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, 2001

                                       OR

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

                        For the transition period from to

                           Commission File No. 1-8383

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


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

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

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

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

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

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


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

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

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

     The aggregate  market value of the voting stock held by  non-affiliates  of
the  registrant,  based upon the closing sale price of the Common Stock on March
25,  2002,  as  reported  on the  American  Stock  Exchange,  was  approximately
$227,896,443.  As of  March  25,  2002  there  were  17,463,329  shares  of  the
Registrant's Common Stock outstanding.


<PAGE>


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  registrant's  definitive  proxy  statement  for the 2002 Annual
Meeting of  Stockholders  to be held May 23, 2002,  and to be filed  pursuant to
Regulation  14A are  incorporated  by reference in Part III of this Form 10-K to
the extent stated herein.

                           FORWARD LOOKING INFORMATION

This annual report contains forward-looking statements within the meaning of the
federal securities laws. We intend such forward-looking statements to be covered
by the safe harbor provisions for  forward-looking  statements  contained in the
Private  Securities  Litigation  Reform  Act of  1995,  and are  including  this
statement  for  purposes  of  complying  with  these  safe  harbor   provisions.
Forward-looking statements,  which are based on certain assumptions and describe
future plans,  strategies and expectations of us, are generally  identifiable by
use  of the  words  "believe,"  "expect,"  "intend,"  "anticipate,"  "estimate,"
"project" or similar  expressions.  Our ability to predict results or the actual
effect of future plans or  strategies  is  inherently  uncertain.  Factors which
could have a material  adverse effect on the operations and future  prospects of
the Company  include,  but are not limited to, changes in:  economic  conditions
generally and the real estate  market  specifically,  legislative  or regulatory
provisions  affecting  the  Company  (including  changes to laws  governing  the
taxation of REITs), availability of capital, interest rates, competition, supply
of and demand for office and  industrial  properties in 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,  and reliance should not be placed on the
estimates  concerning  these  projects  set forth  under the  caption,  "Current
Properties  Subject to Our  Acquisition  Agreement  with the Berg Group," below.
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.


                          2001 FORM 10-K ANNUAL REPORT

                                Table of Contents

<TABLE>
<CAPTION>

                                     PART I

                                                                                                  Page No.
<S>            <C>                                                                                  <C>
Item 1.         Business                                                                              1
Item 2.         Properties                                                                           15
Item 3.         Legal Proceedings                                                                    21
Item 4.         Submission of Matters to a Vote of Security Holders                                  21

                                     PART II

Item 5.         Market for the Registrant's Common Equity and Related
                Stockholder Matters                                                                  22
Item 6.         Selected Financial Data                                                              23
Item 7.         Management's Discussion and Analysis of Financial
                Condition and Results of Operations                                                  25
Item 7A.        Quantitative and Qualitative Disclosures about Market Risk                           40
Item 8.         Financial Statements and Supplementary Data                                          41
Item 9.         Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure                                                  67

                                    PART III

Item 10.        Directors and Executive Officers of the Registrant                                   68
Item 11.        Executive Compensation                                                               68
Item 12.        Security Ownership of Certain Beneficial Owners and Management                       68
Item 13.        Certain Relationships and Related Transactions                                       68

                                     PART IV

Item 14.        Exhibits, Financial Statements, Schedules and Reports
                on Form 8-K                                                                          69
                Signatures                                                                           71
</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, 2001, we owned and managed 97  properties  totaling  approximately  6.8
     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.  The four tenants who lease the
     most  square  footage  from  us are  Microsoft  Corporation,  JDS  Uniphase
     Corporation,  Amdahl  Corporation  (a subsidiary of Fujitsu  Limited),  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 1999.

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

     Through  various  property  acquisition  agreements with the Berg Group, we
     have the right to purchase, on pre-negotiated terms, R&D and other types of
     office and light industrial  properties that the Berg Group develops in the
     future.   With  in-house   development,   architectural   and  construction
     personnel,  the Berg  Group  continues  to  focus  on a full  range of land
     acquisition,  development and  construction  activities for R&D properties,
     often  built-to-suit,  to meet the  demands of Silicon  Valley  information
     technology companies.  As the developer,  the Berg Group takes on the risks
     of  purchasing  the  land,  obtaining  regulatory  approvals  and  permits,
     financing construction and leasing the properties. Since September 1998, we
     have acquired  approximately  2,589,000  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 have  become 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, on pre-negotiated  terms, all future R&D properties developed
          by the Berg Group on land  currently  owned or acquired in the future;
          and

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

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

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

     -    participate in our securities offerings;

     -    exchange  their  Operating  Partnership  ("O.P.") Units for our common
          stock;

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

                                     - 1 -
<PAGE>

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

     BUSINESS STRATEGY

     Our acquisition and growth strategy incorporates the following elements:

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

     -    capitalizing  on  opportunistic  acquisitions  from  third  parties of
          high-quality R&D properties that provide attractive initial yields and
          significant potential for growth in cash-flow;

     -    focusing  on  general  purpose,   single-tenant   Silicon  Valley  R&D
          properties for information  technology  companies in order to maintain
          low  operating  costs,  reduce tenant  turnover and  capitalize on our
          relationships  with these  companies  and our  extensive  knowledge of
          their real estate needs; and

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

     ACQUIRING PROPERTIES DEVELOPED BY THE BERG GROUP

     We anticipate that most of our growth in the  foreseeable  future will come
     from the acquisition of new R&D properties that are either  currently under
     development  or to be  developed  in the future by the Berg  Group.  During
     2002,  we expect to  acquire a total of  approximately  290,000  additional
     rentable square feet currently under  development.  These acquisitions will
     be completed on  pre-negotiated  terms under the Berg land holdings  option
     agreement.  In addition to the projects  currently under  development,  the
     Berg land holdings  option  agreement  gives us the right to acquire future
     developments  by the  Berg  Group  on up to 250  additional  acres  of land
     currently  controlled by the Berg Group, which could support  approximately
     3.93 million square feet of new developments.

     We also have an option,  under the Berg land holdings option agreement,  to
     purchase  all land  acquired,  directly or  indirectly,  by Carl E. Berg or
     Clyde J. Berg that has not been approved with completed buildings and which
     is zoned for, intended for or appropriate for R&D, office and/or industrial
     development or use in the states of California,  Oregon and Washington.  We
     expect to  exercise  this  option in order to  acquire an  approximate  50%
     interest in a joint venture  established to develop  approximately  679,000
     rentable  square feet on 47 acres held by TBI-Mission  West,  LLC, in which
     the Berg Group holds a 50% interest. We will not acquire this joint venture
     interest  until the buildings are fully  completed and leased.  We will not
     manage  this joint  venture.  In  addition,  Carl E. Berg has agreed not to
     directly  or  indirectly  acquire or develop  any real  property  zoned for
     office,  industrial  or R&D use in the  states of  California,  Oregon  and
     Washington without first disclosing and making the acquisition  opportunity
     available to us. Our independent directors committee will decide whether we
     will pursue the opportunity  presented to us by Mr. Berg. This  restriction
     will expire when there is no Berg Group  nominee on our board of  directors
     and  the  Berg  Group's  fully  diluted  ownership  percentage,   which  is
     calculated based on all outstanding

                                     - 2 -
<PAGE>


     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%.

     BERG LAND  HOLDINGS  OPTION  AGREEMENT.  We  believe  that  control of high
     quality,  developable  land is an important  strategic factor for continued
     success in the Silicon Valley market. In December 1998, we entered into the
     Berg land  holdings  option  agreement  under  which we have the  option to
     acquire any future R&D,  office and  industrial  property  developed by the
     Berg  Group on land  currently  owned,  optioned,  or  acquired  for  these
     purposes in the future, directly or indirectly, by Carl E. Berg or Clyde J.
     Berg.  As of  December  31,  2001,  we  had  acquired  sixteen  leased  R&D
     properties totaling approximately 1,574,000 rentable square feet under this
     agreement at a cost of  approximately  $161.3 million,  for which we issued
     6,748,195 O.P. Units and assumed debt of approximately  $91.0 million.  The
     principal terms of the agreement include the following:

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

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

                                                        Approximate
                                                       Rentable Area            Anticipated            Total Estimated
Property                            Net Acres          (Square Feet)         Acquisition Date        Acquisition Cost (1)
------------------------------ -------------------- ------------------- --------------------------- ----------------------

<S>                                    <C>               <C>                 <C>                   <C>
UNDER DEVELOPMENT:                                                                                  (dollars in thousands)
      Morgan Hill (JV I) (2)            12                160,000             Q4 2002/Q1 2003              $17,500
      Morgan Hill (JV II) (2)           11                151,242             Q4 2002/Q1 2003               16,200
      5345 Hellyer                       8                125,000             Q1 2002                       15,000
      Piercy & Hellyer                  11                165,000             Q3 2002                       20,900
                               -------------------- -------------------                             ----------------------
                     SUBTOTAL           42                601,242                                          $69,600
                               -------------------- -------------------                             ----------------------
</TABLE>

                                     - 3 -
<PAGE>
<TABLE>
<CAPTION>

                                                       Approximate
                                                      Rentable Area
Property                            Net Acres         (Square Feet)
------------------------------ -------------------- -------------------
<S>                                   <C>              <C>
AVAILABLE LAND:
      Piercy & Hellyer                  30                490,000
      Morgan Hill (2)                   24                368,025
      King Ranch                        12                207,000
      Fremont & Cushing                 24                387,000
      Evergreen                        160              2,480,000
                               -------------------- -------------------
                    SUBTOTAL           250              3,932,025
                               -------------------- -------------------
      TOTAL                            292              4,533,267
                               ==================== ===================
</TABLE>


(1)  The estimated  acquisition  value  represents  the estimated cash price for
     acquiring  the projects  under the terms of the Berg land  holdings  option
     agreement,  which may differ from the actual acquisition cost as determined
     under  accounting  principles  generally  accepted in the United  States of
     America ("GAAP"), if O.P. Units or any other securities based on the market
     value of our common stock are issued in the transaction.
(2)  We expect to own an approximate 50% interest in the partnership through one
     of its operating partnerships. The property will be operated and managed by
     the  other  partner  in  the  entity.   The  rentable  area  and  estimated
     acquisition  value shown above  reflect  both the  Company's  and the other
     partner's combined interest in these properties.

     The time  required to  complete  the  leasing of  developments  varies from
     property to property. The acquisition dates and acquisition costs set forth
     in the table  are only  estimates  by  management.  Generally,  we will not
     acquire  any of the  above  projects  until  they are fully  completed  and
     leased.  There can be no assurance that the acquisition date and final cost
     to the Company as  indicated  above will be  realized.  No estimate  can be
     given at this time as to our total cost to acquire  projects under the Berg
     land  holdings  option  agreement,  nor can we be  certain of the period in
     which we will acquire any of the projects.

     Although we expect to acquire the new properties  available to us under the
     terms of the Berg land holdings option agreement, there can be no assurance
     that  we  actually  will  consummate  any  of  the  intended  transactions,
     including  all of  those  discussed  above.  Furthermore,  we have  not yet
     determined  the  means  by  which  we  would  acquire  and pay for any such
     properties  or the  impact  of any of  the  acquisitions  on our  business,
     results of operations, financial condition, 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."

     OPPORTUNISTIC ACQUISITIONS

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

     FOCUS ON SINGLE TENANT SILICON VALLEY R&D Properties

     We intend to continue to emphasize the acquisition of single-tenant  rather
     than  multi-tenant  properties,  a  practice  that has  contributed  to the
     relatively  low turnover and high  occupancy  rates on our  properties.  We
     believe that the  relatively  small number of tenants (89) occupying our 97
     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 have slowed markedly during 2001 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 3.3% in late 2000 to 14.8% at the end of 2001.
     Total vacant R&D square  footage in Silicon Valley at the end of the fourth
     quarter of 2001 amounted to 22.4 million  square feet,  of which 51.8%,  or
     11.6 million square feet, was sublease space.  Total net absorption in 2000
     amounted to  approximately  12.8 million  square  feet.  For the year 2001,
     there was a total negative net absorption of  approximately  (15.6) million
     square feet. The impact of this decline has not been uniform throughout the
     area,   however.   The  Silicon   Valley  R&D  property   market  has  been
     characterized by a substantial number of submarkets,  with rent and vacancy
     rates varying considerably by submarket and location within each submarket.
     Our average occupancy rate for the year ended December 31, 2001 was 98%. We
     anticipate  our vacancy rate to range between 10-14% by the end of 2002 and
     renewal rental rates to be same as or,  perhaps,  lower than current rents.
     In  addition,  leasing  activity  for new  build-to-suit  and  vacated  R&D
     properties has slowed considerably during the past year.  Consequently,  we
     believe  that  the  projected   acquisition  dates  for  other  development
     properties  subject  to the Berg  land  holdings  option  agreement  may be
     delayed for the foreseeable  future. Such delays could reduce future growth
     in revenues,  operating income and FAD. Our operating  results,  cash flows
     and ability to pay dividends at current  levels remain  subject to a number
     of material risks,  as indicated  above under the caption  "Forward-Looking
     Information" and in the section entitled Item 1. "Business - Risk Factors."

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

     -    LEAN  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

                                     - 5 -
<PAGE>

          advantages translate into significantly lower costs for operations and
          give us the ability,  along with the Berg Group, to compete  favorably
          with other R&D property  developers in Silicon Valley,  especially for
          build-to-suit projects subject to competitive bidding.  Furthermore, a
          lower cost structure  should allow us to generate  better returns from
          properties whose value can be increased through appropriate remodeling
          and efficient property management.

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

     OPERATING PARTNERSHIP AGREEMENTS

     MANAGEMENT

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

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

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

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

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

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

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

     -    a change of control of the operating partnerships.

     The Berg Group holds a substantial  majority of the outstanding O.P. Units.
     In  addition,  until  the  ownership  interest  of the Berg  Group  and its
     affiliates is less than 15% of the common stock on a Fully  Diluted  basis,
     the consent of the limited  partners  holding a majority of the outstanding
     O.P. Units is also required with respect to:

     -    the liquidation of the operating partnerships;

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

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

     TRANSFERABILITY OF O.P. UNITS

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

     In addition,  no transfer of O.P. Units by the limited partners may be made
     in violation of certain  regulatory and other restrictions set forth in the
     operating  partnership  agreement.  Except in the case of certain permitted
     transfers to or from certain

                                     - 6 -
<PAGE>

     affiliates of the limited  partners,  the exchange rights,  the put rights,
     rights to participate in future equity financings and provisions  requiring
     the approval of certain limited partners for certain matters will no longer
     be applicable to O.P. Units so  transferred,  and the  transferee  will not
     have any rights to nominate persons to our board of directors.

     ADDITIONAL CAPITAL CONTRIBUTIONS AND LOANS

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

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

     EXCHANGE RIGHTS, PUT RIGHTS AND REGISTRATION RIGHTS

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

     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 effect no more than two such  registrations  in any  12-month
     period.  We are  obligated  to assist the O.P.  Unit holders in obtaining a
     firm  commitment  underwriting  agreement  for such resale from a qualified
     investment-banking  firm.  If  registration  on Form S-3, or an  equivalent
     form,  is not  available  for any reason,  we will be obligated to effect a
     registration  of the shares to be  acquired  on  exercise  of the  exchange
     rights on Form S-11,  or an  equivalent  form,  in an  underwritten  public
     offering,  upon demand by the holders of no fewer than 500,000 O.P.  Units.
     All  holders  of  O.P.  Units  will  be  entitled  to  participate  in such
     registration.  We will  bear all  costs of such  registrations  other  than
     selling expenses,  including commissions and separate counsels' fees of the
     O.P. Unit holders.  We will not be required to effect any  registration for
     resale on Form S-3, or equivalent  form of common stock shares  issuable to
     the holder of O.P. Units if the request is for less than 250,000 shares.

                                     - 7 -
<PAGE>
     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 ("FAD"), however.

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

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

     TERM

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

     EMPLOYEES

     As of March 25,  2002,  we employed  five  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  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

                                     - 8 -
<PAGE>

     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  76.8% of the equity interests in the operating
     partnerships  and  approximately  76.5% 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.

     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.

                                     - 9 -
<PAGE>

     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 of our board of directors,  these properties may be encumbered by
     debt that we or the  operating  partnerships  will be required to assume or
     repay.  The use of our cash or an increase in our  indebtedness  to acquire
     these  properties  could have a material  adverse  effect on our  financial
     condition,  results of operations and ability to make cash distributions to
     our stockholders.

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

     TERMS OF TRANSFERS:  ENFORCEMENT OF AGREEMENT OF LIMITED  PARTNERSHIP.  The
     terms of the pending projects acquisition agreement, the Berg land holdings
     option agreement,  the partnership  agreement of each operating partnership
     and other material  agreements through which we have acquired our interests
     in the operating partnerships and the properties formerly controlled by the
     Berg Group were not determined through arm's-length  negotiations and could
     be less  favorable to us than those  obtained from an unrelated  party.  In
     addition,  Mr. Berg and  representatives  of the Berg Group  sitting on our
     board of directors may be subject to conflicts of interests with respect to
     their  obligations as our directors to enforce the terms of the partnership
     agreement of each operating partnership when such terms conflict with their
     personal  interests.  The terms of our

                                     - 10 -
<PAGE>

     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, 2001, we had borrowed  approximately
     $79.9  million  under our $100  million line of credit with the Berg Group,
     which is secured by eleven of our  properties  and expires  March 2003.  We
     have the right to draw on the line of credit and are  liable for  repayment
     of all  amounts  owing under the line of credit.  The line of credit  bears
     interest at an annual rate of LIBOR plus 1.30  percent.  We are also liable
     for a mortgage loan of $11.4 million that we assumed in connection with our
     acquisition  of a property that we acquired in May 2000 under the Berg land
     holdings option agreement.  If we are unable to repay our debts to the Berg
     Group when due,  the Berg Group  could take  action to enforce  our payment
     obligations.  Loan  defaults of this type could  materially  and  adversely
     affect our business,  financial condition and our results of operations and
     cause our stock  price to fall.  They also  could  result in a  substantial
     reduction in the amount of cash distributions to our stockholders. In turn,
     if we fail to meet the minimum distributions test because of a loan default
     or another reason, we could lose our REIT classification for federal income
     tax purposes. For more information please refer to 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 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 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
                                     - 11 -
<PAGE>

     mortgage payments,  real estate taxes and maintenance  expenses,  generally
     are not reduced  when  circumstances  cause a reduction in revenue from the
     investment.  Thus,  our  operating  results  and our cash flow may  decline
     materially if our rental income is reduced.

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

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

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

     TENANT  BANKRUPTCIES.   Key  tenants  could  seek  the  protection  of  the
     bankruptcy  laws,  which could result in the rejection and  termination  of
     their  leases,  thereby  causing a  reduction  in our  rental  income.  For
     example,   during  the  last  six  months,  three  tenants  accounting  for
     approximately  399,000 net rentable square feet of R&D properties  informed
     us that they had filed petitions  under Chapter 11 of the Bankruptcy  Code.
     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.   In  addition,   one  tenant   accounting   for
     approximately  158,000  of the  399,000  net  rentable  square  feet of R&D
     properties  has  discontinued  its  operations,  and we do  not  anticipate
     collecting  any  additional  rent  from  them.  Of  the  three  tenants  in
     bankruptcy,  we have regain  possession of two  properties  from one tenant
     comprising  158,000  rentable  square feet.  These two  properties may take
     anywhere  from six to twelve months or longer to re-lease.  These  tenants'
     rent  obligations  are  current  through  March.  Please  refer  to Item 2.
     "Properties - Events Subsequent to December 31, 2001" for more details.

     OUR  SUBSTANTIAL  INDEBTEDNESS.  Our  properties are subject to substantial
     indebtedness. If we are unable to make required mortgage payments, we could
     sustain  a  loss  as a  result  of  foreclosure  on our  properties  by the
     mortgagor.  Failure to renew or replace  the Berg Group line of credit when
     it expires in March 2003 would  materially  affect our  business and affect
     our ability to pay dividends to stockholders.  We cannot assure you that we
     will be able to obtain a  replacement  line of credit with terms similar to
     the Berg Group line of credit, or at all. Our cost of borrowing funds could
     increase substantially after the Berg Group line of credit expires. We have
     adopted  a policy  of  maintaining  a  consolidated  ratio of debt to total
     market capitalization,  which includes for this purpose the market value of
     all  shares  of  common  stock  for  which   outstanding   O.P.  Units  are
     exchangeable,  of less than 50%. This ratio may not be exceeded without the
     approval of more than 75% of our entire  board of  directors.  Our board of
     directors may vote to change this policy, however, and we could become more
     highly  leveraged,  resulting  in an  increased  risk  of  default  on  our
     obligations  and an  increase  in  debt  service  requirements  that  could
     adversely  affect our financial  condition,  our operating  results and our
     ability to make distributions to our stockholders.

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

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

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

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

     FAILURE TO QUALIFY AS A REIT.  Although  we  currently  operate in a manner
     designed  to enable us to  qualify  and  maintain  our REIT  status,  it is
     possible that economic,  market,  legal,  tax or other  considerations  may
     cause us to fail to qualify  as a REIT or may cause our board of  directors
     either to refrain from making the REIT  election or to revoke that election
     once made. To maintain REIT status,  we must meet certain tests for income,
     assets,  distributions  to  stockholders,  ownership  interests,  and other
     significant  conditions.  If we fail to  qualify  as a REIT in any  taxable
     year,  we  will  not  be  allowed  a  deduction  for

                                     - 12 -
<PAGE>

     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,
     FAD 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 may
     also  be  subject  to a 4%  non-deductible  excise  tax  in the  event  our
     distributions  to  stockholders  fail to meet certain  other  requirements.
     Failure to comply with these  requirements could result in our income being
     subject to tax at regular  corporate  rates and could cause us to be liable
     for the excise tax.

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

     STOCKHOLDERS ARE NOT ASSURED OF RECEIVING CASH DISTRIBUTIONS FROM US.

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

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

     -    the amount of cash available for distribution;

     -    the operating partnerships' financial condition;

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

     -    the operating partnerships' capital expenditures;

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

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

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

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

     OUR PROPERTIES COULD BE SUBJECT TO PROPERTY TAX REASSESSMENTS.

     We do not  believe  that 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

                                     - 13 -
<PAGE>

     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 FAD and cause our stock price to fall.

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

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

     In addition,  after  December  1999, all O.P. Unit holders may tender their
     O.P.  Units to us 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, 2001, 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.

     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 FAD. Thus,  higher
     market interest rates could cause the price of our common stock to fall.

                                     - 14 -
<PAGE>


ITEM 2.   PROPERTIES

     GEOGRAPHIC AND TENANT FOCUS

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

     LEASING

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

     PROPERTY PORTFOLIO

     All our properties are R&D properties. Generally, these properties are one-
     to four-story buildings of tilt-up concrete construction,  have 3.5 or more
     parking spaces per thousand  rentable square feet, clear ceiling heights of
     less than 18 feet, and range in size from 8,700 to 515,000  rentable square
     feet.  Most of the office space is open and suitable for  configuration  to
     meet the tenants' requirements with the use of movable dividers.

     The  following  table  sets  forth  certain  information  relating  to  our
     properties as of December 31, 2001:

<TABLE>
<CAPTION>

                                                                                                            Major
                                         Total    Percentage                                               Tenants'
                            No. of     Rentable  Leased as of    Average 2001                              Rentable    2001 Annual
Location                  Properties    Sq. Ft.  Dec. 31, 2001    Occupancy   Major Tenants                 Sq. Ft.   Base Rents(1)
------------------------------------------------------------------------------------------------------------------------------------
<C>                         <C>       <C>            <C>            <C>      <C>                          <C>        <C>
5300-5350 Hellyer Avenue (3)  2        160,000        100%           100%     Tyco International, Inc.     160,000    $ 3,125,760

10401-10411 Bubb Road (3)     1         20,330        100%           100%     Celerity Systems, Inc.        20,330        486,417

2001 Logic Drive (4)          1         72,426        100%           100%     Xilinx, Inc.                  72,426      1,998,960

45365 Northport Loop West     1         64,218        100%           100%     Mattson Technology, Inc.      31,641      1,246,196
                                                                              JNI Corporation               19,727

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

45738 Northport Loop West     1         44,256        100%           100%     EIC Corporation               44,256        565,081

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

3501 W. Warren Avenue &       1         67,864        100%           100%     StorageWay, Inc.              51,864      1,368,597
46600 Fremont Blvd.

                                    - 15 -
<PAGE>
                                                                                                            Major
                                         Total    Percentage                                               Tenants'
                            No. of     Rentable  Leased as of    Average 2001                              Rentable    2001 Annual
Location                  Properties    Sq. Ft.  Dec. 31, 2001    Occupancy   Major Tenants                 Sq. Ft.   Base Rents(1)
------------------------------------------------------------------------------------------------------------------------------------
48800 Milmont Drive           1         53,000        100%           100%     Zhone Technologies, Inc.      53,000        621,645

4750 Patrick Henry Drive      1         65,780        100%           100%     InterTrust Technologies Corp. 65,780      1,538,978

Triangle Technology Park (3)  7        416,927        100%            98%     JDS Uniphase Corporation     152,362      6,440,876
                                                                              Intevac Corporation          119,583
                                                                              Xicom Technology, Inc.        47,480
                                                                              Solid Data Systems, Inc.      34,248
                                                                              Diligent Software             25,350
                                                                                            Systems Corp.

5850-5870 Hellyer             1        109,715        100%           100%     Clear Logic, Inc.             64,805      1,589,009
                                                                              Gadzoox Networks, Inc.        44,910

5750 Hellyer Avenue           1         73,312        100%           100%     Gadzoox Networks, Inc.        73,312        566,720(2)

800 Branham Lane East (5)     1        239,000        100%           100%     Candescent Technologies Corp.239,000      3,395,956

5500-5550 Hellyer Avenue      2        196,534        100%           100%     ACT Manufacturing, Inc.      196,534      3,083,639(2)

5400 Hellyer Avenue           1         77,184        100%           100%     Jetstream Communications, Inc.77,184      1,435,997

5325 Hellyer Avenue           1        131,500        100%           100%     Celestica Asia, Inc.         131,500      2,303,880(2)

5905-5965 Silver Creek        4        346,000        100%           100%     ONI Systems Corporation      346,000      3,169,290(2)

855 Branham Lane East         1         67,912        100%           100%     Lynuxworks, Inc.              67,912      1,486,400(2)

1065 L'Avenida                5        515,700        100%           100%     Microsoft Corporation        515,700     19,555,592

1750 Automation Parkway       1         80,641        100%           100%     JDS Uniphase Corporation      80,641      1,720,336

1756 Automation Parkway       1         80,640        100%           100%     JDS Uniphase Corporation      80,640      1,792,312

1762 Automation Parkway       1         61,100        100%           100%     JDS Uniphase Corporation      61,100      2,066,776

1768 Automation Parkway       1        110,592        100%           100%     JDS Uniphase Corporation     110,592      3,084,168

255 Caspian Drive (6)         1         98,500        100%           100%     Exodus Communications, Inc.   98,500      2,062,149

245 Caspian Drive (6)         1         59,400        100%           100%     Exodus Communications, Inc.   59,400      1,670,760(2)

2251 Lawson Lane              1        125,000        100%           100%     Amdahl Corporation           125,000      1,407,785

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

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

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

20400 Mariani Avenue          1        105,000        100%           100%     Dade Behring, Inc.           105,000      1,096,200

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

20605-705 Valley Green  Dr.   2        142,000        100%           100%     Apple Computer, Inc.         142,000      1,975,381

10300 Bubb Road               1         23,400        100%           100%     Apple Computer, Inc.          23,400        421,200

10440 Bubb Road               1         19,500        100%           100%     Luminous Networks, Inc.       19,500      1,093,560

10460 Bubb Road               1         45,460        100%           100%     Luminous Networks, Inc.       45,460      1,606,552

1135 Kern Avenue              1         18,300        100%           100%     Broadmedia, Inc.              18,300        315,899

1190 Morse Avenue &           1         28,350        100%           100%     Coptech West                  28,350        353,244
405 Tasman Avenue

450 National Avenue           1         36,100        100%            92%     ePeople, Inc.                 36,100      1,169,750

                                     - 16 -
<PAGE>
                                                                                                            Major
                                         Total    Percentage                                               Tenants'
                            No. of     Rentable  Leased as of    Average 2001                              Rentable    2001 Annual
Location                  Properties    Sq. Ft.  Dec. 31, 2001    Occupancy   Major Tenants                 Sq. Ft.   Base Rents(1)
------------------------------------------------------------------------------------------------------------------------------------
3301 Olcott Street            1         64,500        100%           100%     NEC Electronics, Inc.         64,500      1,170,335

2800 Bayview Avenue           1         59,736        100%           100%     Mattson Technology, Inc.      59,736        674,815

6850 Santa Teresa Blvd.       1         30,000        100%            83%     Valiant Networks, Inc.        30,000        589,992

6810 Santa Teresa Blvd.       1         54,996        100%           100%     Polaris Networks, Inc.        54,996      1,498,105

140-150 Great Oaks Blvd. &    2        105,300        100%           100%     Atcor Corporation             52,000      1,678,341
6781 Via Del Oro                                                              Amtech Corporation            31,500

6540-6541 Via Del Oro &       2         66,600        100%           100%     Exsil, Inc.                   20,076      1,026,920
6385-6387 San Ignacio Ave.                                                    Alcatel USA, Inc.             17,400
                                                                              Modutek Corporation           17,400

6311-6351 San Ignacio Ave.    5        362,767        100%           100%     On Command Corporation       131,320      4,701,356
                                                                              Saint-Gobain                  66,042
                                                                              Avnet, Inc.                   53,494
                                                                              Photon Dynamics, Inc.         52,000
                                                                              Teledex Corporation           30,000

6320-6360 San Ignacio  Ave.   1        157,292        100%            97%     Nortel Networks Corporation   92,692      3,567,308
                                                                              Quantum 3D                    19,600


75 East Trimble Road &        2        170,810        100%           100%     Comerica Bank                 93,984      2,518,737
2610 North First Street                                                       County of Santa Clara         76,826

2033-2243 Samaritan Drive     3        235,122         36%            85%     Texas Instruments             48,677      4,448,047
                                                                              State Farm Insurance          23,801

1170 Morse Avenue             1         39,231        100%           100%     CA Parkinsons Foundation      39,231        365,256

3236 Scott Blvd.              1         54,672        100%           100%     Celeritek, Inc.               54,672        934,893

1212 Bordeaux Lane            1         71,800        100%           100%     TRW, Inc.                     71,800      1,324,296

McCandless Technology Park   14        705,956         91%            92%     Larscom, Inc.                118,708
                                                                              Arrow Electronics, Inc.       92,862     10,479,998
                                                                              SDRC                          50,768
                                                                              Chartered Semiconductor       45,312
                                                                              Panasonic Industrial Co.      40,970
                                                                              K-TEC Corporation.            39,800
                                                                              Promptu Systems               26,663
                                                                              Corporation

1600 Memorex Drive            1        107,500        100%           100%     Sasco Electric               107,500        758,542

1688 Richard Avenue           1         52,800        100%           100%     NWE Technology, Inc.          52,800        734,343

1700 Richard Avenue           1         58,783        100%           100%     Broadwing, Inc.               58,783        614,287
                            ------------------                                                                       -------------
             TOTAL           97      6,799,308                                                                       $121,049,364
                            ==================                                                                       =============
</TABLE>

(1)  Annual  cash rents do not  include  any effect  for  recognition  of rental
     income on the  straight-line  method of  accounting  required by  generally
     accepted  accounting   principles  under  which  contractual  rent  payment
     increases  are  recognized  evenly  over the  lease  term.  Cash  rents for
     properties sold during 2001 are also excluded.

(2)  Property was purchased during 2001. The 2001 Annual Base Rent reflects rent
     received from the date of acquisition through December 31, 2001.

(3)  Joint venture properties.

(4)  This property was sold in March 2002.

(5)  Candescent Technologies Corporation terminated its lease in March 2002 in a
     negotiated settlement with us. This property is currently vacant.

(6)  Exodus  Communications,  Inc.  terminated its lease effective May 2002 in a
     negotiated settlement with us. These properties are currently vacant.

     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

                                     - 17 -
<PAGE>

     at 5300-5350  Hellyer  Avenue,  which are owned by a joint venture in which
     we, through an operating partnership, own a 50% interest.

     EVENTS SUBSEQUENT TO DECEMBER 31, 2001

     In January 2002, we acquired an approximately  125,000 rentable square foot
     newly  constructed R&D property located at 5345 Hellyer Avenue in San Jose,
     California  under  the Berg  land  holdings  option  agreement.  The  total
     acquisition  price for this property was  approximately  $13.7 million.  We
     acquired this property by borrowing  $7.5 million under the Berg Group line
     of credit and issuing  502,805  O.P.  Units to various  members of the Berg
     Group.

     On March 6, 2002,  we completed  the sale in a  tax-deferred  exchange of a
     72,426  square foot R&D  property  located at 2001 Logic  Drive,  San Jose,
     California to Xilinx,  Inc.,  which exercised a purchase option in the same
     month.  We  realized  a gain of $6.1  million  on the total  sale  price of
     approximately $18.5 million.  The sale proceeds from the property sold were
     classified  as  restricted  cash  to  be  used  in  tax-deferred   property
     exchanges.

     Effective  March  8,  2002,  we  acquired  three  R&D  buildings   totaling
     approximately 206,000 rentable square foot located at 2610 and 2630 Orchard
     Parkway  and 55 West  Trimble  Road in San Jose,  California  from  Silicon
     Valley Properties, LLC in a tax-deferred exchange transaction involving our
     former R&D properties at 2001 Logic Drive and 5713-5729  Fontanoso Way, San
     Jose,  California.  The total  acquisition  price for these  properties was
     approximately $31.3 million.

     One of  our  tenants,  Exodus  Communications,  Inc.  ("Exodus"),  filed  a
     voluntary  petition for bankruptcy  protection under Chapter 11 of the U.S.
     Bankruptcy  Code on September  26, 2001.  Effective  May 2002,  Exodus will
     terminate its lease  agreement in a negotiated  settlement with us and stop
     paying its  monthly  obligations  under the lease.  Exodus was  leasing two
     properties  comprising  approximately 158,000 rentable square feet. We will
     forego  approximately  $4.4 million in cash rental  revenues in 2002 due to
     this lease  termination.  These two properties are currently vacant and may
     take six months or longer to re-lease.

     Two other tenants,  comprising  241,000  rentable  square feet, are also in
     bankruptcy.  They are currently paying their monthly  obligations under the
     leases.  At this time,  we do not know whether  these  tenants will disavow
     their leases.  For 2002,  the projected  combined cash rental  revenues for
     these tenants are approximately $4.5 million.

     Candescent   Technologies   Corporation,   which   leased  two   properties
     representing  approximately  284,000  rentable square feet,  terminated its
     lease  agreement in a negotiated  settlement  with us effective March 2002.
     For 2002,  the  projected  cash rental  revenues for this tenant would have
     been  approximately  $4.8  million.  One of the  properties,  consisting of
     approximately  239,000  square  feet,  may take  twelve  months  or more to
     re-lease and is currently vacant. The other property,  consisting of 45,000
     rentable square feet, is partially  leased, of which 11,270 rentable square
     feet remains vacant.

     We have performed an impairment analysis on the properties that were leased
     by Exodus and  Candescent  Technologies  and believe that no impairment has
     been incurred.

                                     - 18 -

<PAGE>
     LEASE EXPIRATIONS

     The following table sets forth a schedule of the lease  expirations for the
     properties  beginning with 2002, assuming that none of the tenants exercise
     existing renewal options or termination  rights. The table excludes 190,227
     rentable  square  feet that was vacant as of  December  31, 2001 and 72,426
     rentable square feet for a property that was sold in March 2002.
<TABLE>
<CAPTION>

                  Number of                                                           Percentage of Total Annual
 Year of Lease     Leases      Rentable Square Footage      2002 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>
     2002            17                962,253 (3)          $    6,700,518                         5.4%

     2003            13                423,443                   6,721,163                         5.4%

     2004            19              1,022,972                  13,350,096                        10.8%

     2005            19                644,344                  13,129,457                        10.6%

     2006            17              1,343,862                  40,832,232                        33.0%

     2007            15              1,039,089                  22,237,483                        18.0%

     2008             1                125,000                   1,431,032                         1.2%

     2009             1                 58,783                     649,555                         0.5%

     2010             1                 82,875                   1,652,653                         1.3%

  Thereafter          4                834,034                  17,041,244                        13.8%
              ------------------------------------------------------------------------------------------------------
                    107              6,536,655              $  123,745,433                         100%
              ======================================================================================================
</TABLE>

(1)  The base rent for leases expiring is based on scheduled January 2002 annual
     cash rents,  which are different than annual rents determined in accordance
     with GAAP.
(2)  Based upon 2002 annual cash rents as discussed in Note (1).
(3)  Includes  properties  that were leased by Exodus  Communications,  Inc. and
     Candescent Technologies Corporation.


     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  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

                                     - 19 -

<PAGE>

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

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

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

                                     - 20 -

<PAGE>


ITEM 3.   LEGAL PROCEEDINGS

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

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

     No  matters  were  submitted  to a vote of  stockholders  during the fourth
     quarter of the year ended December 31, 2001.


                                     - 21 -

<PAGE>

PART II

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

     Our common stock is listed on the American Stock Exchange  ("AMEX") and the
     Pacific Exchange,  Inc. and trades under the symbol "MSW." The high and low
     sale prices per share of common  stock during each quarter of 2001 and 2000
     were as follows:
<TABLE>
<CAPTION>

                                    2001                              2000
                        -----------------------------     -----------------------------
                            High            Low               High            Low
                        -------------   -------------     -------------   -------------
<C>                       <C>             <C>              <C>             <C>
1st Quarter                $14.20          $12.50              $9            $7 1/8
2nd Quarter                $14.39          $11.23           $10 5/8         $8 5/16
3rd Quarter                $14.35          $11.60             $14             $10
4th Quarter                $12.85          $10.85           $14 5/8         $12 7/8
</TABLE>

     On March 25,  2002,  there were 242  registered  holders  of the  Company's
     common  stock.  We declared and paid  dividends in each quarter of 2001 and
     2000.  We expect to pay  quarterly  dividends  during 2002.  The  following
     tables show information for quarterly dividends for 2001 and 2000.
<TABLE>
<CAPTION>

                                         2001
                       -----------------------------------------------
                           Record        Payment           Dividend
                            Date          Date             per Share
                       -------------   -------------     -------------
<C>                      <C>             <C>                <C>
1st Quarter               03/30/01        04/10/01           $0.19
2nd Quarter               06/29/01        07/12/01            0.22
3rd Quarter               09/28/01        10/11/01            0.24
4th Quarter               12/31/01        01/10/02            0.24
                                                         -------------
      Total                                                  $0.89
                                                         =============
</TABLE>
<TABLE>
<CAPTION>

                                         2000
                       -----------------------------------------------
                           Record         Payment          Dividend
                            Date           Date            per Share
                       -------------   -------------     -------------
<C>                      <C>             <C>                <C>
1st Quarter               03/31/00        04/10/00           $0.15
2nd Quarter               06/28/00        07/07/00            0.17
3rd Quarter               09/29/00        10/10/00            0.17
4th Quarter               12/29/00        01/10/01            0.19
                                                         -------------
      Total                                                  $0.68
                                                         =============
</TABLE>

     For  federal  income  tax  purposes,  we  have  characterized  100%  of the
     dividends declared in 2001 and 2000 as ordinary income.

     The  closing  price of our common  stock on  December  31,  2001,  the last
     trading day, was $12.72 per share.

                                     - 22 -

<PAGE>
ITEM 6.   SELECTED FINANCIAL DATA

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

                                                                                                         One Month
                                                            Year Ended December 31,                        Ended        Year Ended
                                           ----------------------------------------------------------   December 31,   November 30,
                                               2001           2000           1999           1998           1997           1997
                                           -------------  -------------  -------------  -------------  -------------  --------------
OPERATING DATA:                                                 (dollars in thousands, except per share)
<S>                                       <C>              <C>            <C>            <C>            <C>             <C>
Revenue:
   Rental revenues                           $128,228       $ 99,567       $ 73,726       $ 27,285       $     -         $  1,376
   Tenant reimbursements                       17,571         14,635         11,047          4,193             -               -
   Other income, including interest
     and gain on sale of assets                13,918          1,742          1,220            278             27           5,095
                                           -------------  -------------  -------------  -------------  -------------  --------------
Total revenues                                159,717        115,944         85,993         31,756             27           6,471
                                           -------------  -------------  -------------  -------------  -------------  --------------
Expenses:
   Property operating, maintenance
     and real estate taxes                     18,403         15,025         11,467          4,821             -              246
   Interest                                     8,704          8,290         11,623          4,685             -              425
   Interest (related parties)                   4,709          4,475          2,246          3,511             -               -
   General and administrative                   1,284          1,065          1,185          1,501            139           1,467
   Depreciation                                16,917         15,456         13,156          5,410             -              246
                                           -------------  -------------  -------------  -------------  -------------  --------------
Total Expenses                                 50,017         44,311         39,677         19,928            139           2,384
                                           -------------  -------------  -------------  -------------  -------------  --------------
   Income (loss) before minority
     interest and income taxes                109,700         71,633         46,316         11,828           (112)          4,087
   Minority interest                           91,565         59,054         39,785         12,049             -               -
                                           -------------  -------------  -------------  -------------  -------------  --------------
   Income (loss) before income taxes           18,135         12,579          6,531           (221)          (112)          4,087
   (Benefit) provision for income taxes            -              -              -              -             (38)          1,043
                                           -------------  -------------  -------------  -------------  -------------  --------------
        Net income (loss)                    $ 18,135       $ 12,579       $  6,531       $   (221)      $    (74)       $  3,044
                                           =============  =============  =============  =============  =============  ==============

   Basic income (loss) per share (1)            $1.06           $.73           $.52          $(.13)         $(.05)         $18.48
   Diluted income (loss) per share (1)          $1.03           $.72           $.52          $(.13)         $(.05)         $18.48

PROPERTY AND OTHER DATA (2):
   Total properties, end of period                 97             89             80
   Total square feet, end of period (000's)     6,799          6,196          5,307
   Average monthly rental revenue
     per square foot (3)                        $1.59          $1.36          $1.16
   Occupancy at end of period                      97%            99%            99%

FUNDS FROM OPERATIONS (2) (4):               $114,513        $86,303        $59,079        $17,238

   Cash flows from operating activities      $111,157        $84,580        $60,298        $16,264           $(46)        $(1,000)
   Cash flows from investing activities        (3,040)        (2,736)       (12,084)          (118)            -           46,198
   Cash flows from financing activities      (107,498)       (83,706)       (41,920)       (21,469)           150         (42,844)


                                                                         December 31,
                                           -------------------------------------------------------------------------  November 30,
                                               2001           2000            1999          1998           1997           1996
                                           -------------  -------------  -------------  -------------  -------------  --------------
                                                                            (dollars in thousands)
BALANCE SHEET DATA:

   Real estate assets, net of
      accumulated depreciation               $860,935       $807,456       $697,616       $516,029      $      -          $46,285
   Total assets                               910,255        826,910        712,704        519,866          5,763          46,324
   Line of credit - related parties            79,887         50,886             -             -               -               -
   Debt                                       127,416        132,055        133,952        184,389             -           30,753
   Debt - related parties                      11,371         11,643         31,193         20,752             -               -
   Total liabilities                          286,768        255,505        215,212        213,234            552          32,142
   Minority interest                          515,063        469,332        396,810        273,379             -               -
   Stockholders' equity                       108,424        102,073        100,682         33,253          5,211          14,182

   Common stock outstanding                17,329,779     17,025,365     16,972,374     8,218,594       1,501,104          45,704
   O.P. Units issued and outstanding       85,762,541     83,576,027     76,205,789     60,151,697             -               -

</TABLE>

                                     - 23 -

<PAGE>

(1)  As adjusted for the 1 for 30 reverse stock split in November 1997.
(2)  Property and other data shown only as of December 31, 2001, 2000, and 1999.
(3)  Average  monthly  rental  revenue  per square foot has been  determined  by
     taking the total base rent for the period,  divided by the number of months
     in the period, and then divided by the total square feet of occupied space.
(4)  As defined by the National  Association  of Real Estate  Investment  Trusts
     ("NAREIT"),  FFO represents net income (loss) before  minority  interest of
     unit holders  (computed in accordance with GAAP),  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.  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."

                                     - 24 -

<PAGE>


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

     THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS, INCLUDING BUT
     NOT LIMITED TO STATEMENTS WITH RESPECT TO THE FUTURE FINANCIAL PERFORMANCE,
     OPERATING  RESULTS,  PLANS AND OBJECTIVES OF MISSION WEST PROPERTIES,  INC.
     ACTUAL  RESULTS  MAY DIFFER  MATERIALLY  FROM THOSE  CURRENTLY  ANTICIPATED
     DEPENDING UPON A VARIETY OF FACTORS,  INCLUDING THOSE DESCRIBED IN PART I -
     ITEM 1 "BUSINESS - RISK FACTORS."

     OVERVIEW 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 to Spieker  Properties,  L.P. for  approximately
     $50.5  million  in cash and paid a special  dividend  of $9.00 per share to
     stockholders.  After the sale of assets and the payment of the  dividend to
     stockholders,   Mission  West  Properties  retained  only  nominal  assets.
     Subsequently, Mission West Properties accepted a proposal by the Berg Group
     to  acquire  control  of  the  corporation  as a  vehicle  to  acquire  R&D
     properties, or interests in entities owning such properties,  from the Berg
     Group.  The  transaction  was completed on September 2, 1997, at which time
     all of our existing officers and directors  resigned and the Berg Group and
     the other investors  acquired a 79.6% controlling  ownership  position as a
     group.  On October 20, 1997,  we paid a further  distribution  of $3.30 per
     share to our  stockholders  from available  cash,  including  approximately
     $900,000  received in the  September  1997  transaction.  No portion of the
     distribution  was  paid  on  shares  acquired  by the  Berg  Group  and its
     co-investors. In connection with that distribution, the AMEX halted trading
     of the common  stock on October 20, 1997.  In May 1998,  we, the Berg Group
     members,  John  Kontrabecki,  and certain  other  persons  entered  into an
     acquisition agreement providing, among other things, for our acquisition of
     interests as the sole general partner in the operating partnerships. At the
     time, the operating  partnerships held  approximately 4.34 million rentable
     square feet of R&D property  located in Silicon Valley.  The agreement also
     provided  for the  parties to enter into the pending  projects  acquisition
     agreement,  the Berg land holdings option agreement and the exchange rights
     agreement,  following  stockholder  approval.  Effective  July 1, 1998,  we
     consummated  our  acquisition of the general  partnership  interests in the
     operating partnerships. We effected our purchase of the general partnership
     interests by issuing to each of the  operating  partnerships  a demand note
     bearing interest at 7.25% per annum, aggregating $35.2 million of principal
     payable no later than July 1, 2000.  Effective  July 1, 1998,  all  limited
     partnership  interests in the operating  partnerships  were  converted into
     59,479,633 O.P. Units,  representing  ownership of approximately  87.89% of
     the operating partnerships,  upon consummation of the acquisition,  and our
     general partnership  interests  represented the balance of the ownership of
     the  operating  partnerships.  As of December 29, 1998,  we and the limited
     partners in the  operating  partnerships  entered into the exchange  rights
     agreement,  and we entered into the pending projects acquisition  agreement
     and the Berg land holdings  option  agreement with the Berg Group and other
     sellers.  At  December  31,  2001,  we owned a 16.73%  general  partnership
     interest in the  operating  partnerships,  taken as a whole,  on a weighted
     average basis.

     On December 28, 1998,  our  stockholders  approved and ratified our sale of
     common stock under two May 1998 private  placements,  the pending  projects
     acquisition  agreement and the Berg land holdings option agreement  between
     us and the Berg Group, and our reincorporation in the State of Maryland. On
     December 29, 1998, we sold  6,495,058  shares of common stock at a price of
     $4.50 per share to a number of  accredited  investors  to complete  two May
     1998 private placements.  The aggregate proceeds,  net of fees and offering
     costs,  of  approximately  $27.8  million  were  used to pay  down  amounts
     outstanding under the demand notes due to the operating  partnerships.  Our
     reincorporation  under the laws of the State of Maryland through the merger
     of Mission West Properties into Mission West Properties,  Inc.  occurred on
     December  30,  1998,  at which time all shares  that had been issued by our
     predecessor  California corporation and remained outstanding were converted
     into shares of our common stock on a one-for-one basis.

     On December 8, 1998, the AMEX  recommenced  trading of our common stock. 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 two  wholly-owned  corporate  subsidiaries,  MIT Realty,  Inc.  and
     Mission West Executive Aircraft Center. Both corporations are inactive.

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

                                     - 25 -
<PAGE>

     CRITICAL ACCOUNTING POLICIES

     We prepare the consolidated  financial  statements in conformity with 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.  Actual results may differ from these  estimates under different
     assumptions or conditions.

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

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

     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.  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 and economic  factors.
     Therefore,  it is reasonably  possible that a change in estimate  resulting
     from  judgments  as to future  events  could occur  which would  affect the
     recorded  amounts of the  property.  As of December 31, 2001 and 2000,  the
     properties' carrying values did not exceed the estimated fair values and no
     impairment losses were recorded.

     ALLOWANCE  FOR  DOUBTFUL  ACCOUNTS  AND  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 bankruptcy or ceasing operations.  The use of
     different  estimates or assumptions  could produce different  results.  Our
     accounts  receivable balance was approximately  $560,000,  net of allowance
     for  doubtful   accounts  of  $250,000  as  of  December   31,  2001.   Our
     straight-line adjustment reserve was $600,000 as of December 31, 2001.

     JOINT VENTURES. We, through an operating partnership,  own three properties
     that  are in  joint  ventures  of  which  we  have an  83.33%,  75% and 50%
     interest.  We manage and operate all three  properties.  The recognition of
     these  properties  and their  operating  results is 100%  reflected  on our
     consolidated  financial  statements.  In calculating  FFO, the unaffiliated
     third party minority interests are excluded. Estimated monthly payments are
     made to the owners with 16.67%, 25% and 50% interests, which requires us to
     make  assumptions  and  judgments.  Actual  results  may differ  from these
     estimates under different assumptions or conditions.

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

     Rental  revenue is affected if existing  tenants  terminate  or amend their
     leases.  Thus,  if tenants  lengthen  their lease term,  additional  rental
     revenue is recognized.  On the other hand, if tenants terminate their lease
     agreements or shorten their lease terms,  rental revenue  decreases because
     of lesser future cash flows and a one-time straight-line adjustment. We try
     to identify  tenants who have the  potential  of  bankruptcy  or of ceasing
     operations.  By  anticipating  these  events in advance,  we expect to take
     actions to  minimize  the  effect on the  results  of our  operations.  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.

                                     - 26 -
<PAGE>
     RESULTS OF OPERATIONS

     COMPARISON OF THE YEAR ENDED  DECEMBER 31, 2001 TO THE YEAR ENDED  DECEMBER
     31, 2000.

     RENTAL  REVENUES
     ---------------
     As of December  31,  2001,  we,  through our  controlling  interests in the
     operating  partnerships,  owned 97 properties  totaling  approximately  6.8
     million square feet compared to 89 properties  totaling  approximately  6.2
     million  square  feet as of  December  31,  2000.  This  represented  a net
     increase of  approximately  10% in total  rentable  square footage from the
     prior year. We made the following acquisitions under the Berg land holdings
     option agreement and through the exchange of existing R&D properties.
<TABLE>
<CAPTION>

               Date of                                                           Rentable Square
             Acquisition                          Address                            Footage
          -------------------    -------------------------------------------    -------------------
<S>            <C>              <C>                                                  <C>
                 1/01            5325 Hellyer Avenue                                  131,500
                 2/01            5500 Hellyer Avenue                                  117,740
                 4/01            245 Caspian Drive (1)(3)                              59,400
                 5/01            855 Branham Lane East (1)                             67,912
                 6/01            5550 Hellyer Avenue                                   78,794
                 7/01            5905-5965 Silver Creek Valley Road I (2)             247,500
                 8/01            5750 Hellyer Avenue                                   73,312
                10/01            5905-5965 Silver Creek Valley Road II                 98,500
                                                                                -------------------
                                      Total                                           874,658
                                                                                ===================
</TABLE>

(1)  Acquired in exchange for R&D property  located at 4949 Hellyer Avenue,  San
     Jose, California.
(2)  Three buildings were acquired at this location.
(3)  A lessee was paying rent for this site under a 15-year lease,  although the
     building has not been  completed for occupancy by this lessee.  This lessee
     filed for bankruptcy  protection under Chapter 11 in September 2001 and has
     effectively  terminated  its lease  agreement  in May 2002 in a  negotiated
     settlement with us.

     During  2001,  we sold two R&D  properties  pursuant to Section 1031 of the
     Internal  Revenue Code of 1986.  The gain on the sale of the properties was
     deferred  for  tax  purposes  as the  properties  were  exchanged  for  the
     properties  identified above in note (1) in the preceding table, as well as
     2610  and  2630  Orchard  Parkway  and 55  West  Trimble  Road,  San  Jose,
     California,  which we acquired in March 2002. Our property sales which were
     effected  pursuant to Section 1031 of the Internal Revenue Code of 1986, as
     amended, are as follows:
<TABLE>
<CAPTION>

               Date of                                                           Rentable Square
             Disposition                          Address                            Footage
          -------------------    -------------------------------------------    -------------------
<S>             <C>             <C>                                                  <C>
                 1/01            4949 Hellyer Avenue                                  200,484
                 9/01            5713-5729 Fontanoso Way                               77,700
                                                                                -------------------
                                      Total                                           278,184
                                                                                ===================
</TABLE>

     The following  table  depicts the amounts of rental  revenues for the years
     ended December 31, 2001 and 2000  represented by our historical  properties
     and our acquired  properties  since July 1, 1998 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
                                    2001                2000           $ Change           Property Group       Net Change
                               --------------      --------------     --------------      --------------     --------------
                                               (dollars in thousands)
<S>                              <C>                  <C>                <C>                   <C>                <C>
Same Property (1)                  $66,306             $59,304             $7,002               11.8%               7.0%
1998 Acquisitions                    2,330               2,330                  -                   -                  -
1999 Acquisitions                   25,757              25,635                122                0.5%                  -
2000 Acquisitions (2)               20,151              12,298              7,853               63.9%               7.9%
2001 Acquisitions                   13,684                   -             13,684                100%              13.7%
                               --------------      --------------     --------------                         --------------
               Total/Overall      $128,228             $99,567            $28,661               28.8%              28.8%
                               ==============      ==============     ==============                         ==============
</TABLE>

(1)  "Same  Property"  is  defined  as  properties  owned  as of July  1,  1998,
     properties  acquired in 1998 and 1999 and still  owned as of  December  31,
     2001.
(2)  The amounts,  for "2000  Acquisitions" in year 2000, for some properties do
     not  reflect  a full  twelve  months  of  rent  due to  the  timing  of the
     acquisition of the properties during the year 2000.

     For the year ended December 31, 2001, our rental  revenues from real estate
     increased  by  $28.7  million,  or  29%,  which  included  an  increase  of
     approximately  $6.1  million  over base rental  revenues to reflect  rental
     revenues on a  straight-line  basis,  from $99.5 million for the year ended
     December  31, 2000 to $128.2  million  for the same  period in 2001.  These
     increases were

                                     - 27 -
<PAGE>

     primarily  attributable  to  scheduled  increases  in rental  rates and new
     acquisitions.  Of the  $28.7  million  increase  in rental  revenues,  $7.0
     million resulted from the Company's "Same Property" portfolio, $0.1 million
     resulted from newly  developed  properties  acquired in 1999,  $7.9 million
     resulted  from  newly  developed  properties  acquired  in 2000,  and $13.7
     million resulted from newly developed properties acquired in 2001.

     OTHER INCOME
     ------------
     Other  income,  including  interest  and  excluding  gain on  sales of real
     estate, was approximately $2.5 million and $1.7 million for the years ended
     December 31, 2001 and 2000,  respectively.  The $0.8  million  increase was
     primarily  from interest  earned on our  restricted  cash account.  Gain on
     sales of real  estate was  approximately  $11.5  million for the year ended
     December 31, 2001.

     EXPENSES
     --------
     The following  table reflects the increase in property  operating  expenses
     and real estate taxes for the year ended  December  31, 2001 over  property
     operating  expenses and real estate  taxes for the year ended  December 31,
     2000 and the  percentage of total increase in expenses over the period that
     is represented by each group of properties.
<TABLE>
<CAPTION>

                                          December 31,
                               ----------------------------------
                                                                                           % Change by         % of Total
                                    2001                2000             $ Change         Property Group       Net Change
                               --------------      --------------     --------------      --------------     --------------
                                               (dollars in thousands)

<S>                               <C>                 <C>                 <C>                <C>                 <C>
Same Property (1)                  $11,626             $11,228              $ 398                3.5%               2.6%
1998 Acquisitions                      515                 271                244               90.0%               1.6%
1999 Acquisitions                    2,166               2,813              (647)             (23.0%)             (4.3%)
2000 Acquisitions (2)                1,682                 713                969              135.9%               6.5%
2001 Acquisitions                    2,414                   -              2,414                100%              16.1%
                               --------------      --------------     --------------                         --------------
               Total/Overall       $18,403             $15,025             $3,378               22.5%              22.5%
                               ==============      ==============     ==============                         ==============
</TABLE>

(1)  "Same  Property"  is  defined  as  properties  owned  as of July  1,  1998,
     properties  acquired in 1998 and 1999 and still  owned as of  December  31,
     2001.
(2)  The amounts,  for "2000  Acquisitions" in year 2000, for some properties do
     not  reflect a full twelve  months of  operating  expenses  and real estate
     taxes due to the timing of the  acquisition  of the  properties  during the
     year 2000.

     Tenant reimbursements increased by $3.0 million, or 21%, from $14.6 million
     for the year ended  December  31, 2000 to $17.6  million for the year ended
     December 31, 2001.  Operating expenses and real estate taxes, on a combined
     basis,  increased  by $3.4  million,  or 23%,  from $15.0  million to $18.4
     million for the years ended  December 31, 2000 and 2001,  respectively.  Of
     the $3.4 million  increase in property  operating  expenses and real estate
     taxes, $0.4 million resulted from the Company's "Same Property"  portfolio,
     $0.2 million  resulted from  properties  acquired in 1998,  ($0.6)  million
     resulted  from  properties  acquired in 1999,  $1.0 million  resulted  from
     properties  acquired in 2000,  and $2.4 million  resulted  from  properties
     acquired in 2001. The overall increase in tenant  reimbursements,  property
     operating  expenses  and real  estate  taxes is  primarily  a result of the
     growth in the total square footage of the Company's portfolio of properties
     during the periods  presented.  The increases  experienced  were consistent
     with the increase in rental revenues.  General and administrative  expenses
     increased  by $0.2  million from $1.1 million to $1.3 million for the years
     ended  December  31,  2000 and  2001,  respectively,  primarily  due to the
     addition of one new employee in 2001.

     Interest  expense  increased by $0.4 million,  or 5%, from $8.3 million for
     the year  ended  December  31,  2000 to $8.7  million  for the  year  ended
     December 31, 2001,  primarily due to a mortgage loan we  established in May
     2000 in connection with a property  acquisition.  Interest expense (related
     parties)  increased by $0.2 million,  or 4%, from $4.5 million for the year
     ended  December  31, 2000 to $4.7  million for the year ended  December 31,
     2001. Interest rates decreased in 2001, which partially offset the increase
     in interest on additional debt outstanding. As a result of ten R&D property
     acquisitions  since December 31, 2000, debt outstanding,  including amounts
     due  related  parties,  increased  by $24.1  million,  or 12%,  from $194.6
     million as of December 31, 2000 to $218.7  million as of December 31, 2001.
     Management  expects  interest  expense to  increase as  additional  debt is
     incurred in connection with new property acquisitions.

     Depreciation  expense increased by $1.4 million,  or 9%, from $15.5 million
     to  $16.9  million  for  the  years  ended  December  31,  2000  and  2001,
     respectively.  The increase was  attributable to the acquisition of ten R&D
     properties  comprised of  approximately  875,000 rentable square feet since
     December 31, 2000.

     MINORITY INTEREST AND NET INCOME
     --------------------------------
     As of December 31, 2001 and 2000, we owned a general  partnership  interest
     of 16.54%,  21.41%, 15.42% and 12.24% and 18.15%, 21.36%, 15.38% and 12.21%
     in Mission West Properties,  L.P., Mission West Properties, L.P. I, Mission
     West  Properties,   L.P.  II  and  Mission  West   Properties,   L.P.  III,
     respectively,  which are the operating partnerships.  We owned a 16.73% and
     16.92% general partnership interest in the operating partnerships, taken as
     a whole,  on a weighted  average  basis as of  December  31, 2001 and 2000,
     respectively. Our income attributed to minority interest increased by $32.5
     million, or 55%, from $59.1 million for the year ended December 31, 2000 to
     $91.6 million for the year ended December 31, 2001. Net

                                     - 28 -
<PAGE>

     income to  shareholders  increased  by $5.5  million,  or 44%,  from  $12.6
     million  for the year ended  December  31,  2000 to $18.1  million for year
     ended December 31, 2001. Minority interest represents the limited partners'
     ownership interest of 83.27% and 83.08%, on a weighted average basis, as of
     December 31, 2001 and 2000,  respectively,  in the operating  partnerships.
     The increase in the minority interest percentage resulted from the issuance
     of additional  O.P. Units in connection  with the  acquisition of eight new
     properties under the Berg land holdings option agreement.

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

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

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

(1)  Two buildings were acquired at this location.

     The following  table  depicts the amounts of rental  revenues for the years
     ended December 31, 2000 and 1999  represented by our historical  properties
     and our acquired  properties  since July 1, 1998 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
                                    2000                1999            $ Change          Property Group       Net Change
                               --------------      --------------     --------------      --------------     --------------
                                               (dollars in thousands)
<S>                               <C>                 <C>                <C>                  <C>                 <C>
Same Property (1)                  $59,304             $54,194            $ 5,110                9.4%               6.9%
1998 Acquisitions                    2,330               2,342               (12)              (0.5%)                  -
1999 Acquisitions (2)               25,635              17,190              8,445               49.1%              11.4%
2000 Acquisitions                   12,298                   -             12,298              100.0%              16.7%
                               --------------      --------------     --------------                         --------------
               Total/Overall       $99,567             $73,726            $25,841               35.0%              35.0%
                               ==============      ==============     ==============                         ==============
</TABLE>

(1)  "Same  Property"  is  defined  as  properties  owned  as of July  1,  1998,
     properties acquired in 1998 and still owned as of December 31, 2000.
(2)  The amounts,  for "1999  Acquisitions" in year 1999, for some properties do
     not  reflect  a full  twelve  months  of  rent  due to  the  timing  of the
     acquisition of the properties during the year 1999.


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

                                     - 29 -
<PAGE>


     EXPENSES
     --------
     The following  table reflects the increase in property  operating  expenses
     and real estate taxes for the year ended  December  31, 2000 over  property
     operating  expenses and real estate  taxes for the year ended  December 31,
     1999 and the  percentage of total increase in expenses over the period that
     is represented by each group of properties.
<TABLE>
<CAPTION>

                                           December 31,
                               ----------------------------------
                                                                                           % Change by         % of Total
                                    2000                1999            $ Change          Property Group       Net Change
                               --------------      --------------     --------------      --------------     --------------
                                                (dollars in thousands)
<S>                               <C>                 <C>                 <C>                 <C>                 <C>
Same Property (1)                  $11,228             $ 9,882             $1,346               13.6%              11.7%
1998 Acquisitions                      271                 291               (20)              (6.9%)                  -
1999 Acquisitions (2)                2,813               1,294              1,519              117.4%              13.2%
2000 Acquisitions                      713                   -                713              100.0%               6.2%
                               --------------      --------------     --------------                         --------------
               Total/Overall       $15,025             $11,467             $3,558               31.0%              31.0%
                               ==============      ==============     ==============                         ==============
</TABLE>

(1)  "Same  Property"  is  defined  as  properties  owned  as of July  1,  1998,
     properties acquired in 1998 and still owned as of December 31, 2000.
(2)  The amounts,  for "1999  Acquisitions" in year 1999, for some properties do
     not  reflect a full twelve  months of  operating  expenses  and real estate
     taxes due to the timing of the  acquisition  of the  properties  during the
     year 1999.

     Tenant reimbursements increased by $3.6 million, or 33%, from $11.0 million
     for the year ended  December  31, 1999 to $14.6  million for the year ended
     December 31, 2000.  Operating expenses and real estate taxes, on a combined
     basis,  increased  by $3.5  million,  or 31%,  from $11.5  million to $15.0
     million for the years ended  December 31, 1999 and 2000,  respectively.  Of
     the $3.5 million  increase in property  operating  expenses and real estate
     taxes, $1.3 million resulted from the Company's "Same Property"  portfolio,
     $1.5 million  resulted from  properties  acquired in 1999, and $0.7 million
     resulted from properties  acquired in 2000. The overall  increase in tenant
     reimbursements,  property  operating  expenses  and  real  estate  taxes is
     primarily  a result  of the  growth  in the  total  square  footage  of the
     Company's  portfolio  of  properties  during  the  periods  presented.  The
     increases experienced were consistent with the increase in rental revenues.
     Other income,  including interest,  was approximately $1.7 million and $1.2
     million for the years ended December 31, 2000 and 1999,  respectively.  The
     $0.5  million  increase  was due to the  sale of  securities.  General  and
     administrative  expenses  decreased by $0.12  million from $1.18 million to
     $1.06 million for the years ended December 31, 1999 and 2000, respectively,
     due to the decrease in legal expenses.

     Interest expense decreased by $3.3 million,  or 28%, from $11.6 million for
     the year  ended  December  31,  1999 to $8.3  million  for the  year  ended
     December 31, 2000,  primarily  due to the repayment of the Wells Fargo line
     of credit in 1999.  Interest  expense (related  parties)  increased by $2.2
     million, or 100%, from $2.2 million for the year ended December 31, 1999 to
     $4.4 million for the year ended December 31, 2000. The increase in interest
     expense (related  parties) was attributable to our substitution of the Berg
     Group line of credit for the Wells Fargo line of credit, and our use of the
     new  credit  line in 2000  for nine R&D  property  acquisitions  comprising
     approximately  891,000 rentable square feet.  Interest rates also increased
     in the second half of the year. On a combined basis, total interest expense
     decreased  $1.1 million from December 31, 1999 to December 31, 2000 because
     of the repayment of the Wells Fargo line of credit. As a result of nine R&D
     property acquisitions since December 31, 1999, debt outstanding,  including
     amounts due related  parties,  increased by $29.5 million,  or 17.9%,  from
     $165.1 million as of December 31, 1999 to $194.6 million as of December 31,
     2000. Management expects interest expense to increase as additional debt is
     incurred in connection with new property acquisitions.

     Depreciation  expense increased by $2.3 million, or 17%, from $13.2 million
     to $15.5 million from 1999 to 2000.  The additional  depreciation  resulted
     from nine R&D properties acquired in 2000.

     MINORITY INTEREST AND NET INCOME
     --------------------------------
     As of December 31, 2000 and 1999, we owned a general  partnership  interest
     of 18.15%,  21.36%, 15.38% and 12.21% and 20.28%, 21.32%, 15.33% and 12.18%
     in Mission West Properties,  L.P., Mission West Properties, L.P. I, Mission
     West  Properties,   L.P.  II  and  Mission  West   Properties,   L.P.  III,
     respectively,  which are the operating partnerships.  We owned a 16.92% and
     18.28% general partnership interest in the operating partnerships, taken as
     a whole,  on a weighted  average  basis as of  December  31, 2000 and 1999,
     respectively. Our income attributed to minority interest increased by $19.3
     million, or 48%, from $39.8 million for the year ended December 31, 1999 to
     $59.1  million  for the  year  ended  December  31,  2000.  Net  income  to
     shareholders  increased by $6.1 million,  or 94%, from $6.5 million for the
     year ended  December 31, 1999 to $12.6 million for year ended  December 31,
     2000. Minority interest represents the limited partners' ownership interest
     of 83.08% and 81.72%,  on a weighted average basis, as of December 31, 2000
     and 1999, respectively, in the operating partnerships.  The increase in the
     minority interest  percentage resulted from the issuance of additional O.P.
     Units in connection with the  acquisition of nine new properties  under the
     pending  projects  acquisition  agreement and the Berg land holdings option
     agreement.

                                     - 30 -
<PAGE>

     CHANGES IN FINANCIAL CONDITION

     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 employee  stock options and the exchange of
     O.P. Units for common stock.

     During  2001,  we  acquired  eight R&D  properties,  all located in Silicon
     Valley.  These  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  these
     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 a  tax-deferred  exchange  with  the
     property sold to Cisco Systems, Inc. as discussed below. The sales proceeds
     from the properties  sold by the Company were classified as restricted cash
     for use in  tax-deferred  property  exchanges  and  were  reflected  on our
     balance  sheet as  restricted  cash at December 31,  2001.  No debt or O.P.
     Units were issued for these two acquisitions.

     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 a purchase option in
     November  2000.  We realized a gain of $3.1  million,  which is included in
     other income, 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 exercised a purchase option in November
     2000.  We  realized  a gain of $8.5  million,  which is  included  in other
     income,  on the total sale price of $15.4  million.  Prior to completion of
     the  transactions,  the  sales  proceeds  from the  properties  sold by the
     Company  were  classified  as  restricted  cash to be used in  tax-deferred
     property exchanges.

     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 in an
     operating  partnership  exchanged  236,326 O.P. Units for 236,326 shares of
     the  Company's  common  stock  under  the  terms  of  the  exchange  rights
     agreement.

     YEAR ENDED DECEMBER 31, 2000.

     In 2000,  our  financial  condition  changed  principally  as a  result  of
     property acquisitions. In addition, stockholders' equity increased from the
     exercise of employee  stock  options.  During  2000,  we acquired  nine R&D
     properties, all located in Silicon Valley.

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

     In May  2000,  we  entered  into a  joint  venture  and  acquired  two  R&D
     properties of  approximately  160,000  square feet located at 5300 and 5350
     Hellyer Avenue in San Jose,  California  from the Berg Group under the Berg
     land holdings option agreement. These properties are operated, managed, and
     owned by a partnership, Hellyer Avenue Limited Partnership, in which one of
     the operating partnerships owns a 50% interest. The total acquisition price
     for these  properties  was $17.2 million.  We acquired these  properties by
     issuing an $11.8  million  note  secured by the property to the Berg Group,
     issuing  659,223  O.P.  Units to  various  members of the Berg  Group,  and
     assuming  other  liabilities  of $0.8  million.  The  mortgage  note  bears
     interest  at  7.65%,  and  is  due in ten  years  with  principal  payments
     amortized  over  20  years.   Included  in  the   acquisition   price  were
     construction fees of approximately $0.6 million, loan fees of approximately
     $0.4 million and commission fees of approximately $0.3 million.

     Also in May  2000,  we  entered  into a  ten-year  lease  with ONI  Systems
     Corporation  ("ONI") for 444,500  square feet of space to be constructed by
     the Berg  Group on land that is subject  to the Berg land  holdings  option
     agreement.  As  partial  consideration  for the lease,  we were  allowed to
     purchase 100,000 shares of ONI common stock in its initial public offering.
     We purchased

                                     - 31 -
<PAGE>
     and then sold all of the shares and realized net proceeds of $6.3  million.
     Of this amount, we recognized  approximately $0.5 million during the second
     quarter with the balance  deferred as prepaid  rent that we are  amortizing
     ratably over the ten-year lease term.

     In November  2000,  Cisco  Systems,  Inc.  exercised  a purchase  option to
     purchase the properties it was leasing from us at 4949 Hellyer Avenue,  San
     Jose,  California  and  5713-5729  Fontanoso  Way,  San  Jose,  California,
     comprising 200,484 and 77,700 rentable square feet, respectively.  The sale
     at 4949 Hellyer Avenue was completed in a tax-deferred  exchange in January
     2001 and the sale of 5713-5729 Fontanoso Way, through another  tax-deferred
     exchange, was closed in the third quarter of 2001.

     During the year ended  December 31, 2000,  stock options were  exercised to
     purchase a total of 52,991  shares of common  stock,  consisting  of 39,237
     shares  exercised at $4.50 per share and 13,754  shares  exercised at $8.25
     per share. Total proceeds to the Company were approximately $0.3 million.

     YEAR ENDED DECEMBER 31, 1999.

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

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

     Michael Anderson, our former Vice President,  Chief Operating Officer and a
     director,  resigned  from the  Company  effective  April 30,  1999.  We had
     previously  issued  200,000  shares of our common stock to Mr.  Anderson in
     exchange for a note  receivable  payable to us for $0.9  million.  Upon Mr.
     Anderson's  resignation,  we  purchased  117,361 of the  200,000  shares of
     common  stock,   and  canceled  the  related  share   purchase   obligation
     representing $0.53 million of the original $0.9 million note receivable. We
     waived interest expense of approximately thirty two thousand dollars due on
     the portion of the note  receivable  relating to the canceled  shares.  The
     remaining  $0.37 million of the note receivable was paid in full during the
     second quarter of 1999.

     In July 1999,  we completed a public  offering of  8,680,000  shares of our
     common stock at $8.25 per share.  The net proceeds of  approximately  $66.9
     million,  after deducting  underwriting discounts and other offering costs,
     were used to reduce  the  outstanding  balance  on the Wells  Fargo line by
     approximately  $41.0  million and to reimburse  Microsoft  Corporation  for
     approximately  $25.0  million  for shell  and  tenant  improvements  on the
     Microsoft project. The remaining net proceeds of approximately $0.9 million
     were retained for general corporate purposes.

     During the year ended December 31, 1999, options were exercised for a total
     of 191,920 shares.  The exercise price for all options  exercised was $4.50
     per  share  and total  proceeds  to the  Company  were  approximately  $0.9
     million.

     LIQUIDITY AND CAPITAL RESOURCES

     We  expect  our  principal   source  of  liquidity  for   distributions  to
     stockholders  and unit  holders,  debt  service,  leasing  commissions  and
     recurring capital expenditures to come from FFO and/or the borrowings under
     the line of credit with the Berg Group and the loan from Citicorp USA, Inc.
     (See  below for  details).  We expect  these  sources  of  liquidity  to be
     adequate  to  meet  projected   distributions  to  stockholders  and  other
     presently anticipated liquidity requirements in 2002. We expect to meet our
     long-term liquidity  requirements for the funding of property  development,
     property acquisitions and other material

                                     - 32 -
<PAGE>

     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 the Berg Group line of credit. Despite the current weakness in the
     economy, we expect interest expense to increase, but not significantly,  as
     we incur debt through  acquisitions of new properties and as interest rates
     increase.

     On May 17, 2001, we obtained a $5.0 million variable rate revolving line of
     credit loan from Cupertino National Bank. The loan,  maturing May 17, 2002,
     bears an initial interest rate of 7% that is subject to change from time to
     time  based on  changes in the  bank's  Prime  Rate.  We paid a loan fee of
     $10,000  and  expect  to use the loan for  general  business  purposes.  At
     December 31, 2001,  the  Cupertino  National Bank line of credit had a zero
     outstanding balance.

     On July 1,  2001,  our $75.0  million  credit  line with the Berg Group was
     increased to $100.0  million with all other terms  remaining the same.  The
     Berg Group line of credit is currently collateralized by eleven properties,
     bears  interest at LIBOR plus 1.30 percent,  and matures in March 2003. The
     interest  rate was 3.3% at December 31, 2001.  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."

     At December 31, 2001, we had total  indebtedness  of  approximately  $218.7
     million, including approximately $138.8 million of fixed rate mortgage debt
     and  approximately  $79.9  million  under the line of credit  from the Berg
     Group,  as to which the  interest  rate varies  with LIBOR.  Of total fixed
     debt, the Prudential loan represented approximately $125.1 million.

     As of December 31, 2001,  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 $12.72 per share on December 31, 2001) on a fully diluted
     basis,  including the conversion of all O.P.  Units into common stock,  was
     approximately  14.2%.  On December 31,  2001,  the last trading day for the
     year, total market capitalization was approximately $1.5 billion.

     On January 10, 2002,  we paid  dividends of $0.24 per share of common stock
     to all common  stockholders  of record as of December 31, 2001. On the same
     date,  the operating  partnerships  paid a  distribution  of $0.24 per O.P.
     Unit.

     On March 1, 2002,  we obtained a $20 million  unsecured  loan from Citicorp
     USA, Inc. with an interest rate based on LIBOR. The loan, maturing March 1,
     2003,  bears a fixed LIBOR  interest rate of 4.09% for the first six months
     and LIBOR plus 2.0% thereafter. We paid a loan fee of $50,000 and expect to
     use the loan for acquiring new R&D properties.

     On March 12, 2002, we declared  dividends of $0.24 per common share payable
     on April 11, 2002 to all common stockholders of record on March 29, 2002.

                                     - 33 -
<PAGE>

     The  following  table  sets  forth  certain   information   regarding  debt
     outstanding as of December 31, 2001.

<TABLE>
<CAPTION>


                                                                                          At December 31,   Maturity     Interest
           Debt Description                           Collateral Properties                   2001            Date         Rate
-----------------------------------------  -------------------------------------------  -----------------  ----------  ------------
                                                                                      (dollars in thousands)
<S>                                       <C>                                               <C>              <C>          <C>
Line of Credit:
Berg Group (related parties)               2033-2043 Samaritan Drive, San Jose, CA           $ 79,887          3/03          (1)
                                           2133 Samaritan Drive, San Jose, CA           -----------------
                                           2233-2243 Samaritan Drive, San Jose, CA
                                           1310-1450 McCandless Drive, Milpitas, CA
                                           1315-1375 McCandless Drive, Milpitas, CA
                                           1650-1690 McCandless Drive, Milpitas, CA
                                           1795-1845 McCandless Drive, Milpitas, CA
                                           5325 Hellyer Avenue, San Jose, CA
                                           5345 Hellyer Avenue, San Jose, CA
                                           2610 North First Street, San Jose, CA
                                           75 East Trimble Road, San Jose, CA

Mortgage Notes Payable (related parties):  5300-5350 Hellyer Avenue, San Jose, CA              11,371          6/10        7.650%
                                                                                        -----------------
Mortgage Notes Payable (2):
Prudential Capital Group                   20400 Mariani Avenue, Cupertino, CA                  1,597          4/09        8.750%
New York Life Insurance Company            10440 Bubb Road, Cupertino, CA                         347          9/09        9.625%
Home Savings & Loan Association            10460 Bubb Road, Cupertino, CA                         363         12/06        9.500%
Prudential Insurance Co. of America (3)    10300 Bubb Road, Cupertino, CA                     125,109         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
                                           450-460 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
                                                                                        -----------------
Mortgage Notes Payable                                                                        127,416
                                                                                        -----------------
Total                                                                                        $218,674
                                                                                        =================
</TABLE>

(1)  The debt owed to the Berg Group under the line of credit carries a variable
     interest  rate equal to LIBOR plus 1.30  percent  and is payable in full in
     March 2003. The interest rate was 3.3% at December 31, 2001.
(2)  Mortgage notes payable generally  require monthly  installments of interest
     and  principal  over various  terms  extending  through the year 2009.  The
     weighted  average  interest  rate of  mortgage  notes  payable was 6.69% at
     December 31, 2001.
(3)  The  Prudential  loan is  payable in monthly  installments  of $827,  which
     includes principal (based upon a 30-year  amortization) and interest.  John
     Kontrabecki,  one of the limited  partners,  has  guaranteed  approximately
     $12,000  million of this debt.  Costs and fees incurred with obtaining this
     loan aggregated approximately $900.

                                     - 34 -
<PAGE>

     At December 31, 2001, the  outstanding  balance under the demand notes owed
     to the  operating  partnerships  was $1.27  million.  The  Company  and the
     operating  partnerships  have  agreed to extend  the due date of the demand
     notes 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
     received  from the  operating  partnerships  in  excess  of the  amount  of
     dividends to be paid to our stockholders.

     CURRENT PROPERTIES SUBJECT TO OUR ACQUISITION AGREEMENT WITH THE BERG GROUP

     The following table presents certain  information  concerning  projects for
     which  development  has commenced that we might acquire under the Berg land
     holdings option agreement during 2002. The total acquisition cost of all of
     these projects is estimated currently at approximately  $70.0 million.  For
     more information, please refer to the discussion under Item 1., "Business -
     Acquiring Properties Developed by the Berg Group."
<TABLE>
<CAPTION>

                                                                Approximate
                                                               Rentable Area
        Property                           Net Acres           (Square Feet)
        ----------------------------- -------------------- --------------------
<S>                                            <C>              <C>
        UNDER DEVELOPMENT:
        Morgan Hill (JV I) (1)                  12               160,000
        Morgan Hill (JV II) (1)                 11               151,242
        5345 Hellyer                             8               125,000
        Piercy & Hellyer                        11               165,000
                                      -------------------- --------------------
             Total                              42               601,242
                                      ==================== ====================
</TABLE>

(1)  We expect to own an approximate 50% interest in the partnership through one
     of its operating partnerships. The property will be operated and managed by
     the  other  partner  in  the  entity.   The  rentable  area  and  estimated
     acquisition  value shown above  reflect  both the  Company's  and the other
     partner's combined interest in these properties.

     Pursuant to the Berg land holdings option agreement between us and the Berg
     Group,  we currently have the option to acquire any future R&D,  office and
     industrial  property  developed by the Berg Group on land it currently owns
     or has under option, or acquires for these purposes in the future, directly
     or indirectly by certain members of the Berg Group.

     The time  required to  complete  the  leasing of  developments  varies from
     project to project.  The acquisition  dates and acquisition costs set forth
     in the table  are only  estimates  by  management.  Generally,  we will not
     acquire  any of the  above  projects  until  they are fully  completed  and
     leased.  There can be no assurance that the acquisition date and final cost
     to us as  indicated  above would be  realized.  No estimate can be given at
     this  time as to our total  cost to  acquire  projects  under the Berg land
     holdings option agreement,  nor can we be certain of the period in which we
     will acquire any of the projects.

     Although we expect to acquire the new properties  available to it 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 intended  transactions,  including all
     of those discussed above. Furthermore, we have not yet determined the means
     by which we would acquire and pay for any such  properties or the impact of
     any of the acquisitions on our business,  results of operations,  financial
     condition, FFO or available cash for distribution.

     HISTORICAL CASH FLOWS

     COMPARISON OF THE YEAR ENDED  DECEMBER 31, 2001 TO THE YEAR ENDED  DECEMBER
     31, 2000.

     Net cash provided by operating  activities  for the year ended December 31,
     2001 was  approximately  $111.2 million,  compared to  approximately  $84.6
     million for the prior  year.  The change was a direct  result of  increased
     rent from newly acquired  properties and higher rental rates under existing
     leases.

     Net cash used in investing  activities was  approximately  $3.0 million for
     the year ended December 31, 2001,  compared to  approximately  $2.7 million
     for the prior year. Cash used in investing  activities  during 2001 related
     to improvements and the amortization of the Xilinx purchase option deposit.
     For more information on the Xilinx purchase option,  please review Part II,
     Item 7.,  "Management's  Discussion and Analysis of Financial Condition and
     Results  of  Operations  - Changes  in  Financial  Condition  -- Year ended
     December 31, 1999."

                                     - 35 -
<PAGE>

     Net cash used in financing  activities was approximately $107.5 million for
     the year ended  December 31, 2001,  compared to $83.7  million for the year
     ended  December 31,  2000.  During 2001,  we paid debt  principal  and made
     distributions  to holders of our common stock and O.P. Units utilizing cash
     generated from operating activities.  For the year ended December 31, 2001,
     we paid dividends to our  stockholders  and made  distributions to the O.P.
     Unit   holders   totaling   approximately   $85.0   million,   compared  to
     approximately $61.1 million for the year ended December 31, 2000.

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

     Net cash provided by operating  activities  for the year ended December 31,
     2000 was  approximately  $84.6  million,  compared to net cash  provided in
     operating  activities  of  approximately  $60.3  million for the year ended
     December 31, 1999.  The change was a direct  result of increased  rent from
     newly acquired properties and higher rental rates under existing leases.

     In May 2000,  under a ten-year lease with ONI Systems  Corporation  ("ONI")
     for 444,500 square feet, net cash provided  included gains from the sale of
     stock acquired.  As partial consideration for the lease, we were allowed to
     purchase 100,000 shares of ONI common stock in its initial public offering.
     We  purchased  and then sold all of the shares and realized net proceeds of
     approximately $6.3 million, which we used for debt payments.

     Net cash used in investing  activities was  approximately  $2.7 million for
     the year ended  December 31,  2000,  compared to net cash used in investing
     activities of  approximately  $12.1 million for the year ended December 31,
     1999. Cash used in investing activities during 2000 related to improvements
     and additions made to existing real estate assets.

     Net cash used in financing  activities was approximately  $83.7 million for
     the year ended  December 31, 2000,  compared to $41.9  million for the year
     ended  December 31,  1999.  During 2000,  we paid debt  principal  and made
     distributions  to holders of our common stock and O.P. Units utilizing cash
     generated from operating activities.  For the year ended December 31, 2000,
     we paid dividends to our  stockholders  and made  distributions to the O.P.
     Unit  holders  totaling  $61.1  million,  compared to  approximately  $33.8
     million for the year ended December 31, 1999.

     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, 2001,  the recurring  tenant
     improvement  costs and leasing  commissions  incurred  with  respect to new
     leases and lease renewals of the properties  previously owned or controlled
     by members of the Berg Group averaged approximately $1.75 million annually.
     We will have  approximately  962,253  rentable  square feet under  expiring
     leases in 2002. We expect that the average annual cost of recurring  tenant
     improvements and leasing commissions,  related to these properties, will be
     approximately  $1.3  million  during  2002.  We  believe  we  will  recover
     substantially  all of these sums from the tenants  under the new or renewed
     leases  through  increases  in rental  rates.  Until we  actually  sign the
     leases,  however,  we  cannot  assure  you that this  will  occur.  Capital
     expenditures  may  fluctuate  in any given  period  subject to the  nature,
     extent,  and timing of improvements  required to be made to the properties.
     Tenant  improvements  and  leasing  costs may also  fluctuate  in any given
     period year  depending  upon factors such as the property,  the term of the
     lease,  the type of lease and the overall market  conditions.  We expect to
     meet our  long-term  liquidity  requirements  for the  funding of  property
     acquisitions and other material  non-recurring capital improvements through
     long-term secured and unsecured indebtedness and the issuance of additional
     equity  securities  by the  Company,  but cannot be assured that we will be
     able to meet our  requirements on favorable terms. See "Policy with Respect
     to Certain Activities - Financing Policies."

     FUNDS FROM OPERATIONS

     As defined by the 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 recent  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.

     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

                                     - 36 -
<PAGE>

     discretionary  use; as such funds may be needed for capital  replacement or
     expansion, debt service obligations or other commitments and uncertainties.

     Furthermore,  FFO is not comparable to similarly entitled items reported by
     other  REITs  that do not  define  FFO  exactly as we do. FFO for the years
     ended December 31, 2001 and 2000 is as follows:
<TABLE>
<CAPTION>

                                                      For the Year Ended December 31,
                                        -----------------------------------------------------------
                                                   2001                             2000
                                        --------------------------       --------------------------
                                                           (dollars in thousands)
<S>                                             <C>                               <C>
Net income                                        $18,135                          $12,579
Add:
  Minority interest (1)                            90,915                           58,769
  Depreciation                                     16,917                           15,456
Less:
  Gain on sales of assets                          11,454                              501
                                        --------------------------       --------------------------
FFO                                              $114,513                          $86,303
                                        ==========================       ==========================
</TABLE>

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

     OVERVIEW OF DISTRIBUTION POLICY

     We intend to make regular quarterly  distributions to stockholders and O.P.
     Unit  holders   based  on  our  FAD,   which  is  calculated  as  FFO  less
     straight-line  rents,  leasing  commissions paid, and capital  expenditures
     made during the respective  period.  Our ability to make such distributions
     will be affected by  numerous  factors  including,  most  importantly,  the
     receipt of distributions from the operating partnerships.

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

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

     Distributions are determined by our board of directors and depend on actual
     FAD, our financial condition, capital requirements, the annual distribution
     requirements  under the REIT  provisions of the Code and such other factors
     as the board of directors deems relevant. For a discussion of the risk that
     we will  not  meet  our  distribution  objectives,  see  Part I,  Item  1.,
     "Business - Risk Factors -- Stockholders  are not assured of receiving cash
     distributions from us." The calculation of FAD for the years ended December
     31, 2001 and 2000 is as follows:

<TABLE>
<CAPTION>
                                                        For the Year Ended December 31,
                                         -----------------------------------------------------------
                                                    2001                             2000
                                         --------------------------       --------------------------
                                                            (dollars in thousands)
<S>                                                <C>                               <C>
FFO                                                 $114,513                          $86,303
Less:
  Straight-line rents                                  6,054                            4,905
  Leasing commissions                                    915                            1,401
  Capital expenditures                                 1,042                            1,400
                                         --------------------------       --------------------------
FAD                                                 $106,502                          $78,597
                                         ==========================       ==========================
</TABLE>
                                     - 37 -
<PAGE>

     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;

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

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

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

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


     INVESTMENT POLICIES

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

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

     FINANCING POLICIES

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

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

                                     - 38 -
<PAGE>

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

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

     DISPOSITION POLICIES

     We  have  no  current  intention  of  disposing  of any of our  properties,
     although  we  reserve  the  right to do so.  The tax  basis of the  limited
     partners in the properties in the operating  partnerships is  substantially
     less than current fair market value. Accordingly,  prior to the disposition
     of  their  O.P.  Units,  upon a  disposition  of any of the  properties,  a
     disproportionately  large share of the gain for federal income tax purposes
     would be allocated to the limited partners.  Consequently, it may be in the
     interests of the limited  partners that we continue to hold the  properties
     in order to defer  such  taxable  gain.  In light of this tax  effect,  the
     operating partnership agreements provide that, until January 2009, or until
     the  Berg  Group  members  and  their  affiliates,  other  than  us and the
     operating partnerships,  beneficially own, in the aggregate,  less than 15%
     of the  outstanding  shares of common stock on a Fully  Diluted  basis,  if
     earlier, Mr. Berg and Clyde J. Berg may prohibit the operating partnerships
     from disposing of properties which they designate in a taxable transaction.
     Mr.  Kontrabecki  has  a  similar  right  with  respect  to  seven  of  the
     properties, which right will lapse before the end of the ten-year period if
     his  beneficial  ownership  interest  falls below 750,000 O.P.  Units.  The
     limited  partners may seek to cause us to retain the  properties  even when
     such action may not be in the  interests  of some,  or a  majority,  of our
     stockholders.   The   operating   partnerships   will  be  able  to  effect
     "tax-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  Mr.  Berg or his  designee,  will  be  required  to sell  all or
     substantially  all of our assets.  The consent of the holders of a majority
     of the O.P.  Units will be  required  to effect a sale or sales of all,  or
     substantially all, of the assets of any of the operating partnerships.

     IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

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

                                     - 39 -
<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, and
     pricing  on our  future  debt.  We manage  our  market  risk by  monitoring
     interest  rates  where  we try to  recognize  the  unpredictability  of the
     financial  markets  and seek to reduce  potentially  adverse  effect on the
     results of our  operations.  This takes  frequent  evaluation  of available
     lending rates and examination of  opportunities  to reduce interest expense
     through new sources of debt financing.  By attempting to match  anticipated
     cash inflow from our operating and financing  activities  with  anticipated
     cash outflow to fund debt payments,  distributions to shareholders and O.P.
     Unit holders,  capital expenditures and other cash requirements,  we expect
     to minimize the effects on our future earnings and cash flow where interest
     rate risk is most sensitive.  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, 2001.  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 $125.1 million
     represents the Prudential secured loan.

     For  variable  rate  debt,  the  table  presents  the  assumption  that the
     outstanding  principal  balance  at  December  31,  2001  will be paid upon
     maturity in March 2003.

     For fixed rate debt, the table presents the assumption that the outstanding
     principal  balance at December 31, 2001 will be paid according to scheduled
     principal  payments  and that we will  not  prepay  any of the  outstanding
     principal balance.
<TABLE>
<CAPTION>

                                             2002       2003       2004       2005       2006       Thereafter    Total   Fair Value
                                             ----       ----       ----       ----       ----       ----------    -----   ----------
<S>                                        <C>       <C>         <C>        <C>        <C>          <C>         <C>       <C>
VARIABLE RATE DEBT:                                                         (dollars in thousands)
   Secured notes payable (related parties)            $79,887                                                    $ 79,887  $ 79,887
   Weighted average interest rate                       4.88%

FIXED RATE DEBT:
   Secured notes payable                    $2,334     $2,502     $2,683     $2,877     $3,049       $125,342    $138,787  $138,787
   Weighted average interest rate            6.69%      6.69%      6.69%      6.69%      6.69%          6.69%
</TABLE>


     The variable rate debt represented 36.5% and 26.2%, and the fixed rate debt
     represented  63.5% and 73.8% of all debt  outstanding  for the years  ended
     December 31, 2001 and 2000, respectively. All of the debt is denominated in
     United States dollars. The weighted average interest rate for variable rate
     debt was  approximately  4.88% and 7.72% for the years ended  December  31,
     2001 and 2000, respectively. The difference in spread was due to the eleven
     cuts in interest  rates by the Federal  Reserve  during 2001.  The weighted
     average interest rate for fixed rate debt was approximately 6.69% and 6.72%
     for  the  years  ended  December  31,  2001  and  2000,  respectively.  The
     difference in interest  expense  attributable to the average  interest rate
     difference  between  2000  and  2001  was  $648,000.  We do not  anticipate
     interest  rate  changes in 2002 that would  result in a change in  interest
     expense significantly larger than we experienced from 2000 to 2001.

     The primary market risk we face is the risk of interest rate  fluctuations.
     The Berg  Group  line of credit,  which is tied to a LIBOR  based  interest
     rate,  was  approximately  $79.9  million,  or 26.2%,  of the total  $218.7
     million of debt as of December 31, 2001. 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, 2001, 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, 2001, a 1% increase or decrease in interest  rates on our $79.9 million
     of floating  rate debt would  decrease or  increase,  respectively,  annual
     earnings and cash flows by approximately  $0.8 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.

                                     - 40 -
<PAGE>



ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                          MISSION WEST PROPERTIES, INC.

                          INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                                                                                                                   PAGE
                                                                                                                 ---------
<S>                                                                                                                <C>
Report of Independent Accountants                                                                                   42
Consolidated Balance Sheets of Mission West Properties, Inc. at December 31, 2001 and 2000                          43
Consolidated Statements of Operations of Mission West Properties, Inc. for the years ended                          44
    December 31, 2001, 2000 and 1999
Consolidated Statements of Changes in Stockholders' Equity of Mission West Properties, Inc.                         45
    for the years ended December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows of Mission West Properties, Inc. for the years ended                          46
    December 31, 2001, 2000 and 1999
Notes to the Consolidated Financial Statements                                                                      47
Supplemental Financial Information                                                                                  59
Report of Independent Accountants                                                                                   60
Schedule III: Real Estate and Accumulated Depreciation of Mission West Properties, Inc. as of                       62
    December 31, 2001
Schedule III: Real Estate and Accumulated Depreciation of Mission West Properties, Inc. as of                       64
    December 31, 2000
</TABLE>

                                     - 41 -

<PAGE>



                        Report of Independent Accountants



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

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material  respects,  the financial position of
Mission West Properties,  Inc. and its subsidiaries  (the "Company") at December
31, 2001 and 2000, and the results of their  operations and their cash flows for
each of the three years in the period ended  December 31,  2001,  in  conformity
with accounting  principles  generally accepted in the United States of America.
These financial  statements are the responsibility of the Company's  management;
our responsibility is to express an opinion on these financial  statements based
on our audits.  We conducted our audits of these  statements in accordance  with
auditing  standards  generally  accepted in the United States of America,  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.


PricewaterhouseCoopers LLP

San Francisco, California
January 21, 2002


                                     - 42 -

<PAGE>


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

                                     ASSETS
<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                             ---------------------------------------------
                                                                                     2001                    2000
                                                                             ----------------------  ---------------------
<S>                                                                                     <C>                    <C>
Real estate assets:
  Land                                                                                   $ 218,058              $ 187,219
  Buildings and improvements                                                               692,485                654,259
                                                                             ----------------------  ---------------------
                                                                                           910,543                841,478
  Less accumulated depreciation                                                           (49,608)               (34,022)
                                                                             ----------------------  ---------------------
Net real estate assets                                                                     860,935                807,456

Cash and cash equivalents                                                                    5,310                  4,691
Restricted cash                                                                             15,435                      -
Deferred rent                                                                               16,923                 10,869
Other assets (net of accumulated amortization of
   $1,317 and $706 at December 31, 2001 and 2000, respectively)                             11,652                  3,894
                                                                             ----------------------  ---------------------
    Total assets                                                                         $ 910,255              $ 826,910
                                                                             ======================  =====================


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Line of credit (related parties)                                                          $ 79,887               $ 50,886
Mortgage notes payable                                                                     127,416                132,055
Mortgage notes payable (related parties)                                                    11,371                 11,643
Interest payable                                                                               342                    347
Security deposits                                                                            7,337                  4,801
Prepaid rental income                                                                       12,470                 11,298
Dividends/distributions payable                                                             24,742                 19,115
Refundable option payment                                                                   18,836                 20,835
Accounts payable and accrued expenses                                                        4,367                  4,525
                                                                             ----------------------  ---------------------
    Total liabilities                                                                      286,768                255,505
                                                                             ----------------------  ---------------------

Commitments and contingencies (Notes 3, 5, 12 and 14)

Minority interest                                                                          515,063                469,332

Stockholders' equity:
Preferred stock, no par value, 200,000 shares authorized,
    none issued and outstanding                                                                  -                      -
Common stock, $.001 par value at December 31, 2001 and 2000,
    200,000,000 shares authorized, 17,329,779 and 17,025,365 shares
    issued and outstanding at December 31, 2001 and 2000, respectively                          17                     17
Paid-in capital                                                                            126,626                123,136
Accumulated deficit                                                                       (18,219)               (21,080)
                                                                             ----------------------  ---------------------
    Total stockholders' equity                                                             108,424                102,073
                                                                             ----------------------  ---------------------
    Total liabilities and stockholders' equity                                           $ 910,255              $ 826,910
                                                                             ======================  =====================
</TABLE>


                 See notes to consolidated financial statements

                                     - 43 -
<PAGE>


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

<TABLE>
<CAPTION>

                                                                             Year Ended December 31,
                                                         -----------------------------------------------------------------
                                                                2001                   2000                  1999
                                                         --------------------  ---------------------  --------------------

<S>                                                               <C>                    <C>                   <C>
Revenues:
Rental revenues from real estate                                   $ 128,228              $  99,567             $  73,726
Tenant reimbursements                                                 17,571                 14,635                11,047
Other income, including interest and gain on sales of                 13,918                  1,742                 1,220
   assets
                                                         --------------------  ---------------------  --------------------
                                                                     159,717                115,944                85,993

Expenses:
Property operating, maintenance and real estate taxes                 18,403                 15,025                11,467
Interest                                                               8,704                  8,290                11,623
Interest (related parties)                                             4,709                  4,475                 2,246
General and administrative                                             1,284                  1,065                 1,185
Depreciation                                                          16,917                 15,456                13,156
                                                         --------------------  ---------------------  --------------------
                                                                      50,017                 44,311                39,677
                                                         --------------------  ---------------------  --------------------
Income before minority interest                                      109,700                 71,633                46,316

Minority interest                                                     91,565                 59,054                39,785
                                                         --------------------  ---------------------  --------------------
Net income                                                         $  18,135              $  12,579              $  6,531
                                                         ====================  =====================  ====================

Per share amounts:
Basic net income per share                                         $    1.06              $    0.73              $   0.52
                                                         ====================  =====================  ====================
Diluted net income per share                                       $    1.03              $    0.72              $   0.52
                                                         ====================  =====================  ====================
Weighted average shares of common stock (basic)                   17,103,714             17,016,660            12,553,854
                                                         ====================  =====================  ====================
Weighted average shares of common stock (diluted)                 17,589,353             17,510,650            12,658,440
                                                         ====================  =====================  ====================
Weighted average O.P. Units                                       85,122,715             80,807,389            71,620,286
                                                         ====================  =====================  ====================
Outstanding common stock                                          17,329,779             17,025,365            16,972,374
                                                         ====================  =====================  ====================
Outstanding O.P. Units                                            85,762,541             83,576,027            76,205,789
                                                         ====================  =====================  ====================

</TABLE>




                 See notes to consolidated financial statements

                                     - 44 -

<PAGE>


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

<TABLE>
<CAPTION>

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

<S>                                               <C>             <C>      <C>           <C>        <C>               <C>
Balance, December 31, 1998                         8,218,594       $ 8      $ 55,528      $(900)     $(21,383)        $  33,253
Issuance of common stock upon option exercise        191,920                     863                                        863
Issuance of common stock from public offering      8,680,000         9        66,891                                     66,900
Odd lot tender offer                                   (779)                     (8)                                        (8)
Repurchase of common stock                         (117,361)                   (528)         528                              -
Amounts received from 1998 private placements                                                372                            372
Dividends declared                                                                                     (7,229)          (7,229)
Net income                                                                                               6,531            6,531
                                              ----------------- --------- ------------ ----------- -------------- ----------------
Balance, December 31, 1999                        16,972,374        17       122,746           -      (22,081)          100,682
Issuance of common stock upon option exercise         52,991                     390                                        390
Dividends declared                                                                                    (11,578)         (11,578)
Net income                                                                                              12,579           12,579
                                              ----------------- --------- ------------ ----------- -------------- ----------------
Balance, December 31, 2000                        17,025,365        17       123,136           -      (21,080)          102,073
Issuance of common stock upon option exercise         68,088                     535                                        535
Issuance of common stock upon O.P. Unit conversion   236,326                   2,955                                      2,955
Dividends declared                                                                                    (15,274)         (15,274)
Net income                                                                                              18,135           18,135
                                              ----------------- --------- ------------ ----------- -------------- ----------------
Balance, December 31, 2001                        17,329,779       $17      $126,626      $    -     $(18,219)        $108,424
                                              ================= ========= ============ =========== ============== ================

</TABLE>


                 See notes to consolidated financial statements

                                     - 45 -

<PAGE>


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

<TABLE>
<CAPTION>


                                                                                Year Ended December 31,
                                                                     2001                2000                 1999
                                                              -------------------  ------------------   ------------------
<S>                                                                   <C>                 <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                             $  18,135           $  12,579            $   6,531
Adjustments to reconcile net income to net
          cash provided by operating activities:
     Minority interest                                                    91,565              59,054               39,785
     Depreciation                                                         16,917              15,456               13,156
     Gain on sales of assets                                            (11,453)                   -                    -
     Other                                                                    13               (364)                    -
Change in operating assets and liabilities:
     Deferred rent                                                       (6,054)             (4,905)              (4,340)
     Other assets                                                          (164)               (942)                (604)
     Interest payable                                                        (5)               (658)                  373
     Security deposits                                                       797               1,854                  127
     Prepaid rental income                                                 1,172               3,064                4,555
     Accounts payable and accrued expenses                                   234               (558)                  715
                                                              -------------------  ------------------   ------------------
     Net cash provided by operating activities                           111,157              84,580               60,298
                                                              -------------------  ------------------   ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to real estate                                              (1,041)             (2,007)             (33,648)
Refundable option payment                                                (1,999)               (729)               21,564
Proceeds from sales of real estate                                        38,489                   -                    -
Purchase of real estate                                                 (23,054)                   -                    -
Restricted cash                                                         (15,435)                   -                    -
                                                              -------------------  ------------------   ------------------
     Net cash used in investing activities                               (3,040)             (2,736)             (12,084)
                                                              -------------------  ------------------   ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on line of credit                                               -                   -             (27,201)
Principal payments on mortgage notes payable                             (4,639)             (1,897)             (23,236)
Principal payments on mortgage notes payable (related parties)             (272)               (149)             (25,761)
Net payments under line of credit (related parties)                     (18,136)            (20,813)                    -
Payments on receivable from private placements                                 -                   -                  372
Net proceeds from issuance of common stock                                     -                   -               66,900
Net proceeds from exercise of stock options                                  536                 290                  863
Repurchase of common stock                                                     -                   -                  (8)
Minority interest distributions                                         (70,636)            (50,250)             (29,151)
Dividends                                                               (14,351)            (10,887)              (4,685)
                                                              -------------------  ------------------   ------------------
     Net cash used in financing activities                             (107,498)            (83,706)             (41,907)
                                                              -------------------  ------------------   ------------------
     Net increase (decrease) in cash and cash equivalents                    619             (1,862)                6,307
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                               4,691               6,553                  246
                                                              -------------------  ------------------   ------------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                 $   5,310           $   4,691            $   6,553
                                                              ===================  ==================   ==================

</TABLE>

         Please refer to Note 13 for supplemental cash flow information.


                 See notes to consolidated financial statements

                                     - 46 -
<PAGE>


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


1.   ORGANIZATIONS AND FORMATION OF THE COMPANY

     Mission  West  Properties,  Inc.  ("the  Company")  is a fully  integrated,
     self-administered  and  self-managed  real estate company that acquires and
     manages  office/R&D/manufacturing  properties  in the  portion  of the  San
     Francisco Bay Area commonly  referred to as Silicon  Valley.  In July 1998,
     the  Company  acquired  control  of  four  existing  limited   partnerships
     (referred to collectively as the "operating partnerships"), by becoming the
     sole  general  partner  in each one  effective  July 1, 1998 for  financial
     accounting  and reporting  purposes.  The 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  O.P.  Units,   which  represented  an  ownership   interest  of
     approximately   87.89%  of  the  operating   partnerships.   The  operating
     partnerships  are the  vehicles  through  which  the  Company  will own its
     assets,  will make its  future  acquisitions,  and  generally  conduct  its
     business.

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

     As of December 31, 2001, the Company owns a general partnership interest of
     16.54%, 21.41%, 15.42% and 12.24% in Mission West Properties, L.P., Mission
     West Properties,  L.P. I, Mission West Properties, L.P. II and Mission West
     Properties,  L.P.  III,  respectively,  for a  16.73%  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 97 R&D
     properties, all of which are located in the Silicon Valley.


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     PRINCIPLES OF CONSOLIDATION AND FINANCIAL STATEMENT PRESENTATION:

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

     The  preparation of financial  statements in conformity  with 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.  Actual
     results could differ from those estimates.

     REAL ESTATE ASSETS:

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

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

                                     - 47 -
<PAGE>


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

     would affect the recorded amounts of the property.  As of December 31, 2001
     and 2000, the properties'  carrying values did not exceed the estimated sum
     of their net cash flow and no impairment losses were recorded.

     DEPRECIATION:

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

     CASH AND CASH EQUIVALENTS:

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

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

     RESTRICTED CASH:

     Restricted  cash represent  proceeds  received from property sales that are
     held in a  separate  cash  account  at a trust  company  for  future use in
     tax-deferred exchanges.

     DEFERRED RENT:

     Deferred rent is the difference between recognized rental income and rental
     cash receipts.  Rental income is recognized on the straight-line  method of
     accounting  required by GAAP under which contractual rent payment increases
     are recognized evenly over the lease term.

     OTHER ASSETS:

     Included  in  other  assets  are  costs   associated  with  obtaining  debt
     financing.  Such costs are being  amortized over the term of the associated
     debt, by a method that  approximates the effective  interest  method.  Also
     included is the Berg Group's  obligation of  approximately  $7.5 million to
     construct a building at 245 Caspian Drive in Sunnyvale, California.

     MINORITY INTERESTS:

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

     REVENUE RECOGNITION:

     Rental  income is  recognized  on the  straight-line  method of  accounting
     required  by GAAP  under  which  contractual  rent  payment  increases  are
     recognized  evenly over the lease term. The difference  between  recognized
     rental  income and rental cash receipts is recorded as deferred rent on the
     balance  sheet.  Certain  lease  agreements  contain terms that provide for
     additional rents based on reimbursement of certain costs.  These additional
     rents are reflected on the accrual basis.

     INCOME TAXES:

     The Company has been taxed as a real estate investment trust ("REIT") under
     the Internal Revenue Code of 1986, as amended, (the "Code") commencing with
     the  taxable  year ended  December  31,  1999.  In order for the Company to
     qualify as a REIT,  it must  distribute  annually  at least 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,
     2001, 2000 and 1999 no provision for federal income taxes has been included
     in the accompanying consolidated financial statements.

     For the year ended December 31, 2001, the Company's total dividends paid or
     payable to the  stockholders  represent 100% ordinary income for income tax
     purposes.

                                     - 48 -
<PAGE>

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

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

     FAIR VALUE OF FINANCIAL INSTRUMENTS:

     The Company's financial instruments include cash, receivables, payables and
     debt.  Considerable  judgment is required  in  interpreting  market data to
     develop  estimates  of fair value.  Accordingly,  the  estimates  presented
     herein are not necessarily indicative of the amounts that the Company could
     realize  in  a  current  market  exchange.  The  use  of  different  market
     assumptions  and/or estimation  methodologies may have a material effect on
     the estimated fair value amounts.

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

     RECLASSIFICATIONS:

     Certain prior year amounts have been reclassified to conform to the current
     year's presentation.

     CONCENTRATION OF CREDIT RISK

     The Company's  properties are not geographically  diverse,  and our tenants
     operate  primarily in the information  technology  industry.  Additionally,
     because  the  properties  are  leased to 89  tenants,  default by any major
     tenant could  significantly  impact the results of the consolidated  total.
     One tenant, Microsoft Corporation, accounted for approximately 16.0%, 19.9%
     and 18.0% of the Company's rental revenues for the years ended December 31,
     2001, 2000 and 1999, respectively,  with the next largest tenant accounting
     for 8.8%, 6.7% and 9.1%,  respectively,  of total rental  revenues.  Rental
     income from Microsoft Corporation was $19,556,  $18,803 and $13,249 for the
     years ended December 31, 2001, 2000 and 1999, respectively.  Future minimum
     rents from this tenant are $92,139.  However,  management believes the risk
     of default is reduced because of the nature of these properties for ongoing
     tenant operations.  In the second half of 2001 and early 2002, three of the
     Company's tenants filed voluntary petitions for bankruptcy protection under
     Chapter  11,  and one  tenant  terminated  its  lease.  Please see Note 15.
     "Subsequent Events" for more details.


3.   STOCK TRANSACTIONS

     As of December 31, 2001 and 2000,  $1,274 and $1,186  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 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

                                     - 49 -
<PAGE>

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

     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  2001,  there were  236,326  O.P.
     Units  tendered  to the  Company  and  exchanged  for shares of the Company
     common stock. No O.P. Units were tendered in 2000.

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

     During the year ended  December 31, 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. Two limited partners in an operating
     partnership  exchanged  236,326  O.P.  Units  for  236,326  shares  of  the
     Company's common stock under the terms of the exchange rights agreement.


4.   MINORITY INTEREST

     Minority  interest   represents  the  separate  private  ownership  of  the
     operating   partnerships,   by  the  Berg  Group  and  other  non-affiliate
     interests.  In total,  these interests  account for 83.27% and 83.08%, on a
     weighted  average  basis,  of the  ownership  interests  in the real estate
     operations  of the Company as of December 31, 2001 and 2000,  respectively.
     Minority  interest in earnings has been calculated by taking the net income
     of the operating  partnerships (on a stand-alone  basis)  multiplied by the
     respective minority interest ownership percentage.

     There are three  properties  (owned through three separate joint  ventures)
     for  which  100%  of  the  ownership  is  not  held  within  the  operating
     partnerships.  The  operating  partnerships  own an 83.33%  interest in the
     first joint venture, a 75% interest in the second joint venture,  and a 50%
     interest in the third joint venture. For the years ended December 31, 2001,
     2000,  and  1999,   income  associated  with  the  interests  held  by  the
     non-affiliated  third parties of these  properties is $650, $481, and $113,
     respectively.


5.   REAL ESTATE

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

<TABLE>
<CAPTION>
                                                                            Rentable           Acquisition
                       Property                    Acquisition Date      Square Footage           Value
              --------------------------------     ----------------     ----------------    -----------------
<S>                                                 <C>                  <C>                   <C>
              1688 Richard Avenue                     9/1/1998               52,800                4,198
              6810 Santa Teresa Blvd                  3/1/1999               54,996                8,558
              1065 L'Avenida                          4/1/1999              515,700              156,107
              1700 Richard Avenue                     7/1/1999               58,783                5,756
              1750 Automation Pkwy                    7/1/1999               80,641               15,963
              1756 Automation Pkwy                    1/5/2000               80,640               14,594
              1762 Automation Pkwy                    4/1/2000               61,100               17,029
              1768 Automation Pkwy                   12/1/2000              110,592               27,316
                                                                        ----------------    -----------------
                   Total                                                  1,015,252             $249,521
                                                                        ================    =================
</TABLE>

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


     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  292 acres of  Silicon  Valley  land,  including  land  under
     development,  owned directly or under 50% joint venture by certain  members
     of the Berg Group that are  subject to the terms of the Berg land  holdings
     option  agreement.  The owners of the future R&D property  developments may
     obtain cash or, at their option,  O.P. Units valued at the average  closing
     price  of the  shares  of  common  stock  over  the  30-trading-day  period
     preceding the acquisition  date. To date, the Company has completed sixteen
     acquisitions  under the Berg land holdings  option  agreement  representing
     approximately  1,574,000  rentable  square feet (see Property  Acquisitions
     below).  Upon the  Company's  exercise of an option to purchase  any of the
     future R&D property developments,  the acquisition price will equal the sum
     of (a) the full construction cost of the building; plus (b) 10% of the full
     construction  cost of the  building;  plus (c)  interest  at LIBOR  (London
     Interbank  Offer  Rate) plus  1.65% on the amount of the full  construction
     cost of the building  for the period from the date funds were  disbursed by
     the  developer to the close of escrow;  plus (d) the  original  acquisition
     cost of the parcel on which the  improvements  will be  constructed,  which
     range from $8.50 to $20.00 per square foot for land currently  owned;  plus
     (e) 10% per annum of the  amount of the  original  acquisition  cost of the
     parcel from the later of January 1, 1998 and the seller's  acquisition date
     to the close of escrow;  minus (f) the  aggregate  principal  amount of all
     debt encumbering the acquired  property,  or a lesser amount as approved by
     the independent directors committee.

     Pursuant to the Berg land holdings option agreement between the Company and
     the Berg Group, the Company  currently has the option to acquire any future
     R&D, office and industrial  property developed by the Berg Group on land it
     currently  owns or has under option,  or acquires for these purposes in the
     future, directly or indirectly by certain members of the Berg Group.

     The time  required to  complete  the  leasing of  developments  varies from
     project to project.  The acquisition  dates and acquisition costs set forth
     in the table are only estimates by management.  Generally, the Company will
     not acquire any of the above  projects  until they are fully  completed and
     leased.  There can be no assurance that the acquisition date and final cost
     to the Company as  indicated  above would be  realized.  No estimate can be
     given at this time as to the Company's total cost to acquire projects under
     the Berg land  holdings  option  agreement,  nor can we be  certain  of the
     period in which we will acquire any of the projects.

     Although the Company expects to acquire the new properties  available to it
     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  the  Company   actually  will   consummate  any  intended
     transactions,  including all of those  discussed  above.  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, FFO or available cash
     for distribution.

     No  estimate  can be given at this time as to the total cost to the Company
     to acquire projects under the Berg land holdings option  agreement,  or the
     timing as to when the Company will acquire such projects. However, the Berg
     Group  is  currently   constructing   four   properties  with  a  total  of
     approximately  601,000  rentable square feet that the Company has the right
     to acquire under this agreement. Of the four properties,  two are 50% joint
     ventures  consisting of  approximately  311,000 rentable square feet. As of
     December  31,  2001,  the  estimated  acquisition  value  to the  operating
     partnerships  for these four projects is approximately  $70,000.  The final
     acquisition price of these four properties could differ  significantly from
     this estimate.  In addition to projects  currently under  development,  the
     Company has the right to acquire future  developments  by the Berg Group on
     up to 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.

                                     - 51 -

<PAGE>

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

     PROPERTY ACQUISITIONS (UNAUDITED)
     As of December 31, 2001,  the Company had  acquired  thirty R&D  properties
     under its agreements with the Berg Group.

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

<TABLE>
<CAPTION>

                                                    First
                                                  Year's Rent           Rentable             Estimated           Acquisition
               Property                         Per Square Foot      Square Footage          Fair Value             Value
              -------------------------------- -----------------    -----------------    -----------------    -----------------
<S>                                              <C>                  <C>                   <C>                  <C>
              2001 ACQUISITIONS:
              5325 Hellyer Avenue                 $1.46                  131,500             $ 21,942             $ 15,472
              5500 Hellyer Avenue                 $1.87                  117,740               25,183               17,809
              245 Caspian Drive                   $3.13                   59,400               21,216               13,388
              855 Branham Lane East               $2.74                   67,912               21,234                9,809
              5550 Hellyer Avenue                 $1.21                   78,794               10,892                7,134
              5905-5965 Silver Creek Valley Rd I  $1.78                  247,500               50,349               26,991
              5750 Hellyer Avenue                 $1.55                   73,312               12,954                6,620
              5905-5965 Silver Creek Valley Rd II $1.78                   98,500               20,038                6,658
                                                                    -----------------    -----------------    -----------------
                  Subtotal                                               874,658              183,808              103,881
                                                                    -----------------    -----------------    -----------------
              2000 ACQUISITIONS:
              1756 Automation Pkwy                $1.81                   80,640               16,367               14,594
              800 Branham Lane East               $1.14                  239,000               32,054               18,359
              255 Caspian Drive                   $1.70                   98,500               20,094               11,637
              1762 Automation Pkwy                $2.75                   61,100               20,196               17,029
              5300-5350 Hellyer Avenue            $1.60                  160,000               30,720               17,184
              5400 Hellyer Avenue                 $1.52                   77,184               14,078                8,598
              45365 Northport Loop West           $1.58                   64,218               12,140                8,158
              1768 Automation Pkwy                $2.31                  110,592               30,432               27,316
                                                                    -----------------    -----------------    -----------------
                  Subtotal                                               891,234              176,081              122,875
                                                                    -----------------    -----------------    -----------------
              1999 ACQUISITIONS:
              6810 Santa Teresa Blvd              $1.38                   54,996                9,107                8,558
              1065 L'Avenida                      $2.95                  515,700              182,558              156,107
              1750 Automation Pkwy                $1.69                   80,641               16,354               15,963
              1700 Richard Avenue                 $0.80                   58,783                5,940                5,756
              5713-5729 Fontanoso Way (1)         $1.30                   77,700               12,121                7,169
                                                                    -----------------    -----------------    -----------------
                  Subtotal                                               787,820              226,080              193,553
                                                                    -----------------    -----------------    -----------------
              1998 ACQUISITIONS:
              1688 Richard Avenue                 $1.06                   52,800                6,716                4,198
              5850-5870 Hellyer Avenue            $0.99                  109,715               13,034                9,494
                                                                    -----------------    -----------------    -----------------
                  Subtotal                                               162,515               19,750               13,692
                                                                    -----------------    -----------------    -----------------
              Total                                                    2,716,227             $605,719             $434,001
                                                                    =================    =================    =================
</TABLE>

(1)  This property was sold in September 2001.


                                     - 52 -

<PAGE>

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

6.   DEBT

     The  following  table  sets  forth  certain   information   regarding  debt
     outstanding as of December 31, 2001 and 2000.
<TABLE>
<CAPTION>

                                                                                       Balance               Maturity   Interest
        Debt Description               Collateral Properties                        At December 31,            Date       Rate
---------------------------------- ----------------------------------------- ------------------------------ ---------- -----------
                                                                                  2001            2000
                                                                             --------------  --------------
<S>                               <C>                                         <C>             <C>            <C>          <C>
Line of Credit:
Berg Group (related parties)       2033-2043 Samaritan Drive, San Jose, CA     $  79,887       $  50,886       3/03          (1)
                                   2133 Samaritan Drive, San Jose, CA        --------------  --------------
                                   2233-2243 Samaritan Drive, San Jose, CA
                                   1310-1450 McCandless Drive, Milpitas, CA
                                   1315-1375 McCandless Drive, Milpitas, CA
                                   1650-1690 McCandless Drive, Milpitas, CA
                                   1795-1845 McCandless Drive, Milpitas, CA
                                   5325 Hellyer Avenue, San Jose, CA
                                   5345 Hellyer Avenue, San Jose, CA
                                   2610 North First Street, San Jose, CA
                                   75 East Trimble Road, San Jose, CA

Mortgage Notes Payable (related    5300-5350 Hellyer Avenue, San Jose, CA         11,371          11,643       6/10        7.650%
parties):                                                                    --------------  --------------
Mortgage Notes Payable: (2)
Prudential Capital Group           20400 Mariani Avenue, Cupertino, CA             1,597           1,756       4/09        8.750%
New York Life Insurance Company    10440 Bubb Road, Cupertino, CA                    347             377       9/09        9.625%
Home Savings & Loan Association    10460 Bubb Road, Cupertino, CA                    363             423      12/06        9.500%
Mellon Mortgage Company (4)        3530 Bassett Street, Santa Clara, CA               -            2,735       6/01        8.125%
Prudential  Insurance  Company of  10300 Bubb Road, Cupertino, CA                125,109         126,764      10/08        6.560%
America (3)                        10500 North De Anza Blvd, Cupertino, CA
                                   4050 Starboard Drive, Fremont, CA
                                   45700 Northport Loop, Fremont, CA
                                   45738 Northport Loop, Fremont, CA
                                   450-460 National Ave, Mountain View, CA
                                   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
                                                                             --------------  --------------
Mortgage Notes Payable                                                           127,416         132,055
                                                                             --------------  --------------
Total                                                                           $218,674        $194,584
                                                                             ==============  ==============
</TABLE>


(1)  The debt owed to the Berg Group under the line of credit carries a variable
     interest  rate equal to LIBOR plus 1.30  percent  and is payable in full in
     March 2003.  The  interest  rate was 3.3% and 7.5% at December 31, 2001 and
     2000, respectively.
(2)  Mortgage notes payable generally  require monthly  installments of interest
     and  principal  over various  terms  extending  through the year 2009.  The
     weighted  average  interest  rate of mortgage  notes  payable was 6.69% and
     6.64% at December 31, 2001 and 2000, respectively.
(3)  The  Prudential  loan is  payable in monthly  installments  of $827,  which
     includes principal (based upon a 30-year  amortization) and interest.  John
     Kontrabecki,  one of the limited  partners,  has  guaranteed  approximately
     $12,000 of this debt.  Costs and fees  incurred  with  obtaining  this loan
     aggregated approximately $900.
(4)  The  Mellon  Mortgage  loan  matured  in June  2001 and was paid off in its
     entirety.



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

<TABLE>
<CAPTION>
                                                           Mortgage Notes Payable       Berg Group Credit
                                                             (Including Related               Line
                                                                  Parties)              (Related Parties)         Total
                                                           -----------------------    ---------------------    -----------
<S>                                                             <C>                         <C>                 <C>
               December 31, 2002                                 $  2,334                                        $  2,334
               December 31, 2003                                    2,502                    $79,887               82,389
               December 31, 2004                                    2,683                                           2,683
               December 31, 2005                                    2,877                                           2,877
               December 31, 2006                                    3,049                                           3,049
               Thereafter                                         125,342                                         125,342
                                                           -----------------------    ---------------------    -----------
                                                                 $138,787                    $79,887             $218,674
                                                           =======================    =====================    ===========
</TABLE>

                                     - 53 -
<PAGE>

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

7.   OPERATING PARTNERSHIP DISTRIBUTIONS

     During 2001, the Company, as general partner of the operating partnerships,
     declared quarterly distributions  aggregating $0.89 per 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.  The entire  amount was  treated as a draw on the
     Berg Group line of credit.

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

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


8.   STOCK-BASED COMPENSATION PLANS

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

     The  1997  Stock  Option  Plan  provides  for the  granting  to  employees,
     including  officers (whether or not they are directors) of "incentive stock
     options"  within  the  meaning  of  Section  422 of the  Code,  and for the
     granting of non-statutory  options to employees,  consultants and directors
     of the Company. Options to purchase a maximum of 5,500,000 shares of common
     stock may be granted under the 1997 Stock Option Plan, subject to equitable
     adjustments to reflect certain corporate events.

     During 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.

     During 2000,  options were granted to five  employees  and three  directors
     totaling  256,000 and 96,000,  respectively,  which become  exercisable  in
     quarterly  installments  equal to 1/16th of the underlying shares beginning
     on the first month anniversary of the grant date. In addition, one employee
     was granted an option for 80,000 shares that become exercisable as follows:
     a) one year from date of grant,  10%; and b) each month  thereafter  for 36
     months,  an additional  2.5%.  Each option has a term of six years from the
     date of grant subject to earlier  termination  in certain events related to
     termination of employment.

     All options granted to employees in 1998 become exercisable as follows:  a)
     six months from date of grant,  6.25%;  b) one year from date of grant,  an
     additional  12.50%;  c) each month thereafter for 36 months,  an additional
     2.26%.  Each option has a term of six years from the date of grant  subject
     to  earlier  termination  in  certain  events  related  to  termination  of
     employment.   Options   granted  to  directors   will  become   exercisable
     cumulatively  with respect to 1/48th of the underlying  shares on the first
     day of each month following the date of grant. Generally,  the options must
     be exercised  while the  optionee is a director of the Company.  The option
     price is equal to the fair market  value of the common stock on the date of
     grant.

     The remaining  contractual lives of unexercised  options granted range from
     January 2004 to April 2007.

                                     - 54 -

<PAGE>

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


     The following table shows the activity and detail for the 1997 Stock Option
     Plan.

<TABLE>
<CAPTION>

                                                               1997 Stock         Option Price
                                                               Option Plan          Per Share
                                                              --------------    ------------------
<S>                                                             <C>                 <C>
                         Balance, December 31, 1998              680,000
                            Options granted                      337,000              $8.25
                            Options exercised                  (191,920)
                            Options cancelled                  (299,722)
                                                              --------------
                         Balance, December 31, 1999              525,358
                            Options granted                       80,000              $8.25
                            Options granted                      352,000             $13.00
                            Options exercised                   (52,991)
                            Options cancelled                  (113,867)
                                                              --------------
                         Balance, December 31, 2000              790,500
                            Options granted                      375,000             $11.33
                            Options exercised                   (68,088)
                            Options cancelled                  (113,500)
                                                              --------------
                         Balance, December 31, 2001              983,912
                                                              ==============
</TABLE>

     As of December 31, 2001,  3,978,089  additional  options were available for
     grant.  None of the options  granted are contingent  upon the attainment of
     performance  goals or subject to other  restrictions.  As of  December  31,
     2001,  outstanding  options to purchase 320,118 shares of common stock were
     exercisable.

     The Company  applies APB 25 and related  interpretations  in accounting for
     its stock-based  compensation plans.  Accordingly,  no compensation expense
     has  been  recognized  for  its   stock-based   compensation   plans.   Had
     compensation  cost for the  Company's  stock option  plans been  determined
     based upon the fair value at the grant date for awards  under  these  plans
     consistent with the methodology  prescribed under SFAS No. 123, "Accounting
     for Stock-Based  Compensation," the Company's net income and net income per
     share would have been decreased by  approximately  $439 or $0.03 per share,
     resulting in a total  consolidated net income of $17,696 or $1.01 per share
     on a diluted  basis,  for the year ended  December 31, 2001.  The estimated
     fair value of the options  granted during 2001 was $13.25 share on the date
     of grant using the  Black-Scholes  option  pricing model with the following
     assumptions: dividend yield of 8%, volatility of 23.03%, risk free rates of
     4.85% and an expected life of 5 years.

     For the year ended  December 31,  2000,  the  Company's  net income and net
     income per share would have been decreased by  approximately  $634 or $0.04
     per share, resulting in a total consolidated net income of $11,945 or $0.68
     per share on a diluted  basis.  The  estimated  fair  value of the  options
     granted  during  2000  ranged from $9.32 to $14.56 per share on the date of
     grant  using the  Black-Scholes  option  pricing  model with the  following
     assumptions: dividend yield of 8%, volatility of 25.37%, risk free rates of
     5.70% to 6.61% and an expected life of 4 years.

     For the year ended  December 31,  1999,  the  Company's  net income and net
     income per share would have been decreased by  approximately  $132 or $0.02
     per share,  resulting in a total consolidated net income of $6,399 or $0.51
     per share.  The estimated fair value of the options granted during 1999 was
     $9.20 per share on the date of grant using the Black-Scholes option pricing
     model with the following  assumptions:  dividend yield of 8%, volatility of
     24.56%, risk free rate of 5.65% and an expected life of 5 years.

     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
     nonforfeitable.  A participant  will become vested in 100% of the Company's
     contributions  after two years of  eligible  service.  For the years  ended
     December 31, 2001,  2000 and 1999, the Company  recognized $58, $40 and $46
     of expense for employer  contributions  made in connection  with this plan,
     respectively.

                                     - 55 -
<PAGE>

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

9.   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,
                                                                  2001                  2000                 1999
                                                            ------------------    ------------------    -----------------
<S>                                                           <C>                   <C>                  <C>
            Weighted average shares outstanding (basic)        17,103,714            17,016,660           12,553,854
            Incremental shares from assumed option exercise       485,639               493,990              104,586
                                                            ------------------    ------------------    -----------------
            Weighted average shares outstanding (diluted)      17,589,353            17,510,650           12,658,440
                                                            ==================    ==================    =================
</TABLE>


     The  outstanding  O.P. Units have been excluded from the diluted net income
     per share  calculation as there would be no effect on the amounts since the
     minority interests' share of income would also be added back to net income.
     O.P. Units  outstanding  at December 31, 2001 and 2000 were  85,762,541 and
     83,576,027, respectively.

10.  OTHER INCOME

     Other income, including interest and excluding gain on sales of assets, was
     approximately  $2,465,  $1,241, and $1,220 for the years ended December 31,
     2001,   2000  and  1999,   respectively.   Gain  on  sales  of  assets  was
     approximately  $11,453 and $501 for the years ended  December  31, 2001 and
     2000, respectively. No gains were recognized in 1999.

11.  RELATED PARTY TRANSACTIONS

     As of December  31,  2001 and 2000,  the Berg Group  owned  79,191,923  and
     79,255,425 O.P. Units, respectively, of the total 85,762,541 and 83,576,027
     O.P. Units issued and outstanding,  respectively.  Along with the Company's
     common  shares owned by the Berg Group,  the Berg  Group's  interest in the
     Company  represents  76.8% and 78.8% of the Company as of December 31, 2001
     and 2000,  respectively,  assuming conversion of the O.P. Units into common
     shares of the Company.

     During  2001 the  Company  acquired  eight R&D  properties,  all located in
     Silicon Valley. These 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  $80,683.  The Company  financed these
     acquisitions  by  borrowing  $45,884  under the Berg  Group line of credit,
     assuming other  liabilities of $2,024,  and issuing 2,422,837 O.P. Units to
     various  members of the Berg Group.  In  addition  to those eight  property
     purchases,  the  Company  also  acquired  two R&D  properties  representing
     approximately  127,000 rentable square feet for approximately  $23,197 in a
     tax-deferred  exchange  with the Berg Group.  The sales  proceeds  from the
     properties  sold by the Company were  classified as restricted cash for use
     in tax-deferred  property exchanges and were included in restricted cash at
     December  31,  2001.  No debt or O.P.  Units  were  issued  for  these  two
     acquisitions.

     During  2000 the  Company  acquired  nine R&D  properties,  all  located in
     Silicon Valley. These acquisitions added approximately  891,000 square feet
     of rentable space and were acquired from the Berg Group under the Berg land
     holdings option agreement and the pending projects  acquisition  agreement.
     The  total  gross   acquisition   price  for  these  nine   properties  was
     approximately   $122,875.   The  Company  financed  these  acquisitions  by
     borrowing  $39,940 under the Berg Group line of credit,  issuing an $11,792
     note to the Berg Group,  assuming other liabilities of $2,636,  and issuing
     7,370,238 O.P. Units to various members of the Berg Group.

     As of  December  31,  2001 and  2000,  debt in the  amount of  $79,887  and
     $50,886,  respectively,  was due the Berg  Group  under the line of credit.
     This amount includes $45,884 and $51,732 of debt assumed in connection with
     the  acquisitions  of  properties  from  the Berg  Group in 2001 and  2000,
     respectively  (see  Note  6).  Additionally,  during  2001  and  2000,  the
     operating  partnerships declared  distributions of $0.89 and $0.68 per O.P.
     Unit,  respectively.  The amount of these distributions  payable to various
     members of the Berg Group was  $66,423  and  $48,202  during 2001 and 2000,
     respectively.  Interest  expense  incurred in connection  with debt due the
     Berg Group was $3,828,  $3,914 and $2,246 for the years ended  December 31,
     2001, 2000 and 1999, respectively.

                                     - 56 -
<PAGE>
                         MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)


     As of  December  31,  2001 and  2000,  debt in the  amount of  $11,371  and
     $11,643,  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.

     Carl E. Berg has a  significant  financial  interest  in one  company  that
     leases space from the operating partnerships. This company occupies, in the
     aggregate,  5,862 square feet at a rate of $0.93 per square foot per month.
     This lease was in effect prior to the Company's  acquisition of its general
     partnership interests. The lease expires in May 2003.

     The Company currently leases space owned by Berg & Berg Enterprises,  Inc.,
     an affiliate of Carl E. Berg and Clyde J. Berg. Rental amounts and overhead
     reimbursements paid to Berg & Berg Enterprises,  Inc. were $88, $80 and $80
     for the years ended December 31, 2001, 2000 and 1999, respectively.

12.  FUTURE MINIMUM RENTS

     The Company,  through the operating partnerships,  owns interests in 97 R&D
     properties  that are  leased to tenants  under net  operating  leases  with
     initial  terms  extending to the year 2015,  and are  typically  subject to
     fixed  increases.  Generally,  the leases grant  tenants  renewal  options.
     Future minimum rentals under  non-cancelable  operating  leases,  excluding
     tenant reimbursements of expenses, as of December 31, 2001, are as follows:
<TABLE>
<CAPTION>


<S>                                                                              <C>
                         2002                                                     $ 126,661
                         2003                                                       121,262
                         2004                                                       116,964
                         2005                                                       107,789
                         2006                                                        72,970
                         Thereafter                                                 152,595
                                                                                ------------
                           Total                                                  $ 698,241
                                                                                ============
</TABLE>

13.  SUPPLEMENTAL CASH FLOW INFORMATION

     Cash paid for interest was $13,307, $12,676 and $13,406 for the years ended
     December 31, 2001, 2000 and 1999, respectively.

     In connection with the property  acquisitions,  the Company assumed $45,884
     and  $51,732  of  related  party  debt due the Berg  Group,  assumed  other
     liabilities of $2,024 and $2,636,  and issued  2,422,837 and 7,370,238 O.P.
     Units for a total  acquisition value of $103,881 and $122,875 for the years
     ended December 31, 2001 and 2000, respectively.

     Amounts  of  $66,423,  $48,202  and  $27,307  were due the Berg  Group  for
     distributions declared to O.P. Unit holders during the years ended December
     31, 2001, 2000 and 1999, respectively,  and were treated as draws under the
     Berg Group line of credit.


14.  COMMITMENTS AND CONTINGENCIES

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

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

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

15.  SUBSEQUENT EVENTS

     In January 2002, the Company  acquired an  approximately  125,000  rentable
     square foot newly  constructed R&D property  located at 5345 Hellyer Avenue
     in San Jose, California under the Berg land holdings option agreement.  The
     total acquisition price for this property was  approximately  $13,652.  The
     Company  acquired  this  property by borrowing  $7,500 under the Berg Group
     line of credit and issuing  502,805  O.P.  Units to various  members of the
     Berg Group.

     On January 10,  2002,  the  Company  paid  dividends  of $0.24 per share of
     common stock to all common  stockholders of record as of December 31, 2001.
     On the same date, the operating  partnerships  paid a distribution of $0.24
     per O.P. Unit.

     On March 1,  2002,  the  Company  obtained  a $20,000  unsecured  loan from
     Citicorp USA, Inc. with an interest rate based on LIBOR. The loan, maturing
     March 1, 2003, bears a fixed LIBOR interest rate of 4.09% for the first six
     months and LIBOR plus 2.0%  thereafter.  The Company paid a loan fee of $50
     and expects to use the loan for acquiring new R&D properties.

     On March 6,  2002,  the  Company  completed  the  sale,  in a  tax-deferred
     exchange, of a 72,426 square foot R&D property located at 2001 Logic Drive,
     San Jose,  California to Xilinx, Inc., which exercised a purchase option in
     the same  month.  The  Company  realized a gain of $6,103 on the total sale
     price of  approximately  $18,503.  The sale proceeds from the property sold
     were  classified as  restricted  cash to be used in  tax-deferred  property
     exchanges.

     Effective  March 8, 2002,  the Company  acquired  three R&D buildings  with
     approximately 206,000 rentable square foot located at 2610 and 2630 Orchard
     Parkway  and 55 West  Trimble  Road in San Jose,  California  from  Silicon
     Valley Properties, LLC in a tax-deferred exchange transaction involving its
     former R&D properties at 2001 Logic Drive and 5713-5729  Fontanoso Way, San
     Jose,  California.  The total  acquisition  price for these  properties was
     approximately $31,250.

     On March 12, 2002, the Company declared dividends of $0.24 per common share
     payable on April 11, 2002 to all common stockholders of record on March 29,
     2002.

     One of the Company's tenants, Exodus Communications, Inc. ("Exodus"), filed
     a voluntary petition for bankruptcy protection under Chapter 11 of the U.S.
     Bankruptcy  Code on September  26, 2001.  Effective  May 2002,  Exodus will
     terminate its lease  agreement in a negotiated  settlement with the Company
     and stop paying its monthly obligations under the lease. Exodus was leasing
     two properties  comprising  approximately 158,000 rentable square feet. The
     Company will forego  approximately  $4,400 in cash rental  revenues in 2002
     due to this lease  termination.  These two properties are currently  vacant
     and may take six months or longer to re-lease.

     Two other tenants,  comprising  241,000  rentable  square feet, are also in
     bankruptcy.  They are currently paying their monthly  obligations under the
     leases.  At this time, the Company does not know whether these tenants will
     disavow their leases. For 2002, the projected combined cash rental revenues
     for these tenants are approximately $4,500.

     Candescent   Technologies   Corporation,   which   leased  two   properties
     representing  approximately  284,000  rentable square feet,  terminated its
     lease agreement in a negotiated settlement with the Company effective March
     2002. For 2002,  the projected  cash rental  revenues for this tenant would
     have  been  approximately  $4,800.  One of the  properties,  consisting  of
     approximately  239,000  square  feet,  may take  twelve  months  or more to
     re-leased and is currently vacant. The other property, consisting of 45,000
     rentable square feet, is partially  leased, of which 11,270 rentable square
     feet remains vacant.

     The Company has performed an  impairment  analysis on the  properties  that
     were leased by Exodus and  Candescent  Technologies  and  believes  that no
     impairment has been incurred.

                                     - 58 -

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


     SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited)

     Quarterly financial  information for the year ended December 31, 2001 is as
     follows:
<TABLE>
<CAPTION>

                                                        First            Second            Third            Fourth
                                                     ------------      -----------       -----------      ------------
<S>                                               <C>               <C>               <C>              <C>
       Rental revenue                              $      29,679     $     31,654      $     33,227     $      33,668
       Income before minority interest             $      25,309     $     23,915      $     34,791     $      25,685
       Net income                                  $       4,219     $      3,983      $      5,730     $       4,203
       Per share data:
          Basic net income per share               $        0.25     $       0.23      $       0.33     $        0.24
          Diluted net income per share             $        0.24     $       0.23      $       0.33     $        0.24
       Weighted average number of common shares
          outstanding (basic)                         17,037,201       17,093,710        17,120,278        17,162,111
       Weighted average number of common shares
          outstanding (diluted)                       17,242,821       17,308,601        17,320,462        17,596,536


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

                                                        First            Second            Third            Fourth
                                                     ------------      -----------       -----------      ------------
       Rental revenue                              $      21,235     $     23,899      $     26,822     $      27,611
       Income before minority interest             $      14,463     $     16,555      $     19,362     $      21,253
       Net income                                  $       2,631     $      2,930      $      3,357     $       3,661
       Per share data:
          Basic net income per share               $        0.15     $       0.17      $       0.20     $        0.21
          Diluted net income per share             $        0.15     $       0.17      $       0.20     $        0.21
       Weighted average number of common shares
          outstanding (basic)                         16,990,353       17,025,365        17,025,365        17,025,365
       Weighted average number of common shares
          outstanding (diluted)                       17,389,409       17,113,346        17,191,306        17,249,144



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

                                                        First            Second            Third            Fourth
                                                     ------------      -----------       -----------      ------------
       Rental revenue                              $      14,027     $     18,376      $     20,517     $      20,806
       Income before minority interest             $       7,605     $     10,552      $     13,488     $      14,671
       Net income                                  $         881     $      1,065      $      2,178     $       2,407
       Per share data:
          Basic net income per share               $        0.11     $       0.13      $       0.13     $        0.15
          Diluted net income per share             $        0.10     $       0.13      $       0.13     $        0.15
       Weighted average number of common shares
          outstanding (basic)                          8,227,261        8,166,977        16,715,354        16,964,086
       Weighted average number of common shares
          outstanding (diluted)                        8,415,412        8,305,603        16,808,181        17,056,913

</TABLE>



                                     - 59 -

<PAGE>


                      Report of Independent Accountants on
                          Financial Statement Schedules


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

Our audits of the consolidated  financial  statements  referred to in our report
dated  January 21, 2002  included in this Form 10-K of Mission West  Properties,
Inc. also included audits of the financial  statement  schedules  listed in Item
14(a)(2) of this Form 10-K. In our opinion,  the financial  statement  schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP

San Francisco, California
January 21, 2002


                                     - 60 -

<PAGE>





                               INTENTIONALLY BLANK


                                     - 61 -

<PAGE>







                          MISSION WEST PROPERTIES, INC.
                                  Schedule III
                    Real Estate and Accumulated Depreciation
                                December 31, 2001
                             (dollars in thousands)
<TABLE>
<CAPTION>

                                                               Initial Cost                           Total Cost
                                                         ------------------------     Cost      -----------------------
                                            December 31,              Buildings   Subsequent to             Buildings
                                                2001                     and      Construction/                And
Property Name               City            Encumbrances    Land     Improvements  Acquisition     Land    Improvements     Total
----------------------------------------    ------------ ----------- ------------ ------------- ---------- ------------ ------------
<S>                        <C>              <C>           <C>          <C>              <C>      <C>        <C>           <C>
5300-5350 Hellyer Avenue    San Jose    E    $   11,371    $  5,742     $ 11,442         $  16    $ 5,742    $  11,458     $ 17,200
10401-10411 Bubb Road       Cupertino   A                       632        3,078                      632        3,078        3,710
2001 Logic Drive            San Jose                          2,288       11,134                    2,288       11,134       13,422
45365 Northport Loop        Fremont                           2,447        5,711            11      2,447        5,722        8,169
47000 Northport Loop        Fremont                   B       1,184        5,760             7      1,184        5,767        6,951
45738 Northport Loop        Fremont                   B         891        4,338             5        891        4,343        5,234
4050 Starboard Drive        Fremont                   B       1,329        6,467             8      1,329        6,475        7,804
3501 W. Warren Ave/         Fremont                           1,866        9,082                    1,866        9,082       10,948
     Fremont Blvd
48800 Milmont Blvd          Fremont                           1,013        4,932                    1,013        4,932        5,945
4750 Patrick Henry Drive    Santa Clara                       1,604        7,805           153      1,604        7,958        9,562
3520 Bassett Street         Santa Clara C                     1,104        5,371                    1,104        5,371        6,475
3530 Bassett Street         Santa Clara C,D                     849        4,133                      849        4,133        4,982
5850-5870 Hellyer Avenue    San Jose                          2,787        6,502                    2,787        6,502        9,289
5750 Hellyer Avenue         San Jose                          3,266        3,354                    3,266        3,354        6,620
800 Branham Lane East       San Jose                          5,508       12,851            16      5,508       12,867       18,375
5500 Hellyer Avenue         San Jose                          4,735       13,073             3      4,735       13,076       17,811
5550 Hellyer Avenue         San Jose                          3,261        3,872                    3,261        3,872        7,133
5400 Hellyer Avenue         San Jose                          3,238        5,358            77      3,238        5,435        8,673
5325 Hellyer Avenue         San Jose                    F     4,684       10,789            34      4,684       10,823       15,507
5905-5965 Silver Creek      San Jose                          8,437       18,554                    8,437       18,554       26,991
     Valley Road
5905-5965 Silver Creek      San Jose                          3,438        3,220                    3,438        3,220        6,658
     Valley Road
855 Branham Lane East       San Jose                          3,289        6,521            68      3,289        6,589        9,878
1065-1105 L'Avenida         Mountain View                    46,832      109,275            65     46,832      109,340      156,172
1750 Automation Parkway     San Jose                          4,789       11,174           315      4,789       11,489       16,278
1756 Automation Parkway     San Jose                          4,378       10,216            15      4,378       10,231       14,609
1762 Automation Parkway     San Jose                          4,804       12,224            20      4,804       12,244       17,048
1768 Automation Parkway     San Jose                          8,195       19,121            14      8,195       19,135       27,330
255 Caspian Drive           Sunnyvale                         3,491        8,146                    3,491        8,146       11,637
245 Caspian Drive           Sunnyvale                         5,894            -                    5,894            -        5,894
2251 Lawson Lane            Santa Clara                       1,952        9,498                    1,952        9,498       11,450
1230 East Arques            Sunnyvale                           540        2,628            39        540        2,667        3,207
1250 East Arques            Sunnyvale                         1,335        6,499                    1,335        6,499        7,834
3120 Scott Blvd             Santa Clara                       2,044        9,948                    2,044        9,948       11,992
20400 Mariani Avenue        Cupertino             1,597       1,670        8,125                    1,670        8,125        9,795
10500 De Anza Blvd          Cupertino                 B       7,666       37,304                    7,666       37,304       44,970
20605-20705 Valley Green Dr.Cupertino                         3,490       16,984                    3,490       16,984       20,474
10300 Bubb Road             Cupertino                 B         635        3,090                      635        3,090        3,725
10440 Bubb Road             Cupertino               347         434        2,112                      434        2,112        2,546
10460 Bubb Road             Cupertino               363         994        4,838         1,161        994        5,999        6,993
1135 Kern Avenue            Sunnyvale                           407        1,982                      407        1,982        2,389
405 Tasman Drive            Sunnyvale                           550        2,676                      550        2,676        3,226
450 National Avenue         Mountain                  B         611        2,973                      611        2,973        3,584
3301 Olcott Street          Santa Clara                       1,846        8,984                    1,846        8,984       10,830
2800 Bayview Avenue         Fremont                           1,070        5,205                    1,070        5,205        6,275
6850 Santa Teresa Blvd      San Jose                            377        1,836           780        377        2,616        2,993
6810 Santa Teresa Blvd      San Jose                          2,567        5,991            12      2,567        6,003        8,570
140-160 Great Oaks Blvd     San Jose                          1,402        6,822           158      1,402        6,980        8,382
6541 Via del Oro/6385 San   San Jose                          1,039        5,057                    1,039        5,057        6,096
     Ignacio
6311-6351 San Ignacio       San Jose                  B       6,246       30,396            94      6,246       30,490       36,736
     Avenue
6320-6360 San Ignacio       San Jose                          2,616       12,732           338      2,616       13,070       15,686
     Avenue
75 E. Trimble Road/2610 N.  San Jose                    F     3,477       16,919            82      3,477       17,001       20,478
     First St
2033-2243 Samaritan Drive   San Jose             79,887 F     5,046       24,556           125      5,046       24,681       29,727
1170 Morse Avenue           Sunnyvale                 B         658        3,201                      658        3,201        3,859
3236 Scott Blvd             Santa Clara               B       1,234        6,005                    1,234        6,005        7,239
1212 Bordeaux Lane          Sunnyvale                         2,250       10,948                    2,250       10,948       13,198
1325-1810 McCandless Drive  Milpitas                    F    13,994       66,213           703     13,994       66,916       80,910
1600 Memorex Drive          Santa Clara               B       1,221        5,940                    1,221        5,940        7,161
1688 Richard Avenue         Santa Clara               B       1,248        2,913             6      1,248        2,919        4,167
1700 Richard Avenue         Santa Clara               B       1,727        4,030                    1,727        4,030        5,757
</TABLE>


<TABLE>
<CAPTION>

                                            Accumulated    Date of   Depreciable
Property Name               City            Depreciation Acquisition     Life
----------------------------------------    ------------ ----------- ------------
<S>                        <C>                  <C>          <C>       <C>
5300-5350 Hellyer Avenue    San Jose             $  465        5/00     40 Years
10401-10411 Bubb Road       Cupertino               271        7/98     40 Years
2001 Logic Drive            San Jose                975        7/98     40 Years
45365 Northport Loop        Fremont                 179       10/00     40 Years
47000 Northport Loop        Fremont                 506        7/98     40 Years
45738 Northport Loop        Fremont                 383        7/98     40 Years
4050 Starboard Drive        Fremont                 569        7/98     40 Years
3501 W. Warren Ave/         Fremont                 797        7/98     40 Years
     Fremont Blvd
48800 Milmont Blvd          Fremont                 433        7/98     40 Years
4750 Patrick Henry Drive    Santa Clara             694        7/98     40 Years
3520 Bassett Street         Santa Clara             471        7/98     40 Years
3530 Bassett Street         Santa Clara             363        7/98     40 Years
5850-5870 Hellyer Avenue    San Jose                518       11/98     40 Years
5750 Hellyer Avenue         San Jose                 35        8/01     40 Years
800 Branham Lane East       San Jose                589        3/00     40 Years
5500 Hellyer Avenue         San Jose                300        2/01     40 Years
5550 Hellyer Avenue         San Jose                 57        6/01     40 Years
5400 Hellyer Avenue         San Jose                203        7/00     40 Years
5325 Hellyer Avenue         San Jose                270        1/01     40 Years
5905-5965 Silver Creek      San Jose                232        7/01     40 Years
     Valley Road
5905-5965 Silver Creek      San Jose                 20       10/01     40 Years
     Valley Road
855 Branham Lane East       San Jose                109        5/01     40 Years
1065-1105 L'Avenida         Mountain View         7,515        4/99     40 Years
1750 Automation Parkway     San Jose                718        7/99     40 Years
1756 Automation Parkway     San Jose                512        1/00     40 Years
1762 Automation Parkway     San Jose                535        4/00     40 Years
1768 Automation Parkway     San Jose                518       12/00     40 Years
255 Caspian Drive           Sunnyvale               357        4/00     40 Years
245 Caspian Drive           Sunnyvale                 -        4/01     40 Years
2251 Lawson Lane            Santa Clara             832        7/98     40 Years
1230 East Arques            Sunnyvale               234        7/98     40 Years
1250 East Arques            Sunnyvale               569        7/98     40 Years
3120 Scott Blvd             Santa Clara             873        7/98     40 Years
20400 Mariani Avenue        Cupertino               713        7/98     40 Years
10500 De Anza Blvd          Cupertino             3,268        7/98     40 Years
20605-20705 Valley Green Dr.Cupertino             1,490        7/98     40 Years
10300 Bubb Road             Cupertino               272        7/98     40 Years
10440 Bubb Road             Cupertino               187        7/98     40 Years
10460 Bubb Road             Cupertino               485        7/98     40 Years
1135 Kern Avenue            Sunnyvale               177        7/98     40 Years
405 Tasman Drive            Sunnyvale               236        7/98     40 Years
450 National Avenue         Mountain                261        7/98     40 Years
3301 Olcott Street          Santa Clara             789        7/98     40 Years
2800 Bayview Avenue         Fremont                 457        7/98     40 Years
6850 Santa Teresa Blvd      San Jose                201        7/98     40 Years
6810 Santa Teresa Blvd      San Jose                426        3/99     40 Years
140-160 Great Oaks Blvd     San Jose                606        7/98     40 Years
6541 Via del Oro/6385 San   San Jose                443        7/98     40 Years
Ignacio
6311-6351 San Ignacio       San Jose              2,666        7/98     40 Years
6320-6360 San Ignacio       San Jose              1,125        7/98     40 Years
75 E. Trimble Road/2610 N.  San Jose              1,486        7/98     40 Years
First St
2033-2243 Samaritan Drive   San Jose              2,153        7/98     40 Years
1170 Morse Avenue           Sunnyvale               282        7/98     40 Years
3236 Scott Blvd             Santa Clara             527        7/98     40 Years
1212 Bordeaux Lane          Sunnyvale               961        7/98     40 Years
1325-1810 McCandless Drive  Milpitas              5,831        7/98     40 Years
1600 Memorex Drive          Santa Clara             497        7/98     40 Years
1688 Richard Avenue         Santa Clara             254        9/98     40 Years
1700 Richard Avenue         Santa Clara             244        8/99     40 Years
</TABLE>


                                     - 62 -
<PAGE>
<TABLE>
<CAPTION>
                                                               Initial Cost                           Total Cost
                                                         ------------------------     Cost      -----------------------
                                            December 31,              Buildings   Subsequent to             Buildings
                                                2001                     and      Construction/                And
Property Name               City            Encumbrances    Land     Improvements  Acquisition     Land    Improvements     Total
----------------------------------------    ------------ ----------- ------------ ------------- ---------- ------------ ------------
<S>                        <C>              <C>          <C>         <C>          <C>           <C>        <C>          <C>
3506-3510 Bassett Street    Santa Clara C                       943        4,591            99        943        4,690        5,633
3540-3544 Bassett Street    Santa Clara C             B       1,565        7,615           189      1,565        7,804        9,369
3550 Bassett Street         Santa Clara C             B       1,079        5,251            33      1,079        5,284        6,363
3560 Bassett Street         Santa Clara C             B       1,075        5,233             8      1,075        5,241        6,316
3570-3580 Bassett Street    Santa Clara C             B       1,075        5,233                    1,075        5,233        6,308
Prudential Insurance Company of America Loan    125,109 B
                                            ------------ ----------- ------------ ------------- ---------- ------------ ------------
                                             $  218,674   $ 218,058   $  687,831   $     4,654   $ 218,058  $   692,485  $  910,543
                                            ============ =========== ============ ============= ========== ============ ============
</TABLE>
<TABLE>
<CAPTION>


                                            Accumulated    Date of   Depreciable
Property Name               City            Depreciation Acquisition     Life
----------------------------------------    ------------ ----------- ------------
<S>                        <C>              <C>               <C>      <C>
3506-3510 Bassett Street    Santa Clara             408        7/98     40 Years
3540-3544 Bassett Street    Santa Clara             678        7/98     40 Years
3550 Bassett Street         Santa Clara             463        7/98     40 Years
3560 Bassett Street         Santa Clara             460        7/98     40 Years
3570-3580 Bassett Street    Santa Clara C           460        7/98     40 Years
Prudential Insurance Company of America Loan
                                            ------------
                                             $   49,608
                                            ============
</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 $125,109  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  unaffiliated  parties outside
     the operating partnerships of the Company.
(F)  Four properties at McCandless  Drive,  three  properties at Samaritan Drive
     and four other various  properties  are  encumbered by the $79,887 debt due
     the Berg Group under the line of credit.

                                     - 63 -


<PAGE>


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

                                                               Initial Cost                           Total Cost
                                                         ------------------------     Cost      -----------------------
                                            December 31,              Buildings   Subsequent to             Buildings
                                                2000                     and      Construction/                And
Property Name               City            Encumbrances    Land     Improvements  Acquisition     Land    Improvements     Total
----------------------------------------    ------------ ----------- ------------ ------------- ---------- ------------ ------------
<S>                        <C>              <C>          <C>         <C>          <C>           <C>        <C>          <C>
5300-5350 Hellyer Avenue    San Jose    E    $   11,643   $   5,742   $   11,442                 $  5,742   $   11,442   $   17,184
10401-10411 Bubb Road       Cupertino   A                       632        3,078                      632        3,078        3,710
2001 Logic Drive            San Jose                          2,288       11,134                    2,288       11,134       13,422
45365 Northport Loop        Fremont                           2,447        5,711   $        11      2,447        5,722        8,169
47000 Northport Loop        Fremont                   B       1,184        5,760             7      1,184        5,767        6,951
45738 Northport Loop        Fremont                   B         891        4,338             5        891        4,343        5,234
4050 Starboard Drive        Fremont                   B       1,329        6,467             8      1,329        6,475        7,804
3501 W. Warren Ave/Fremont  Fremont                           1,866        9,082                    1,866        9,082       10,948
48800 Milmont Blvd          Fremont                           1,013        4,932                    1,013        4,932        5,945
4750 Patrick Henry Drive    Santa Clara                       1,604        7,805           153      1,604        7,958        9,562
4949 Hellyer Avenue         San Jose                  B       3,593       17,484            61      3,593       17,545       21,138
3520 Bassett Street         Santa Clara C                     1,104        5,371                    1,104        5,371        6,475
3530 Bassett Street         Santa Clara C,D       2,735         849        4,133                      849        4,133        4,982
5850-5870 Hellyer Avenue    San Jose                          2,787        6,502                    2,787        6,502        9,289
800 Branham Lane East       San Jose                          5,508       12,851                    5,508       12,851       18,359
5400 Hellyer Avenue         San Jose                          3,238        5,358                    3,238        5,358        8,596
5713-5729 Fontanoso Way     San Jose                          2,572        4,597            49      2,572        4,646        7,218
1065-1105 L'Avenida         Mountain View                    46,832      109,275            65     46,832      109,340      156,172
1750 Automation Parkway     San Jose                          4,789       11,174           315      4,789       11,489       16,278
1756 Automation Parkway     San Jose                          4,378       10,216            15      4,378       10,231       14,609
1762 Automation Parkway     San Jose                          4,804       12,224                    4,804       12,224       17,028
1768 Automation Parkway     San Jose                          8,195       19,121                    8,195       19,121       27,316
255 Caspian Drive           Sunnyvale                         3,491        8,146                    3,491        8,146       11,637
2251 Lawson Lane            Santa Clara                       1,952        9,498                    1,952        9,498       11,450
1230 East Arques            Sunnyvale                           540        2,628                      540        2,628        3,168
1250 East Arques            Sunnyvale                         1,335        6,499                    1,335        6,499        7,834
3120 Scott Blvd             Santa Clara                       2,044        9,948                    2,044        9,948       11,992
20400 Mariani Avenue        Cupertino             1,756       1,670        8,125                    1,670        8,125        9,795
10500 De Anza Blvd          Cupertino                 B       7,666       37,304                    7,666       37,304       44,970
20605-20705 Valley Green    Cupertino                         3,490       16,984                    3,490       16,984       20,474
10300 Bubb Road             Cupertino                 B         635        3,090                      635        3,090        3,725
10440 Bubb Road             Cupertino               377         434        2,112                      434        2,112        2,546
10460 Bubb Road             Cupertino               423         994        4,838         1,158        994        5,996        6,991
1135 Kern Avenue            Sunnyvale                           407        1,982                      407        1,982        2,389
405 Tasman Drive            Sunnyvale                           550        2,676                      550        2,676        3,226
450 National Avenue         Mountain View             B         611        2,973                      611        2,973        3,584
3301 Olcott Street          Santa Clara                       1,846        8,984                    1,846        8,984       10,830
2800 Bayview Avenue         Fremont                           1,070        5,205                    1,070        5,205        6,275
6850 Santa Teresa Blvd      San Jose                            377        1,836           780        377        2,616        2,993
6810 Santa Teresa Blvd      San Jose                          2,567        5,991            12      2,567        6,003        8,570
140-160 Great Oaks Blvd     San Jose                          1,402        6,822           158      1,402        6,980        8,382
6541 Via del Oro/6385 San   San Jose                          1,039        5,057                    1,039        5,057        6,096
Ignacio
6311-6351 San Ignacio       San Jose                  B       6,246       30,396            94      6,246       30,490       36,736
Avenue
6320-6360 San Ignacio       San Jose                          2,616       12,732           197      2,616       12,929       15,545
Avenue
75 E. Trimble Road/2610 N.  San Jose                          3,477       16,919            82      3,477       17,001       20,478
First St
2033-2243 Samaritan Drive   San Jose             50,886 F     5,046       24,556                    5,046       24,556       29,602
1170 Morse Avenue           Sunnyvale                 B         658        3,201                      658        3,201        3,859
3236 Scott Blvd             Santa Clara               B       1,234        6,005                    1,234        6,005        7,239
1212 Bordeaux Lane          Sunnyvale                         2,250       10,948                    2,250       10,948       13,198
1325-1810 McCandless Drive  Milpitas                    F    13,994       66,213           225     13,994       66,438       80,432
1600 Memorex Drive          Santa Clara                       1,221        5,940                    1,221        5,940        7,161
1688 Richard Avenue         Santa Clara                       1,248        2,913             6      1,248        2,919        4,167
1700 Richard Avenue         Santa Clara                       1,727        4,030                    1,727        4,030        5,757
</TABLE>


<TABLE>
<CAPTION>












                                            Accumulated    Date of   Depreciable
Property Name               City            Depreciation Acquisition     Life
----------------------------------------    ------------ ----------- ------------
<S>                        <C>              <C>              <C>       <C>
5300-5350 Hellyer Avenue    San Jose         $      179        5/00     40 Years
10401-10411 Bubb Road       Cupertino               194        7/98     40 Years
2001 Logic Drive            San Jose                697        7/98     40 Years
45365 Northport Loop        Fremont                  36       10/00     40 Years
47000 Northport Loop        Fremont                 362        7/98     40 Years
45738 Northport Loop        Fremont                 274        7/98     40 Years
4050 Starboard Drive        Fremont                 407        7/98     40 Years
3501 W. Warren Ave/Fremont  Fremont                 570        7/98     40 Years
Blvd
48800 Milmont Blvd          Fremont                 310        7/98     40 Years
4750 Patrick Henry Drive    Santa Clara             495        7/98     40 Years
4949 Hellyer Avenue         San Jose              1,098        7/98     40 Years
3520 Bassett Street         Santa Clara             337        7/98     40 Years
3530 Bassett Street         Santa Clara             260        7/98     40 Years
5850-5870 Hellyer Avenue    San Jose                355       11/98     40 Years
800 Branham Lane East       San Jose                268        3/00     40 Years
5400 Hellyer Avenue         San Jose                 67        7/00     40 Years
5729 Fontanoso Way          San Jose                145       10/99     40 Years
1065-1105 L'Avenida         Mountain View         4,782        4/99     40 Years
1750 Automation Parkway     San Jose                431        7/99     40 Years
1756 Automation Parkway     San Jose                256        1/00     40 Years
1762 Automation Parkway     San Jose                229        4/00     40 Years
1768 Automation Parkway     San Jose                 40       12/00     40 Years
255 Caspian Drive           Sunnyvale               153        4/00     40 Years
2251 Lawson Lane            Santa Clara             595        7/98     40 Years
1230 East Arques            Sunnyvale               167        7/98     40 Years
1250 East Arques            Sunnyvale               407        7/98     40 Years
3120 Scott Blvd             Santa Clara             624        7/98     40 Years
20400 Mariani Avenue        Cupertino               510        7/98     40 Years
10500 De Anza Blvd          Cupertino             2,335        7/98     40 Years
20605-20705 Valley Green    Cupertino             1,065        7/98     40 Years
10300 Bubb Road             Cupertino               195        7/98     40 Years
10440 Bubb Road             Cupertino               134        7/98     40 Years
10460 Bubb Road             Cupertino               335        7/98     40 Years
1135 Kern Avenue            Sunnyvale               127        7/98     40 Years
405 Tasman Drive            Sunnyvale               169        7/98     40 Years
450 National Avenue         Mountain View           187        7/98     40 Years
3301 Olcott Street          Santa Clara             564        7/98     40 Years
2800 Bayview Avenue         Fremont                 327        7/98     40 Years
6850 Santa Teresa Blvd      San Jose                136        7/98     40 Years
6810 Santa Teresa Blvd      San Jose                276        3/99     40 Years
140-160 Great Oaks Blvd     San Jose                432        7/98     40 Years
6541 Via del Oro/6385 San   San Jose                317        7/98     40 Years
Ignacio
6311-6351 San Ignacio       San Jose              1,904        7/98     40 Years
Avenue
6320-6360 San Ignacio       San Jose                802        7/98     40 Years
Avenue
75 E. Trimble Road/2610 N.  San Jose              1,061        7/98     40 Years
First St
2033-2243 Samaritan Drive   San Jose              1,538        7/98     40 Years
1170 Morse Avenue           Sunnyvale               202        7/98     40 Years
3236 Scott Blvd             Santa Clara             377        7/98     40 Years
1212 Bordeaux Lane          Sunnyvale               687        7/98     40 Years
1325-1810 McCandless Drive  Milpitas              4,169        7/98     40 Years
1600 Memorex Drive          Santa Clara             348        7/98     40 Years
1688 Richard Avenue         Santa Clara             181        9/98     40 Years
1700 Richard Avenue         Santa Clara             143        8/99     40 Years
</TABLE>

                                     - 64 -
<PAGE>

<TABLE>
<CAPTION>


                                                               Initial Cost                           Total Cost
                                                         ------------------------     Cost      -----------------------
                                            December 31,              Buildings   Subsequent to             Buildings
                                                2000                     and      Construction/                And
Property Name               City            Encumbrances    Land     Improvements  Acquisition     Land    Improvements     Total
----------------------------------------    ------------ ----------- ------------ ------------- ---------- ------------ ------------
<S>                        <C>              <C>          <C>         <C>          <C>           <C>        <C>          <C>
3506-3510 Bassett Street    Santa Clara C                       943        4,591            99        943        4,690        5,633
3540-3544 Bassett Street    Santa Clara C             B       1,565        7,615           189      1,565        7,804        9,368
3550 Bassett Street         Santa Clara C             B       1,079        5,251            33      1,079        5,284        6,363
3560 Bassett Street         Santa Clara C             B       1,075        5,233             8      1,075        5,241        6,316
3570-3580 Bassett Street    Santa Clara C             B       1,075        5,233                    1,075        5,233        6,308
          Prudential Capital Group Loan         126,764 B
                                            ------------ ----------- ------------ ------------- ---------- ------------ ------------
                                             $  194,584   $ 187,219   $  650,529   $     3,730   $187,219   $  654,259   $  841,478
                                            ============ =========== ============ ============= ========== ============ ============
</TABLE>
<TABLE>
<CAPTION>


                                            Accumulated    Date of   Depreciable
Property Name               City            Depreciation Acquisition     Life
----------------------------------------    ------------ ----------- ------------
<S>                        <C>              <C>               <C>      <C>
3506-3510 Bassett Street    Santa Clara             291        7/98     40 Years
3540-3544 Bassett Street    Santa Clara             483        7/98     40 Years
3550 Bassett Street         Santa Clara             331        7/98     40 Years
3560 Bassett Street         Santa Clara             329        7/98     40 Years
3570-3580 Bassett Street    Santa Clara             329        7/98     40 Years
          Prudential Capital Group Loan
                                            ------------
                                             $   34,022
                                            ============
</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 $126,764  Prudential  Capital Group loan - full amount of
     loan shown at the bottom of the schedule.
(C)  Part of the property group referred to as Triangle Technology Park.
(D)  25% of this property's  ownership is held by  unaffiliated  parties outside
     the operating partnerships of the Company.
(E)  50% of this property's  ownership is held by  unaffiliated  parties outside
     the operating partnerships of the Company.
(F)  Four properties at McCandless Drive, in addition to the three properties at
     Samaritan  Drive,  are  encumbered  by the $50,886  debt due the Berg Group
     under the line of credit.


                                     - 65 -
<PAGE>




                          MISSION WEST PROPERTIES, INC.
                              NOTE TO SCHEDULE III
                           December 31, 2001 and 2000
                             (dollars in thousands)

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

                                                                  2001                       2000
                                                        ------------------------   ------------------------
<S>                                                               <C>                        <C>
    Real estate investments:
      Balance at beginning of year                                 $  841,478                 $  716,182
      Additions                                                        97,422                    125,296
      Dispositions                                                    (28,357)                         -
                                                        ------------------------   ------------------------
      Balance at end of year                                       $  910,543                 $  841,478
                                                        ========================   ========================

    Accumulated depreciation:
      Balance at beginning of year                                 $   34,022                 $   18,566
      Additions                                                        16,917                     15,456
      Dispositions                                                     (1,331)                         -
                                                        ------------------------   ------------------------
      Balance at end of year                                       $   49,608                 $   34,022
                                                        ========================   ========================
</TABLE>


                                     - 66 -
<PAGE>




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

          Not applicable.

                                     - 67 -
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

ITEM 11.   EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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




                                     - 68 -

<PAGE>




PART IV

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

                                     - 69 -
<PAGE>

10.27              Revolving Credit - $100,000,000 Secured Promissory Note
10.28              Deed of Trust Securing Revolving Promissory Note
21.1++             Subsidiaries of the Registrant
23.1               Consent of Independent Public Accountants
24.1               Powers of Attorney (included on the signature page hereto)

</TABLE>

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


     (b)  Reports on Form 8-K.

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

                                     - 70 -
<PAGE>

                                   SIGNATURES

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

                                              MISSION WEST PROPERTIES, INC.

Date: March 27, 2002                          By: /s/ CARL E. BERG
                                                 -------------------------------
                                                 Carl E. Berg
                                                 Chief Executive Officer

Date: March 27, 2002                           By: /s/ WAYNE N. PHAM
                                                  ------------------------------
                                                  Wayne N. Pham
                                                  Vice President of Finance and
                                                  Controller
                                                  (Principal Accounting Officer)

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

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


Signature                            Title                             Date
---------                            -----                             ----

/s/  CARL E. BERG
-------------------------
 Carl E. Berg               Chairman of the Board, Chief          March 27, 2002
                            Executive Officer and Director

/s/  RAYMOND V. MARINO
-------------------------
Raymond V. Marino           President, Chief Operating Officer    March 27, 2002
                            and Director

/s/  JOHN C. BOLGER
-------------------------
John C. Bolger              Director                              March 27, 2002


/s/  WILLIAM A. HASLER
-------------------------
William A. Hasler           Director                              March 27, 2002


/s/  LAWRENCE B. HELZEL
-------------------------
Lawrence B. Helzel          Director                              March 27, 2002


                                     - 71 -

<PAGE>

Exhibit 23.1


                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS


We  hereby  consent  to the  incorporation  by  reference  in  the  Registration
Statement  on Form S-8 No.  333-80369 of Mission  West  Properties,  Inc. of our
reports  dated  January  21,  2002  relating  to the  financial  statements  and
financial statement schedules, which appear in this Form 10-K.


PricewaterhouseCoopers LLP


San Francisco, California
March 28, 2002