**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**







**Form
      10-Q**








(Mark
      One)





x  **QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**


For
      the
      quarterly period ended March 31, 2007





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


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





Commission
      File Number 000- 25161








**MODTECH
      HOLDINGS, INC.**


**(Exact
      name of registrant as specified in its charter)**










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





**(951)
      943-4014**


**(Registrant’s
      telephone number including area code)**







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





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer” and “large accelerated file” in Rule 12b-2 of the Exchange
      Act. (Check one):





Large
      accelerated filer  ̈ Accelerated
      filer  ̈ Non-accelerated
      filer x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).  Yes  ̈ No x





As
      of May
      8, 2007 there were 21,419,415 Shares of the Registrant’s Common Stock
      outstanding.












**Modtech
      Holdings, Inc.**


**Index
      to Form 10-Q**


**PART
                I.****FINANCIAL
                INFORMATION**
              
              
              **Page
                #**Item
                  1.
              
              
              Financial
                  Statements (Unaudited)
              
              
              3Condensed
                  Consolidated Balance SheetsAs
                  of March 31, 2007 and December 31, 2006
              
              
              4Condensed
                  Consolidated Statements of OperationsFor
                  the Three Months Ended March 31, 2007 and 2006
              
              
              5Condensed
                  Consolidated Statements of Cash FlowsFor
                  the Three Months Ended March 31, 2007 and 2006
              
              
              6Notes
                  to Unaudited Interim Condensed Consolidated Financial
                  Statements
              
              
              7-14Item
                  2.
              
              
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              
              
              15-20Item
                  3.
              
              
              Quantitative
                  and Qualitative Disclosures about Market Risk
              
              
              21Item
                  4.
              
              
              Controls
                  and Procedures
              
              
              22**PART
                  II. OTHER INFORMATION**Item
                  1.
              
              
              Legal
                  Proceedings
              
              
              23Item
                  1A.
              
              
              Risk
                  Factors
              
              
              23Item
                  2.
              
              
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              
              
              23Item
                  3.
              
              
              Defaults
                  upon Senior Securities
              
              
              23Item
                  4.
              
              
              Submission
                  of Matters to a Vote of Security Holders
              
              
              23Item
                  5.
              
              
              Other
                  Information
              
              
              23Item
                  6.
              
              
              Exhibits
              
              
              24-27Signatures
              
              
              
              
              
              28




2




**MODTECH
      HOLDINGS, INC.**





**FORM
      10-Q**





**FOR
      THE QUARTER ENDED MARCH 31, 2007**





**PART
      I. FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





The
      condensed consolidated financial statements included herein have been prepared
      by Modtech Holdings, Inc. and subsidiaries (“Modtech”, “we”, “our”, or the
“Company”), without audit, pursuant to the rules and regulations of the U.S.
      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, we believe that the condensed
      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, 2007 and 2006 are not
      necessarily indicative of the results to be expected for the full fiscal years.
      The condensed consolidated financial statements should be read in conjunction
      with our consolidated financial statements and notes thereto included in our
      Annual Report on Form 10-K for the year ended December 31, 2006, as filed with
      the U.S. Securities and Exchange Commission.




3





MODTECH
      HOLDINGS INC. AND SUBSIDIARIES


Condensed
      Consolidated Balance Sheets


(Unaudited)


**March
                  31,**
                **2007**
              
              **December
                  31,**
                **2006**AssetsCurrent
                  assets:Cash
                  and cash equivalents
              
              $
              4,015,000
              
              $
              6,292,000Restricted
                  cash
              
              
              5,371,000
              
              
              9,139,000Contracts
                  receivable, less allowance for contract adjustments of $2,280,000
                  and$2,358,000
                  in 2007 and 2006, respectively
              
              
              23,037,000
              
              
              27,910,000Costs
                  and estimated earnings in excess of billings on contracts
              
              
              15,047,000
              
              
              16,144,000Inventories
              
              
              5,840,000
              
              
              6,282,000Prepaid
                  assets
              
              
              1,197,000
              
              
              1,032,000Insurance
                  receivable
              
              
              3,535,000
              
              
              3,535,000Other
                  current assets
              
              
              104,000
              
              
              112,000Total
                  current assets
              
              
              58,146,000
              
              
              70,446,000Property
                  and equipment, net
              
              
              11,011,000
              
              
              11,118,000Goodwill
              
              
              38,303,000
              
              
              38,303,000Debt
                  issuance costs, net
              
              
              1,105,000
              
              
              1,369,000Other
                  assets
              
              
              2,027,000
              
              
              1,574,000Total
                  assets
              
              $
              110,592,000
              
              $
              122,810,000Liabilities
                  and Shareholders’ EquityCurrent
                  liabilities:Accounts
                  payable
              
              $
              15,156,000
              
              $
              22,419,000Accrued
                  liabilities
              
              
              10,395,000
              
              
              16,190,000Billings
                  in excess of costs and estimated earnings on contracts
              
              
              1,167,000
              
              
              2,009,000Current
                  maturities of long-term debt, net
              
              
              3,328,000
              
              
              3,508,000Total
                  current liabilities
              
              
              30,046,000
              
              
              44,126,000Long-term
                  debt, net, excluding current portion
              
              
              9,787,000
              
              
              10,326,000Other
                  long-term liabilities
              
              
              1,497,000
              
              
              1,517,000Total
                  liabilities
              
              
              41,330,000
              
              
              55,969,000Shareholders’
                  equity:Series
                  A preferred stock, $0.01 par value. Authorized 5,000,000 shares;no
                  shares issued and outstanding in 2007 and 2006
              
              
              -
              
              
              -Common
                  stock, $0.01 par value. Authorized 55,000,000 shares; issued andoutstanding
                  21,419,415 and 21,008,855 in 2007 and 2006, respectively
              
              
              214,000
              
              
              210,000Additional
                  paid-in capital
              
              
              135,460,000
              
              
              133,571,000Accumulated
                  deficit
              
              
              (66,412,000
              )
              
              (66,940,000
              )Total
                  shareholders’ equity
              
              
              69,262,000
              
              
              66,841,000Total
                  liabilities and shareholders’ equity
              
              $
              110,592,000
              
              $
              122,810,000




*See
      notes to unaudited condensed consolidated financial
      statements.*




4




MODTECH
      HOLDINGS INC. AND SUBSIDIARIES


Condensed
      Consolidated Statements of Operations


(Unaudited)


**Three
                  Months Ended****March
                  31,****2007**
              
              **2006**Net
                  sales
              
              $
              27,500,000
              
              $
              36,904,000Cost
                  of goods sold
              
              
              26,411,000
              
              
              34,617,000Gross
                  profit
              
              
              1,089,000
              
              
              2,287,000Selling,
                  general and administrative expenses
              
              
              3,645,000
              
              
              3,298,000Loss
                  from operations
              
              
              (2,556,000
              )
              
              (1,011,000
              )Other
                  income (expense):Interest
                  expense
              
              
              (561,000
              )
              
              (1,128,000
              )Interest
                  income
              
              
              77,000
              
              
              107,000Loss
                  on extinguishment of debt
              
              
              -
              
              
              (2,058,000
              )Gain
                  on warrant and embedded derivatives
              
              
              4,838,000
              
              
              737,000Amortization
                  of debt issuance costs
              
              
              (264,000
              )
              
              (311,000
              )Accretion
                  of debt discount
              
              
              (1,018,000
              )
              
              (271,000
              )Other
                  income, net
              
              
              12,000
              
              
              34,0003,084,000
              
              
              (2,890,000
              )Income
                  (loss) before income taxes
              
              
              528,000
              
              
              (3,901,000
              )Income
                  tax expense (benefit)
              
              
              -
              
              
              -Net
                  income (loss)
              
              $
              528,000
              
              $
              (3,901,000
              )Basic
                  earnings (loss) per common share
              
              $
              0.02
              
              $
              (0.23
              )Basic
                  weighted-average common shares outstanding
              
              
              21,159,394
              
              
              17,062,219Diluted
                  earnings (loss) per common share
              
              $
              0.02
              
              $
              (0.23
              )Diluted
                  weighted-average common shares outstanding
              
              
              21,581,861
              
              
              17,062,219




*See
      notes to unaudited condensed consolidated financial
      statements.*




5




MODTECH
      HOLDINGS INC. AND SUBSIDIARIES


Condensed
      Consolidated Statements of Cash Flows


(Unaudited)




**Three
                  Months Ended March 31,****2007**
              
              **2006**Cash
                  flows from operating activities:Net
                  income (loss)
              
              $
              528,000
              
              $
              (3,901,000
              )Adjustments
                  to reconcile net income (loss) to net cash (used in)provided
                  by operating activities:Depreciation
                  and amortization
              
              
              664,000
              
              
              755,000Loss
                  on extinguishment of debt
              
              
              -
              
              
              2,058,000Gain
                  on sale of equipment
              
              
              (12,000
              )
              
              -Stock
                  compensation expense
              
              
              428,000
              
              
              163,000Gain
                  on derivative liability
              
              
              (4,838,000
              )
              
              (737,000
              )Accretion
                  on debt discount
              
              
              1,018,000
              
              
              271,000Decrease
                  (increase) in assets:Restricted
                  cash
              
              
              527,000
              
              
              -Contracts
                  receivable
              
              
              4,873,000
              
              
              9,692,000Costs
                  and estimated earnings in excess of billings
              
              
              1,097,000
              
              
              4,390,000Inventories
              
              
              442,000
              
              
              3,162,000Other
                  current and non-current assets
              
              
              (610,000
              )
              
              (702,000
              )(Decrease)
                  increase in liabilities:Accounts
                  payable
              
              
              (7,263,000
              )
              
              (11,118,000
              )Accrued
                  liabilities
              
              
              (957,000
              )
              
              (3,913,000
              )Billings
                  in excess of costs and estimated earnings
              
              
              (842,000
              )
              
              391,000Net
                  cash (used in) provided by operating activities
              
              
              (4,945,000
              )
              
              511,000Cash
                  flows from investing activities:Purchase
                  of property and equipment
              
              
              (322,000
              )
              
              (577,000
              )Proceeds
                  from sale of equipment
              
              
              20,000
              
              
              -Net
                  cash used in investing activities
              
              
              (302,000
              )
              
              (577,000
              )Cash
                  flows from financing activities:Net
                  principal payments under revolving credit line
              
              
              -
              
              
              3,000,000Principal
                  payments on long-term debt
              
              
              (271,000
              )
              
              (1,667,000
              )Decrease
                  in restricted cash
              
              
              3,241,000
              
              
              -Net
                  cash provided by financing activities
              
              
              2,970,000
              
              
              1,333,000Net
                  (decrease) increase in cash and cash equivalents
              
              
              (2,277,000
              )
              
              1,267,000Cash
                  and cash equivalents at beginning of period
              
              
              6,292,000
              
              
              3,263,000Cash
                  and cash equivalents at end of period
              
              $
              4,015,000
              
              $
              4,530,000Non-cash
                  financing activity:Conversion
                  of convertible debt to common stock
              
              $
              1,466,000
              
              $
              -




*See
      notes to unaudited condensed consolidated financial statements*





6





MODTECH
      HOLDINGS, INC.


Notes
      to
      Unaudited Interim Condensed Consolidated Financial Statements


March
      31,
      2007








**1)** **Description
      of Business and Basis of Presentation**





***Description
      of Business***





Modtech
      Holdings, Inc. and its subsidiaries (“Modtech”, “we”, “our”, or the “Company”)
      design, manufacture, market and install modular and relocatable classrooms
      and
      commercial and light industrial modular buildings.





Our
      classrooms are sold primarily to California school districts. Our modular
      classrooms include standardized units prefabricated at our manufacturing
      facilities, as well as customized units that are modular in design but
      constructed on site using components we manufacture. We also sell both standard
      and custom classrooms outside California, principally in Florida and
      Nevada.





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





***Basis
      of Presentation***





The
      accompanying condensed consolidated financial statements have been prepared
      on a
      going concern basis, which contemplates, among other things, the realization
      of
      assets and satisfaction of liabilities in the ordinary course of business.
      As of
      March 31, 2007 we had cash and cash equivalents of $4.0 million and positive
      working capital of $28.1 million. For the three months ended March 31, 2007,
      we
      had net income of $0.5 million and negative cash flow from operating activities
      of $4.9 million, and as of March 31, 2007 had an accumulated deficit of
      $66.4 million. For the year ended December 31, 2006 we had a net loss of $54.7
      million (including an impairment loss on goodwill of $33.6 million) and negative
      cash flow from operating activities of $7.5 million.





Management
      has taken the following actions, among others, to address liquidity issues,
      minimize prior period losses and achieve profitability in 2007, including
      restructuring debt agreements to extend maturities, the closing of its Glen
      Rose, Texas manufacturing facility, the sale and leaseback of its Plant City,
      Florida manufacturing facility and the reduction of selling, general and
      administrative expenses.





In
      addition, based upon current backlog and projections of future contracts,
      management believes that our business for the remainder of fiscal 2007 will
      continue to contribute to substantial recovery of its indirect expenses.
      Management has developed an operating plan to manage costs in line with
      estimated total revenues for the remainder of fiscal 2007, including
      contingencies for cost reductions if projected revenue growth and improvement
      in
      gross margins are not fully realized. Accordingly, management believes that
      existing cash resources and operations will generate sufficient cash to meet
      continuing obligations for the foreseeable future.





However
      there can be no assurance that projected revenue growth and improvement in
      operating results will occur or that we will successfully implement our plans.
      In the event cash flow from operations is not sufficient, it is possible that
      we
      may require additional sources of financing in order to maintain our current
      operations. These additional sources of financing may include public or private
      offerings of equity or debt securities. Whereas management believes it will
      have
      access to these financing sources, no assurance can be given that such
      additional sources of financing will be available on acceptable terms, on a
      timely basis or at all.





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, 2007 are not
      necessarily indicative of the results to be expected for the full fiscal
      year.




7




***Reclassification***





Certain
      prior year amounts have been reclassified to conform to the 2007
      presentation.





***Reporting
      of Taxes Included in Sales***





The
      Company has historically presented and will continue to present sales taxes
      on a
      gross sales basis. For the quarters ended March 31, 2007 and 2006, such
      amounts totaled $378,000 and $367,000, respectively. See also Note 11 - Recent
      Accounting Pronouncements.




**2)** **Inventories**





Inventories
      consist of the following:


**March
                  31,**
                **2007**
              
              **December
                  31,**
                **2006**Raw
                  materials
              
              $
              4,904,000
              
              $
              5,076,000Work-in-process
              
              
              559,000
              
              
              829,000Finished
                  goods
              
              
              377,000
              
              
              377,000$
              5,840,000
              
              $
              6,282,000





**3)** **Restricted
      Cash**





Restricted
      cash as of March 31, 2007 consists of $4.3 million in cash collateral required
      for certain letters of credit and $1.1 million in cash collateral related to
      the
      promissory notes issued to Laurus Master Fund, Ltd. The $4.3 million balance
      of
      restricted cash for the letters of credit at March 31, 2007 reflects the release
      of approximately $3.2 million of previously restricted cash used for certain
      letters of credit during the period ended March 31, 2007. The $1.1 million
      balance of restricted cash related to the promissory notes at March 31, 2007
      reflects the release of approximately $0.5 million of previously restricted
      cash, which was used by the Company to pay interest payments during the
      period ended March 31, 2007.





**4)** **Accrued
      Liabilities**





Accrued
      liabilities consist of the following:


**March
                  31,**
                **2007**
              
              **December
                  31,**
                **2006**Accrued
                  compensation
              
              $
              1,633,000
              
              $
              1,613,000Accrued
                  insurance expense
              
              
              2,640,000
              
              
              2,945,000Provision
                  for estimated losses on contracts
              
              
              49,000
              
              
              31,000Warrant
                  derivative liability
              
              
              3,331,000
              
              
              8,169,000Accrued
                  warranty
              
              
              1,263,000
              
              
              1,307,000Other
                  accrued liabilties
              
              
              1,479,000
              
              
              2,125,000$
              10,395,000
              
              $
              16,190,000





**5)** **Goodwill**





During
      the fourth quarter of 2006, our stock price declined significantly. As a result
      of this and other indicators, we performed an impairment test at December 31,
      2006 to determine if the value of goodwill was recoverable under the provisions
      of SFAS No. 142, and it was determined that an impairment existed. During the
      fourth quarter of 2006, we made an estimate of the impairment and recorded
      a
      non-cash impairment charge of $33.6 million to reduce our carrying value of
      goodwill to its implied fair value. Our estimate was based on the trading price
      of our stock and the present value of future cash flows. The final measurement
      of the impairment has yet to be completed in its entirety as of the filing
      of
      our Form 10-Q for the three months ended March 31, 2007. The estimated
      impairment charge represents management’s current best estimate as to the actual
      charge, which may be higher or lower than the estimated charge. Should operating
      results for future periods fall short of the updated projections, further
      impairments to goodwill could be required. SFAS No. 142 requires us to test
      for
      impairment of goodwill at least annually. The result of this analysis during
      2005 and 2004 did not require us to recognize an impairment loss. The carrying
      amount of goodwill is $38,303,000 as of March 31, 2007 and December 31,
      2006.




8




**6)** **Conversion
      of Debt and Registration Rights Agreement**


Long-term
                  debt consists of the following:**March
                    31,****2007**
              
              **December
                    31,****2006**2006
                  Convertible Note due in 2009
              
              $
              -
              
              $
              1,466,000Term
                  Loan due in 2009
              
              
              17,729,000
              
              
              18,000,000Long-term
                  debt
              
              
              17,729,000
              
              
              19,466,000Less:
                  unamortized discount on Notes
              
              
              (4,614,000
              )
              
              (5,632,000
              )Long-term
                  debt, net
              
              
              13,115,000
              
              
              13,834,000Less:
                  current portion of Term Loan, net
              
              
              (3,328,000
              )
              
              (2,621,000
              )Less:
                  current portion of Convertible Note, net
              
              
              -
              
              
              (887,000
              )Long-term
                  debt
              
              $
              9,787,000
              
              $
              10,326,000





***Conversion
      of Debt***





On
      December 28, 2006, we entered into an Amendment and Waiver letter agreement
      (the
“Amendment”) with Laurus Master Fund, Ltd. (“Laurus”). Concurrently with the
      execution of the Amendment, Laurus converted $3.5 million of the principal
      amount of the $5 million convertible note into 990,000 shares of common stock.
      Pursuant to the Amendment, the remaining principal balance of $1,466,000 of
      the
      convertible note was converted into 410,560 shares on February 26, 2007. Upon
      the conversion of 990,000 shares in 2006 we accelerated the accretion of debt
      discount amortization of $1.4 million and amortization of debt issuance costs
      of
      $0.2 million. Upon the conversion of the balance of the convertible note in
      the
      quarter ended March 31, 2007 we accelerated the accretion of debt discount
      amortization of $0.5 million and amortization of debt issuance costs of $0.1
      million.





We
      have a
      $5 million term note and a $13 million term note outstanding with Laurus as
      of
      March 31, 2007 (the “Laurus Notes”). Principal payments of $271,000 commenced
      under the $13 million term note on February 28, 2007 and will continue on the
      same day of each month thereafter. Principal payments of $104,000 commenced
      under the $5 million term note to Laurus on April 1, 2007 and will continue
      on the same day of each month thereafter.





Amounts
      owed under the Laurus Notes may be accelerated and are subject to default rate
      interest charges under various circumstances, including, but not limited to,
      the
      failure to make principal or interest payments when due under the Laurus Notes,
      breaches of certain covenants, representations, conditions and warranties set
      forth in the Laurus Notes and the purchase agreement pursuant to which they
      were
      issued, including, without limitation, the failure to maintain on a monthly
      basis at least $9 million in cash and eligible accounts receivable, the
      occurrence of certain insolvency or bankruptcy events affecting us, a change
      of
      control in the Company, and certain judgments, liens and attachments in excess
      of permitted amounts. As of March 31, 2007, we were in compliance with all
      covenants.





***Registration
      Rights Agreement***





In
      connection with the sale and issuance of the $5 million convertible note and
      warrants to Laurus, we agreed pursuant to a Registration Rights Agreement to
      prepare and file, within 90 days following the issuance of the note and
      warrants, a registration statement with the U.S. Securities and Exchange
      Commission (“SEC”) covering
      the
      resale of the common stock issuable upon conversion of the note and exercise
      of
      the warrants. The Registration Rights Agreement was subsequently amended and
      restated to include the additional shares resulting from the reduction of the
      conversion price of the convertible note on December 28, 2006 and the issuance
      of the additional warrant in connection with such reduction. Pursuant to the
      Registration Rights agreement, if the registration statement covering all of
      the
      convertible note shares and related warrant shares are not declared effective
      by
      the SEC within 180 days after October 31, 2006, we may be required to pay to
      Laurus a penalty of 1.0% of the principal amount of the Laurus Notes for each
      30
      day period that the effectiveness of the registration is delayed up to a maximum
      penalty of 10%. We can elect to pay up to 50% of the penalty in shares of our
      common stock. The registration statement covering the shares issued upon
      conversion of the convertible note was filed within the 90 day time period
      and
      was declared effective by the SEC on April 26, 2007.




**7)** **Income
      Taxes**





On
      July
      13, 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - An Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
      clarifies the accounting for uncertainty in income taxes recognized in an
      entity’s financial statements in accordance with FASB Statement No. 109,
“Accounting for Income Taxes” and prescribes a recognition threshold and
      measurement attributes for financial statement disclosure of tax positions
      taken
      or expected to be taken on a tax return. Under FIN 48, the impact of an
      uncertain income tax position on the income tax return must be recognized at
      the
      largest amount that is more-likely-than-not to be sustained upon audit by the
      relevant taxing authority. An uncertain income tax position will not be
      recognized if it has less than a 50% likelihood of being sustained.
      Additionally, FIN 48 provides guidance on derecognition, classification,
      interest and penalties, accounting in interim periods, disclosure and
      transition. FIN 48 is effective for fiscal years beginning after December 15,
      2006.




9




The
      Company adopted the provisions of FIN 48 on January 1, 2007. We had no material
      unrecognized tax benefits as of the date of adoption. As a result of the
      implementation of FIN 48, the Company did not recognize a decrease in net
      deferred tax assets.




The
      Company’s practice is to recognize interest and/or penalties related to income
      tax matters in income tax expense. During the years ended December 31, 2006,
      2005 and 2004, the Company did not recognize any interest or penalties. Upon
      adoption of FIN 48 on January 1, 2007, the Company did not record any interest
      or penalties.





The
      Company is subject to taxation in the U.S. and various state jurisdictions
      and
      is subject to examination due to the carryforward of unutilized net operating
      losses. During 2006, the Company satisfactorily completed an Internal Revenue
      Service tax audit covering the tax years 2002, 2003 and 2004, leaving the tax
      years for 2005 and forward subject to examination by the Internal Revenue
      Service. The Company’s tax years for 2002 and forward are subject to examination
      by California tax authorities.





The
      adoption of FIN 48 did not impact our consolidated financial condition, results
      of operations or cash flows. At January 1, 2007, we had net deferred tax assets
      of $19.2 million. The deferred tax assets are primarily composed of federal
      and
      state tax net operating loss (“NOL”) carryforwards. Due to uncertainties
      surrounding our ability to generate future taxable income to realize these
      assets, a full valuation has been established to offset our net deferred tax
      assets. Additionally, the future utilization of our NOL carryforwards to offset
      future taxable income may be subject to a substantial annual limitation as
      a
      result of ownership changes that may have occurred previously or that could
      occur in the future. We have not yet determined whether such an ownership change
      has occurred, however, the Company plans to complete an analysis under Section
      382 of the Internal Revenue Code regarding the limitation of the net operating
      losses and research and development credits. When this project is completed,
      the
      Company plans to update their unrecognized tax benefits under FIN 48. Therefore,
      the Company expects that the unrecognized tax benefits may change within 12
      months of this reporting date. At this time, the Company cannot estimate how
      much the unrecognized tax benefits may change. Any carryforwards that will
      expire prior to utilization as a result of such limitations will be removed
      from
      deferred tax assets with a corresponding reduction of the valuation allowance.
      Due to the existence of the full valuation allowance, future changes
      in our unrecognized tax benefits will not impact our effective tax
      rate.




**8)** **Warrants
      and Warrant Derivative Liability**





There
      were no warrants granted, exercised or forfeited for the three months ended
      March 31, 2007. As of March 31, 2007, outstanding warrants to purchase our
      common stock totaled 3,943,704 at a weighted-average exercise price of $7.00
      per
      share.





Emerging
      Issues Task Force (“EITF”) Issue No. 00-19, “Accounting for Derivative
      Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
      Stock” (“EITF 00-19”) requires quarterly analysis of criteria which must be met
      in order to classify warrants issued in a company’s own stock as either equity
      or as a derivative liability. Evaluation of these criteria as of March 31,
      2007
      resulted in the determination that the outstanding warrants should continue
      to
      be classified as derivative liabilities.





In
      accordance with EITF 00-19, warrants which are determined to be classified
      as
      derivative liabilities are marked-to-market each reporting period, with a
      corresponding non-cash gain or loss charged to the current period. We valued
      all
      warrant derivative liabilities as of March 31, 2007 using a Black-Scholes-Merton
      option pricing model using the following assumptions: expected dividend yield
      of
      0.0%, expected stock price volatility ranging from 45.5% to 48.0%, risk free
      interest rate ranging from of 4.34% to 4.48% and a remaining contractual life
      ranging from 2.75 years to 6.75 years. Due primarily to the decrease in our
      stock price from $4.95 at December 31, 2006 to $3.14 at March 31, 2007, the
      valuation conducted as of March 31, 2007 resulted in a non-cash gain of
      $4.8 million for the three month period ended March 31, 2007, with a
      corresponding decrease in the warrant derivative liability, which is included
      as
      a component of accrued liabilities at March 31, 2007. As of March 31, 2007,
      the
      total fair value of the warrant derivative liability is
      $3.3 million.





10




**9)** **Basic
      and Diluted Net Income (Loss) per Share**




Basic
      net
      income (loss) per share is computed using the weighted average number of common
      shares outstanding during the period, excluding any unvested restricted stock
      that is subject to cancellation. Diluted net income (loss) per share is computed
      using the weighted average number of common shares and, if dilutive, potential
      common shares outstanding during the period. Potential common shares consist
      of
      unvested restricted stock (using the treasury stock method), the incremental
      common shares issuable upon the exercise of stock options and warrants (using
      the treasury stock method) and the conversion of the $5 million convertible
      note
      (using the if-converted method). For the three months ended March 31, 2007
      and
      2006, 5,166,029 and 2,891,398 options and warrants to purchase common stock,
      respectively, were excluded from the calculation, as they were anti-dilutive.
      Excluded from diluted earnings (loss) per share as of March 31, 2007 and 2006
      were 260,021 and 3,312,021 shares, respectively issuable upon conversion of
      convertible notes because the effect would be anti-dilutive. See Note 6 - “Debt”
for additional information related to the conversion of the $5 million
      convertible note.





The
      following table sets forth the computation of basic and diluted net income
      per
      share:


**Three
                  Months Ended****March
                  31,****2007**
              
              **2006**Basic
                  and diluted net income per share:Numerator:Net
                  income (loss)
              
              $
              528,000
              
              $
              (3,901,000
              )Denominator:Weighted
                  average common shares outstanding (denominator forbasic
                  calculation)
              
              
              21,159,394
              
              
              17,062,219Shares
                  issuable through stock based compensation arrangements
              
              
              422,467
              
              
              -Denominator
                  for diluted calculation
              
              
              21,581,861
              
              
              17,062,219Basic
                  earnings (loss) per common share
              
              $
              0.02
              
              $
              (0.23
              )Diluted
                  earnings (loss) per common share
              
              $
              0.02
              
              $
              (0.23
              )




**10)** **Stock-Based
      Compensation**





Our
      stock-based compensation consists of various stock option plans which grant
      stock options to employees, non-employee officers and directors, consultants,
      vendors, customers and others expected to provide significant services to the
      Company. Refer to Note 14 of our consolidated financial statements in our Annual
      Report on Form 10-K for the year ended December 31, 2006, for additional
      information related to these stock-based compensation plans.




The
      per
      share weighted-average fair value of stock options granted during the three
      months ended March 31, 2007 and 2006 were $1.66 and $4.50, respectively. We
      use
      the Black-Scholes-Merton (“BSM”) option pricing model to estimate the fair value
      of stock-based awards, with the following weighted-average assumptions for
      the
      indicated periods:




**Three Months Ended****March
                  31,****2007**
              
              **2006**Expected
                  dividend yield
              
              
              0
              %
              
              0
              %Average
                  risk-free interest rate
              
              
              4.42
              %
              
              4.60
              %Expected
                  volatility
              
              
              45.73
              %
              
              53.62
              %Expected
                  life of options (in years)
              
              
              5.75
                  years
              
              
              7.1
                  years





The
      assumptions above are based on multiple factors, including historical exercise
      patterns of employees in relatively homogeneous groups with respect to exercise
      and post-vesting employment termination behaviors, expected future exercising
      patterns for these same homogeneous groups and the implied volatility of our
      stock price.





At
      March
      31, 2007, there was $4.1 million of unrecognized compensation cost related
      to share-based payments which is expected to be recognized over a
      weighted-average period of 2.2 years.




11




The
      following table represents stock option activity for the three months ended
      March 31, 2007:


**Number
                  of**
                **Shares**
              
              **Weighted-Average**
                **Exercise
                  Price**
              
              **Weighted-
                  Average Remaining Contractual Life**
                **(in
                  years)**Outstanding
                  at December 31, 2006
              
              
              1,210,525
              
              $
              7.04Granted
              
              
              11,800
              
              
              3.39Exercised
              
              
              -
              
              
              -Forfeited
              
              
              -
              
              
              -Outstanding
                  at March 31, 2007
              
              
              1,222,325
              
              $
              7.00
              
              
              7.34Vested
                  and exercisable at March 31, 2007
              
              
              565,007
              
              $
              9.09
              
              
              5.09Vested
                  and expected to vest at March 31, 2007(1)
              
              
              992,264
              
              $
              7.42
              
              
              6.89




(1) The
      expected to vest options are the result of applying the pre-vesting forfeiture
      rate assumptions to total outstanding op tions.





There
      were no options exercised during the three months ended March 31, 2007 and
      2006.
      Therefore, the aggregate intrinsic value of options exercised was zero for
      the
      three months ended March 31, 2007 and 2006.





Shares
      available for future stock option grants were 1,008,127 at March 31, 2007.
      At
      March 31, 2007, the total intrinsic value of options outstanding was zero,
      and
      the aggregate intrinsic value of options exercisable was also zero.





The
      following table summarizes our nonvested stock option activity for the three
      months ended March 31, 2007:


**Number
                  of**
                **Shares**
              
              **Weighted-Average
                  Grant-Date**
                **Fair
                  Value**Nonvested
                  stock options at beginning of period
              
              
              714,166
              
              $
              2.73Granted
              
              
              11,800
              
              
              1.66Vested
              
              
              (68,648
              )
              
              4.68Forfeited
              
              
              -
              
              
              -Nonvested
                  stock options at end of period
              
              
              657,318
              
              $
              2.51




On
      June
      13, 2006 the stockholders approved an amendment to the 2002 Stock Option Plan
      to
      provide for the granting of (i) restricted stock and/or restricted stock units,
      (ii) stock appreciation rights, and (iii) stock bonuses (the “Amended Plan”).
      The Amended Plan also sets for the business criteria for “performance-based
      compensation” that is subject to Section 162(m) of the Internal Revenue Code of
      1986, as amended, restricts the number of shares that may be granted to any
      one
      recipient in any one fiscal year to 100,000, and defines termination for cause
      (which was previously subject to definition in each stock option grant). On
      June
      13, 2006, 464,778 shares of restricted stock were granted to certain officers
      and members of the management team. The risk of forfeiture on the restricted
      stock granted to employees under the 2002 Stock Option Plan lapses and the
      shares vest over a five year period with one-third of the shares vesting at
      the
      end of three, four and five years, respectively. As a result of this
      transaction, the $3.5 million intrinsic value of the restricted stock is
      required to be recognized as compensation expense ratably over the four year
      vesting period and therefore a charge of approximately $217,000 was recorded
      in
      the three month period ended March 31, 2007. There were no grants, vestings
      or
      cancellations of restricted stock for the three month period ended March 31
      2007. As of March 31, 2007 and December 31, 2006 there were 422,467 shares
      of
      restricted stock outstanding.




**11)** **Recent
      Accounting Pronouncements**




*Reporting
      of Taxes Included in Sales*





In
      June
      2006, the EITF reached a final consensus on EITF Issue 06-3, “How Taxes
      Collected from Customers and Remitted to Governmental Authorities Should Be
      Presented in the Income Statement (That Is, Gross versus Net Presentation)”
(“EITF No. 06-3”). The task force reached a conclusion that either method is
      acceptable; however, if taxes are reported on a gross basis (included as Sales)
      those amounts should be disclosed if significant. This pronouncement is
      effective for the first reporting period beginning after December 15, 2006.
      The Company adopted EITF No. 06-3 on January 1, 2007 and did not have any impact
      on our financial position, results of operations or cash flows. See also Note
      1
      - Description of Business and Basis of Presentation.




12




*Uncertainty
      in Income Taxes*





In
      July
      2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes” (“FIN 48”). FIN 48 requires the use of a two-step approach for
      recognizing and measuring tax benefits taken or expected to be taken in a tax
      return and disclosures regarding uncertainties in income tax positions. We
      were
      required to adopt FIN 48 effective January 1, 2007. Implementation of this
      new
      standard did not have a significant impact on our financial position, results
      of
      operation or cash flows. See also Note 7 - Income Taxes.





*Leveraged
      Leases*





In
      July
      2006, the FASB issued Staff Position No. FAS 13-2, “Accounting for a Change or
      Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated
      by a Leveraged Lease Transaction” (“FSP 13-2”). FSP 13-2 requires that changes
      in the projected timing of income tax cash flows generated by a leveraged lease
      transaction be recognized as a gain or loss in the year in which change occurs.
      The pretax gain or loss is required to be included in the same line item in
      which the leveraged lease income is recognized, with the tax effect being
      included in the provision for income taxes. We were required to adopt FSP 13-2
      effective January 1, 2007. FSP 13-2 did not have any impact on our financial
      position, results of operation or cash flows.





*Fair
      Value Measurements*





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 does not require new fair
      value measurements but rather defines fair value, establishes a framework for
      measuring fair value and expands disclosure of fair value measurements. SFAS
      157
      is effective for fiscal years beginning after November 15, 2007 and interim
      periods within those fiscal years. We are currently assessing the impact of
      SFAS
      157 on our consolidated financial position and results of operations.





*Quantifying
      and Evaluating the Materiality of Unrecorded Misstatements*





In
      September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”).
      SAB 108 provides guidance on quantifying and evaluating the materiality of
      unrecorded misstatements. SAB 108 is effective for fiscal years ending after
      November 15, 2006, with earlier application encouraged for any interim period
      of
      the first fiscal year ending after November 15, 2006. The adoption of SAB 108
      did not have a material impact on our consolidated financial position and
      results of operations.





*Modification
      of Convertible Debt Instruments*





In
      November 2006, the EITF reached a final consensus in EITF Issue 06-6 “Debtor’s
      Accounting for a Modification (or Exchange) of Convertible Debt Instruments”
(“EITF No. 06-6”). EITF No. 06-6 addresses the modification of a convertible
      debt instrument that changes the fair value of an embedded conversion option
      and
      the subsequent recognition of interest expense for the associated debt
      instrument when the modification does not result in a debt extinguishment
      pursuant to EITF No. 96-19, “Debtor’s Accounting for a Modification or Exchange
      of Debt Instruments.” The consensus should be applied to modifications or
      exchanges of debt instruments occurring in interim or annual periods beginning
      after November 29, 2006. The adoption of EITF No. 06-6 did not have a material
      impact on our consolidated financial position and results of
      operations.





*Accounting
      for a Previously Bifurcated Conversion Option in a Convertible Debt
      Instrument*





In
      November 2006, the FASB ratified EITF Issue No. 06-7, Issuer’s Accounting for a
      Previously Bifurcated Conversion Option in a Convertible Debt Instrument When
      the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement
      No. 133, Accounting for Derivative Instruments and Hedging Activities (“EITF No.
      06-7”). At the time of issuance, an embedded conversion option in a convertible
      debt instrument may be required to be bifurcated from the debt instrument and
      accounted for separately by the issuer as a derivative under SFAS No. 133,
      based
      on the application of EITF No. 00-19. Subsequent to the issuance of the
      convertible debt, facts may change and cause the embedded conversion option
      to
      no longer meet the conditions for separate accounting as a derivative
      instrument, such as when the bifurcated instrument meets the conditions of
      Issue
      00-19 to be classified in stockholders’ equity. Under EITF No. 06-7, when an
      embedded conversion option previously accounted for as a derivative under SFAS
      No. 133 no longer meets the bifurcation criteria under that standard, an issuer
      shall disclose a description of the principal changes causing the embedded
      conversion option to no longer require bifurcation under SFAS No. 133 and the
      amount of the liability for the conversion option reclassified to stockholders’
equity. EITF No. 06-7 should be applied to all previously bifurcated conversion
      options in convertible debt instruments that no longer meet the bifurcation
      criteria in SFAS No. 133 in interim or annual periods beginning after December
      15, 2006, regardless of whether the debt instrument was entered into prior
      or
      subsequent to the effective date of EITF No. 06-7. Earlier application of EITF
      No. 06-7 is permitted in periods for which financial statements have not yet
      been issued. The adoption of EITF No. 06-7 did not have a material impact on
      our
      consolidated financial position and results of operations.




13




*Registration
      Payment Arrangements*





In
      December 2006, the FASB issued FASB Staff Position (“FSP”) EITF 00-19-2
“Accounting for Registration Payment Arrangements” (“FSP EITF 00-19-2”) which
      specifies that the contingent obligation to make future payments or otherwise
      transfer consideration under a registration payment arrangement should be
      separately recognized and measured in accordance with SFAS No. 5, “Accounting
      for Contingencies.” Adoption of FSP EITF 00-19-02 was required for fiscal years
      beginning after December 15, 2006. The adoption of EITF No. 00-19-2 did not
      have
      a material impact on our consolidated financial position and results of
      operations.





*The
      Fair Value Option for Financial Assets and Financial
      Liabilities*





In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      159, “The Fair Value Option for Financial Assets and Financial Liabilities -
      Including an amendment to FASB Statement No. 115.” This statement permits
      companies to choose to measure many financial instruments and other items at
      fair value. The objective is to improve financial reporting by providing
      entities with the opportunity to mitigate volatility in reported earnings caused
      by measuring related assets and liabilities differently without having to apply
      complex hedge accounting provisions. This Statement is expected to expand the
      use of fair value measurement of accounting for financial instruments. This
      statement applies to all entities, including not for profit. The fair value
      option established by this statement permits all entities to measure eligible
      items at fair value at specified election dates. This statement is effective
      as
      of the beginning of an entity’s first fiscal year that begins after November 15,
      2007. We are currently assessing the impact adoption of SFAS No. 159 will have
      on our consolidated financial statements.





**12)** **Subsequent
      Events**





On
      May 3,
      2007 we sold the land, building and equipment related to our steel shop in
      Texas
      for $0.5 million, the carrying amount of the assets. The leased portion of
      the
      Texas factory was concurrently sold by our landlord to the purchaser of the
      steel shop and the related lease was terminated. The lease had an expiration
      date of January 2008 and monthly rent of $25,000.




14




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





**Cautionary
      Statement**





You
      should read the following discussion and analysis with our Unaudited Condensed
      Consolidated Financial Statements and related Notes thereto contained elsewhere
      in this report. We urge you to carefully review and consider the various
      disclosures made in this report and in our other reports filed with the
      Securities and Exchange Commission.




**Forward
      Looking Statements**





This
      quarterly report contains statements which, to the extent that they are not
      recitations of historical fact, constitute forward-looking statements within
      the
      meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934.
      The words “believe,” “estimate,” “anticipate,” “project,” “intend,” “expect,”
“plan,” “outlook,” “forecast,” “may,” “will,” “should,” “continue,” “predict”
and similar expressions are intended to identify forward-looking statements.
      Such forward-looking statements are intended to be subject to the safe harbor
      protection within the meaning of that term in Section 27A of the Securities
      Act
      of 1933 and Section 21E of the Securities Exchange Act of 1934. Future events
      and actual results could differ materially from those set forth in, contemplated
      by, or underlying the forward-looking statements. Statements in this report,
      including the Notes to the Condensed Consolidated Financial Statements and
      in
      the “Management’s Discussion and Analysis of Financial Condition and Results of
      Operation,” describe factors, among others, that could contribute to or cause
      such differences. In addition, the accuracy of such forward looking statements
      may be impacted by a number of business risks and uncertainties that could
      cause
      actual results to differ materially from those projected or anticipated,
      including but not limited to: the ability to adequately pass through to
      customers unanticipated future increases in raw material costs; an unanticipated
      change in the types of classrooms required by school districts; declines in
      available funding for modular classroom construction and other risks and
      uncertainties that are described elsewhere in this report and in our other
      filings with the Securities and Exchange Commission, including our reports
      on
      Form 10-K. Although we believe the expectations reflected in our forward-looking
      statements are based upon reasonable assumptions, there is no assurance that
      our
      expectations will be attained. The forward-looking statements are current only
      as of the date of this report. We do not undertake any obligation to update
      or
      revise publicly any forward-looking statements, even though our situation may
      change in the future. We qualify all of our forward-looking statements by these
      cautionary statements.





**Use
      of Estimates and Critical Accounting Policies**





In
      the
      preparation of our condensed consolidated financial statements, we are required
      to make estimates and assumptions that affect the reported amounts of assets,
      liabilities, revenues and expenses. We base our estimates and assumptions on
      historical experience and other factors believed to be reasonable under the
      circumstances and continually evaluate our estimates and assumptions.
      Nevertheless, estimates are inherently uncertain and actual results could
      significantly differ from our estimates. We believe that the following
      discussion addresses our most significant accounting policies, which aid in
      fully understanding and evaluating our reported financial results.





***Allowances
      for Contract Adjustments***





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





***Accrual
      for Worker’s Compensation Reserve***





Prior
      to
      July 31, 2006, we were self-insured for workers compensation under a high
      deductible program. Management bases its accrual estimate on input from the
      insurance carrier which includes information regarding open and closed cases,
      historical costs associated with those claims, certain developed costs and
      an
      estimate of Incurred But Not Reported claims. Variation from the estimates
      of
      future liability claims from the pre-July 31, 2006 claims is not only possible,
      but probable. The inherent variability may result in actual costs being either
      above or below the estimates recorded on our consolidated financial
      statements.





15




***Revenue
      Recognition on Construction Contracts***





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





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





***Valuation
      of Warrant Derivatives***





The
      valuation of our warrant derivatives are determined primarily by the
      Black-Scholes option pricing model. A warrant derivative liability is determined
      in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
      Settled in, a Company’s Own Stock” (“EITF 00-19”). Based on EITF 00-19, warrants
      which are determined to be classified as derivative liabilities are
      marked-to-market each reporting period, with a corresponding non-cash gain
      or
      loss charged to the current period. The practical effect of this has been that
      when our stock price increases so does our derivative liability, resulting
      in a
      non-cash loss charge that reduces our earnings and earnings per share. When
      our
      stock price declines, we record a non-cash gain, increasing our earnings and
      earnings per share.





Certain
      factors are used to determine the fair value of our warrant derivatives, which
      include our period end stock price, historical stock volatility, risk free
      interest rate and warrant derivative term. The fair value recorded for the
      derivative liability varies from period to period. This variability may result
      in the actual derivative liability for a period either above or below the
      estimates recorded on our consolidated financial statements, resulting in
      significant fluctuations in other income (expense) because of the corresponding
      non-cash gain or loss recorded.





**New
      Accounting Standards**





In
      June
      2006, the EITF reached a final consensus on EITF Issue 06-3, “How Taxes
      Collected from Customers and Remitted to Governmental Authorities Should Be
      Presented in the Income Statement (That Is, Gross versus Net Presentation)”
(“EITF No. 06-3”). The task force reached a conclusion that either method is
      acceptable; however, if taxes are reported on a gross basis (included as Sales)
      those amounts should be disclosed if significant. This pronouncement is
      effective for the first reporting period beginning after December 15, 2006.
      The Company adopted EITF No. 06-3 on January 1, 2007 and did not have any impact
      on our financial position, results of operations or cash flows.





In
      July
      2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes” (“FIN 48”). FIN 48 requires the use of a two-step approach for
      recognizing and measuring tax benefits taken or expected to be taken in a tax
      return and disclosures regarding uncertainties in income tax positions. We
      were
      required to adopt FIN 48 effective January 1, 2007. Only tax positions that
      meet
      the more likely than not recognition threshold at the effective date may be
      recognized upon adoption of FIN 48. Implementation of this new standard did
      not
      have a significant impact on our financial position, results of operation or
      cash flows.





In
      July
      2006, the FASB issued Staff Position No. FAS 13-2, “Accounting for a Change or
      Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated
      by a Leveraged Lease Transaction” (“FSP 13-2”). FSP 13-2 requires that changes
      in the projected timing of income tax cash flows generated by a leveraged lease
      transaction be recognized as a gain or loss in the year in which change occurs.
      The pretax gain or loss is required to be included in the same line item in
      which the leveraged lease income is recognized, with the tax effect being
      included in the provision for income taxes. We were required to adopt FSP 13-2
      effective January 1, 2007. FSP 13-2 did not have any impact on our financial
      position, results of operation or cash flows.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 does not require new fair
      value measurements but rather defines fair value, establishes a framework for
      measuring fair value and expands disclosure of fair value measurements. SFAS
      157
      is effective for fiscal years beginning after November 15, 2007 and interim
      periods within those fiscal years. We are currently assessing the impact of
      SFAS
      157 on our consolidated financial position and results of operations.




16




In
      September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”).
      SAB 108 provides guidance on quantifying and evaluating the materiality of
      unrecorded misstatements. SAB 108 is effective for fiscal years ending after
      November 15, 2006, with earlier application encouraged for any interim period
      of
      the first fiscal year ending after November 15, 2006. The adoption of SAB 108
      did not have a material impact on our consolidated financial position and
      results of operations.





In
      November 2006, the EITF reached a final consensus in EITF Issue 06-6 “Debtor’s
      Accounting for a Modification (or Exchange) of Convertible Debt Instruments”
(“EITF No. 06-6”). EITF No. 06-6 addresses the modification of a convertible
      debt instrument that changes the fair value of an embedded conversion option
      and
      the subsequent recognition of interest expense for the associated debt
      instrument when the modification does not result in a debt extinguishment
      pursuant to EITF No. 96-19, “Debtor’s Accounting for a Modification or Exchange
      of Debt Instruments.” The consensus should be applied to modifications or
      exchanges of debt instruments occurring in interim or annual periods beginning
      after November 29, 2006. The adoption of EITF No. 06-6 did not have a material
      impact on our consolidated financial position and results of
      operations.





In
      November 2006, the FASB ratified EITF Issue No. 06-7, Issuer’s Accounting for a
      Previously Bifurcated Conversion Option in a Convertible Debt Instrument When
      the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement
      No. 133, Accounting for Derivative Instruments and Hedging Activities (“EITF No.
      06-7”). At the time of issuance, an embedded conversion option in a convertible
      debt instrument may be required to be bifurcated from the debt instrument and
      accounted for separately by the issuer as a derivative under SFAS No. 133,
      based
      on the application of EITF No. 00-19. Subsequent to the issuance of the
      convertible debt, facts may change and cause the embedded conversion option
      to
      no longer meet the conditions for separate accounting as a derivative
      instrument, such as when the bifurcated instrument meets the conditions of
      Issue
      00-19 to be classified in stockholders’ equity. Under EITF No. 06-7, when an
      embedded conversion option previously accounted for as a derivative under SFAS
      No. 133 no longer meets the bifurcation criteria under that standard, an issuer
      shall disclose a description of the principal changes causing the embedded
      conversion option to no longer require bifurcation under SFAS No. 133 and the
      amount of the liability for the conversion option reclassified to stockholders’
equity. EITF No. 06-7 should be applied to all previously bifurcated conversion
      options in convertible debt instruments that no longer meet the bifurcation
      criteria in SFAS No. 133 in interim or annual periods beginning after December
      15, 2006, regardless of whether the debt instrument was entered into prior
      or
      subsequent to the effective date of EITF No. 06-7. Earlier application of EITF
      No. 06-7 is permitted in periods for which financial statements have not yet
      been issued. The adoption of EITF No. 06-7 did not have a material impact on
      our
      consolidated financial position and results of operations.





In
      December 2006, the FASB issued FASB Staff Position (“FSP”) EITF 00-19-2
“Accounting for Registration Payment Arrangements” (“FSP EITF 00-19-2”) which
      specifies that the contingent obligation to make future payments or otherwise
      transfer consideration under a registration payment arrangement should be
      separately recognized and measured in accordance with SFAS No. 5, “Accounting
      for Contingencies.” Adoption of FSP EITF 00-19-02 was required for fiscal years
      beginning after December 15, 2006. The adoption of EITF No. 00-19-2 did not
      have
      a material impact on our consolidated financial position and results of
      operations.





In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      159, “The Fair Value Option for Financial Assets and Financial Liabilities -
      Including an amendment to FASB Statement No. 115.” This statement permits
      companies to choose to measure many financial instruments and other items at
      fair value. The objective is to improve financial reporting by providing
      entities with the opportunity to mitigate volatility in reported earnings caused
      by measuring related assets and liabilities differently without having to apply
      complex hedge accounting provisions. This Statement is expected to expand the
      use of fair value measurement of accounting for financial instruments. This
      statement applies to all entities, including not for profit. The fair value
      option established by this statement permits all entities to measure eligible
      items at fair value at specified election dates. This statement is effective
      as
      of the beginning of an entity’s first fiscal year that begins after November 15,
      2007. We are currently assessing the impact adoption of SFAS No. 159 will have
      on our consolidated financial statements.





**Overview**





Modtech
      manufactures and sells modular relocatable classrooms and commercial and light
      industrial modular buildings. We are a leading provider of modular classrooms
      in
      California and Florida and a significant provider of commercial and light
      industrial modular buildings in California, Florida, Arizona, Nevada and other
      neighboring states.




17




In
      California and Florida, we market and sell our modular classrooms to school
      districts. Virtually all of our classroom sales are dependent upon public
      funding. Such funding is sourced in multiple ways which are strongly influenced
      by educational policies that are subject to political concerns.





The
      modular re-locatable classroom industry is highly competitive with the market
      divided among a number of privately-owned companies whose share of the market
      is
      smaller than ours. The nonresidential modular building industry is highly
      competitive and fragmented. It is composed primarily of regionally based private
      companies, each with a single manufacturing facility.





In
      the
      first quarter of 2007 we closed our Glen Rose, Texas manufacturing facility.
      We
      moved much of our Texas inventory and fixed assets to our other factories.
      We
      did not incur any material costs associated with exit or disposal activities
      related to the closure of the Glen Rose facility. On May 3, 2007 we sold the
      land, building and equipment related to our steel shop in Texas for $0.5
      million, the carrying amount of the assets. The leased portion of the Texas
      factory was concurrently sold by our landlord to the purchaser of the steel
      shop
      and the related lease was terminated. The lease had an expiration date of
      January 2008 and monthly rent of $25,000.





As
      of
      April 30, 2007, the backlog of sales orders was approximately $45.3 million,
      down from approximately $99.1 million at April 30, 2006. The backlog by region
      as of April 30, 2007 was as follows: California - $38.2 million; Arizona -
      $3.0
      million; and Florida - $4.1 million. This compares to the backlog by region
      as
      of April 30, 2006, which was as follows: California - $82.2 million;
      Arizona/Texas - $5.3 million; and Florida - $11.6 million. The decrease in
      backlog is primarily due to decreased education orders in California and Florida
      and decreased orders in Texas which resulted in the closure of our Glen Rose,
      Texas manufacturing facility.





**Results
      of Operations**





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


**Percent of Net Sales****Three Months Ended
                  March 31,****2007**
              
              **2006**Net
                  sales
              
              
              100.0
              %
              
              100.0
              %Cost
                  of goods sold
              
              
              96.0
              
              
              93.8Gross
                  profit
              
              
              4.0
              
              
              6.2Selling,
                  general and administrative expenses
              
              
              13.3
              
              
              8.9Loss
                  from operations
              
              
              (9.3
              )
              
              (2.7
              )Other
                  (expense) income:Interest
                  expense
              
              
              (2.0
              )
              
              (3.1
              )Interest
                  income
              
              
              0.3
              
              
              0.3Loss
                  on extinguishment of debt
              
              
              -
              
              
              (5.6
              )Gain
                  on warrant and embedded derivatives
              
              
              17.6
              
              
              2.0Amortization
                  of debt costs
              
              
              (1.0
              )
              
              (0.8
              )Accretion
                  of debt discount
              
              
              (3.7
              )
              
              (0.7
              )Other
                  income, net
              
              
              0.0
              
              
              0.1Income
                  (loss) before income taxes
              
              
              1.9
              
              
              (10.6
              )Income
                  tax expense (benefit)
              
              
              -
              
              
              -Net
                  income (loss)
              
              
              1.9
              %
              
              (10.6
              )%




***Net
      Sales***





Net
      sales
      for the quarter ended March 31, 2007, decreased to $27.5 million from $36.9
      million for quarter ended March 31, 2006, a decrease of $9.4 million or 25.5%.
      When compared to the corresponding period in the prior year, in the quarter
      ended March 31, 2007 California sales of $17.4 million were down 20.8%; Florida
      sales of $4.8 million were down 24.4%; Arizona sales of $5.3 million were
      up 1.5% and we had no sales in Texas compared to $3.4 million in the quarter
      ended March 31, 2006.




18




The
      decrease in sales in 2007 in California was primarily due to lower sales volume
      in the education and commercial markets. The decrease in Florida was due to
      project delays in the education market. We believe that the education market
      and
      our market share are relatively consistent from 2006 to 2007 and that the
      decrease in our revenue from these markets is primarily due to the unpredictable
      nature of timing related to large construction projects in these markets. As
      noted above, in the first quarter of 2007 we closed our Glen Rose, Texas
      manufacturing facility. The delays in the education market resulted in a slow
      start to the quarter; however, March revenues were stronger and at management
      expectations.





***Gross
      Profit***





Gross
      profit for the quarter ended March 31, 2007 was $1.1 million, a decrease of
      $1.2
      million from the gross profit of $2.3 million recorded the corresponding
      prior year period. Gross profit as a percentage of net sales decreased to 4.0%
      in the quarter ended March 31, 2007 down from a gross margin of 6.2% in the
      quarter ended March 31, 2006. Our gross profit margin declined as revenues
      declined and we were not able to adequately cover our fixed manufacturing costs,
      particularly early in the quarter due to delays in key education
      projects.





***Selling,
      General and Administrative Expense***





In
      the
      quarter ended March 31, 2007, selling, general and administrative (“SG&A”)
      expenses increased $0.3 million over the prior year to $3.6 million with
      SG&A costs representing 13.3% of net sales compared to 8.9% of net sales in
      the prior year. The increase in SG&A as a percentage of net sales was
      primarily attributable to an increase in non-cash stock compensation expense
      of
      $0.3 million combined with increased legal and professional
      services.





***Goodwill***





During
      the fourth quarter of 2006, our stock price declined significantly and in the
      first quarter of 2007 our market capitalization fell below the amount of our
      recorded equity. As a result of the existence of this and other indicators,
      we
      performed an impairment test to determine if the value of goodwill was
      recoverable under the provisions of SFAS 142, and it was determined that an
      impairment existed. As a result of this test, we recorded a non-cash impairment
      charge of $33.6 million in the fourth quarter of 2006 to reduce our carrying
      value of goodwill to its implied fair value. The fair value estimate used in
      the
      initial goodwill impairment test was based on the trading price of our stock
      and
      the present value of future cash flows. The final measurement of the impairment
      has yet to be completed in its entirety. The estimated impairment charge
      represents management’s current best estimate as to the actual charge, which may
      be higher or lower than the estimated charge. Should operating results for
      future periods fall short of the updated projections, further impairments to
      goodwill could be required. In the future, goodwill may be further impaired
      by
      events or circumstances which include, but are not limited to, things such
      as
      continued operating losses; unanticipated competition; a significant adverse
      change in legal factors or in the business climate; or other factors leading
      to
      a decline in estimated future cash flows.





***Operating
      Income (Loss)***





Operating
      losses increased to $2.6 million, or 9.3% of net sales, for the quarter ended
      March 31, 2007 from $1.0 million in losses, or 2.7% of net sales, for the
      quarter ended March 31, 2006. The increase in operating losses was a result
      of
      the decline in net sales and gross margins and the increase in SG&A expenses
      as discussed above.





***Other
      income (expense)***





Interest
      expense decreased from $1.1 million in the quarter ended March 31, 2006 to
      $0.6
      million in the quarter ended March 31, 2007. The decrease is attributable to
      significantly reduced debt over the same period.





In
      the
      quarter ended March 31, 2006 we recognized a $2.1 million loss on extinguishment
      of debt. This consisted of the write off of the unamortized debt issue costs
      of
      the Fortress Credit Corp. credit facility when it was replaced in the first
      quarter of 2006 with a credit facility from Bank of America N.A. No similar
      transaction or loss occurred during the quarter ended March 31,
      2007.





We
      recognized a non-cash gain of $4.8 million related to warrant derivatives during
      the quarter ended March 31, 2007, compared to a gain recognized of $0.7 million
      related to warrant and embedded derivatives for the quarter ended March 31,
      2006. The gain in each period was due to a decrease in the trading price of
      our
      stock.





Amortization
      of debt issuance costs was $0.3 million for both the quarter ended March 31,
      2007 and the quarter ended March 31, 2006.




19




Accretion
      of debt discount for the quarter ended March 31, 2007 was $1.0 million, which
      included $0.5 million incremental non-cash charges related to the discount
      on the $1.5 million conversion of convertible notes in the quarter. This
      compared to an accretion of $0.3 million in incremental non-cash charges for
      the
      quarter ended March 31, 2006.





***Income
      Tax Benefit***





No
      benefit for income tax was recorded for the quarter ended March 31, 2007.
      Although we expect to return to profitability in 2007, no tax benefit was
      recognized because under applicable accounting standards our cumulative losses
      for the three years ended December 31, 2006 are deemed to have created
      significant negative evidence that it is more likely than not that we will
      not
      be able to realize our net deferred tax assets. Therefore, a valuation allowance
      has been recorded against our net deferred tax assets.





**Liquidity
      and Capital Resources**





In
      recent
      years we have funded our operations and capital expenditures mostly with cash
      generated internally by operations, borrowings under various credit facilities,
      cash received from exercised options and private placements of equity.





Cash
      and
      cash equivalents were $4.0 million at March 31, 2007 compared to $6.3 million
      at
      December 31, 2006. The decrease was primarily due to the loss from operations
      and payments on our accounts payable, partially offset by cash provided by
      reductions in restricted cash.





Cash
      totaling $4.9 million was used by operating activities during the quarter ended
      March 31, 2007 compared to cash provided by operating activities of $0.5 million
      during the quarter ended March 31, 2006. During the quarter ended March 31,
      2007, net income, adjusted for non-cash expenses from depreciation and
      amortization, gain on sale of equipment, stock compensation expense, gain on
      derivative liability and accretion on convertible debt used $2.2 million of
      operating cash. Changes in remaining working capital balances during this period
      used $2.7 million in cash.





Net
      cash
      used by investing activities was $0.3 million in the quarter ended March 31,
      2007 primarily for capital expenditures.





Net
      cash
      provided by financing activities was $3.0 million during the quarter ended
      March
      31, 2007 consisting of proceeds from the reduction of restricted cash of $3.2
      million, partially offset by $0.3 million in principal payments on long-term
      debt. During the quarter ended March 31, 2007, the remaining principal balance
      of $1.5 million of the convertible note to Laurus Mater Fund, Ltd. was converted
      into 410,560 shares of our common stock. Upon the conversion we accelerated
      the
      accretion of debt discount amortization of $0.5 million and amortization of
      debt
      issuance costs of $0.1 million for the quarter ended March 31, 2007, both of
      which were incremental non-cash charges.





Management
      has taken the following actions, among others, to address liquidity issues,
      minimize prior period losses and achieve profitability in 2007, including
      restructuring debt agreements to extend maturities, the closing of its Glen
      Rose, Texas manufacturing facility, the sale and leaseback of its Plant City,
      Florida manufacturing facility and the reduction of selling, general and
      administrative expenses.





In
      addition, based upon current backlog and projections of future contracts,
      management believes that our business for the remainder of fiscal 2007 will
      continue to contribute to substantial recovery of its indirect expenses.
      Management has developed an operating plan to manage costs in line with
      estimated total revenues for the remainder of fiscal 2007, including
      contingencies for cost reductions if projected revenue growth and improvement
      in
      gross margins are not fully realized. Accordingly, management believes that
      existing cash resources and operations will generate sufficient cash to meet
      continuing obligations for the foreseeable future.





However
      there can be no assurance that projected revenue growth and improvement in
      operating results will occur or that we will successfully implement our plans.
      In the event cash flow from operations is not sufficient, it is possible that
      we
      may require additional sources of financing in order to maintain our current
      operations. These additional sources of financing may include public or private
      offerings of equity or debt securities. Whereas management believes it will
      have
      access to these financing sources, no assurance can be given that such
      additional sources of financing will be available on acceptable terms, on a
      timely basis or at all.





20




**Item
      3. Quantitative And Qualitative Disclosures About Market
      Risk**





Market
      risk refers to the risk that a change in the level of one or more market factors
      such as interest rates, foreign currency exchange rates, or equity prices will
      result in losses for a certain financial instrument of group of instruments.
      We
      do not hold any instruments that are subject to such risks, but we are exposed
      to the risk of increased interest rates on our credit facility the risk of
      loss
      on credit extended to our customers, and risk of fluctuations in the fair value
      of our derivative liabilities on certain instruments.





INTEREST
      RATE RISK





We
      are
      exposed to the risk of fluctuation in interest rates. During 2007 and 2006,
      we
      did not use interest rate swaps or other types of derivative financial
      instruments to hedge our interest rate risk. Our outstanding $5 million and
      $13
      million term notes with Laurus Master Fund, Ltd. bear interest at adjustable
      rates equal to the prime rate as published in the Wall Street Journal, plus
      2.5%
      and 3.75%, respectively. The debt outstanding under these notes during 2007
      will
      be $18.0 million. Therefore, a one-percentage point increase in interest rates
      would result in an increase in interest expense of approximately $180,000 per
      annum.




CREDIT
      RISK





Our
      credit terms generally are “net 30” for dealer accounts and defined by contracts
      which vary for direct sales. We actively monitor this risk through a variety
      of
      control procedures involving senior management. Historically, credit losses
      have
      been less than 1.0% of sales and within our expectations.





DERIVATIVE
      LIABILITY RISK





We
      are
      exposed to the risk of fair value derivative liability related to outstanding
      warrants. The fair value of these derivative liabilities is primarily determined
      by fluctuations in our stock price. As our stock price increases or decreases,
      the fair value of these derivative liabilities increase or decrease, resulting
      in a corresponding current period loss or gain to be recognized. Based on the
      number of outstanding warrants, market interest rates and historical volatility
      of our stock price as of March 31, 2007, a $1 increase or decrease in our stock
      price results in a non-cash derivative loss or gain of approximately $2.6
      million to $2.8 million. For the quarter ended March 31, 2007, we experienced
      a
      $4.8 million non-cash gain on warrant derivatives due to the decrease in our
      stock price from $4.95 at December 31, 2006 to $3.14 at March 31,
      2007.





21




**Item
      4. Controls And Procedures**





**a.** **Evaluation
      of Disclosure Controls and Procedures**





We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in the reports that we file under the
      Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded,
      processed, summarized and reported within the time periods specified in the
      Securities and Exchange Commission’s rules and forms, and that such information
      is accumulated and communicated to management, including our Chief Executive
      Officer and Chief Financial Officer, as appropriate, to allow timely decisions
      regarding required disclosure. Our management, with the participation of the
      Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
      of our disclosure controls and procedures (as such terms are defined in Rules
      13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2007 and
      concluded that our disclosure controls and procedures were not effective as
      of
      March 31, 2007, because certain material weaknesses in our internal controls
      over financial reporting described in Management’s Report On Internal Control
      Over Financial Reporting in Item 9A of our Annual Report on Form 10-K for the
      year ended December 31, 2006 (the “2006 10-K Report”) had not been remediated as
      of March 31, 2007.





The
      material weaknesses reported in our 2006 10-K Report that had not been
      remediated as of March 31, 2007 were as follows:





·
            We
                continue to lack the necessary depth of personnel with sufficient
                technical accounting expertise to ensure that the preparation of
                interim
                and annual financial statements are without material
                misstatements.





·
            Our
                procedures associated with accounting for our long-term revenue contracts
                continue to be insufficient to ensure that revenue and costs were
                properly
                reflected in our consolidated financial
                statements.




**b.** **Changes
      in Internal Control over Financial Reporting**





There
      have been no changes in our internal control over financial reporting that
      occurred during the quarter ended March 31, 2007, that have materially affected,
      or are reasonably likely to materially affect, our internal control over
      financial reporting.





**c.** **Remediation
      Plan for Material Weaknesses in Internal Control over Financial
      Reporting**





Our
      plan
      to remediate the material weaknesses remaining as of March 31, 2007 is as
      follows:





·
            We
                continue to search for additional staff for our operational finance
                teams.
                The searches are underway and the positions will be filled as soon
                as
                qualified candidates are identified.





·
            Until
                the internal resources are hired and developed, we plan to utilize
                outside
                consulting resources for documentation, testing and monitoring of
                key
                controls.





·
            We
                are currently evaluating all finance personnel to ensure that appropriate
                skills and training are maintained in all critical positions.





Our
      management believes that, when completed, the above measures will remediate
      our
      material weaknesses.




22




PART
      II.
      OTHER INFORMATION





**Item
      1. Legal Proceedings**





There
      have been no material changes from the legal proceedings disclosed in our most
      recently file report on Form


10-K .





**Item
      1A. Risk Factors**





There
      have been no material changes from the risk factors disclosed in our most
      recently file report on Form 10-K .





**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**





None
      in
      the reporting period.





**Item
      3. Defaults upon Senior Securities**





None





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





None





**Item
      5. Other Information**





None




23




**Item
      6. Exhibits**


**Exhibit**
                  **Number**
              
              **Name
                  of Exhibit**
 
 3.1(1)
              
              Certificate
                  of Incorporation of the Company.
 
 3.2(1.1)
              
              Bylaws
                  of the Company.
 
 10.1(2)
              
              Company’s
                  1994 Stock Option Plan.  10.2(2)
              
              Company’s
                  1996 Stock Option Plan.
 
 10.3(2)
              
              Company’s
                    1999 Stock Option Plan.
 
 10.4(2)
              
              Company’s
                  2002 Stock Option Plan.
 
 10.5(3)
              
              Employment
                  Agreement between the Company and Dennis L.
                  Shogren.
 
 10.6(3.1)
              
              Employment
                  Agreement between the Company and Ronald
                  Savona.
 
 10.7(2)
              
              Separation
                    Agreement between the Company and Evan M.
                    Gruber.
   10.8(2)
              
              Separation
                    Agreement between the Company and Michael G.
                    Rhodes.
 
 10.9(2)
              
              Employment
                  Agreement between the Company and David M.
                  Buckley
 
 10.10(4)
              
              Lease
                  between the Company and Pacific Continental Modular Enterprises,
                  relating
                  to the Barrett property in Perris,
                  California
 
 10.11(4)
              
              Lease
                  between the Company and BMG, relating to the property in Lathrop,
                  California


10.12(5)
              
              Conversion
                  and Repurchase Agreement, dated October 31,
                  2006
 
 10.13(6)
              
              Securities
                  Purchase Agreement, dated December 31,
                  2004
 
 10.14(6)
              
              Senior
                  Subordinated Secured Convertible Note, dated December 31,
                  2004
   10.15(6)
              
              Warrant
                  to Purchase Common Stock issued December 31,
                  2004





10.16(6)
            
            Registration
                Rights Agreement, dated December 31,
                2004





10.17(6)
            
            Pledge
                and Security Agreement, dated December 31,
                2004





10.18(6)
            
            Intercreditor
                Agreement, dated December 31, 2004





10.19(6)
            
            Amendment
                and Forbearance Agreement among the Company, Wells Fargo Bank, N.A.,
                Union
                Bank of California, N.A. and Comerica Bank California, dated December
                29,
                2004.





10.20(7)
            
            Financing
                Agreement between the Company and Fortress Credit Corp. as administrative
                agent, dated February 25, 2005.





10.21(8)
            
            Amendment
                Number 1 to Industrial Real Estate Lease between Modtech Holdings,
                Inc.
                and BMG2 Enterprises, dated July 29,
                2005





10.22(8)
            
            Sublease
                between Modtech Holdings, Inc. and Boise Building Solutions Distribution,
                L.L.C., dated July 29, 2005





10.23(9)
            
            Securities
                Purchase Agreement with Peninsula Fund, L.P. and others, dated August
                5,
                2005






24




**Exhibit**
              **Number**
            
            **Name of
              Exhibit**  10.24(9)
            
            First
                Amendment and Waiver of Financing Agreement between Fortress and
                Modtech
                Holdings, Inc., dated August 5,
                2005





10.25(9)
            
            First
                Amendment and Restated Registration Rights Agreement, dated August
                5,
                2005





10.26(9)
            
            Amended
                and Restated Senior Subordinated Secured Convertible Note, dated
                August 5,
                2005





10.27(9)
            
            Consent,
                Waiver, Amendment and Exchange Agreement, dated August 5, 2005
                (“Waiver”)





10.28(9)
            
            Form
                of Voting Agreement executed pursuant to
                Waiver





10.29(9)
            
            Form
                of Lock Up Letter executed pursuant to the Securities Purchase Agreement,
                dated August 5, 2005





10.30(9)
            
            Form
                of Warrant issued pursuant to the Securities Purchase Agreement,
                dated
                August 5, 2005





10.31(9)
            
            Warrant
                for 8,276 shares of common stock, dated August 5,
                2005





10.32(10)
            
            Second
                Amendment of Financing Agreement between Fortress and Modtech Holdings,
                Inc., dated September 19, 2005





10.32(11)
            
            Third
                Amendment of Financing Agreement between Fortress and Modtech Holdings,
                Inc., dated December 22, 2005





10.33(12)
            
            Intercreditor
                Agreement with Bank of America, N.A., dated, March 31,
                2006





10.34(12)
            
            Loan
                and Security Agreement with Bank of America, N.A., dated March 31,
                2006





10.35(12)
            
            Amendment
                Agreement, dated March 31, 2006





10.36(13)
            
            Amendment
                to 2002 Stock Option Plan, dated June 13,
                2006





10.37(14)
            
            Exchange
                of Senior Subordinated Secured Convertible Notes, dated May 3,
                2006





10.38(15)
            
            Securities
                Purchase Agreement with Laurus Master Fund, Ltd. (and attached exhibits),
                dated October 21, 2006





10.39(15)
            
            Intellectual
                Property Security Agreement, dated October 31,
                2006





10.40(15)
            
            Master
                Security Agreement with Laurus Master Fund, Ltd., dated October 31,
                2006





10.41(15)
            
            Registration
                Rights Agreement with Laurus Master Fund, Ltd., dated October 31,
                2006





10.42(15)
            
            Sale
                and Purchase Agreement and Joint Escrow Instructions with NL Ventures
                V,
                L.P. dated November 1, 2006





10.43(15)
            
            Lease
                Agreement with NL Ventures V Plant City, L.P. dated November 1,
                2006





10.44(16)
            
            Registration
                Rights Agreement with Amphora Limited, dated October 31,
                2006





10.45(16)
            
            Conversion
                and Repurchase Agreement, dated October 31,
                2006





10.46(17)
            
            Amendment
                and Waiver Agreement with Laurus Master Fund, Ltd., dated December
                28,
                2006





10.47(17)
            
            Securities
                Purchase Agreement with Laurus Master Fund, Ltd., dated December
                28,
                2006





10.48(17)
            
            Secured
                Term Note issued to Laurus Master Fund, Ltd., dated December 28,
                2006




25


**Exhibit**
              **Number**
            
            **Name of
              Exhibit**  10.49(17)
            
            Common
                Stock Purchase Warrant issued to Laurus Master Fund, Ltd., dated
                December
                28, 2006





10.50(17)
            
            Amended
                and Restated Registration Rights Agreement with Laurus Master Fund,
                Ltd.,
                dated December 28, 2006





31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002





31.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002





32.1
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002





32.2
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002


________________________





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





(1.1)
            Incorporated
                by reference to Modtech Holdings, Inc.’s Form 10-K filed with the
                Commission on March 15, 2004 (Commission File No.
                000-25161).








(2)
            Incorporated
                by reference to Modtech Holdings, Inc.’s Form 10-Q filed with the
                Commission on November 12, 2004 (Commission File No.
                000-25161).





(3)
            Incorporated
                by reference to Modtech Holdings, Inc.’s Form 8-K filed with the
                Commission on September 22, 2006 (Commission File No.
                000-25161).





(3.1)
            Incorporated
                by reference to Modtech Holdings, Inc.’s Form 8-K filed with the
                Commission on February 13, 2006 (Commission File No.
                000-25161).





(4)
            Incorporated
                by reference to Modtech, Inc.’s Registration Statement on Form S-1 filed
                with the Commission on June 6, 1990 (Commission File No.
                033-35239).





(5)
            Incorporated
                by reference to Modtech Holdings, Inc.’s Form 8-K filed with the
                Commission on November 1, 2002 (Commission File No.
                000-25161).





(6)
            Incorporated
                by reference to Modtech Holdings, Inc.’s Form 8-K filed with the
                Commission on January 3, 2005 (Commission File No.
                000-25161).





(7)
            Incorporated
                by reference to Modtech Holdings, Inc.’s Form 8-K filed with the
                Commission on March 2, 2005 (Commission File No.
                000-25161).





(8)
            Incorporated
                by reference to Modtech Holdings, Inc.’s Form 10-Q/A filed with the
                Commission on October 17, 2005 (Commission File No.
                000-25161).





(9)
            Incorporated
                by reference to Modtech Holdings, Inc.’s Form 8-K filed with the
                Commission on August 9, 2005 (Commission File No.
                000-25161).





(10)
            Incorporated
                by reference to Modtech Holdings, Inc.’s Form 8-K filed with the
                Commission on September 23, 2005 (Commission File No.
                000-25161).





(11)
            Incorporated
                by reference to Modtech Holdings, Inc.’s Form 8-K filed with the
                Commission on December 29, 2005 (Commission File No.
                000-25161).





(12)
            Incorporated
                by reference to Modtech Holdings, Inc.’s Form 10-K filed with the
                Commission on April 4, 2006 (Commission File No.
                000-25161).




26






(13)
            Incorporated
                by reference to Modtech Holdings, Inc.’s Definitive Proxy Statement filed
                with the Commission on May 5, 2006 (Commission File No.
                000-25161).





(14)
            Incorporated
                by reference to Modtech Holdings, Inc.’s Form 10-Q filed with the
                Commission on August 14, 2006 (Commission File No.
                000-25161).





(15)
            Incorporated
                by reference to Modtech Holdings, Inc.’s Form 10-Q filed with the
                Commission on November 14, 2006





(16)
            Incorporated
                by reference to Modtech Holdings, Inc.’s Form 8-K filed with the
                Commission on November 1, 2006 (Commission File No.
                000-25161).





(17)
            Incorporated
                by reference to Modtech Holdings, Inc. Form 8-K filed with the Commission
                on January 4, 2007 (Commission File No.
                000-25161).





27




**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, 2007
            by:
            /s/ KENNETH
              S. CRAGUN**Kenneth
                S. Cragun**
              **Chief
                Financial Officer****and
                Chief Accounting Officer**


by:
              /s/ DENNIS
                L.
                SHOGREN**Dennis
                    L. Shogren**
                  **President
                    and Chief Executive
                    Officer**




28