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, 2003
|- |  | -------------------------------------------------------------------------------------------------------------------------------------



| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM N/A TO N/A
|- |  | ----------------------------------------------------------------------------------------------------------------------------------



Commission File Number 000-25161





MODTECH HOLDINGS, INC.

---





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





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



|(909) 943-4014               
|-----------------------------
|                             
|Registrants telephone number





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



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

Yes  x    No ̈



As of May 9, 2003, there were 13,713,464 of the
Registrants Common Stock outstanding.



---



MODTECH
HOLDINGS, INC.



FORM 10-Q



FOR THE QUARTER ENDED MARCH 31, 2003



PART I.    FINANCIAL INFORMATION







The condensed consolidated financial statements included herein have been prepared by Modtech Holdings, Inc. and subsidiaries (the
Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information normally included in consolidated financial statements prepared in accordance with accounting principles
generally accepted in the United States of America has been omitted pursuant to such rules and regulations. However, the Company believes that the 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, 2002 and 2003 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 the Companys consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2002 as filed with the Securities and
Exchange Commission.



---



MODTECH
HOLDINGS, INC.



Condensed Consolidated
Balance Sheets

(Unaudited)



|                                                                                                                                      |  | December 31, 2002 |             | March 31, 2003
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | --------------
|                                                                                                                                     
|Assets                                                                                                                                |  |                   |             |               
|Current assets:                                                                                                                       |  |                   |             |               
|Cash and cash equivalents                                                                                                             |  | $                 | 213,000     |               
|Contracts receivable, net, including costs in excess of billings of$17,923,000 and
$20,998,000 in 2002 and 2003, respectively         |  |                   | 50,332,000  |               
|Inventories                                                                                                                           |  |                   | 8,356,000   |               
|Due from affiliates                                                                                                                   |  |                   | 1,368,000   |               
|Deferred tax assets                                                                                                                   |  |                   | 2,654,000   |               
|Other current assets                                                                                                                  |  |                   | 2,142,000   |               
|                                                                                                                                      |  |                   |             |               
|Total current assets                                                                                                                  |  |                   | 65,065,000  |               
|                                                                                                                                      |  |                   |             |               
|Property and equipment, net                                                                                                           |  |                   | 14,478,000  |               
|Other assets                                                                                                                          |  |                   |             |               
|Goodwill, net                                                                                                                         |  |                   | 72,384,000  |               
|Covenants not to compete, net                                                                                                         |  |                   | 137,000     |               
|Debt issuance costs, net                                                                                                              |  |                   | 1,159,000   |               
|Other assets                                                                                                                          |  |                   | 1,319,000   |               
|                                                                                                                                      |  |                   |             |               
|                                                                                                                                      |  | $                 | 154,542,000 |               
|                                                                                                                                      |  |                   |             |               
|Liabilities and Shareholders Equity                                                                                                  |  |                   |             |               
|Current liabilities:                                                                                                                  |  |                   |             |               
|Accounts payable and accrued liabilities                                                                                              |  | $                 | 18,821,000  |               
|Billings in excess of costs                                                                                                           |  |                   | 2,243,000   |               
|Current revolving credit line                                                                                                         |  |                   | 9,000,000   |               
|Current maturities of long-term debt                                                                                                  |  |                   | 7,000,000   |               
|                                                                                                                                      |  |                   |             |               
|Total current liabilities                                                                                                             |  |                   | 37,064,000  |               
|Deferred tax liabilities                                                                                                              |  |                   | 213,000     |               
|Long-term debt, excluding current portion                                                                                             |  |                   | 12,000,000  |               
|                                                                                                                                      |  |                   |             |               
|Total liabilities                                                                                                                     |  |                   | 49,277,000  |               
|                                                                                                                                      |  |                   |             |               
|Shareholders Equity:                                                                                                                 |  |                   |             |               
|Series A preferred stock, $.01 par. Authorized 5,000,000 shares; issued and outstanding
388,939 in 2002; none in 2003                 |  |                   | 4,000       |               
|Common stock, $.01 par. Authorized 25,000,000 shares; issued and outstanding 13,504,756
and 13,693,680 in 2002 and 2003, respectively |  |                   | 135,000     |               
|Additional paid-in capital                                                                                                            |  |                   | 78,873,000  |               
|Retained earnings                                                                                                                     |  |                   | 26,253,000  |               
|                                                                                                                                      |  |                   |             |               
|Total shareholders equity                                                                                                            |  |                   | 105,265,000 |               
|                                                                                                                                      |  |                   |             |               
|                                                                                                                                      |  | $                 | 154,542,000 |               
|                                                                                                                                      |  |                   |             |               



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



---



MODTECH
HOLDINGS, INC.



Condensed Consolidated
Statements of Operations

(Unaudited)



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



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



---



MODTECH
HOLDINGS, INC.



Condensed Consolidated
Statements of Cash Flows

(Unaudited)



|                                                                                         |  | Three Months Ended March 31, |            
|---------------------------------------------------------------------------------------- |  | ---------------------------- | -----------
|                                                                                        
|                                                                                         |  | 2002                         |            
|                                                                                        
|Cash flows from operating activities:                                                    |  |                              |            
|Net income (loss)                                                                        |  | $                            | (35,734,000
|Adjustments to reconcile net income (loss) to net cash provided by operating
activities: |  |                              |            
|Cumulative effect of a change in an accounting principle                                 |  |                              | 37,288,000 
|Depreciation and amortization                                                            |  |                              | 739,000    
|Gain on sale of equipment                                                                |  |                              |           
|(Increase) decrease in assets:                                                           |  |                              |            
|Contracts receivable                                                                     |  |                              | (129,000   
|Inventories                                                                              |  |                              | (1,144,000 
|Due from affiliates                                                                      |  |                              | 479,000    
|Other current and noncurrent assets                                                      |  |                              | (358,000   
|Increase (decrease) in liabilities:                                                      |  |                              |            
|Accounts payable and accrued liabilities                                                 |  |                              | 2,429,000  
|Billings in excess of costs                                                              |  |                              | 1,134,000  
|                                                                                         |  |                              |            
|Net cash provided by operating activities                                                |  |                              | 4,704,000  
|                                                                                         |  |                              |            
|Cash flows from investing activities:                                                    |  |                              |            
|Purchase of property and equipment                                                       |  |                              | (451,000   
|Proceeds from sale of equipment                                                          |  |                              |           
|Acquisition of subsidiaries, net of cash acquired                                        |  |                              | (60,000    
|                                                                                         |  |                              |            
|Net cash used in investing activities                                                    |  |                              | (511,000   
|                                                                                         |  |                              |            
|Cash flows from financing activities:                                                    |  |                              |            
|Net principal payments under revolving credit line                                       |  |                              | (1,000,000 
|Net principal payments on long-term debt                                                 |  |                              | (1,750,000 
|Payment of debt issuance costs                                                           |  |                              | (27,000    
|Proceeds from exercise of stock options                                                  |  |                              | 56,000     
|                                                                                         |  |                              |            
|Net cash used in financing activities                                                    |  |                              | (2,721,000 
|                                                                                         |  |                              |            
|Net increase in cash and cash equivalents                                                |  |                              | 1,472,000  
|Cash and cash equivalents at beginning of period                                         |  |                              | 130,000    
|                                                                                         |  |                              |            
|Cash and cash equivalents at end of period                                               |  | $                            | 1,602,000  
|                                                                                         |  |                              |            



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



---



MODTECH
HOLDINGS, INC.



Notes To Condensed
Consolidated Financial Statements

March 31, 2003



1)    Basis of Presentation



In the opinion of management, the condensed consolidated financial statements reflect all adjustments (which
include only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods presented.



The results of operations for the three months ended March 31, 2002 and 2003 are not necessarily indicative of the results to be expected
for the full fiscal years.



2)    Inventories



Inventories consist of the following:



|                |  | 2002 |           | 2003
|--------------- |  | ---- | --------- | ----
|Raw materials   |  | $    | 6,623,000 |     
|Work in process |  |      | 1,733,000 |     
|                |  |      |           |     
|                |  | $    | 8,356,000 |     
|                |  |      |           |     



3)    Earnings (Loss) Per Share



The following table illustrates the calculation of basic and diluted earnings (loss) per common share under the provisions of SFAS No. 128:



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





---



|                                                                                                 |  | Three Months Ended March 31,
|------------------------------------------------------------------------------------------------ |  | ----------------------------
|                                                                                                
|                                                                                                 |  | 2002                        
|Diluted                                                                                          |  |                             
|Net income (loss)                                                                                |  | $                           
|                                                                                                 |  |                             
|Weighted-average common shares outstanding                                                       |  |                             
|Add:                                                                                             |  |                             
|Conversion of preferred stock                                                                    |  |                             
|Exercise of options                                                                              |  |                             
|                                                                                                 |  |                             
|Adjusted weighted-average common shares outstanding                                              |  |                             
|                                                                                                 |  |                             
|Diluted earnings per common share beforecumulative effect of a change in an
accounting principle |  | $                           
|                                                                                                 |  |                             
|Cumulative effect of a change in an accountingprinciple per common share 
diluted               |  |                             
|                                                                                                 |  |                             
|Diluted earnings (loss) per common share                                                         |  | $                           
|                                                                                                 |  |                             



Options
to purchase 218,000 and 1,345,000 shares of common stock were outstanding during the quarters ended March 31, 2002 and 2003, respectively, but were not included in the computation of diluted earnings (loss) per share because the option exercise
price was greater than the average market price of the common shares and therefore, the effect would be anti-dilutive.



4)    Debt



The credit facility contains various covenants. The Company was in compliance with such covenants as of March 31, 2003.



5)    Goodwill



In June 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 141, Business Combinations, (SFAS No. 141) and Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). SFAS No. 141
requires that the purchase method of accounting be used for all business combinations. SFAS No. 141 specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported separately from goodwill. SFAS
No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that
intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121 and subsequently, SFAS No. 144 after its
adoption.



The Company adopted the provisions of
SFAS No. 141 as of July 1, 2001, and SFAS No. 142 as of January 1, 2002. Upon adoption of SFAS No. 142, the Company was required to evaluate its existing intangible assets and goodwill that were acquired in purchase business combinations, and make
any necessary reclassifications in order to conform with the new classification criteria in SFAS No. 141 for recognition separate from goodwill. The Company was required to reassess the useful lives and residual values of all intangible assets
acquired, and make any necessary amortization period adjustments by the end of the first interim period after adoption. If an intangible asset was identified as having an indefinite useful life, the Company was required to test the intangible asset
for impairment in accordance with the provisions of SFAS No. 142 within the first interim period. Impairment is measured as the excess of carrying value over the fair value of an intangible asset with an indefinite life. Any impairment loss was
measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period.



In connection with SFAS No. 142s transitional goodwill impairment evaluation, SFAS No. 142 required the Company to perform an
assessment of whether there was an indication that goodwill was impaired as of the date of adoption, January1, 2002. To accomplish this, the Company identified its reporting units and determined the carrying value of each reporting unit



---

by assigning the assets and liabilities, including the existing goodwill and intangible
assets, to those reporting units as of January 1, 2002. The Company determined the fair value of each reporting unit and compared it to the carrying amount of the reporting unit. To the extent the carrying amount of a reporting unit exceeded
the fair value of the reporting unit, an indication existed that the reporting unit goodwill may be impaired and the Company must perform the second step of the transitional impairment test. In the second step, the Company compared the implied fair
value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill, both of which were measured as of the date of adoption. The implied fair value of goodwill was determined by allocating the fair value of the reporting
unit to all of the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to a purchase price allocation, in accordance with SFAS No. 141. The residual fair value after this allocation was the implied fair
value of the reporting unit goodwill. Any transitional impairment loss was recognized as the cumulative effect of a change in accounting principle in the Companys 2002 consolidated statement of operations.



In accordance with SFAS No. 142, quoted market prices in
active markets are the best evidence of fair value and shall be used as the basis for measurement, if available. The Company used quoted market prices to perform the assessment of whether there was an indication that goodwill may be impaired. As a
result of this assessment, there was an indication that goodwill was impaired. As required by SFAS No. 142, the Company performed a fair market valuation analysis, using market multiples, and other factors, on its business that had previously
recorded goodwill. As a result of this analysis, the Company recorded an impairment charge of $37,288,000 during the three months ended March 31, 2002. The impairment loss was recognized as a cumulative effect of a change in accounting principle in
the Companys 2002 consolidated statement of operations. There was no impairment of goodwill during the three months ended March 31, 2003.



6)    Recently Adopted Accounting Pronouncements



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



In April 2002, the FASB issued SFAS No. 145 Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections (SFAS 145). This statement eliminates the automatic classification of gain or loss on extinguishment of debt as an extraordinary item of income and requires that such gain or loss be
evaluated for extraordinary classification under the criteria of Accounting Principles Board No. 30 Reporting Results of Operations. This statement also requires sale-leaseback accounting for certain lease modifications that have
economic effects that are similar to sale-leaseback transactions, and makes various other technical corrections to existing pronouncements. The Company is required to adopt SFAS 145 for the year ending December 31, 2003. The Company does not believe
the adoption of SFAS 145 will have a material effect on the Companys results of operations or financial position.



In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146). SFAS
146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of such costs covered by the standard include lease
termination costs and certain employee severance costs that are associated with a restructuring, discontinued operations, plant closings or other exit or disposal activities. SFAS 146 is effective prospectively for exit and disposal activities
initiated after December 31, 2002, with earlier application encouraged. The adoption of SFAS 146 did not have a material effect on the Companys results of operations or financial position.



In November 2002, the FASB issued Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (Interpretation 45), an interpretation of FASB Statements No. 5, 57 and 107 and rescission of
FASB Interpretation No. 34. Interpretation 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. Interpretation 45s initial recognition and initial measurement provisions are effective
on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company adopted the disclosure
requirements of Interpretation 45 effective December 31, 2002 and has not entered into any guarantees since December 31, 2002.



On December 31, 2002 the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure,
which amends SFAS No. 123, Accounting for Stock-Based Compensation.  SFAS No. 148 amends the disclosure requirements in SFAS No. 123 for stock-based compensation for annual periods ending after December 15, 2002 and for interim periods
beginning after December 15, 2002, including those companies that continue to recognize stock-



---

based compensation under APB Opinion No. 25, Accounting for Stock Issued to
Employees. In addition, SFAS No. 148 provides three alternative transition methods for companies that choose to adopt the fair value measurement provisions of SFAS No. 123. The Company has not determined whether it will adopt the fair value
measure provisions of SFAS No. 123 but has adopted the disclosure provisions of SFAS No. 148 as of December 31, 2002.



7)    Stock Options Plans



Prior to January 1, 1996, the Company accounted for stock option plans in accordance with the provisions of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recognized on the date of grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the intrinsic method provisions of APB Opinion No. 25 and provide pro forma net income (loss) and pro forma earnings (loss)
per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provision of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123 and SFAS No. 148. The following pro forma disclosures are provided as required by SFAS No. 148 for the three months ended March 31, 2002 and March 31, 2003.



The per share weighted-average fair value of stock options
granted during the three months ended 2002 and 2003 were $4.81, and $5.09 respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions:



|                                |  | Three Months Ended March 31,
|------------------------------- |  | ----------------------------
|                               
|                                |  | 2002                        
|Expected dividend yield         |  | 0%                          
|Average risk-free interest rate |  | 3.8%                        
|Volatility factor               |  | 66.61%                      
|Expected life                   |  | 4 years                     
|                                |  |                             



The
Company applies APB Opinion No. 25 in accounting for its stock option plans and, accordingly, no compensation cost has been recognized for its stock options in the condensed consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Companys net income (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below:



|                                  |  | Three Months Ended March 31,
|--------------------------------- |  | ----------------------------
|                                 
|                                  |  | 2002                        
|Net income (loss)                 |  |                             
|As Reported                       |  | $                           
|Pro Forma                         |  |                             
|                                  |  |                             
|Basic earnings (loss) per share   |  |                             
|As Reported                       |  | $                           
|Pro forma                         |  |                             
|                                  |  |                             
|Diluted earnings (loss) per share |  |                             
|As Reported                       |  | $                           
|Pro Forma                         |  |                             
|                                  |  |                             



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



This quarterly report contains statements which, to the extent that they are not recitations of historical fact, such as our belief that
we have sufficient liquidity to meet our near-term operating needs, constitute forward-looking statements within the meaning of the



---

Securities Act of 1933 and the Securities Exchange Act of 1934. The words believe,
estimate, anticipate, project, intend, expect, plan, outlook, forecast may, will, should, continue,
predict and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are intended to be subject to the safe harbor protection within the meaning of that term in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Statements in this
quarterly report, including the Notes to the Condensed Consolidated Financial Statements and in this Managements Discussion and Analysis of Financial Condition and Results of Operations, describe factors, among others, that could
contribute to or cause such differences. Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, there is no assurance that our expectations will be attained.



Results of Operations



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



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



Net sales for the three
months ended March 31, 2003 increased by $4,926,000, or 13.9%. The increase in net sales was attributable to the increase in funding available to California School Districts for the purchase of classrooms as a result of the bonds for new school
construction passed by the voters in November 2002. This initial funding has begun to stabilize the market.



Gross profit as a percentage of net sales for the three months ended March 31, 2003 decreased to 9.4% from 14.3% for the same period in 2002. The decrease in gross profit was due to price competition
as the market for modular buildings decreased over the past several quarters due to the downturn of the current economic cycle. Additionally, there were increases in certain staff functions which increase the labor and labor related function costs.



Selling, general and administrative expenses increased for the
three months ended March 31, 2003 by $95,000, an increase of 5.5%. As a percentage of net sales, selling, general, and administrative expenses decreased from 4.8% in the first three months of 2002 to 4.5% in 2003. The increase in selling, general
and administrative expenses was principally attributable to increases in labor and labor related costs.



Interest expense, net decreased for the three months ended March 31, 2003 by $142,000, or 29.0%. The decrease is attributable to decreased line of credit borrowings, decreased long-term debt due to
repayment and decreased interest rates for the three months ended March 31, 2003. As a percentage of net sales, interest expense decreased from 1.4% in the first three months of 2002 to 0.9% in 2003.



---



Income before income taxes and
cumulative effect of a change in an accounting principle for the three months ended March 31, 2003 decreased by $1,079,000, or 40.3%. As a percentage of net sales, income before income taxes and cumulative effect of a change in an accounting
principle decreased from 7.6% in the first three months of 2002 to 4.0% in 2003.



Income taxes for the three months ended March 31, 2003 decreased by $453,000, or 40.3%. As a percentage of net sales, income taxes decreased from 3.2% in the first three months of 2002 to 1.7% in 2003.



Income before cumulative effect of a change in an accounting principle for the
three months ended March 31, 2003 decreased by $626,000, or 40.3%. As a percentage of net sales, income before cumulative effect of a change in an accounting principle decreased from 4.4% in the first three months of 2002 to 2.3% in 2003.



Inflation



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



Liquidity and Capital Resources



To date, the Company has generated cash from operations, bank borrowings and public offerings to meet its needs. At March 31, 2003, the Company had $488,000 in cash and cash equivalents. During the three months ended March
31, 2003, the Company generated cash from operating activities of $5,642,000.



The Company has a $66,000,000 credit facility, of which $40,000,000 represents a revolving loan commitment. The credit facility is secured by all the Companys assets. The credit facility expires in December 2006. On March 31,
2003, $8,000,000 was outstanding under the revolving loan commitment. The credit facility contains various covenants. The Company was in compliance with such covenants as of March 31, 2003.



Management believes that the Companys existing product lines and
manufacturing capacity will enable the Company to generate sufficient cash through operations, supplemented by periodic use of its existing bank line of credit, to finance the Companys business at current levels over the next 12 months.
Additional cash resources may be required if the Company expands its business beyond current levels. For example, it will be necessary for the Company to construct or acquire additional manufacturing facilities in order for the Company to compete
effectively in new market areas or states which are beyond a 300 mile radius from one of its production facilities. The construction or acquisition of new facilities would require significant additional capital. For these reasons, among others, the
Company may need additional debt or equity financing in the future. There can be, however, no assurance that the Company will be successful in obtaining such additional financing, or that any such financing will be available on terms acceptable to
the Company.



Commitments and Contingencies



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



Payments Due by Year

(amounts in thousands)



|                                   |  | Total |        | 9 Months Ending December 31, 2003 |   | 2004  |  | 2005 |       | 2006 |   | 2007  |  | Thereafter
|---------------------------------- |  | ----- | ------ | --------------------------------- | - | ----- |  | ---- | ----- | ---- | - | ----- |  | ----------
|Long-term debt                     |  | $     | 17,250 |                                   | $ | 5,250 |  | $    | 6,000 |      | $ | 4,000 |  | $         
|Operating leases                   |  |       | 11,267 |                                   |   | 1,417 |  |      | 1,288 |      |   | 1,117 |  |           
|                                   |  |      
|Total contractual cash obligations |  | $     | 28,517 |                                   | $ | 6,667 |  | $    | 7,288 |      | $ | 5,117 |  | $         
|                                   |  |      



Use of Estimates and
Critical Accounting Policies



In December 2001, the
Securities and Exchange Commission (SEC) requested that all registrants list their most critical accounting policies in Managements Discussion and Analysis of Financial Condition and Results of Operations. The SEC indicated that a
critical accounting policy is one which is both important to the portrayal of the Companys financial condition and results of operations and requires managements most difficult, subjective or complex judgements, often as a
result of the need



---

to make estimates about the effect of matters that are inherently uncertain. Management continually
evaluates its estimates and assumptions including those related the Companys most critical accounting policies. Management bases its estimates and assumptions on historical experience and other factors that are believed to be reasonable under
the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Changes in economic conditions could have an impact on these estimates and the Companys actual results. Management believes that the
following may involve a higher degree of judgment or complexity:



Allowances for Contract Adjustments



The Company
maintains allowances for contract adjustments that result from the inability of its customers to make their required payments. Management bases its allowances through analysis of the aging of accounts receivable at the date of the financial
statements, assessments of historical collection trends, and an evaluation of the impact of current economic conditions.



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.



New Accounting Pronouncements



In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities (Interpretation 46), an interpretation of ARB No. 51. Interpretation 46 addresses consolidation by business enterprises of variable interest entities. Interpretation 46 applies immediately to variable
interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first year or interim period beginning after June 15, 2003, to variable interest
entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company believes it has no variable interest entities to which Interpretation 46 would apply.



Item 3.    Quantitative And Qualitative
Disclosures About Market Risk



We are exposed to market risks
related to fluctuation in interest rates on our $66 million credit facility. During the quarter ended March 31, 2003, we did not use interest rate swaps or other types of derivative financial instruments. The carrying value of the credit facility
approximates fair value as the interest rate is variable and resets frequently. Indebtedness under the credit facility bears interest at LIBOR plus additional interest of between 1.25% and 1.75%, or the Federal funds rate plus additional interest of
between 0% to 0.5%. The additional interest charge is based upon certain financial ratios. We estimate that the average amount of debt outstanding under the credit facility for 2003 will be $25 million. Therefore, a one-percentage point increase in
interest rates would result in an increase in interest expense of $250,000 for the year.



Item 4.    Controls And Procedures



As of a date within 90 days of the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our
Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that, our disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be included in our SEC filings. There have been no
significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date we carried out our evaluation.





---



PART
II.    OTHER INFORMATION



|Item 1. |  | Legal Proceedings                                  
|------- |  | ---------------------------------------------------
|        |  | None                                               
|Item 2. |  | Changes in Securities                              
|        |  | None                                               
|Item 3. |  | Defaults upon Senior Securities                    
|        |  | None                                               
|Item 4. |  | Submission of Matters to a Vote of Security Holders
|        |  | None                                               
|Item 5. |  | Other Information                                  
|        |  | None                                               
|Item 6. |  | Exhibits and Reports on Form 8-K                   
|        |  | (a)    Exhibits                                    
|        |  | 99.1                                               
|       
|        |  | 99.2                                               
|        |  | (b)    Reports on Form 8-K                         
|        |  | None                                               





---



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 12, 2003 |  |                       
|      |  |              |  |                       
|     
|      |  |              |  |                       
|      |  |              |  |                       



---



CERTIFICATIONS PURSUANT TO

RULE 13a-14 UNDER THE



SECURITIES EXCHANGE ACT OF 1934



I, Evan M. Gruber, certify that:



1.    I have reviewed this quarterly report on Form 10-Q
of Modtech Holdings, Inc.;



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



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



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



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



5.    The
registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



6.    The registrants
other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



/s/    Evan M. Gruber

---

Evan M. Gruber

Chief Executive Officer

May 12, 2003





---



I, Shari L. Walgren, certify
that:



1.    I have reviewed this quarterly
report on Form 10-Q of Modtech Holdings, Inc.;



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



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



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



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



5.    The
registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



6.    The registrants
other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.





/s/    Shari L. Walgren

---

Shari L. Walgren

Chief Financial Officer

May 12, 2003