10-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Mark One)

[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2003

¨ Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from N/A to N/A

Commission File No. 000-25161

MODTECH HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware	33-0825386
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2830 Barrett Avenue, Perris, California	92571
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (909) 943-4014

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value

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. ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes x No ¨

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2003 was approximately $37,083,672. As of March 10, 2004, 13,726,664 shares of registrant’s common stock were outstanding.

Certain portions of the registrant’s definitive proxy statement for fiscal year ended December 31, 2003 to be filed not later than 120 days after the end of the fiscal year covered hereby are incorporated by reference in Part III of this Form 10-K report.

MODTECH HOLDINGS, INC.

FORM 10-K/A

AMENDMENT NO. 1

FOR THE YEAR ENDED DECEMBER 31, 2003

Explanatory Note

This Amendment No. 1 is being filed to amend our Annual Report on Form 10-K for the year ended December 31, 2003 to include the information set forth below in Part III, Items 10 through 14. This information was previously set forth in our Proxy Statement filed on April 30, 2004. Our Annual Report for the period ended December 31, 2003 was originally filed with the Securities and Exchange Commission on March 15, 2004 (the “Original Report”). No other items or disclosures in the Original Report are being revised or amended. Except as specifically set forth in Part III, Items 10 through 14 below, this Amendment No. 1 does not reflect events occurring after December 31, 2003 or update any information set forth in the Original Report.

PART I

Item 1 BUSINESS

BUSINESS OVERVIEW

The Company was founded in 1982 with its initial business consisting of purchasing unfinished and outdated classroom shells and performing installation work. The Company subsequently changed its business to the design, manufacturing, marketing and installation of classroom and other custom modular projects. Since that time the Company has grown organically and through acquisition to become one of the premier modular building manufacturers in the country. In February 1999 the Company merged with SPI Holdings Inc., a Colorado corporation, designed and manufactured commercial and light industrial modular buildings in Arizona, Texas and California. In March 1999 the Company acquired Coastal Modular Buildings, Inc. and in March 2001 acquired Innovative Modular Structures. Both companies were based in central Florida. All of the acquired companies have been fully integrated into Modtech Holdings and are the foundation for our operations outside of California.

The Company is a leading provider of modular classrooms in the State of California and a significant provider of commercial and light industrial modular buildings in California, Nevada, Arizona, New Mexico, Utah, Colorado, Texas, Florida and other neighboring states. The Company is expanding its classroom offerings in all locations in response to increasing demand for new classroom products.

During 2003 the Company significantly expanded its participation in work performed on site. This work includes work historically done by other general contractors. Nearly 25% of the revenue generated during 2003 was a direct result of site-related work.

In October 2003 the Company also changed it primary marketing approach for classrooms and custom projects outside of California by “going direct.” By “going direct” the Company will use its own sales force to market and sell directly to end users for these target projects. The Company continues to use dealers for markets other than classrooms and custom projects.

PUBLIC FUNDING

Virtually all of the Company’s classroom sales are dependant on public funding. There have been a number of funding initiatives passed by the voters of California and these have contributed to the Company’s growth and success. Please refer to the section under Legislation and Funding for further discussion of California’s funding processes and funding history.

In 2002, California Assembly Bill #16 (AB16) was created to provide approximately $25 billion in proposed spending on new classroom and school construction and was signed by Governor Gray Davis in April 2002. The first $13 billion bond measure was overwhelmingly approved in November 2002. California voters also approved the remaining $12 billion on March 2, 2004.

Florida voters approved, in November 2002, a constitutional amendment to address overcrowded public schools. This amendment establishes statewide ceilings to be in place by 2010; 18 students per classroom in kindergarten through third grade, 22 per classroom in fourth through eighth and 25 per classroom in high school. A number of counties have passed sales-tax initiatives to fund these new classrooms.

INDUSTRY OVERVIEW

In recent years, the growth in population in California, both from births and from immigration, has led to increasing school enrollments. As a result, classrooms in many California school districts currently are reported to be among the most crowded in the nation, with an average of 29 students per class compared to a national average class size of 17. The California Department of Finance has estimated that student enrollment in grades kindergarten through 12 will increase by approximately 18% over the period from 1995 through 2005. Additionally, changes in population demographics have left many existing permanent school facilities in older residential areas with excess capacity due to declining enrollments, while many new residential areas are faced with a continuing shortage of available classrooms. Consequently, it has become necessary to add additional classrooms at many existing facilities, and to build a number of new schools.

The construction of new schools and the addition of classrooms at existing schools are tied to the sources and levels of funding available to California school districts. The availability of funding for new school and classroom additions, in turn, is determined in large measure by the amount of tax revenue raised by the State, the level of annual allocations for education from the State’s budget which is determined by educational policies that are subject to political concerns, and the willingness of the California electorate to approve state and local bond issues to raise money for school facilities.

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In 1978, California voters approved Proposition 13, which rolled back local property taxes (a traditional source of funding for school districts) and limited the ability of local school districts to raise taxes to finance the construction of school facilities. The passage of Proposition 13, coupled with growing student populations, has increased the need for local school districts to find ways to reduce the cost of adding classrooms. The California legislature has adopted several statutes designed to alleviate some of the problems associated with the shortage of classrooms and lack of local funding alternatives. For example, in 1976, California adopted legislation that through November 1998 required, with certain exceptions, that at least 30% of all new classroom space added using State funds must be re-locatable structures. This requirement was satisfied through the purchase or lease of the Company’s classrooms. See “Business — Legislation and Funding – Authority for Bond Financing.” Additionally, in 1979 the California legislature adopted legislation that provides for State funding for the purchase of re-locatable classrooms that could be leased to local school districts.

When compared to the construction of a conventionally built classroom, modular classrooms offer a number of advantages, including, among others:

Lower Cost	—	The cost of the Company’s standard classroom may be as low as $29,000 installed, as compared to $100,000 to $120,000 for conventional site built construction of a comparable classroom;
Shorter Construction Time	—	A modular classroom can be built and ready for occupancy in a shorter period of time than that needed for state approval and construction of a site built conventional school facility;
Flexibility of Use	—	Modular re-locatable classrooms enable a school district to use the units for short or long term needs and to move them if necessary to meet shifts in student populations; and
Ease of Financing	—	As personal rather than real property, modular classrooms may be leased on a long or short-term basis from manufacturers and leasing companies. This allows school districts to finance modular classrooms out of both their operating and capital budgets.

The Company’s commercial and light industrial building revenues in the nonresidential modular market have resulted from the wide-spread acceptance of modular structures as an alternative to traditional site construction and the increasing number of applications for modular buildings across a broad spectrum of industries. Because modular buildings are constructed in a factory using an assembly line process, construction is typically not subject to the delays caused by weather and site conditions. Modular buildings can, therefore, generally be built faster than conventional buildings, at a lower cost and with more consistent quality. Modular buildings can generally be relocated more easily to meet the changing needs of end users and be quickly joined to other modular buildings to meet increased space requirements.

CALIFORNIA MODULAR RELOCATABLE CLASSROOMS

The Company’s California modular re-locatable classrooms are designed, engineered and constructed in accordance with structural and seismic specifications and safety regulations adopted by the California Department of State Architects, standards which are more rigorous than the requirements for other portable buildings. The Department of State Architects, which regulates all school construction on public land, has prescribed extensive regulations regarding the design and construction of school facilities, setting minimum qualifications for the preparation of plans and specifications, and reviews all plans for the construction or material modifications to any school building. Construction authorization is not given unless the school district’s architect certifies that a proposed project satisfies construction cost and allowable area standards. The Company interfaces with each school district’s architect or engineer to process project specifications through the Department of State Architects. The Company believes that the regulated environment in which the Company’s classrooms are manufactured serves as a significant barrier to market entry by prospective competitors. See “Business — Competition.”

Conventional site built school facilities constructed by school districts using funds from the State Office of Public School Construction typically require two to three years for approval and funding. By contrast, factory-built school buildings like the Company’s standard classrooms may be pre-approved by the State for use in school construction. Once plans and specifications for a given classroom have been pre-approved, school districts can thereafter include in their application to obtain State funds for new facilities a notification that they intend to use pre-approved, standardized factory-built classrooms. This procedure reduces the time required in the State’s approval process to as little as 90 days, thereby providing an additional incentive to use factory-built relocatable classrooms. In all cases, continuous inspection by a licensed third party is required during actual manufacture of the classrooms, with the school district obligated to hire and pay for such inspection costs.

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The Company’s California classrooms are manufactured and installed in accordance with the applicable state building codes and Department of State Architect’s interpretive regulations, which supersedes all local building codes for purposes of school construction. The classrooms must comply with accessibility requirements for the handicapped, structural, and seismic and fire code requirements.

The Company manufactures and installs standard, largely pre-fabricated modular re-locatable classrooms, as well as customized classrooms, which are modular in design, but assembled on-site using components manufactured by the Company together with components purchased from third party suppliers. The Company’s classrooms vary in size from two modular units containing a total of 960 square feet to 20 units that can be joined together to produce a facility comprising 9,600 square feet. Larger configurations are also possible. Typical prices for the Company’s standard classrooms range from $29,000 to $34,000, while prices for a custom classroom generally exceed $50,000, depending upon the extent of customization required.

The two basic structural designs for standard and custom modular classrooms are a rigid frame structure and a shear wall structure. The rigid frame structure uses a steel floor and roof system, supported at each corner with square steel tubing. These buildings have curtain walls to enclose the interior from the outside, and have the advantage of unlimited width and length. Rigid frame structures may be used for multipurpose rooms and physical education buildings as well as standard classrooms. Shear wall classrooms have a maximum width of 48 feet (four 12-foot modules) and a maximum length of 60 feet. These classrooms use the exterior and interior walls to produce the required structural strength and can be built at lower costs than rigid frame structures. The Company’s most popular factory-built classroom is a rigid frame design, with two modules connected side by side to complete a 24 by 40-foot classroom.

Custom built classrooms, libraries and gymnasiums contain design variations and dimensions such as ceiling height, roof pitch, overall size and interior configuration. These units typically are not assembled at the factory but instead are shipped in pieces, including floors, walls and roofs, and assembled on-site. Contracts for custom-built units may include the design, engineering and layout for an entire school or an addition to a school, and involve site preparation, grading, concrete and asphalt work and landscaping. Customized classrooms are generally more expensive and take longer to complete than the Company’s standard classrooms.

Additionally, the Company has developed and manufactured two-story modular classroom buildings. A two-story complex may include cantilevered balconies, soffits, parapets and mansards. They typically include a modular elevator system as well as stairways. The Company’s two-story structures offer a variety of material and design options such as stucco, brick veneer, fiber cement panels or traditional wood siding.

The interior and exterior of all of the Company’s modular classrooms can be customized by employing different materials, design features and floor plans. Most classrooms are open, but the interior of the buildings can be divided into individual rooms by permanent or re-locatable partitions. The floor covering is usually carpet but may be sheet vinyl or ceramic tile depending upon the intended use of the classroom. Interior wall material is usually vinyl covered firtex over gypsum board, while other finishes such as porcelain enamel or painted hardboard may be used in such places as restrooms and laboratories. Electrical wiring, air conditioning, windows, doors, fire sprinklers and plumbing are installed during the manufacturing process. The exterior of the units is typically plywood siding, painted to the customer’s specifications, but other common exterior finishes may also be applied.

CALIFORNIA CLASSROOM CUSTOMERS

The Company markets and sells its modular classrooms primarily to California school districts. The Company also sells its classrooms to the State of California and leasing companies, both of which lease the classrooms principally to California school districts. Sales of classrooms to California school districts, the State of California and leasing companies accounted for 49.0%, 58.1% and 64.6% of the Company’s total net sales for the years ended December 31, 2001, 2002 and 2003. The Company’s customers typically pay cash from general operating funds or the proceeds of local bond issues, or lease classrooms through banks, leasing companies and other private funding sources. See “ Business — Legislation and Funding.”

Sales of classrooms to individual California school districts accounted for approximately 36.9%, 47.2% and 52.4%, respectively, of the Company’s net sales during the years ended December 31, 2001, 2002 and 2003, respectively, with sales of classrooms to third party lessors to California school districts during these periods accounting for approximately 5.7%, 4.5% and 9.8%, respectively, of the Company’s net sales. The mix of school districts to which the Company sells its products varies somewhat from year to year. Sales of classrooms directly to the State of California during 2003 represented approximately 2.5% of the Company’s net sales, compared to approximately 6.4% and 5.7%, respectively, of the Company’s 2002 and 2001 net sales, respectively. One of the lessors to which the Company sells classrooms for lease to California school districts is affiliated with the Company through ownership by one of the Company’s officers. During the years ended December 31, 2001, 2002 and 2003, sales of classrooms to this affiliated leasing company comprised approximately 0.8%, 3.4% and 2.0%, respectively, of the Company’s net sales.

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COMMERCIAL, LIGHT INDUSTRIAL MODULAR BUILDINGS AND RELOCATABLE CLASSROOMS FOR OTHER STATES

The Company is also a designer, manufacturer and wholesaler of commercial and light industrial modular buildings. The Company designs and builds modular buildings to customer specifications for a wide array of uses, including governmental, healthcare, educational, airport and correctional facilities; office and retail space; daycare centers; libraries; churches; construction trailers; golf clubhouses; police stations; convenience stores; fast food restaurants; classrooms and sales offices. The modular buildings serve as temporary, semi-permanent and permanent facilities and can function as free-standing buildings or additions to existing structures. These modular buildings range in size and complexity from a basic single-unit 100-square foot module to a 50,000-square foot building combining several structures and containing multiple stories. The price at which the Company’s modular buildings are sold to dealers ranges from $7,000 to over $25,000 per module.

SALES AND MARKETING

California Classroom Sales Force

At December 31, 2003 the Company’s California classroom sales force was divided into three marketing regions: Northern, Central and Southern California. At December 31, 2003, the Company employed four classroom salespersons. These salespersons maintain contact with the individual school districts in their respective marketing regions on an annual basis. They are also in contact with architects and construction management firms employed by the school districts, as well as school officials who may be in a position to influence purchasing decisions.

Most of the Company’s contracts are awarded on an open bid basis. The marketing process for many of the Company’s contracts begins prior to the time the bid process begins. After the Company selects bids or contracts that it desires to pursue, the Company’s marketing and engineering personnel interface directly with various school boards, superintendents or architects during the process of formulating bid or contract specifications. The Company prepares its bids or proposals using various criteria, including current material prices, historical overhead costs and a targeted profit margin. Substantially all of the Company’s contracts are turnkey, including engineering and design, manufacturing, transportation and installation. Open bid contracts are normally awarded to the lowest responsible bidder.

MANUFACTURING AND ON-SITE INSTALLATION

The Company uses an assembly-line approach in the manufacture of its classrooms. The process begins with the fabrication of the steel floor joists. The floor joists are welded to a perimeter steel frame to form the floor sub-assembly, which is typically covered by plywood flooring. Concurrent with the floor assembly the roof structure is welded in a similar fashion with joists and a perimeter frame. The completed roof is then welded to the completed floor utilizing four tube steel corner posts creating a moment connection. The unit progresses down the production line with value added at each work station with the installation of walls, insulation, suspended grid ceilings, electrical systems, heating and air conditioning, windows, doors, plumbing and chalkboards follow, with painting and finishing crews completing the process. Once construction of a classroom commences, the building can be completed in as little as three days. The construction of custom units on-site, from pre-manufactured components, is similar to factory-built units in its progressively-staged assembly process but may involve more extensive structural connections and finish work depending upon the size and type of building, and typically takes 30 to 60 days to complete.

The Company is vertically-integrated in the manufacture of its modular classrooms, in that the Company fabricates substantially all of its own metal components at its facilities, including structural floor and roof joists, exterior roof panels, gutters, foundation vents, ramps, stairs and railings. The Company believes that the ability to fabricate its own metal components helps it reduce the costs of its products and control their quality and delivery schedules. The Company maintains a quality control system throughout the manufacturing process, under the supervision of its own quality control personnel and independent third party inspectors engaged by its customers. In addition, the Company tracks the status of all classrooms from sale through installation and completion.

Completed classroom units, or components used in customized units, are loaded onto specially designed flatbed trailers for towing by trucks to the school site. Upon arrival at the site, the units are structurally connected, or components are assembled, and the classroom is installed on its foundation. Connection with utilities is completed in the same manner as in conventional on-site construction. Installation of the modular classrooms may be on a separate foundation, or several units may be incorporated on a common foundation, so that upon installation they appear to be an integral part of an existing school facility or function as a larger building, such as a multi-purpose room or cafeteria.

The Company oversees installation of its modular classrooms on-site, using its own employees for project supervision as the general contractor and, whenever possible, for utility hook-ups and other tasks. In many projects, the Company performs or supervises

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subcontracted electrical, plumbing, grading, paving, concrete work, and other site preparation work and services. The Company has general contractor’s licenses in its markets of choice.

In addition to approvals by the Department of State Architects, licensed inspectors representing school district customers are present at each California manufacturing facility of the Company to continuously inspect the construction of classrooms for compliance to the approved plans. On-site inspections after installation are also made by independent third party inspectors for purposes of determining compliance with the approved plans and all applicable codes.

A continuous flow assembly line process also produces the Company’s commercial and light industrial modular buildings. Multiple structures are assembled simultaneously at various stations along the assembly line. Depending upon the complexity of the design for a particular modular building, the average construction time from receipt of the order to shipment ranges from 30 to 45 days. Once construction of a typical modular building commences, the building can be completed in as few as seven to ten days.

At December 31, 2003, the Company had six manufacturing facilities. Two are located in Southern California, in Perris, California, which is approximately 60 miles east of Los Angeles. The Company has another facility in Lathrop, California. Lathrop is located approximately 75 miles east of San Francisco. The fourth manufacturing facility is located in Phoenix, Arizona. The Company has another facility in Glen Rose, Texas. Glen Rose is located approximately 75 miles southwest of Dallas. The Company’s sixth manufacturing facility is located in Plant City, Florida, northeast of Tampa.

The standard contractual warranty for the Company’s modular buildings is one year, although it may be varied by contract specifications. Purchased equipment installed by the Company, such as air conditioning units, carries the manufacturers’ standard warranty. Warranty costs have not been material in the past.

The Company believes that there are multiple sources of supplies available for all raw materials and equipment used in manufacturing its modular buildings, most of which are standard construction items such as steel, plywood and dimensional lumber.

BACKLOG

The Company manufactures classrooms and other buildings to fill existing orders only, and not for inventory. As of December 31, 2003, the backlog of sales orders was approximately $115 million, up from approximately $85 million at December 31, 2002. Backlog that will be converted during the current fiscal year is approximately $97 million. The rate of booking new contracts varies month to month, and customer changes in delivery schedules occur. For these reasons, among others, the Company’s backlog as of any particular date may not be representative of actual sales for any succeeding period.

COMPETITION

The modular re-locatable classroom industry is highly competitive, with the market divided among a number of privately-owned companies whose share of the market is smaller than that of the Company. The Company believes that the nature of the bidding process, the level of performance bonding required, and the industry’s regulated environment serve as barriers to market entry, and that the expertise of its management gives it an advantage over competitors. The Company believes that, based upon 2000 net sales, it is the largest modular re-locatable classroom manufacturer in California. Nevertheless, the Company believes that additional competitors may enter the market in the future, some of whom may have significantly greater capital and other resources than are available to the Company, and that competition may therefore increase.

The Company also believes that its expertise in site preparation and on-site installation gives it a competitive advantage over many manufacturers of higher-priced, customized modular units, while its vertically integrated, assembly-line approach to manufacturing enables the Company to be one of the low cost producers of standardized, modular re-locatable classrooms in California. Unlike many of its competitors, the Company manufactures most of its own metal components which allows the Company to maintain quality control over these components and to produce them at a lower average cost than that at which they could be obtained from outside sources. The Company also believes that the quality and appearance of its buildings, and its reputation for reliability in completion of its contracts, enable it to maintain a favorable position among its competition.

The Company categorizes its current competition based upon the geographic market served (Northern California versus Southern California), as well as upon the relative degree of customization of products sold. Beyond a radius of approximately 300 miles, the Company believes that transportation costs typically will either significantly increase the prices at which it bids for given projects, or will substantially erode the Company’s gross profit margins.

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The primary competitors of the Company for standardized classrooms are believed to be Aurora Modular Industries in Southern California and American Modular Systems in Northern California. Turn Key Schools in Southern California and Design Mobile Systems in Northern California are the Company’s primary competitors in the market for higher-priced, customized classrooms. Each of these four competitors is a privately-owned company.

With respect to the commercial and light industrial modular buildings, the nonresidential modular building industry is highly competitive. For the Company’s highly customized modular buildings, the main competitive factor is the ability to meet end user requirements in a timely manner, while price is the main competitive factor for less customized structures. Because the cost of transporting completed modular buildings is substantial, most manufacturers limit their distribution to dealers located within a 400-mile radius of their manufacturing facility. As a result, the nonresidential modular building industry is highly fragmented and is composed primarily of small, regionally-based private companies maintaining a single manufacturing facility.

The primary competitors of the Company for commercial and light industrial modular buildings are believed to be Modular Structures International, Walden Structures, Miller Building Systems and Indicom Building Systems.

PERFORMANCE BONDS

A substantial portion of the Company’s sales require that the Company provide bonds to ensure that the contracts will be performed and completed in accordance with contract terms and conditions, and to assure that subcontractors and materialmen will be paid. In determining whether to issue a performance bond on behalf of the Company, bonding companies consider a variety of factors concerning the specific project to be bonded, as well as the Company’s levels of working capital, shareholders’ equity and outstanding indebtedness. From time to time the Company has had, and in the future may again encounter, difficulty in obtaining bonding for a given project. Although it has had no difficulty in obtaining the necessary bonding in the last twelve months, the Company believes that its difficulty in obtaining bonding for certain large projects from time to time in the past has been attributable to the Company’s levels of working capital, shareholders’ equity and indebtedness, and not concerns about the Company’s ability to perform the work required under the contract. To assist the Company in obtaining performance bonds in certain instances, the Company’s executive officers have been required to indemnify the bonding companies against all losses they might suffer as a result of providing performance bonds for the Company.

REGULATION OF CLASSROOM CONSTRUCTION

In 1933, the California Legislature adopted the Field Act, which generally provides that school facilities must be constructed in accordance with more rigorous structural and seismic safety specifications than are applicable to general commercial buildings. Under the Field Act, the Department of General Services, through the Department of State Architects, has prescribed extensive regulations regarding the design and construction of school facilities, and reviews all plans for the construction of material modifications to any school building. Construction authorization is not given unless the school district’s architect certifies that a proposed project satisfies construction cost and allowable area standards. In addition, the Field Act provides for the submittal of complete plans, cost estimates, and filing fees by the school district to the Department of General Services, for the adoption of regulations setting minimum qualifications for the preparation of plans and specifications, and the supervision of school construction by a licensed architect or structural engineer.

Additionally, California legislation provides that certain factory-built school buildings may be pre-approved by the State for use in school construction. Once plans and specifications for a given classroom have been pre-approved by the Department of General Services, school districts can thereafter include in their application to obtain State funds for new facilities a notification that they intend to use pre-approved, standardized factory-built classrooms. This procedure reduces the time required in the State’s approval process thereby providing additional incentive to use factory-built re-locatable classrooms. The Department of General Services provides for the continuous on-site inspection during actual manufacturing of the classrooms, with the school districts obligated to reimburse the Department for the costs of such inspection.

LEGISLATION AND FUNDING

The demand for modular re-locatable classrooms in California is affected by various statutes. These statutes, among other things, prescribe the methods by which the Company’s customers, primarily individual school districts, obtain funding for the construction of new school facilities, and the manner in which available funding is to be spent by the school districts.

In 1978, Proposition 13 was approved, which rolled back property taxes and limited the ability of local school districts to rely upon revenue from such taxes to finance the construction of school facilities. As a result, financing for new school construction and

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rehabilitation of existing schools by California school districts is currently provided, at the state level, by funds derived from general revenue sources or statewide bond issues, and, at the local level, by local bond issues and fees imposed on the developers of residential, commercial and industrial real property (“Developer Fees”). Historically, the primary source of financing for the purchase or lease of re-locatable classrooms has been state funding.

STATE FUNDING: A source of funding at the State level for new school facilities is through the issuance and sale of statewide general obligation bonds which are repaid out of the State’s General Funds. Proposals to issue such bonds are placed on statewide ballots from time-to-time in connection with general or special elections, and require approval by a majority of the votes cast in connection with such proposals.

AUTHORITY FOR BOND FINANCING: Under the School Building Lease - Purchase Law of 1976, the State Allocation Board is empowered to purchase or lease school facilities using funds from the periodic issuance of general obligation bonds of the State of California. These purchased or leased school facilities may be made available by the State Allocation Board to school districts. Certain matching funds, usually derived from Developer Fees, are required to be supplied by the school districts seeking state funded facilities. If the school districts acquire re-locatable structures using Developer Fees, the amount of the required matching funds is reduced by the cost of such facilities. This reduction in matching funds is intended to provide an incentive for school districts to lease re-locatable classrooms. Prior to November 1998, as a condition of funding any project under this program, at least 30% of new classroom space to be added must be comprised of re-locatable structures, unless re-locatable structures are not available or special conditions of terrain, climate or unavailability of space make the use of re-locatable structures impractical. In addition, State funds under this program are not available to school districts which are determined to have an adequate amount of square footage available for their student population.

Senate Bill 50, which was passed in November 1998 by the California Legislature, revised the School Building Lease – Purchase Law of 1976 by eliminating the requirement that at least 30% of all new classroom space being added using California state funds must be re-locatable classrooms. In general, it replaced this provision with a requirement that, in order for school districts to increase the amount of funds to be received from developers in excess of the current statutory level, the school districts must show that 20% of all classroom space in the district, not just new space added, consists of re-locatable classrooms. The bill also placed a $9.2 billion bond issue on the November 1998 ballot, which was approved by the voters. The bill allocated from the bond issue $2.9 billion for growth and new construction, and $2.2 billion for modernization and reconstruction through the year 2001. In addition, it allocated $700 million for class-size reductions to fully implement the program from kindergarten through third grade. The costs to implement the foregoing include land acquisition costs, hiring of new teachers, remodeling of existing structures and construction of new permanent and re-locatable structures. The bill does not designate the specific usage of funds, and the actual amount spent on relocatable classrooms will vary among school districts. Implementation of Senate Bill 50 began the third week of January 1999. The implementation of Senate Bill 50 did not significantly change the Company’s operating results.

In 2002, California Assembly Bill #16 (AB16) was created to provide approximately $25 billion in proposed spending on new classroom and school construction and was signed by Governor Gray Davis in April 2002. The first $13 billion bond measure was overwhelmingly approved in November 2002. California voters also approved the remaining $12 billion on March 3, 2004.

In response to the adoption of Proposition 13, the State of California adopted the California Emergency Classroom Law of 1979, pursuant to which the State Allocation Board may spend up to $35 million per year from available funds to purchase re-locatable classrooms to be leased to school districts. Re-locatable classrooms are not available to school districts under this program if the school district has available local bond proceeds that could be used to purchase classroom facilities, unless the district has approved projects pending under the School Building Lease - Purchase Law of 1976. The State has, in the past, funded this program primarily from the proceeds of statewide bond issues approved by voters.

BUDGET ALLOCATIONS: Proposition 98, which was approved in 1988, requires the State of California to allocate annually from the State’s budget, for the support of school districts and community college districts, a minimum amount equal to the same percentage of funds as was appropriated for the support of those institutions in fiscal year 1986-87. While this requirement may be suspended for a given year by emergency legislation, it has the effect of limiting the ability of the California legislature to reduce the level of school funding from that in existence in 1986-87. The State raises the necessary funds through proceeds from the sale of statewide bond issues, income tax revenues and other revenues. Currently, California has incurred a budget deficit estimated to be as much as $35 billion. This may drastically effect allocations to support the California school districts and community college districts.

LOCAL FUNDING: Local school districts in California have the ability to issue local general obligation bonds for the acquisition and improvement of real property for school construction. These bond issues require the approval of 55% of the voters in the district and

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are repaid using the proceeds of increases in local property taxes. A local school district may also levy Developer Fees on new development projects in the district, subject to a maximum rate set by state law. The Developer Fees can only be levied if the project can be shown to contribute to the need for additional school facilities and the fee levied is reasonably related to such need. In addition, California law provides for the issuance of bonds by Community Facilities Districts which can be formed by a variety of local government agencies, including school districts. These districts, known as “Mello-Roos” districts, can have flexible boundaries and the tax imposed to repay the bonds can be based on property use, acreage, population density or other factors.

In November 2002, Florida voters approved a constitutional amendment to address overcrowded public schools. This amendment establishes statewide ceilings to be in place by 2010; 18 students per classroom in kindergarten through third grade, 22 per classroom in fourth through eighth and 25 per classroom in high school. A number of counties have passed sales-tax initiatives to fund these new classrooms.

OTHER LEGISLATION

California has taken steps to encourage local school districts to adopt year-round school programs to help increase the use of existing school facilities and reduce the need for additional school facilities. School districts requesting state funding under the School Building Lease - Purchase Law of 1976 or the Emergency Classroom Law of 1979 discussed above must submit a study examining the feasibility of implementing in the district a year-round educational program that is designed to increase pupil capacity in the district or in overcrowded high school attendance areas. The feasibility study requirement is waived, however, if the district demonstrates that emergency or urgent conditions exist in the district that necessitates the immediate need for re-locatable buildings. The demand for new school facilities, including re-locatable classrooms, would be adversely affected in the event that a significant number of California school districts implemented year-round school programs. In addition, a significant increase in the level of voluntary or mandatory busing of students from overcrowded schools to schools with excess capacity could adversely affect demand for new school facilities.

ENVIRONMENTAL MATTERS

The Company is subject to a variety of federal, state and local governmental regulations related to the storage, use and disposal of any hazardous materials used by the Company in connection with the manufacture of its products. Both the governmental regulations and the costs associated with complying with such regulations are subject to change in the future.

The Phoenix facility leased by the Company is located within a 25-square-mile area listed by the Arizona Department of Environmental Quality on the state priority list for contaminated sites. According to a recent environmental site assessment report pertaining to the Phoenix facility and commissioned by the Company, neither the Company nor the prior operators or owners of the property have been identified as potentially responsible parties at this site. Additionally, the environment site assessment report identifies no historical activity on the property leased by the Company that was likely to have been a source of the contaminants at the site.

EMPLOYEES

At December 31, 2003, the Company had 901 employees. The Company’s employees are not represented by a labor union, and it has experienced no work stoppages. The Company believes that its employee relations are good.

ITEM 2 PROPERTIES

The Company’s principal executive and administrative facilities are located in approximately 17,000 square feet of modular buildings at its primary manufacturing facility located in Perris, California. This manufacturing facility occupies twenty-five acres, with approximately 226,000 square feet of covered production space under roof, pursuant to a lease expiring in 2014. A second facility in Perris occupies approximately thirty acres, with approximately 120,000 square feet of covered production space under roof, pursuant to a lease expiring in 2014. This second facility also includes approximately 80,000 square feet under roof used as a metal working facility. The Company’s third plant consists of a 400,000 square foot manufacturing facility, with approximately 160,000 square feet of covered production space under roof, on a 30-acre site in Lathrop, California that is leased through 2019.

The fourth plant consists of approximately 50,000 square feet of covered production space under roof, on a 10-acre site in Phoenix, Arizona, pursuant to a lease expiring in 2007. The fifth plant consists of approximately 80,000 square feet of manufacturing area on a 20-acre site in Glen Rose, Texas, outside the Dallas-Fort Worth metropolitan area. The Texas lease expires in 2008.

8

The Company purchased its sixth facility in January 2003 for approximately $2.5 million. This facility, including office space, consists of 106,000 square feet on a 17-acre site in Plant City, Florida, northeast of Tampa.

During 2003 the Company closed three facilities. The company chose not to renew its lease for a plant in Glendale, Arizona. The operations at this plant were consolidated into the Company’s Phoenix operation. The Company also choose not to renew it lease for a plant in St. Petersburg, Florida. The operations from this plant and from a company-owned facility also in St. Petersburg were consolidated into the newly purchased and expanded operations in Plant City, Florida. The company-owned property is currently listed for sale.

The Company believes that its facilities are well maintained and in good operating condition, and meet the requirements for its immediately foreseeable business needs. Two of the Company’s facilities at December 31, 2003, are leased from an affiliate.

ITEM 3. LEGAL PROCEEDINGS

The Company is from time to time involved in various lawsuits related to its ongoing business operations, primarily collection actions or vendor disputes. In the opinion of management, no pending lawsuit will result in any material adverse effect upon the Company or its financial condition.

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

None.

9

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company’s common stock was traded on the NASDAQ National Market System under the symbol “MODT”. The range of high and low sales prices for the common stock as reported by the National Association of Securities Dealers, Inc. for the periods indicated below, are as follows:

Quarter Ended	High	Low
3/31/02	11.490	8.200
6/30/02	12.896	9.950
9/30/02	12.880	9.600
12/31/02	11.739	8.800
3/31/03	10.000	6.550
6/30/03	9.750	6.950
9/30/03	9.740	7.260
12/31/03	8.660	7.440

On December 31, 2003, the closing sales price on The NASDAQ National Market for a share of the Company’s Common Stock was $8.41. The approximate number of holders of record of the Company’s Common Stock as of December 31, 2003, was 64.

STOCK COMPENSATION PLAN TABLE

The following table sets forth the number of shares to be issued upon exercise of outstanding options, the weighted-average exercise price of such options, and the number of shares remaining available for issuance as of the end of the company’s most recently completed fiscal year.

	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights	(b) Weighted-average exercise price of outstanding options, warrants and rights	(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	2,378,058	$8.14	559,364
Equity compensation plans not approved by security holders	N/A	N/A	N/A

DIVIDEND POLICY

The Company has not paid cash dividends on its Common Stock since 1990. The Board of Directors currently intends to follow a policy of retaining all earnings, if any, to finance the continued growth and development of the Company’s business and does not anticipate paying cash dividends on its Common Stock in the foreseeable future. Any future determination as to the payment of cash dividends will be dependent upon the Company’s financial condition and results of operations and other factors deemed relevant by the Board of Directors.

10

ITEM 6. SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The selected statement of operations and balance sheet data set forth below should be read in conjunction with those consolidated financial statements (including the notes thereto) and with “Management’s Discussion and Analysis of Results of Operations and Financial Condition” also included elsewhere herein.

	Year Ended December 31,
	1999			2000			2001			2002			2003
Statement of Operations Data:
Net sales	$	167,228		$	234,734		$	201,116		$	167,973		$	159,870
Cost of goods sold		138,668			198,501			165,068			144,782			147,938
Gross profit		28,560			36,233			36,048			23,191			11,932
Selling, general and administrative expenses		6,834			8,011			8,093			7,488			8,129
Goodwill and covenant amortization		3,213			3,702			3,751			369			79
Income from operations		18,513			24,520			24,204			15,334			3,724
Interest income (expense), net		(3,083	)		(4,928	)		(3,067	)		(1,628	)		(1,359	)
Other income		85			61			91			40			30
Income before income taxes and cumulative effect of a change in an accounting principle		15,515			19,653			21,228			13,746			2,395
Income taxes		(7,128	)		(9,237	)		(9,606	)		(5,773	)		(938	)
Income before cumulative effect of a change in an accounting principle	$	8,387		$	10,416		$	11,622		$	7,973		$	1,457
Cumulative effect of a change in an accounting principle		—			—			—			(37,288	)		—
Net income (loss)		8,387			10,416			11,622			(29,316	)		1,457
Net income (loss) available for common stockholders (1)	$	8,251		$	10,260		$	11,466		$	(29,471	)	$	1,450
Basic earnings per common share before cumulative effect of a change in an accounting principle	$	0.64		$	0.78		$	0.85		$	0.58		$	0.11
Cumulative effect of a change in an accounting principle per common share - basic		—			—			—		$	(2.77	)		—
Basic earnings (loss) per common share	$	0.64		$	0.78		$	0.85		$	(2.19	)	$	0.11
Basic weighted-average shares outstanding		12,986			13,238			13,411			13,479			13,688
Diluted earnings per common share before cumulative effect of a change in an accounting principle	$	0.59		$	0.72		$	0.82		$	0.54		$	0.10
Cumulative effect of a change in an accounting principle per common share - diluted		—			—			—		$	(2.53	)		—
Diluted earnings (loss) per common share	$	0.59		$	0.72		$	0.82		$	(1.99	)	$	0.10
Diluted weighted-average shares outstanding		14,204			14,357			14,422			14,723			14,103
	As of December 31,
	1999			2000			2001			2002			2003
Balance Sheet Data:
Working capital	$	11,231		$	17,153		$	25,265		$	28,001		$	21,480
Total assets		168,723			187,702			186,396			154,542			145,046
Total liabilities		58,050			65,610			52,099			49,277			37,937
Long-term debt, excluding current portion		32,000			23,600			19,000			12,000			6,000
Shareholders’ equity		110,672			122,092			134,297			105,265			107,109
	Year Ended December 31,
	1999			2000			2001			2002			2003
Selected Operating Data:
Gross margin		17.1	%		15.4	%		17.9	%		13.8	%		7.5	%
Operating margin		11.1	%		10.4	%		12.0	%		9.1	%		2.3	%
Backlog at period end(2)	$	60,000		$	80,000		$	80,000		$	85,000		$	115,000

⁽¹⁾ After deduction of preferred stock dividends of $156,000 for each of the years ended December 31, 2001 and 2002 respectively and $7,000 for the year ended December 31, 2003.

⁽²⁾ The Company manufactures classrooms and other buildings to fill existing orders only, and not for inventory. Backlog consists of sales orders scheduled for completion during the next 18 months, approximately. Approximately $97 million of the $115 million backlog will convert into sales during 2004.

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

GENERAL

This annual report contains statements which, to the extent that they are not recitations of historical fact, such as our belief that we have sufficient liquidity to meet our near-term operating needs constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The words “believe,” “estimate,” “anticipate,” “project,” “intend,” “expect,” “plan,” “outlook,” “forecast” “may,” “will,” “should,” “continue,” “predict” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are intended to be subject to the safe harbor protection within the meaning of that term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Statements in this annual report, including the Notes to the Consolidated Financial Statements and in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” describe factors, among others, that could contribute to or cause such differences. Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, there is no assurance that our expectations will be attained.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentages of net sales represented by certain items in the Company’s statements of operations.

PERCENTAGE OF NET SALES

	Years Ended December 31,
	2001		2002		2003
Net sales	100.0	%	100.0	%	100.0	%
Cost of sales	82.1		86.2		92.5
Gross profit	17.9		13.8		7.5
Selling, general and administrative expenses	4.0		4.5		5.1
Goodwill and covenant amortization	1.9		0.2		0.1
Income from operations	12.0		9.1		2.3
Interest expense, net	(1.5	)	(0.9	)	(0.8	)
Other income	—		—		—
Income before income taxes and cumulative effect of a change in accounting principle	10.5		8.2		1.5
Income taxes	4.7		3.4		0.6
Income before cumulative effect of a change in accounting principle	5.8	%	4.8	%	0.9	%

YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002

Net sales for the year ended December 31, 2003, declined by $8.1 million, or approximately 4.8%, when compared to the prior year. The decrease in 2003 is attributable to lower sales of commercial and industrial buildings, reflecting the general business decline in the non-residential building sector and the overall economy. Lower sales were also impacted in the fourth quarter by the shift in marketing approach for non-classroom sales as the Company moved away from a reliance on a dealer network and focused more on direct sales for these products. The Company believes that the decline in sales associated with the shift to greater direct sales is temporary as the Company develops the necessary sales network.

12

Gross profit for the year ended December 31, 2003 was $11.9 million, a decrease of $11.3 million, or approximately 48.7%, when compared to the previous year. Gross profit as a percentage of net sales decreased to 7.5% in 2003 from 13.8% in 2002. The decrease in gross profit was due to several factors:

Unplanned costs on certain projects were driven by the transition to more complex, multi-story projects that accelerated during 2003. With these complex projects accounting for more than 50% of the net revenue in 2003, up significantly over the prior year, the Company went through a significant learning curve, particularly for the site portion of the contracts. The Company believes that the experience gained in project management and actual execution on project sites positions the Company well for 2004 and beyond.

Unabsorbed fixed and semi-variable costs associated with the decline in production during the fourth quarter contributed significantly to the decline in gross margin for 2003. Fourth quarter sales of $23.1 million were down $13.1 million from the prior year fourth quarter. The Company believes that increased volumes projected for 2004 and a flattening of the historical sales cycle due to geographic and product offering expansions will minimize these unabsorbed costs going forward.

During 2003 the Company closed three leased facilities, consolidating three facilities into one in Florida and two facilities into one in Arizona. While these plant consolidations did drive incremental costs in 2003, going forward, significant savings are anticipated due to increased efficiencies.

The lower margins of 2003 are not seen as establishing or continuing a trend. The Company expects higher margins associated with the reduced reliance on the dealer network as well as the improvements noted above.

In 2003, selling, general and administrative (SG&A) expenses increased $0.6 million over the prior year with SG&A costs representing 5.1% of sales compared to 4.5% of sales the prior year. This increase was directly attributable to increased sales activities in the Florida classroom market and to the shift to direct sales for non-classroom sales throughout the Company. Although SG&A is expected to decline as a percent of sales from 2003 levels, the Company believes the direct sales model will have higher SG&A costs than the costs associated with using a dealer network. However, direct-sales margins are higher than sales to the dealer network and more than justify the increased SG&A expense.

In 2002, in accordance with SFAS No. 142, the Company took an impairment charge to goodwill of $37,288,488, which was recognized as a cumulative effect of a change in accounting principle in the three month period ended March 31, 2002. Effective January 1, 2002 the Company ceased amortizing its goodwill and continues to amortize its covenants not to compete over their respective useful lives. In 2003, covenant amortization decreased $0.3 million as a result of certain covenants not to compete becoming fully amortized. The remaining covenants not to compete will be fully amortized in 2006.

In 2003, net interest expense continued to decrease, declining from $1.6 million in 2002 to $1.4 million in 2003. The decrease is attributable to repayments on long-term debt. As a percentage of net sales, interest expense, net decreased to 0.8% in 2003 from 0.9% in 2002.

The provision for income taxes was $938 thousand for the year ended December 31, 2003, compared to $5.8 million for 2002. The Company’s effective tax rate decreased from 42.0% for the year ended December 31, 2002 to 39.2% for the year ended December 31, 2003. The decrease in income taxes is attributed to the decrease in income before income taxes and an a decrease in estimated taxes for tax settlements. The effective tax rate is expected to return to approximately 42% for 2004.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

Net sales for the year ended December 31, 2002 decreased to $168.0 million, a decrease of $33.1 million or approximately 16.5%, from $201.1 million in 2001. The decrease in 2002 is attributable to lower sales of commercial and industrial buildings, reflecting the general business decline in the non-residential building sector and the overall economy.

For the year ended December 31, 2002, gross profit was $23.2 million, a decrease of $12.9 million, or approximately 35.7%, from gross profit of $36.0 million. Gross profit as a percentage of net sales decreased to 13.8% in 2002 from 17.9% in 2001. The percentage decrease in gross profit was due principally to a decrease in production. The Company was unable to recover a portion of its fixed production facility costs through billings to customers.

In 2002, selling, general and administrative expenses decreased to $7.5 million from $8.1 million in 2001. As a percentage of net sales, selling, general and administrative expenses increased to 4.5% in 2002 from 4.0% in 2001. The percentage increase in selling, general and administrative expenses was due principally to a decrease in net sales. The Company was unable to recover a portion of its fixed selling, general and administrative costs through billings to customers.

13

Goodwill was recorded for acquisitions in 1999 and 2001 and was amortized from the respective dates of acquisition through December 31, 2001. SFAS No. 142 requires that goodwill no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. Accordingly, no goodwill amortization was recorded for the year ended December 31, 2002. In accordance with SFAS No. 142, the Company took a one-time impairment charge to goodwill of $37,288,488, which was recognized as a cumulative effect of a change in accounting principle in the three month period ended March 31, 2002. The Company continues to amortize its covenants not to compete over their respective useful lives.

In 2002, interest expense, net, decreased to $1.6 million from $3.1 million in 2001. The decrease is attributable to decreased line of credit borrowings, decreased long-term debt due to repayments and decreased interest rates for the year ended December 31, 2002. As a percentage of net sales, interest expense, net, decreased to 0.9% in 2002 from 1.5% in 2001.

Income before income taxes and the cumulative effect of a change in accounting principle for the year ended December 31, 2002 decreased by $7.5 million, or 35.2%, when compared to 2001. As a percentage of net sales, income before income taxes and the cumulative effect of a change in accounting principle decreased from 10.5% in 2001, to 8.2% in 2002.

The provision for income taxes was $5.8 million for the year ended December 31, 2002, compared to $9.6 million for 2001. The Company’s effective tax rate decreased to 42.0% for the year ended December 31, 2002 from 45.3% for the year ended December 31, 2001. The decrease in income taxes is attributed to the decrease in income before income taxes and cumulative effect of a change in an accounting principle, which is primarily the result of the decrease in net sales.

Income before the cumulative effect of a change in accounting principle for 2002 decreased by $3.6 million, or 31.4%, when compared to 2001. As a percentage of net sales, income before the cumulative effect of a change in accounting principle decreased from 5.8% in 2001 to 4.8% in 2002.

LIQUIDITY AND CAPITAL RESOURCES

To date, the Company has funded its operations and capital expenditures with cash generated internally by operations, supplemented by borrowings under various credit facilities and public offerings. During the years ended December 31, 2001, 2002 and 2003, the Company’s operations provided cash in the amounts of approximately $8.1 million, $8.2 million and $14.1 million, respectively. At December 31, 2003, the Company had $1.1 million in cash and cash equivalents and working capital of $21.5 million.

The financial performance during the fourth quarter of 2003 resulted in the violation of certain bank covenants. The Company secured waivers for those covenant violations and amended its credit facility in March 2004. Reflecting the reduction in long-term debt and lower revolving fund requirements, the company now has a $47 million bank credit facility which provides for a $35 million revolving credit line. The credit facility is secured by all the Company’s assets. At December 31, 2003, $7.4 million was outstanding under the revolving credit line. The credit facility expires in December 2006 at which time the long-term debt will be fully paid.

The Company had working capital of $25.3 million, $28.0 million and $21.5 million at December 31, 2001, 2002 and 2003, respectively. In 2003, current assets decreased by $11.6 million, with a decrease of $8.4 million in costs and estimated earnings in excess of billings on contracts, a decrease in contracts receivable of $5.0 million, and a decrease in inventories of $1.5 million offset by an increase of $0.5 million in due from affiliates, an increase of $1.0 million in prepaid assets, an increase of $0.9 million in cash, an increase of $0.6 million in other current assets, and an increase of $0.2 million in deferred tax assets. Current liabilities decreased by $5.1 million, attributable to an increase of $1.6 million in billings in excess of earnings offset by a decrease of $2.6 million in current portion of long-term debt and revolving line of credit and a decrease of $4.1 million in accounts payable and accrued liabilities.

Capital expenditures amounted to $1.2 million, $1.1 million and $4.7 million during the years ended December 31, 2001, 2002 and 2003, respectively. In all three years, the majority of expenditures were a result of expanding production capacity at the Company’s various facilities. The Company expects to expend approximately $4.5 million in capital projects in 2004.

Management believes that the Company’s existing product lines and manufacturing capacity will enable the Company to generate sufficient cash through operations, supplemented by the Company’s bank line of credit, to finance the Company’s business over the next twelve months. However, additional cash resources may be required if the Company’s rate of growth exceeds currently anticipated levels. Moreover, it may prove necessary for the Company to construct or acquire additional manufacturing facilities in order for the Company to compete effectively in new market areas or states which are beyond a 300 mile radius from one of its production facilities. The construction or acquisition of new facilities could require significant additional capital. For these reasons, among others, the Company may need additional debt or equity financing in the future. There can be, however, no assurance that the Company will be successful in obtaining such additional financing, or that any such financing will be available on terms acceptable to it.

14

COMMITMENTS AND CONTINGENCIES

The following table represents a list of the Company’s contractual obligations and commitments as of December 31, 2003:

	Payments Due by Year (amounts in thousands)
	Total		2004		2005		2006		2007		2008		Thereafter
Long-term debt	$	12,000	$	6,000	$	4,000	$	2,000		—		—		—
Operating leases		10,031		1,303		1,131		1,131	$	1,054	$	629	$	4,783
Total contractual cash obligations	$	22,031	$	7,303	$	5,131	$	3,131	$	1,054	$	629	$	4,783

USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES

In December 2001, the Securities and Exchange Commission (SEC) requested that all registrants list their most “critical accounting policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of the Company’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management continually evaluates its estimates and assumptions including those related the Company’s most critical accounting policies. Management bases its estimates and assumptions on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Changes in economic conditions could have an impact on these estimates and the Company’s actual results. Management believes that the following may involve a higher degree of judgment or complexity:

Allowances for Contract Adjustments

The Company maintains allowances for contract adjustments that result from the inability of its customers to make their required payments. Management bases its allowances on analysis of the aging of accounts receivable, by account, at the date of the financial statements, assessments of historical collection trends, and an evaluation of the impact of current economic conditions. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Revenue Recognition on Construction Contracts

Contracts are recognized using the percentage-of-completion method of accounting and, therefore, take into account the costs, estimated earnings and revenue to date on contracts not yet completed. Revenue recognized is that percentage of the total contract price that cost expended to date bears to anticipated final total cost, based on current estimates of costs to complete. The percentage-of-completion methodology generally results in the recognition of reasonably consistent profit margins over the life of a contract. Cumulative revenues recognized may be less or greater than cumulative costs and profits billed at any point in time during a contract’s term. The resulting difference is recognized as unbilled or deferred revenue.

Any estimation process, including that used in preparing contract accounting models, involves inherent risk. We reduce the inherent risk relating to revenue and cost estimates in percentage-of-completion models through corporate policy, approval and monitoring processes. Risks relating to project delivery, productivity and other factors are considered in the estimation process. Our estimates of revenues and costs on construction contracts change periodically in the normal course of business due to factors such as productivity and modifications of contractual arrangements. Such changes are reflected in the results of operations as a change in accounting estimate in the period the revisions are determined. Provisions for estimated losses are made in the period in which the loss first becomes apparent.

15

SEASONALITY

Historically, the Company’s quarterly revenues have been highest in the second and third quarters of each calendar year because a large number of orders for modular classrooms placed by school districts require that classrooms be constructed, delivered and installed in time for the upcoming new school year which generally commences in September. The Company has typically been able to add employees as needed to respond to the corresponding increases in manufacturing output required by such seasonality to meet currently foreseeable increases in this seasonal demand.

The Company’s first and fourth quarter revenues are typically lower due to greater number of holidays and days of inclement weather during such periods. In addition, the Company’s operating margins may vary on a quarterly basis depending upon the mix of revenues between standardized classrooms and higher margin customized classrooms and the timing of the completion of large, higher margin customized contracts.

The Company anticipates a smoothing of this seasonality due to the growing impact of multi-year contracts and increased sales outside the traditional classroom market. However, these factors will not fully offset the impact of inclement weather and concentrations of holidays. So although the impact of seasonality is expected to be diminished, revenue and margins in the first and fourth quarters will likely be lower than in the second and third quarters.

INFLATION

During the past three years, the Company has not been adversely affected by inflation, because it has been generally able to pass along increases in the costs of labor and materials to its customers. However, there can be no assurance that the Company’s business will not be affected by inflation in the future. Although the company is aggressively pursuing means of offsetting the impact, recent steel prices have increased significantly and 2004 gross margin may see some impact from these increases.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk refers to the risk that a change in the level of one or more market factors such as interest rates, foreign currency exchange rates, or equity prices will result in losses for a certain financial instrument or group of instruments. We are principally exposed to interest rate and credit risks. We are not exposed to foreign currency exchange rate risk.

INTEREST RATE RISK

We are exposed to market risks related to fluctuation in interest rates on our $66 million credit facility. During 2003, we did not use interest rate swaps or other types of derivative financial instruments. The carrying value of the credit facility approximates fair value as the interest rate is variable and resets frequently. Indebtedness under the credit facility bears interest at LIBOR plus additional interest of between 1.25% and 3.50%, or the Federal funds rate plus additional interest of between 0.0% to 0.5%. The additional interest charge is based upon certain financial ratios. We estimate that the average amount of debt outstanding under the credit facility for 2004 will be $24 million. Therefore, a one-percentage point increase in interest rates would result in an increase in interest expense of $240,000 for the year.

CREDIT RISK

We are currently exposed to credit risk on credit extended to customers. We actively monitor this risk through a variety of control procedures involving senior management. Historically, credit losses have been small and within our expectations.

16

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company, along with the notes thereto and the independent auditors’ report thereon, required to be filed in response to this Item 8 are attached hereto as exhibits under Item 15.

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

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, our disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be included in our SEC filings. No changes occurred during the quarter ended December 31, 2003 in our internal controls over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

17

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) Board of Directors

Our current directors are as follows:

Evan M. Gruber, age 50, joined the Company’s predecessor, Modtech, Inc. in January 1989 as its Chief Financial Officer and was elected Chief Executive Officer in January 1990. Prior to joining Modtech, Inc., Mr. Gruber, who is a certified public accountant, founded his own public accounting firm in Costa Mesa, California in 1978. Mr. Gruber serves on the Board of Directors of Virco Mfg. Corporation.

Robert W. Campbell, age 47, who was elected to the Board of Directors of Modtech, Inc. in 1991, is the Managing Director of Corporate Finance at L.H. Friend, Weinress, Frankson & Presson, LLC. From 1993 to 1995, Mr. Campbell was Senior Vice President—Investment Banking at Baraban Securities, Incorporated. From 1982 to 1993, Mr. Campbell was employed by the Seidler Companies, Inc. as Senior Vice President—Corporate Finance.

Daniel J. Donahoe III, age 70, who was elected to the Board of Directors of Modtech, Inc. in 1998, is co-founder and President of Red Rock Resorts, which operates special, unique boutique resorts in the Western United States. He also serves as Chairman of Daybreak Investments, a privately-held investment company. Mr. Donahoe has been actively involved in the commercial and residential real estate market in the southwest over the past 30 years.

Stanley N. Gaines, age 69, has been a director of the Company since August 2000. Mr. Gaines served as the Chairman and CEO of GNB Incorporated from 1982 to 1988. He was Sr. Vice President International from 1981 through 1983 and Group Vice President, Batteries from 1971 through 1981 for Gould Incorporated. Mr. Gaines serves on the board of directors of Students in Free Enterprise.

Charles R. Gwirtsman, age 50, has been a director of the Company since February 1999. He is Managing Director of KRG Capital Partners, LLC, a middle-market private equity firm. Prior to joining KRG Capital in 1996, Mr. Gwirtsman served as Senior Vice President of FCM Fiduciary Capital Management Company, the manager of two mezzanine debt funds, from January 1994 to June 1996. Prior to this, Mr. Gwirtsman was employed as a Corporate Vice President at PaineWebber, Incorporated from 1988 to 1993 as a member of the Private Finance Group. Mr. Gwirtsman serves on the Board of Directors of a number of privately held companies.

Charles C. McGettigan, age 59, has been a director of Modtech, Inc. since June 1994. Mr. McGettigan is a co-founder and managing director of the investment banking firm of McGettigan, Wick & Co., Inc. and a co-founder and general partner of Proactive Investment Managers, L.P., the general partner of Proactive Partners, L.P., a merchant banking fund. Prior to founding McGettigan, Wick & Co., Inc., he was a Principal, Corporate Finance of Hambrecht & Quist and a Senior Vice President of Dillon, Read & Co. Mr. McGettigan serves on the boards of directors of Cuisine Solutions, Inc., Onsite Energy, PMR Corporation, Sonex Research Corporation and Tanknology-NDE.

Michael G. Rhodes, age 43, became a director of the Company in 2001. Mr. Rhodes joined the Company’s predecessor, Modtech, Inc. in 1988 and was its controller through 1992. In 1993 he was elected Chief Financial Officer, and in 1996 was elected Chief Operating Officer. Mr. Rhodes was elected President in 2001. Prior to joining Modtech, Inc., Mr. Rhodes worked for a public accounting firm.

Myron A. Wick III, age 60, became a director of Modtech, Inc. in June 1994. Mr. Wick is currently a managing director and co-founder of McGettigan, Wick & Co., Inc., an investment banking firm formed in 1988, and a general partner of Proactive Investment Managers, L.P., the general partner of Proactive Partners, L.P., a merchant banking fund formed in 1991. Mr. Wick is a director of Sonex Research Corporation, Story First Communications and Tanknology-NDE.

Our directors are elected annually to serve until the next annual meeting of shareholders, or until their successors are duly elected and qualified.

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Mr. Gruber and Mr. Rhodes are the only directors employed by the Company. There is no family relationship between any director and any other director or executive officer of the Company. There are no arrangements or understandings between any director and any other person(s) pursuant to which he was or is to be selected a director. The Board of Directors has determined that Robert W. Campbell, Daniel J. Donahoe III, Stanley N. Gaines and Charles R. Gwirtsman are “independent” as defined in the Nasdaq listing standards.

The Board has established an Audit Committee, which is comprised of Messrs. Campbell, Donahoe and Gaines, a Compensation Committee, which is comprised of Messrs. McGettigan, Gwirtsman and Wick and a Nominating Committee, which is comprised of Messrs. Gruber, Gwirtsman and McGettigan. The Board of Directors has determined that each of the committee members meets the independence requirements of the Nasdaq Stock Market and that Robert W. Campbell is an “audit committee financial expert” as defined under applicable Securities and Exchange Commission rules.

(b) Executive Officers

The executive officers of the Company are Evan M. Gruber, Chief Executive Officer; Michael G. Rhodes, President and Chief Operating Officer, Shari Walgren Smith, Executive Vice President, Treasurer and Secretary and Dennis L. Shogren, Chief Financial Officer. The business experience of Mr. Gruber and Mr. Rhodes is set forth above under the heading “Board of Directors”. Ms. Walgren Smith joined the Company in 1999 as its Chief Financial Officer and Secretary. In 2003, Ms. Walgren Smith became the Company’s Executive Vice President and Treasurer. Prior to joining the Company, Ms. Walgren Smith, who is a certified public accountant, worked for a public accounting firm, KPMG, LLP, from 1994 to 1999. Mr. Shogren joined the Company in 2003 as its Chief Financial Officer. Prior to joining the Company, Mr. Shogren worked for Haskel International from 2001 to 2003 and for Ameron International from 1997 to 2001.

Subject to the terms of applicable employment agreements, officers serve at the pleasure of the Board of Directors. There are no arrangements or understandings by or between any executive officer and any other person(s) pursuant to which he or she was or is to be selected as an officer of the Company.

(c) Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the Company’s officers and directors, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership (Forms 3, 4 and 5) with the Securities and Exchange Commission, and to furnish the Company with copies of all such forms which they file.

To the Company’s knowledge, based solely on the Company’s review of such reports or written representations from certain reporting persons that no Forms 5 were required to be filed by those persons, the Company believes that during the year ended December 31, 2003 filing requirements applicable to the officers and directors of the Company and other persons subject to Section 16 of the Exchange Act were complied with.

(d) Code of Business Conduct and Ethics

The Company has adopted a Code of Business Conduct and Ethics that applies to all of our officers, directors and employees. This code is publicly available on the Company website at www.modtech.com.

ITEM 11. EXECUTIVE COMPENSATION

(a) Director Compensation

Each non-employee director is paid an annual retainer of $10,000 plus $1,000 for each board and board committee meeting attended and $1,000 for each committee chairperson. Additionally, the Chairman of the Board is paid $10,000 per month. Each non-employee director is granted an option to purchase 20,000 shares of Common Stock, with 25% vesting over a 4-year period of service on the Board of Directors. The Company reimburses the expenses of its non-employee directors in attending Board meetings. No compensation is paid to any of the employee directors for any services provided as a director.

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(b) Compensation of Executive Officers

The following table summarizes the annual and long term compensation paid by the Company during fiscal years ended December 31, 2001, 2002 and 2003 to those persons who were (i) the Chief Executive Officer during the last fiscal year and (ii) each additional executive officer at the end of the last fiscal year whose total compensation exceeded $100,000 during the year ended December 31, 2003.

Summary Compensation Table

					Long-Term Compensation
		Annual Compensation			Awards		Payouts
Name and Principal Position	Year	Salary $	Bonus $	Other Annual Compensation $	Restricted Stock Awards $	Securities Underlying Options/SARS #	LTIP Payouts	All Other Compensation $(1)
Evan M. Gruber Chief Executive Officer and Director	2003 2002 2001	465,000 440,000 399,150	55,219 167,086 199,834	—   —   —	—   —   —	59,994 66,667 248,410	—   —   —	6,000 5,750 5,250
Michael G. Rhodes President, Chief Operating Officer and Director	2003 2002 2001	325,000 294,500 277,250	38,594 111,644 138,732	—   —   —	—   —   —	40,148 44,621 172,546	—   —   —	6,000 5,750 5,250
Shari Walgren Smith Executive Vice President, Treasurer and Secretary	2003 2002 2001	152,197 140,250 132,590	18,406 53,164 66,611	—   —   —	—   —   —	19,120 21,250 24,107	—   —   —	6,000 5,750 5,250
Dennis L. Shogren Chief Financial Officer (2)	2003	83,654	6,234	—	—	25,000	—	—

(1) The figures shown in the column designated “All Other Compensation” represent the executive officer’s share of the Company’s contribution to the 401(k) plan, see “401(k) Plan.”

(2) Mr. Shogren joined the Company in 2003.

(c) Employment Agreements

The Company entered into employment agreements in December 2003 with Mr. Gruber and Mr. Rhodes. These agreements are for one year each, provide for early severance payments of between one and two years salary and include, among other provisions, base annual salary of $465,000 for Mr. Gruber and $325,000 for Mr. Rhodes. Each individual is entitled to earn bonuses of up to 100% of annual base salary. The bonuses include a stock option component and a cash component which is based on performance.

(d) 401(k) Plan

Under the Company’s 401(k) Plan, officers and other employees of the Company may elect to defer up to 12% of their compensation, subject to limitations under the Internal Revenue Code. The Company makes contributions on a 50% matching basis. Amounts deferred are deposited by the Company in a trust account for distribution to employees upon retirement, attainment of age 59 ¹/2, permanent disability, death, termination of employment or the occurrence of conditions constituting extraordinary hardship. For the year ended December 31, 2003, the Company contributed $6,000 each as matching contributions for the accounts of Mr. Gruber, Mr. Rhodes and Ms. Walgren Smith.

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(e) Equity Compensation Plan Information

Refer to Item 5 for equity compensation plan information.

The following table sets forth certain information regarding options granted by the Company during the year ended December 31, 2003 to the executive officers of the Company identified in the Summary Compensation Table set forth above:

Options Granted in Fiscal Year 2003

Name of Optionee	No. of Shares Subject to Options Granted (1)	% of Total Options Granted to Employees		Exercise Price (2)		Expiration Date	Potential Realized Value at Assumed Annual Rates of Stock Price Appreciation For Option Term (3)
							5%		10%
Evan M. Gruber	59,994	13	%	$	9.70	1/01/2013	$	365,980	$	927,465
Michael G. Rhodes	40,148	9	%	$	9.70	1/01/2013	$	244,914	$	620,660
Shari Walgren Smith	19,120	4	%	$	9.70	1/01/2013	$	116,637	$	295,582
Dennis L. Shogren	25,000	5	%	$	9.41	6/02/2013	$	147,947	$	374,928

(1) Options are exercisable starting 12 months after the grant date with 25% vesting each year. Options are for a period of 10 years, but are subject to earlier termination in connection with the termination of employment.

(2) The exercise price is the market price of a share of the Company’s Common Stock on the date of grant.

(3) On December 31, 2003, the closing price for a share of the Company’s Common Stock was $8.41.

The following table sets forth information regarding options exercised during the year ended December 31, 2003 by the executive officers of the Company identified in the Summary Compensation Table set forth above, as well as the aggregate value of unexercised options held by such executive officers at December 31, 2003. The Company has no outstanding stock appreciation rights, either freestanding or in tandem with options.

Aggregated Option Exercises Last Fiscal Year and Fiscal Year End Option Values

Name	Shares Acquired on Exercise (#)	Value Realized		Number of Unexercised Options at Fiscal Year End		Value of Unexercised in-the-money Options at Fiscal Year End ($) (1)
				Exercisable	Unexercisable	Exercisable		Unexercisable
Evan M. Gruber	50,000	$	295,000	726,768	248,249	$	1,918,842	$	231,902
Michael G. Rhodes	—		—	395,596	169,922		709,959		161,702
Shari Walgren Smith	—		—	89,615	51,526		50,608		29,677
Dennis L. Shogren	—		—	—	25,000		—		—

(1) Calculated based on the closing price of the Company’s Common Stock as reported on the NASDAQ National Market System on December 31, 2003, which was $8.41 per share.

(f) Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee during the fiscal year ended December 31, 2003 were Charles R. Gwirtsman, Charles C. McGettigan and Myron A. Wick III. Neither Mr. Gwirtsman nor Mr. Wick has ever been an officer or employee of ours or any of our subsidiaries. None of the executive officers served as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of such committee, the entire Board of Directors) or another entity during 2003.

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(g) Compensation Committee Report

It is the policy of the Company’s Compensation Committee to establish compensation levels for the executive officers, which reflect the Company’s overall performance and their performance, responsibilities and contributions to the long-term growth and profitability of the Company. The committee determines compensation of the executive officers, including the chief executive officer, based on its evaluation of the Company’s overall performance, including various quantitative factors, primarily the Company’s financial performance, sales and earnings against the Company’s operating plan, as well as various qualitative factors such as new product development, the Company’s product and service quality, the extent to which the executive officers have contributed to forming a strong management team and other factors which the committee believes are indicative of the Company’s ongoing ability to achieve its long-term growth and profit objectives. The Compensation Committee has and may continue to rely on reports from compensation consultants in this matter.

The principal component of the compensation of the executive officers is their base salaries. The committee also retains the discretion to award bonuses based on corporate or individual performance. The committee evaluates the practices of various industry groups, market data, including data obtained from time to time from outside compensation consultants, and other economic information to determine the appropriate ranges of base salary levels which will enable the Company to retain and incentivize the executive officers. Throughout the year, the committee members review the corporate and individual performance factors described above. The committee, based upon its review of performance for the previous year and its review of the Company’s operating plan, establishes salary levels and awards any bonuses to the executive officers, including the chief executive officer.

The Compensation Committee also considers grants of stock options for the Company’s key employees, including executive officers. The purpose of the stock option program is to provide incentives to the Company’s management to work to maximize stockholder value. The option program also utilizes vesting periods to encourage key employees to continue in the employ of the Company. Individual amounts of annual stock option grants are derived based upon review of competitive compensation practices with respect to the same or similar executive positions, overall corporate performance and individual performance.

Charles R. Gwirtsman Charles C. McGettigan Myron A. Wick III

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(h) Stock Performance Graph

The graph set forth below compares the stock price of the Company since January 1, 1999 against (1) the S&P 500, and (2) the composite of the companies listed by CoreData in its non-residential building construction (“Peer Group”). The graph is based upon information provided to the Company by CoreData.

COMPARE 5-YEAR CUMULATIVE TOTAL RETURN

AMONG MODTECH HOLDINGS, INC.,

S&P 500 INDEX AND SIC CODE INDEX

ASSUMES $100 INVESTED ON JAN. 1, 1999

ASSUMES DIVIDEND REINVESTED

FISCAL YEAR ENDING DEC. 31, 2003

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(a) Principal Holders of Voting Securities

The following table sets forth information regarding the ownership of the Company’s Common Stock as of April 15, 2004, by (i) each of the current directors and nominees for election as a director of the Company, (ii) each person or group known by the Company to be the beneficial owner of more than 5% of the Company’s outstanding Common Stock, and (iii) all current directors and executive officers of the Company as a group. Except as otherwise noted and subject to community property laws where applicable, each beneficial owner has sole voting and investment power with respect to all shares shown as beneficially owned by them. Except as otherwise indicated, the address of each holder identified below is in care of the Company, 2830 Barrett Avenue, Perris, California 92571.

Name and Address of Beneficial Owner	Shares Beneficially Owned (1)	Percent of Class (1)
Evan M. Gruber (2)	863,469	5.9	%
Michael G. Rhodes (3)	450,605	3.2
Shari Walgren Smith (4)	110,149	*
Dennis L. Shogren (5)	6,250	*
Daniel J. Donahoe III (6)	31,400	*
Robert W. Campbell (7)	46,317	*
Stanley N. Gaines (8)	121,000	*
Charles R. Gwirtsman (9)	347,183	2.5
Charles C. McGettigan (10) (15)	129,081	*
Myron A. Wick III (11) (15)	131,955	1.0
Jon D. Gruber (12) (15)	3,125,322	22.6
Gruber & McBaine Capital Management (13)	2,930,811	21.2
J. Patterson McBaine (14) (15)	2,968,284	21.4
Third Avenue Management LLC (16)	2,004,836	14.5
Rutabaga Capital Management LLC (17)	941,170	6.8
Dimensional Fund Advisors, Inc. (18)	868,922	6.3
Royce & Associates LLC (19)	694,891	5.0
All directors and executive officers as a group (10 people) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)	2,147,520	14.1

 * Less than one percent.

(1) In calculating beneficial and percentage ownership, all shares of Common Stock which a named stockholder will have the right to acquire within 60 days of the record date for the Annual Meeting upon exercise of stock options are deemed to be outstanding for the purpose of computing the ownership of such stockholder, but are not deemed to be outstanding for the purpose of computing the percentage of Common Stock owned by any other stockholder. As of April 15, 2004, an aggregate of 13,847,322 shares of Common Stock were outstanding. This does not give effect to the potential issuance of 3,299,543 shares issuable upon exercise of options granted or which may be granted under the Company’s stock option plans. See “Election of Directors—Stock Options.”

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(2) Includes 669,968 shares issuable upon exercise of stock options, but does not include 253,505 shares issuable upon exercise of stock options which have been granted but currently are not exercisable. Evan M. Gruber and Jon D. Gruber are not related.

(3) Includes 439,426 shares issuable upon exercise of stock options, but does not include 174,398 shares issuable upon exercise of stock options which have been granted but currently are not exercisable.

(4) Includes 110,149 shares issuable upon exercise of stock options, but does not include 54,030 shares issuable upon exercise of stock options which have been granted but currently are not exercisable.

(5) Includes 6,250 shares issuable upon exercise of stock options, but does not include 41,045 shares issuable upon exercise of stock options which have been granted but currently are not exercisable.

(6) Includes 31,400 shares issuable upon exercise of stock options, but does not include 15,000 shares issuable upon exercise of stock options which have been granted but currently are not exercisable.

(7) Includes 36,947 shares issuable upon exercise of stock options, but does not include 15,000 shares issuable upon exercise of stock options which have been granted but currently are not exercisable.

(8) Includes 15,000 shares issuable upon exercise of stock options, but does not include 5,000 shares issuable upon exercise of stock options which have been granted but currently are not exercisable.

(9) Includes 132,669 shares held by Capital Resources Growth, Inc., an entity of which Mr. Gwirtsman is the sole stockholder, and 189,514 shares held directly by Mr. Gwirtsman and his wife and trusts formed for the benefit of their children. Also includes 25,000 shares issuable upon exercise of stock options to Mr. Gwirtsman, but does not include 15,000 shares issuable upon exercise of stock options which have been granted but currently are not exercisable.

(10) Includes 86,669 shares owned of record directly by Mr. McGettigan and 346 shares held in a trust formed for the benefit of Mr. McGettigan’s daughter. Also includes options to purchase 42,066 shares which have been granted to Mr. McGettigan for serving on the Company’s Board of Directors, but does not include 15,000 shares issuable upon exercise of stock options which have been granted but currently are not exercisable.

(11) Includes options to purchase 42,066 shares which have been granted to Mr. Wick for serving on the Company’s Board of Directors, but does not include 15,000 shares issuable upon exercise of stock options which have been granted but currently are not exercisable.

(12) Includes 87,841 shares owned of record directly by Jon D. Gruber and all shares owned of record by Gruber & McBaine Capital Management and affiliates, of which Jon D. Gruber is a general partner. Jon D. Gruber and Evan M. Gruber are not related.

(13) Includes 93,758 shares owned of record directly by Gruber & McBaine Capital Management, and all shares owned of record by Lagunitas Partners, Gruber & McBaine International and GMJ Investments, affiliated entities.

(14) Includes 37,473 shares owned of record directly by Mr. McBaine, and all shares owned of record by Gruber & McBaine Capital Management and affiliates, of which Mr. McBaine is a general partner.

(15) The address of each of Charles C. McGettigan, Myron A. Wick III, Jon D. Gruber, J. Patterson McBaine and Gruber & McBaine Capital Management is 50 Osgood Place, San Francisco, CA 94133.

(16) The address of Third Avenue Management LLC is 767 Third Avenue, New York, NY 10017.

(17) The address of Rutabaga Capital Management LLC is 64 Broad Street 3^rd Floor, Boston, MA 02109.

(18) The address of Dimensional Fund Advisors, Inc. is 1299 Ocean Avenue 11^th Floor, Santa Monica, CA 90401.

(19) The address of Royce & Associates LLC is 1414 Avenue of the Americas 9^th Floor, New York, NY 10019.

(b) Equity Compensation Plan Information

See Item 5 of this report for equity compensation plan information.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company leases one facility located in Perris, California, and the land on which the manufacturing facility is located in Lathrop, California, from general partnerships of which Mr. Gruber owns an approximate 20% interest, pursuant to standard industrial leases. Under the terms of these leases, the Company is obligated to pay aggregate annual rentals of $479,000, subject to escalation in accordance with changes in applicable cost of living indices.

Mr. Gruber owns 33% of the capital stock of Class Leasing, Inc., a California corporation, in which the Company has no ownership interest. Class Leasing purchases modular relocatable classrooms from the Company, upon standard terms and at standard wholesale prices, and leases them to third parties primarily under three-year leases, cancelable yearly. During the years ended December 31, 2001, 2002, and 2003, the Company sold modular relocatable classrooms to Class Leasing, Inc. for aggregate purchase prices of $1,604,099, $5,749,077 and $3,202,888, respectively, which represented approximately 1%, 3% and 2% of the its net sales for each of those years.

Mr. Gruber and Mr. Rhodes have personally guaranteed certain of the obligations of the Company and the repayment of amounts which surety companies may be required to expend under the terms of performance bonds issued in connection with manufacturing contracts. No payments have been made to Mr. Gruber and Mr. Rhodes for the guarantees provided by them.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

(a) Summary of Annual Audit and Tax Fees

KPMG LLP was retained to serve as the Company’s independent registered public accounting firm for the fiscal years ending December 31, 2002 and 2003. Fees billed to the Company by KPMG LLP for services rendered during fiscal year 2002 and 2003 were as follows:

	2002		2003
Audit fees:	$	149,000	$	167,350
Audit-related fees:	$	—	$	—
Tax fees*:	$	90,365	$	52,170
All other fees:	$	—	$	—

* Tax fees primarily consist of tax compliance. The Audit Committee considered, in reliance on management and the independent registered public accounting firm, whether the provision of these services is compatible with maintaining independence with KPMG LLP. Additionally, 100% of the 2002 and 2003 fees were preapproved by the Audit Committee.

(b) Audit Committee’s Pre-Approval Policies and Procedures

Our Audit Committee has adopted written pre-approval policies and procedures pursuant to which audit, audit-related and tax services, and all permissible non-audit services, are pre-approved by category of service. The term of such pre-approval is generally 12 months, unless the Audit Committee determines otherwise. Pre-approval fee levels for all services to be provided by the independent auditor are established periodically by the Audit Committee. Any proposed services exceeding these fee levels requires specific pre-approval by the Audit Committee. The fees are budgeted, and actual fees versus the budget are monitored throughout the year. During the year, circumstances may arise when it may become necessary to engage the independent auditor for additional services not contemplated in the original pre-approval. In those instances, we will obtain the specific pre-approval of the Audit Committee before engaging the independent auditor. The policies require the Audit Committee to be informed of each service, and the policies do not include any delegation of the Audit Committee’s responsibilities to management. The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated will report any pre-approval decisions to the Audit Committee no later than at its next scheduled meeting.

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PART IV

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

(a) Exhibits and Financial Statement Schedules

1 & 2. Index to Financial Statements

The following financial statements and financial statement schedule of the Company, along with the notes thereto and the Independent Auditors’ Reports, are filed herewith, as required by Part II, Item 8 hereof.

Financial Statements

Independent Auditors’ Report	F-2
Consolidated Balance Sheets - December 31, 2002 and 2003	F-3
Consolidated Statements of Operations - For the Years Ended December 31, 2001, 2002 and 2003	F-5
Consolidated Statements of Shareholders’ Equity - For the Years Ended December 31, 2001, 2002 and 2003	F-6
Consolidated Statements of Cash Flows - For the Years Ended December 31, 2001, 2002 and 2003	F-7
Notes to Consolidated Financial Statements	F-9
Schedule Included - For the Years Ended December 31, 2001, 2002 and 2003
Schedule II - Valuation and Qualifying Accounts	F-25

All other financial statement schedules have been omitted because the required information is shown in the consolidated financial statements or notes thereto, the amounts involved are not significant, or the schedules are not applicable.

3. Exhibits

Exhibit Number	Name of Exhibit
3.11	Certificate of Incorporation of Modtech Holdings, Inc.
3.2	Bylaws of Modtech Holdings, Inc.
10.12	Modtech, Inc.’s 1996 Stock Option Plan.
10.23	Transaction Advisory Agreement.
10.3	Employment Agreement between the Company and Evan M. Gruber.
10.5	Employment Agreement between the Company and Michael G. Rhodes.
10.65	Lease between the Company and Pacific Continental Modular Enterprises, relating to the Barrett Street property in Perris, California.
10.75	Lease between the Company and BMG, relating to the property in Lathrop, California.
10.85	Form of Indemnity Agreement between the Company and its executive officers and directors.

(b) Reports on Form 8-K

     Form 8-K filed November 5, 2003

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10.93	Financial Advisory Services Agreement.
10.106	Credit Agreement, dated February 16, 1999
10.117	Credit Agreement, dated December 26, 2001
23.1	Independent Auditors’ Consent
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

¹ Incorporated by reference to Modtech Holdings, Inc.’s Registration Statement on Form S-4 filed with the Commission on October 27, 1998 (Commission File No. 333-69033).

² Incorporated by reference to Modtech, Inc.’s Registration Statement on form S-8 filed with the Commission on December 11, 1996 (Commission File No. 333-17623).

³ Incorporated by reference to Amendment No. 2 to Modtech Holdings, Inc.’s Registration Statement on Form S-4, filed with the Commission on January 11, 1999 (Commission File No. 333-69033).

⁵ Incorporated by reference to Modtech, Inc.’s Registration Statement on Form S-1 filed with the Commission on June 6, 1990 (Commission File No. 033-35239).

⁶ Incorporated by reference to Modtech Holdings, Inc.’s Form 10-K filed with the Commission on April 15, 1999 (Commission File No. 000-25161).

⁷ Incorporated by reference to Modtech Holdings, Inc.’s Form 10-K filed with the Commission on April 1, 2002 (Commission File No. 000-25161).

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SIGNATURES

Pursuant to the requirements of 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.

Date: October 13, 2005	MODTECH HOLDINGS, INC., a Delaware corporation
	By:	/s/    DAVID M. BUCKLEY
		David M. Buckley President & Chief Executive Officer (Principal Executive Officer)

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

Name	Capacities	Date
/s/    DAVID M. BUCKLEY         David M. Buckley	Director, President & Chief Executive Officer (Principal Executive Officer)	October 13, 2005
/s/    ROBERT W. CAMPBELL         Robert W. Campbell	Director	October 13, 2005
/s/    DANIEL J. DONAHOE         Daniel J. Donahoe	Director	October 13, 2005
/s/    STANLEY GAINES         Stanley Gaines	Director	October 13, 2005
/s/    CHARLES R. GWIRTSMAN         Charles R. Gwirtsman	Director	October 13, 2005
/s/    CHARLES C. MCGETTIGAN         Charles C. McGettigan	Director	October 13, 2005
/s/    MYRON A. WICK III         Myron A. Wick III	Director	October 13, 2005
/s/    DENNIS L. SHOGREN         Dennis L. Shogren	Chief Financial Officer (Principal Accounting Officer)	October 13, 2005

S-1

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Annual Report – Form 10-K/A

Consolidated Financial Statements and Schedule

December 31, 2001, 2002 and 2003

(With Independent Auditors’ Report Thereon)

F-1

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders

Modtech Holdings, Inc.:

We have audited the accompanying consolidated balance sheets of Modtech Holdings, Inc. and subsidiaries as of December 31, 2002 and 2003, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2003. In connection with our audits of the consolidated financial statements, we have also audited the accompanying financial statement schedule for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Modtech Holdings, Inc. and subsidiaries as of December 31, 2002 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Notes 1 and 7 to the consolidated financial statements, the Company changed its method of accounting for goodwill and intangible assets in 2002.

/s/ KPMG LLP

Costa Mesa, California

March 4, 2004

F-2

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2002 and 2003

	2002		2003
ASSETS
Current assets:
Cash and cash equivalents	$	212,889	$	1,122,364
Contracts receivable, less allowance for contract adjustments of $1,425,000 in 2002 and $1,062,311 in 2003		32,409,016		27,425,404
Costs and estimated earnings in excess of billings on contracts		17,922,948		9,534,926
Inventories		8,355,580		6,840,888
Due from affiliates		1,367,987		1,866,988
Prepaid assets		1,319,173		2,347,545
Deferred tax assets		2,654,272		2,874,693
Other current assets		823,185		1,404,356
Total current assets		65,065,050		53,417,164
Property and equipment, net		14,478,225		17,396,859
Goodwill, net		72,383,537		71,902,678
Covenants not to compete, net		137,311		57,908
Debt issuance costs, net		1,159,092		968,526
Deferred tax assets		—		111,618
Other assets		1,318,851		1,191,292
	$	154,542,066	$	145,046,045

See accompanying notes to consolidated financial statements.

F-3

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2002 and 2003

	2002		2003
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	9,858,941	$	6,320,643
Accrued compensation		3,643,592		2,864,956
Accrued insurance expense		2,187,625		3,217,653
Other accrued liabilities		3,130,446		2,316,585
Billings in excess of costs and estimated earnings on contracts		2,243,514		3,816,880
Current revolving credit line		9,000,000		7,400,000
Current maturities of long-term debt		7,000,000		6,000,000
Total current liabilities		37,064,118		31,936,717
Deferred tax liabilities		212,624		—
Long-term debt, excluding current portion		12,000,000		6,000,000
Total liabilities		49,276,742		37,936,717
Shareholders’ equity:
Series A preferred stock, $.01 par. Authorized 5,000,000 shares; issued and outstanding 138,924 in 2002 and no shares in 2003		1,388		—
Common stock, $.01 par. Authorized 25,000,000 shares; issued and outstanding 13,504,756 and 13,726,664 in 2002 and 2003, respectively		135,048		137,266
Additional paid-in capital		78,875,742		79,262,025
Retained earnings		26,253,146		27,710,037
Total shareholders’ equity		105,265,324		107,109,328
Commitments and contingencies
	$	154,542,066	$	145,046,045

See accompanying notes to consolidated financial statements.

F-4

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Years ended December 31, 2001, 2002 and 2003

	2001			2002			2003
Net sales	$	201,116,076		$	167,972,842		$	159,870,380
Cost of goods sold		165,067,663			144,781,691			147,938,145
Gross profit		36,048,413			23,191,151			11,932,235
Selling, general, and administrative expenses		8,092,780			7,488,269			8,128,925
Goodwill and covenant amortization		3,751,642			368,597			79,403
Income from operations		24,203,991			15,334,285			3,723,907
Other income (expense):
Interest expense		(3,094,658	)		(1,630,702	)		(1,444,614	)
Interest income		27,049			2,197			85,132
Other, net		91,349			40,204			30,132
		(2,976,260	)		(1,588,301	)		(1,329,350	)
Income before income taxes and cumulative effect of a change in accounting principle		21,227,731			13,745,984			2,394,557
Income taxes		(9,605,709	)		(5,773,315	)		(937,666	)
Income before cumulative effect of a change in accounting principle		11,622,022			7,972,669			1,456,891
Cumulative effect of a change in accounting principle		—			(37,288,488	)		—
Net income (loss)		11,622,022			(29,315,819	)		1,456,891
Series A preferred stock dividend		155,576			155,576			7,000
Net income (loss) applicable to common shareholders	$	11,466,446		$	(29,471,395	)	$	1,449,891
Basic earnings per common share before cumulative effect of a change in accounting principle	$	0.85		$	0.58		$	0.11
Cumulative effect of a change in accounting principle per common share - basic		—			(2.77	)		—
Basic earnings (loss) per common share	$	0.85		$	(2.19	)	$	0.11
Basic weighted-average shares outstanding		13,411,368			13,479,031			13,687,875
Diluted earnings per common share before cumulative effect of a change in accounting principle	$	0.82		$	0.54		$	0.10
Cumulative effect of a change in accounting principle per common share - diluted		—			(2.53	)		—
Diluted earnings (loss) per common share	$	0.82		$	(1.99	)	$	0.10
Diluted weighted-average shares outstanding		14,422,201			14,722,562			14,102,599

See accompanying notes to consolidated financial statements.

F-5

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

Years ended December 31, 2001, 2002 and 2003

	Series A Preferred Stock					Common Stock			Additional paid-in capital		Retained earnings			Shareholders’ equity
	Shares		Amount			Shares	Amount
Balance, December 31, 2000	138,924		$	1,388		13,348,015	$	133,480	$	78,010,244	$	43,946,943		$	122,092,055
Exercise of options, including tax benefit of $254,070	—			—		108,350		1,084		581,980		—			583,064
Net income	—			—		—		—		—		11,622,022			11,622,022
Balance, December 31, 2001	138,924		$	1,388		13,456,365		134,564		78,592,224		55,568,965			134,297,141
Exercise of options, including tax benefit of $128,785	—			—		48,391		484		283,518		—			284,002
Net loss	—			—		—		—		—		(29,315,819	)		(29,315,819	)
Balance, December 31, 2002	138,924		$	1,388		13,504,756		135,048		78,875,742		26,253,146			105,265,324
Exercise of options, including tax benefit of $185,094	—			—		82,984		830		386,283		—			387,113
Series A conversion to common stock	(138,924	)		(1,388	)	138,924		1,388		—		—			—
Net Income	—			—		—		—		—		1,456,891			1,456,891
Balance, December 31, 2003	—			—		13,726,664	$	137,266	$	79,262,025	$	27,710,037		$	107,109,328

See accompanying notes to consolidated financial statements.

F-6

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2001, 2002 and 2003

	2001			2002			2003
Cash flows from operating activities:
Net income (loss)	$	11,622,022		$	(29,315,819	)	$	1,456,891
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Cumulative effect of a change in an accounting principle		—			37,288,488			—
Depreciation and amortization		6,417,154			2,589,556			2,101,018
Provision for contract adjustments		683,363			—			362,689
Deferred income taxes		(669,818	)		1,690,917			(63,804	)
Loss (gain) on sale of equipment		(41,101	)		2,372			864
(Increase) decrease in assets, net of effects from acquisitions:
Contracts receivable		(263,710	)		1,786,186			4,620,923
Costs and estimated earnings in excess of billings on contracts		(386,021	)		(7,812,838	)		8,388,021
Inventories		1,991,816			311,975			1,514,692
Due from affiliates		223,717			(889,178	)		(499,001	)
Prepaids and other assets		(400,233	)		(1,602,908	)		(1,481,984	)
Increase (decrease) in liabilities, net of effects from acquisitions:
Accounts payable		(6,579,351	)		4,997,984			(3,538,298	)
Accrued compensation		(136,693	)		(141,190	)		(778,636	)
Accrued insurance expense		113,140			(475,982	)		1,030,028
Other accrued liabilities		(2,714,946	)		(208,730	)		(628,767	)
Billings in excess of costs and estimated earnings on contracts		(1,781,616	)		22,065			1,573,366
Net cash provided by operating activities		8,077,723			8,242,898			14,058,003
Cash flows from investing activities:
Proceeds from sale of equipment		99,276			6,000			27,986
Purchase of property and equipment		(1,237,209	)		(1,133,718	)		(4,665,287	)
Purchase of covenants not to compete		(125,000	)		—			—
Acquisition of subsidiaries, net of cash acquired		(3,406,224	)		(60,000	)		—
Net cash used in investing activities		(4,669,157	)		(1,187,718	)		(4,637,301	)

(Continued)

F-7

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued

	2001			2002			2003
Cash flows from financing activities:
Net principal borrowings (payments) under revolving credit line	$	2,900,000		$	(100,000	)	$	(1,600,000	)
Principal payments on long-term debt		(6,300,000	)		(7,000,000	)		(7,000,000	)
Payment of debt issuance costs		(623,753	)		(27,280	)		(113,246	)
Net proceeds from issuance of common stock		328,994			155,217			202,016
Net cash used in financing activities		(3,694,759	)		(6,972,063	)		(8,511,227	)
Net increase (decrease) in cash and cash equivalents		(286,193	)		83,117			909,475
Cash and cash equivalents at beginning of year		415,965			129,772			212,889
Cash and cash equivalents at end of year	$	129,772		$	212,889		$	1,122,364

See accompanying notes to consolidated financial statements.

F-8

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2001, 2002 and 2003

(1) Description of Business and Summary of Significant Accounting Policies

Description of Business

Modtech Holdings, Inc. and its subsidiaries (the Company) design, manufacture, market and install modular and re-locatable classrooms and commercial and light industrial modular buildings.

The Company’s classrooms are sold primarily to California school districts. The Company also sells classrooms to the State of California and to leasing companies, who lease the classrooms principally to California school districts. The Company’s modular classrooms include standardized units prefabricated at its manufacturing facilities, as well as customized units that are modular in design but constructed on site using components manufactured by the Company. The Company also sells both standard and custom classrooms outside California, principally in Florida.

The Company also designs and manufactures modular, portable buildings to customer specifications for a wide array of uses, including governmental, healthcare, educational, airport and correctional facilities; office and retail space; daycare centers; libraries; churches; construction trailers; golf clubhouses; police stations; convenience stores; fast food restaurants; and sales offices. The buildings are sold direct through an internal sales group, through leasing companies and through a dealer network to a wide range of end users.

Principles of Consolidation

The consolidated financial statements include the financial statements of Modtech Holdings, Inc. and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

Use of Estimates

Preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, contracts receivable, costs and estimated earnings in excess of billings on contracts, prepaid and other assets, accounts payable, accrued liabilities, billings in excess of estimated earnings on contracts, revolving credit line and long-term debt are measured at cost which approximates their fair value.

Revenue Recognition

Construction Contracts

Contracts are recognized using the percentage-of-completion method of accounting and, therefore, take into account the costs, estimated earnings and revenue to date on contracts not yet completed. Revenue recognized is that percentage of the total contract price that cost expended to date bears to anticipated final total cost, based on current estimates of costs to complete.

F-9

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation costs. Selling, general, and administrative costs are charged to expense as incurred. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is recognized in the consolidated financial statements.

The current asset, “Costs and Estimated Earnings in Excess of Billings on Contracts,” represents revenues recognized in excess of amounts billed. The current liability, “Billings in Excess of Costs and Estimated Earnings on Contracts,” represents billings in excess of revenues recognized.

The current contra asset, “Allowance for Contract Adjustments,” is management’s estimated adjustments to contract amounts due to disputes and or litigation.

Other Products

Sales of other products are recorded upon completion and transfer of title to the customer.

Inventories

Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method.

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are calculated using the straight-line and accelerated methods over the following estimated useful lives:

Buildings	15 to 39 years
Land and building improvements	5 to 39 years
Leasehold improvements	5 to 30 years
Machinery and equipment	5 to 20 years
Office equipment	3 to 7 years
Trucks and automobiles	3 to 5 years

Goodwill

Goodwill represents the excess of costs over fair value of assets of businesses acquired. The Company adopted the provisions of FASB Statement No. 142, “Goodwill and Other Intangible Assets”, as of January 1, 2002. Pursuant to Statement 142, goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with FASB Statement No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets.”

F-10

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Impairment of Long-Lived Assets

The Company adopted Statement 144 on January 1, 2002. The adoption of Statement 144 did not affect the Company’s consolidated financial statements.

In accordance with Statement 144, long-lived assets, such as property, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

Goodwill is tested annually for impairment, and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. This determination is made at the reporting unit level and consists of two steps. First, the Company determines the fair value of a reporting unit and compares it to its carrying amount. Second, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with FASB Statement No. 141, “Business Combinations.” The residual fair value after this allocation is the implied fair value of the reporting unit goodwill.

F-11

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Debt Issuance Costs

Debt issuance costs have been deferred and are being amortized over the term of the credit facility.

Stock Option Plans

The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations including FASB Interpretation No. 44, “Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25”, to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. FASB Statement No. 123, “Accounting for Stock-Based Compensation” - as amended, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As permitted by existing accounting standards, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of Statement 123, as amended. The following table illustrates the effect on net income (loss) if the fair-value-based method had been applied to all outstanding and unvested awards in each period.

	2001			2002			2003
Net income (loss)
As Reported	$	11,622,022		$	(29,315,819	)	$	1,456,891
Deduct stock-based compensation expense determined under fair-value based method, net of tax		(849,431	)		984,855			(340,393	)
Pro Forma		10,772,591			(30,300,674	)		1,116,498
Basic earnings (loss) per share
As Reported	$	0.85		$	(2.19	)	$	0.11
Pro forma		0.79			(2.24	)		0.08
Diluted earnings (loss) per share
As Reported	$	0.82		$	(1.99	)	$	0.10
Pro Forma		0.75			(2.06	)		0.08

F-12

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Earnings (loss) per Share

The Company accounts for earnings (loss) per share in accordance with SFAS No. 128, “Earnings per Share.” This Statement requires the presentation of both basic and diluted net income (loss) per share for financial statement purposes. Basic net income (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding. Diluted net income (loss) per share includes the effect of the potential common shares outstanding.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Segment Information

The Company applies the provisions of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”. SFAS No. 131 establishes standards for reporting financial and descriptive information about an enterprise’s operating segments in its annual financial statements and selected segment information in interim financial reports. In 2001, 2002 and 2003, the Company operated in one industry segment and in accordance with SFAS No. 131, only enterprise-wide disclosures have been provided.

Reclassification

Certain amounts in the 2001 and 2002 consolidated financial statements have been reclassified to conform to the 2003 presentation.

(2) Acquisition

IMS Acquisition

On March 8, 2001, the Company purchased 100% of the stock of Innovative Modular Structures, Inc. (IMS). IMS designs and manufactures modular re-locatable classrooms and other modular buildings for commercial use. IMS is based in St. Petersburg, Florida. The acquisition of IMS has been accounted for as a purchase and, accordingly, the results of operations of IMS are included in the Company’s consolidated statements of operations from the date of acquisition. Pro forma amounts for the IMS acquisition are not included, as the effect is not material to the Company’s consolidated financial statements.

F-13

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(3) Contracts Receivable

Contracts receivable consisted of customer billings for:

	2002			2003
Completed contracts	$	21,634,246		$	14,792,574
Contracts in progress		7,455,198			7,460,669
Retentions		4,744,572			6,234,252
		33,834,016			28,487,495
Less allowance for contract adjustments		(1,425,000	)		(1,062,311	)
	$	32,409,016		$	27,425,404

(4) Costs and Estimated Earnings in Excess of Billings on Contracts

Net costs and estimated earnings in excess of billings on contracts consisted of:

	2002			2003
Net costs and estimated earnings on uncompleted contracts	$	103,486,168		$	117,175,907
Billings to date		(87,722,104	)		(111,367,654	)
		15,764,064			5,808,253
Net over billed receivables from completed contracts		(84,630	)		(90,207	)
	$	15,679,434		$	5,718,046

These amounts are shown in the accompanying consolidated balance sheets under the following captions:

	2002			2003
Costs and estimated earnings in excess of billings on uncompleted contracts	$	17,898,684		$	9,529,525
Costs and estimated earnings in excess of billings on completed contracts		24,264			5,401
Costs and estimated earnings in excess of billings on contracts		17,922,948			9,534,926
Billings in excess of costs and estimated earnings on uncompleted contracts		(2,134,620	)		(3,721,272	)
Billings in excess of costs and estimated earnings on completed contracts		(108,894	)		(95,608	)
Billings in excess of costs and estimated earnings on contracts		(2,243,514	)		(3,816,880	)
	$	15,679,434		$	5,718,046

F-14

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(5) Inventories

Inventories consist of:

	2002		2003
Raw materials	$	6,622,400	$	5,613,503
Work in process		1,733,180		1,227,385
	$	8,355,580	$	6,840,888

(6) Property and Equipment, Net

Property and equipment, net consists of:

	2002			2003
Leasehold improvements	$	14,183,463		$	13,885,424
Machinery and equipment		6,916,047			8,236,456
Office equipment		1,971,531			1,983,114
Land		923,484			1,295,486
Construction in progress		600,833			563,596
Trucks and automobiles		609,828			743,829
Buildings		472,144			2,743,498
Land and building improvements		767,353			989,454
		26,444,683			30,440,857
Less accumulated depreciation and amortization		(11,966,458	)		(13,043,998	)
	$	14,478,225		$	17,396,859

(7) Goodwill

In connection with the transitional goodwill impairment evaluation required upon adoption of SFAS No. 142, the Company performed an assessment of whether there was an indication that goodwill was impaired as of January 1, 2002. The Company used quoted market prices to perform the assessment of whether there was an indication that goodwill may be impaired. As a result of this assessment, there was an indication that goodwill was impaired. As required by SFAS No. 142, the Company performed a fair market valuation analysis, using market multiples, and other factors, on its business that had previously recorded goodwill. As a result of this analysis, the Company recorded an impairment charge of $37,288,488 during the three months ended March 31, 2002. The impairment loss was recognized as a cumulative effect of a change in accounting principle in the Company’s 2002 consolidated statement of operations for the year ended December 31, 2002.

SFAS No. 142, requires the Company to test for impairment of goodwill annually. The result of this analysis during 2003 did not require the Company to recognize an impairment loss.

The changes in the carrying amount of goodwill are as follows:

Balance as of January 1, 2002	$	109,612,025
Goodwill acquired during the period		60,000
Impairment loss		(37,288,488	)
Balance as of December 31, 2002		72,383,537
Goodwill acquired during the period		—
Impairment loss		—
Deferred tax adjustments		(480,859	)
Balance as of December 31, 2003		71,902,678

F-15

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

The following table reconciles reported net income (loss) as if the provisions of SFAS No. 142 had been adopted on January 1, 2001:

	2001		2002			2003
Reported net income (loss)	$	11,622,022	$	(29,315,819	)	$	1,456,891
Add back: Goodwill amortization, net of taxes		2,397,950		—			—
Adjusted net income	$	14,019,972	$	(29,315,819	)	$	1,456,891
Reported basic earnings (loss) per common share	$	0.85	$	(2.19	)	$	0.11
Add back: Goodwill amortization, net of taxes		0.18		—			—
Adjusted basic earnings per common share	$	1.03	$	(2.19	)	$	0.11
Reported diluted earnings (loss) per common share	$	0.82	$	(2.03	)	$	0.10
Add back: Goodwill amortization, net of taxes		0.16		—			—
Adjusted diluted earnings per common share	$	0.98	$	(2.03	)	$	0.10

(8) Long-Term Debt and Revolving Credit Line

During 2003 the Company had a $66 million credit facility with a bank. The credit facility provided for a $40 million revolving credit line and a 5-year term loan of $26 million. The credit facility is secured by all the Company’s assets, as well as the Company’s stock ownership in its subsidiaries. The credit facility expires in December 2006. As of December 31, 2002 and 2003, $9,000,000 and $7,400,000, respectively, was outstanding on the revolving credit line. The Company has two standby letters of credit issued under the credit facility for $4,998,000 on which no amounts were outstanding as of December 31, 2003.

Indebtedness under the credit facility bears interest at LIBOR plus additional interest of between 1.25% and 2.50%. The additional interest charge is based upon certain financial ratios. Interest rates at December 31, 2003 ranged from 2.9375% to 4.50% on the amounts outstanding under the credit facility.

F-16

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Long-term debt consists of:

	2002			2003
Term Loan	$	19,000,000		$	12,000,000
Less current portion of long-term debt		(7,000,000	)		(6,000,000	)
	$	12,000,000		$	6,000,000

Long-term debt maturities for the next three years are as follows: $6,000,000 in 2004, $4,000,000 in 2005 and $2,000,000 in 2006.

The financial performance during the 4^th quarter of 2003 resulted in the violation of several financial covenants contained in the credit facility. The Company obtained waivers for all such covenant violations.

The Company amended its credit facility in March 2004, continuing the relationship with the previous lenders. The amended credit facility provides for a $35 million revolving credit line and a $12 million term loan maturing in 2006. The term loan is subject to mandatory repayment in certain events, including from the proceeds of any securities offerings by the Company.

(9) Income Taxes

The components of the 2001, 2002 and 2003 provision for Federal and state income tax (expense) benefit computed in accordance with SFAS No. 109 are summarized below:

	2001			2002			2003
Current:
Federal	$	(8,445,508	)	$	(3,312,724	)	$	(807,388	)
State		(1,830,019	)		(769,674	)		(194,082	)
		(10,275,527	)		(4,082,398	)		(1,001,470	)
Deferred:
Federal		507,114			(1,445,512	)		(21,141	)
State		162,704			(245,405	)		84,945
	$	(9,605,709	)	$	(5,773,315	)	$	(937,666	)

The tax benefits associated with dispositions from employee stock option plans of $254,070, $127,785 and $185,094 in 2001, 2002 and 2003, respectively, were recorded directly to additional paid-in capital.

Income tax (expense) benefit attributable to income from operations differed from the amounts computed by applying the U.S. Federal income tax rate to pretax income from operations as a result of the following:

	2001		2002		2003
Taxes, U.S. statutory rates	(35.0	%)	(35.0	%)	(34.0	%)
State taxes, less Federal benefit	(5.1	)	(4.6	)	(4.9	)
Effect of non-deductible expenses	(4.9	)	(0.2	)	(1.3	)
Other	(0.3	)	(2.2	)	1.0
Total taxes on income	(45.3	%)	(42.0	%)	(39.2	%)

F-17

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2002 and 2003 are as follows:

	2002			2003
Deferred tax assets:
Reserves and accruals not recognized for income tax purposes	$	2,543,332		$	2,984,578
State taxes		326,948			88,307
Other		764,075			1,053,443
Total gross deferred tax assets		3,634,355			4,126,328
Less valuation allowance		—			—
Net deferred tax assets		3,634,355			4,126,328
Deferred tax liabilities:
Prepaid expenses		(405,226	)		(585,482	)
Property and equipment		(152,123	)		(405,299	)
Revenue recognition		(635,358	)		(149,236	)
Total gross deferred tax liabilities		(1,192,707	)		(1,140,017	)
Total net deferred tax assets	$	2,441,648		$	2,986,311

These amounts have been presented in the consolidated balance sheets as follows:

	2002			2003
Current deferred tax assets	$	2,654,272		$	2,874,693
Non-current deferred tax assets (liabilities)		(212,624	)		111,618
Total net deferred tax assets	$	2,441,648		$	2,986,311

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences at December 31, 2003. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced.

(10) Transactions With Related Parties

Sales

One of the companies to which the Company sells modular classrooms is affiliated with the Company through ownership by one of the Company’s officers. The buildings are then leased to various school districts by the related company.

F-18

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

The table below summarizes the related party classroom sales:

	2001			2002			2003
Sales	$	1,604,099		$	5,749,077		$	3,202,888
Cost of goods sold		1,258,635			4,611,296			2,669,792
Gross profit percentage		21.54	%		19.79	%		16.64	%

The related party purchases modular re-locatable classrooms from the Company on standard terms and at standard wholesale prices.

Due from affiliates includes a portion of unpaid invoices as a result of the above transactions. As of December 31, 2002 and 2003 these amounts totaled $1,367,987 and $1,866,988, respectively. Additional amounts arising from these transactions are included in the following captions:

	2002			2003
Costs and estimated earnings in excess of billings on uncompleted contracts	$	1,698,792		$	461,920
Billings in excess of costs and estimated earnings on uncompleted contracts		(45,713	)		(107,983	)

Operating Leases

Certain manufacturing facilities are leased from related party partnerships under non-cancelable operating leases through 2019. An officer of the Company is a partner in the partnerships. These related party leases require monthly payments which aggregate approximately $40,000. In connection with the lease at the Lathrop facility, the Company made an $83,000 security deposit during 1990. In 1994, due to declines in real estate values, the lease rates for these manufacturing facilities were reduced by these lessors. By agreement these reduced rents are continuing while real estate values remained depressed.

Future minimum lease payments under these leases are discussed in note 17. Included in cost of goods sold is $457,000, $466,000 and $479,000 in rent expense paid to related parties for the years ended December 31, 2001, 2002, and 2003 respectively.

(11) 401(k) Plans

The Company has tax deferred savings plans under Section 401(k) of the Internal Revenue Code. Eligible employees can contribute up to 12% of gross annual earnings. Company contributions are made on a 50% matching basis of eligible contributions. The Company’s contributions were $342,000, $291,000 and $283,000 in 2001, 2002, and 2003 respectively.

(12) Stock Options

In 1989, the Company’s shareholders approved a stock option plan (the 1989 Plan). The 1989 Plan provided for the grant of both incentive and non-qualified options to purchase up to 400,000 shares of the Company’s common stock. The incentive stock options were granted only to employees, including officers of the Company, while non-qualified stock options were granted to employees, non-employee officers and directors, consultants, vendors, customers and others expected to provide significant services to the Company. The exercise price of the stock options cannot be less than the fair market value of the underlying stock at the date of the grant (110% if granted to an employee

F-19

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

who owns 10% or more of the Company’s common stock). All of these options were granted prior to 1999.

In March of 1994, pursuant to a vote of the Board of Directors, a non-qualified option plan was approved (the March 1994 Plan). The March 1994 Plan provided for the grant of 200,000 options to purchase shares of the Company’s common stock. The exercise price of the stock options cannot be less than the fair market value of the underlying stock at the date of the grant. All of these options were granted during 1994.

In May of 1994, the Board of Directors voted and approved an additional stock option plan (the May 1994 Plan). The May 1994 Plan provided for the grant of both incentive and non-qualified options to purchase up to 500,000 shares of the Company’s common stock. The incentive stock options were granted only to employees, including officers of the Company, while non-qualified stock options were granted to employees, non-employee officers and directors, consultants, vendors, customers and others expected to provide significant services to the Company. The exercise price of the stock options cannot be less than the fair market value of the underlying stock at the date of the grant (110% if granted to an employee who owns 10% or more of the Company’s common stock). All of these options were granted prior to 1999.

In July 1996, the Company’s Board of Directors authorized the grant of options to purchase up to 500,000 shares of the Company’s common stock. The non-statutory options were granted to employees, non-employee officers and directors, consultants, vendors, customers and others expected to provide significant service to the Company. The exercise price of the stock options cannot be less than the fair market value of the underlying stock at the date of the grant (110% if granted to an employee who owns 10% or more of the Company’s common stock). All of these options were granted prior to 1999.

In 1999, the Company’s shareholders approved a stock option plan (the 1999 Plan). The 1999 Plan provides for the grant of non-statutory options to purchase up to 1,450,000 shares of the Company’s common stock. The non-statutory options may be granted to employees, officers, directors, consultants, independent contractors and others expected to provide significant service to the Company. The exercise price of the stock options cannot be less than the fair market value of the underlying stock at the date of the grant (110% if granted to an employee who owns 10% or more of the Company’s common stock). In 2001 and 2002, 577,809 and 185,038 shares were granted, respectively, and 46,146 shares are available for future grants as of December 31, 2002. No shares were granted under this plan in 2003.

In 2002, the Company’s shareholders approved a stock option plan (the 2002 Plan). The 2002 Plan provides for the grant of non-statutory options to purchase up to 1,000,000 shares of the Company’s common stock. The non-statutory options may be granted to employees, officers, directors, consultants, independent contractors and others expected to provide significant service to the Company. The exercise price of the stock options cannot be less than the fair market value of the underlying stock at the date of the grant (110% if granted to an employee who owns 10% or more of the Company’s common stock). No shares were granted as of December 31, 2002. Grants of 486,762 shares were made during the year ended December 31, 2003.

Stock options outstanding under the Company’s stock option plans are summarized as follows:

	Shares		Weighted Average Exercise Price
December 31, 2000	1,821,601			6.96
Granted	577,809			6.91
Exercised	(108,350	)		3.04
Terminated	(85,326	)		7.00
December 31, 2001	2,205,734			7.14
Granted	185,038			9.21
Exercised	(48,391	)		3.21
Terminated	(6,000	)		8.33
December 31, 2002	2,336,381			7.38
Granted	486,782			9.66
Exercised	(82,984	)		2.43
Terminated	(347,101	)		6.41
December 31, 2003	2,393,058		$	8.15

F-20

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

All stock options have a maximum term of ten years and become fully exercisable in accordance with a predetermined vesting schedule which varies.

The per share weighted-average fair value of stock options granted during 2001, 2002 and 2003 was $3.53, $4.88, and $4.66 respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions:

	2001		2002		2003
Expected dividend yield	0	%	0	%	0	%
Average risk-free interest rate	4.4	%	3.4%		2.3	%
Volatility factor	61.56	%	66.61%		61.0	%
Expected life	4 years		4 years		4 years

The following information applies to options outstanding at December 31, 2003:

	Options Outstanding				Options Exercisable
	Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
Range of exercise prices
$1.50 - $4.50	362,263	1.9	$	2.44	362,263	$	2.44
$6.00 - $10.00	1,818,154	7.0		8.17	717,666		7.91
$12.62 - $20.57	197,641	4.1		18.41	197,641		18.41
	2,378,058		$	8.14	1,277,570	$	7.98

(13) Series A Preferred Stock

In conjunction with a prior merger, 138,924 shares of Series A Preferred Stock were issued in February 1999. The Series A Preferred Stock has no voting rights, including, without limitation, the right to vote on the election of directors, mergers, reorganization or a sale of all or substantially all of the Company’s assets. Dividends accrue on each share of Series A Preferred Stock at the rate of $0.40 per annum as declared. Dividends may not be paid on the Company’s common stock until all accrued dividends on the Series A Preferred Stock are paid or declared and set aside for payment.

Subject to proportional adjustments due to stock splits, reverse stock splits and similar transactions, each share of Series A Preferred Stock was convertible into one share of the Company’s common stock at any time following two years after their date of issuance. Each outstanding share of Series A Preferred Stock automatically converted into one share of the Company’s common stock in February 2003, the fourth anniversary of the Series A Preferred Stock issuance.

F-21

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(14) Earnings (loss) per Share

The following table represents the calculation of basic and diluted earnings (loss) per common share:

	2001		2002			2003
Basic
Income before cumulative effect of a change in accounting principle	$	11,622,022	$	7,972,669		$	1,456,891
Cumulative effect of a change in accounting principle		—		(37,288,488	)		—
Net income (loss)		11,622,022		(29,315,819	)		1,456,891
Dividends on preferred stock (note 13)		155,576		155,576			7,000
Net income (loss) available to common stockholders	$	11,466,446	$	(29,471,395	)	$	1,449,891
Basic weighted-average shares outstanding		13,411,368		13,479,031			13,687,875
Basic earnings per common share before cumulative effect of a change in accounting principle	$	0.85	$	0.58		$	0.11
Cumulative effect of a change in accounting principle per common share - basic		—		(2.77	)		—
Basic earnings (loss) per common share	$	0.85	$	(2.19	)	$	0.11
Diluted
Net income (loss)	$	11,622,022	$	(29,315,819	)	$	1,456,891
Basic weighted-average shares outstanding		13,411,368		13,479,031			13,687,875
Add:
Conversion of preferred stock		138,924		138,924			17,508
Exercise of stock options		621,894		854,592			397,216
Diluted weighted-average shares outstanding		14,172,186		14,472,547			14,102,599
Diluted earnings per common share before cumulative effect of a change in accounting principle	$	0.82	$	0.54		$	0.10
Cumulative effect of a change in accounting principle per common share - diluted		—		(2.53	)		—
Diluted earnings (loss) per common share	$	0.82	$	(2.03	)	$	0.10

Options to purchase 606,698, 197,641 and 1,113,822 shares of common stock were outstanding during 2002 and 2003, respectively, but were not included in the computation of diluted earnings (loss) per share because the option exercise price was greater than the average market price of the common shares and therefore, the effect would be anti-dilutive.

F-22

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(15) Major Customer

Sales to two major customers represented the following percentage of net sales:

	2001	2002	2003
Customer A	11%	5%	4%
Customer B	11%	12%	6%

(16) Supplemental Cash Flow Disclosures

Supplemental Disclosures of Cash Flow Information

	2001		2002		2003
Cash paid during the year for:
Interest	$	2,684,021	$	1,339,900	$	1,135,559
Income taxes	$	12,160,000	$	4,415,000	$	700,050

(17) Commitments And Contingencies

Land Leases

The Company has entered into various non-cancelable agreements to lease land at its manufacturing facilities through 2019. Minimum lease payments under these non-cancelable operating leases for the next five years and thereafter are as follows:

Year ending December 31:
2004	$	1,303,000
2005		1,131,000
2006		1,131,000
2007		1,054,000
2008		629,000
Thereafter		4,783,000
	$	10,031,000

Of the $10,031,000 in future rental payments, $6,517,000 is payable to related parties (see note 10). Rent expense for the years ended December 31, 2001, 2002 and 2003 was $2,318,000, $2,321,000, and $2,147,000 respectively.

(18) Warranty

The standard contractual warranty for the Company’s modular buildings is one year, although it may vary by contract specifications. Purchased equipment installed by the Company, such as air conditioning units, carries the manufacturers’ standard warranty. To date, warranty costs incurred have been immaterial.

F-23

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(19) Pending Claims and Litigation

The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the outcome of the claims will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

(20) Selected Quarterly Financial Information (Unaudited)

In thousands, except per share amounts:

	Fourth Quarter			Third Quarter		Second Quarter		First Quarter
2003:
Net sales	$	23,143		$	50,729	$	45,713	$	40,285
Gross profit		(3,064	)		6,010		5,212		3,774
Net income (loss)		(3,242	)		2,191		1,580		928
Earnings (loss) per common share:
Basic	$	(0.24	)	$	0.16	$	0.12	$	0.07
Diluted		(0.24	)		0.15		0.11		0.07
2002:
Net sales	$	36,245		$	51,799	$	44,569	$	35,359
Gross profit		3,602			7,877		6,641		5,071
Net income		610			3,321		2,488		(35,734	)
Earnings per common share:
Basic	$	0.04		$	0.24	$	0.18	$	(2.66	)
Diluted		0.04			0.22		0.17		(2.44	)

F-24

Schedule II

MODTECH HOLDINGS, INC. AND SUBSIDIARIES

Valuation and Qualifying Accounts

Years ended December 31, 2001, 2002, and 2003

Description	Balance at beginning of year		Acquired through acquisition		Amounts charged to expense		Deductions			Balance at end of year
Allowance for contract adjustments:
Year ended December 31, 2001	$	703,119	$	50,000	$	683,363	$	(11,482	)	$	1,425,000
Year ended December 31, 2002	$	1,425,000	$	—	$	—	$	—		$	1,425,000
Year ended December 31, 2003	$	1,425,000	$	—	$	282,605	$	(645,294	)	$	1,062,311

F-25

EX-3.2

EXHIBIT 3.2

BYLAWS

OF

MODTECH HOLDINGS, INC.

ARTICLE I

LAW, CERTIFICATE OF INCORPORATION AND BYLAWS

Section 1. These Bylaws are subject to the Certificate of Incorporation of Modtech Holdings, Inc., the corporation. In these Bylaws, references to law, the Certificate of Incorporation and Bylaws mean the law, the provisions of the Certificate of Incorporation and the Bylaws as from time to time in effect.

ARTICLE II

STOCKHOLDERS

Section 1. Annual Meetings. The annual meeting of stockholders shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix, which date shall be within thirteen months subsequent to the later of the organization of the corporation or the last annual meeting of stockholders, at which meeting they shall elect a Board of Directors and transact such other business as may be required by law or these Bylaws or as may properly come before the meeting.

Section 2. Special Meetings. A special meeting of the stockholders may be called at any time by the Chairman of the Board, if any, or a majority of the Board of Directors. A special meeting of the stockholders shall be called by the Secretary, or in the case of the death, absence, incapacity or refusal of the Secretary, by an Assistant Secretary or some other officer. Any such application shall state the purpose or purposes of the proposed meeting. Any such call shall state the place, date, hour, and purposes of the meeting.

Section 3. Place Of Meeting. All meetings of the stockholders for the election of Directors or for any other purpose shall be held at such place within or without the State of Delaware as may be determined from time to time by the Chairman of the Board, if any, the President or the Board of Directors. Any adjourned session of any meeting of the stockholders shall be held at the place designated in the vote of adjournment.

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Section 4. Notice Of Meetings. Except as otherwise provided by law, a written notice of each meeting of stockholders stating the place, day and hour thereof and, in the case of a special meeting, the purposes for which the meeting is called, shall be given not less then ten (10) nor more than sixty (60) days before the meeting, to each stockholder entitled to vote thereat, and to each stockholder who, by law, by the Certificate of Incorporation or by these Bylaws, is entitled to notice, by leaving such notice with him or at his residence or usual place of business, or by depositing it in the United States mail, postage prepaid, and addressed to such stockholder at his address as it appears in the records of the corporation. Such notice shall be given by the Secretary, or by an officer or person designated by the Board of Directors. As to any adjourned session of any meeting of stockholders, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment was taken except that if the adjournment is for more than thirty (30) days or if after the adjournment a new record date is set for the adjourned session, notice of any such adjourned session of the meeting shall be given in the manner heretofore described. No notice of any meeting of stockholders or any adjourned session thereof need be given to a stockholder if a written waiver of notice, executed before or after the meeting or such adjourned session by such stockholder, is filed with the records of the meeting or if the stockholder attends such meeting without objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the stockholders or any adjourned session thereof need be specified in any written waiver of notice.

Section 5. Quorum Of Stockholders. At any meeting of the stockholders a quorum as to any matter shall consist of a majority of the votes entitled to be cast on the matter, except where a larger quorum is required by law, by the Certificate of Incorporation or by these Bylaws. Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present. If a quorum is present at an original meeting, a quorum need not be present at an adjourned session of that meeting. Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of any corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity.

Section 6. Action By Vote. When a quorum is present at any meeting, a plurality of the votes properly cast for election to any office shall elect to such office and a majority of the votes properly cast upon any question other than an election to an office shall decide the question, except when a larger vote is required by law, by the Certificate of Incorporation or by these Bylaws. No ballot shall be required for any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election.

Section 7. Proxy Representation. Every stockholder may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate,

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whether by waiving notice of any meeting, objecting to or voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. The authorization of a proxy may but need not be limited to specified action, provided, however, that if a proxy limits its authorization to a meeting or meetings of stockholders, unless otherwise specifically provided such proxy shall entitle the holder thereof to vote at any adjourned session but shall not be valid after the final adjournment thereof.

Section 8. Inspectors. The Directors or the person presiding at the meeting may, and shall if required by applicable law, appoint one or more inspectors of election and any substitute inspectors to act at the meeting or any adjournment thereof. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them.

Section 9. List Of Stockholders. The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in his name. The stock ledger shall be the only evidence as to who are stockholders entitled to examine such list or to vote in person or by proxy at such meeting.

Section 10. Stockholder Proposals. At an annual meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before the annual meeting of stockholders (i) by or at the direction of the Board of Directors or (ii) by a stockholder of the corporation who complies with the procedures set forth in this Section 10. For business or a proposal to be properly brought before an annual meeting of stockholders by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 120 days nor more than 150 days prior to the first anniversary of the date of the Company’s notice of annual meeting provided with respect to the previous year’s annual meeting of stockholders; provided that if no annual meeting of stockholders was held in the previous year or

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the date of the annual meeting of stockholders has been changed to be more than 30 calendar days earlier than or 60 calendar days after such anniversary, notice by the stockholder, to be timely, must be so received not more than 90 days nor later than the later of (i) 60 days prior to the annual meeting of stockholders or (ii) the close of business on the 10th day following the date on which notice of the date of the meeting is given to stockholders or made public, whichever first occurs.

A stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before an annual meeting of stockholders (i) a description, in 500 words or less, of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as such information appears on the Corporation’s books, of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (iii) the class and number of shares of the Corporation that are beneficially owned by such stockholder and each other stockholder known by such stockholder to be supporting such proposal on the date of such stockholder’s notice, (iv) a description, in 500 words or less, of any interest of the stockholder in such proposal and (v) a representation that the stockholder is a holder of record of stock of the Corporation and intends to appear in person or by proxy at the meeting to present the proposal specified in the notice.

The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that any business or proposal was not properly brought before the meeting in accordance with the procedures prescribed by this Section 10, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing, nothing in this Section 10 shall be interpreted or construed to require the inclusion of information about any such proposal in any proxy statement distributed by, at the direction of, or on behalf of, the Board of Directors.

Section 11. Nomination for Election. Nominations of persons for election to the Board of Directors may be made at an annual meeting of stockholders or special meeting of stockholders called by the Board of Directors for the purpose of electing directors (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation entitled to vote for the election of directors at such meeting who complies with the notice procedures set forth in this Section 11. Such nomination, other than those made by or at the direction of the Board shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 120 days nor more than 150 days prior to the first anniversary of the date of the Company’s notice of annual meeting provided with respect to the previous year’s annual meeting of stockholders; provided that if no annual meeting of stockholders was held in the previous year or the date of the annual meeting of stockholders has been changed to be more than 30 calendar days earlier than or 60 calendar days after such anniversary, notice by the stockholder, to be timely, must be so received not more than 90 days nor later than the later of (i) 60 days prior to the annual meeting of stockholders or (ii) the close of business on the 10th day

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following the date on which notice of the date of the meeting is given to stockholders or made public, whichever first occurs.

A stockholder’s notice to the Secretary shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director (a) the name, age, business address and residence address of such person, (b) the principal occupation or employment of such person, (c) the class and number of shares of the Corporation which are beneficially owned by such person on the date of such stockholder’s notice and (d) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, or any successor statute thereto (including, without limitation, such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to the stockholder giving notice (a) the name and address, as such information appears on the Corporation’s books, of such stockholder and any other stockholders known by such stockholder to be supporting such nominee(s), (b) the class and number of shares of the Corporation which are beneficially owned by such stockholder and each other stockholder known by such stockholder to be supporting such nominee(s) on the date of such stockholders notice, (c) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; and (iii) a description of all arrangements or understandings between the stockholder and each nominee and other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder.

Subject to the rights, if any, of the holders of any series of Preferred Stock then outstanding, no person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 11. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by this Section 11 and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.

ARTICLE III

BOARD OF DIRECTORS

Section 1. Number. The Board of Directors shall be nine (9) in number. The number of directors may be fixed at any time by the affirmative vote of a majority of the directors at a regular or special meeting called for that purpose, provided, however, that no vote to decrease the number of the directors of the Corporation shall shorten the term of any incumbent director. Directors need not be stockholders.

Section 2. Tenure. Except as otherwise provided by law, by the Certificate of Incorporation or by these Bylaws, each director shall hold office until the next annual meeting and

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until his successor is elected and qualified, or until he sooner dies, resigns, is removed or becomes disqualified.

Section 3. Powers. The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors who shall have and may exercise all the powers of the corporation and do all such lawful acts and things as are not by law, the Certificate of Incorporation or these Bylaws directed or required to be exercised or done by the stockholders.

Section 4. Vacancies. Vacancies and any newly created directorships resulting from any increase in the number of directors may be filled by vote of the holders of the particular class or series of stock entitled to elect such director at a meeting called for the purpose, or by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, in each case elected by the particular class or series of stock entitled to elect such directors. When one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have resigned, who were elected by the particular class or series of stock entitled to elect such resigning director or directors shall have power to fill such vacancy or vacancies, the vote or action by writing thereon to take effect when such resignation or resignations shall become effective. The directors shall have and may exercise all their powers notwithstanding the existence of one or more vacancies in their number, subject to the Certificate of Incorporation, and to the other provisions of these Bylaws, as to the number of directors required for a quorum or for any vote or other actions.

Section 5. Committees. The Board of Directors may, by vote of a majority of the whole Board, (a) designate, change the membership of or terminate the existence of any committee or committees, each committee to consist of one or more of the directors; (b) designate one or more directors as alternate members of any such committee who may replace any absent or disqualified member at any meeting of the committee; and (c) determine the extent to which each such committee shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation, including the power to authorize the seal of the corporation to be affixed to all papers which require it and the power and authority to declare dividends or to authorize the issuance of stock; excepting, however, such powers which by law, by the Certificate of Incorporation or by these Bylaws they are prohibited from so delegating. In the absence or disqualification of any member of such committee and his alternate, if any, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Except as the Board of Directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the board or such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these Bylaws for the conduct of business by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors upon request.

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Section 6. Regular Meetings. Regular meetings of the Board of Directors may be held without call or notice at such places within or outside of the State of Delaware and at such times as the Board may from time to time determine; provided, however, that notice of the first regular meeting following any such determination shall be given to absent directors. A regular meeting of the directors may be held without call or notice immediately after and at the same place as the annual meeting of stockholders.

Section 7. Special Meetings. Special meetings of the Board of Directors may be held at any time and at any place within or outside of the State of Delaware designated in the notice of the meeting, when called by the Chairman of the Board, if any, or by one-third or more in number of the directors, reasonable notice thereof being given to each director by the Secretary or by the Chairman of the Board, if any, or any one of the directors calling the meeting.

Section 8. Notice. It shall be reasonable and sufficient notice to a director to send notice by mail at least forty-eight (48) hours or by telegram at least twenty-four (24) hours before the meeting addressed to him at his usual or last known business or residence address or to give notice to him in person or by telephone or facsimile at least twenty-four (24) hours before the meeting. Notice of a meeting need not be given to any director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting.

Section 9. Quorum. Except as may be otherwise provided by law, by the Certificate of Incorporation or by these Bylaws, at any meeting of the directors a majority of the directors then in office shall constitute a quorum; a quorum shall not in any case be less than one-third of the total number of directors constituting the whole board. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice.

Section 10. Action By Vote. Except as may be otherwise provided by law, by the Certificate of Incorporation or by these Bylaws, when a quorum is present at any meeting the vote of a majority of the directors present shall be the act of the Board of Directors.

Section 11. Action Without A Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or a committee thereof may be taken without a meeting if all the members of the Board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the records of the meetings of the Board or of such committee. Such consent shall be treated for all purposes as the act of the Board or of such committee, as the case may be.

Section 12. Participation In Meetings By Conference Telephone. Members of the Board of Directors, or any committee designated by such Board, may participate in a meeting of such

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Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other or by any other means permitted by law. Such participation shall constitute presence in person at such meeting.

Section 13. Compensation. In the discretion of the Board of Directors, each director may be paid such fees for his services as director (including, without limitation, in the form of cash compensation and stock options to purchase common stock of the corporation) and be reimbursed for his reasonable expenses incurred in the performance of his duties as director as the Board of Directors from time to time may determine. Nothing contained in this section shall be construed to preclude any director from serving the corporation in any other capacity and receiving reasonable compensation therefor.

ARTICLE IV

OFFICERS AND AGENTS

Section 1. Enumeration; Qualification. The officers of the corporation shall be a President, a Secretary and such other officers, if any, as the Board of Directors from time to time may in its discretion elect or appoint, including, without limitation, a Chairman of the Board and one or more Vice Presidents. The corporation may also have such agents, if any, as the Board of Directors from time to time may in its discretion choose. Any officer may be but none need be a director or stockholder. Any two or more offices may be held by the same person. Any officer may be required by the Board of Directors to secure the faithful performance of his duties to the corporation by giving bond in such amount and with sureties or otherwise as the Board of Directors may determine.

Section 2. Powers. Subject to law, to the Certificate of Incorporation and to the other provisions of these Bylaws, each officer shall have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to his office and such additional duties and powers as the Board of Directors may from time to time designate.

Section 3. Election. The officers may be elected by the Board of Directors at their first meeting following the annual meeting of the stockholders or at any other time. At any time or from time to time the directors may delegate to any officer their power to elect or appoint any other officer or any agents.

Section 4. Tenure. Each officer shall hold office at the pleasure of the Board of Directors or other officers of the corporation authorized by the Board of Directors until the first meeting of the Board of Directors following the next annual meeting of the stockholders and until his respective successor is chosen and qualified unless a shorter period shall have been specified by the terms of his election or appointment, or in each case until he sooner dies, resigns, is removed or becomes disqualified.

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Section 5. Chairman Of The Board Of Directors, Chief Executive Officer And Vice President. The Chairman of the Board, if any, shall have such duties and powers as shall be designated from time to time by the Board of Directors. Unless the Board of Directors otherwise specifies, the Chairman of the Board, or if there is none the Chief Executive Officer, shall preside, or designate the person who shall preside, at all meetings of the stockholders and of the Board of Directors.

Unless the Board of Directors otherwise specifies, the Chief Executive Officer, or, in his or her absence, the President, shall be the chief executive officer of the corporation and shall have direct charge of all business operations of the corporation and, subject to the control of the Directors, shall have general charge and supervision of the business of the corporation.

Any Vice Presidents shall have such duties and powers as shall be set forth in these Bylaws or as shall be designated from time to time by the Board of Directors or by the officer or officers of the corporation authorized by the Board of Directors.

Section 6. Chief Financial Officer. Unless the Board of Directors otherwise specifies, the Chief Financial Officer of the corporation shall be in charge of its funds and valuable papers, and shall have such other duties and powers as may be designated from time to time by the Board of Directors or by the Chief Executive Officer. If no Controller is elected, the Chief Financial Officer shall, unless the Board of Directors otherwise specifies, also have the duties and powers of the Controller.

Section 7. Controller And Assistant Controllers. If a controller is elected, he shall, unless the Board of Directors otherwise specifies, be the Chief Accounting Officer of the corporation and be in charge of its books of account and accounting records, and of its accounting procedures. He shall have such other duties and powers as may be designated from time to time by the Board of Directors, the President or the Chief Executive Officer.

Any Assistant Controller shall have such duties and powers as shall be designated from time to time by the Board of Directors, the President, or the Controller.

Section 8. Secretary And Assistant Secretaries. The Secretary shall record all proceedings of the stockholders, of the Board of Directors and of committees of the Board of Directors in a book or series of books to be kept therefor and shall file therein all actions by written consent of stockholders or directors. In the absence of the Secretary from any meeting, an Assistant Secretary, or if there be none or he is absent, a temporary Secretary chosen at the meeting, shall record the proceedings thereof. Unless a transfer agent has been appointed the Secretary shall keep or cause to be kept the stock and transfer records of the corporation, which shall contain the names and record addresses of all stockholders and the number of shares registered in the name of each stockholder. He shall have such other duties and powers as may from time to time be designated by the Board of Directors or the President.

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Any Assistant Secretaries shall have such duties and powers as shall be designated from time to time by the Board of Directors, the President or the Secretary.

ARTICLE V

RESIGNATIONS AND REMOVALS

Section 1. Any director or officer may resign at any time by delivering his resignation in writing to the Chairman of the Board, if any, the President, or the Secretary or to a meeting of the Board of Directors. Such resignation shall be effective upon receipt unless specified to be effective at some other time, and without in either case the necessity of its being accepted unless the resignation shall so state. Except as may be otherwise provided by law, by the Certificate of Incorporation or by these Bylaws, a director (including persons elected by stockholders or directors to fill vacancies) may be removed from office for cause only. The Board of Directors may at any time terminate or modify the authority of any agent.

ARTICLE VI

INDEMNIFICATION

Section 1. Each person who was or is made a party to, or is threatened to be made a party to, or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding”), by reason of the fact that he or she (or a person of whom he or she is the legal representative), is or was a director, officer or employee of the Corporation or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the Delaware General Corporation Law, against all expenses, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that the Corporation shall indemnify any such person seeking indemnity in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or

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part thereof) was authorized by the Board of Directors of the Corporation.

Section 2. The Corporation shall pay all expenses (including attorneys’ fees) incurred by such a director or officer in defending any such proceeding as they are incurred in advance of its final disposition; provided, however, that if the Delaware General Corporation Law then so requires, the payment of such expenses incurred by such a director or officer in advance of the final disposition of such proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately that such director or officer is not entitled to be indemnified under this Article VI or otherwise; and provided, further, that the Corporation shall not be required to advance any expenses to a person against whom the Corporation directly brings a claim, in a proceeding alleging that such person has breached his or her duty of loyalty to the Corporation, committed an act or omission not in good faith or that involves intentional misconduct or a knowing violation of law, or derived an improper personal benefit from a transaction.

Section 3. The rights conferred on any person in this Article VI shall not be exclusive of any other right that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders or disinterested directors, or otherwise. Additionally, nothing in this Article VI shall limit the ability of the Corporation, in its discretion, to indemnify or advance expenses to persons whom the Corporation is not obligated to indemnify or advance expenses pursuant to this Article VI.

Section 4. The Board of Directors is authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing indemnification rights to such person. Such rights may be greater than those provided in this Article VI .

Section 5. Any amendment, repeal or modification of any provision of this Article VI shall be prospective only, and shall not adversely affect any right or protection conferred on a person pursuant to this Article VI and existing at the time of such amendment, repeal or modification.

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ARTICLE VII

CAPITAL STOCK

Section 1. Stock Certificates. Each stockholder shall be entitled to a certificate stating the number and the class and the designation of the series, if any, of the shares held by him, in such form as shall, in conformity to law, the Certificate of Incorporation and the Bylaws, be prescribed from time to time by the Board of Directors. Such certificate shall be signed by the Chairman or Vice Chairman of the Board, if any, or the President or a Vice President and by the Chief Financial Officer or by the Secretary or an Assistant Secretary. Any of or all the signatures on the certificate may be a facsimile. In case an officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the time of its issue.

Section 2. Loss Of Certificates. In the case of the alleged theft, loss, destruction or mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms, including receipt of a bond sufficient to indemnify the corporation against any claim on account thereof, as the Board of Directors may prescribe.

ARTICLE VIII

TRANSFER OF SHARES OF STOCK

Section 1. Transfer On Books. Subject to the restrictions, if any, related to such shares of the corporation; shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the Board of Directors or the transfer agent of the corporation may reasonably require. Except as may be otherwise required by law, by the Certificate of Incorporation or by these Bylaws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to receive notice and to vote or to give any consent with respect thereto and to be held liable for such calls and assessments, if any, as may lawfully be made thereon, regardless of any transfer, pledge or other disposition of such stock until the shares have been properly transferred on the books of the corporation.

It shall be the duty of each stockholder to notify the corporation of his post office address.

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Section 2. Record Date. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no such record date is fixed by the Board of Directors, the record date for determining the stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such payment, exercise or other action. If no such record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

ARTICLE IX

CORPORATE SEAL

Section 1. Subject to alteration by the Board of Directors, the seal of the corporation shall consist of a flat-faced circular die with the word “Delaware” and the name of the corporation cut or engraved thereon, together with such other words, dates or images as may be approved from time to time by the Board of Directors.

ARTICLE X

EXECUTION OF PAPERS

Section 1. Except as the Board of Directors may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes,

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checks, drafts or other obligations made, accepted or endorsed by the corporation shall be signed by the Chairman of the Board, if any, the President, or a Vice President.

ARTICLE XI

FISCAL YEAR

Section 1. The fiscal year of the corporation shall end on December 31.

ARTICLE XII

AMENDMENTS

Section 1. These Bylaws may be adopted, amended or repealed by vote of a majority of the directors then in office or by vote of a majority of the voting power of the stock outstanding and entitled to vote. Any Bylaw, whether adopted, amended or repealed by the stockholders or directors, may be amended or reinstated by the stockholders or the directors.

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EX-10.3

EXHIBIT 10.3

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of November 7, 2003, by and between MODTECH HOLDINGS, INC., a Delaware corporation (the “Holding Company”), and EVAN M. GRUBER, an individual residing in the State of California (“Executive”).

R E C I T A L S

WHEREAS, Executive currently serves as Chief Executive Officer of the Holding Company pursuant to that certain agreement entitled “Employment Agreement” executed by Executive and dated February 16, 1998 (the “1998 Agreement”);

WHEREAS, the 1998 Agreement would expire on December 31, 2003, unless extended or superceded by mutual agreement of the parties; and

WHEREAS, the Holding Company desires to retain the services of Executive on the terms and conditions provided herein, and Executive is willing to provide such services on such terms and conditions;

A G R E E M E N T

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants of the parties contained herein, the parties agree as follows:

1. Termination of Prior Agreement; Effective Date. This Agreement terminates and takes the place of the existing employment agreement between the Holding Company and Executive, referred to above as the 1998 Agreement. The termination of the 1998 Agreement shall be effective as of November 7, 2003.

2. Term. This Agreement shall continue in full force and effect for a period which shall commence on November 7, 2003, and shall continue until December 31, 2004 (the “Term”), unless sooner terminated as hereinafter provided or extended by the mutual agreement of the parties. On December 31, 2004, and each one-year anniversary of that date, this Agreement shall automatically be renewed for a period of one year, unless either party shall have given the other prior written notice of their intent not to renew this Agreement.

3. Employment. Executive shall serve as the Chief Executive Officer of the Holding Company and shall have such responsibilities, duties and authority customarily associated with such position, including day-to-day responsibility for the management of all of the Holding Company’s affairs and operations, and oversight of the operations and management of its direct and indirect subsidiaries (the “Subsidiaries”). Executive shall report directly to the Board of Directors and shall be subject to its reasonable direction in the performance of his duties. In addition, Executive shall serve as a member of the Holding Company’s Board of Directors, and on one or more committees thereof, but without compensation other than as provided for in Section 4 below. Executive shall devote such of his

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working time and effort to the business and affairs of the Holding Company and its Subsidiaries. Executive shall at all times perform his duties and obligations faithfully and diligently and to the best of Executive’s ability.

4. Compensation.

(a) Base Salary. As compensation for the services provided by Executive hereunder, during the Term of this Agreement, the Holding Company shall pay Executive an annual base salary of not less than $465,000 per year (“Base Salary”). Executive’s Base Salary shall be reviewed by the Holding Company’s Board of Directors from time to time at its discretion but not less often than annually, and Executive shall receive such Base Salary increases as the Holding Company’s Board of Directors shall determine. Executive’s Base Salary will not be decreased during the Term of this Agreement. All Base Salary shall be payable in equal installments in conformity with the Holding Company’s normal payroll periods, but not less frequently than monthly.

(b) Bonus. In addition to the Base Salary payable to Executive as provided in Section 4(a) above, Executive shall be entitled to receive, for each full or partial calendar year during the Term hereof, a bonus which shall be calculated and paid as provided in Exhibit A attached hereto.

(c) Stock Options. In addition to the Base Salary payable to Executive as provided in Section 4(a) above, and the bonus provided in Section 4(b) above, Executive shall be entitled to receive, for each full or partial calendar year during the Term hereof, incentive stock options which shall be granted as provided in Exhibit A attached hereto.

(d) Other Incentive Plans. In addition to the foregoing, during the Term of this Agreement, Executive shall be a full participant in any and all incentive plans and equity compensation plans in which Senior Officers of the Holding Company or its Subsidiaries participate that are in effect on the date hereof or that may hereafter be adopted, with at least the same reward opportunities, if any, that are provided to other Senior Officers of the Holding Company and its Subsidiaries from time to time during the term of this Agreement. For purposes of this Agreement, the term “Senior Officers” is defined as the Senior Officers of the Holding Company who participate in the Incentive Bonus Plan as provided in Exhibit A attached hereto.

5. Benefits and Vacations.

(a) Benefits. Executive shall be entitled to participate in any employee benefit plans, arrangements and perquisites substantially equivalent to those in which Executive was participating or otherwise deriving benefit from immediately prior to the beginning of the Term of this Agreement, and the Holding Company and its Subsidiaries will not, without Executive’s prior written consent, make any changes in such plans, arrangements or perquisites which would materially adversely affect Executive’s rights or benefits thereunder, except to the extent that such changes are made applicable to all

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Senior Officers eligible to participate in such plans, arrangements and perquisites on a non-discriminatory basis. Without limiting the generality of the foregoing, Executive shall be entitled to participate in or receive benefits under all plans relating to any pension plans, profit sharing plans, non-qualified deferred compensation plans and related “rabbi” trusts, life insurance plans, disability benefit plans, vacation and holiday pay plans, medical, dental and welfare plans, and other present or successor plans and practices of the Holding Company and its Subsidiaries for which Senior Officers are eligible, and to all payments and other benefits under any such plan or practice subsequent to the Term of this Agreement as a result of participation in such plan or practice during the Term of this Agreement.

(b) Vacations and Holidays. Executive shall be entitled to the number of paid vacation days in each calendar year, and to compensation for earned but unused vacation days, determined by the Holding Company from time to time for its Senior Officers, but not less than four (4) weeks in each full year of the Term hereof. Executive shall also be entitled to all paid holidays given by the Holding Company to its Senior Officers.

6. Expenses. During the Term hereof, Executive shall be entitled to receive prompt reimbursement of all reasonable expenses incurred by Executive (in accordance with the policies and procedures from time to time adopted by the Board of Directors of the Holding Company for its Senior Officers) in performing the services contemplated hereunder, provided that Executive properly accounts therefor in accordance with the Holding Company’s policy.

7. Termination.

(a) Death. Executive’s employment hereunder shall terminate immediately upon the death of Executive.

(b) Disability. In the event that Executive shall be unable to perform the services contemplated hereunder by reason of disability, illness or other incapacity, such failure to so perform such duties shall not be grounds for terminating the employment of Executive by the Holding Company; provided, however, that the Holding Company may terminate Executive’s employment hereunder should the period of such incapacity exceed six (6) consecutive months (“Disability”). Any such termination shall not be considered to be for “Cause” as defined in Section 7(d) below.

(c) By the Holding Company, Upon Notice. Executive’s employment hereunder may be terminated by the Holding Company prior to the expiration of the Term, with or without Cause. If the termination is without Cause, the Holding Company will provide Executive with thirty (30) days prior written notice. If the termination is for Cause, it will take effect as provided in Section 7(d) below.

(d) By the Holding Company, For Cause. For the purposes of this Agreement, “Cause” means (i) the willful and continued failure by Executive to substantially perform Executive’s duties hereunder, other than any such failure resulting

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from Executive’s incapacity due to physical or mental illness, after a demand for substantial performance is delivered to Executive by the Board of Directors of the Holding Company (the “Board”) which specifically identifies the manner in which the Board believes that Executive has not substantially performed such duties and Executive has not diligently and in good faith taken reasonable steps to comply with such demand within 30 days of his receipt of the same, or (ii) the willful engaging by Executive in gross misconduct materially and demonstrably injurious to the Holding Company. For purposes of this Section 7(d), no act, or failure to act, on Executive’s part shall be considered “willful” merely because it was the result of bad judgment or negligence; rather, such act or failure to act must have been done, or omitted to have been done, by Executive other than in good faith and without reasonable belief that Executive’s action or omission was in the best interests of the Holding Company. Notwithstanding the foregoing, Executive’s employment shall not be deemed to have been terminated for “Cause” unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the outside members of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to Executive and an opportunity for Executive, together with Executive’s counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of conduct described above in clauses (i) or (ii) of this Section 7(d) and specifying the particulars thereof in detail. In the event that Executive is terminated for Cause, the Holding Company shall pay Executive’s Base Salary through the date of termination, and any bonuses which have been earned by Executive through the date of termination, after deducting any amounts lawfully owing from Executive to the Holding Company, and shall thereafter have no further obligation to Executive, except to the extent that Executive may be entitled to exercise any of the options granted to Executive as contemplated in Section 4(c) above or otherwise.

(e) By Executive, For Good Reason. Executive shall be entitled to terminate his employment with the Holding Company hereunder for “Good Reason.” For purposes of this Agreement, any termination of employment under any one or more of the following circumstances shall be for “Good Reason:”

(i) Without Executive’s express written consent, the assignment to Executive of any duties inconsistent with Executive’s positions, duties, responsibilities and status with the Holding Company, or a change in Executive’s reporting responsibilities, titles or offices as in effect upon the execution hereof, or any removal of Executive from or any failure to re-elect Executive to the Holding Company’s Board of Directors or any other of Executive’s positions, except in connection with the termination of Executive’s employment for Cause, Disability or as a result of death;

(ii) The reduction by the Holding Company of Executive’s Base Salary, as the same may thereafter be increased from time to time;

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(iii) The failure by the Holding Company to continue Executive’s participation in the bonus and other compensation plans and incentive plans specified in Sections 4(b), 4(c) and 4(d) hereof;

(iv) The failure by the Holding Company to continue Executive’s participation in any benefit plan, pension plan, qualified retirement plan, life insurance plan, vacation plan, holiday plan, car lease plan, medical expense, health and accident plan or disability plan, or expense reimbursement arrangement specified in Sections 5 and 6 hereof, or the taking of any action by the Holding Company (prompt notice of which shall be provided to Executive) which would adversely affect Executive’s participation in (including increasing Executive’s costs of such participation), or materially reduce Executive’s benefits under, any of such plans, or which would deprive Executive of any other fringe or personal benefits under any of such plans; provided, however, that notwithstanding the provisions of this Section 7(e)(iv), the Holding Company’s providing benefits of a type or amount different than as provided for hereinabove shall not be deemed a “Good Reason” if required by law or if implemented with respect to all Senior Officers;

(v) The relocation of the Holding Company’s principal executive offices to a location outside of Riverside County, California, or the requirement by the Holding Company that Executive be based anywhere other than at the Holding Company’s principal executive offices or the location where Executive is based at the time of execution hereof, except for required travel on the Holding Company’s business to an extent substantially consistent with Executive’s business travel obligations in effect immediately prior to the execution hereof; or, in the event Executive consents to any such relocation of the Holding Company’s principal executive offices or change in the location where Executive is based, the failure by the Holding Company (A) to pay (or promptly reimburse Executive for) all reasonable moving expenses incurred by Executive relating to a change of Executive’s principal residence in connection with such relocation, and (B) to indemnify Executive against any loss (defined as Executive’s cost of terminating any lease for such residence, if it is leased, or if Executive owns such residence the difference between the actual sale price of such residence and the higher of Executive’s aggregate investment in such residence or the fair market value of such residence as determined by any real estate appraiser designated by Executive and reasonably satisfactory to the Holding Company) realized in the lease termination or sale of Executive’s principal residence in connection with any such change of residence, and (C) to reimburse Executive for the amount of any federal, state and local income taxes for which Executive becomes liable by a reason of Executive’s receipt of any amounts under this Section 7(e)(v);

(vi) Any purported termination of Executive’s employment by the Holding Company which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7(g) below; or

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(vii) A determination by Executive made in good faith that, as a result of a detrimental change in circumstances significantly affecting Executive’s position, Executive is unable properly to carry out all of the authorities, powers, functions, duties and responsibilities attached to Executive’s position and contemplated by Section 3, and the situation is not remedied within 30 days after receipt by the Holding Company of written notice from Executive of such determination.

(f) By Executive, Without Good Reason. Executive shall be entitled to terminate his employment with the Holding Company hereunder without “Good Reason” as defined in Section 7(e) above, upon thirty (30) days prior written notice. In the event that Executive terminate his employment without “Good Reason,” the Holding Company shall pay Executive’s Base Salary through the date of termination, and any bonuses which have been earned by Executive through the date of termination, after deducting any amounts lawfully owing from Executive to the Holding Company, and shall thereafter have no further obligation to Executive, except to the extent that Executive may be entitled to exercise any of the options granted to Executive as contemplated in Section 4(c) above or otherwise.

(g) Form of Notice. Any termination of Executive’s employment by the Holding Company for Disability or Cause, or by Executive for Good Reason, shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated, and shall set forth the date upon which such termination is to become effective (“Date of Termination”).

8. Compensation on Certain Terminations. If Executive terminates Executive’s employment during the Term of this Agreement for Good Reason, or if the Holding Company terminates Executive’s employment without Cause, or if the Holding Company does not renew the Agreement at the expiration of the Term, including any renewal Term, Executive shall be entitled to the following severance benefits:

(a) Severance Payment. The Holding Company or its successor, shall pay to Executive in a lump sum payment an amount equivalent to eighteen (18) months of his Base Salary, less required withholding and deductions (the “Severance Payment”). In the event of Executive’s death, the Severance Payment shall be made to his estate or beneficiaries, as the case may be. The Severance Payment shall be made in full within thirty (30) days following the Date of Termination. Executive is not required to mitigate the amount of the Severance Payment by seeking other employment or otherwise, nor shall any compensation earned by Executive in other employment or otherwise reduce the amount of the Severance Payment.

(b) Stock Options. All stock options, warrants and similar rights relating to capital stock of the Holding Company held by Executive shall cease vesting as of the

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effective date of Executive’s termination. Executive shall have the right to exercise vested stock options in accordance with Option Plan rules. The vesting of all stock options granted to Executive prior to his termination for the purchase of stock of the Holding Company, and Executive’s time in which to exercise vested stock options, may be extended an additional eighteen (18) months, if the parties mutually agreement to enter into a consulting agreement, whereby Executive would provide consulting services to the Holding Company as an independent contract following his termination from employment. It is understood by all parties, however, that neither Executive nor the Holding Company shall be obligated to enter into any such consulting agreement.

(c) Medical Benefits. Provided that Executive timely elects continuation of his and his eligible dependents medical and dental insurance coverage under COBRA, and they remain eligible for the continuation of such coverage under COBRA, the Holding Company will cause to be continued medical and dental coverage substantially equivalent to the coverage maintained by the Holding Company or its Subsidiaries for Executive and his eligible dependents prior to his termination. The Holding Company shall provide such coverage to Executive at no premium cost to Executive, and it shall provide such coverage to Executive’s eligible dependents under the same terms and conditions, including the requirement of premium contributions, as applicable to Senior Officers in active employment status. Such coverage shall cease upon the earliest of the following events: (i) expiration eighteen (18) months from the Date of Termination, or (ii) when Executive or his eligible dependents cease to qualify for such extension of coverage under COBRA.

(d) Life Insurance and Long Term Disability Insurance. To the extent permitted by the Holding Company’s group insurance policies, the Holding Company will cause to be continued Executive’s life insurance coverage and long term disability insurance coverage substantially equivalent to the coverage maintained by the Holding Company or its Subsidiaries for Executive prior to his termination at no premium cost to the Executive. Such coverage will terminate upon the expiration of eighteen (18) months following the Date of Termination. If such continuation is not permitted by the Holding Company’s group insurance policies, the Holding Company, for a period of eighteen (18) months, will reimburse Executive for the premium cost incurred to obtain comparable life insurance and long term disability insurance under private policies, up to the amount the Holding Company would have paid to provide such coverage to Executive had he remained an employee of the Holding Company.

(e) Other Benefits. Nothing in Sections 8(a) through 8(d) shall deprive Executive of any rights, payments, benefits or service credit for benefits after termination of employment which were earned pursuant to any provision of this Agreement or any plan or practice of the Holding Company on or prior to such termination including, without limitation, any pension or welfare benefits and any rights under the Holding Company’s pension, deferred compensation, or other benefit plans.

9. Indemnification. The Holding Company shall indemnify Executive to the fullest extent permitted by law, for all amounts (including, without limitation, judgments, fines,

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settlement payments, expenses and attorneys’ fees) incurred or paid by Executive in connection with any action, suit, investigation or proceeding, or threatened action, suit, investigation or proceeding, arising out of or relating to the performance by Executive of services for, or the acting by Executive as a director, officer or employee of, the Holding Company, or any subsidiary of the Holding Company or any other person at the Holding Company’s request. Any fees or other necessary expenses incurred by Executive in defending any such action, suit, investigation or proceeding shall be paid by the Holding Company in advance, subject to the Holding Company’s right to seek repayment from Executive if a determination is made that Executive was not entitled to indemnity. During the Term of this Agreement and for eighteen (18) months following Executive’s Date of Termination, the Holding Company or its successor shall maintain general liability and directors and officers liability insurance covering Executive for claims and other amounts set forth in this Section 9. Nothing in this Section 9 or elsewhere in this Agreement is intended to prevent the Holding Company from indemnifying Executive to any greater extent than is required by this Section 9.

10. Proprietary Information. Executive acknowledges that certain confidential and/or trade secret information, including but not limited to technological information, has been and will continue to be disclosed to Executive by the Holding Company during the Term of his employment. Executive hereby acknowledges that all such information and technology, whether currently existing or hereafter developed by the Holding Company through or involving the services and efforts of Executive hereunder, shall at all times consist of and be preserved by Executive as valuable trade secrets and confidential information which is proprietary to and owned exclusively by the Holding Company, and that Executive does not have, and shall not have or hereafter acquire, any rights in or to any such information and technology, including without limitation any patents, inventions, discoveries, know-how, trademarks or trade names used or adopted by the Holding Company in connection with the design, development, manufacture, marketing, sale or installation of any products which at any time during the continuation hereof may be offered and sold or licensed by the Holding Company. Executive further warrants and agrees that he shall not at any time, whether during the continuance of this Agreement or after its expiration or earlier termination, whether by Executive or by the Holding Company, in any manner or form, directly or indirectly, use, disclose, duplicate, license, sell, reveal, divulge, publish or communicate any portion of any such information or technology, nor use, disclose, duplicate, license, sell, reveal, divulge, publish or communicate any other confidential information concerning the Holding Company, or any customers or other products of the Holding Company, to any person, firm or entity.

11. Competition. During the Term hereof, Executive shall not, without the Holding Company’s prior written consent, directly or indirectly engage in any business activity, or have any interest in any person, firm or other entity engaged in any business activity, in which the Holding Company at the time is engaged or is planning to engage. During the Term hereof and for a period of twenty-four (24) months thereafter, Executive shall not directly or indirectly: (a) divert or take away or solicit or attempt to divert or take away any of the Holding Company’s customers, including without limitation those customers with whom Executive became acquainted while retained by the Holding Company; (b) employ, or knowingly permit any business entity controlled by Executive to employ, any person who during the period of twelve (12) months immediately preceding such time has been employed by the Holding Company; (c)

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solicit or otherwise seek to induce any employee of the Holding Company to leave his or her employment with the Holding Company; or (d) undertake planning for or organization of any business activity that will injure the Holding Company’s business, or conspire with employees of the Holding Company for the purpose of organizing any such injurious business activity.

12. General Provisions.

(a) Any notice, request, demand or other communication required or permitted hereunder shall be deemed to be properly given when personally served in writing, when deposited in the United States mail, postage prepaid, or when communicated to a public telegraph company for transmittal, addressed to the Holding Company or Executive at their respective last known address. Either party may change its address by written notice given in accordance with this subparagraph.

(b) This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective executors, administrators, successors and assigns; provided, however, that Executive may not assign any or all of Executive’s rights or duties hereunder without the prior written consent of the Holding Company.

(c) This Agreement is made and entered into, is to be performed primarily within, and shall be governed by and construed in all respects in accordance with the laws of the State of California.

(d) Captions and Section headings used herein are for convenience only and are not a part of this Agreement and shall not be used in construing it.

(e) Should any provision of this Agreement for any reason be declared invalid, void, or unenforceable by a court of competent jurisdiction, the validity and binding effect of any remaining portions shall not be affected, and the remaining portions of this Agreement shall remain in full force and effect as if this Agreement had been executed with said provision eliminated.

(f) This Agreement contains the entire agreement of the parties, and supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of Executive by the Holding Company. Each party to this Agreement acknowledges that no representations, inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein or therein, and that no other agreement, statement or promise not contained herein or therein shall be relied upon or be valid or binding. This Agreement may not be modified or amended by oral agreements, but only by an agreement in writing signed by the Holding Company on the one hand, and by Executive on the other hand.

(g) In the event of any litigation between Executive and the Holding Company concerning the rights or obligations of any party under this Agreement, the non-

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prevailing party shall pay the reasonable costs and expenses, including attorneys’ fees, of the prevailing party in connection therewith.

(h) This Agreement shall not be terminated by the Holding Company merging with or otherwise being acquired by another entity, whether or not the Holding Company is the surviving entity, or by the Holding Company transferring all or substantially all of its assets (any such event, an “Acquisition”). In the event of an Acquisition, the surviving entity or transferee, as the case may be, shall be bound by and shall have the benefits of this Agreement, and the Holding Company shall not enter into any Acquisition unless the surviving entity or transferee, as the case may be, agrees to be bound by the provisions of the Agreement.

(i) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original for all purposes. This Agreement may be executed by a party’s signature transmitted by facsimile (“fax”), and copies of this Agreement executed and delivered by means of faxed signatures shall have the same force and effect as copies hereof executed and delivered with original signatures. All parties hereto agree that a faxed signature page may be introduced into evidence in any proceeding arising out of or related to this Agreement as if it were an original signature page.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written.

By:	/s/    CHARLES C. MCGETTIGAN
	Charles C. McGettigan Chairman of the Board, Modtech Holdings, Inc
By:	/s/    EVAN GRUBER
	Evan Gruber CEO, Modtech Holdings, Inc.

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EX-10.5

EXHIBIT 10.5

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of December 22, 2003, by and between MODTECH HOLDINGS, INC., a Delaware corporation (the “Holding Company”), and MICHAEL G. RHODES, an individual residing in the State of California (“Executive”).

R E C I T A L S

WHEREAS, Executive currently serves as the President and Chief Operating Officer of the Holding Company pursuant to that certain agreement entitled “Employment Agreement” executed by Executive and dated February 16, 1998 (the “1998 Agreement”);

WHEREAS, the 1998 Agreement would expire on December 31, 2003, unless extended or superceded by mutual agreement of the parties; and

WHEREAS, the Holding Company desires to retain the services of Executive on the terms and conditions provided herein, and Executive is willing to provide such services on such terms and conditions;

A G R E E M E N T

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants of the parties contained herein, the parties agree as follows:

1. Termination of Prior Agreement; Effective Date. This Agreement terminates and takes the place of the existing employment agreement between the Holding Company and Executive, referred to above as the 1998 Agreement. The termination of the 1998 Agreement shall be effective as of December 22, 2003.

2. Term. This Agreement shall continue in full force and effect for a period which shall commence on December 22, 2003, and shall continue until December 31, 2004 (the “Term”), unless sooner terminated as hereinafter provided or extended by the mutual agreement of the parties. On December 31, 2004, and each one-year anniversary of that date, this Agreement shall automatically be renewed for a period of one year, unless either party shall have given the other prior written notice of their intent not to renew this Agreement.

3. Employment. Executive shall serve as the Chief Operating Officer of the Holding Company and shall have such responsibilities, duties and authority customarily associated with such position, including day-to-day responsibility for the management of all of the Holding Company’s manufacturing operations, and oversight of the operations and management of its direct and indirect subsidiaries (the “Subsidiaries”). Executive shall report directly to the Holding Company’s Chief Executive Officer and, secondarily, to the Board of Directors and shall be subject to the reasonable directions of both the CEO and the Board of Directors in the performance of his duties. In addition, Executive shall serve as a member of the Holding Company’s Board of Directors, and on one or more committees thereof, but without

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compensation other than as provided for in Section 4 below. Executive shall devote all of his working time and effort to the business and affairs of the Holding Company and its Subsidiaries. Executive shall at all times perform his duties and obligations faithfully and diligently and to the best of Executive’s ability.

4. Compensation.

(a) Base Salary. As compensation for the services provided by Executive hereunder, during the Term of this Agreement, the Holding Company shall pay Executive an annual base salary of not less than $325,000 per year (“Base Salary”). Executive’s Base Salary shall be reviewed by the Holding Company’s Board of Directors from time to time at its discretion but not less often than annually, and Executive shall receive such Base Salary increases as the Holding Company’s Board of Directors shall determine. Executive’s Base Salary will not be decreased during the Term of this Agreement. All Base Salary shall be payable in equal installments in conformity with the Holding Company’s normal payroll periods, but not less frequently than monthly.

(b) Bonus. In addition to the Base Salary payable to Executive as provided in Section 4(a) above, Executive shall be entitled to receive, for each full or partial calendar year during the Term hereof, a bonus which shall be calculated and paid as provided in Exhibit A attached hereto.

(c) Stock Options. In addition to the Base Salary payable to Executive as provided in Section 4(a) above, and the bonus provided in Section 4(b) above, Executive shall be entitled to receive, for each full or partial calendar year during the Term hereof, incentive stock options which shall be granted as provided in Exhibit A attached hereto.

(d) Other Incentive Plans. In addition to the foregoing, during the Term of this Agreement, Executive shall be a full participant in any and all incentive plans and equity compensation plans in which Senior Officers of the Holding Company or its Subsidiaries participate that are in effect on the date hereof or that may hereafter be adopted, with at least the same reward opportunities, if any, that are provided to other Senior Officers of the Holding Company and its Subsidiaries from time to time during the term of this Agreement. For purposes of this Agreement, the term “Senior Officers” is defined as the Senior Officers of the Holding Company who participate in the Incentive Bonus Plan as provided in Exhibit A attached hereto.

5. Benefits and Vacations.

(a) Benefits. Executive shall be entitled to participate in any employee benefit plans, arrangements and perquisites substantially equivalent to those in which Executive was participating or otherwise deriving benefit from immediately prior to the beginning of the Term of this Agreement, and the Holding Company and its Subsidiaries will not, without Executive’s prior written consent, make any changes in such plans, arrangements or perquisites which would materially adversely affect Executive’s rights or benefits thereunder, except to the extent that such changes are made applicable to all

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Senior Officers eligible to participate in such plans, arrangements and perquisites on a non-discriminatory basis. Without limiting the generality of the foregoing, Executive shall be entitled to participate in or receive benefits under all plans relating to any pension plans, profit sharing plans, non-qualified deferred compensation plans and related “rabbi” trusts, life insurance plans, disability benefit plans, vacation and holiday pay plans, medical, dental and welfare plans, and other present or successor plans and practices of the Holding Company and its Subsidiaries for which Senior Officers are eligible, and to all payments and other benefits under any such plan or practice subsequent to the Term of this Agreement as a result of participation in such plan or practice during the Term of this Agreement.

(b) Vacations and Holidays. Executive shall be entitled to the number of paid vacation days in each calendar year, and to compensation for earned but unused vacation days, determined by the Holding Company from time to time for its Senior Officers, but not less than four (4) weeks in each full year of the Term hereof. Executive shall also be entitled to all paid holidays given by the Holding Company to its Senior Officers.

6. Expenses. During the Term hereof, Executive shall be entitled to receive prompt reimbursement of all reasonable expenses incurred by Executive (in accordance with the policies and procedures from time to time adopted by the Board of Directors of the Holding Company for its Senior Officers) in performing the services contemplated hereunder, provided that Executive properly accounts therefor in accordance with the Holding Company’s policy.

7. Termination.

(a) Death. Executive’s employment hereunder shall terminate immediately upon the death of Executive.

(b) Disability. In the event that Executive shall be unable to perform the services contemplated hereunder by reason of disability, illness or other incapacity, such failure to so perform such duties shall not be grounds for terminating the employment of Executive by the Holding Company; provided, however, that the Holding Company may terminate Executive’s employment hereunder should the period of such incapacity exceed six (6) consecutive months (“Disability”). Any such termination shall not be considered to be for “Cause” as defined in Section 7(d) below.

(c) By the Holding Company, Upon Notice. Executive’s employment hereunder may be terminated by the Holding Company prior to the expiration of the Term, with or without Cause. If the termination is without Cause, the Holding Company will provide Executive with thirty (30) days prior written notice. If the termination is for Cause, it will take effect as provided in Section 7(d) below.

(d) By the Holding Company, For Cause. For the purposes of this Agreement, “Cause” means (i) the willful and continued failure by Executive to substantially perform Executive’s duties hereunder, other than any such failure resulting

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from Executive’s incapacity due to physical or mental illness, after a demand for substantial performance is delivered to Executive by the Board of Directors of the Holding Company (the “Board”) which specifically identifies the manner in which the Board believes that Executive has not substantially performed such duties and Executive has not diligently and in good faith taken reasonable steps to comply with such demand within 30 days of his receipt of the same, or (ii) the willful engaging by Executive in gross misconduct materially and demonstrably injurious to the Holding Company. For purposes of this Section 7(d), no act, or failure to act, on Executive’s part shall be considered “willful” merely because it was the result of bad judgment or negligence; rather, such act or failure to act must have been done, or omitted to have been done, by Executive other than in good faith and without reasonable belief that Executive’s action or omission was in the best interests of the Holding Company. Notwithstanding the foregoing, Executive’s employment shall not be deemed to have been terminated for “Cause” unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the outside members of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to Executive and an opportunity for Executive, together with Executive’s counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of conduct described above in clauses (i) or (ii) of this Section 7(d) and specifying the particulars thereof in detail. In the event that Executive is terminated for Cause, the Holding Company shall pay Executive’s Base Salary through the date of termination, and any bonuses which have been earned by Executive through the date of termination, after deducting any amounts lawfully owing from Executive to the Holding Company, and shall thereafter have no further obligation to Executive, except to the extent that Executive may be entitled to exercise any of the options granted to Executive as contemplated in Section 4(c) above or otherwise.

(e) By Executive, For Good Reason. Executive shall be entitled to terminate his employment with the Holding Company hereunder for “Good Reason.” For purposes of this Agreement, any termination of employment under any one or more of the following circumstances shall be for “Good Reason:”

(i) Without Executive’s express written consent, the assignment to Executive of any duties inconsistent with Executive’s positions, duties, responsibilities and status with the Holding Company, or a change in Executive’s reporting responsibilities, titles or offices as in effect upon the execution hereof, or any removal of Executive from or any failure to re-elect Executive to the Holding Company’s Board of Directors or any other of Executive’s positions, except in connection with the termination of Executive’s employment for Cause, Disability or as a result of death;

(ii) The reduction by the Holding Company of Executive’s Base Salary, as the same may thereafter be increased from time to time;

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(iii) The failure by the Holding Company to continue Executive’s participation in the bonus and other compensation plans and incentive plans specified in Sections 4(b), 4(c) and 4(d) hereof;

(iv) The failure by the Holding Company to continue Executive’s participation in any benefit plan, pension plan, qualified retirement plan, life insurance plan, vacation plan, holiday plan, car lease plan, medical expense, health and accident plan or disability plan, or expense reimbursement arrangement specified in Sections 5 and 6 hereof, or the taking of any action by the Holding Company (prompt notice of which shall be provided to Executive) which would adversely affect Executive’s participation in (including increasing Executive’s costs of such participation), or materially reduce Executive’s benefits under, any of such plans, or which would deprive Executive of any other fringe or personal benefits under any of such plans; provided, however, that notwithstanding the provisions of this Section 7(e)(iv), the Holding Company’s providing benefits of a type or amount different than as provided for hereinabove shall not be deemed a “Good Reason” if required by law or if implemented with respect to all Senior Officers;

(v) The relocation of the Holding Company’s principal executive offices to a location outside of Riverside County, California, or the requirement by the Holding Company that Executive be based anywhere other than at the Holding Company’s principal executive offices or the location where Executive is based at the time of execution hereof, except for required travel on the Holding Company’s business to an extent substantially consistent with Executive’s business travel obligations in effect immediately prior to the execution hereof; or, in the event Executive consents to any such relocation of the Holding Company’s principal executive offices or change in the location where Executive is based, the failure by the Holding Company (A) to pay (or promptly reimburse Executive for) all reasonable moving expenses incurred by Executive relating to a change of Executive’s principal residence in connection with such relocation, and (B) to indemnify Executive against any loss (defined as Executive’s cost of terminating any lease for such residence, if it is leased, or if Executive owns such residence the difference between the actual sale price of such residence and the higher of Executive’s aggregate investment in such residence or the fair market value of such residence as determined by any real estate appraiser designated by Executive and reasonably satisfactory to the Holding Company) realized in the lease termination or sale of Executive’s principal residence in connection with any such change of residence, and (C) to reimburse Executive for the amount of any federal, state and local income taxes for which Executive becomes liable by a reason of Executive’s receipt of any amounts under this Section 7(e)(v);

(vi) Any purported termination of Executive’s employment by the Holding Company which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7(g) below; or

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(vii) A determination by Executive made in good faith that, as a result of a detrimental change in circumstances significantly affecting Executive’s position, Executive is unable properly to carry out all of the authorities, powers, functions, duties and responsibilities attached to Executive’s position and contemplated by Section 3, and the situation is not remedied within 30 days after receipt by the Holding Company of written notice from Executive of such determination.

(f) By Executive, Without Good Reason. Executive shall be entitled to terminate his employment with the Holding Company hereunder without “Good Reason” as defined in Section 7(e) above, upon thirty (30) days prior written notice. In the event that Executive terminate his employment without “Good Reason,” the Holding Company shall pay Executive’s Base Salary through the date of termination, and any bonuses which have been earned by Executive through the date of termination, after deducting any amounts lawfully owing from Executive to the Holding Company, and shall thereafter have no further obligation to Executive, except to the extent that Executive may be entitled to exercise any of the options granted to Executive as contemplated in Section 4(c) above or otherwise.

(g) Form of Notice. Any termination of Executive’s employment by the Holding Company for Disability or Cause, or by Executive for Good Reason, shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated, and shall set forth the date upon which such termination is to become effective (“Date of Termination”).

8. Compensation on Certain Terminations. If Executive terminates Executive’s employment during the Term of this Agreement for Good Reason, or if the Holding Company terminates Executive’s employment without Cause, or if the Holding Company does not renew the Agreement at the expiration of the Term, including any renewal Term, Executive shall be entitled to the following severance benefits:

(a) Severance Payment. The Holding Company or its successor, shall pay to Executive in a lump sum payment an amount equivalent to eighteen (18) months of his Base Salary, less required withholding and deductions (the “Severance Payment”). In the event of Executive’s death, the Severance Payment shall be made to his estate or beneficiaries, as the case may be. The Severance Payment shall be made in full within thirty (30) days following the Date of Termination. Executive is not required to mitigate the amount of the Severance Payment by seeking other employment or otherwise, nor shall any compensation earned by Executive in other employment or otherwise reduce the amount of the Severance Payment.

(b) Stock Options. All stock options, warrants and similar rights relating to capital stock of the Holding Company held by Executive shall cease vesting as of the

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effective date of Executive’s termination. Executive shall have the right to exercise vested stock options in accordance with Option Plan rules. The vesting of all stock options granted to Executive prior to his termination for the purchase of stock of the Holding Company, and Executive’s time in which to exercise vested stock options, may be extended an additional eighteen (18) months, if the parties mutually agreement to enter into a consulting agreement, whereby Executive would provide consulting services to the Holding Company as an independent contract following his termination from employment. It is understood by all parties, however, that neither Executive nor the Holding Company shall be obligated to enter into any such consulting agreement.

(c) Medical Benefits. Provided that Executive timely elects continuation of his and his eligible dependents medical and dental insurance coverage under COBRA, and they remain eligible for the continuation of such coverage under COBRA, the Holding Company will cause to be continued medical and dental coverage substantially equivalent to the coverage maintained by the Holding Company or its Subsidiaries for Executive and his eligible dependents prior to his termination. The Holding Company shall provide such coverage to Executive at no premium cost to Executive, and it shall provide such coverage to Executive’s eligible dependents under the same terms and conditions, including the requirement of premium contributions, as applicable to Senior Officers in active employment status. Such coverage shall cease upon the earliest of the following events: (i) expiration eighteen (18) months from the Date of Termination, or (ii) when Executive or his eligible dependents cease to qualify for such extension of coverage under COBRA.

(d) Life Insurance and Long Term Disability Insurance. To the extent permitted by the Holding Company’s group insurance policies, the Holding Company will cause to be continued Executive’s life insurance coverage and long term disability insurance coverage substantially equivalent to the coverage maintained by the Holding Company or its Subsidiaries for Executive prior to his termination at no premium cost to the Executive. Such coverage will terminate upon the expiration of eighteen (18) months following the Date of Termination. If such continuation is not permitted by the Holding Company’s group insurance policies, the Holding Company, for a period of eighteen (18) months, will reimburse Executive for the premium cost incurred to obtain comparable life insurance and long term disability insurance under private policies, up to the amount the Holding Company would have paid to provide such coverage to Executive had he remained an employee of the Holding Company.

(e) Other Benefits. Nothing in Sections 8(a) through 8(d) shall deprive Executive of any rights, payments, benefits or service credit for benefits after termination of employment which were earned pursuant to any provision of this Agreement or any plan or practice of the Holding Company on or prior to such termination including, without limitation, any pension or welfare benefits and any rights under the Holding Company’s pension, deferred compensation, or other benefit plans.

9. Indemnification. The Holding Company shall indemnify Executive to the fullest extent permitted by law, for all amounts (including, without limitation, judgments, fines,

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settlement payments, expenses and attorneys’ fees) incurred or paid by Executive in connection with any action, suit, investigation or proceeding, or threatened action, suit, investigation or proceeding, arising out of or relating to the performance by Executive of services for, or the acting by Executive as a director, officer or employee of, the Holding Company, or any subsidiary of the Holding Company or any other person at the Holding Company’s request. Any fees or other necessary expenses incurred by Executive in defending any such action, suit, investigation or proceeding shall be paid by the Holding Company in advance, subject to the Holding Company’s right to seek repayment from Executive if a determination is made that Executive was not entitled to indemnity. During the Term of this Agreement and for eighteen (18) months following Executive’s Date of Termination, the Holding Company or its successor shall maintain general liability and directors and officers liability insurance covering Executive for claims and other amounts set forth in this Section 9. Nothing in this Section 9 or elsewhere in this Agreement is intended to prevent the Holding Company from indemnifying Executive to any greater extent than is required by this Section 9.

10. Proprietary Information. Executive acknowledges that certain confidential and/or trade secret information, including but not limited to technological information, has been and will continue to be disclosed to Executive by the Holding Company during the Term of his employment. Executive hereby acknowledges that all such information and technology, whether currently existing or hereafter developed by the Holding Company through or involving the services and efforts of Executive hereunder, shall at all times consist of and be preserved by Executive as valuable trade secrets and confidential information which is proprietary to and owned exclusively by the Holding Company, and that Executive does not have, and shall not have or hereafter acquire, any rights in or to any such information and technology, including without limitation any patents, inventions, discoveries, know-how, trademarks or trade names used or adopted by the Holding Company in connection with the design, development, manufacture, marketing, sale or installation of any products which at any time during the continuation hereof may be offered and sold or licensed by the Holding Company. Executive further warrants and agrees that he shall not at any time, whether during the continuance of this Agreement or after its expiration or earlier termination, whether by Executive or by the Holding Company, in any manner or form, directly or indirectly, use, disclose, duplicate, license, sell, reveal, divulge, publish or communicate any portion of any such information or technology, nor use, disclose, duplicate, license, sell, reveal, divulge, publish or communicate any other confidential information concerning the Holding Company, or any customers or other products of the Holding Company, to any person, firm or entity.

11. Competition. During the Term hereof, Executive shall not, without the Holding Company’s prior written consent, directly or indirectly engage in any business activity, or have any interest in any person, firm or other entity engaged in any business activity, in which the Holding Company at the time is engaged or is planning to engage. During the Term hereof and for a period of twenty-four (24) months thereafter, Executive shall not directly or indirectly: (a) divert or take away or solicit or attempt to divert or take away any of the Holding Company’s customers, including without limitation those customers with whom Executive became acquainted while retained by the Holding Company; (b) employ, or knowingly permit any business entity controlled by Executive to employ, any person who during the period of twelve (12) months immediately preceding such time has been employed by the Holding Company; (c)

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solicit or otherwise seek to induce any employee of the Holding Company to leave his or her employment with the Holding Company; or (d) undertake planning for or organization of any business activity that will injure the Holding Company’s business, or conspire with employees of the Holding Company for the purpose of organizing any such injurious business activity.

12. General Provisions.

(a) Any notice, request, demand or other communication required or permitted hereunder shall be deemed to be properly given when personally served in writing, when deposited in the United States mail, postage prepaid, or when communicated to a public telegraph company for transmittal, addressed to the Holding Company or Executive at their respective last known address. Either party may change its address by written notice given in accordance with this subparagraph.

(b) This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective executors, administrators, successors and assigns; provided, however, that Executive may not assign any or all of Executive’s rights or duties hereunder without the prior written consent of the Holding Company.

(c) This Agreement is made and entered into, is to be performed primarily within, and shall be governed by and construed in all respects in accordance with the laws of the State of California.

(d) Captions and Section headings used herein are for convenience only and are not a part of this Agreement and shall not be used in construing it.

(e) Should any provision of this Agreement for any reason be declared invalid, void, or unenforceable by a court of competent jurisdiction, the validity and binding effect of any remaining portions shall not be affected, and the remaining portions of this Agreement shall remain in full force and effect as if this Agreement had been executed with said provision eliminated.

(f) This Agreement contains the entire agreement of the parties, and supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of Executive by the Holding Company. Each party to this Agreement acknowledges that no representations, inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein or therein, and that no other agreement, statement or promise not contained herein or therein shall be relied upon or be valid or binding. This Agreement may not be modified or amended by oral agreements, but only by an agreement in writing signed by the Holding Company on the one hand, and by Executive on the other hand.

(g) In the event of any litigation between Executive and the Holding Company concerning the rights or obligations of any party under this Agreement, the non-

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prevailing party shall pay the reasonable costs and expenses, including attorneys’ fees, of the prevailing party in connection therewith.

(h) This Agreement shall not be terminated by the Holding Company merging with or otherwise being acquired by another entity, whether or not the Holding Company is the surviving entity, or by the Holding Company transferring all or substantially all of its assets (any such event, an “Acquisition”). In the event of an Acquisition, the surviving entity or transferee, as the case may be, shall be bound by and shall have the benefits of this Agreement, and the Holding Company shall not enter into any Acquisition unless the surviving entity or transferee, as the case may be, agrees to be bound by the provisions of the Agreement.

(i) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original for all purposes. This Agreement may be executed by a party’s signature transmitted by facsimile (“fax”), and copies of this Agreement executed and delivered by means of faxed signatures shall have the same force and effect as copies hereof executed and delivered with original signatures. All parties hereto agree that a faxed signature page may be introduced into evidence in any proceeding arising out of or related to this Agreement as if it were an original signature page.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written.

By:	/s/    CHARLES C. MCGETTIGAN
	Charles C. McGettigan Chairman of the Board, Modtech Holdings, Inc.
By:	/s/    MICHAEL G. RHODES
	Michael G. Rhodes President & COO, Modtech Holdings, Inc.

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EX-23.1

EXHIBIT 23.1

INDEPENDENT AUDITORS’ CONSENT

The Board of Directors

Modtech Holdings, Inc.:

We consent to incorporation by reference in the registration statements (No. 333-102933, No. 333-91204, No. 333-79023, and No. 333-81169) on Form S-8 of Modtech Holdings, Inc. of our report dated March 4, 2004, relating to the consolidated balance sheets of Modtech Holdings, Inc. and subsidiaries as of December 31, 2002 and 2003 and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2003, and the related financial statement schedule, which report appears in the December 31, 2003, annual report on Form 10-K of Modtech Holdings, Inc.

As discussed in Notes 1 and 7 to the consolidated financial statements, the Company changed its method of accounting for goodwill and intangible assets in 2002.

/s/  KPMG LLP

Costa Mesa, California

March 15, 2004

EX-31.1

Exhibit 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, David M. Buckley, certify that:

1. I have reviewed this annual report on Form 10-K/A of Modtech Holdings, Inc.;

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

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

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

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting: and

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

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/    DAVID M. BUCKLEY        

David M. Buckley

President/Chief Executive Officer

October 13, 2005

EX-31.2

Exhibit 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Dennis L. Shogren, certify that:

1. I have reviewed this annual report on Form 10-K/A of Modtech Holdings, Inc.;

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

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

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

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting: and

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

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/    DENNIS L. SHOGREN        

Dennis L. Shogren

Chief Financial Officer

October 13, 2005

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies, in his capacity as Chief Executive Officer of Modtech Holdings, Inc. (the “Company”), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on his knowledge:

• the Annual Report of the Company on Form 10-K/A for the year ended December 31, 2003 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

• the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: October 13, 2005

/s/    DAVID M. BUCKLEY        

David M. Buckley

Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies, in her capacity as Chief Financial Officer of Modtech Holdings, Inc. (the “Company”), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on her knowledge:

• the Annual Report of the Company on Form 10-K/A for the year ended December 31, 2003 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

• the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: October 13, 2005

/s/    DENNIS L. SHOGREN        

Dennis L. Shogren

Chief Financial Officer