##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For quarter ended March 31, 2002

Commission File Number 000 - 25161

MODTECH HOLDINGS, INC.

---

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 33  0825386                        
|                                                               |  |                                     
|(State or other jurisdiction of
Incorporation or organization) |  | (I.R.S. Employer
Identification No.)

|                                        |  |           
|--------------------------------------- |  | ----------
|2830 Barrett Avenue, Perris, CA         |  | 92571     
|                                        |  |           
|(Address of principal executive office) |  | (Zip Code)

(909) 943-4014

---

Registrants telephone number


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   [   ]

As of May 10, 2002, there were 13,470,490 of the Registrants Common Stock
outstanding.





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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              |                                                                                               | Condensed Consolidated Balance Sheets               
|                              |                                                                                               | Condensed Consolidated Statements of Operations     
|                              |                                                                                               | Condensed Consolidated Statements of Cash Flows     
|                              |                                                                                               | Notes To Condensed Consolidated Financial Statements
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative And Qualitative Disclosures About Market Risk                           
|PART II. OTHER INFORMATION   
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 2. Changes in Securities                                                                
|                              | Item 3. Defaults upon Senior Securities                                                      
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                              | Item 5. Other Information                                                                    
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   



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##### Table of Contents



MODTECH HOLDINGS, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2002




PART I. FINANCIAL INFORMATION

The condensed consolidated financial statements included herein have been
prepared by Modtech Holdings, Inc. and subsidiaries (the Company), without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information normally included in consolidated financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America has been omitted pursuant to such rules and
regulations. However, the Company believes that the consolidated financial
statements, including the disclosures herein, are adequate to make the
information presented not misleading. The results of operations for the three
months ended March 31, 2001 and 2002 are not necessarily indicative of the
results to be expected for the full fiscal years. The consolidated financial
statements should be read in conjunction with the Companys consolidated
financial statements and notes thereto included in the Companys Annual Report
on Form 10-K for the year ended December 31, 2001 as filed with the Securities
and Exchange Commission.





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##### Table of Contents






MODTECH HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)

|                                          |                                                                                                                                       |                                                                                                                              |                            |            |              |             |             |            |            |            | 
|----------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---------- | ------------ | ----------- | ----------- | ---------- | ---------- | ---------- | 
|                                          |                                                                                                                                       |                                                                                                                              |                            |            | December 31, |             | March 31,  
|                                          |                                                                                                                                       |                                                                                                                              |                            |            | 2001         |             | 2002       
|                                          |                                                                                                                                       |                                                                                                                              |                            |            |              |             |            
|Assets                                    |                                                                                                                                       |                                                                                                                              |                            |            |              |             |             |           
|Current assets:                           |                                                                                                                                       |                                                                                                                              |                            |            |              |             |             |           
|                                          |                                                                                                                                       | Cash and cash equivalents                                                                                                    |                            | $          | 130,000      |             |             | $          | 1,602,000  |           
|                                          |                                                                                                                                       | Contracts receivable, net, including costs in
excess of billings of $10,110,000 and 6,982,000 in
2001 and 2002, respectively |                            |            | 44,305,000   |             |             |            | 44,434,000 |           
|                                          |                                                                                                                                       | Inventories                                                                                                                  |                            |            | 8,668,000    |             |             |            | 9,812,000  |           
|                                          |                                                                                                                                       | Due from affiliates                                                                                                          |                            |            | 479,000      |             |             |            |           |           
|                                          |                                                                                                                                       | Deferred tax assets                                                                                                          |                            |            | 3,575,000    |             |             |            | 3,575,000  |           
|                                          |                                                                                                                                       | Other current assets                                                                                                         |                            |            | 1,206,000    |             |             |            | 1,491,000  |           
|                                          |                                                                                                                                       |                                                                                                                              |                            |            |              |             |             |           
|                                          |                                                                                                                                       |                                                                                                                              | Total current assets       |            |              | 58,363,000  |             |            |            | 60,914,000 | 
|                                          |                                                                                                                                       |                                                                                                                              |                            |            |              |             |             |           
|Property and equipment, net               |                                                                                                                                       |                                                                                                                              | 15,292,000                 |            |              |             | 15,272,000  |           
|Other assets                              |                                                                                                                                       |                                                                                                                              |                            |            |              |             |             |           
|                                          |                                                                                                                                       | Goodwill, net                                                                                                                |                            |            | 109,612,000  |             |             |            | 72,384,000 |           
|                                          |                                                                                                                                       | Covenants not to compete, net                                                                                                |                            |            | 506,000      |             |             |            | 310,000    |           
|                                          |                                                                                                                                       | Debt issuance costs, net                                                                                                     |                            |            | 1,414,000    |             |             |            | 1,369,000  |           
|                                          |                                                                                                                                       | Deferred tax assets                                                                                                          |                            |            | 558,000      |             |             |            | 558,000    |           
|                                          |                                                                                                                                       | Other assets                                                                                                                 |                            |            | 651,000      |             |             |            | 724,000    |           
|                                          |                                                                                                                                       |                                                                                                                              |                            |            |              |             |             |           
|                                          |                                                                                                                                       | $                                                                                                                            | 186,396,000                |            |              | $           | 151,531,000 |           
|                                          |                                                                                                                                       |                                                                                                                              |                            |            |              |             |             |           
|Liabilities and Shareholders Equity      |                                                                                                                                       |                                                                                                                              |                            |            |              |             |             |           
|Current liabilities:                      |                                                                                                                                       |                                                                                                                              |                            |            |              |             |             |           
|                                          |                                                                                                                                       | Accounts payable and accrued liabilities                                                                                     |                            | $          | 14,777,000   |             |             | $          | 17,206,000 |           
|                                          |                                                                                                                                       | Billings in excess of costs                                                                                                  |                            |            | 2,221,000    |             |             |            | 3,355,000  |           
|                                          |                                                                                                                                       | Current revolving credit line                                                                                                |                            |            | 9,100,000    |             |             |            | 8,100,000  |           
|                                          |                                                                                                                                       | Current maturities of long-term debt                                                                                         |                            |            | 7,000,000    |             |             |            | 7,000,000  |           
|                                          |                                                                                                                                       |                                                                                                                              |                            |            |              |             |             |           
|                                          |                                                                                                                                       |                                                                                                                              | Total current liabilities  |            |              | 33,098,000  |             |            |            | 35,661,000 | 
|Long-term debt, excluding current portion |                                                                                                                                       |                                                                                                                              | 19,000,000                 |            |              |             | 17,250,000  |           
|                                          |                                                                                                                                       |                                                                                                                              |                            |            |              |             |             |           
|                                          |                                                                                                                                       |                                                                                                                              | Total liabilities          |            |              | 52,098,000  |             |            |            | 52,911,000 | 
|                                          |                                                                                                                                       |                                                                                                                              |                            |            |              |             |             |           
|Shareholders Equity:                     |                                                                                                                                       |                                                                                                                              |                            |            |              |             |             |           
|                                          | Series A preferred stock, $.01 par. Authorized
5,000,000 shares; issued and outstanding 388,939 in
2001 and 2002                      |                                                                                                                              |                            | 4,000      |              |             |             | 4,000      |           
|                                          | Common stock, $.01 par. Authorized 25,000,000 shares;
issued and outstanding 13,456,365 and 13,463,865 in
2001 and 2002, respectively |                                                                                                                              |                            | 135,000    |              |             |             | 135,000    |           
|                                          | Additional paid-in capital                                                                                                            |                                                                                                                              |                            | 78,590,000 |              |             |             | 78,646,000 |           
|                                          | Retained earnings                                                                                                                     |                                                                                                                              |                            | 55,569,000 |              |             |             | 19,835,000 |           
|                                          |                                                                                                                                       |                                                                                                                              |                            |            |              |             |             |           
|                                          |                                                                                                                                       |                                                                                                                              | Total shareholders equity |            |              | 134,298,000 |             |            |            | 98,620,000 | 
|                                          |                                                                                                                                       |                                                                                                                              |                            |            |              |             |             |           
|                                          |                                                                                                                                       | $                                                                                                                            | 186,396,000                |            |              | $           | 151,531,000 |           
|                                          |                                                                                                                                       |                                                                                                                              |                            |            |              |             |             |           

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





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##### Table of Contents






MODTECH HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)

|                                                                                                  |                       |                                                                                         |            |                    |           |      |             |          |             |  
|------------------------------------------------------------------------------------------------- | --------------------- | --------------------------------------------------------------------------------------- | ---------- | ------------------ | --------- | ---- | ----------- | -------- | ----------- | -
|                                                                                                  |                       |                                                                                         |            | Three Months Ended
|                                                                                                  |                       |                                                                                         |            | March 31,         
|                                                                                                  |                       |                                                                                         |            |                   
|                                                                                                  |                       |                                                                                         |            | 2001               |           | 2002
|                                                                                                  |                       |                                                                                         |            |                    |           |     
|Net sales                                                                                         |                       | $                                                                                       | 42,680,000 |                    |           | $    | 35,359,000  |         
|Cost of goods sold                                                                                |                       |                                                                                         | 36,608,000 |                    |           |      | 30,288,000  |         
|                                                                                                  |                       |                                                                                         |            |                    |           |      |             |         
|                                                                                                  |                       | Gross profit                                                                            |            |                    | 6,072,000 |      |             |          | 5,071,000   |  
|Selling, general and administrative expenses                                                      |                       |                                                                                         | 1,695,000  |                    |           |      | 1,713,000   |         
|Goodwill and covenant amortization                                                                |                       |                                                                                         | 926,000    |                    |           |      | 196,000     |         
|                                                                                                  |                       |                                                                                         |            |                    |           |      |             |         
|                                                                                                  |                       | Income from operations                                                                  |            |                    | 3,451,000 |      |             |          | 3,162,000   |  
|                                                                                                  |                       |                                                                                         |            |                    |           |      |             |         
|Other income (expense):                                                                           |                       |                                                                                         |            |                    |           |      |             |         
|                                                                                                  | Interest expense, net |                                                                                         |            | (905,000           | )         |      |             | (490,000 | )          
|                                                                                                  | Other, net            |                                                                                         |            | 13,000             |           |      |             | 7,000    |            
|                                                                                                  |                       |                                                                                         | (892,000   | )                  |           |      | (483,000    | )       
|                                                                                                  |                       |                                                                                         |            |                    |           |      |             |         
|                                                                                                  |                       | Income before income taxes and cumulative
effect of a change in an accounting
principle |            |                    | 2,559,000 |      |             |          | 2,679,000   |  
|Income taxes                                                                                      |                       |                                                                                         | (1,203,000 | )                  |           |      | (1,125,000  | )       
|                                                                                                  |                       |                                                                                         |            |                    |           |      |             |         
|                                                                                                  |                       | Income before cumulative effect of a
change in an accounting principle                  |            |                    | 1,356,000 |      |             |          | 1,554,000   |  
|Cumulative effect of a change in an accounting principle                                          |                       |                                                                                         |           |                    |           |      | (37,288,000 | )       
|                                                                                                  |                       |                                                                                         |            |                    |           |      |             |         
|                                                                                                  |                       | Net income (loss)                                                                       |            | $                  | 1,356,000 |      |             | $        | (35,734,000 | )
|                                                                                                  |                       |                                                                                         |            |                    |           |      |             |         
|Series A preferred stock dividend                                                                 |                       |                                                                                         | 39,000     |                    |           |      | 39,000      |         
|                                                                                                  |                       |                                                                                         |            |                    |           |      |             |         
|                                                                                                  |                       | Net income (loss) available to common stock                                             |            | $                  | 1,317,000 |      |             | $        | (35,773,000 | )
|                                                                                                  |                       |                                                                                         |            |                    |           |      |             |         
|Basic earnings per common share before cumulative effect
of a change in an accounting principle   |                       | $                                                                                       | 0.10       |                    |           | $    | 0.11        |         
|                                                                                                  |                       |                                                                                         |            |                    |           |      |             |         
|Cumulative effect of a change in an accounting principle
per common share  basic                 |                       |                                                                                         |           |                    |           |      | (2.77       | )       
|                                                                                                  |                       |                                                                                         |            |                    |           |      |             |         
|Basic earnings (loss) per common share                                                            |                       | $                                                                                       | 0.10       |                    |           | $    | (2.66       | )       
|                                                                                                  |                       |                                                                                         |            |                    |           |      |             |         
|Basic weighted-average shares outstanding                                                         |                       |                                                                                         | 13,350,000 |                    |           |      | 13,460,000  |         
|                                                                                                  |                       |                                                                                         |            |                    |           |      |             |         
|Diluted earnings per common share before cumulative effect
of a change in an accounting principle |                       | $                                                                                       | 0.10       |                    |           | $    | 0.11        |         
|                                                                                                  |                       |                                                                                         |            |                    |           |      |             |         
|Cumulative effect of a change in an accounting principle
per common share  diluted               |                       |                                                                                         |           |                    |           |      | (2.55       | )       
|                                                                                                  |                       |                                                                                         |            |                    |           |      |             |         
|Diluted earnings (loss) per common share                                                          |                       | $                                                                                       | 0.10       |                    |           | $    | (2.44       | )       
|                                                                                                  |                       |                                                                                         |            |                    |           |      |             |         
|Diluted weighted-average shares outstanding                                                       |                       |                                                                                         | 14,255,000 |                    |           |      | 14,630,000  |         
|                                                                                                  |                       |                                                                                         |            |                    |           |      |             |         

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





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MODTECH HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

|                                                 |                                                                                          |                                                                  |                                                                       |                                                     |           |                    |            |             |            |  |            |  
|------------------------------------------------ | ---------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | --------------------------------------------------------------------- | --------------------------------------------------- | --------- | ------------------ | ---------- | ----------- | ---------- |  | ---------- | -
|                                                 |                                                                                          |                                                                  |                                                                       |                                                     |           | Three Months Ended
|                                                 |                                                                                          |                                                                  |                                                                       |                                                     |           | March 31,         
|                                                 |                                                                                          |                                                                  |                                                                       |                                                     |           |                   
|                                                 |                                                                                          |                                                                  |                                                                       |                                                     |           | 2001               |            | 2002       
|                                                 |                                                                                          |                                                                  |                                                                       |                                                     |           |                    |            |            
|Cash flows from operating activities:            |                                                                                          |                                                                  |                                                                       |                                                     |           |                    |            |            
|                                                 | Net income (loss)                                                                        |                                                                  | $                                                                     | 1,356,000                                           |           |                    | $          | (35,734,000 | )         
|                                                 | Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |                                                                  |                                                                       |                                                     |           |                    |            |             |           
|                                                 |                                                                                          | Cumulative effect of a change in an accounting principle         |                                                                       |                                                     |          |                    |            |             | 37,288,000 | 
|                                                 |                                                                                          | Depreciation and amortization                                    |                                                                       |                                                     | 1,574,000 |                    |            |             | 739,000    | 
|                                                 |                                                                                          | Gain on sale of equipment                                        |                                                                       |                                                     | (4,000    | )                  |            |             |           | 
|                                                 |                                                                                          | (Increase) decrease in assets, net of effects from
acquisitions: |                                                                       |                                                     |           |                    |            |             |            | 
|                                                 |                                                                                          |                                                                  |                                                                       | Contracts receivable                                |           |                    | 1,149,000  |             |            |  | (129,000   | )
|                                                 |                                                                                          |                                                                  |                                                                       | Inventories                                         |           |                    | 213,000    |             |            |  | (1,144,000 | )
|                                                 |                                                                                          |                                                                  |                                                                       | Due from affiliates                                 |           |                    | 589,000    |             |            |  | 479,000    |  
|                                                 |                                                                                          |                                                                  |                                                                       | Other current and noncurrent assets                 |           |                    | (436,000   | )           |            |  | (358,000   | )
|                                                 |                                                                                          |                                                                  | Increase (decrease) in liabilities, net of effects
from acquisitions: |                                                     |           |                    |            |             |            |  |           
|                                                 |                                                                                          |                                                                  |                                                                       | Accounts payable and accrued liabilities            |           |                    | (2,310,000 | )           |            |  | 2,429,000  |  
|                                                 |                                                                                          |                                                                  |                                                                       | Billings in excess of costs                         |           |                    | (608,000   | )           |            |  | 1,134,000  |  
|                                                 |                                                                                          |                                                                  |                                                                       |                                                     |           |                    |            |            
|                                                 |                                                                                          |                                                                  |                                                                       | Net cash provided by operating activities           |           |                    | 1,523,000  |             |            |  | 4,704,000  |  
|                                                 |                                                                                          |                                                                  |                                                                       |                                                     |           |                    |            |            
|Cash flows from investing activities:            |                                                                                          |                                                                  |                                                                       |                                                     |           |                    |            |            
|                                                 | Proceeds from sale of equipment                                                          |                                                                  |                                                                       | 6,000                                               |           |                    |            |            |           
|                                                 | Purchase of property and equipment                                                       |                                                                  |                                                                       | (213,000                                            | )         |                    |            | (451,000    | )         
|                                                 | Purchase of covenants not to compete                                                     |                                                                  |                                                                       | (25,000                                             | )         |                    |            |            |           
|                                                 | Acquisition of subsidiaries, net of cash acquired                                        |                                                                  |                                                                       | (3,407,000                                          | )         |                    |            | (60,000     | )         
|                                                 |                                                                                          |                                                                  |                                                                       |                                                     |           |                    |            |            
|                                                 |                                                                                          |                                                                  |                                                                       | Net cash used in investing activities               |           |                    | (3,639,000 | )           |            |  | (511,000   | )
|                                                 |                                                                                          |                                                                  |                                                                       |                                                     |           |                    |            |            
|Cash flows from financing activities:            |                                                                                          |                                                                  |                                                                       |                                                     |           |                    |            |            
|                                                 | Net principal borrowings (payments) under revolving credit line                          |                                                                  |                                                                       | 5,993,000                                           |           |                    |            | (1,000,000  | )         
|                                                 | Net principal payments on long-term debt                                                 |                                                                  |                                                                       | (2,100,000                                          | )         |                    |            | (1,750,000  | )         
|                                                 | Payment of debt issuance costs                                                           |                                                                  |                                                                       |                                                    |           |                    |            | (27,000     | )         
|                                                 | Proceeds from exercise of stock options                                                  |                                                                  |                                                                       | 19,000                                              |           |                    |            | 56,000      |           
|                                                 |                                                                                          |                                                                  |                                                                       |                                                     |           |                    |            |            
|                                                 |                                                                                          |                                                                  |                                                                       | Net cash provided by (used in) financing
activities |           |                    | 3,912,000  |             |            |  | (2,721,000 | )
|                                                 |                                                                                          |                                                                  |                                                                       |                                                     |           |                    |            |            
|Net increase in cash and cash equivalents        |                                                                                          |                                                                  | 1,796,000                                                             |                                                     |           |                    | 1,472,000  |            
|Cash and cash equivalents at beginning of period |                                                                                          |                                                                  | 416,000                                                               |                                                     |           |                    | 130,000    |            
|                                                 |                                                                                          |                                                                  |                                                                       |                                                     |           |                    |            |            
|Cash and cash equivalents at end of period       |                                                                                          | $                                                                | 2,212,000                                                             |                                                     |           | $                  | 1,602,000  |            
|                                                 |                                                                                          |                                                                  |                                                                       |                                                     |           |                    |            |            

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





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##### Table of Contents






MODTECH HOLDINGS, INC.
Notes To Condensed Consolidated Financial Statements
March 31, 2002



|1) |  | Basis of Presentation                                                                                                                                                                                                                                                    
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In the opinion of management, the condensed consolidated financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position and results
of operations as of and for the periods presented.
|  
|   |  | The results of operations for the three months ended March 31, 2001 and 2002
are not necessarily indicative of the results to be expected for the full
fiscal years.                                                                                                     
|  
|2) |  | Inventories                                                                                                                                                                                                                                                              
|  
|   |  | Inventories consist of the following:                                                                                                                                                                                                                                    

|                |  |      |           |      |  |   |           | 
|--------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                |  | 2001 |           | 2002
|                |  |      |           |     
|Raw materials   |  | $    | 7,692,000 |      |  | $ | 8,661,000 | 
|Work in process |  |      | 968,000   |      |  |   | 1,143,000 | 
|Finished goods  |  |      | 8,000     |      |  |   | 8,000     | 
|                |  |      |           |      |  |   |           | 
|                |  | $    | 8,668,000 |      |  | $ | 9,812,000 | 
|                |  |      |           |      |  |   |           | 



|3) |  | Earnings (Loss) Per Share                                                                                                                  
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The following table illustrates the calculation of basic and diluted
earnings (loss) per common share under the provisions of SFAS No. 128:

|                                                                                                |                                             |   |                    |           |      |   |             |             |  
|----------------------------------------------------------------------------------------------- | ------------------------------------------- | - | ------------------ | --------- | ---- | - | ----------- | ----------- | -
|                                                                                                |                                             |   | Three Months Ended
|                                                                                                |                                             |   | March 31,         
|                                                                                                |                                             |   |                   
|                                                                                                |                                             |   | 2001               |           | 2002
|                                                                                                |                                             |   |                    |           |     
|Basic                                                                                           |                                             |   |                    |           |      |   |             |            
|Income before cumulative effect of a
change in an accounting principle                          |                                             | $ | 1,356,000          |           |      | $ | 1,554,000   |            
|Cumulative effect of a change in an
accounting principle                                        |                                             |   |                   |           |      |   | (37,288,000 | )          
|                                                                                                |                                             |   |                    |           |      |   |             |            
|Net income (loss)                                                                               |                                             |   | 1,356,000          |           |      |   | (35,734,000 | )          
|Dividends on preferred stock                                                                    |                                             |   | (39,000            | )         |      |   | (39,000     | )          
|                                                                                                |                                             |   |                    |           |      |   |             |            
|                                                                                                | Net income (loss) available to common
stock |   | $                  | 1,317,000 |      |   | $           | (35,773,000 | )
|                                                                                                |                                             |   |                    |           |      |   |             |            
|Weighted-average common shares outstanding                                                      |                                             |   | 13,350,000         |           |      |   | 13,460,000  |            
|                                                                                                |                                             |   |                    |           |      |   |             |            
|Basic earnings per common share before
cumulative effect of a change in an
accounting principle |                                             | $ | 0.10               |           |      | $ | 0.11        |            
|                                                                                                |                                             |   |                    |           |      |   |             |            
|Cumulative effect of a change in an
accounting principle per common share  basic               |                                             |   |                   |           |      |   | (2.77       | )          
|                                                                                                |                                             |   |                    |           |      |   |             |            
|Basic earnings (loss) per common share                                                          |                                             | $ | 0.10               |           |      | $ | (2.66       | )          
|                                                                                                |                                             |   |                    |           |      |   |             |            





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##### Table of Contents



|                                                                                                  |                               |   |                    |         |      |   |             |         | 
|------------------------------------------------------------------------------------------------- | ----------------------------- | - | ------------------ | ------- | ---- | - | ----------- | ------- | 
|                                                                                                  |                               |   | Three Months Ended
|                                                                                                  |                               |   | March 31,         
|                                                                                                  |                               |   |                   
|                                                                                                  |                               |   | 2001               |         | 2002
|                                                                                                  |                               |   |                    |         |     
|Diluted                                                                                           |                               |   |                    |         |      |   |             |        
|Net income (loss)                                                                                 |                               | $ | 1,356,000          |         |      | $ | (35,734,000 | )      
|                                                                                                  |                               |   |                    |         |      |   |             |        
|Weighted-average common shares outstanding                                                        |                               |   | 13,350,000         |         |      |   | 13,460,000  |        
|Add:                                                                                              |                               |   |                    |         |      |   |             |        
|                                                                                                  | Conversion of preferred stock |   |                    | 389,000 |      |   |             | 389,000 | 
|                                                                                                  | Exercise of options           |   |                    | 516,000 |      |   |             | 781,000 | 
|                                                                                                  |                               |   |                    |         |      |   |             |        
|Adjusted weighted-average common shares
outstanding                                               |                               |   | 14,255,000         |         |      |   | 14,630,000  |        
|                                                                                                  |                               |   |                    |         |      |   |             |        
|Diluted earnings per common share before
cumulative effect of a change in an
accounting principle |                               | $ | 0.10               |         |      | $ | 0.11        |        
|                                                                                                  |                               |   |                    |         |      |   |             |        
|Cumulative effect of a change in an
accounting principle per common share  diluted               |                               |   |                   |         |      |   | (2.55       | )      
|                                                                                                  |                               |   |                    |         |      |   |             |        
|Diluted earnings (loss) per common share                                                          |                               | $ | 0.10               |         |      | $ | (2.44       | )      
|                                                                                                  |                               |   |                    |         |      |   |             |        



|   |  | Options to purchase 851,000 and 218,000 shares of common stock were
outstanding during the quarters ended March 31, 2001 and 2002,
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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|4) |  | Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | The credit facility contains various covenants. The Company was in
compliance with such covenants as of March 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|5) |  | 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 relocatable classrooms and other modular buildings for
commercial use. IMS is based in St. Petersburg, Florida. Pro forma
amounts for the IMS acquisition are not included, as the effect is not
material to the Companys consolidated financial statements. This
acquisition was accounted for as a purchase.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|6) |  | Recently Adopted Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141, Business
Combinations, (SFAS No. 141) and Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142).
SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations. SFAS No. 141 specifies criteria that intangible
assets acquired in a business combination must meet to be recognized and
reported separately from goodwill. SFAS No. 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 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 SFAS No. 121 and subsequently, SFAS No. 144
after its adoption.
|  
|   |  | The Company adopted the provisions of SFAS No. 141 as of July 1, 2001, and
SFAS No. 142 as of January 1, 2002. Upon adoption of SFAS No. 142, the
Company was required to evaluate its existing intangible assets and
goodwill that were acquired in purchase business combinations, and make any
necessary reclassifications in order to conform with the new classification
criteria in SFAS No. 141 for recognition separate from goodwill. The
Company was required to reassess the useful lives and residual values of
all intangible assets acquired, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. If an
intangible asset was identified as having an indefinite useful life, the
Company was required to test the intangible asset for impairment in
accordance with the provisions of SFAS No. 142 within the first interim
period.                                                                                                                                                      





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##### Table of Contents





| |  | Impairment is measured as the excess of carrying value over the fair value
of an intangible asset with an indefinite life. Any impairment loss was
measured as of the date of adoption and recognized as the cumulative effect
of a change in accounting principle in the first interim period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In connection with SFAS No. 142s transitional goodwill impairment
evaluation, SFAS No. 142 required the Company to perform an assessment of
whether there was an indication that goodwill was impaired as of the date
of adoption, January 1, 2002. To accomplish this, the Company identified
its reporting units and determined the carrying value of each reporting
unit by assigning the assets and liabilities, including the existing
goodwill and intangible assets, to those reporting units as of January 1,
2002. The Company determined the fair value of each reporting unit and
compared it to the carrying amount of the reporting unit. To the extent
the carrying amount of a reporting unit exceeded the fair value of the
reporting unit, an indication existed that the reporting unit goodwill may
be impaired and the Company must perform the second step of the
transitional impairment test. In the second step, the Company compared the
implied fair value of the reporting unit goodwill with the carrying amount
of the reporting unit goodwill, both of which were measured as of the date
of adoption. The implied fair value of goodwill was determined by
allocating the fair value of the reporting unit to all of the assets
(recognized and unrecognized) and liabilities of the reporting unit in a
manner similar to a purchase price allocation, in accordance with SFAS No.
141. The residual fair value after this allocation was the implied fair
value of the reporting unit goodwill. Any transitional impairment loss was
recognized as the cumulative effect of a change in accounting principle in
the Companys 2002 consolidated statement of operations.
|
| |  | In accordance with SFAS No. 142, quoted market prices in active markets are the best
evidence of fair value and shall be used as the basis for measurement, if
available. 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 a
one time charge of $37,288,000. The impairment loss was recognized as the
cumulative effect of a change in accounting principle in the Companys 2002 consolidated
statement of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The Company recorded goodwill amortization expense in the amount of
$2,916,000 and $2,945,000 for the years ended December 31, 2000 and 2001,
respectively and $729,000 for the three months ended March 31,
2001. No goodwill amortization was recorded for the three months
ended March 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | The changes in the carrying amount of goodwill are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|                                    |  |   |             |  
|----------------------------------- |  | - | ----------- | -
|Balance as of January 1, 2002       |  | $ | 109,612,000 |  
|Goodwill acquired during the period |  |   | 60,000      |  
|Impairment loss                     |  |   | (37,288,000 | )
|                                    |  |   |             |  
|Balance as of March 31, 2002        |  | $ | 72,384,000  |  
|                                    |  |   |             |  

| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | The following table reconciles previously reported net income (loss) as if
the provisions of SFAS No. 142 were in effect in 2001:

|                                                                   |  |                            |           |      |  |   |             |  
|------------------------------------------------------------------ |  | -------------------------- | --------- | ---- |  | - | ----------- | -
|                                                                   |  | For the three months ended
|                                                                   |  | March 31,                 
|                                                                   |  |                           
|                                                                   |  | 2001                       |           | 2002
|                                                                   |  |                            |           |     
|Reported net income (loss)                                         |  | $                          | 1,356,000 |      |  | $ | (35,734,000 | )
|Add back: Goodwill amortization, net of taxes                      |  |                            | 551,000   |      |  |   |            |  
|Add back: Cumulative effect of a change in an
accounting principle |  |                            |          |      |  |   | 37,288,000  |  
|                                                                   |  |                            |           |      |  |   |             |  
|Adjusted net income                                                |  | $                          | 1,907,000 |      |  | $ | 1,554,000   |  
|                                                                   |  |                            |           |      |  |   |             |  
|Reported basic earnings (loss) per common share                    |  | $                          | 0.10      |      |  | $ | (2.66       | )
|Add back: Goodwill amortization, net of taxes                      |  |                            | 0.04      |      |  |   |            |  
|Add back: Cumulative effect of a change in an
accounting principle |  |                            |          |      |  |   | 2.77        |  
|                                                                   |  |                            |           |      |  |   |             |  
|Adjusted basic earnings per common share                           |  | $                          | 0.14      |      |  | $ | 0.11        |  
|                                                                   |  |                            |           |      |  |   |             |  





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##### Table of Contents



|                                                                   |  |                            |      |      |  |   |       |  
|------------------------------------------------------------------ |  | -------------------------- | ---- | ---- |  | - | ----- | -
|                                                                   |  | For the three months ended
|                                                                   |  | March 31,                 
|                                                                   |  |                           
|                                                                   |  | 2001                       |      | 2002
|                                                                   |  |                            |      |     
|Reported diluted earnings (loss) per common
share                  |  | $                          | 0.10 |      |  | $ | (2.44 | )
|Add back: Goodwill amortization, net of taxes                      |  |                            | 0.03 |      |  |   |      |  
|Add back: Cumulative effect of a change in
an accounting principle |  |                            |     |      |  |   | 2.55  |  
|                                                                   |  |                            |      |      |  |   |       |  
|Adjusted diluted earnings per common share                         |  | $                          | 0.13 |      |  | $ | 0.11  |  
|                                                                   |  |                            |      |      |  |   |       |  





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##### Table of Contents






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

Results of Operations

The following table sets forth certain items in the Condensed Consolidated
Statements of Operations as a percent of net sales.

|                                                                                        |  |                      |       |      |  |  |       |  
|--------------------------------------------------------------------------------------- |  | -------------------- | ----- | ---- |  |  | ----- | -
|                                                                                        |  | Percent of Net Sales
|                                                                                        |  | Three Months Ended  
|                                                                                        |  | March 31,           
|                                                                                        |  |                     
|                                                                                        |  | 2001                 |       | 2002
|                                                                                        |  |                      |       |     
|Net sales                                                                               |  |                      | 100.0 | %    |  |  | 100.0 | %
|Gross profit                                                                            |  |                      | 14.2  |      |  |  | 14.3  |  
|Selling, general and administrative expenses                                            |  |                      | 4.0   |      |  |  | 4.8   |  
|Goodwill and covenant amortization                                                      |  |                      | 2.2   |      |  |  | 0.6   |  
|Income from operations                                                                  |  |                      | 8.1   |      |  |  | 8.9   |  
|Interest expense, net                                                                   |  |                      | (2.1  | )    |  |  | (1.4  | )
|Income before income taxes and cumulative
effect of a change in an accounting principle |  |                      | 6.0   |      |  |  | 7.6   |  
|Income taxes                                                                            |  |                      | 2.8   |      |  |  | 3.2   |  
|Income before cumulative effect of a change
in an accounting principle                  |  |                      | 3.2   |      |  |  | 4.4   |  

Net sales for the three months ended March 31, 2002 decreased by $7,321,000, or
17.2%. The decline in net sales was attributable to lower sales of commercial
and industrial buildings, reflecting the general business decline in the
overall economy.

Gross profit as a percentage of net sales for the three months ended March 31,
2002 increased to 14.3% from 14.2% for the same period in 2001. The increase
was due to product mix as well as certain operational efficiencies.

Selling, general and administrative expenses increased for the three months
ended March 31, 2002 by $18,000, an increase of 1.1%. As a percentage of net
sales, selling, general, and administrative expenses increased from 4.0% in the
first three months of 2001 to 4.8% in 2002.

Goodwill was recorded for both the SPI Merger and the Coastal Acquisition in
1999 and for the IMS acquisition in 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 three months ended March 31, 2002.
In accordance with SFAS No. 142, the Company took a one-time impairment charge
to goodwill of $37,288,000, which was recognized as a cumulative effect of a
change in an accounting principle.

Interest expense, net decreased for the three months ended March 31, 2002 by
$415,000, or 45.9%. The decrease is attributable to decreased line of credit
borrowings, decreased long-term debt due to repayment and decreased interest
rates for the three months ended March 31, 2002. As a percentage of net sales,
interest expense decreased from 2.1% in the first three months of 2001 to 1.4%
in 2002.





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##### Table of Contents



Income before income taxes and cumulative effect of a change in an accounting
principle for the three months ended March 31, 2002 increased by $120,000, or
4.7%. As a percentage of net sales, income before income taxes and cumulative
effect of a change in an accounting principle increased from 6.0% in the first
three months of 2001 to 7.6% in 2002.

Income taxes for the three months ended March 31, 2002 decreased by $78,000, or
6.5%. As a percentage of net sales, income taxes increased from 2.8% in the
first three months of 2001 to 3.2% in 2002.

Income before cumulative effect of a change in an accounting principle for the
three months ended March 31, 2002 increased by $198,000, or 14.6%. As a
percentage of net sales, income before cumulative effect of a change in an
accounting principle increased from 3.2% in the first three months of 2001 to
4.4% in 2002.

Inflation

In the past, the Company has not been adversely affected by inflation, because
it has been generally able to pass along to its customers increases in the
costs of labor and materials.

Liquidity and Capital Resources

To date, the Company has generated cash from operations, bank borrowings and
public offerings to meet its needs. At March 31, 2002, the Company had
$1,602,000 in cash and cash equivalents. During the three months ended March
31, 2002, the Company generated cash from operating activities of $4,704,000.

The Company has a $66,000,000 credit facility, of which $40,000,000 represents
a revolving loan commitment. 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 February 2004. On March 31, 2002, $8,100,000
was outstanding under the revolving loan commitment. The credit facility
contains various covenants. The Company was in compliance with such covenants
as of March 31, 2002.

Management believes that the Companys existing product lines and manufacturing
capacity will enable the Company to generate sufficient cash through
operations, supplemented by periodic use of its existing bank line of credit,
to finance the Companys business at current levels over the next 12 months.
Additional cash resources may be required if the Company expands its business
beyond current levels. For example, it will be 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 would 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 the Company.

Commitments and Contingencies

The following table represents a comprehensive list of the Companys
contractual obligations and commitments as of December 31, 2001:

|                                   |  |                        |        |      |  |      |       |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |       | 
|---------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---------- | ----- |  |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                   |  | Payments Due by Year  
|                                   |  | (amounts in thousands)
|                                  
|                                   |  | Total                  |        | 2002 |  | 2003 |       | 2004 |  | 2005 |       | 2006 |  | Thereafter
|                                   |  |                        |        |      |  |      |       |      |  |      |       |      |  |           
|Long-term debt                     |  | $                      | 26,000 |      |  | $    | 7,000 |      |  | $    | 7,000 |      |  | $          | 6,000 |  |  | $ | 4,000 |  |  | $ | 2,000 |  |  |   |      | 
|Operating leases                   |  |                        | 12,133 |      |  |      | 1,788 |      |  |      | 1,379 |      |  |            | 941   |  |  |   | 941   |  |  |   | 941   |  |  | $ | 6,143 | 
|                                   |  |                        |        |      |  |      |       |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |       | 
|Total contractual cash obligations |  | $                      | 38,133 |      |  | $    | 8,788 |      |  | $    | 8,379 |      |  | $          | 6,941 |  |  | $ | 4,941 |  |  | $ | 2,941 |  |  | $ | 6,143 | 
|                                   |  |                        |        |      |  |      |       |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |       | 





---



##### Table of Contents



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
judgements, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain. We believe our most critical accounting
policies related to:



| |  | Allowance for Contract Adjustments           
|- |  | ---------------------------------------------
| 
| |  | Revenue Recognition on Construction Contracts

We use a combination of historical results and anticipated future events to
estimate and make assumptions relating to our critical accounting policies.
Actual results could differ from our estimates.

New Accounting Pronouncements

In September 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, Accounting for Asset Retirement Obligations (SFAS 143). SFAS 143 is
effective for fiscal years beginning after June 15, 2002, which addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. Management has not assessed whether the application of this standard
will have a material effect on the Companys financial position, results of
operations or liquidity.

In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections (SFAS 145). SFAS 145 is effective
for fiscal years beginning after May 15, 2002. Management has not assessed
whether the application of this standard will have a material effect on the
Companys financial position, results of operations or liquidity.




Item 3. Quantitative And Qualitative Disclosures About Market Risk

We are exposed to market risks related to fluctuation in interest rates on our
$66 million credit facility. During the quarter ended March 31, 2002, 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
1.75%, or the Federal funds rate plus additional interest of between 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 2002 will be $40 million. Therefore, a one percentage point
increase in interest rates would result in an increase in interest expense of
$400,000 for the year.





---



##### Table of Contents






PART II. OTHER INFORMATION






|Item 1. | Legal ProceedingsNone
|------- | ---------------------






|Item 2. | Changes in SecuritiesNone
|------- | -------------------------






|Item 3. | Defaults upon Senior SecuritiesNone
|------- | -----------------------------------






|Item 4. | Submission of Matters to a Vote of Security HoldersNone
|------- | -------------------------------------------------------






|Item 5. | Other InformationNone
|------- | ---------------------






|Item 6. | Exhibits and Reports on Form 8-K
|------- | --------------------------------



| | (a) |  | Exhibits           
| | --- |  | -------------------
|
| |     |  | None               
|
| | (b) |  | Reports on Form 8-K
|
| |     |  | None               





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##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                   |                                          |                      
|------------------ | ---------------------------------------- | ---------------------
|                   | Modtech Holdings, Inc.                  
|                  
|Date: May 15, 2002 | by:                                      | /s/  Shari L. Walgren
|                   | Shari L. Walgren
Chief Financial Officer