restatements          1,146         2,321           302             -             -
  Amortization of leasing commissions                                   691         1,084           500           347           142
  Depreciation and amortization from unconsolidated joint venture       874             -             -             -             -
                                                                ------------ ------------- ------------- ------------- -------------
FFO, as revised                                                    $117,918      $118,444      $115,013       $86,650       $59,221
                                                                ============ ============= ============= ============= =============
</TABLE>

(1)  The reconciliation of consolidated net income as previously reported and as
     restated is described above. See "Impact of Restatements."

     OVERVIEW OF DISTRIBUTION POLICY

     We intend to make regular quarterly  distributions to stockholders and O.P.
     Unit holders based on our funds available for distributions. Our ability to
     make such  distributions  will be affected by numerous  factors  including,
     most  importantly,   the  receipt  of  distributions   from  the  operating
     partnerships.

     Funds  available for  distributions  does not represent cash generated from
     operating activities 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, debt service 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 are determined by our Board of Directors and depend on actual
     cash  available  for  distributions,   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."

     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, 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;

                                     - 44 -
<PAGE>

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

     -    certain policies with respect to competition by and acquisitions  from
          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 re-loaned 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.

     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.  We also may
     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.

                                     - 45 -
<PAGE>

     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.  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 December 29, 2008, 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,  if
     earlier,  Carl E.  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-deferred,"  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  Carl E. 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, results of operations, or cash flows.

     In  November  2002,  the  FASB  issued  FASB  Interpretation  No.  (FIN) 45
     "Guarantor's   Accounting  and  Disclosure   Requirements  for  Guarantees,
     Including Indirect  Guarantees of Indebtedness of Others," which elaborates
     on the  disclosures  to be made by a  guarantor  in its  interim and annual
     financial statements about its obligations under certain guarantees that it
     has issued. It also clarifies that a guarantor is required to recognize, at
     the  inception  of a  guarantee,  a  liability  for the  fair  value of the
     obligation undertaken in issuing the guarantee. The initial recognition and
     initial  measurement  provisions of this Interpretation are applicable on a
     prospective basis to guarantees issued or modified after December 31, 2002,
     irrespective of the guarantor's  fiscal year-end.  We have not entered into
     any new  guarantees  or modified  any  existing  guarantees  subsequent  to
     December 31, 2002; therefore,  adoption of this statement has had no effect
     on our financial position, operating results or cash flows.

     In  December  2003,  the FASB  issued FIN 46R,  "Consolidation  of Variable
     Interest Entities," a revision to FIN 46, which was issued in January 2003.
     Under FIN 46R, a variable interest entity must be consolidated by a company
     if that company is subject to a majority of the entity's expected losses or
     entitled to receive a majority of the entity's expected residual returns or
     both. FIN 46R requires  disclosures about variable interest entities that a
     company is not required to  consolidate,  but in which it has a significant
     variable  interest.  The  consolidation   requirements  apply  to  existing
     entities in the first  reporting  period that ends after March 15, 2004. We
     will adopt the  consolidation  requirements of FIN 46R in the first quarter
     of 2004.  We expect no  significant  effect on the  consolidated  financial
     position,  results of  operations  or cash flows as a result of the initial
     adoption of this standard in regard to existing variable interest entities;
     however,  newly formed entities could meet these  requirements  and will be
     recorded as appropriate.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
     Compensation--Transition  and  Disclosure",  which  amended  SFAS  No.  123
     "Accounting   for   Stock-Based   Compensation".   SFAS  No.  148  provides
     alternative  methods of transition for a voluntary change to the fair value
     based method of  accounting  for  stock-based  compensation  and amends the
     disclosure requirements of SFAS No. 123 to require prominent disclosures in
     both annual and interim financial statements about the method of accounting
     for stock-based employee  compensation and the effect of the method used on
     reported  results.   On  December  31,  2002,  we  adopted  the  disclosure
     provisions  of SFAS  No.  148  and  continue  to  account  for  stock-based
     compensation  under APB  Opinion  No. 25  "Accounting  for Stock  Issued to
     Employees". Therefore, the adoption of SFAS No. 148 did not have any effect
     on our financial position, operating results or cash flows.

                                     - 46 -
<PAGE>

     In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
     Instruments  with  Characteristics  of both  Liabilities  and Equity.  This
     Statement  establishes  standards for how an issuer classifies and measures
     certain financial  instruments with characteristics of both liabilities and
     equity. It requires that an issuer classify a financial  instrument that is
     within its scope as a liability (or an asset in some  circumstances).  SFAS
     No. 150 was  effective  beginning  in the third  quarter of 2003.  The FASB
     deferred the  implementation of SFAS No. 150 as applied to certain minority
     interests in finite life entities,  however. We adopted the requirements of
     SFAS  No.  150  in  the  third  quarter  of  2003,  and   considering   the
     aforementioned deferral, it did not impact our financial position,  results
     of operations or cash flows.

                                     - 47 -

<PAGE>


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We do not  generally  hold market risk  sensitive  instruments  for trading
     purposes.  We use fixed and variable  rate debt to finance our  operations.
     Our exposure to market risk for changes in interest rates relates primarily
     to  our  current  and  future  debt  obligations.   We  are  vulnerable  to
     significant  fluctuations  of interest  rates on our floating rate debt. We
     manage  our  market  risk by  monitoring  interest  rates  where  we try to
     recognize the  unpredictability of the financial markets and seek to reduce
     potentially  adverse  effect on the results of our  operations.  This takes
     frequent   evaluation  of  available   lending  rates  and  examination  of
     opportunities  to reduce  interest  expense  through  new  sources  of debt
     financing.  Several  factors  affecting  the  interest  rate  risk  include
     governmental   monetary  and  tax  policies,   domestic  and  international
     economics  and other  factors  that are beyond our control.  The  following
     table provides information about the principal cash flows, weighted average
     interest  rates,  and expected  maturity  dates for debt  outstanding as of
     December 31, 2003.  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  $121.5  million and $97.4  million
     represent the Prudential and Northwestern secured loans, respectively.

     For  variable  rate  debt,  the  table  presents  the  assumption  that the
     outstanding  principal  balance  at  December  31,  2003  will be paid upon
     maturity.

     For fixed rate debt, the table presents the assumption that the outstanding
     principal  balance at December 31, 2003 will be paid according to scheduled
     principal  payments  and that we will  not  prepay  any of the  outstanding
     principal balance.
<TABLE>
<CAPTION>

                                    2004       2005       2006      2007      2008   Thereafter    Total   Fair Value
                                    ----       ----       ----      ----      ----   ----------    -----   ----------
VARIABLE RATE DEBT:                                           (dollars in thousands)
<S>                             <C>          <C>        <C>       <C>       <C>       <C>        <C>       <C>
Secured and unsecured debt       $103,965     $6,320                                              $110,285  $110,285
Weighted average interest rate      3.13%      3.13%

FIXED RATE DEBT:
Secured notes payable              $5,612     $5,977     $6,245    $6,350    $6,748    $199,688   $230,620  $255,980
Weighted average interest rate      6.23%      6.23%      6.23%     6.23%     6.23%       6.23%
</TABLE>

     The variable rate debt represented  32.4% and 43.0% and the fixed rate debt
     represented  67.6% and 57.0% of all debt  outstanding  for the years  ended
     December 31, 2003 and 2002, respectively. All of the debt is denominated in
     United States dollars. The weighted average interest rate for variable rate
     debt was  approximately  3.13% and 3.42% for the years ended  December  31,
     2003 and 2002,  respectively.  The difference in spread was due to numerous
     cuts in interest  rates by the Federal  Reserve Board during 2002 and 2003.
     The weighted  average  interest rate for fixed rate debt was  approximately
     6.23%  and  6.68%  for  the  years  ended   December  31,  2003  and  2002,
     respectively.  The  difference  in  interest  expense  attributable  to the
     average  interest rate  difference  between 2002 and 2003 was $4.5 million,
     which  was  also a result  of new  debt  obtained  during  2003.  We do not
     anticipate significant interest rate changes from 2003 to 2004.

     The primary market risk we face is the risk of interest rate  fluctuations.
     The Berg Group line of credit,  the Cupertino National Bank line of credit,
     and the Citicorp USA, Inc.  loan,  which are tied to a LIBOR based interest
     rate,  were  approximately  $110.3  million,  or 32.4%, of the total $340.9
     million of debt as of December 31, 2003. 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, 2003, we
     had no interest rate caps or interest rate swap contracts.

     The  following  discussion  of market  risk is based  solely on a  possible
     hypothetical   change  in  future   market   conditions   related   to  our
     variable-rate  debt.  It includes  "forward-looking  statements"  regarding
     market risk,  but we are not  forecasting  the  occurrence  of these market
     changes.  Based on the amount of variable debt  outstanding  as of December
     31, 2003, a 1% increase or decrease in interest rates on our $110.3 million
     of floating  rate debt would  decrease or  increase,  respectively,  annual
     earnings and cash flows by approximately  $1.1 million,  as a result of the
     increased or decreased interest expense associated with the change in rate,
     and would not have an impact on the fair value of the  floating  rate debt.
     This  amount is  determined  by  considering  the  impact  of  hypothetical
     interest  rates  on  our  borrowing   cost.  Due  to  the   uncertainty  of
     fluctuations in interest rates and the specific actions that might be taken
     by us to mitigate of such  fluctuations  and their  possible  effects,  the
     foregoing   sensitivity  analysis  assumes  no  changes  on  our  financial
     structure.

                                     - 48 -


<PAGE>



ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                          MISSION WEST PROPERTIES, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                                                                                                                   PAGE
                                                                                                                 ---------
<S>                                                                                                                <C>
Report of Independent Registered Public Accounting Firm                                                             50
Consolidated Balance Sheets at December 31, 2003 and 2002 (Restated)                                                51
Consolidated Statements of Operations for the years ended                                                           52
    December 31, 2003, 2002 (Restated) and 2001 (Restated)
Consolidated Statements of Stockholders' Equity                                                                     53
    for the years ended December 31, 2003, 2002 (Restated) and 2001 (Restated)
Consolidated Statements of Cash Flows for the years ended                                                           54
    December 31, 2003, 2002 (Restated) and 2001 (Restated)
Notes to the Consolidated Financial Statements                                                                      55
Supplemental Financial Information                                                                                  74
Report of Independent Registered Public Accounting Firm                                                             77
Schedule III: Real Estate and Accumulated Depreciation as of                                                        79
    December 31, 2003
Schedule III: Real Estate and Accumulated Depreciation as of                                                        81
    December 31, 2002 (Restated)
</TABLE>

                                     - 49 -
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors and Stockholders
Mission West Properties, Inc.
Cupertino, California

We have audited the  accompanying  consolidated  balance  sheets of Mission West
Properties,  Inc. as of December 31, 2003 and 2002 and the related  consolidated
statements of operations,  stockholders'  equity, and cash flows for each of the
three years in the period ended December 31, 2003.  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 in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards 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.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position  of Mission  West
Properties,  Inc.  at  December  31,  2003  and  2002,  and the  results  of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 2003, in conformity with accounting  principles  generally accepted
in the United States of America.

As discussed in Note 18 to the consolidated  financial  statements,  the Company
has restated its consolidated  financial  statements as of December 31, 2002 and
for the years ended December 31, 2002 and 2001 (which were previously audited by
other independent auditors).

\S\ BDO Seidman, LLP


San Francisco, California
July 27, 2004


                                     - 50 -
<PAGE>

                          MISSION WEST PROPERTIES, INC.
                           CONSOLIDATED BALANCE SHEETS
             (dollars in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                     ASSETS
                                                                                             December 31,
                                                                             ---------------------------------------------
                                                                                     2003                    2002
                                                                             ----------------------  ---------------------
                                                                                                          (As Restated)
<S>                                                                                    <C>                      <C>
Real estate assets:
  Land                                                                                  $  275,707               $234,251
  Buildings and improvements                                                               779,636                717,556
  Real estate related intangible assets                                                     19,651                  1,368
                                                                             ----------------------  ---------------------
      Total investments in properties                                                    1,074,994                953,175
  Less accumulated depreciation and amortization                                          (89,243)               (67,053)
                                                                             ----------------------  ---------------------
      Net investments in properties                                                        985,751                886,122

Cash and cash equivalents                                                                    4,129                  4,479
Deferred rent receivable, net of $2,000 allowance at December 31, 2003 and                  18,970                 17,001
2002
Investment in unconsolidated joint venture                                                   2,285                      -
Other assets (net of accumulated amortization of
   $4,211 and $4,598 at December 31, 2003 and 2002, respectively)                           21,497                 19,181
                                                                             ----------------------  ---------------------
    Total assets                                                                        $1,032,632               $926,783
                                                                             ======================  =====================


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Line of credit (related parties)                                                          $  6,320                $58,792
Revolving line of credit                                                                    23,965                 23,839
Loan payable                                                                                     -                 20,000
Mortgage notes payable                                                                     299,858                125,062
Mortgage note payable (related parties)                                                     10,762                 11,078
Interest payable                                                                               332                    337
Security deposits                                                                           10,248                 11,184
Deferred rental income                                                                      12,723                  9,876
Dividend/distribution payable                                                               25,031                 24,951
Accounts payable and accrued expenses                                                        5,085                  4,698
                                                                             ----------------------  ---------------------
    Total liabilities                                                                      394,324                289,817
                                                                             ----------------------  ---------------------

Commitments and contingencies

Minority interest                                                                          524,918                526,580

Stockholders' equity:
Preferred stock, no par value, 200,000 shares authorized,
    none issued and outstanding                                                                  -                      -
Common stock, $.001 par value at December 31, 2003 and 2002,
    200,000,000 shares authorized, 17,894,691 and 17,487,329 shares
    issued and outstanding at December 31, 2003 and 2002, respectively                          18                     17
Paid-in capital                                                                            132,136                128,295
Accumulated deficit                                                                       (18,764)               (17,926)
                                                                             ----------------------  ---------------------
    Total stockholders' equity                                                             113,390                110,386
                                                                             ----------------------  ---------------------
    Total liabilities and stockholders' equity                                          $1,032,632               $926,783
                                                                             ======================  =====================
</TABLE>

                 See notes to consolidated financial statements

                                     - 51 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
             (dollars in thousands, except share and per share data)

<TABLE>
<CAPTION>

                                                                                     Year Ended December 31,
                                                               --------------------------------------------------------------------
                                                                       2003                    2002                   2001
                                                               ---------------------   ---------------------  ---------------------
                                                                                          (As Restated)           (As Restated)
Revenues:
<S>                                                                     <C>                     <C>                    <C>
Rental revenue from real estate                                            $130,739                $129,781               $126,229
Tenant reimbursements                                                        18,871                  20,099                 17,475
Other income, including lease terminations, settlements and                   4,527                   4,248                  2,465
interest
                                                               ---------------------   ---------------------  ---------------------
                                                                            154,137                 154,128                146,169

Expenses:
Property operating, maintenance and real estate taxes                        21,365                  23,951                 18,502
Interest                                                                     16,446                   9,588                  8,704
Interest (related parties)                                                    1,064                   3,422                  4,709
General and administrative                                                    1,325                   1,488                  1,284
Depreciation and amortization of real estate                                 20,774                  18,313                 16,746
                                                               ---------------------   ---------------------  ---------------------
                                                                             60,974                  56,762                 49,945
                                                               ---------------------   ---------------------  ---------------------
Income before gain on sales of assets, equity in earnings of
     unconsolidated joint venture and minority interests                     93,163                  97,366                 96,224
Gain on sales of assets                                                           -                       -                 11,453
Equity in earnings of unconsolidated joint venture, including
$1,400 gain on sale of property acquired from related party                   3,885                       -                      -
Minority interests                                                           80,836                  81,316                 89,876
                                                               ---------------------   ---------------------  ---------------------
Income from continuing operations                                            16,212                  16,050                 17,801
                                                               ---------------------   ---------------------  ---------------------

Discontinued operations, net of minority interests:
Gain from disposal of discontinued operations                                     -                   1,018                      -
Income attributable to discontinued operations                                    -                      47                    285
                                                               ---------------------   ---------------------  ---------------------
Income from discontinued operations                                               -                   1,065                    285
                                                               ---------------------   ---------------------  ---------------------
Net income to common stockholders                                           $16,212                 $17,115                $18,086
                                                               =====================   =====================  =====================
Net income to minority interests                                            $80,836                 $86,641                $91,312
                                                               =====================   =====================  =====================

Income per share from continuing operations:
Basic                                                                         $0.91                   $0.92                  $1.04
                                                               =====================   =====================  =====================
Diluted                                                                       $0.91                   $0.90                  $1.01
                                                               =====================   =====================  =====================
Income per share from discontinued operations:
Basic                                                                             -                   $0.06                  $0.02
                                                               =====================   =====================  =====================
Diluted                                                                           -                   $0.06                  $0.02
                                                               =====================   =====================  =====================
Net income per share to common stockholders:
Basic                                                                         $0.91                   $0.98                  $1.06
                                                               =====================   =====================  =====================
Diluted                                                                       $0.91                   $0.96                  $1.03
                                                               =====================   =====================  =====================
Weighted average shares of common stock (basic)                          17,739,609              17,455,799             17,103,714
                                                               =====================   =====================  =====================
Weighted average shares of common stock (diluted)                        17,802,947              17,854,892             17,589,353
                                                               =====================   =====================  =====================
Weighted average O.P. Units                                              86,476,217              86,334,548             85,122,715
                                                               =====================   =====================  =====================
Outstanding common stock                                                 17,894,691              17,487,329             17,329,779
                                                               =====================   =====================  =====================
Outstanding O.P. Units                                                   86,398,064              86,474,032             85,762,541
                                                               =====================   =====================  =====================

</TABLE>

                 See notes to consolidated financial statements

                                     - 52 -

<PAGE>


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

<TABLE>
<CAPTION>

                                                                                                                    Total
                                               Shares of Common     Common     Paid-in-      Accumulated         Stockholders'
                                               Stock Outstanding     Stock     Capital         Deficit             Equity
                                               ------------------  --------  ------------  ---------------   -------------------

<S>                                                  <C>              <C>      <C>             <C>                    <C>
Balance, December 31, 2000                            17,025,365                $123,136                               $102,073
                                                                       $17                      $(21,080)
Issuance of common stock upon option exercise             68,088                     535                                    535
Issuance of common stock upon O.P. Unit                  236,326                   2,955                                  2,955
conversion
Dividends declared                                                                               (15,274)              (15,274)
Net income                                                                                         18,086                18,086
                                               ------------------  --------  ------------  ---------------   -------------------
Balance, December 31, 2001 (As Restated)              17,329,779        17       126,626         (18,268)               108,375
Issuance of common stock upon option exercise             33,550                     151                                    151
Issuance of common stock upon O.P. Unit                  124,000                   1,518                                  1,518
conversion
Dividends declared                                                                               (16,773)              (16,773)
Net income                                                                                         17,115                17,115
                                               ------------------  --------  ------------  ---------------   -------------------
Balance, December 31, 2002 (As Restated)              17,487,329        17       128,295         (17,926)               110,386
Issuance of common stock upon option exercise            150,362                   1,014                                  1,014
Issuance of common stock upon O.P. Unit                  257,000         1         2,827                                  2,828
conversion
Dividends declared                                                                               (17,050)              (17,050)
Net income                                                                                         16,212                16,212
                                               ------------------  --------  ------------  ---------------   -------------------
Balance, December 31, 2003                            17,894,691       $18      $132,136        $(18,764)              $113,390
                                               ==================  ========  ============  ===============   ===================
</TABLE>


                 See notes to consolidated financial statements

                                     - 53 -

<PAGE>


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

<TABLE>
<CAPTION>

                                                                                Year Ended December 31,
                                                               -----------------------------------------------------------
                                                                      2003                2002                2001
                                                                                      (As Restated)       (As Restated)
                                                               -------------------  ------------------  ------------------

Cash flows from operating activities:
<S>                                                                    <C>                  <C>                <C>
Net income                                                                $16,212             $17,115             $18,086
Adjustments to reconcile net income to net
          cash provided by operating activities:
     Minority interest                                                     80,836              86,641              91,312
     Depreciation and amortization of real estate                          23,393              21,379              17,719
     Gain on sales of assets                                                    -             (6,103)            (11,453)
     Equity in earnings of unconsolidated joint venture                   (3,885)                   -                   -
     Distributions from unconsolidated joint venture                        2,000                   -                   -
     Other                                                                      -                (14)                  13
Change in operating assets and liabilities, net of liabilities assumed:
     Deferred rent receivable                                             (1,969)                (78)             (6,054)
     Other assets                                                         (2,656)             (2,630)               (664)
     Interest payable                                                         (5)                 (5)                 (5)
     Security deposits                                                      (936)               3,847                 797
     Deferred rental income                                                 2,847             (2,594)               1,172
     Accounts payable and accrued expenses                                    656               (190)                 234
                                                               -------------------  ------------------  ------------------

     Net cash provided by operating activities                            116,493             117,368             111,157
                                                               -------------------  ------------------  ------------------

Cash flows from investing activities:
Improvements to real estate                                               (1,370)             (1,902)             (1,041)
Refundable option payment utilized for rent payments                            -               (333)             (1,999)
Proceeds from sales of real estate                                              -              12,803              38,489
Purchase of real estate                                                 (110,013)            (31,312)            (38,489)
Net proceeds from sale of TBI unconsolidated joint venture
real estate                                                                 1,400                   -                   -
                                                               -------------------  ------------------  ------------------

     Net cash used in investing activities                              (109,983)            (20,744)             (3,040)
                                                               -------------------  ------------------  ------------------

Cash flows from financing activities:
Principal payments on mortgage notes payable                              (5,204)             (2,354)             (4,639)
Proceeds from mortgage loan payable                                       180,000                   -                   -
Principal payments on mortgage notes payable (related parties)              (316)               (293)               (272)
Net payments under line of credit (related parties)                      (61,471)            (39,095)            (18,136)
Proceeds from loan payable                                                      -              20,000                   -
Payment on loan payable                                                  (20,000)                   -                   -
Proceeds from revolving line of credit                                        126              28,839                   -
Payment on line of credit                                                       -             (5,000)                   -
Financing costs                                                             (863)                (52)                   -
Net proceeds from exercise of stock options                                 1,014                 151                 536
Minority interest distributions                                          (83,194)            (82,916)            (70,636)
Dividends                                                                (16,952)            (16,735)            (14,351)
                                                               -------------------  ------------------  ------------------

     Net cash used in financing activities                                (6,860)            (97,455)           (107,498)
                                                               -------------------  ------------------  ------------------

     Net (decrease) increase in cash and cash equivalents                   (350)               (831)                 619
Cash and cash equivalents, beginning of year                                4,479               5,310               4,691
                                                               -------------------  ------------------  ------------------

Cash and cash equivalents, end of year                                     $4,129              $4,479              $5,310
                                                               ===================  ==================  ==================
</TABLE>


            Refer to Note 14 for supplemental cash flow information.

                 See notes to consolidated financial statements

                                     - 54 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (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-administered and self-managed real estate company that acquires and manages
R&D/office  properties  in the portion of the San  Francisco  Bay Area  commonly
referred  to  as  Silicon  Valley.  In  July  1998,  the  Company  purchased  an
approximate   12.11%  of  four  existing  limited   partnerships   (referred  to
collectively  as the  "operating  partnerships")  and obtained  control of these
partnerships  by becoming the sole general partner in each one effective July 1,
1998 for financial  accounting and reporting purposes.  The Company purchased an
approximate 12.11% interest in each of the operating  partnerships.  All limited
partnership  interests  in  the  operating   partnerships  were  converted  into
59,479,633  operating  partnership  ("O.P.") Units,  which represented a limited
partnership   ownership  interest  of  approximately  87.89%  of  the  operating
partnerships.  The  operating  partnerships  are the vehicles  through which the
Company holds its real estate investments,  makes real estate acquisitions,  and
generally 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,  2003,  the Company  owns a general  partnership  interest of
16.95%, 21.61%, 15.98% and 12.37% 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 17.02% 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 109 R&D
properties, all of which are located in Silicon Valley.

BUSINESS SEGMENT INFORMATION

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

2. 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  (the
"Company").  All significant  intercompany  transactions have been eliminated in
consolidation.

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") 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.  Accounting  and  disclosure  decisions  with respect to
material  transactions that are subject to significant  management  judgments or
estimates include impairment of long lived assets,  deferred rent reserves,  and
allocation of purchase price relating to property  acquisitions  and the related
depreciable lives assigned. Actual results could differ from those estimates.

REAL ESTATE ASSETS AND RELATED INTANGIBLE ASSETS:

Real  estate  assets  are  stated  at  cost.  Cost  includes   expenditures  for
improvements or replacements.  Maintenance and repairs are charged to expense as
incurred.


                                     - 55 -
<PAGE>
                         MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

The purchase price  allocation for property  acquisition  subsequent to June 30,
2001 is determined in accordance  with the following  principles  under SFAS No.
141, "Business Combinations":

The fair value of the tangible  assets of an acquired  property,  which includes
land,  building and building/tenant  improvements,  is determined by valuing the
property as if it were vacant, and the "as-if-vacant" value is then allocated to
land,  building and tenant  improvements based on management's  determination of
the relative  fair values of these assets.  Factors  considered by management in
performing  these  analyses  include  certain costs during the lease-up  periods
considering current market conditions and costs to execute similar leases. These
costs include estimates of lost rental revenue, leasing commissions,  and tenant
improvements.

In allocating the fair value of the identified intangible assets of the acquired
property,  above-market  in-place  lease value is recorded  based on the present
value, using an interest rate which reflects the risks associated with the lease
acquired,  of the  difference  between  (i) the  contractual  amounts to be paid
pursuant to the  in-place  lease and (ii)  management's  estimate of fair market
lease rate for the corresponding in-place lease, measured over a period equal to
the remaining  non-cancelable  lease term. The  capitalized  above-market  lease
value,  included in real estate related  intangible  assets in the  accompanying
December  31, 2003  consolidated  balance  sheet,  is  amortized as an offset to
rental  revenue from real estate over the remaining  non-cancelable  lease term.
The value of in-place  leases,  exclusive of the value of above-market  in-place
lease, is amortized to expense over the remaining  non-cancelable periods of the
respective  leases.  If a  lease  were  to be  terminated  prior  to its  stated
expiration,  all unamortized amounts relating to that lease would be written off
in the period that the lease is terminated.

DEPRECIATION AND AMORTIZATION:

Depreciation and amortization are computed using the  straight-line  method over
estimated useful lives as follows:
<TABLE>
<CAPTION>

<S>                                                                           <C>
Building shell and base building improvements of newly acquired properties     Weighted average composite life of 40 years
Base building improvements made subsequent to initial property acquisition     25 years
Tenant improvements and furniture and fixtures                                 Lesser of life of asset, generally 5-10 years,
                                                                               or lease term
Above-market and in-place lease value                                          Term of lease
</TABLE>

Tenant   improvements,   including   furniture   fixtures,   and  base  building
improvements made subsequent to the initial property  acquisition,  are included
in buildings and improvements in the consolidated balance sheet and total $2,494
and $2,077 at December 31, 2003 and $1,898 and $1,815, respectively, at December
31, 2002.

IMPAIRMENT OF LONG-LIVED ASSETS:

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 in accordance with Statement of Financial  Accounting  Standards No.
144 ("SFAS No. 144"),  "Accounting for the Impairment and Disposal of Long-Lived
Assets".  If the carrying amount of the asset,  including any intangible  assets
associated with that 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  estimated  fair  value.  If
impairment  is  recognized,  the  reduced  carrying  amount of the asset will be
accounted  for as its new cost.  For a depreciable  asset,  the new cost will be
depreciated over the asset's remaining useful life.  Generally,  fair values are
estimated using  discounted  cash flow,  replacement  cost or market  comparison
analyses.  The process of evaluating  for  impairment  requires  estimates as to
future events and  conditions,  which are subject to varying market and economic
factors,  such as the vacancy  rates,  rental rates and operating  costs for R&D
facilities in the Silicon Valley area and related submarkets.  Therefore,  it is
reasonably  possible that a change in estimate  resulting  from  judgments as to
future  events  could  occur  which  would  affect the  recorded  amounts of the
property.  As of December 31, 2003 management believes that no impairment exists
based upon periodic  reviews.  No impairment  losses were recorded for the years
ended December 31, 2003, 2002 and 2001.

DISCONTINUED OPERATIONS:

The Company adopted the SFAS No. 144, which  addresses the financial  accounting
for the disposal of long lived assets. SFAS No. 144 requires that the results of
operations  and gains or  losses  on the sale of  property  sold  subsequent  to
December 31, 2001 that were not classified as held for sale at December 31, 2001
as well as the results of operations  from  properties  that were  classified as
held for sale  subsequent  to December  31, 2001 be  presented  in  discontinued
operations  if both the  following

                                     - 56 -
<PAGE>


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

criteria are met: (a) the operation and cash flows of the property have been (or
will be)  eliminated  from the ongoing  operations of the Company as a result of
the  disposal  transaction;  and (b) the Company  will not have any  significant
involvement in the  operations of the property  after the disposal  transaction.
SFAS 144 also requires prior period  results of operations for these  properties
to be restated and presented in  discontinued  operations in prior  consolidated
statements of operations.

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 and
commissions  associated  with new leases.  Such debt  financing  costs are being
amortized  over the term of the associated  debt, by a method that  approximates
the  effective   interest  method  and  such  lease  commissions  are  amortized
straight-line  over the term of the related  lease.  If the lease is  terminated
prior  to the  end  of the  lease  term  the  Company  charges  any  unamortized
capitalized  lease  commission  cost to expense in the period  that the lease is
terminated. Also included in other assets are obligations from the Berg Group of
approximately  $7,494 to construct a building at 245 Caspian Drive in Sunnyvale,
California and $2,529 in tenant improvements at 5345 Hellyer Avenue in San Jose,
California (see Note 12).

MINORITY INTERESTS:

Minority interests represent the limited partnership  interests in the operating
partnerships.

REVENUE RECOGNITION:

Rental  income  is  derived  from   operating   leases  and  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  Receivable  on the  consolidated  balance  sheet.  Certain lease
agreements   contain   terms  that  provide  for   additional   rents  based  on
reimbursement  of certain costs including  property  operating,  maintenance and
real  estate  taxes.  These  additional  rents from  tenant  reimbursements  are
reflected on the accrual basis.

Rental revenue is affected if existing tenants  terminate or amend their leases.
The Company tries to identify  tenants who may be likely to declare  bankruptcy,
cease  operations  or otherwise  terminate  leases prior to the end of the lease
term. By anticipating these events in advance, the Company expects to take steps
to minimize  their impact on its reported  results of  operations  through lease
renegotiations  and other appropriate  measures.  Reserves against Deferred Rent
Receivable are estimated by management  based on known  financial  conditions of
tenants and  management's  estimate of net  realizeability  of such  receivables
based on existing or expected negotiations with tenants. The Company's judgments
and  estimations  about  tenants'  capacity  to  continue  to meet  their  lease
obligations  will  affect  the  rental  revenue  recognized.   To  date,  actual
reductions  in  revenue  as a result  of  early  terminations  and the  tenants'
inability  to pay have been within  management's  estimates.  However,  material
differences  may result in the amount and timing of our rental  revenue  for any
period if we made different judgments or estimations.

Lease termination fees are included in revenues.  These fees are paid by tenants
who want to terminate their lease obligations  before the end of the contractual
term of the lease.  There is no way of predicting or  forecasting  the timing or
amounts of future lease termination fees.

The  Company  recognizes  income  from  rent,  tenant  reimbursements  and lease
termination fees and other income once all of the following  criteria are met in
accordance with SEC Staff Accounting Bulletin 104 "Revenue Recognition":

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

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

-    the collect-ability is reasonably assured.

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 90% of its REIT taxable  income,  as
defined  in  the  Code,  to its  stockholders  and  comply  with  certain  other
requirements. Accordingly, for the years ended December 31, 2003, 2002 and 2001,
no  provision  for federal  income taxes has been  included in the  accompanying
consolidated financial statements.

For the year ended  December 31, 2003,  the Company's  total  dividends  paid or
payable to the  stockholders  represent 98% of ordinary  income and 2% return of
capital  for income tax  purposes.  For the years  ended  December  31, 2002 and
December  31,  2001,  the  Company's  total  dividends  paid or  payable  to the
stockholders represented 100% ordinary income for income tax purposes.

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.

ACCOUNTING FOR STOCK-BASED COMPENSATION:

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

The following  table  illustrates the unaudited pro forma effect on consolidated
net income available to common shareholders and consolidated  earnings per share
if the fair value method had been applied to all  outstanding and unvested stock
options for the last three years.
<TABLE>
<CAPTION>

                                                                             Year Ended December 31,
                                                            -----------------------------------------------------------
                                                                  2003                 2002                2001
                                                                                   (As Restated)       (As Restated)
                                                            ------------------  -------------------  ------------------
                                                                   (dollars in thousands, except per share data)
<S>                                                                  <C>                  <C>                 <C>
         Historical net income to common stockholders                 $16,212              $17,115             $18,086
         Add back compensation expense for stock options
         included in historical net income to common
         stockholders                                                       -                    -                   -
         Deduct compensation expense for stock options
         determined under fair value based method                       (235)                (264)               (264)
         Allocation of expense to minority interest                       195                  220                 220
                                                            ------------------  -------------------  ------------------
         Pro forma net income to common stockholders                  $16,172              $17,071             $18,042
                                                            ------------------  -------------------  ------------------

         Earnings per share - basic:
         Historical net income to common stockholders                   $0.91                $0.98               $1.06
         Pro forma net income to common stockholders                    $0.91                $0.98               $1.05
         Earnings per share - diluted:
         Historical net income to common stockholders                   $0.91                $0.96               $1.03
         Pro forma net income to common stockholders                    $0.91                $0.96               $1.03
                                                            ------------------  -------------------  ------------------
</TABLE>

The estimated fair value of the stock options granted during 2001 was $1.17 per
share on the date of grant using the Black-Scholes option pricing model with the
following  weighted  average  assumptions:  dividend yield of 8%,  volatility of
23.03%,  risk free interest rate of 4.85% and expected life of five years. There
were no stock options granted in 2002 and 2003.

                                     - 58 -

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

FAIR VALUE OF FINANCIAL INSTRUMENTS:

The Company's financial instruments include cash and cash equivalents,  accounts
receivable,  accounts payable,  and debt.  Considerable  judgment is required in
interpreting  market data to develop estimates of fair value.  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.   Cash  and  cash  equivalents,   accounts
receivable,  and accounts payable are carried at amounts that approximate  their
fair values due to their  short-term  maturities.  The  carrying  amounts of the
Company's  variable rate debt approximate fair value since the interest rates on
these  instruments are equivalent to rates currently  offered to the Company For
fixed rate debt, the Company  estimates fair value by using discounted cash flow
analyses based on borrowing  rates for similar kinds of borrowing  arrangements.
The fair  value of the  Company's  fixed  rate  debt at  December  31,  2003 was
approximately $255,980 as compared to its carrying value of $230,620.

RECLASSIFICATIONS:

Certain amounts from prior year's financial statements have been reclassified to
conform to the presentation of the current year's financial statements.

CONCENTRATION OF CREDIT RISK:

The Company's properties are not geographically diverse, and its tenants operate
primarily in the  information  technology  industry.  Additionally,  because the
properties  are leased to 78 tenants at December 31, 2003,  default by any major
tenant could  significantly  impact the results of the  consolidated  total. One
tenant,  Microsoft  Corporation,  accounted for approximately  16.3%,  15.7% and
16.0% of the Company's rental income for the years ended December 31, 2003, 2002
and 2001, respectively,  with the next largest tenant accounting for 10.0%, 8.6%
and 8.8%,  respectively,  of total rental  income.  Rental income from Microsoft
Corporation  was $21,151,  $20,338 and $19,556 for the years ended  December 31,
2003,  2002 and 2001,  respectively.  Future  minimum rents from this tenant are
$50,650.  During  2003,  fifteen  of  the  Company's  tenants  relocated,  filed
voluntary  petitions  for  bankruptcy  protection  under  Chapter  11 or  ceased
operations.

NEW ACCOUNTING PRONOUNCEMENTS

In November 2002, the FASB issued FASB  Interpretation No. (FIN) 45 "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of Indebtedness of Others," which elaborates on the disclosures to be
made by a guarantor  in its interim and annual  financial  statements  about its
obligations under certain  guarantees that it has issued. It also clarifies that
a  guarantor  is required to  recognize,  at the  inception  of a  guarantee,  a
liability  for the fair  value  of the  obligation  undertaken  in  issuing  the
guarantee.  The initial recognition and initial  measurement  provisions of this
Interpretation  are  applicable on a prospective  basis to guarantees  issued or
modified  after  December  31,  2002,  irrespective  of the  guarantor's  fiscal
year-end.  The disclosure  provisions are effective for financial statements for
annual or interim  periods  ending  after  December  15,  2002.  The Company has
provided  disclosures  of its  guarantees  in the  accompanying  footnotes.  The
Company  has not  entered  into any new  guarantees  or  modified  any  existing
guarantees  subsequent  to  December  31,  2002;  therefore,  adoption  of  this
statement  has had no  effect on the  Company's  financial  position,  operating
results or cash flows.

In December 2003, the FASB issued FIN 46R,  "Consolidation  of Variable Interest
Entities,"  a revision to FIN 46,  which was issued in January  2003.  Under FIN
46R,  a  variable  interest  entity  must be  consolidated  by a company if that
company is subject to a majority of the entity's  expected losses or entitled to
receive a majority of the entity's  expected  residual  returns or both. FIN 46R
requires  disclosures  about  variable  interest  entities that a company is not
required to consolidate,  but in which it has a significant  variable  interest.
The consolidation requirements apply to existing entities in the first reporting
period that ends after March 15, 2004. The Company will adopt the  consolidation
and disclosure requirements of FIN 46R in the first quarter of 2004. The Company
expects no significant effect on the consolidated financial position, results of
operations or cash flows as a result of the initial adoption of this standard in
regard to existing variable interest  entities;  however,  newly formed entities
could meet these requirements and will be recorded as appropriate.

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation--Transition and Disclosure", which amended SFAS No. 123 "Accounting
for  Stock-Based  Compensation".  SFAS No. 148 provides  alternative  methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based  compensation and amends the disclosure requirements of SFAS No.
123 to  require  prominent  disclosures  in both  annual and  interim  financial
statements about the method of accounting for stock-based employee  compensation
and the effect of the method used on

                                     - 59 -
<PAGE>

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

reported  results.  On December 31,  2002,  the Company  adopted the  disclosure
provisions of SFAS No. 148 and continued to account for stock-based compensation
under APB Opinion No. 25 "Accounting for Stock Issued to Employees".  Therefore,
the adoption of SFAS No. 148 did not have any effect on the Company's  financial
position, operating results or cash flows.

In May 2003,  the FASB  issued SFAS No. 150,  Accounting  for Certain  Financial
Instruments with  Characteristics of both Liabilities and Equity. This Statement
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some  circumstances).  SFAS No. 150 was effective
beginning in the third quarter of 2003. The FASB deferred the  implementation of
SFAS No. 150 as applied to certain  minority  interests in finite life entities,
however.  The  Company  adopted  the  requirements  of SFAS No. 150 in the third
quarter of 2003, and considering the aforementioned  deferral, it did not impact
the Company's financial position, results of operations or cash flows.


3. DEFERRED RENT ALLOWANCE

The following table  represents  activity in the deferred rent allowance for the
three years ended December 31, 2003, 2002 and 2001:
<TABLE>
<CAPTION>

                                                                Provision
                                                  Beginning      Against      Charge-       Ending
                                                   Balance      Revenues       off         Balance
                                               -------------- ------------ ------------ -------------
                                                               (dollars in thousands)
<S>                                                   <C>          <C>          <C>           <C>
         Year ended December 31, 2001                     $ -         $910         $310          $600
                                               -------------- ------------ ------------ -------------
         Year ended December 31, 2002                    $600       $4,736       $3,336        $2,000
                                               -------------- ------------ ------------ -------------
         Year ended December 31, 2003                  $2,000       $2,552       $2,552        $2,000
                                               -------------- ------------ ------------ -------------
</TABLE>

4. STOCK TRANSACTIONS

As of December 31, 2003 and 2002,  $1,471 and $1,369 remained  outstanding under
notes  issued  in  connection  with  the  Company's   purchase  of  its  general
partnership  interests in 1998 (the "demand  notes"),  respectively.  The demand
notes which accrue interest at 7.25%,  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 Company and the operating partnerships have agreed to extend the
due date of the demand notes to September  30, 2005.  At present,  the Company's
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 the
Company's stockholders.

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.

During the year ended  December  31,  2003,  stock  options  were  exercised  to
purchase a total of 150,362 shares of common stock,  consisting of 60,362 shares
exercised  at $4.50 per share and 90,000  shares  exercised  at $8.25 per share.
Total proceeds to the Company were approximately $1,014.

During the year ended  December 31, 2002,  stock options at $4.50 per share were
exercised to purchase a total of 33,550 shares of common stock.  Total  proceeds
to the Company were approximately $151.

                                     - 60 -
<PAGE>

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

During the year ended  December  31,  2001,  stock  options  were  exercised  to
purchase a total of 68,088 shares of common  stock,  consisting of 14,588 shares
exercised at $4.50 per share,  47,500 shares  exercised at $8.25 per share,  and
6,000 shares  exercised at $13.00 per share.  Total proceeds to the Company were
approximately $535.

In 2003 and 2002,  257,000 and 124,000 O.P. Units were exchanged for 257,000 and
124,000 shares of the Company's common stock,  respectively,  under the terms of
the December 1998 Exchange  Rights  Agreement  among the Company and all limited
partners of the operating partnerships.

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 82.98% and 83.18%,  on a weighted average basis, of
the  ownership  interests  in the real  estate  operations  of the Company as of
December 31, 2003 and 2002, 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.

The operating  partnerships have ownership  interests of 83.33%, 75% and 50% and
act as the  managing  member  in  three  separate  joint  ventures,  which  were
established to hold  properties.  The operating  partnerships  control the joint
ventures,  and  accordingly,  these  joint  ventures  are  consolidated  in  the
COmpany's financial  statements.  The minority interest in the joint ventures is
reflected as a component of minority interest of the operating partnerships. For
the years ended December 31, 2003,  2002 and 2001,  income  associated  with the
interests held by the third parties of the three joint  ventures was $581,  $587
and $650, respectively.

6. REAL ESTATE

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  90 acres of Silicon Valley land,
including  land under  development,  owned  directly or under 50% joint  venture
entities  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 20
acquisitions  under  the  Berg  Land  Holdings  Option  Agreement   representing
approximately  1,992,000 rentable square feet. 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 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 or 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  members  of the
Independent Directors committee of the Company's Board of Directors.  Generally,
the Company will not acquire any  projects  until they are fully  completed  and
leased.

No  estimate  can be given at this time as to the total  cost to the  Company to
acquire future  projects under the Berg Land Holdings Option  Agreement,  or the
timing as to when the Company  will acquire  such  projects.  In addition to any
projects  currently  under  development,  the  Company  has the right to acquire
future  developments  by the Berg  Group on up to 250  additional  acres of land
currently  controlled by the Berg Group,  which could support  approximately 3.9
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  R&D,  office  and/or
industrial  development  or  use  in  the  states  of  California,  Oregon,  and
Washington.


                                     - 61 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)


Although the Company has the right to acquire the new properties available to it
under the  terms of the Berg Land  Holdings  Option  Agreement,  there can be no
assurance that the Company  actually will consummate any intended  transactions.
Furthermore,  the  Company  has not yet  determined  the means by which it would
acquire and pay for any such properties or the impact of any of the acquisitions
on its business,  results of operations,  financial  condition or available cash
for distribution.

Given the economic  downturn in the Silicon Valley,  the Company may not be able
to maintain historical levels of growth from acquisitions of new developments in
the future.


                                     - 62 -
<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, 2003 and 2002.


<TABLE>
<CAPTION>

                                                                                         Balance            Maturity      Interest
           Debt Description                Collateral Properties                      At December 31,         Date          Rate
---------------------------------  ---------------------------------------------  ---------------------- -------------- ------------
                                                                                     2003        2002
                                                                                  ----------  ----------
Line of Credit:
<S>                               <C>                                             <C>         <C>              <C>          <C>
Berg Group (related parties)       2033-2043 Samaritan Drive, San Jose, CA         $  6,320    $ 58,792          3/05          (1)
                                   2133 Samaritan Drive, San Jose, CA             ----------  ----------
                                   2233-2243 Samaritan Drive, San Jose, CA
                                   1310-1450 McCandless Drive, Milpitas, CA
                                   1795-1845 McCandless Drive, Milpitas, CA

Cupertino National Bank(4)         Not Applicable                                    23,965      23,839          9/04          (4)
                                                                                  ----------  ----------
Mortgage Notes Payable  (related   5300-5350 Hellyer Avenue, San  Jose, CA           10,762      11,078          6/10        7.650%
   parties):                                                                      ----------  ----------

Mortgage Notes Payable: (2)
Prudential Capital Group (3)       20400 Mariani Avenue, Cupertino, CA                  733       1,423         10/06        8.750%

Washington Mutual (Home S&L Assoc.)10460 Bubb Road, Cupertino, CA                       225         297         12/06        9.500%

Prudential  Insurance Company of   10300 Bubb Road, Cupertino, CA                   121,455     123,342         10/08        6.560%
America (5)                        10500 North De Anza Blvd, Cupertino, CA
                                   4050 Starboard Drive, Fremont, CA
                                   45700 Northport Loop, Fremont, CA
                                   45738 Northport Loop, Fremont, CA
                                   450 National Ave, Mountain View, CA
                                   6311 San Ignacio Avenue, San Jose, CA
                                   6321 San Ignacio Avenue, San Jose, CA
                                   6325 San Ignacio Avenue, San Jose, CA
                                   6331 San Ignacio Avenue, San Jose, CA
                                   6341 San Ignacio Avenue, San Jose, CA
                                   6351 San Ignacio Avenue, San Jose, CA
                                   3236 Scott 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
                                   1600 Memorex Drive, Santa Clara, CA
                                   1688 Richard Avenue, Santa Clara, CA
                                   1700 Richard Avenue, Santa Clara, CA
                                   3540 Bassett Street, Santa Clara, CA
                                   3542 Bassett Street, Santa Clara, CA
                                   3544 Bassett Street, Santa Clara, CA
                                   3550 Bassett Street, Santa Clara, CA

Northwestern Mutual Life           1750 Automation Parkway, San Jose, CA             97,445           -          1/13        5.640%
Insurance Co. (6)                  1756 Automation Parkway, San Jose, CA
                                   1762 Automation Parkway, San Jose, CA
                                   6320 San Ignacio Avenue, San Jose, CA
                                   6540-6541 Via Del Oro, San Jose, CA
                                   6385-6387 San Ignacio Avenue, San Jose, CA
                                   2251 Lawson Lane, Santa Clara, CA
                                   1325 McCandless Drive, Milpitas, CA
                                   1650-1690 McCandless Drive, Milpitas, CA
                                   20605-20705 Valley Green Dr., Cupertino, CA

Citicorp USA, Inc. (4)             2001 Walsh Avenue, Santa Clara, CA                80,000           -          9/04          (4)
                                   2880 Scott Boulevard, Santa Clara, CA
                                   2890 Scott Boulevard, Santa Clara, CA
                                   2770-2800 Scott Boulevard, Santa Clara, CA
                                   2220 Central Expressway, Santa Clara, CA
                                   2300 Central Expressway, Santa Clara, CA
                                   2330 Central Expressway, Santa Clara, CA

                                                                                  ----------  ----------
Mortgage Notes Payable                                                              299,858     125,062

Uncollateralized Loan:
Citicorp USA, Inc. (7)             Not Applicable                                         -      20,000          3/03          (8)


                                                                                  ----------  ----------
   Total                                                                           $340,905    $238,771
                                                                                  ==========  ==========
</TABLE>

(1)  The debt owed to the Berg Group under the line of credit carries a variable
     interest  rate  equal to LIBOR  plus  1.30% and is payable in full in March
     2005.  The  interest  rate was 2.5% and 2.7% at December 31, 2003 and 2002,
     respectively.

(2)  Mortgage notes payable generally  require monthly  installments of interest
     and  principal  over various  terms  extending  through the year 2013.  The
     weighted  average  interest  rate of mortgage  notes  payable was 6.23% and
     6.68% at December 31, 2003 and 2002, respectively.

(3)  The  amount of $465 was  prepaid  and  reduced  the  outstanding  principal
     balance of the Prudential Capital Group loan in January 2003.

                                     - 63 -
<PAGE>

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

(4)  Interest  rate equal to LIBOR plus 2%. The interest  rate for the Cupertino
     National  Bank line of credit at  December  31, 2003 and 2002 was 3.17% and
     3.72%, respectively.  The interest rate for the Citicorp USA, Inc. mortgage
     loan at December 31, 2003 was 3.17%.  In April 2004 and July 2004 the loans
     with  Citicorp  USA,  Inc.,  and  Cupertino  National  Bank,  respectively,
     matured.  Cupertino  National  Bank and  Citicorp  USA,  Inc.  have granted
     extensions  of the  loans to  September  2,  2004 and  September  6,  2004,
     respectively,  pending the completion of the Company's Form 10-K filing for
     2003.  The  extension  of the  Citicorp  loan  is  subject  to the  Company
     providing additional collateral valued at not less than $7.6 million, which
     the COmpany has proposed to Citicorp,  and Citicorp is currently appraising
     it. The Company is in the process of renegotiating  the terms and extending
     these loans for an additional two year period. The Company does not believe
     that the terms of the  extended  loans will  differ  materially  from their
     current  terms.  Mission West  Properties,  Inc. is the borrower  under the
     Cupertino  National Bank line of credit which is guaranteed by Mission West
     Properties,  L.P.  and Mission  West  Properties,  L.P.  II.  Mission  West
     Properties,  L.P. is the borrower  under the Citicorp  USA.,  mortgage loan
     which is  guaranteed  by Carl E. Berg,  Mission  West  Properties,  L.P. I,
     Mission West  Properties  L.P. II and Mission West Properties L.P. III. The
     Cupertino  National  Bank line of credit and Citicorp  USA,  Inc.,  contain
     certain loan covenants. The Company was not in compliance with one covenant
     pertaining to its late filing of its Form 10-K for the year ending December
     31, 2003 and Form 10-Q for the period ending March 31, 2004 (the "Financial
     Reporting Covenants"). Both banks have elected not to enforce the Financial
     Reporting  Covenants during the Loan Extension Period.  Compliance with the
     Financial Reporting Covenant is a condition of the renewal for both loans.

(5)  The Prudential  Insurance 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.

(6)  The  Northwestern  loan is payable in monthly  installments of $696,  which
     includes principal (based upon a 20-year amortization) and interest.  Costs
     and fees incurred with obtaining this loan aggregated approximately $675.

(7)  The  uncollateralized  Citicorp USA, Inc. loan was paid off in its entirety
     in January 2003.

(8)  The  uncollateralized  loan from Citicorp  USA, Inc.  carried a fixed LIBOR
     interest  rate  equal to 4.09% for the first six months and LIBOR plus 2.0%
     thereafter. The interest rate at December 31, 2002 was 3.81%.

Scheduled principal payments on debt for the years ending are as follows:

<TABLE>
<CAPTION>
                                                          Fixed Rate Debt          Variable Rate Debt
                                                         (Including Related        (Including Related
                                                              Parties)                  Parties)                 Total
                                                       -----------------------    ----------------------    ----------------

<S>                                                         <C>                        <C>                    <C>
         December 31, 2004                                   $  5,612                   $103,965               $109,577
         December 31, 2005                                      5,977                      6,320                 12,297
         December 31, 2006                                      6,245                                             6,245
         December 31, 2007                                      6,350                                             6,350
         December 31, 2008                                      6,748                                             6,748
         Thereafter                                           199,688                                           199,688
                                                       -----------------------    ----------------------    ----------------
                                                             $230,620                   $110,285               $340,905
                                                       =======================    ======================    ================
</TABLE>


8. OPERATING PARTNERSHIP AND STOCKHOLDER DISTRIBUTIONS

During  2003 the  Company,  as general  partner of the  operating  partnerships,
declared  quarterly  distributions  aggregating  $0.96 per common share and O.P.
Unit for total  distributions of $100,064,  including $25,031 payable in January
2004. Total distributions attributable to O.P. Units owned by various members of
the Berg Group were $75,230,  which was treated as a draw on the Berg Group line
of credit.

During  2002 the  Company,  as general  partner of the  operating  partnerships,
declared  quarterly  distributions  aggregating  $0.96 per common share and O.P.
Unit for total  distributions of $99,643,  including  $24,951 payable in January
2003. Total distributions attributable to O.P. Units owned by various members of
the Berg Group were $75,076,  which was treated as a draw on the Berg Group line
of credit.

During  2001 the  Company,  as general  partner of the  operating  partnerships,
declared  quarterly  distributions  aggregating  $0.89 per common share and O.P.
Unit for total  distributions of $91,126,  including  $24,742 payable in January
2002. Total distributions attributable to O.P. Units owned by various members of
the Berg Group were $70,371,  which was treated as a draw on the Berg Group line
of credit.

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.

                                     - 64 -
<PAGE>

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

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.

No options were granted in 2003 and 2002.

During 2001, options were granted to one employee totaling 375,000, which become
exercisable  as follows:  a) six months from date of grant,  8.33%;  and b) each
month thereafter for 66 months,  an additional  1.39%. This option has a term of
eight  years from the date of grant  subject to earlier  termination  in certain
events related to termination  of  employment.  The options  granted during 2001
have an $11.33 per share exercise price.

The remaining  contractual lives of unexercised  options granted range from July
2005 to April 2009.

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
              Options granted                      375,000             $11.33
              Options exercised                   (68,088)
              Options cancelled                  (113,500)
                                               ---------------
         Balance, December 31, 2001                983,912
              Options exercised                   (33,550)
                                               ---------------
         Balance, December 31, 2002                950,362
              Options exercised                  (150,362)
              Options cancelled                   (13,000)
                                               ---------------
         Balance, December 31, 2003                787,000
</TABLE>

The following table  summarizes  information  regarding  Options  outstanding at
December 31, 2003:
<TABLE>
<CAPTION>

                                          Options Outstanding                    Options Exercisable         Options Not Exercisable
                             -------------------------------------------------------------------------------------------------------
                                              Weighted
                                               Average
                                              Remaining         Weighted                     Weighted                   Weighted
                                             Contractual         Average                      Average                    Average
                                Options    Life in Years(1)   Exercise Price    Options    Exercise Price   Options   Exercise Price
Range of Exercise Prices     -------------------------------------------------------------------------------------------------------
<C>                            <C>             <C>              <C>            <C>           <C>           <C>          <C>
$8.25                           140,000         2.0               $8.25         134,000        $8.25          6,000       $8.25
$11.33                          375,000         5.3              $11.33         166,667       $11.33        208,333      $11.33
$13.00                          272,000         2.8              $13.00         229,000       $13.00         43,000      $13.00
                             -------------------------------------------------------------------------------------------------------
$8.25 to $13.00                 787,000         3.9              $11.36         529,667       $11.28        257,333      $11.54
                             -------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Expiration dates range from July 2005 to April 2009.

As of December 31, 2003,  3,991,089  additional  shares were available for grant
under the 1997 Stock Option  Plan.  None of the options  granted are  contingent
upon the attainment of performance goals or subject to other restrictions. As of
December  31, 2003,  outstanding  options to purchase  529,667  shares of common
stock were exercisable.

                                     - 65 -
<PAGE>
                         MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

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,  based upon management's discretion. A participant's  contribution
to the Plan is 100% vested and non-forfeitable. A participant will become vested
in 100% of the Company's  contributions after two years of eligible service. For
the years ended December 31, 2003,  2002 and 2001, the Company  recognized  $92,
$95 and $58 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.

The computation for weighted average shares is detailed below:

<TABLE>
<CAPTION>

                                                               Year Ended            Year Ended           Year Ended
                                                              December 31,          December 31,         December 31,
                                                                  2003                  2002                 2001
                                                            ------------------    ------------------    -----------------
<S>                                                           <C>                   <C>                  <C>
         Weighted average shares outstanding (basic)           17,739,609            17,455,799           17,103,714
         Incremental shares from assumed option exercise           63,338               399,093              485,639
                                                            ------------------    ------------------    -----------------
         Weighted average shares outstanding (diluted)         17,802,947            17,854,892           17,589,353
                                                            ==================    ==================    =================
</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  diluted  net income per
share since the minority  interests' share of income would also be added back to
net income. O.P. Units outstanding at December 31, 2003 and 2002 were 86,398,064
and 86,474,032, respectively.

11. OTHER INCOME

Other income,  including interest,  was approximately  $4,527, $4,248 and $2,465
for the years ended December 31, 2003, 2002 and 2001, respectively. For the year
ended  December 31, 2003,  prior tenant  bankruptcy  settlements  accounted  for
approximately  $2,231 of other  income.  For the year ended  December  31, 2002,
termination fees accounted for approximately $2,529 of other income.

12. RELATED PARTY TRANSACTIONS

As of December 31, 2003 and 2002, the Berg Group owned 78,364,716 and 78,338,684
O.P.  Units,  respectively,  of the total  86,398,064 and 86,474,032  O.P. Units
issued and outstanding,  respectively.  The Berg Group's interest in the Company
represents  75.1% and 75.4% of the  Company as of  December  31,  2003 and 2002,
respectively,  assuming  conversion of the O.P.  Units into common shares of the
Company.

The Company periodically  acquired unleased properties,  which include land, the
building  shell and base  building  improvements,  from the Berg Group under the
Berg Group Land Holdings  Option  Agreement.  These  acquisitions  from the Berg
Group are made for  properties  where the Company has  previously  identified  a
tenant,  and in conjunction with the  acquisition,  the Company executes a lease
agreement  with the  tenant.  In many of the  acquisitions  from the Berg Group,
lease commissions  relating to these leasing activities conducted by the Company
are paid by the Berg Group and reimbursed by the Company in connection  with the
acquisition.  These lease commissions are recorded separately in other assets on
the Company's consolidated balance sheet.

During 2003 the Company acquired one R&D property in San Jose and a 50% interest
in a joint venture from the Berg Group. These  acquisitions added  approximately
129,000  square feet of  rentable  space and were  acquired  under the Berg Land
Holdings Option  Agreement.  The total gross acquisition price was approximately
$12,953.  The Company financed these  acquisitions by borrowing $9,000 under its
line of credit from the Berg Group and  issuing  350,163  O.P.  Units to various
members of the Berg Group.

During 2002 the Company  acquired  two R&D  properties,  both located in Silicon
Valley.  These acquisitions added approximately  290,000 square feet of rentable
space and were acquired from the Berg Group under the Berg Land Holdings
                                     - 66 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

Option Agreement. The total gross acquisition price for these two properties was
approximately  $30,953,  of which $1,426 related to the reimbursement of leasing
commissions  paid by the Berg  Group  on  behalf  of the  Company.  The  Company
financed these  acquisitions  by borrowing  $18,000 under the Berg Group line of
credit and issuing 835,491 O.P. Units to various members of the Berg Group.

As of  December  31,  2003 and 2002,  debt in the amount of $6,320 and  $58,792,
respectively,  was due the Berg  Group  under the line of  credit.  This  amount
includes $9,000 and $18,000 of debt assumed in connection with the  acquisitions
of properties from the Berg Group in 2003 and 2002, respectively.  Additionally,
in 2003 and 2002, the operating partnerships declared distributions of $0.96 per
O.P. Unit.  Distributions paid to various members of the Berg Group were $75,224
and $75,281 during 2003 and 2002,  respectively.  Interest  expense  incurred in
connection  with the Berg Group  line of credit was $227,  $2,562 and $3,828 for
the years ended December 31, 2003, 2002 and 2001, respectively.

As of  December  31, 2003 and 2002,  debt in the amount of $10,762 and  $11,078,
respectively,  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.  Interest  expense incurred in connection with the Berg
Group  mortgage  note was $837,  $860 and $881 for the years ended  December 31,
2003, 2002 and 2001, respectively.

TRANSFER OF INTEREST TO BERG GROUP IN CONSOLIDATED JOINT VENTURE:

In July 2000, the Hellyer Avenue Limited Partnership ("Hellyer LP") was formally
organized as a California limited  partnership  between Mission West Properties,
L.P. ("MWP"), of which the Company as the managing general partner, and Republic
Properties  Group ("RPC"),  an unaffiliated  third party, as general partner and
limited partners.  MWP was designated as the managing general partner of Hellyer
LP. For a 50%  ownership  interest  in Hellyer  LP, RPC agreed to cause  Stellex
Microwave Systems, Inc. ("Stellex") to provide a 15-year lease on an approximate
160,000 square foot R&D building to be  constructed by Berg & Berg  Enterprises,
Inc. ("BBE") on land owned by another Berg Group member.

As part of the  transaction,  MWP acquired the  underlying  land pursuant to the
Berg Land  Holding  Option  Agreement  for a price of $5.7  million  by  issuing
659,223 OP units to the Berg Group  entity  that  owned the  property.  Further,
under the terms of the Hellyer LP partnership agreement MWP then contributed the
land to the  partnership  at an agreed value of $9.6 million which amount was to
be  amortized  and paid to MWP in the form of income and cash flow  preferences.
The transaction was reviewed and approved by the Independent Directors Committee
of the Company's board of directors.

In connection with the  transaction,  BBE built and paid for all improvements on
the land.  The total cost of the R&D  building,  exclusive of  specified  tenant
improvements  obligations,  was approximately $11.4 million. Hellyer LP issued a
note for the amount of those  construction  costs to BBE, which note was secured
by the buildings.

Because RPC's interest in Hellyer LP was  attributable  solely to its commitment
to obtain  Stellex  as a tenant  for the  property,  the  partnership  agreement
provided that if a payment  default  occurred within the first five years of the
Stellex lease, RPC would lose 100% of its interest in the partnership,  and if a
payment default occurred during the second five year period under the lease, RPC
would lose 50% of its interest in Hellyer LP.

Pursuant to RPC's  commitment to Hellyer LP Stellex  executed a lease  agreement
obligating  Stellex,  among other things,  to pay monthly rent starting at $1.60
per square foot on a triple net basis for 15 years and to reimburse  BBE for the
tenant improvement  obligations,  which ultimately totaled  approximately  $10.5
million.

Under the lease terms,  Stellex was  obligated to reimburse  BBE in full for the
tenant  improvement costs no later than August 25, 2000. Several days before the
due  date,  representatives  of  Stellex  met  with  representatives  of MWP and
informed them that Stellex could not pay the balance due BBE. Stellex  requested
MWP  immediately to draw down the letter of credit as a result of default on the
tenant improvement payment required under the lease.

On  September  1, 2000,  MWP, as the general  partner of Hellyer LP,  ceased all
allocations  of income and cash flow to RPC and  exercised  the right  under the
partnership  agreement  to cancel  RPC's  entire  interest  in the  partnership.
Following  discussions with and approval by the Independent Directors Committee,
the Company  authorized  the  transfer  of RPC's  interest in Hellyer LP to BBE.
Under the Berg Land  Holdings  Option  Agreement and the  Acquisition  Agreement
dated as of May 14, 1998, the  Independent  Directors  Committee of the Board of
Directors had the right,  but not the obligation,  to reacquire on behalf of the


                                     - 67 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

Company  the  property  interest  and the related  distributions  related to the
property  interest at any time.  The transfer  was  effective as of September 1,
2000.

Stellex filed for  bankruptcy  protection on September 12, 2000. On November 20,
2000,  RPC filed suit in the Circuit  Court of Maryland  for  Baltimore  City to
recover  past  distributions  and its  interest  in the  Hellyer LP. The Company
counter-sued  on behalf of itself  and MWP in  California  Superior  Court.  The
Maryland  suit went to trial in June  2002.  In  February  2001

MWP filed suit  against RPC in Superior  Court of  California  for the County of
Santa  Clara.  Following  a decision in the  Maryland  case MWP at the advice of
legal counsel filed an appeal. The California case has been stayed pending final
resolution  of the Maryland  case. In April 2004 the Circuit Court for Baltimore
City,  Maryland  issued a Memorandum  Opinion in the case and awarded damages of
$934 to the RPC  plaintiffs,  which must be paid by us or MWP.  The court denied
all  requests by MWP,  including a  declaration  that all of RPC's  interests in
Heller  L.P.  were  validly  converted  to  limited  partnership  interests  and
transferred  to MWP or its designee in accordance  with the terms of the Hellyer
L.P.  partnership  agreement.  The  court  also  denied  RPC's  request  for  an
injunction ordering the reinstatement of RPC's partnership  interests in Hellyer
L.P. The Company has appealed the decision to the Maryland Appeals Court.  Under
the  pre-appeal  hearing  procedures,  the  Maryland  Appeals  Court  requires a
mediation  hearing  before the parties can appear before the Appeals  Court.  No
date has been set for such a hearing.  The  Company  does not  believe  that any
further  court  decisions in this case,  for or against us and MWP,  will have a
material adverse effect on its financial position.

In January 2002,  Stellex was acquired  through its  bankruptcy  proceeding by a
division of Tyco Corporation. In connection with the acquisition of Stellex, the
purchaser  assumed the lease with Hellyer LP, agreed to comply with all terms of
lease and  reimbursed  BBE for the tenant  improvements,  as required  under the
lease agreement and the Bankruptcy Court order.

Since the inception of Hellyer LP, the Company has accounted for the  properties
owned by the  partnership  on a  consolidated  basis,  with  reductions  for the
minority interest held by the minority partner (first RPC and then BBE). In each
period,  the Company has accrued  amounts  payable by Hellyer LP to the minority
interest  partner,  including  BBE prior to  payment.  BBE's  share of  earnings
allocated to its 50% minority interest was $400, $303 and $384 in 2003, 2002 and
2001, respectively. As of December 31, 2003, accumulated cash flow distributions
from Hellyer LP totaling approximately $1.5 million were accrued and distributed
to BBE. If the  Company's  litigation  with RPC is  ultimately  decided in RPC's
favor,  the Company  anticipates that BBE may be required to return RPC's former
interest in Hellyer LP and all prior  distributions  to RPC. As a result of this
uncertainty,  in October 2003,  the Company  recorded such  distributions  as an
account  receivable  from  BBE,  which  is  included  in other  assets,  with an
offsetting account payable to BBE.

If the Company's  litigation with RPC is ultimately  decided in RPC's favor, the
Company  anticipates that BBE may be required to return RPC's former interest in
Hellyer LP and all prior  distributions  to RPC. If the litigation is ultimately
decided in favor of the  Company,  the  Independent  Directors  Committee of the
Board of Directors has the right,  but not the obligation,  to acquire on behalf
of the Company the former RPC interest and related  distributions from BBE under
the  terms  of the Berg  Land  Holdings  Option  Agreement  and the  Acquisition
Agreement between the Company and the Berg Group.

ACQUISITION OF CARL E. BERG'S INTEREST IN UNCONSOLIDATED  JOINT VENTURE: In July
1999 an  unrelated  party,  TBI,  advised Carl E. Berg that TBI had an option to
purchase  approximately 78.89 acres of unimproved land zoned for R&D development
in Morgan Hill at $2.50 per square foot that would expire in  approximately  six
months.  TBI offered Mr. Berg a 50% interest in the  development of this land if
Mr. Berg  provided  100%  financing for the land at 0% interest for three years.
Mr.  Berg  advised  TBI  of  his   obligation  to  offer  all  R&D   development
opportunities  on the West Coast to the Company and further advised TBI that the
Company's  Independent  Directors  Committee must approve the acquisition of any
properties and that the Company's policy was only to acquire properties that are
leased  pursuant to the Berg Land Holdings  Option  Agreement.  The  development
joint venture between TBI and the Berg Group  proceeded on that basis.  Building
construction was financed through loans  facilitated by the Berg Group. In early
2003,  TBI  formed  TBI-MSW,  a new  limited  partnership  to own all the leased
buildings.  The Berg Group offered its 50%  non-controlling  limited partnership
interest in TBI-MSW to the Company at cost plus an annual interest rate of 7% on
the funds  advanced  by the Berg  Group  which  amounted  to $1.8  million.  The
Independent  Directors  Committee and the Berg Group agreed to use a 7% interest
rate  instead of the rate and fees  specified in the Berg Land  Holdings  Option
Agreeement  because the  transaction  differed  from the standard  build-to-suit
development  specified  under that  agreement.  TBI-MSW  owned four fully leased
buildings  totalling  approximately  593,000 rentable square feet. The buildings
were  subject  to  mortgage  loans  totalling  %53.6  million.  The  Independent
Directors  Committee  approved the Company's  acquisition of the Berg Groups 50%
interest in the joint venture,  effective January 1, 2003. The development joint
venture  between the Berg Group and TBI retained two vacant shell R&D  buildings
and five unimproved

                                     - 68 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

lots.  In April  2003,  Comcast,  Inc.  offered  to  purchase  one of the vacant
buildings and two acres of adjoining land from the development joint venture for
net proceeds of $2.8  million,  after debt  repayment.  Prior to the sale of the
property,  TBI-MSW acquired this property at no cost under the terms of the Berg
Land Holdings Option  Agreement,  and the Company received a net distribution of
$1.4  million from the sale.  The  transaction  was approved by the  Independent
Directors  Committee.  The Berg Group  continues  to own a 50%  interest  in the
remaining vacant building and five unimproved lots.

BERG CONTROLLED  ENTITIES HAVE FINANCIAL INTERESTS IN CERTAIN TENANTS THAT LEASE
SPACE FROM THE COMPANY:

During December 31, 2003, 2002 and 2001, Carl E. Berg or entities  controlled by
Mr. Berg have financial interests in several companies that lease space from the
operating  partnerships,  which  include  three  companies  where Mr. Berg has a
greater than 10% ownership interest.  These related tenants occupy approximately
48,000  square feet and  contributed  $904,  $748 and $414 in rental  revenue in
2003,  2002 and 2001,  respectively.  Under the  Company's  Charter,  bylaws and
agreements  with the Berg Group,  the  individual  members of the Berg Group are
prohibited  from  acquiring  shares  of  the  Company's  common  stock  if  such
acquisition  would  result  in  their  beneficial  ownership  percentage  of the
Company's  common  stock  causing the Company to violate any REIT  qualification
requirement.

BERG COMMITMENT TO COMPLETE FUTURE  IMPROVEMENTS AND BUILDING IN CONNECTION WITH
CERTAIN  ACQUISITIONS  FROM THE BERG GROUP UNDER THE BERG LAND  HOLDINGS  OPTION
AGREEMENT:

The Berg Group has an approximately  $2.5 million commitment to complete certain
tenant  improvements in connection  with the Company's 2002  acquisition of 5345
Hellyer  Avenue in San Jose.  The Company  recorded this portion of its purchase
consideration  paid to the  Berg  Group as an  Other  Asset on its  Consolidated
Balance  Sheets.  The Berg Group plans to satisfy  this  commitment  to complete
certain tenant improvements when requested by the Company following the approval
of the IDC.

The Berg Group has an  approximately  $7.5  million  commitment  to  complete an
approximately  75,000 to 90,000  square  foot  building in  connection  with the
Company's  2000  acquisition  of 245 Caspian in Sunnyvale  which is comprised of
approximately  three acres of unimproved land. The Company recorded this portion
of its  purchase  consideration  paid to the Berg Group as an Other Asset on its
Consolidated  Balance Sheets. The Berg Group plans to satisfy this commitment to
construct a building when requested by the Company following the approval of the
IDC.

LEASING AND OVERHEAD REIMBURSEMENTS PROVIDED BY BERG CONTROLLED ENTITY

The Company  currently  leases  office  space owned by Berg & Berg  Enterprises,
Inc.,  an  affiliate  of Carl E.  Berg and Clyde J.  Berg.  Rental  amounts  and
overhead reimbursements paid to Berg & Berg Enterprises,  Inc. were $90, $90 and
$88 for the years ended December 31, 2003, 2002 and 2001, respectively.


13. FUTURE MINIMUM RENTS

The  Company,  through the  operating  partnerships,  owns  interests in 109 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 are as follows:

<TABLE>
<CAPTION>
<S>           <C>                          <C>
               2004                         $126,705
               2005                          115,853
               2006                           84,928
               2007                           59,462
               2008                           42,047
                 Thereafter                   92,872
                                          -----------
           Total                             521,867
                                          ===========
</TABLE>

                                     - 69 -

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

14. SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for  interest  was  $17,146,  $12,752  and $13,307 for the years ended
December 31, 2003, 2002 and 2001, respectively.

In connection with property  acquisitions,  the Company assumed $9,000,  $18,000
and $45,884 of related party debt due the Berg Group,  assumed other liabilities
of $783,  $387 and $2,024 and issued  350,163,  835,491 and 2,422,837 O.P. Units
for a total  acquisition  value of $12,953,  $30,953 and  $103,881 for the years
ended December 31, 2003, 2002 and 2001, respectively.

Amounts  of  $75,224,   $75,281  and  $66,423   were  due  the  Berg  Group  for
distributions  declared to O.P. Unit holders during the years ended December 31,
2003,  2002 and 2001,  respectively,  and were  treated as draws  under the Berg
Group line of credit.

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 is not aware
of any  litigation  against the Company and believes the ultimate  outcome would
not have a material  adverse  effect on the cash flows,  consolidated  financial
position or results of operations of the Company.

Republic Properties  Corporation (RPC) v. Mission West Properties,  L.P., in the
Circuit Court of Maryland for Baltimore City Case No.  24-C-00-005675.  RPC is a
former partner with Mission West Properties,  L.P. in the Hellyer Avenue Limited
Partnership. In April 2004 the Circuit Court for Baltimore City, Maryland issued
a Memorandum  Opinion in the case.  Following a review of the  Maryland  Court's
decision,  our legal  counsel  advised us to request a review of the decision by
the Maryland Appeals Court. Under the pre-appeal hearing procedures the Maryland
Appeals Court requires a mediation  hearing before the parties can appear before
the Appeals Court.  No such hearing has been  scheduled yet. A Maryland  Appeals
Court or any further  court  decision that may not rule in favor of Mission West
Properties  L.P. in this matter will not have a material  adverse  affect on our
financial  statements.  In July 2004 RPC attached the Company's bank account for
approximately  $1.1 million.  Following a July 2004 hearing in Superior Court of
the State of  California  for the County of Santa Clara the parties  agreed that
the Company  will post a $1.5  million  bond and RPC will remove the  attachment
from the  Company's  bank  account  until  final  resolution  of the  appeal  in
Maryland.  In  February  2001 the Company  filed a suit  against RPC in Superior
Court of the  State of  California  for the  County of Santa  Clara  Case No. CV
796249 which has been stayed pending resolution of the Maryland case.

Mission  West  Properties,  L.P.  v.  Premisys  Communications,  Inc.  and Zhone
Technologies,  Inc. in the  Superior  Court of the State of  California  for the
County of Alameda Case No. HG03118906. This was a breach of lease case which the
Company received a $1.1 million settlement for in April 2004.

Craig R.  Jalbert  Liquidating  CEO,  as  representative  of the  Estate  of the
Consolidated  Debtors for ACT  Manufacturing,  Inc. v. Mission West  Properties,
L.P.  in United  States  Bankruptcy  Court  District of  Massachusetts  Case No.
01-47641 (JBR). The Company is vigorously opposing this claim which asserts that
certain  payments made in the ordinary  course of business within 90 days of the
ACT bankruptcy filing were alleged preference payments.  The amount of the claim
is $482. The Company has engaged legal counsel to defend itself in this claim.

The Global  Crossing  Estate  Representative,  for  Itself  and the  Liquidating
Trustee of the Global Crossing  Liquidating  Trust v. Mission West Properties in
United States  Bankruptcy Court Southern  District of New York Case No. 02-40188
(REG). The Company is vigorously  opposing this claim which asserts that certain
payments  made in the ordinary  course of business  within 90 days of the Global
Crossing bankruptcy filing were alleged preference  payments.  The amount of the
claim is $815.  The Company has engaged  legal  counsel to defend itself in this
claim.

GUARANTEES

Under its  certificate of  incorporation  and bylaws,  the Company has agreed to
indemnify its officers and directors for certain events or  occurrences  arising
as a result of the officer or director's  serving in such capacity.  The maximum
potential  amount of future payments the Company could be required to make under
these  indemnification   agreements  is  unlimited.  The  Company  believes  the
estimated fair value of these  indemnification  agreements is minimal and has no
liabilities recorded for these agreements as of December 31, 2003.

The Company also enters into indemnification provisions under (i) its agreements
with other companies in its ordinary course of business, typically with lenders,
joint venture  partners,  contractors,  and tenants.  Under these provisions the
Company

                                     - 70 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

generally  indemnifies  and holds  harmless  the  indemnified  party for  losses
suffered  or  incurred  by the  indemnified  party as a result of the  Company's
activities.  These  indemnification  provisions generally survive termination of
the underlying  agreement.  The maximum  potential amount of future payments the
Company  could be  required to make under these  indemnification  provisions  is
unlimited.  The Company has not incurred  material  costs to defend  lawsuits or
settle claims  related to these  indemnification  agreements.  As a result,  the
Company  believes  the  estimated  fair value of these  agreements  is  minimal.
Accordingly,  the Company has no liabilities recorded for these agreements as of
December 31, 2003.

SEISMIC ACTIVITY

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

ENVIRONMENTAL ISSUES

The  environmental  investigations  that have been  conducted  on the  Company's
properties have not revealed any environmental  liability that it believes would
have a material adverse effect on its 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 the Company
are unaware.  The Company  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
the Company.

16. DISCONTINUED OPERATIONS

Effective  January 1, 2002, the Company  adopted SFAS No. 144,  which  addresses
financial accounting and reporting for the impairment and disposal of long lived
assets.  In general,  income or loss  attributable to the operations and sale of
property,  and the operations  related to property held for sale, are classified
as  discontinued  operations  in the  statements  of  operations.  Prior  period
statements  of  operations  presented in this report have been  reclassified  to
reflect the income or loss related to properties that were sold and presented as
discontinued operations for the year ended December 31, 2002. Additionally,  all
periods presented in this report will likely require further reclassification in
future  periods if  additional  properties  are held for sale or property  sales
occur.

As of December 31, 2003 and 2002,  there were no properties under contract to be
sold or otherwise disposed of which would qualify as assets held for sale.

In  March  2002,  the  Company  sold one  property  for a gain of  $6,103,  upon
receiving  sales proceeds of $18,503.  Condensed  results of operations for this
property for the years ended December 31, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>

                                                         For the Year Ended December 31,
                                                        2002                         2001
                                                ---------------------      ----------------------
                                                              (dollars in thousands)
<S>                                                 <C>                          <C>
Rental revenue from real estate                      $   333                      $ 1,999
Tenant reimbursements                                    293                           96
                                                ---------------------      ----------------------
               Total revenues                            626                        2,095
                                                ---------------------      ----------------------

Real estate taxes                                        293                           96
Depreciation                                              46                          278
                                                ---------------------      ----------------------
               Total expenses                            339                          374
                                                ---------------------      ----------------------

Net income from discontinued operations                  287                        1,721
Net gain on disposition of discontinued
   operations                                          6,103                            -
Minority interest in earnings attributable to
   discontinued operations                            (5,325)                      (1,436)
                                                ---------------------      ----------------------
Total income from discontinued operations            $ 1,065                      $   285
                                                =====================      ======================
</TABLE>

                                     - 71 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

17. PROPERTY ACQUISITIONS

For real estate acquired subsequent to June 30, 2001, the effective date of SFAS
No. 141,  Business  Combinations,  the fair value of the real estate acquired is
allocated to the acquired  tangible  assets,  consisting  of land,  building and
building/tenant improvements,  and identified intangible assets and liabilities,
including the value of the above or below market leases and in-place leases.

The fair value of the tangible  assets of an acquired  property,  which includes
land, building and tenant improvements, is determined by valuing the property as
if it were  vacant,  and the  "as-if-vacant"  value is then  allocated  to land,
building and tenant  improvements  based on  management's  determination  of the
relative  fair values of these  assets.  Factors  considered  by  management  in
performing  these  analyses  include  certain costs during the lease-up  periods
considering current market conditions and costs to execute similar leases. These
costs include estimates of lost rental revenue, leasing commissions,  and tenant
improvements.

In allocating the fair value of the identified intangible assets of the acquired
property,  above-market  and  in-place  lease  value are  recorded  based on the
present value,  using an interest rate which reflects the risks  associated with
the lease acquired,  of the difference between (i) the contractual amounts to be
paid  pursuant  to the  in-place  lease and (ii)  management's  estimate of fair
market lease rate for the corresponding  in-place lease,  measured over a period
equal to the remaining  non-cancelable lease term. The capitalized  above-market
lease  value,   included  in  real  estate  related  intangible  assets  in  the
accompanying  consolidated  balance sheets,  is amortized as an offset to rental
revenues  from real estate over the  remaining  non-cancelable  lease term.  The
value of in-place leases  exclusive of the value of above-market  in-place lease
is also  amortized to expense over the remaining  non-cancelable  periods of the
respective  leases.  If a  lease  were  to be  terminated  prior  to its  stated
expiration,  all unamortized amounts relating to that lease would be written off
in the period that the lease is terminated.

See note 12 for discussion of property acquisitions from the Berg Group.

On April 9, 2003, the Company  acquired San Tomas  Technology Park for $110,013,
which was financed  through new third party debt and an existing line of credit.
The purchase price was allocated to long-lived assets, one above-market in-place
lease and the value of in-place leases as follows:

         Land                               $41,698
         Buildings and improvements          50,031
         Above-market in-place lease         11,172
         In-place leases                      7,112
                                            --------
         Total cash purchase price          $110,013
                                            ========

The results of operations of the San Tomas Technology Park have been included in
the Company's consolidated operating results since the date of acquisition.  The
intangible assets are being amortized over the applicable remaining lease terms.
Amortization related to above-market leases for the year ended December 31, 2003
was $1,416 and was recorded as a reduction  of rental  revenue from real estate.
Amortization  expense  related to in-place  leases of $881 was  recorded for the
year ended December 31, 2003.

On March 8, 2002, the Company acquired the Orchard-Trimble  property for $31,312
in cash. The purchase price was allocated to long-lived  assets and the value of
in-place leases as follows:

         Land                               $10,437
         Buildings and improvements          19,507
         In-place leases                      1,368
                                            -------
         Total cash purchase price          $31,312
                                            =======

In-place  leases were  considered  at market.  The results of  operations of the
Orchard-Trimble  property  have  been  included  in the  Company's  consolidated
operating results since the date of acquisition. The intangible assets are being
amortized over the applicable remaining lease terms.

                                     - 72 -
<PAGE>
                         MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

Amortization  expense  related to in-place  leases of $547 and $410 was recorded
for the year ended December 31, 2003 and 2002, respectively.

Details of real estate intangible assets are as follows at December 31, 2003 and
2002:

<TABLE>
<CAPTION>
         Amortizable Intangibles                              2003          2002
         -----------------------------------------------------------------------------
<S>                                                         <C>            <C>
         Above-market leases                                 $11,172        $    -
         In-place leases                                       8,479         1,368
                                                          ----------------------------
         Gross real estate intangibles                        19,651         1,368
         Less accumulated amortization                        (3,254)         (410)
                                                          ----------------------------
         Net real estate intangibles                         $16,397        $  958
                                                          ============================
</TABLE>

Estimated aggregate  amortization  expense for each of the six succeeding fiscal
years is as follows:
<TABLE>
<CAPTION>

                                       Estimated
                                     Amortization
         Year                          Expense
         -------------------------------------------
<S>     <C>                          <C>
         2004                         $  4,060
         2005                            3,332
         2006                            3,173
         2007                            3,093
         2008                            2,199
         2009                              540
                                    ----------------
                                       $16,397
                                    ================
</TABLE>

The weighted-average  amortization period for above intangibles was 43 months at
December 31, 2003.

18. RESTATEMENTS

The Company has restated its previously issued consolidated financial statements
for the years  ended  December  31, 2002 and 2001,  as well as for the  quarters
ended March 31, June 30 and  September  30, 2003 and 2002 and the quarter  ended
December 31, 2002 for the following items:

-    The Company recorded  additional  amortization  expense relating to leasing
     commissions  which were  originally  being amortized over a 40 year period.
     The  additional   amortization   expense   resulted  from   decreasing  the
     amortization  period of commissions  from 40 years to the term of the lease
     and the write-off of certain  unamortized leasing commissions in connection
     with tenant bankruptcies.
-    The Company  corrected the purchase  accounting  originally  applied to its
     2002  acquisition  of the  Orchard-Trimble  property.  In  accordance  with
     Statement  of  Financial  Accounting  Standards  (SFAS) No.  141,  Business
     Combinations,  which became effective July 1, 2001, the Company allocated a
     portion of the  purchase  price to  in-place  lease  intangible  assets and
     recorded additional  amortization  expense from decreasing the amortization
     period of these intangible assets from 40 years to the term of the lease.
-    The  Company  recorded  additional  depreciation  expense  relating  to the
     reclassification  of certain real estate assets from a 40 year  depreciable
     life to a 7 and 25 year depreciable life.
-    The  Company  reclassified  the  amortization  of  the  above-market  lease
     intangible asset relating to the 2003 acquisition of San Thomas  Technology
     Park from  amortization  expense to an offset to rental  revenues from real
     estate.

The  aggregate  impact of all  restatement  items  resulted in a decrease in net
income to  common  stockholders  compared  to  previously  reported  amounts  of
$386  ($0.02 per diluted share) and $49 ($0.0 per diluted share) for the
years ended December 31, 2002 and 2001,  respectively.  The aggregate  impact of
all restatement items on the consolidated  balance sheet as of December 31, 2002
was a decrease in total assets of $2,623, a decrease in minority interest of
$2,188 and an increase in the accumulated deficit of $435.


                                     - 73 -
<PAGE>
                         MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

The effects of the restatement items described above on the Company's net income
to common shareholders are as follows:
<TABLE>
<CAPTION>
                                                                             For the Year Ended December 31,
                                                                          2002                             2001
                                                                  ---------------------           ---------------------
                                                                                  (dollars in thousands)
<S>                                                                   <C>                              <C>
Net income to common stockholders as previously reported               $17,501                          $18,135

Impact of adjustments for:
Leasing commission amortization                                         (1,765)                            (145)
Intangible asset amortization                                             (393)                               -
Depreciation of real estate assets                                        (163)                            (157)
                                                                  ---------------------           ---------------------
Total adjustments                                                       (2,321)                            (302)
                                                                  ---------------------           ---------------------

Minority interest portion of adjustments                                 1,935                              253

                                                                  ---------------------           ---------------------
Net income to common stockholders, as restated                         $17,115                          $18,086
                                                                  =====================           =====================
</TABLE>

Note 19 further  discusses these  restatements  and their specific impact on the
Company's historical quarterly consolidated financial statements.

19. SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited)

The Company has restated its (unaudited)  consolidated  financial statements for
the  quarters  ended March 31, June 30 and  September  30, 2003 and 2002 and the
quarter ended December 31, 2002 to reflect the effects of the  adjustments  made
in restating our consolidated  financial statements for the years ended December
31, 2002 and 2001, and to correct the amortization of certain  intangible assets
acquired in 2003 (see Note 18).

Quarterly  financial  information for the year ended December 31, 2003 (1) is as
follows:

<TABLE>
<CAPTION>
                                                                           For the Three Months Ended
                                                  March 31,                 June 30,                September 30,      December 31,
                                                 -----------               ----------              ---------------    --------------
                                        (As Previously           (As Previously           (As Previously
                                           Reported  (As Restated) Reported)  (As Restated) Reported)  (As Restated)
                                        --------------------------------------------------------------------------------------------
<S>                                    <C>          <C>          <C>         <C>          <C>          <C>           <C>
Rental revenue from continuing operations  $31,431      $31,431     $33,194      $32,722      $33,782      $33,310       $33,275
Income before gain on sales of assets,
    equity in earnings of unconsolidated
    joint venture and minority interests   $23,526      $23,252     $23,091      $22,822      $22,942      $22,642       $24,448
Income from continuing operations           $4,034       $3,988      $4,156       $4,111       $3,943       $3,893        $4,219
Net income                                  $4,034       $3,988      $4,156       $4,111       $3,943       $3,893        $4,219
Per share data:
   Basic net income per share                $0.23        $0.23       $0.23        $0.23        $0.22        $0.22         $0.24
   Diluted net income per share              $0.23        $0.23       $0.23        $0.23        $0.22        $0.22         $0.23
Weighted average shares of common stock 17,637,260   17,637,260  17,701,999   17,701,999   17,747,293   17,747,293    17,869,252
   (basic)
Weighted average shares of common stock 17,695,001   17,695,001  17,762,773   17,762,773   17,817,917   17,817,917    17,972,706
   (diluted)
</TABLE>

Quarterly  financial  information for the year ended December 31, 2002 (1) is as
follows:

<TABLE>
<CAPTION>
                                                                    For the Three Months Ended
                                                    March 31,                 June 30,                September 30,
                                                   -----------               ----------              ---------------
                                          (As Previously             (As Previously             (As Previously
                                             Reported   (As Restated)   Reported)  (As Restated)   Reported)  (As Restated)
                                          ----------------------------------------------------------------------------------------
<S>                                      <C>           <C>          <C>           <C>          <C>           <C>
Rental revenue from continuing operations    $32,484       $32,484      $32,753       $32,753      $32,165       $32,165
Income before gain on sales of assets,
    equity in earnings of unconsolidated
    joint venture and minority interests     $24,905       $24,793      $24,896       $23,741      $24,594       $23,815
Income from continuing operations             $4,136        $4,116       $4,073        $3,880       $4,558        $4,429
Income from discontinued operations           $1,065        $1,065            -             -            -             -
Net income                                    $5,201        $5,182       $4,073        $3,880       $4,558        $4,429
Per share data
   Basic net income per share                  $0.30         $0.30        $0.23         $0.22        $0.26         $0.25
   Diluted net income per share                $0.29         $0.29        $0.23         $0.22        $0.26         $0.25
Weighted average shares of common stock   17,404,568    17,404,568   17,464,692    17,464,692   17,467,329    17,467,329
   (basic)
Weighted average shares of common stock   17,853,809    17,853,809   17,902,853    17,902,853   17,856,688    17,856,688
   (diluted)
</TABLE>

<TABLE>
<CAPTION>
                                            For the Three Months Ended
                                               December 31, 2002
                                               -----------------
                                          (As Previously
                                             Reported    (As Restated)
                                          ----------------------------
<S>                                      <C>            <C>
Rental revenue from continuing operations    $32,378        $32,378
Income before gain on sales of assets,
    equity in earnings of unconsolidated
    joint venture and minority interests     $25,293        $25,017
Income from continuing operations             $3,670         $3,624
Income from discontinued operations                -              -
Net income                                    $3,670         $3,624
Per share data:
   Basic net income per share                  $0.21          $0.21
   Diluted net income per share                $0.21          $0.20
Weighted average shares of common stock   17,485,590     17,485,590
   (basic)
Weighted average shares of common stock   17,800,971     17,800,971
   (diluted)
</TABLE>

(1)  The  summation  of the  quarterly  financial  data may not equal the annual
     number reported on the consolidated  financial statements of operations due
     to rounding differences.

                                     - 74 -
<PAGE>
                         MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

20. SUBSEQUENT EVENTS

On January 8, 2004,  the  Company  paid  dividends  of $0.24 per share of common
stock to all common  stockholders of record as of December 31, 2003. On the same
date, the operating  partnerships  paid a distribution of $0.24 per O.P. Unit to
all holders of O.P. Units.

On    January    26,    2004,    the    Company's    independent    accountants,
PricewaterhouseCoopers  (PWC) resigned.  Following PWC's resignation,  the audit
committee which is comprised solely of the Company's three independent directors
engaged  independent  legal counsel to conduct an investigation  into the events
and  circumstances  leading  up to  the  resignation  of  PWC.  The  independent
counsel's  report  was  issued in April  2004 and  concluded  that  there was no
violations of securities laws by management or the Board of Directors. Following
the issuance of the independent  counsel's report, the audit committee appointed
BDO Seidman, LLP as the Company's new independent accountants in May 2004.

Following the January 26, 2004  resignation  by PWC, the Company has not been in
compliance with certain listing standards of the American Stock Exchange (AMEX).
Upon the  appointment  of BDO  Seidman,  LLP as the  Company's  new  independent
accountants,  the AMEX  granted  the Company an  extension  to comply with their
listing standards by August 1, 2004. To become compliant with the AMEX continued
listing standards, the Company must also file its quarterly reports on Form 10-Q
for the first and second  quarter of 2004 as soon as  practicable  following the
filing of the Form 10-K for 2003 but no later than August 31, 2004.

In early January 2004, the Company received $1,836 from the Bankruptcy Estate of
Auspex  Systems,  Inc.,  pursuant  to Notice  of Order  from the  United  States
Bankruptcy  Court  Northern  District  of  California  Case No.  03-52596  MM 11
representing the Company's final share of the Estate of Auspex Systems,  Inc. as
an unsecured creditor. This amount was recorded in 2003 revenue.

On March 16,  2004,  the Company  declared  dividends  of $0.24 per common share
payable on April 8, 2004 to all common stockholders of record on March 31, 2004.
On the same date, the operating  partnerships  paid a distribution  of $0.24 per
O.P. Units to all holders of O.P. Units.

In April 2004, the Company  settled  litigation  with a former tenant,  Premisys
Communications,  Inc., in  connection  with their breach of lease for the sum of
$1,100 which will be recorded in 2004 revenue.

In April and May 2004,  the Company  entered into lease  termination  agreements
with two different tenants who have leases expiring in 2004 for the sum total of
$2,609 which will be recorded in 2004 revenue.

In April  2004,  the  Circuit  Court of  Maryland  for  Baltimore  City Case No.
24-C-00-005675  issued a Memorandum Opinion in Republic  Properties  Corporation
(RPC) v. Mission West Properties, L.P. RPC is a former partner with Mission West
Properties,  L.P. in the Hellyer Avenue Limited Partnership.  Following a review
of the Maryland  Court's  decision,  the Company's  legal counsel  advised us to
request  a review of the  decision  by the  Maryland  Appeals  Court.  Under the
pre-appeal  hearing  procedures the Maryland  Appeals Court requires a mediation
hearing  before the parties can appear before the Appeals  Court.  The mediation
hearing is in the process of being  scheduled.  A Maryland  Appeals Court or any
further  court  decision  that may not rule in favor of Mission West  Properties
L.P.  in this matter will not have a material  adverse  affect on our  financial
statements.   In  July  2004  RPC  attached  the  Company's   bank  account  for
approximately  $1,100.  Following a July 2004  hearing in Superior  Court of the
State of California  for the County of Santa Clara,  the parties agreed that the
Company  will  post a $1,500  bond and RPC will  remove  the  attachment  of the
Company's bank account until final resolution of the appeal in Maryland.

In April 2004, an $80,000 loan with Citicorp  USA, Inc.  matured.  Citicorp USA,
Inc. has granted an extension  until September 6, 2004 pending the completion of
the  Company's  Form 10-K  filing for 2003.  The  Company  is in the  process of
renegotiating  the  terms  and  extending  the  $80,000  loan for an  additional
two-year  period.  The Company  does not believe  that the terms of the extended
loan will differ materially from its current terms.

On June 16,  2004,  the Company  declared  dividends  of $0.24 per common  share
payable on July 8, 2004 to all common  stockholders  of record on June 30, 2004.
On the same date, the operating  partnerships  paid a distribution  of $0.24 per
O.P. Units to all holders of O.P. Units.

                                     - 75 -
<PAGE>
In July 2004, a $40,000 loan with Cupertino National Bank (CNB) matured. CNB has
granted an  extension  until  September 2, 2004  pending the  completion  of the
Company's  Form  10-K  filing  for  2003.  The  Company  is in  the  process  of
renegotiating  the  terms  and  extending  the  $40,000  loan for an  additional
two-year  period.  The Company  does not believe  that the terms of the extended
loan will differ materially from its current terms.

                                     - 76 -

<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors and Stockholders
Mission West Properties, Inc.
Cupertino, California

The  audits  referred  to in our  report  dated July 27,  2004  relating  to the
consolidated  financial  statements of Mission West  Properties,  Inc., which is
contained  in Item 8 of this  Form  10-K  included  the  audit of the  financial
statement  schedules listed in the accompanying index. These financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial  statement  schedules based upon our
audits.


In our  opinion  such  financial  statement  schedules  present  fairly,  in all
material respects, the information set forth therein.


As a result of the restatement of the Company's consolidated financial
statements as of December 31, 2002 discussed in Note 18 to the Company's
consolidated financial statements, the Company has restated Schedule III: Real
Estate and Accumulated Depreciation of Mission West Properties, Inc. as of
December 31, 2002 (which was previously audited by other independent auditors).


\S\ BDO Seidman, LLP


San Francisco, California
July 27, 2004

                                     - 77 -
<PAGE>






                               INTENTIONALLY BLANK



                                     - 78 -

<PAGE>


                          MISSION WEST PROPERTIES, INC.
                                  Schedule III
             Real Estate and Accumulated Depreciation & Amortization
                                December 31, 2003
                             (dollars in thousands)
<TABLE>
<CAPTION>
                                                                     Initial Cost                               Total Cost
                                                           -----------------------------      Cost       -------------------------
                                             December 31,                    Buildings    Subsequent to                Buildings
                                                2003                            And       Construction/                   And
Property Name               City            Encumbrances        Land        Improvements   Acquisition      Land      Improvements
----------------------------------------  ---------------  --------------  -------------  -------------  ----------  -------------
<S>                        <C>                 <C>             <C>            <C>               <C>      <C>           <C>
5300-5350 Hellyer Avenue    San Jose    E       $10,761         $ 5,742        $11,442                    $ 5,742        $11,442
10401-10411 Bubb Road       Cupertino   A                           632          3,078                        632          3,078
45365 Northport Loop        Fremont                               2,447          5,711           $ 11       2,447          5,722
45700 Northport Loop        Fremont     B                         1,184          5,760              7       1,184          5,767
45738 Northport Loop        Fremont     B                           891          4,338              5         891          4,343
4050 Starboard Drive        Fremont     B                         1,329          6,467              8       1,329          6,475
3501 W. Warren Ave/Fremont  Fremont                               1,866          9,082                      1,866          9,082
48800 Milmont Blvd          Fremont                               1,013          4,932                      1,013          4,932
4750 Patrick Henry Drive    Santa Clara                           1,604          7,805            153       1,604          7,958
3520 Bassett Street         Santa Clara C                         1,104          5,371                      1,104          5,371
3530 Bassett Street         Santa Clara C,D                         849          4,133                        849          4,133
5850-5870 Hellyer Avenue    San Jose                              2,787          6,502                      2,787          6,502
5750 Hellyer Avenue         San Jose                              3,266          3,354                      3,266          3,354
800 Embedded Way            San Jose                              5,508         12,134             16       5,508         12,150
5500 Hellyer Avenue         San Jose                              4,735         12,484             39       4,735         12,523
5550 Hellyer Avenue         San Jose                              3,261          3,478                      3,261          3,478
5400 Hellyer Avenue         San Jose                              3,238          5,358            215       3,238          5,573
5325 Hellyer Avenue         San Jose                              4,684         10,329             40       4,684         10,369
5345 Hellyer Avenue         San Jose                              4,866          5,822                      4,866          5,822
5905-5965 Silver Creek      San Jose                              8,437         17,317                      8,437         17,317
Valley Road
5905-5965 Silver Creek      San Jose                              3,438          2,727                      3,438          2,727
Valley Road
855 Embedded Way            San Jose                              3,289          6,521             68       3,289          6,589
1065-1105 La Avenida Street Mountain View                        46,832        109,275             65      46,832        109,340
1750 Automation Parkway     San Jose    H                         4,789         11,174            315       4,789         11,489
1756 Automation Parkway     San Jose    H                         4,378         10,216             15       4,378         10,231
1762 Automation Parkway     San Jose    H                         4,804         12,224             20       4,804         12,244
1768 Automation Parkway     San Jose                              8,195         19,121             14       8,195         19,135
255 Caspian Drive           Sunnyvale                             3,491          7,160          1,559       3,491          8,719
245 Caspian Drive           Sunnyvale                             5,894              -                      5,894              -
5970 Optical Court          San Jose                              2,758          8,395                      2,758          8,395
5900 Optical Court          San Jose                              3,634         12,677             83       3,634         12,760
2630 Orchard Parkway        San Jose                              2,931          5,863                      2,931          5,863
2610 Orchard Parkway        San Jose    K                         2,616          5,738                      2,616          5,738
55 West Trimble Road        San Jose    K                         4,434          9,730                      4,434          9,730
2001 Walsh Avenue           Santa Clara G,I                       4,610          5,245 J                    4,610          5,245
2880 Scott Boulevard        Santa Clara G,I                      14,502         25,500 J                   14,502         25,500
2890 Scott Boulevard        Santa Clara G,I                       3,081         10,843 J                    3,081         10,843
2770-2800 Scott Boulevard   Santa Clara G,I                       7,138          7,075              2       7,138          7,077
2300 Central Expressway     Santa Clara G,I                       2,390         14,419 J                    2,390         14,419
2220 Central Expressway     Santa Clara G,I                       3,304          4,301 J           88       3,304          4,389
2330 Central Expressway     Santa Clara G,I                       3,673          3,932                      3,673          3,932
2251 Lawson Lane            Santa Clara H                         1,952          9,498                      1,952          9,498
1230 East Arques            Sunnyvale   B                           540          2,628             39         540          2,667
1250 East Arques            Sunnyvale   B                         1,335          6,499                      1,335          6,499
3120 Scott Blvd             Santa Clara                           2,044          9,948                      2,044          9,948
20400 Mariani Avenue        Cupertino               733           1,670          8,125                      1,670          8,125
10500 De Anza Blvd          Cupertino   B                         7,666         37,304                      7,666         37,304
20605-20705 Valley Green    Cupertino   H                         3,490         16,984                      3,490         16,984
10300 Bubb Road             Cupertino   B                           635          3,090                        635          3,090
10440 Bubb Road             Cupertino                               434          2,112             15         434          2,127
10460 Bubb Road             Cupertino               226             994          4,838          1,161         994          5,999
1135 Kern Avenue            Sunnyvale   B                           407          1,982                        407          1,982
405 Tasman Drive            Sunnyvale                               550          2,676             90         550          2,766
450 National Avenue         Mountain View B                         611          2,973                        611          2,973
3301 Olcott Street          Santa Clara                           1,846          8,984                      1,846          8,984
2800 Bayview Avenue         Fremont                               1,070          5,205             60       1,070          5,265
6850 Santa Teresa Blvd      San Jose                                377          1,836            820         377          2,656
6810 Santa Teresa Blvd      San Jose                              2,567          5,991             12       2,567          6,003
140-160 Great Oaks Blvd     San Jose                              1,402          6,822            755       1,402          7,577
</TABLE>


<TABLE>
<CAPTION>
                                                            Accumulated
                                                            Depreciation     Date of     Depreciable
Property Name               City               Total      & Amortization   Acquisition      Life
----------------------------------------   ------------   --------------   -----------   -----------
<S>                        <C>               <C>              <C>           <C>               <C>
5300-5350 Hellyer Avenue    San Jose    E     $ 17,184         $ 1,037        5/00             L
10401-10411 Bubb Road       Cupertino   A        3,710             425        7/98             L
45365 Northport Loop        Fremont              8,169             469       10/00             L
45700 Northport Loop        Fremont     B        6,951             794        7/98             L
45738 Northport Loop        Fremont     B        5,234             600        7/98             L
4050 Starboard Drive        Fremont     B        7,804             892        7/98             L
3501 W. Warren Ave/Fremont  Fremont             10,948           1,251        7/98             L
Blvd
48800 Milmont Blvd          Fremont              5,945             680        7/98             L
4750 Patrick Henry Drive    Santa Clara          9,562           1,155        7/98             L
3520 Bassett Street         Santa Clara C        6,475             739        7/98             L
3530 Bassett Street         Santa Clara C,D      4,982             570        7/98             L
5850-5870 Hellyer Avenue    San Jose             9,289             843       11/98             L
5750 Hellyer Avenue         San Jose             6,620             203        8/01             L
800 Embedded Way            San Jose            17,658           1,234        3/00             L
5500 Hellyer Avenue         San Jose            17,258             915        2/01             L
5550 Hellyer Avenue         San Jose             6,739             224        6/01             L
5400 Hellyer Avenue         San Jose             8,811             527        7/00             L
5325 Hellyer Avenue         San Jose            15,053             788        1/01             L
5345 Hellyer Avenue         San Jose            10,688             417        1/02             L
5905-5965 Silver Creek      San Jose            25,754           1,083        7/01             L
Valley Road
5905-5965 Silver Creek      San Jose             6,165             154       10/01             L
Valley Road
855 Embedded Way            San Jose             9,878             459        5/01             L
1065-1105 La Avenida Street Mountain View      156,172          12,982        4/99             L
1750 Automation Parkway     San Jose    H       16,278           1,292        7/99             L
1756 Automation Parkway     San Jose    H       14,609           1,029        1/00             L
1762 Automation Parkway     San Jose    H       17,048           1,153        4/00             L
1768 Automation Parkway     San Jose            27,330           1,481       12/00             L
255 Caspian Drive           Sunnyvale           12,210             738        4/00             L
245 Caspian Drive           Sunnyvale            5,894               -        4/01             L
5970 Optical Court          San Jose            11,153               -       12/03             L
5900 Optical Court          San Jose            16,394             489        7/02             L
2630 Orchard Parkway        San Jose             8,794             269        3/02             L
2610 Orchard Parkway        San Jose    K        8,354             596        3/02             L
55 West Trimble Road        San Jose    K       14,164           1,009        3/02             L
2001 Walsh Avenue           Santa Clara G,I      9,855             237        4/03             L
2880 Scott Boulevard        Santa Clara G,I     40,002             761        4/03             L
2890 Scott Boulevard        Santa Clara G,I     13,924             272        4/03             L
2770-2800 Scott Boulevard   Santa Clara G,I     14,215             133        4/03             L
2300 Central Expressway     Santa Clara G,I     16,809           1,534        4/03             L
2220 Central Expressway     Santa Clara G,I      7,693             310        4/03             L
2330 Central Expressway     Santa Clara G,I      7,605              74        4/03             L
2251 Lawson Lane            Santa Clara H       11,450           1,307        7/98             L
1230 East Arques            Sunnyvale   B        3,207             381        7/98             L
1250 East Arques            Sunnyvale   B        7,834             894        7/98             L
3120 Scott Blvd             Santa Clara         11,992           1,371        7/98             L
20400 Mariani Avenue        Cupertino            9,795           1,120        7/98             L
10500 De Anza Blvd          Cupertino   B       44,970           5,133        7/98             L
20605-20705 Valley Green    Cupertino   H       20,474           2,339        7/98             L
Drive
10300 Bubb Road             Cupertino   B        3,725             426        7/98             L
10440 Bubb Road             Cupertino            2,561             293        7/98             L
10460 Bubb Road             Cupertino            6,993             791        7/98             L
1135 Kern Avenue            Sunnyvale   B        2,389             276        7/98             L
405 Tasman Drive            Sunnyvale            3,316             386        7/98             L
450 National Avenue         Mountain View    B   3,584             410        7/98             L
3301 Olcott Street          Santa Clara         10,830           1,238        7/98             L
2800 Bayview Avenue         Fremont              6,335             720        7/98             L
6850 Santa Teresa Blvd      San Jose             3,033             440        7/98             L
6810 Santa Teresa Blvd      San Jose             8,570             726        3/99             L
140-160 Great Oaks Blvd     San Jose             8,979           1,013        7/98             L
</TABLE>

                                     - 79 -
<PAGE>
<TABLE>
<CAPTION>

                                                                        Initial Cost                               Total Cost
                                                                 ------------------------      Cost       -------------------------
                                                  December 31,                Buildings    Subsequent to                Buildings
                                                     2003                        And       Construction/                   And
Property Name                 City               Encumbrances      Land     Improvements   Acquisition       Land      Improvements
----------------------------------------------  --------------  ----------  -------------  -------------  ----------  -------------
<S>                          <C>                  <C>           <C>            <C>            <C>         <C>          <C>
6541 Via del Oro/6385 San Ig. San Jose    H                         1,039         5,057                       1,039        5,057
6311-6351 San Ignacio         San Jose    B                         6,246        30,396           145         6,246       30,541
6320-6360 San Ignacio         San Jose    H                         2,616        12,732           439         2,616       13,171
75 E. Trimble Road/2610 N.    San Jose                              3,477        16,919            85         3,477       17,004
First Street
2033-2243 Samaritan Drive     San Jose    F           6,320         5,046        24,556           154         5,046       24,710
1170 Morse Avenue             Sunnyvale   B                           658         3,201                         658        3,201
3236 Scott Blvd               Santa Clara B                         1,234         6,005                       1,234        6,005
1212 Bordeaux Lane            Sunnyvale   B                         2,250        10,948                       2,250       10,948
1325-1810 McCandless Drive    Milpitas    F,H                      13,994        66,213         1,065        13,994       67,278
1600 Memorex Drive            Santa Clara B                         1,221         5,940            11         1,221        5,951
1688 Richard Avenue           Santa Clara B                         1,248         2,913             6         1,248        2,919
1700 Richard Avenue           Santa Clara B                         1,727         4,030                       1,727        4,030
3506-3510 Bassett Street      Santa Clara C                           943         4,591           116           943        4,707
3540-3544 Bassett Street      Santa Clara B,C                       1,565         7,615           189         1,565        7,804
3550 Bassett Street           Santa Clara B,C                       1,079         5,251            33         1,079        5,284
3560 Bassett Street           Santa Clara B,C                       1,075         5,233             8         1,075        5,241
3570-3580 Bassett Street      Santa Clara B,C                       1,075         5,233                       1,075        5,233
     Prudential Insurance Company of    B           121,455
        America Loan
     Northwestern Mutual Life           H            97,445
        Insurance Company
     Citicorp USA, Inc.                 I            80,000
                                                --------------  ----------  -------------  -------------  ----------  -------------
                                                   $316,940      $275,707      $791,361        $7,926      $275,707     $799,287
                                                ==============  ==========  =============  =============  ==========  =============

</TABLE>

<TABLE>
<CAPTION>

                                                                 Accumulated
                                                                 Depreciation     Date of      Depreciable
Property Name                 City                  Total       & Amortization   Acquisition      Life
----------------------------------------------   ------------   --------------   -----------   -----------
<S>                          <C>                <C>                 <C>             <C>            <C>
6541 Via del Oro/6385 San Ig. San Jose    H           6,096              696         7/98           L
6311-6351 San Ignacio         San Jose    B          36,787            4,241         7/98           L
6320-6360 San Ignacio         San Jose    H          15,787            1,800         7/98           L
75 E. Trimble Road/2610 N.    San Jose               20,481            2,368         7/98           L
First St
2033-2243 Samaritan Drive     San Jose    F          29,756            3,402         7/98           L
1170 Morse Avenue             Sunnyvale   B           3,859              442         7/98
3236 Scott Blvd               Santa Clara B           7,239              828         7/98           L
1212 Bordeaux Lane            Sunnyvale   B          13,198            1,508         7/98           L
1325-1810 McCandless Drive    Milpitas    F,H        81,272            9,300         7/98           L
1600 Memorex Drive            Santa Clara B           7,172              797         7/98           L
1688 Richard Avenue           Santa Clara B           4,167              403         9/98           L
1700 Richard Avenue           Santa Clara B           5,757              447         8/99           L
3506-3510 Bassett Street      Santa Clara C           5,650              664         7/98           L
3540-3544 Bassett Street      Santa Clara B,C         9,369            1,078         7/98           L
3550 Bassett Street           Santa Clara B,C         6,363              740         7/98           L
3560 Bassett Street           Santa Clara B,C         6,316              725         7/98           L
3570-3580 Bassett Street      Santa Clara B,C         6,308              722         7/98           L
     Prudential Insurance Company of    B
        America Loan                                121,455
     Northwestern Mutual Life           H            97,445
        Insurance Company
     Citicorp USA, Inc.                 I            80,000
                                                 ------------   --------------
                                                 $1,074,994          $89,243
                                                 ============   ==============
</TABLE>

(A)  16.67% of this property's ownership is held by unaffiliated parties outside
     the operating partnerships of the Company.
(B)  Encumbered by the $121,455  Prudential  Insurance Company of America loan -
     full amount of loan shown at the bottom of the schedule.
(C)  Part of the property group referred to as the Triangle Technology Park.
(D)  25% of this property's  ownership is held by  unaffiliated  parties outside
     the operating partnerships of the Company.
(E)  50% of this  property's  ownership  is held by an  affiliated  party  since
     September 2000.
(F)  Three  properties at Samaritan Drive and two properties at McCandless Drive
     are  encumbered  by the $6,320  debt due the Berg  Group  under the line of
     credit.
(G)  Part of the property group referred to as the San Tomas Technology Park.
(H)  Encumbered by the $97,445 Northwestern Mutual Life Insurance Company loan -
     full amount of loan shown at the bottom of the schedule.
(I)  Encumbered  by the $80,000  Citicorp  USA,  Inc. loan - full amount of loan
     shown at the bottom of the schedule.
(J)  Purchase price allocated to real estate related  intangible assets pursuant
     to SFAS No. 141 amounted to $18,284.
(K)  Purchase price allocated to real estate related  intangible assets pursuant
     to SFAS No. 141 amounted to $1,367.
(L)  Depreciation  is  computed  based  on the  following  estimated  lives:
     1.   Building shell and base building tenant improvements of newly acquired
          properties  are being  depreciated  on a  weighted  average  composite
          useful life of 40 years.
     2.   Real estate intangible  assets allocated  pursuant to SFAS No. 141 are
          being amortized over the remaining life of the underlying leases.
     3.   Tenant improvements, furniture and fixtures are being depreciated over
          their estimated useful lives ranging from 5 to 10 years.


                                     - 80 -

<PAGE>

                          MISSION WEST PROPERTIES, INC.
                                  Schedule III
                    Real Estate and Accumulated Depreciation
                                December 31, 2002
                                  (As Restated)
                             (dollars in thousands)
<TABLE>
<CAPTION>
                                                                        Initial Cost                               Total Cost
                                                                 ------------------------      Cost       -------------------------
                                                  December 31,                Buildings    Subsequent to                Buildings
                                                     2002                        And       Construction/                   And
Property Name                 City               Encumbrances      Land     Improvements   Acquisition       Land      Improvements
----------------------------------------------  --------------  ----------  -------------  -------------  ----------  -------------
<S>                                               <C>           <C>           <C>             <C>          <C>          <C>
5300-5350 Hellyer Avenue    San Jose    E           $11,078       $ 5,742       $11,442                     $ 5,742       $11,442
10401-10411 Bubb Road       Cupertino   A                             632         3,078                         632         3,078
45365 Northport Loop        Fremont                                 2,447         5,711         $  11         2,447         5,722
45700 Northport Loop        Fremont     B                           1,184         5,760             7         1,184         5,767
45738 Northport Loop        Fremont     B                             891         4,338             5           891         4,343
4050 Starboard Drive        Fremont     B                           1,329         6,467             8         1,329         6,475
3501 W. Warren Ave/Fremont  Fremont                                 1,866         9,082                       1,866         9,082
48800 Milmont Blvd          Fremont                                 1,013         4,932                       1,013         4,932
4750 Patrick Henry Drive    Santa Clara                             1,604         7,805           153         1,604         7,958
3520 Bassett Street         Santa Clara C                           1,104         5,371                       1,104         5,371
3530 Bassett Street         Santa Clara C,D                           849         4,133                         849         4,133
5850-5870 Hellyer Avenue    San Jose                                2,787         6,502                       2,787         6,502
5750 Hellyer Avenue         San Jose                                3,266         3,354                       3,266         3,354
800 Branham Lane East       San Jose                                5,508        12,851            16         5,508        12,867
5500 Hellyer Avenue         San Jose                                4,735        12,484             3         4,735        12,487
5550 Hellyer Avenue         San Jose                                3,261         3,478                       3,261         3,478
5400 Hellyer Avenue         San Jose                                3,238         5,358           215         3,238         5,573
5325 Hellyer Avenue         San Jose                                4,684        10,329            34         4,684        10,363
5345 Hellyer Avenue         San Jose                                4,866         5,822                       4,866         5,822
5905-5965 Silver Creek      San Jose                                8,437        17,317                       8,437        17,317
Valley Road
5905-5965 Silver Creek      San Jose                                3,438         2,727                       3,438         2,727
Valley Road
855 Branham Lane East       San Jose                                3,289         6,521            68         3,289         6,589
1065-1105 La Avenida Street Mountain View                          46,832       109,275            65        46,832       109,340
1750 Automation Parkway     San Jose                                4,789        11,174           315         4,789        11,489
1756 Automation Parkway     San Jose                                4,378        10,216            15         4,378        10,231
1762 Automation Parkway     San Jose                                4,804        12,224            20         4,804        12,244
1768 Automation Parkway     San Jose                                8,195        19,121            14         8,195        19,135
255 Caspian Drive           Sunnyvale                               3,491         7,160         1,047         3,491         8,207
245 Caspian Drive           Sunnyvale                               5,894             -                       5,894             -
5900 Optical Court          San Jose                                3,634        12,677            52         3,634        12,729
2630 Orchard Parkway        San Jose                                2,931         5,863                       2,931         5,863
2610 Orchard Parkway        San Jose    G                           2,616         5,738                       2,616         5,738
55 West Trimble Road        San Jose    G                           4,434         9,730                       4,434         9,730
2251 Lawson Lane            Santa Clara F                           1,952         9,498                       1,952         9,498
1230 East Arques            Sunnyvale   B                             540         2,628            39           540         2,667
1250 East Arques            Sunnyvale   B                           1,335         6,499                       1,335         6,499
3120 Scott Blvd             Santa Clara                             2,044         9,948                       2,044         9,948
20400 Mariani Avenue        Cupertino                 1,423         1,670         8,125                       1,670         8,125
10500 De Anza Blvd          Cupertino   B                           7,666        37,304                       7,666        37,304
20605-20705 Valley Green Dr.Cupertino   F                           3,490        16,984                       3,490        16,984
10300 Bubb Road             Cupertino   B                             635         3,090                         635         3,090
10440 Bubb Road             Cupertino                                 434         2,112                         434         2,112
10460 Bubb Road             Cupertino                   297           994         4,838         1,161           994          5,999
1135 Kern Avenue            Sunnyvale   B                             407         1,982                         407         1,982
405 Tasman Drive            Sunnyvale                                 550         2,676            90           550         2,766
450 National Avenue         Mountain View B                           611         2,973                         611         2,973
3301 Olcott Street          Santa Clara                             1,846         8,984                       1,846         8,984
2800 Bayview Avenue         Fremont                                 1,070         5,205                       1,070         5,205
6850 Santa Teresa Blvd      San Jose                                  377         1,836           820           377         2,656
6810 Santa Teresa Blvd      San Jose                                2,567         5,991            12         2,567         6,003
140-160 Great Oaks Blvd     San Jose                                1,402         6,822           205         1,402         7,027
6541 Via del Oro/6385 San   San Jose                                1,039         5,057                       1,039         5,057
Ignacio
6311-6351 San Ignacio       San Jose    B                           6,246        30,396           145         6,246        30,541
Avenue
6320-6360 San Ignacio       San Jose                                2,616        12,732           353         2,616        13,085
Avenue
75 E. Trimble Road/2610 N.  San Jose                                3,477        16,919            85         3,477        17,004
First St
2033-2243 Samaritan Drive   San Jose    F            58,792         5,046        24,556           154         5,046        24,710
1170 Morse Avenue           Sunnyvale   B                             658         3,201                         658         3,201
3236 Scott Blvd             Santa Clara B                           1,234         6,005                       1,234         6,005
</TABLE>


<TABLE>
<CAPTION>

                                                                 Accumulated
                                                                 Depreciation     Date of      Depreciable
Property Name                 City                  Total       & Amortization   Acquisition      Life
----------------------------------------------   ------------   --------------   -----------   -----------
<S>                        <C>                    <C>               <C>           <C>               <C>
5300-5350 Hellyer Avenue    San Jose    E          $ 17,184           $ 751         5/00             H
10401-10411 Bubb Road       Cupertino   A             3,710             348         7/98             H
45365 Northport Loop        Fremont                   8,169             325        10/00             H
45700 Northport Loop        Fremont     B             6,951             650         7/98             H
45738 Northport Loop        Fremont     B             5,234             491         7/98             H
4050 Starboard Drive        Fremont     B             7,804             731         7/98             H
3501 W. Warren Ave/Fremont  Fremont                  10,948           1,024         7/98             H
Blvd
48800 Milmont Blvd          Fremont                   5,945             556         7/98             H
4750 Patrick Henry Drive    Santa Clara               9,562             935         7/98             H
3520 Bassett Street         Santa Clara C             6,475             605         7/98             H
3530 Bassett Street         Santa Clara C,D           4,982             466         7/98             H
5850-5870 Hellyer Avenue    San Jose                  9,289             680        11/98             H
5750 Hellyer Avenue         San Jose                  6,620             119         8/01             H
800 Branham Lane East       San Jose                 18,375             915         3/00             H
5500 Hellyer Avenue         San Jose                 17,222             600         2/01             H
5550 Hellyer Avenue         San Jose                  6,739             137         6/01             H
5400 Hellyer Avenue         San Jose                  8,811             362         7/00             H
5325 Hellyer Avenue         San Jose                 15,047             525         1/01             H
5345 Hellyer Avenue         San Jose                 10,688             209         1/02             H
5905-5965 Silver Creek      San Jose                 25,754             650         7/01             H
Valley Road
5905-5965 Silver Creek      San Jose                  6,165              86        10/01             H
Valley Road
855 Branham Lane East       San Jose                  9,878             286         5/01             H
1065-1105 La Avenida Street Mountain View           156,172          10,248         4/99             H
1750 Automation Parkway     San Jose                 16,278           1,005         7/99             H
1756 Automation Parkway     San Jose                 14,609             771         1/00             H
1762 Automation Parkway     San Jose                 17,048             845         4/00             H
1768 Automation Parkway     San Jose                 27,330           1,000        12/00             H
255 Caspian Drive           Sunnyvale                11,698             510         4/00             H
245 Caspian Drive           Sunnyvale                 5,894               -         4/01             H
5900 Optical Court          San Jose                 16,363             162         7/02             H
2630 Orchard Parkway        San Jose                  8,794             123         3/02             H
2610 Orchard Parkway        San Jose    G             8,354             262         3/02             H
55 West Trimble Road        San Jose    G            14,164             443         3/02             H
2251 Lawson Lane            Santa Clara F            11,450           1,070         7/98             H
1230 East Arques            Sunnyvale   B             3,207             310         7/98             H
1250 East Arques            Sunnyvale   B             7,834             732         7/98             H
3120 Scott Blvd             Santa Clara              11,992           1,122         7/98             H
20400 Mariani Avenue        Cupertino                 9,795             916         7/98             H
10500 De Anza Blvd          Cupertino   B            44,970           4,200         7/98             H
20605-20705 Valley Green    Cupertino   F            20,474           1,914         7/98             H
10300 Bubb Road             Cupertino   B             3,725             349         7/98             H
10440 Bubb Road             Cupertino                 2,546             240         7/98             H
10460 Bubb Road             Cupertino                 6,993             639         7/98             H
1135 Kern Avenue            Sunnyvale   B             2,389             226         7/98             H
405 Tasman Drive            Sunnyvale                 3,316             306         7/98             H
450 National Avenue         Mountain View B           3,584             335         7/98             H
3301 Olcott Street          Santa Clara              10,830           1,013         7/98             H
2800 Bayview Avenue         Fremont                   6,275             588         7/98             H
6850 Santa Teresa Blvd      San Jose                  3,033             336         7/98             H
6810 Santa Teresa Blvd      San Jose                  8,570             576         3/99             H
140-160 Great Oaks Blvd     San Jose                  8,429             797         7/98             H
6541 Via del Oro/6385 San   San Jose                  6,096             570         7/98             H
Ignacio
6311-6351 San Ignacio       San Jose    B            36,787           3,458         7/98             H
Avenue
6320-6360 San Ignacio       San Jose                 15,701           1,461         7/98             H
Avenue
75 E. Trimble Road/2610 N.  San Jose                 20,481           1,932         7/98             H
First St
2033-2243 Samaritan Drive   San Jose    F            29,756           2,777         7/98             H
1170 Morse Avenue           Sunnyvale   B             3,859             362         7/98             H
3236 Scott Blvd             Santa Clara B             7,239             678         7/98             H
</TABLE>

                                     - 81 -
<PAGE>
<TABLE>
<CAPTION>

                                                 December 31,                Buildings    Subsequent to                Buildings
                                                     2002                        And       Construction/                   And
Property Name                 City               Encumbrances      Land     Improvements   Acquisition       Land      Improvements
----------------------------------------------  --------------  ----------  -------------  -------------  ----------  -------------
<S>                        <C>                    <C>           <C>           <C>              <C>         <C>          <C>
1212 Bordeaux Lane          Sunnyvale   B                           2,250       10,948                        2,250       10,948
1325-1810 McCandless Drive  Milpitas    F                          13,994       66,213          1,056        13,994       67,269
1600 Memorex Drive          Santa Clara B                           1,221        5,940             36         1,221        5,976
1688 Richard Avenue         Santa Clara B                           1,248        2,913              6         1,248        2,919
1700 Richard Avenue         Santa Clara B                           1,727        4,030                        1,727        4,030
3506-3510 Bassett Street    Santa Clara C                             943        4,591            116           943        4,707
3540-3544 Bassett Street    Santa Clara C,B                         1,565        7,615            189         1,565        7,804
3550 Bassett Street         Santa Clara C,B                         1,079        5,251             33         1,079        5,284
3560 Bassett Street         Santa Clara C,B                         1,075        5,233              8         1,075        5,241
3570-3580 Bassett Street    Santa Clara C,B                         1,075        5,233                        1,075        5,233
        Prudential Insurance Company of B
                           America Loan             123,342
                                                --------------  ----------   ------------  -------------  ----------  -------------
                                                   $194,932      $234,251     $712,368         $6,556      $234,251     $718,924
                                                ==============  ==========   ============  =============  ==========  =============
</TABLE>


<TABLE>
<CAPTION>


                                                                 Accumulated
                                                                 Depreciation     Date of      Depreciable
Property Name                 City                  Total       & Amortization   Acquisition      Life
----------------------------------------------   ------------   --------------   -----------   -----------
<S>                        <C>                    <C>            <C>                <C>            <C>
1212 Bordeaux Lane          Sunnyvale   B            13,198           1,235          7/98           H
1325-1810 McCandless Drive  Milpitas    F            81,263           7,564          7/98           H
1600 Memorex Drive          Santa Clara B             7,197             645          7/98           H
1688 Richard Avenue         Santa Clara B             4,167             329          9/98           H
1700 Richard Avenue         Santa Clara B             5,757             346          8/99           H
3506-3510 Bassett Street    Santa Clara C             5,650             539          7/98           H
3540-3544 Bassett Street    Santa Clara C,B           9,369             880          7/98           H
3550 Bassett Street         Santa Clara C,B           6,363             604          7/98           H
3560 Bassett Street         Santa Clara C,B           6,316             593          7/98           H
3570-3580 Bassett Street    Santa Clara C,B           6,308             591          7/98           H
        Prudential Insurance Company of
                           America Loan B
                                                 ------------   --------------
                                                   $953,175       $67,053
                                                 ============   ==============
</TABLE>


(A)  16.67% of this property's ownership is held by unaffiliated parties outside
     the operating partnerships of the Company.
(B)  Encumbered by the $123,342  Prudential  Insurance Company of America 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 of the Company.
(E)  50% of this  property's  ownership  is held by an  affiliated  party  since
     September 2000.
(F)  Four properties at McCandless  Drive,  three  properties at Samaritan Drive
     and three other various  properties  are encumbered by the $58,792 debt due
     the Berg Group under the line of credit.
(G)  Purchase price allocated to real estate related  intangible assets pursuant
     to SFAS No. 141 was $1,367.
(H)  Depreciation is computed based on the following estimated lives:
     1.   Building shell and base building tenant improvements of newly acquired
          properties  are being  depreciated  on a  weighted  average  composite
          useful life of 40 years.
     2.   Real estate intangible  assets allocated  pursuant to SFAS No. 141 are
          being amortized over the remaining life of the underlying  leases.
     3.   Tenant improvements, furniture and fixtures are being depreciated over
          their estimated useful lives ranging from 5 to 10 years.


                                     - 82 -
<PAGE>




                          MISSION WEST PROPERTIES, INC.
                              NOTE TO SCHEDULE III
                           December 31, 2003 and 2002
                             (dollars in thousands)

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

                                                                                          2003                       2002
                                                                                                                 (As Restated)
                                                                                 ------------------------   ------------------------
<S>                                                                                  <C>                        <C>
Real estate investments:
   Balance at beginning of year                                                       $  953,175                 $  907,369
   Additions                                                                             121,819                     64,167
   Dispositions                                                                                -                   (13,421)
   Reclassification                                                                            -                    (4,940)
                                                                                 ------------------------   ------------------------
   Balance at end of year                                                             $1,074,994                 $  953,175
                                                                                 ========================   ========================

Accumulated depreciation and amortization:
   Balance at beginning of year                                                       $   67,053                 $   49,716
   Additions                                                                              22,190                     18,359
   Dispositions                                                                                -                    (1,022)
                                                                                 ------------------------   ------------------------
   Balance at end of year                                                             $   89,243                 $   67,053
                                                                                 ========================   ========================
</TABLE>

                                     - 83 -

<PAGE>

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

     The Company previously disclosed the change in its independent  accountants
     on Form 8-K, filed February 2, 2004,  Form 8-K/A,  filed February 18, 2004,
     and Form 8-K, filed May 12, 2004.


ITEM 9A. INTERNAL CONTROLS AND PROCEDURES

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

     Until their  resignation on January 26, 2004, our  independent  accountants
     were  PricewaterhouseCoopers  LLP.  In May 2004,  we hired new  independent
     accountants,  BDO  Seidman,  LLP  who  conducted  audits  of our  financial
     statements for 2001,  2002 and 2003. In connection with the issuance of its
     report of the independent  registered  public accounting firm, BDO Seidman,
     LLP reported to our audit  committee a "material  weakness" under standards
     established by the Public Company Accounting Oversight Board regarding some
     elements of our system of internal controls. They noted a material weakness
     with  respect to our review and  oversight of our  application  of purchase
     accounting  relating to the amortization of leasing commissions on acquired
     buildings,  as a result of which we  amortized  such  commissions  over the
     40-year  term of the  acquired  building  rather  than the lease  term.  In
     addition,  due to our total head count of four,  they have also  identified
     certain segregation of duties issues without compensating controls.

     In the view of BDO  Seidman,  LLP this  material  weakness  led to  certain
     accounting adjustments for 2003 and certain restatements for 2002 and 2001,
     principally  pertaining to purchase  accounting  errors  related to leasing
     commissions and to a much smaller extent, to correct  depreciable lives for
     tenant improvements and base interior improvements. The error in accounting
     for lease commission necessitated a significant portion of the restatements
     described elsewhere in this report and resulted in adjustments to our 2001,
     2002 and 2003 financial  statements upon audit. One such commission for one
     tenant  with a large  lease that went  bankrupt  in 2002  should  have been
     written off in 2002 and represented approximately $918 or approximately 40%
     of the total  restatement  adjustments for 2002. We have conducted a review
     of the errors  requiring  restatement,  including a separate  review by our
     audit  committee to determine  what remedial  measures were  necessary.  We
     believe our  management  has taken or is in the process of taking the steps
     necessary to correct the errors and avoid similar errors in the future. One
     important  measure is to have our  President  also  become  involved in the
     review of our internal controls and procedures.

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

     Other than the foregoing initiatives,  there were no significant changes in
     our  internal  controls or to our  knowledge,  in other  factors that could
     significantly affect such internal controls subsequent to the date of their
     evaluation.

     While we have taken or are in the process of taking the foregoing  steps in
     order to address the adequacy of our  disclosure  controls and  procedures,
     and,  in  addition,  to develop  and  implement  a formal  set of  internal
     controls and  procedures for financial  reporting in accordance  with SEC's
     proposed rules to adopt the internal control report  requirements  included
     in Section 404 of the Sarbanes-Oxley Act of 2002, the efficacy of the steps
     we have  taken  to date  and the  steps  we are  still  in the  process  of
     completing  is  subject  to  continued   management   review  supported  by
     confirmation  and  testing by our  internal  and  external  auditors.  As a
     result,  it is likely that additional  changes will be made to our internal
     controls and procedures.

ITEM 9B.  OTHER INFORMATION

     None.

                                     - 84 -

<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     DIRECTORS AND EXECUTIVE OFFICERS

     The names of the company's  Directors and Executive Officers as of December
     31, 2003 and certain information about them are set forth below:

<TABLE>
<CAPTION>
       NAME                                       AGE           POSITIONS WITH THE COMPANY
       -----------------------                    ---           ---------------------------------------------
<S>                                               <C>          <C>
       Carl E. Berg                                66           Chairman of the Board, Chief Executive Officer and Director
       Raymond V. Marino                           45           President, Chief Operating Officer and Director
       Wayne N. Pham                               34           Vice President of Finance and Controller
       John C. Bolger (1)                          57           Director
       William A. Hasler (1)                       62           Director
       Lawrence B. Helzel (1)                      56           Director
</TABLE>

(1)  Member  of  the  Audit  Committee,   the  Compensation  Committee  and  the
     Independent Directors Committee.

     The following is a biographical  summary of the experience of our executive
     officers and directors:

     Mr. Berg has served as Chairman of the Board and Chief Executive Officer of
     the Company since September  1997.  Since 1979, Mr. Berg has been a general
     partner of Berg & Berg  Developers  and has been a director  and officer of
     Berg & Berg  Enterprises,  Inc. since its inception.  Mr. Berg is a private
     investor  and is also a director of  Monolithic  System  Technology,  Inc.,
     Focus Enhancements, Inc., and Valence Technology, Inc.

     Mr. Marino joined the Company in June 2001 as President and Chief Operating
     Officer and was appointed by the board of directors to fill a newly created
     board  seat  in July  2001.  From  November  1996 to  August  2000,  he was
     President,  Chief Executive  Officer and a member of the board of directors
     of Pacific Gateway Properties, Inc.

     Mr. Pham joined the Company in March 2000 as Controller and was promoted to
     Vice  President of Finance in October  2000.  From  September  1995 to July
     1999,  he was  Corporate  Accountant  and  Accounting  Manager at AvalonBay
     Communities, Inc., a multi-family apartment REIT.

     Mr. Bolger  became a director of the Company on March 30, 1998.  Mr. Bolger
     is a private  investor and certified public  accountant.  He is the retired
     Vice  President of Finance and  Administration  of Cisco  Systems,  Inc., a
     manufacturer of computer  networking  systems, a position that he held from
     May 1989 to December  1992.  Mr.  Bolger is also a director  of  Integrated
     Device Technology, Inc., Sanmina-SCI Corporation, Wind River Systems, Inc.,
     and Micromuse, Inc.

     Mr. Hasler became a director of the Company on December 4, 1998.  For seven
     years, Mr. Hasler was Dean of the Haas School of Business at the University
     of California, Berkeley, and is a former vice chairman and director of KPMG
     LLP.  In 1998,  he retired  as Dean  Emeritus  and became  Co-CEO of Aphton
     Corporation,  a public pharmaceutical  company. Mr. Hasler recently stepped
     down from his position as Co-CEO of Aphton Corporation and assumed the role
     of Vice-Chairman of the Board. Mr. Hasler is also the Chairman of the board
     of directors of Solectron Corporation and a director of Aphton Corporation,
     Technical Olympic USA, Inc.,  Ditech  Communications  Network,  DMC Stratex
     Networks,  Inc. and Genitope  Corporation.  He is a public  governor of the
     Pacific Stock and Options Exchange and a trustee of the Schwab Funds.

     Mr. Helzel became a director of the Company on December 4, 1998. Mr. Helzel
     is a private  investor and a general  partner of Helzel  Kirshman,  L.P., a
     private investment partnership,  a position which he has held for more than
     five years.

     NUMBER TERMS AND ELECTION OF DIRECTORS

     Our Bylaws  currently  provide for a board of directors  consisting of five
     directors.  Each  director  serves for a term of one year or until the next
     annual meeting at which directors are elected and the director's  successor
     is elected and qualifies. In the election of directors, each stockholder is
     entitled  to one  vote  for  each  share  of  common  stock  held  by  such
     stockholder.

                                     - 85 -
<PAGE>

     MEETINGS OF DIRECTORS

     Under our Articles of Amendment  and  Restatement,  or Charter,  Bylaws and
     contracts with the "Berg Group," which  consists of Carl E. Berg,  Clyde J.
     Berg, the members of their respective  immediate  families,  and affiliated
     entities  owning  limited  partnership  interests,  or O.P.  Units,  in the
     Operating  Partnerships,  the Berg Group has special rights with respect to
     meetings of the board of directors.  A quorum for any meeting  requires the
     presence of Carl E. Berg, or in the event of his death, disability or other
     event which results in his ceasing to be director,  the presence of someone
     who Mr. Berg has designated to replace him ("Berg Designee").  With written
     consent  from  Mr.  Berg or the Berg  Designee,  meetings  of the  board of
     directors  may be held without the presence of either of them.  Mr. Berg is
     obligated to submit a written statement identifying the Berg Designee to us
     from time to time and may amend the  statement at his sole  discretion.  In
     addition, a majority of the board of directors,  which includes Mr. Berg or
     the Berg Designee, is required for approval of any amendment to the Charter
     or Bylaws and any merger, consolidation or sale of all or substantially all
     of our  assets  or  those  of the  Operating  Partnerships.  These  special
     provisions  will  remain in effect as long as the Berg  Group  collectively
     owns at least 15% of our voting  stock  computed  on a  diluted,  or "Fully
     Diluted",  basis  taking into account all voting  stock  issuable  upon the
     exercise of all outstanding warrants,  options,  convertible securities and
     other rights to acquire  voting stock of the  Company,  and all O.P.  Units
     exchangeable  or redeemable  for common stock or other voting stock of ours
     without regard to any percentage  ownership  limit set forth in the Charter
     or Bylaws, or by agreement.

     COMMITTEES OF THE BOARD OF DIRECTOR AND MEETINGS

     Our board of directors has standing Audit and Compensation Committees.  The
     Audit  Committee  currently has three members:  John C. Bolger,  William A.
     Hasler and Lawrence B. Helzel. The Compensation Committee currently has the
     same three members.

     The board of directors has an  Independent  Directors  Committee,  which is
     also  comprised of Messrs.  Bolger,  Hasler and Helzel.  This  committee is
     responsible for reviewing and acting upon proposed  transactions between us
     and members of the Berg Group under the terms of certain agreements between
     us and such Berg Group  members.  See  "Certain  Relationships  and Related
     Transactions."

     During the year ended  December 31, 2003,  there were four  meetings of the
     board of directors  and five meetings of the Audit  Committee.  Four of the
     five  directors  attended 100% of the total number of meetings of the board
     of directors. One director attended three of the four meetings of the board
     of directors.  Each of the  directors  attended 100% of the meetings of the
     committees of the board of directors of which he is a member.

     The board of  directors  does not believe  that a  nominating  committee is
     necessary  because all the  independent  directors  currently  serve on the
     Audit  and  Compensation  Committees,   and  any  additional  committee  of
     independent  directors  would consist of the same  individuals.  The entire
     board of directors will review and approve  nominations for election to the
     board of directors at the next annual meeting of stockholders solely, other
     than the two nominees that the Berg Group has the right to designate  under
     our Charter and Bylaws,  by resolution of the independent  directors on the
     board.

     AUDIT COMMITTEE REPORT

     The  Audit  Committee  has been  established  in  accordance  with  section
     3(a)-(58)-(A) of the Securities  Exchange Act. The Audit Committee reviews,
     acts on and  reports  to the board of  directors  with  respect  to various
     auditing and accounting matters.  The Audit Committee has the authority and
     responsibility  to select,  evaluate,  and where  appropriate,  replace our
     independent public accountants.  The Audit Committee also reviews the scope
     of the annual audit fees to be paid to our independent public  accountants,
     the performance of the independent public accountants,  the audit report of
     our consolidated financial statements following completion of the audit and
     the accounting practices of the Company with respect to internal accounting
     and financial controls. The Audit Committee notes, however, that management
     has primary  responsibility  for our financial  statements  and the overall
     reporting  process,   including  our  system  of  internal  controls.   The
     independent public accountants audit the financial  statements  prepared by
     management, express an opinion on whether those financial statements fairly
     present the financial  position,  results of  operations  and cash flows in
     conformity  with  accounting  principles  generally  accepted in the United
     States of America,  and discuss  with the Audit  Committee  any issues they
     believe should be raised with us.

     The board of directors  adopted an Audit Committee Charter on June 9, 2000.
     The Audit  Committee  is  currently  comprised  of Messrs.  John C. Bolger,
     William A.  Hasler,  and Lawrence B.  Helzel,  all of whom are  independent
     within the meaning of Section 121(A) of the AMEX's listing  standards.  The
     board of directors  has  determined  that Mr.  Bolger,  the Chairman of the
     Audit Committee, and Mr. Hasler are Audit Committee financial expert.

                                     - 86 -
<PAGE>

     The Audit  Committee  has  reviewed  and  discussed  the audited  financial
     statements  of the  Company for fiscal  year 2003 with  management  and the
     Company's  independent  registered public accounting firm, BDO Seidman, LLP
     ("BDO").  The Committee discussed with BDO matters required to be discussed
     by  Statement  on  Auditing  Standards  No. 61  (Communication  with  Audit
     Committees).  The Audit  Committee  was also  provided  by BDO the  written
     disclosures  required  by  Independence  Standards  Board  Standard  No.  1
     (Independence  Discussions  with  Audit  Committees),   and  the  Committee
     discussed with BDO that firm's independence.

     Based on the discussions  with BDO concerning the audit,  the  independence
     discussions  and the  financial  statement  review,  and such other matters
     deemed relevant and appropriate by the Audit Committee, the Audit Committee
     recommended  to the Board that the Company's  financial  statements for the
     fiscal year ended  December 31, 2003 be included in its 2003 Annual  Report
     on Form 10-K filed with the SEC.

         The Audit Committee of the Board of Directors:
         John C. Bolger
         William A. Hasler
         Lawrence B. Helzel

     SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934, as amended,  requires
     our  directors,  executive  officers and persons who own more than 10% of a
     registered  class of the Company's  equity  securities to file with the SEC
     initial  reports of ownership and reports of changes in ownership of common
     stock and other equity securities of ours.  Directors,  executive  officers
     and greater than 10% holders are required by SEC  regulation  to furnish us
     with copies of all Section  16(a)  reports  they file.

     To the  Company's  knowledge,  based  solely on review of the copies of the
     above-mentioned    reports   furnished   to   the   Company   and   written
     representations  regarding all reportable  transactions,  during the fiscal
     year ended  December  31,  2003,  all  Section  16(a)  filing  requirements
     applicable to its directors,  officers and greater than ten percent holders
     were complied with on time, except that Carl E. Berg and certain members of
     the Berg Group did not timely  file one or more  reports on Form 4 that may
     have been due with respect to acquired  O.P.  Units issued  pursuant to the
     Berg Land Holdings Option  Agreement.  The acquisitions of these units were
     otherwise  disclosed  in  reports  filed by the  COmpany  on a group Form 4
     filing.

     CODE OF ETHICS

     We have adopted a code of ethics that applies to all of our employees.  The
     code of ethics is designed to deter wrongdoing and to promote,  among other
     things,  honest and ethical conduct,  full,  fair,  accurate,  timely,  and
     understandable  disclosures  in reports and documents  submitted to the SEC
     and  other   public   communications,   compliance   with  all   applicable
     governmental laws, rules and regulations,  the prompt internal reporting of
     violations to the code to an  appropriate  person or persons  identified in
     the code and accountability for adherence to such code.

     The code of ethics is available on our website  www.missionwest.com.  If we
     make any substantive  amendments to the code of ethics or grant any waiver,
     including  any implicit  waiver,  from a provision of the code to our Chief
     Executive Officer,  Chief of Operations Officer,  Vice President of Finance
     or  Controller,  or  persons  performing  similar  functions,   where  such
     amendment or waiver is required to be disclosed under applicable SEC rules,
     we  intend  to  disclose  the  nature  of such  amendment  or waiver on our
     website.

                                     - 87 -

<PAGE>



ITEM 11.   EXECUTIVE COMPENSATION

     SUMMARY COMPENSATION TABLE

     The following Summary  Compensation Table sets forth summary information as
     to compensation  received by the Company's Chief Executive  Officer and all
     other executive officers of the Company  (collectively the "named executive
     officers"), for the years ended December 31, 2003, 2002 and 2001.

<TABLE>
<CAPTION>

                                                                                                     Long-Term
                                                                                                    Compensation
                                                                 Annual Compensation                  Awards
                                                    ----------------------------------------------  -----------
                                                                                                    Securities
                                                                                  Other Annual       Underlying      All Other
         Name and Principal Position        Year       Salary        Bonus       Compensation (1)     Options       Compensation
       ---------------------------------  --------  -----------  -----------   -------------------  -----------   ----------------
<S>                                        <C>      <C>            <C>            <C>              <C>               <C>
       Carl E. Berg                         2003     $100,000       $   --         $22,500               --           --
       Chairman of the Board and Chief      2002      100,000           --          22,500               --           --
       Executive Officer                    2001      100,000           --          22,500               --           --

       Raymond V. Marino (2)                2003      200,000           --          30,000          375,000           --
       President and Chief Operating        2002      200,000           --          29,000               --           --
       Officer                              2001      116,667           --              --               --           --

       Wayne N. Pham                        2003      112,500           --          16,875          152,000           --
       Vice President and Controller        2002       94,000           --          14,100               --           --
                                            2001       94,000           --          14,100               --           --
</TABLE>

(1)  Employer contribution to 401(k) plan.
(2)  Mr. Marino joined the Company in June 2001.


     OPTION GRANTS IN LAST FISCAL YEAR

     The Company did not grant any  options to purchase  shares of common  stock
     with respect to the fiscal year ended December 31, 2003.

     AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES

     The following table provides information  regarding the aggregate exercises
     of options by each of the named executive officers. In addition, this table
     includes the number of shares covered by both exercisable and unexercisable
     stock  options as of December  31, 2003,  and the values of  "in-the-money"
     options,  which values  represent the positive  spread between the exercise
     price of any such options and the fiscal  year-end  value of the  Company's
     Common Stock.
<TABLE>
<CAPTION>

                                                                        Number of Securities      Value of the Unexercised
                                                                       Underlying Unexercised      In-The-Money Options at
                                          Shares                     Options at December 31, 2003   December 31, 2003 (1)
                                       Acquired on        Value       -------------------------- ---------------------------
                    Name                 Exercise        Realized     Exercisable  Unexercisable  Exercisable  Unexercisable
         ---------------------------- -------------- --------------- ------------- ------------- ------------- -------------

<S>                                       <C>            <C>          <C>           <C>          <C>             <C>
         Carl E. Berg                      --             N/A            N/A           N/A           N/A            N/A

         Raymond V. Marino                 --             N/A          166,667       208,333      $270,001        $337,499

         Wayne N. Pham                     --             N/A          128,000        24,000      $345,100        $27,300

</TABLE>


(1)  The value of unexercised  in-the-money options at fiscal year end assumes a
     fair market value for the  Company's  Common  Stock of $12.95,  the closing
     market  price per share of the  Company's  Common  Stock as reported on the
     American  Stock Exchange on December 31, 2003, the last trading day for the
     year.


     EMPLOYMENT  CONTRACTS,  TERMINATION  OF  EMPLOYMENT  AND  CHANGE-IN-CONTROL
     AGREEMENTS

     We currently  have no employment  contracts,  termination  of employment or
     change-in-control agreements in place with any employee of ours.

                                     - 88 -
<PAGE>

     COMPENSATION OF DIRECTORS

     We pay each  director  who is not an officer or  employee of ours a fee for
     serving as  director.  The annual fee is equal to $15,000  plus  $1,000 for
     attendance  (in  person or by  telephone)  at each  meeting of the board of
     directors, excluding committee meetings. Officers who are also directors do
     not receive any directors' fees.

     Each non-employee  member of the board of directors who became or becomes a
     member of the board of directors after November 10, 1997, the date on which
     the 1997  Stock  Option  Plan  (the  "Option  Plan")  was  approved  by our
     stockholders,  automatically  receives  a grant of an  option  to  purchase
     50,000  shares of common  stock at an  exercise  price equal to 100% of the
     fair market  value of the common  stock at the date of grant of such option
     upon  joining  the board of  directors.  Such  options  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 remains a director.

     COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     the Compensation Committee of the board of directors was formed in December
     1998 and  currently  is comprised  of Messrs.  John C.  Bolger,  William A.
     Hasler and Lawrence B. Helzel.  None of these  individuals were at any time
     during 2003,  or at any other time,  an officer or employee of the Company.
     No  executive  officer  of ours  serves  as a  member  of the  Compensation
     Committee  of any  other  entity  that has one or more  executive  officers
     serving as a member of the  Company's  board of directors  or  Compensation
     Committee.

     REPORT ON EXECUTIVE COMPENSATION BY THE COMPENSATION COMMITTEE OF THE BOARD
     OF DIRECTORS

     The Compensation  Committee (the  "Committee")  comprises three independent
     members of the board of  directors.  The  Company's  board of directors has
     delegated to the committee  responsibility for reviewing,  recommending and
     approving our compensation policies and benefits programs. The Compensation
     Committee also has the principal  responsibility  for the administration of
     Option  Plans,   including  approving  stock  option  grants  to  executive
     officers.

     COMPENSATION PHILOSOPHY

     The  Company's  executive  compensation  policy is  designed to attract and
     retain  qualified  executive  personnel  by  providing  executives  with  a
     competitive  total  compensation  package  based  in  large  part on  their
     contribution to the financial and operational  success of the Company,  the
     executive's  personal  performance  and increases in  stockholder  value as
     measured by the Company's stock price.

     COMPENSATION PROGRAM

     The compensation  package for the Company's  executive officers consists of
     the following three components:

     BASE SALARY. The Compensation  Committee determines the base salary of each
     executive  based  on  the  executive's   scope  of   responsibility,   past
     accomplishments   and   experience  and  personal   performance,   internal
     comparability considerations and data regarding the prevailing compensation
     levels for  comparable  positions  in relevant  competing  executive  labor
     markets.  The Committee may give different  weight to each of these factors
     for  each  executive,  as it deems  appropriate.  In  selecting  comparable
     companies  for the  purpose of  setting  competitive  compensation  for our
     executives,  the Compensation Committee considers many factors not directly
     associated  with stock  price  performance,  such as  geographic  location,
     annual revenue and  profitability,  organizational  structure,  development
     stage and market capitalization.

     ANNUAL  INCENTIVE  COMPENSATION.  At the  present  time,  we do not have an
     annual incentive  compensation program in place.  However, the Compensation
     Committee  may in the  future at the  Compensation  Committee's  discretion
     institute an annual incentive program.

     STOCK  OPTIONS.  The  Compensation  Committee  believes that granting stock
     options to  executives  and other key  employees on an ongoing  basis gives
     them a strong  incentive  to maximize  stockholder  value and aligns  their
     interests  with those of other  stockholders.  The  Compensation  Committee
     determines  stock option grants to executives and has authorized our CEO to
     determine  stock  option  grants  for all other  employees,  subject to the
     Compensation  Committee's  approval  of total  share  allocations  from the
     Option  Plan.  In  determining  the  size  of  stock  option  grants,   the
     Compensation  Committee considers the executive's current position with and
     responsibilities   to  us,  potential  for  increased   responsibility  and
     promotion  over the option term,  tenure with us and  performance in recent
     periods,  as well as the size of  comparable  awards made to  executives in

                                     - 89 -
<PAGE>

     similar  positions in competing  executive labor markets.  Generally,  each
     stock option grant allows the executive to purchase  shares of Common Stock
     at a price per share  equal to the  market  price on the date the option is
     granted, but the Compensation Committee has the power to grant options at a
     lower price if considered  appropriate under the circumstances.  Each stock
     option grant generally becomes exercisable,  or vests, in installments over
     time, or contingent  upon the  executive's  continued  employment  with us.
     Management  did  not  recommend  and  the  Compensation  Committee  did not
     authorize any stock option grants in 2003.

     COMPENSATION OF CHIEF EXECUTIVE OFFICER. The annual salary for Mr. Berg was
     set in 1997 and first became  payable in 1998. The  Compensation  Committee
     has no plan to adjust his compensation.

     COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of the
     Internal Revenue Code generally  disallows a tax deduction to publicly-held
     companies  for  compensation  paid to certain  executive  officers,  to the
     extent that  compensation paid to the officer exceeds $1 million during the
     taxable year. the compensation paid to our executive  officers for the year
     ended December 31, 2003 did not exceed the $1 million limit per officer. In
     addition,  the Option Plan and executive  incentive option grants have been
     structured so that any compensation  deemed paid to an executive officer in
     connection  with the  exercise of his or her  outstanding  options  with an
     exercise  price per share equal to the fair  market  value per share of the
     common  stock  on  the  grant  date  will   qualify  as   performance-based
     compensation that will not be subject to the $1 million  limitation.  It is
     very  unlikely that the cash  compensation  payable to any of our executive
     officers in the foreseeable  future will approach the $1 million limit, and
     the Compensation  Committee does not expect to take any action at this time
     to modify cash compensation  payable to our executive officers to avoid the
     application of Section 162(m).

     The Compensation Committee of the Board of Directors:

         John C. Bolger
         William A. Hasler
         Lawrence B. Helzel

                                     - 90 -

<PAGE>


ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
     RELATED STOCKHOLDER MATTERS

     The  following  table sets forth certain  information  as of June 30, 2004,
     concerning  the  ownership of Common Stock by (i) each  stockholder  of the
     Company known by the Company to be the beneficial  owner of more than 5% of
     the  outstanding  shares of Common Stock,  (ii) each current  member of the
     board of  directors  of the  Company,  (iii)  each  executive  officer  and
     director of the Company named in the Summary  Compensation  Table appearing
     under  "Executive  Compensation"  below and (iv) all current  directors and
     executive officers of the Company as a group.

     The Company has relied on information  supplied by its officers,  directors
     and certain  shareholders and on information  contained in filings with the
     SEC.

<TABLE>
<CAPTION>
                                                                                                 Percent of All
                                                                                                    Shares of
                                                                                                  Common Stock
                                               Number of Shares    Percent of                       (Assuming      Percent of All
                                                 Beneficially    All Shares of   Number of O.P.    Exchange of    Shares of Common
Name                                               Owned (1)      Common Stock       Units        Holder's O.P.   Stock/O.P. Units
                                                                                                   Units) (2)          (1)(2)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>               <C>           <C>               <C>               <C>
Executive Officers and Directors:
Carl E. Berg                                       __                  *           44,888,441        71.31%            42.96%
   Chairman of the Board, Chief Executive                                           (3)(13)
   Officer and Director
Raymond V. Marino                                  238,463 (4)       1.32%             __             1.32%               *
   President, Chief Operating Officer and
 Director
Wayne N. Pham                                      143,000 (5)         *               __               *                 *
   Vice President of Finance and Controller
John C. Bolger, Director                           54,222 (6)          *               __               *                 *
   96 Southerland Drive
   Atherton, CA 94027
William A. Hasler, Director                        46,000 (7)          *               __               *                 *
   c/o Aphton Corporation
   1 Market Street, Spear Tower, Ste. 1850
   San Francisco, CA 94105
Lawrence B. Helzel, Director                       219,500 (8)       1.22%             __             1.22%               *
   c/o Helzel Kirshman, LP
   5550 Redwood Road, Suite 4
   Oakland, CA 94619
5% Stockholders:
Cohen & Steers Capital Management, Inc.            2,339,500 (9)     12.95%            __            12.95%             2.24%
   757 Third Avenue
   New York, NY 10017
Neuberger Berman, LLC                              2,419,523         13.39%            __            13.39%             2.32%
Neuberger Berman, Inc.                             (10)
   605 Third Avenue
   New York, NY 10158
Ingalls & Snyder, LLC                              1,906,856         10.56%            __            10.56%             1.83%
   61 Broadway                                     (11)
   New York, NY 10006
Clyde J. Berg                                         __               *           43,478,470        70.65%            41.61%
   c/o Berg & Berg Developers                                                       (12)(13)
   10050 Bandley Drive
   Cupertino, CA  95014
Berg & Berg Enterprises, Inc. (15)                    __               *           10,789,383        37.39%            10.33%
   10050 Bandley Drive
   Cupertino, CA  95014
Thelmer G. Aalgaard                                   __               *           1,854,225          9.31%             1.77%
   c/o Berg & Berg Developers
   10050 Bandley Drive
   Cupertino, CA  95014
John T. Kontrabecki                                   __               *           1,755,761          8.86%             1.68%
   2755 Campus Drive, Suite 100
   San Mateo, CA  94403
All Directors and Officers as a group (6           701,185 (14)      3.88%      44,888,441 (12)      72.42%            43.63%
persons)

</TABLE>


* Less than 1%.

(1)  Beneficial  ownership is  determined  in  accordance  with the rules of the
     Securities and Exchange  Commission  which generally  attribute  beneficial
     ownership of  securities to persons who possess sole or shared voting power
     and/or  investment  power with  respect to those  securities  and  includes
     securities which such person has the right to acquire beneficial  ownership
     within 60 days of June 30, 2004.

                                     - 91 -
<PAGE>

     Unless  otherwise  indicated,  the persons or entities  identified  in this
     table have sole  voting  and  investment  power with  respect to all shares
     shown as  beneficially  owned by them.  Common Stock  percentage  ownership
     interest calculations are based on 18,063,691 shares outstanding as of June
     30,  2004 and  excluding  all  shares of  Common  Stock  issuable  upon the
     exercise of outstanding options other than the shares so issuable within 60
     days  under  options  held by the named  person.  Common  Stock/O.P.  Units
     percentage ownership interest  calculations are based on 104,929,219 shares
     of Common Stock and O.P. Units exchangeable for Common Stock as of June 30,
     2004.

(2)  Assumes O.P.  Units are exchanged for shares of Common Stock without regard
     to (i) whether such O.P.  Units may be exchanged for shares of Common Stock
     within  60 days  of  June  30,  2004,  and  (ii)  certain  ownership  limit
     provisions   set  forth  in  the   Company's   Articles  of  Amendment  and
     Restatement.

(3)  Includes O.P. Units in which Mr. Berg has a pecuniary  interest  because of
     his  status  as a  limited  partner  in the  operating  partnerships.  Also
     includes an additional  10,789,383,  196,428,  and 169,131 shares of Common
     Stock held by or issuable on exchange of O.P. Units  beneficially  owned by
     Berg & Berg Enterprises, Inc., Berg & Berg Enterprises, LLC, and West Coast
     Venture Capital, Inc. respectively.  Mr. Berg disclaims beneficial interest
     in any shares or O.P. Units deemed beneficially owned by Kara Ann Berg, his
     daughter, and the 1981 Kara Ann Berg Trust.

(4)  Includes  208,333  shares of Common Stock  issuable on exercise of options.
     Does not  include  166,667  unvested  shares of Common  Stock  issuable  on
     exercise of options that are not exercisable within 60 days.

(5)  Includes  143,000  shares of Common Stock  issuable on exercise of options.
     Does not include 9,000 unvested shares of Common Stock issuable on exercise
     of options that are not exercisable within 60 days.

(6)  Includes 32,000 shares of Common Stock issuable on exercise of options.

(7)  Includes 32,000 shares of Common Stock issuable on exercise of options.

(8)  Includes 32,000 shares of Common Stock issuable on exercise of options.

(9)  Cohen & Steers Capital  Management,  Inc. is the beneficial owner on behalf
     of other persons.  No such person is known to have an interest in more than
     5% of the Common Stock reported. Amount based on the filing of Schedule 13G
     on February 17, 2004.

(10) Neuberger Berman,  LLC & Neuberger Berman,  Inc. is the beneficial owner on
     behalf of other  persons.  One employee,  Dan McCarthy,  has an interest in
     5.7% of the  Common  Stock  reported.  No other  person is known to have an
     interest in more than 5% of the Common Stock reported.  Amount based on the
     filing of Schedule 13G on February 9, 2004.

(11) Ingalls & Snyder,  LLC is the beneficial  owner on behalf of other persons.
     No such  person is known to have an  interest in more than 5% of the Common
     Stock  reported.  Amount based on the filing of Schedule 13G on February 5,
     2004.

(12) Includes O.P. Units in which Mr. Berg has a pecuniary  interest  because of
     his  status  as a  limited  partner  in the  operating  partnerships.  Also
     includes  L.P.  Units held by Mr. Berg as trustee of the 1981 Kara Ann Berg
     Trust  and an  additional  10,789,383  shares of  Common  Stock  held by or
     issuable  on  exchange  of O.P.  Units  beneficially  owned  by Berg & Berg
     Enterprises, Inc. This does not include any share deemed beneficially owned
     by  Sonya  L.  Berg and  Sherri  L.  Berg,  his  daughters,  as to which he
     disclaims beneficial ownership.

(13) Carl E. Berg is an  executive  officer and  director and Clyde J. Berg is a
     director of Berg & Berg  Enterprises,  Inc. With members of their immediate
     families, the Messrs. Berg beneficially owns, directly and indirectly,  all
     of the O.P. Units of Berg & Berg Enterprises, Inc.

(14) Current  officers and  directors  include Carl E. Berg,  Raymond V. Marino,
     Wayne N. Pham, John C. Bolger,  William A. Hasler,  and Lawrence B. Helzel.
     See Notes 3 through 8.

                                     - 92 -
<PAGE>


     CONTRACTUAL AND OTHER CONTROL ARRANGEMENTS

     SPECIAL BOARD VOTING PROVISIONS. The Charter and Bylaws provide substantial
     control rights for the Berg Group.  These rights include a requirement that
     Mr. Berg or his designee as director approve certain fundamental  corporate
     actions,  including  amendments  to the  Charter and Bylaws and any merger,
     consolidation  or  sale  of all or  substantially  all  of our  assets.  In
     addition,  the  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
     the  outstanding  shares  of  common  stock on a Fully  Diluted  basis.  In
     addition,  directors  representing  more  than 75% of the  entire  board of
     directors must approve other  significant  transactions,  such as incurring
     debt above certain amounts,  acquiring assets and conducting business other
     than through the Operating Partnerships.

     BOARD OF DIRECTORS  REPRESENTATION.The Berg Group members have the right to
     designate two of the director nominees  submitted by the board of directors
     to stockholders  for election,  as long as the Berg Group members and their
     affiliates,   other  than  the  Company  and  the  Operating  Partnerships,
     beneficially own, in the aggregate,  at least 15% of our outstanding shares
     of common stock on a Fully Diluted basis. If the Fully Diluted ownership of
     the Berg  Group  members  and their  affiliates  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 the 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.

     SUBSTANTIAL  OWNERSHIP  INTEREST.  The Berg Group currently owns O.P. Units
     representing  approximately  75.1% of the equity interests in the operating
     partnerships.  The O.P. Units may be converted into shares of Common Stock,
     subject to limitations  set forth in the Charter  (including an overall 20%
     ownership  limitation for the Berg Group),  and other  agreements  with the
     Berg Group.  Upon conversion these shares would represent voting control of
     the Company. 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 the Company.

     LIMITED PARTNER APPROVAL RIGHTS. Mr. Berg and other limited partners of the
     Operating  Partnerships,  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  general  partner.  Matters  requiring
     approval of the holders of a majority of the O.P. Units,  which necessarily
     would include the Berg Group,  include (i) the amendment,  modification  or
     termination  of any of  the  Operating  Partnership  Agreements;  (ii)  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; (iii) the admission of any
     additional or substitute  general  partners in the Operating  Partnerships;
     (iv) any other  change of  control  of the  Operating  Partnerships;  (v) a
     general  assignment  for the benefit of creditors or the  appointment  of a
     custodian,  receiver  or  trustee  of any of the  assets  of the  Operating
     Partnerships; and (vi) the institution of any bankruptcy proceeding for any
     Operating Partnership.

     In  addition,  as long as the Berg  Group  members  and  their  affiliates,
     beneficially own, in the aggregate,  at least 15% of the outstanding shares
     of common  stock on a Fully  Diluted  basis,  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 (i) 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;  (ii) the  issuance  of  limited
     partnership interests senior to the O.P. Units as to distributions,  assets
     and voting; and (iii) the liquidation of the Operating Partnerships.

                                     - 93 -

<PAGE>


     EQUITY COMPENSATION PLAN INFORMATION

     The following table provides  information as of December 31, 2003 regarding
     equity compensation plans approved by the Company's security holders.

<TABLE>
<CAPTION>

                                                              Number of Shares                         Number of Shares of Common
                                                                   of Common                           Stock Remaining Available
                                                              Stock to be Issued    Weighted-Average          for Future
                                                               Upon Exercise of    Exercise Price of     Issuance Under Equity
            Plan Category                                    Outstanding Options  Outstanding Options     Compensation Plans
-----------------------------------------------------------  -------------------  -------------------  --------------------------
<S>                                                               <C>                  <C>                    <C>
Equity Compensation plans approved by security holders             787,000              $11.36                 3,991,089

Equity Compensation plans not approved by security holders           N/A                 N/A                      N/A

Total                                                              787,000              $11.36                 3,991,089
</TABLE>


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     PROPERTY  ACQUISITIONS AND FINANCIAL  TRANSACTIONS  BETWEEN THE COMPANY AND
     THE BERG GROUP

     FORMATION  OF THE  COMPANY:  Through a series of  transactions  in 1997 and
     1998, the Company became the vehicle for  substantially  all of the Silicon
     Valley R&D property  activities of the Berg Group, which includes Mr. Berg,
     his  brother  Clyde J.  Berg,  members  of their  families  and a number of
     entities in which they have controlling or substantial ownership interests.
     The Company owns these former Berg Group properties, as well as the rest of
     its properties, through the Operating Partnerships, of which the Company is
     the sole general partner.  Through various property acquisition  agreements
     with  the  Berg  Group,   the  Company  has  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 in the states of
     California, Oregon and Washington the details of which are set forth above.
     Since September 1998, we have acquired a total of  approximately  3,100,000
     million  rentable square feet of R&D buildings  under the Pending  Projects
     Acquisition  Agreement and the Berg Land  Holdings  Option  Agreement.  The
     total cost of these properties was approximately $478 million.  We issued a
     total of 27,962,025 O.P. Units and assumed debt totaling approximately $209
     million to acquire them.

     ACQUISITIONS  FROM THE BERG GROUP:  On  December  15,  2003,  we acquired a
     128,520  square  foot fully  leased two story  office/R&D  building at 5970
     Optical  Court in San Jose from the Berg Group under the Berg Land Holdings
     Option  Agreement.  The total acquisition price for this property was $11.2
     million.  We financed this  acquisition  by borrowing $9.0 million under an
     existing line of credit and issuing  169,131 O.P. Units to various  members
     of the Berg Group.

     ACQUISITION OF CARL E. BERG'S INTEREST IN UNCONSOLIDATED  JOINT VENTURE: In
     July 1999 an  unrelated  party,  TBI,  advised Carl E. Berg that TBI had an
     option to purchase  approximately  78.89 acres of unimproved land zoned for
     R&D  development  in Morgan Hill at $2.50 per square foot that would expire
     in  approximately  six months.  TBI offered Mr. Berg a 50%  interest in the
     development  of this land if Mr. Berg provided 100%  financing for the land
     at 0% interest for three years.  Mr. Berg advised TBI of his  obligation to
     offer all R&D development opportunities on the West Coast to us and further
     advised  TBI that our  Independent  Directors  Committee  must  approve the
     acquisition  of any  properties  and that our  policy  was only to  acquire
     properties  that are  leased  pursuant  to the Berg  Land  Holdings  Option
     Agreement.  The  development  joint venture  between TBI and the Berg Group
     proceeded on that basis.  Building  construction was financed through loans
     facilitated  by the Berg Group.  In early 2003, TBI formed  TBI-MSW,  a new
     limited  partnership,  to own all the  leased  buildings.  The  Berg  Group
     offered its 50% non-controlling  limited partnership interest in TBI-MSW to
     us at cost plus an annual  interest rate of 7% on the funds advanced by the
     Berg Group  which  amounted  to $1.8  million.  The  Independent  Directors
     Committee  and the Berg Group  agreed to use a 7% interest  rate instead of
     the rate and fees  specified  in the Berg Land  Holdings  Option  Agreement
     because  the   transaction   differed   from  the  standard   build-to-suit
     developemnt specified under that agreement. TBI-MSW owned four fully leased
     buildings  totaling   approximately   593,000  rentable  square  feet.  The
     buildings  were  subject to mortgage  loans  totaling  $53.6  million.  The
     Independent  Directors  Committee  approved  our  acquisition  of the  Berg
     Group's 50% interest in the joint venture, effective as of January 1, 2003.
     The  development  joint venture between the Berg Group and TBI retained two
     vacant  shell  R&D  buildings  and five  unimproved  lots.  In April  2003,
     Comcast, Inc. offered to purchase one of the vacant buildings and two acres
     of adjoining  land from the  development  joint venture for net proceeds of
     $2.8 million, after debt repayment.  Prior to sale of the property, TBI-MSW
     acquired this property at no cost under the terms of the Berg Land Holdings
     Option  Agreement,  and the  Company  received a net  distribution  of $1.4
     million from the sale. The transaction

                                     - 94 -
<PAGE>

     was  approved  by the  Independent  Directors  Committee.  The  Berg  Group
     continues to own a 50% interest in the remaining  vacant  building and five
     unimproved lots.

     TRANSFER OF INTEREST TO BERG GROUP IN CONSOLIDATED  JOINT VENTURE.  In July
     2000, the Hellyer Avenue  Limited  Partnership  ("Hellyer LP") was formally
     organized  as  a  California  limited   partnership  between  Mission  West
     Properties, L.P. ("MWP"), of which we are the managing general partner, and
     Republic  Properties  Group  ("RPC"),  an  unaffiliated  third party,  as a
     general  partner and limited  partner.  MWP was  designated as the managing
     general partner of Hellyer LP. For a 50% ownership  interest in Hellyer LP,
     RPC agreed to cause Stellex Microwave Systems,  Inc. ("Stellex") to provide
     a 15-year lease on an  approximate  160,000  square foot R&D building to be
     constructed  by Berg & Berg  Enterprises,  Inc.  ("BBE")  on land  owned by
     another Berg Group member.

     As part of the  transaction,  MWP acquired the underlying  land pursuant to
     the Berg Land  Holding  Option  Agreement  for a price of $5.7  million  by
     issuing  659,223 OP units to the Berg Group entity that owned the property.
     Further,  under the terms of the Hellyer LP partnership  agreement MWP then
     contributed  the land to the partnership at an agreed value of $9.6 million
     which amount was to be amortized  and paid to MWP in the form of income and
     cash flow  preferences.  The  transaction  was reviewed and approved by the
     Independent Directors Committee.

     In connection with the transaction, BBE built and paid for all improvements
     on the land.  The total cost of the R&D  building,  exclusive  of specified
     tenant improvements  obligations,  was approximately $11.4 million. Hellyer
     LP issued a note for the amount of those  construction  costs to BBE, which
     note was secured by the buildings.

     Because  RPC's  interest  in  Hellyer  LP was  attributable  solely  to its
     commitment to obtain Stellex as a tenant for the property,  the partnership
     agreement provided that if a payment default occurred within the first five
     years of the  Stellex  lease,  RPC would lose 100% of its  interest  in the
     partnership,  and if a payment default occurred during the second five year
     period under the lease, RPC would lose 50% of its interest in Hellyer LP.

     Pursuant  to RPC's  commitment  to  Hellyer  LP,  Stellex  executed a lease
     agreement  obligating  Stellex,  among other  things,  to pay monthly  rent
     starting at $1.60 per square foot on a triple net basis for 15 years and to
     reimburse  BBE for the tenant  improvement  obligations,  which  ultimately
     totaled approximately $10.5 million.

     Under the lease terms,  Stellex was  obligated to reimburse BBE in full for
     the tenant  improvement  costs no later than August 25, 2000.  Several days
     before the due date, representatives of Stellex met with representatives of
     MSW and  informed  them that  Stellex  could not pay the  balance  due BBE.
     Stellex  requested MSW  immediately  to draw down the letter of credit as a
     result of a default on the tenant  improvement  payment  required under the
     lease.

     On September 1, 2000, MWP, as the general partner of Hellyer LP, ceased all
     allocations  of income and cash flow to RPC and  exercised  the right under
     the   partnership   agreement  to  cancel  RPC's  entire  interest  in  the
     partnership.  Following  discussions  with and approval by the  Independent
     Directors Committee,  the Company authorized the transfer of RPC's interest
     in Hellyer LP to BBE. Under the Berg Land Holdings Option Agreement and the
     Acquisition  Agreement dated as of May 14, 1998, the Independent  Directors
     Committee had the right, but not the obligation,  to reacquire the property
     interest and the related  distributions related to the property interest at
     any time. The transfer was effective as of September 1, 2000.

     Stellex filed for bankruptcy  protection on September 12, 2000. On November
     20, 2000,  RPC filed suit in the Circuit  Court of Maryland  for  Baltimore
     City to recover past distributions and its interest in the Hellyer LP., and
     we  counter-sued  on  behalf  of MWP and  ourselves  in  Superior  Court of
     California for the County of Santa Clara in February 2001.

     In January 2002, Stellex was acquired through its bankruptcy  proceeding by
     a division of Tyco  Corporation.  In  connection  with the  acquisition  of
     Stellex,  the purchaser assumed the lease with Hellyer LP, agreed to comply
     with all terms of lease and reimbursed BBE for the tenant improvements,  as
     required under the lease agreement and the Bankruptcy Court order.

     Since the  inception of Hellyer LP, we have  accounted  for the  properties
     owned by the partnership on a consolidated  basis,  with reductions for the
     minority interest held by the minority partner (first RPC and then BBE). In
     each period,  we have accrued amounts payable by Hellyer LP to the minority
     interest  partner,  including BBE, prior to payment.  Through  December 31,
     2003,   accumulated  cash  flow  distributions  from  Hellyer  LP  totaling
     approximately  $1.6  million  were  accrued,  of  which  $1.5  million  was
     distributed  to BBE,  which has been  classified on our balance sheet as an
     account  receivable from BBE with an offsetting account payable to BBE. The
     Company did not object to that proposed classification.

     In April 2004 the Circuit Court of Maryland for  Baltimore  City issued its
     decision in the Maryland suit, and awarded  damages of  approximately  $1.1
     million  to  RPC.  The  court  denied  all  requests  by MWP,  including  a
     declaration that all of RPC's

                                     - 95 -
<PAGE>

     interests in Hellyer L.P.  were  validly  converted to limited  partnership
     interests and  transferred  to MWP or its designee in  accordance  with the
     terms of the  Hellyer  L.P.  partnership  agreement.  RPC's  request for an
     injunction  ordering the  reinstatement of RPC's  partnership  interests in
     Hellyer L.P.  appealed the decision to the Maryland  Appeals Court.  If the
     litigation  with RPC is  ultimately  decided in RPC's favor,  we anticipate
     that BBE may be required to return RPC's former  interest in Hellyer LP and
     all prior  distributions to RPC. If the litigation is ultimately decided in
     our favor, the Independent  Directors  Committee has the right, but not the
     obligation,  to acquire the former RPC interest  and related  distributions
     from BBE under the terms of the Berg Land Holdings Option Agreement and the
     Acquisition Agreement. In July 2004 RPC attached the Company's bank account
     for approximately  $1.1 million.  Following a July 2004 hearing in Superior
     Court of the State of California  for the County of Santa Clara the parties
     agreed that the Company  will post a $1.5  million bond and RPC will remove
     the attachment of the Company's bank account until final  resolution of the
     appeal in Maryland.

     If the Company's  litigation with RPC is ultimately decided in RPC's favor,
     the Company  anticipates  that BBE may be required to return  RPC's  former
     interest  in  Hellyer  LP  and  all  prior  distributions  to  RPC.  If the
     litigation is ultimately  decided in favor of the Company,  the Independent
     Directors  Committee of the Board of Directors  has the right,  but not the
     obligation, to acquire on behalf of the Company the former RPC interest and
     related  distributions  from BBE under the terms of the Berg Land  Holdings
     Option Agreement and the Acquisition  Agreement between the Company and the
     Berg Group.

     BERG COMMITMENT TO COMPLETE FUTURE  IMPROVEMENTS AND BUILDING IN CONNECTION
     WITH CERTAIN  ACQUISITIONS FROM THE BERG GROUP UNDER THE BERG LAND HOLDINGS
     OPTION  AGREEMENT:  The  Berg  Group  has  an  approximately  $2.5  million
     commitment to complete  certain tenant  improvements in connection with our
     2002  acquisition of 5345 Hellyer Avenue in San Jose. The Berg Group has an
     approximately $7.5 million  commitment to complete an approximately  75,000
     to 90,000 square foot building in connection  with our 2000  acquisition of
     245 Caspian in Sunnyvale which was comprised of  approximately  three acres
     of unimproved land zoned for commercial development.

     BERG CONTROLLED  ENTITIES HAVE FINANCIAL  INTERESTS IN CERTAIN TENANTS THAT
     LEASE SPACE FROM THE COMPANY: During December 31, 2003, 2002 and 2001, Carl
     E. Berg or entities  controlled  by Mr. Berg have  financial  interests  in
     several companies that lease space from the operating  partnerships,  which
     include  three  companies  where Mr. Berg has a greater than 10%  ownership
     interest. These related tenants occupy approximately 48,000 square feet and
     contributed $904,000, $748,000 and $414,000 in rental revenue in 2003, 2002
     and 2001, respectively.

     LEASING AND OVERHEAD REIMBURSEMENTS PROVIDED BY BERG CONTROLLED ENTITY: The
     Company  currently  leases  office space owned by Berg & Berg  Enterprises,
     Inc.,  an affiliate of Carl E. Berg and Clyde J. Berg.  Rental  amounts and
     overhead reimbursements paid to Berg & Berg Enterprises, Inc. were $90,000,
     $90,000 and $88,000 for the years ended  December 31, 2003,  2002 and 2001,
     respectively.

ITEM 14.   ACCOUNTANT FEES AND SERVICES

     As  previously  reported  above,  on  January  26,  2004,  our  independent
     registered  public  accounting  firm,   PricewaterhouseCoopers   LLP  (PWC)
     resigned, did not render an audit opinion on the Company's fiscal year 2003
     financial  statements  and withdrew  their audit  opinions on the Company's
     fiscal  year  2002 and  2001  financial  statements.  The  Audit  Committee
     appointed BDO Seidman, LLP ("BDO") as our new independent registered public
     accounting  firm  in May  2004  to  complete  the  audit  of the  Company's
     financial statements for the years ending December 31, 2003, 2002 and 2001.
     The aggregate  fees accrued by or billed to the Company by our  independent
     registered  public  accounting firm for professional  services  rendered in
     connection with fiscal year 2003, 2002 and 2001 are as follows:
<TABLE>
<CAPTION>

         BDO                                2003              2002              2001
                                            ----              ----              ----
<S>                                      <C>               <C>               <C>
         Audit Fees (1)                   $143,500          $143,500          $143,500
         Audit Related Fees                      -                 -                 -
         Tax Fees                                -                 -                 -
                                          --------          --------          --------
         Total                            $143,500          $143,500          $143,500
</TABLE>

(1)  Estimated  2003,  2002 and 2001  audit/re-audit  and quarterly  review fees
     accrued by the Company in the second quarter of 2004.
<TABLE>
<CAPTION>

         PWC                                2003              2002
                                            ----              ----
<S>                                      <C>               <C>
         Audit Fees                       $121,050          $123,450
         Audit Related Fees                      -                 -
         Tax Fees                           10,800                 -
                                          --------          ---------
         Total                            $131,850          $123,450
</TABLE>

                                     - 96 -
<PAGE>

     Audit Fees include  amounts related to  professional  services  rendered in
     connection with audits of our annual  financial  statements and the reviews
     of our quarterly financial statements.

     The Audit Committee  pre-approves all annual audit engagement  services and
     fees and all fees for non-audit  services  (other than  non-audit  services
     that are de minimus  within the  meaning  of  section  10A(i)(l)(B)  of the
     Securities  Exchange  Act  and  non-audit  services  that  the  independent
     accountants  are  prohibited  from  providing to us).  The Audit  Committee
     requires  the  independent  accountants  to submit a detailed  proposal and
     budget for each  engagement  prior to the  commencement  of the engagement.
     Additional  services  must be  pre-approved  by the Audit  Committee or the
     Chairman of the Audit  Committee to whom  pre-approval  authority  has been
     delegated.  All services of the independent  accountants relating to review
     and attestation of internal controls and procedures pursuant to section 404
     of the Sarbanes Oxley Act.

     There were no fees paid to independent accountants in the past three fiscal
     years that were for non-audit services that the Audit Committee or Chairman
     did not pre-approve.

                                     - 97 -

<PAGE>




PART IV

ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K


     Exhibits required by Item 601 of Regulation S-K.

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
<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               Not in use
10.10              Not in use
10.11              Not in use
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            Not in use
10.25xx            Not in use
10.26xx            Supplemental Agreement among Mission West Properties, Inc., Carl E. Berg and Clyde J. Berg
10.27              Berg Group Revolving Credit - $100,000,000 Secured Promissory Note

                                     - 98 -
<PAGE>

10.27.1+++         Amendment to Berg Group $100,000,000 Revolving Line of Credit
10.28              Berg Group Deed of Trust Securing Revolving Promissory Note
10.29***           Cupertino National Bank Revolving Credit Loan Agreement
10.29.1            Cupertino National Bank Revolving Credit Loan Agreement Change in Terms Agreement
10.30              Mission West Properties, LP Continuing Guaranty
10.31              Mission West Properties, LP II Continuing Guaranty
10.32              Mission West Properties, L.P. Promissory Note to Northwestern Mutual Life Insurance Company
10.33              Mission West Properties, L.P. I Promissory Note to Northwestern Mutual Life Insurance Company
10.34              Mission West Properties, L.P. II Promissory Note to Northwestern Mutual Life Insurance Company
10.35              Mission West Properties, L.P. Deed of Trust and Security Agreement (First Priority)
10.36              Mission West Properties, L.P. Deed of Trust and Security Agreement (Second Priority)
10.37              Mission West Properties, L.P. I Deed of Trust and Security Agreement (First Priority)
10.38              Mission West Properties, L.P. I Deed of Trust and Security Agreement (Second Priority)
10.39              Mission West Properties, L.P. II Deed of Trust and Security Agreement (First Priority)
10.40              Mission West Properties, L.P. II Deed of Trust and Security Agreement (Second Priority)
10.41              Mission West Properties, L.P. Absolute Assignment of Leases and Rents (First Priority)
10.42              Mission West Properties, L.P. I Absolute Assignment of Leases and Rents (First Priority)
10.43              Mission West Properties, L.P. II Absolute Assignment of Leases and Rents (First Priority)
10.44              Not in use
10.45              Citicorp USA, Inc.$80,000,000 Secured Promissory Note
10.45.1            Citicorp USA, Inc.$80,000,000 Second Amendment to Promissory Note
10.45.2            Citicorp USA, Inc.$80,000,000 Third Amendment to Promissory Note
10.45.3            Citicorp USA, Inc.$80,000,000 Secured Promissory Note Extension
21.1++             Subsidiaries of the Registrant
23.1               Consent of Independent Registered Public Accounting Firm
24.1               Powers of Attorney (included on the signature page hereto)
31.1               Certificate of Principal Executive Officer pursuant to Rule 13a-14
31.2               Certificate of Principal Financial Officer pursuant to Rule 13a-14
99.1               Section 1350 Certificate
</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 the annual
report on Form 10-K 2002 filed on March 27, 2003

+ 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.

+++ Incorporated herein by reference to the same-numbered  exhibit to the annual
report on FOrm 10-K 2001 filed on March 29, 2002

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  Company  filed a  Current  Report  on Form 8-K on  October  17,  2003,
     regarding its results of operations  and financial  condition for the third
     quarter of 2003.

                                     - 99 -
<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: July 29, 2004                    By: /s/ CARL E. BERG
                                                --------------------------------
                                                Carl E. Berg
                                                Chief Executive Officer

         Date: July 29, 2004                    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.

<TABLE>
<CAPTION>
                       Signature                            Title                             Date
                       ---------                            -----                             ----

<S>          <C>                                  <C>                                    <C>
              /s/  CARL E. BERG
              -------------------------
                   Carl E. Berg                    Chairman of the Board, Chief           July 29, 2004
                                                   Executive Officer, and Director

              /s/  RAYMOND V. MARINO
              -------------------------
                   Raymond V. Marino               President, Chief Operating Officer     July 29, 2004
                                                   and Director

              /s/  JOHN C. BOLGER
              -------------------------
                   John C. Bolger                  Director                               July 29, 2004


              /s/  WILLIAM A. HASLER
              -------------------------
                   William A. Hasler               Director                               July 29, 2004


              /s/  LAWRENCE B. HELZEL
              -------------------------
                   Lawrence B. Helzel              Director                               July 29, 2004
</TABLE>


                                     - 100 -
<PAGE>



                             CERTIFICATE PURSUANT TO
                 RULE 13a-14 THE SECURITIES EXCHANGE ACT OF 1934

I, Carl E. Berg, certify that:

1. I have reviewed  this Annual Report on Form 10-K of Mission West  Properties,
Inc. (the "Company") for the year ended December 31, 2003;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
Company as of, and for, the periods presented in this annual report;

4.  The  Company's  other  certifying  officer(s)  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-14(e)) for the Company and have:

     a)   designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          Company, including its consolidated subsidiaries,  is made known to us
          by others  within those  entities,  particularly  during the period in
          which this annual report is being prepared;
     b)   evaluated the effectiveness of the Company's  disclosure  controls and
          procedures and presented in this annual report our  conclusions  about
          the effectiveness of the disclosure controls and procedures, as of the
          end of the  period  covered  by  this  annual  report  based  on  such
          evaluation; and
     c)   disclosed in this annual report any change in the  Company's  internal
          control over financial  reporting  that occurred  during the Company's
          most recent fiscal quarter (the Company's fourth fiscal quarter in the
          case  of  an  annual  report)  that  has  materially  affected,  or is
          reasonably likely to materially affect, the Company's internal control
          over financial reporting; and

5. The Company's other certifying officer(s) and I have disclosed,  based on our
most recent  evaluation of internal  control over  financial  reporting,  to the
Company's  auditors and the audit  committee of the Company's board of directors
(or persons performing the equivalent functions):

     a)   all significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably likely to adversely affect the Company's ability to record,
          process, summarize and report financial information; and
     b)   Any fraud, whether or not material,  that involves management or other
          employees  who  have a  significant  role  in the  Company's  internal
          control over financial reporting.


Carl E. Berg
Chairman and CEO
July 29, 2004

                                     - 101 -

<PAGE>


                             CERTIFICATE PURSUANT TO
                 RULE 13a-14 THE SECURITIES EXCHANGE ACT OF 1934

I, Raymond V. Marino, certify that:

1. I have reviewed  this Annual Report on Form 10-K of Mission West  Properties,
Inc. (the "Company") for the year ended December 31, 2003;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
Company as of, and for, the periods presented in this annual report;

4.  The  Company's  other  certifying  officer(s)  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-14(e)) for the Company and have:

     a)   designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          Company, including its consolidated subsidiaries,  is made known to us
          by others  within those  entities,  particularly  during the period in
          which this annual report is being prepared;
     b)   evaluated the effectiveness of the Company's  disclosure  controls and
          procedures and presented in this annual report our  conclusions  about
          the effectiveness of the disclosure controls and procedures, as of the
          end of the  period  covered  by  this  annual  report  based  on  such
          evaluation; and
     c)   disclosed in this annual report any change in the  Company's  internal
          control over financial  reporting  that occurred  during the Company's
          most recent fiscal quarter (the Company's fourth fiscal quarter in the
          case  of  an  annual  report)  that  has  materially  affected,  or is
          reasonably likely to materially affect, the Company's internal control
          over financial reporting; and

5. The Company's other certifying officer(s) and I have disclosed,  based on our
most recent  evaluation of internal  control over  financial  reporting,  to the
Company's  auditors and the audit  committee of the Company's board of directors
(or persons performing the equivalent functions):

     a)   all significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably likely to adversely affect the Company's ability to record,
          process, summarize and report financial information; and
     b)   Any fraud, whether or not material,  that involves management or other
          employees  who  have a  significant  role  in the  Company's  internal
          control over financial reporting.


Raymond V. Marino
President and Chief Operating Officer
July 29, 2004

                                    - 102 -
<PAGE>

                             CERTIFICATE PURSUANT TO
                 RULE 13a-14 THE SECURITIES EXCHANGE ACT OF 1934

I, Wayne N. Pham, certify that:

1. I have reviewed  this Annual Report on Form 10-K of Mission West  Properties,
Inc. (the "Company") for the year ended December 31, 2003;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
Company as of, and for, the periods presented in this annual report;

4.  The  Company's  other  certifying  officer(s)  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-14(e)) for the Company and have:

     a)   designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          Company, including its consolidated subsidiaries,  is made known to us
          by others  within those  entities,  particularly  during the period in
          which this annual report is being prepared;
     b)   evaluated the effectiveness of the Company's  disclosure  controls and
          procedures and presented in this annual report our  conclusions  about
          the effectiveness of the disclosure controls and procedures, as of the
          end of the  period  covered  by  this  annual  report  based  on  such
          evaluation; and
     c)   disclosed in this annual report any change in the  Company's  internal
          control over financial  reporting  that occurred  during the Company's
          most recent fiscal quarter (the Company's fourth fiscal quarter in the
          case  of  an  annual  report)  that  has  materially  affected,  or is
          reasonably likely to materially affect, the Company's internal control
          over financial reporting; and

5. The Company's other certifying officer(s) and I have disclosed,  based on our
most recent  evaluation of internal  control over  financial  reporting,  to the
Company's  auditors and the audit  committee of the Company's board of directors
(or persons performing the equivalent functions):

     a)   all significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably likely to adversely affect the Company's ability to record,
          process, summarize and report financial information; and
     b)   Any fraud, whether or not material,  that involves management or other
          employees  who  have a  significant  role  in the  Company's  internal
          control over financial reporting.


Wayne N. Pham
Vice President of Finance and Controller
July 29, 2004

                                    - 103 -


<PAGE>





Exhibit 99.1


                    CERTIFICATION OF CEO AND CFO PURSUANT TO
                               18 U.S.C. ss. 1350,
                             AS ADOPTED PURSUANT TO
                    ss. 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection  with the Annual  Report on Form 10-K of Mission West  Properties,
Inc.  (the  "Company")  for the year ended  December  31, 2003 as filed with the
Securities and Exchange  Commission on the date hereof (the  "Report"),  each of
Carl E. Berg,  Chairman of the Board and Chief Executive Officer of the Company,
and Wayne N. Pham,  Vice  President  of Finance and  Controller  of the Company,
hereby certify,  pursuant to 18 U.S.C.  ss. 1350, as adopted pursuant to ss. 906
of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:

     (1) The Report fully  complies  with the  requirements  of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and result of  operations of the
Company.


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

Carl E. Berg
Chairman of the Board and Chief Executive Officer
July 29, 2004


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

Wayne N. Pham
Vice President of Finance and Controller
July 29, 2004


This  certification   accompanies  this  Report  pursuant  to  ss.  906  of  the
Sarbanes-Oxley  Act of 2002 and shall not,  except to the extent required by the
Sarbanes-Oxley  Act of 2002,  or  otherwise  required,  be  deemed  filed by the
Company  for  purposes  of ss. 18 of the  Securities  Exchange  Act of 1934,  as
amended.

A signed  original of this  written  statement  required by section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.




<PAGE>




EXHIBIT 23.1


            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Stockholders
Mission West Properties, Inc.
Cupertino, California

We  hereby  consent  to the  incorporation  by  reference  in  the  Registration
Statement on Form S-8 No. 333-80369 of our reports dated July 27, 2004, relating
to  the  consolidated   financial  statements  and  schedules  of  Mission  West
Properties,  Inc.  appearing in the Company's Annual Report on Form 10-K for the
year ended December 31, 2003.


/s/ BDO Seidman, LLP

San Francisco, California
July 27, 2004