**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 June 30,
                  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
      August 7, 2007 there were 21,419,415 Shares of the Registrant’s Common Stock
      outstanding.













**Modtech
      Holdings, Inc.**


**Index
      to Form 10-Q**





**Page #****PART
                I.**
            **FINANCIAL
                INFORMATION**Item 1.
            Financial
                Statements (Unaudited)
            3Condensed
                Consolidated Balance Sheets As of June 30, 2007 and December 31,
                2006
            4Condensed
                Consolidated Statements of Operations For the Three and Six Months
                Ended
                June 30, 2007 and 2006
            5Condensed
                Consolidated Statements of Cash Flows For the Six Months Ended June
                30,
                2007 and 2006
            6Notes
                to Unaudited Interim Condensed Consolidated Financial
                Statements
            7-13Item 2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            14-20Item 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 JUNE 30, 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 condensed
      consolidated balance sheet as of December 31, 2006 was derived from the
      Company’s audited financial statements. The results of operations for the three
      and six months ended June 30, 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)




**June
                30,**
              **2007**
            
            **December 31,**
              **2006**AssetsCurrent
                assets:Cash
                and cash equivalents
            
            $
            2,697,000
            
            $
            6,292,000Restricted
                cash
            
            
            4,089,000
            
            
            9,139,000Contracts
                  receivable, less allowance for contract adjustments of $2,200,000
                  and
                  $2,358,000 in 2007 and 2006, respectively
            
            
            20,513,000
            
            
            27,910,000Costs
                and estimated earnings in excess of billings on contracts
            
            
            13,225,000
            
            
            16,144,000Inventories
            
            
            5,493,000
            
            
            6,282,000Prepaid
                assets
            
            
            1,273,000
            
            
            1,032,000Insurance
                receivable
            
            
            3,286,000
            
            
            3,535,000Other
                current assets
            
            
            167,000
            
            
            112,000Total
                current assets
            
            
            50,743,000
            
            
            70,446,000Property
                and equipment, net
            
            
            10,607,000
            
            
            11,118,000Goodwill
            
            
            -
            
            
            38,303,000Debt
                issuance costs, net
            
            
            983,000
            
            
            1,369,000Other
                assets
            
            
            2,007,000
            
            
            1,574,000Total
                assets
            
            $
            64,340,000
            
            $
            122,810,000Liabilities
                and Shareholders’ EquityCurrent
                liabilities:Accounts
                payable
            
            $
            12,768,000
            
            $
            22,419,000Accrued
                liabilities
            
            
            8,856,000
            
            
            16,190,000Billings
                in excess of costs and estimated earnings on contracts
            
            
            1,985,000
            
            
            2,009,000Current
                maturities of long-term debt, net
            
            
            2,536,000
            
            
            3,508,000Total
                current liabilities
            
            
            26,145,000
            
            
            44,126,000Long-term
                debt, net, excluding current portion
            
            
            9,975,000
            
            
            10,326,000Other
                long-term liabilities
            
            
            1,477,000
            
            
            1,517,000Total
                liabilities
            
            
            37,597,000
            
            
            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 and
                  outstanding 21,419,415 and 21,008,855 in 2007 and 2006, respectively
            
            
            214,000
            
            
            210,000Additional
                paid-in capital
            
            
            135,870,000
            
            
            133,571,000Accumulated
                deficit
            
            
            (109,341,000
            )
            
            (66,940,000
            )Total
                shareholders’ equity
            
            
            26,743,000
            
            
            66,841,000Total
                liabilities and shareholders’ equity
            
            $
            64,340,000
            
            $
            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**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Net
                sales
            
            $
            24,031,000
            
            $
            44,307,000
            
            $
            51,531,000
            
            $
            81,211,000Cost
                of goods sold
            
            
            24,560,000
            
            
            41,439,000
            
            
            50,971,000
            
            
            76,056,000Gross
                (loss) profit
            
            
            (529,000
            )
            
            2,868,000
            
            
            560,000
            
            
            5,155,000Selling,
                general and administrative expenses
            
            
            3,736,000
            
            
            3,556,000
            
            
            7,381,000
            
            
            6,854,000Impairment
                loss on goodwill
            
            
            38,303,000
            
            
            -
            
            
            38,303,000
            
            
            -Loss
                from operations
            
            
            (42,568,000
            )
            
            (688,000
            )
            
            (45,124,000
            )
            
            (1,699,000
            )Other
                (expense) income:Interest
                expense
            
            
            (497,000
            )
            
            (536,000
            )
            
            (1,058,000
            )
            
            (1,665,000
            )Interest
                income
            
            
            62,000
            
            
            133,000
            
            
            139,000
            
            
            239,000Loss
                on extinguishment of debt
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,058,000
            )Gain
                on warrant and embedded derivatives
            
            
            931,000
            
            
            3,741,000
            
            
            5,769,000
            
            
            4,478,000Amortization
                of debt issuance costs
            
            
            (121,000
            )
            
            (143,000
            )
            
            (385,000
            )
            
            (453,000
            )Accretion
                of debt discount
            
            
            (770,000
            )
            
            (1,110,000
            )
            
            (1,788,000
            )
            
            (1,380,000
            )Early
                debt conversion fee
            
            
            -
            
            
            (1,864,000
            )
            
            -
            
            
            (1,864,000
            )Other
                income, net
            
            
            35,000
            
            
            170,000
            
            
            47,000
            
            
            204,000(360,000
            )
            
            391,000
            
            
            2,724,000
            
            
            (2,499,000
            )Loss
                before income taxes
            
            
            (42,928,000
            )
            
            (297,000
            )
            
            (42,400,000
            )
            
            (4,198,000
            )Income
                tax expense (benefit)
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                loss
            
            $
            (42,928,000
            )
            $
            (297,000
            )
            $
            (42,400,000
            )
            $
            (4,198,000
            )Basic
                and diluted loss per common share
            
            $
            (2.00
            )
            $
            (0.02
            )
            $
            (1.99
            )
            $
            (0.24
            )Basic
                and diluted weighted-average shares outstanding
            
            
            21,419,415
            
            
            18,079,000
            
            
            21,290,123
            
            
            17,571,000





*See
      notes to unaudited condensed consolidated financial
      statements.*




5





MODTECH
      HOLDINGS INC. AND SUBSIDIARIES


Condensed
      Consolidated Statements of Cash Flows


(Unaudited)





**Six
                Months Ended June 30,****2007**
            
            **2006**Cash
                flows from operating activities:Net
                loss
            
            $
            (42,400,000
            )
            $
            (4,198,000
            )Adjustments
                to reconcile net loss to net cash used in operating activities:Depreciation
                and amortization
            
            
            1,180,000
            
            
            1,331,000Provision
                for contract adjustments
            
            
            163,000
            
            
            -Loss
                on extinguishment of debt
            
            
            -
            
            
            2,058,000Gain
                on sale of equipment
            
            
            (50,000
            )
            
            -Stock
                compensation expense
            
            
            838,000
            
            
            376,000Impairment
                loss on goodwill
            
            
            38,303,000
            
            
            -Gain
                on derivative liability
            
            
            (5,769,000
            )
            
            (4,478,000
            )Accretion
                of debt discount
            
            
            1,788,000
            
            
            1,380,000Early
                debt conversion fees settled with shares of common stock
            
            
            -
            
            
            1,864,000Decrease
                (increase) in assets:Restricted
                cash
            
            
            849,000
            
            
            -Contracts
                receivable
            
            
            7,234,000
            
            
            8,000,000Costs
                and estimated earnings in excess of billings
            
            
            2,919,000
            
            
            (5,167,000
            )Inventories
            
            
            789,000
            
            
            4,237,000Other
                current and non-current assets
            
            
            (480,000
            )
            
            (1,460,000
            )(Decrease)
                increase in liabilities:Accounts
                payable
            
            
            (9,651,000
            )
            
            (622,000
            )Accrued
                liabilities
            
            
            (1,565,000
            )
            
            (5,054,000
            )Billings
                in excess of costs
            
            
            (24,000
            )
            
            667,000Net
                cash used in operating activities
            
            
            (5,876,000
            )
            
            (1,066,000
            )Cash
                flows from investing activities:Purchase
                of property and equipment
            
            
            (825,000
            )
            
            (1,185,000
            )Proceeds
                from sale of property and equipment
            
            
            551,000
            
            
            -Net
                cash used in investing activities
            
            
            (274,000
            )
            
            (1,185,000
            )Cash
                flows from financing activities:Net
                principal payments under revolving credit line
            
            
            -
            
            
            (4,819,000
            )Principal
                payments on long-term debt
            
            
            (1,646,000
            )
            
            (12,895,000
            )Decrease
                in restricted cash
            
            
            4,201,000
            
            
            11,452,000Payment
                of debt issuance costs
            
            
            -
            
            
            (432,000
            )Net
                proceeds from issuance of common stock
            
            
            -
            
            
            5,864,000Net
                cash provided by (used in) financing activities
            
            
            2,555,000
            
            
            (830,000
            )Net
                decrease in cash and cash equivalents
            
            
            (3,595,000
            )
            
            (3,081,000
            )Cash
                and cash equivalents at beginning of period
            
            
            6,292,000
            
            
            3,263,000Cash
                and cash equivalents at end of period
            
            $
            2,697,000
            
            $
            182,000Non-cash
                financing activity:Conversion
                of convertible debt to common stock
            
            $
            1,466,000
            
            $
            5,700,000





*See
      notes to unaudited condensed consolidated financial statements*




6




**MODTECH
      HOLDINGS, INC.**





Notes
      to
      Unaudited Interim Condensed Consolidated Financial Statements





June
      30,
      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
      June 30, 2007 we had cash and cash equivalents of $2.7 million and working
      capital of $24.6 million. For the six months ended June 30, 2007, we had a
      net
      loss of $42.4 million (including an impairment loss on goodwill of $38.3
      million) and negative cash flow from operating activities of $5.9 million,
      and as of June 30, 2007 had an accumulated deficit of $109.3 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’s
      goals are to address liquidity issues, minimize losses and improve operating
      results in the remainder of fiscal 2007. Management has taken, and continues
      to
      take, actions to meet these goals, including restructuring debt agreements
      to
      extend maturities in the fourth quarter of 2006, closing of our Glen Rose,
      Texas
      manufacturing facility in the first quarter of 2007 and termination of the
      related leased portion in the second quarter of 2007, the sale and leaseback
      of
      our Plant City, Florida manufacturing facility in the fourth quarter of 2006
      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 second half of fiscal 2007 will
      contribute to a substantial recovery of our indirect expenses, leading to
      improved gross margins and elimination or significant reduction of operating
      losses. Management has developed an operating plan to manage costs in line
      with
      estimated total revenues for the remainder of fiscal 2007, including
      contingencies for further cost reductions if projected revenue growth and
      improvement in gross margins continue to not be 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 when needed or at all.




7




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 and six months ended June 30, 2007 are
      not
      necessarily indicative of the results to be expected for the full fiscal
      year.





***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
      three and six months ended June 30, 2007 and 2006, such amounts totaled $455,000
      and $833,000, respectively, and $416,000 and $783,000, respectively.





**2)** **Restricted
      Cash**





Restricted
      cash as of June 30, 2007 consists of $3.3 million in cash collateral required
      for certain letters of credit and $0.8 million in cash collateral related to
      the
      promissory notes issued to Laurus Master Fund, Ltd. (“Laurus”). The $3.3 million
      balance of restricted cash for the letters of credit at June 30, 2007 reflects
      the release of approximately $4.2 million of previously restricted cash used
      for
      certain letters of credit during the six month period ended June 30, 2007.
      The
      $0.8 million balance of restricted cash related to the promissory notes at
      June
      30, 2007 reflects the release of approximately $0.8 million of previously
      restricted cash, which was used by the Company to pay interest payments during
      the six month period ended June 30, 2007.





**3)** **Inventories**





Inventories
      consist of the following:





**June
                30,**
            
            **December
                31,****2007**
            
            **2006**Raw
                materials
            
            $
            4,750,000
            
            $
            5,076,000Work-in-process
            
            
            366,000
            
            
            829,000Finished
                goods
            
            
            377,000
            
            
            377,000$
            5,493,000
            
            $
            6,282,000





**4)****Property
      and Equipment**





In
      the
      first quarter of 2007 we closed our Glen Rose, Texas manufacturing facility.
      We
      subsequently 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 portion of the Texas
      factory that we leased 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.





**5)**
            **Goodwill**





Goodwill
      represents the excess of costs over fair value of assets of businesses acquired.
      We adopted the provisions of Financial Accounting Standards Board (“FASB”)
      issued Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill
      and Other Intangible Assets” (“SFAS 142”), as of January 1, 2002. Pursuant to
      SFAS 142, goodwill and intangible assets acquired in a purchase business
      combination and determined to have an indefinite useful life are not amortized,
      but instead are tested for impairment at least annually in accordance with
      the
      provisions of SFAS 142. SFAS 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. 144, “Accounting for Impairment or Disposal of Long-Lived
      Assets.”





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




8




During
      the fourth quarter of 2006, our stock price declined significantly. As a result
      of this and other indicators, we performed an initial impairment test at
      December 31, 2006 to determine if the value of goodwill was recoverable under
      the provisions of SFAS 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 initial estimate was based
      on
      the trading price of our stock and the present value of future cash flows.
      This
      estimated impairment charge recorded during the fourth quarter of 2006
      represented, at the time, management’s best estimate available until a final
      independent measurement of impairment could be completed.





During
      the three months ended June 30, 2007, we completed the independent measurement
      of goodwill impairment, resulting in a determination that the remaining balance
      of goodwill was fully impaired. We performed the two step analysis required
      under SFAS 142 with the assistance of an independent third party appraiser.
      In
      the first step of the goodwill fair value determination, a revised reporting
      unit fair value was determined. This updated reporting unit fair value resulted
      from a combination of market approaches and an updated present value of future
      cash flows. Under the second step of goodwill fair value determination, this
      revised reporting unit fair value was then allocated to the underlying fair
      value of recorded assets and liabilities, in a manner similar to a purchase
      price allocation in accordance with SFAS 141. This allocation resulted in no
      remaining residual fair value to be implied for the reporting unit goodwill.
      As
      a result of this independent goodwill impairment measurement, we recognized
      an
      impairment loss of $38,303,000 during the three and six month periods ended
      June
      30, 2007 to write down the carrying value of goodwill to zero as of June 30,
      2007.





**6)**
            **Accrued
                Liabilities**





Accrued
      liabilities consist of the following:





**June
                30,**
            
            **December
                31,****2007**
            
            **2006**Accrued
                compensation
            
            $
            1,500,000
            
            $
            1,613,000Accrued
                insurance expense
            
            
            2,117,000
            
            
            2,945,000Warrant
                derivative liability
            
            
            2,400,000
            
            
            8,169,000Accrued
                warranty
            
            
            1,189,000
            
            
            1,307,000Sales
                tax payable
            
            
            630,000
            
            
            695,000Other
                accrued liabilities
            
            
            1,020,000
            
            
            1,461,000$
            8,856,000
            
            $
            16,190,000




**7)**
            **Long-term
                Debt**





Long-term
      debt consists of the following:




**June
                30,**
            
            **December
                31,****2007**
            
            **2006**2006
                Convertible Note due in 2009
            
            $
            -
            
            $
            1,466,000Term
                Loan due in 2009
            
            
            16,354,000
            
            
            18,000,000Long-term
                debt
            
            
            16,354,000
            
            
            19,466,000Less:
                unamortized discount on Notes
            
            
            (3,843,000
            )
            
            (5,632,000
            )Long-term
                debt, net
            
            
            12,511,000
            
            
            13,834,000Less:
                current portion of Term Loan, net
            
            
            (2,536,000
            )
            
            (2,621,000
            )Less:
                current portion of Convertible Note, net
            
            
            -
            
            
            (887,000
            )Long-term
                debt
            
            $
            9,975,000
            
            $
            10,326,000




9




***Long-term
      Debt***





We
      have a
      $5 million term note and a $13 million term note outstanding with Laurus as
      of
      June 30, 2007 (the “Laurus Notes”). The $5 million term note and the $13 million
      term note bear interest at an adjustable rate equal to the prime rate as
      published in the Wall Street Journal, plus 2.5% and 3.75%, respectively. These
      interest rates will be adjusted with each adjustment in the prime rate.
      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. The maturity dates of the $13 million term note and the $5 million
      term note are October 31, 2009 and December 28, 2009, respectively. The Laurus
      Notes may be prepaid in whole, but not in part or separately, at any time by
      paying Laurus 124% of the then aggregate outstanding principal balance and
      accrued interest. The Laurus Notes are secured by substantially all of our
      assets.





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 June 30, 2007, we were in compliance with all
      covenants.





***Conversion
      of Debt***





We
      issued
      a $5 million convertible note to Laurus in October 2006, of which $3.5 million
      of the principal amount was partially converted into 990,000 shares of common
      stock in December 2006. The remaining convertible note principal balance of
      $1.5
      million was converted into 410,560 shares of common stock in February 2007.
      Upon
      the conversion of the remaining balance of the convertible note we accelerated
      the accretion of debt discount amortization of $0.5 million and amortization
      of
      debt issuance costs of $0.1 million.





***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 is not declared effective by the SEC within the time period
      set
      forth in the agreement, 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, which
      would be based on the preceding ten day average market closing price prior
      to
      payment. 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.





**8)** **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.




10




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 2005 and forward subject to examination by the Internal Revenue Service.
      The Company’s tax years 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 allowance 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.





**9)** **Warrants
      and Warrant Derivative Liability**





There
      were no warrants granted, exercised or forfeited for the three and six months
      ended June 30, 2007. As of June 30, 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 June 30, 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 June 30, 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 46.9% to 49.8%, risk free
      interest rate ranging from of 4.78% to 4.87% and a remaining contractual life
      ranging from 2.5 years to 6.5 years. Due primarily to the decrease in our stock
      price from $3.14 at March 31, 2007 to $2.70 at June 30, 2007, the valuation
      conducted as of June 30, 2007 resulted in a non-cash gain of $0.9 million
      for the three month period ended June 30, 2007, with a corresponding decrease
      in
      the warrant derivative liability, which is included as a component of accrued
      liabilities at June 30, 2007. As of June 30, 2007, the total fair value of
      the
      warrant derivative liability is $2.4 million.





**10)** **Basic
      and Diluted Net Loss per Share**




Basic
      net
      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 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). See also Note 7 regarding the conversion of
      the
      $5 million convertible note during the six month period ended June 30,
      2007.




11




Due
      to
      the net losses reported for the three and six month periods ended June 30,
      2007
      and 2006, basic and diluted net loss per common share are the same, as the
      effect of any potential dilutive shares would be anti-dilutive to reported
      loss
      per common share. Therefore, for the three and six month periods ended June
      30,
      2007, 5,176,029 options and warrants to purchase common stock were excluded
      from
      diluted loss per share. Diluted loss per share also excludes 129,292 shares
      for
      the six months ended June 30, 2007, for shares issuable upon conversion of
      convertible notes. Additionally, 519,838 shares in unvested restricted stock
      are
      excluded from diluted loss per share for the three and six month periods ended
      June 30, 2007.





**11)** **Stock-Based
      Compensation**





***Stock
      options***





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
      and
      six months ended June 30, 2007 were $1.97 and $1.81, 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 MonthsEnded**
            
            **Six MonthsEnded****June
                30,**
            
            **June
                30,****2007**
            
            **2007**Expected
                dividend yield
            
            
            0
            %
            
            0
            %Average
                risk-free interest rate
            
            
            4.46
            %
            
            4.44
            %Expected
                volatility
            
            
            46.51
            %
            
            46.10
            %Expected
                life of options (in years)
            
            
            5.75
                years
            
            
            5.75
                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.





The
      following table represents stock option activity for the six months ended June
      30, 2007:




**Number
                of**
            
            **Weighted-Average****Shares**
            
            **Exercise
                Price**Outstanding
                options at December 31, 2007
            
            
            1,210,525
            
            $
            7.04Granted
            
            
            21,800
            
            
            3.66Exercised
            
            
            -
            
            
            -Forfeited
            
            
            -
            
            
            -Outstanding
                options at June 30, 2007
            
            
            1,232,325
            
            $
            6.98




There
      were no options exercised during the three and six months ended June 30, 2007.
      Therefore, the aggregate intrinsic value of options exercised was zero for
      the
      three and six months ended June 30, 2007.





Shares
      available for future stock option grants were 998,127 at June 30, 2007. At
      June
      30, 2007, there was no intrinsic value of either options outstanding or options
      exercisable.





12




***Restricted
      Stock***





Shares
      of
      restricted stock are granted to certain officers and members of the management
      team. The restricted stock activity for the six month period ended June 30,
      2007, is summarized below:





**Weighted-Average****Number
                of**
            
            **Grant-Date****Shares**
            
            **Fair
                Value**Outstanding
                restricted stock grants at December 31, 2006
            
            
            422,467
            
            $
            7.56Granted
            
            
            97,371
            
            
            2.74Canceled
            
            
            -
            
            
            -Outstanding
                restricted stock grants at June 30, 2007
            
            
            519,838
            
            $
            6.66




During
      the three and six months ended June 30, 2007, we recognized $410,000 and
      $838,000, respectively, in stock-based compensation expense, and as of June
      30,
      2007, there was $3.9 million in unrecognized compensation cost related to
      share-based payments which is expected to be recognized over a weighted average
      period of 2.1 years.





**12)****Recent
      Accounting Pronouncements**




*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 8 - Income Taxes.





*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.





*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.




13




**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***





Accrued
      liabilities includes an 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.




14




***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
      our derivative liability is inversely related to our stock price resulting
      in a
      non-cash gain or loss that impacts 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
      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
      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.





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.




15




**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.





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 each of 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
      subsequently 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 portion of the Texas
      factory that we leased 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.





Revenues
      were $24.0 million and $51.5 million for the three and six months ended June
      30,
      2007, respectively, down 45.8% and 36.5%, respectively, from the corresponding
      periods of the prior year. The decline was due primarily to a general slowdown
      in the California education and commercial markets, customer imposed delays
      on
      certain large educational projects, increased competitive pressure in all
      markets, and declining school enrollment in Florida. Decreases in the California
      education market for modular construction and increased competitive pressure
      have resulted from the substantial change in the contract bidding process,
      which
      changed in January 2006 but did not substantially affect our revenues until
      the
      end of 2006 and into 2007.





As
      of
      July 31, 2007, the backlog of sales orders was approximately $51.3 million,
      down
      from approximately $78.1 million at July 31, 2006. The backlog by region as
      of
      July 31, 2007 was as follows: California - $41.9 million; Arizona - $2.1
      million; and Florida - $7.3 million. This compares to the backlog by region
      as
      of July 31, 2006, which was as follows: California - $66.0 million;
      Arizona/Texas - $7.3 million; and Florida - $4.9 million. The decrease in
      backlog is primarily due to decreased education orders in California 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**
            
            **Percent of Net Sales****Three Months Ended
                June 30,**
            
            **Six Months Ended
                June 30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Net
                sales
            
            100.0
            %
            100.0
            %
            100.0
            %
            100.0
            %Cost
                of goods sold
            102.2
            
            93.5
            
            98.9
            
            93.7Gross
                (loss) profit
            (2.2
            )
            6.5
            
            1.1
            
            6.3Selling,
                general and administrative expenses
            15.5
            
            8.0
            
            14.3
            
            8.4Impairment
                loss on goodwill
            159.4
            
            -
            
            74.3
            
            -Loss
                income from operations
            (177.1
            )
            (1.6
            )
            (87.6
            )
            (2.1
            )Other
                (expense) income:Interest
                expense
            (2.1
            )
            (1.2
            )
            (2.1
            )
            (2.1
            )Interest
                income
            0.3
            
            0.3
            
            0.3
            
            0.3Loss
                on extinguishment of debt
            -
            
            -
            
            -
            
            (2.5
            )Gain
                on warrant and embedded derivatives
            3.9
            
            8.4
            
            11.2
            
            5.5Amortization
                of debt issuance costs
            (0.5
            )
            (0.3
            )
            (0.7
            )
            (0.6
            )Accretion
                of debt discount
            (3.2
            )
            (2.5
            )
            (3.5
            )
            (1.7
            )Early
                debt conversion fee
            -
            
            (4.2
            )
            -
            
            (2.3
            )Other
                income, net
            0.1
            
            0.4
            
            0.1
            
            0.3(1.5
            )
            0.9
            
            5.3
            
            (3.1
            )Loss
                before income taxes
            (178.6
            )
            (0.7
            )
            (82.3
            )
            (5.2
            )Income
                tax expense (benefit)
            -
            
            -
            
            -
            
            -Net
                loss
            (178.6
            )%
            (0.7
            )%
            (82.3
            )%
            (5.2
            )%




16




***Net
      Sales***





Net
      sales
      for the quarter ended June 30, 2007, decreased to $24.0 million from $44.3
      million for the quarter ended June 30, 2006, a decrease of $20.3 million or
      45.8%. When compared to the corresponding period in the prior year, in the
      quarter ended June 30, 2007 California sales of $15.0 million were down 43.5%;
      Florida sales of $4.7 million were down 56.5%; Arizona sales of $4.3
      million were down 13.8% and we had no sales in Texas compared to $1.9 million
      in
      the quarter ended June 30, 2006. As described in the preceding “Overview” we
      closed our Glen Rose, Texas facility in the first quarter of 2007.





Net
      sales
      for the six months ended June 30, 2007, decreased to $51.5 million from $81.2
      million for the six months ended June 30, 2006, a decrease of $29.7 million
      or
      36.6%. When compared to the corresponding period in the prior year, in the
      six
      months ended June 30, 2007 California sales of $32.4 million were down 33.2%;
      Florida sales of $9.5 million were down 44.6%; Arizona sales of $9.6
      million were down 6.0% and we had no sales in Texas compared to $5.3 million
      in
      the six months ended June 30, 2006.





The
      decrease in sales in 2007 in California was primarily due to lower sales volume
      in the education and commercial markets, due to a general slowdown in those
      markets. The change in the education market is caused primarily by the change
      in
      the contracting system (as described below), delays imposed by our customers
      on
      various large educational projects, and a relative flattening of California
      school enrollment in recent years. The decrease in the commercial market can
      also be attributed to the slowdown in the housing market.





It
      is
      believed that the demise of the piggyback contracting system in California
      in
      the prior year continues to have an adverse affect on our sales volume into
      the
      first half 2007. Prior to January 27, 2006 many school districts in California
      utilized “piggy-back” contracts which allowed them to order buildings off of
      contracts bid and entered into by builders, including Modtech, with other school
      districts. Since January 27, 2006, these piggyback contracts have not been
      allowed. As a result, more public bids occur for the same volume of work. The
      change to a public bidding process has resulted in increased competitive
      pressures. In the first half of 2006, much of the revenue was recognized under
      the old piggyback contracting system due to the long-term nature of our
      California education contracts. In the first half of 2007, all of the California
      education revenue was recognized under the more competitive public bid
      contracting system.





California
      public school enrollment has been essentially flat over the last three years
      and
      spending for new schools has slowed from prior years. This leveling off of
      school enrollment has led to less demand for new school construction, causing
      a
      higher percentage of school bond money for modernization of existing structures
      and less on new permanent construction. Even the fast growing school districts
      are proceeding carefully given the slowdown in other districts. Money is
      available but spending has been slowed. The modernization work that has
      benefited the leasing companies has not resulted in relocatable classroom sales
      for Modtech as leasing company fleet utilization has not required purchases
      of
      significant numbers of new equipment.





The
      sales
      decrease in Florida in 2007 was due to project delays in the education market,
      primarily from two large customers, and an overall decrease in the education
      market. The sales decrease in the Florida education market is the result of
      recently declining school enrollment. For the school year just completed, public
      school enrollment in Florida declined for the first time since 1982. More than
      half of the school districts reported a decline and many school districts are
      now considering school closures.





***Gross
      (Loss) Profit***





Gross
      loss for the quarter ended June 30, 2007 was $0.5 million, a decrease of $3.4
      million from the gross profit of $2.9 million recorded in the corresponding
      prior year period. Gross loss as a percentage of net sales decreased to (2.2)%
      in the quarter ended June 30, 2007, down from a gross profit margin of 6.5%
      in
      the quarter ended June 30, 2006.





Gross
      profit for the six months ended June 30, 2007 was $0.6 million, a decrease
      of
      $4.6 million from the gross profit of $5.2 million recorded the
      corresponding prior year period. Gross profit as a percentage of net sales
      decreased to 1.1% in the six months ended June 30, 2007, down from a gross
      margin of 6.3% in the six months ended June 30, 2006.





Our
      gross
      profit margin declined as revenues declined because we were not able to
      adequately cover our fixed manufacturing costs, particularly due to continued
      production delays in key education projects in California and
      Florida.





***Selling,
      General and Administrative Expenses***





In
      the
      quarter ended June 30, 2007, selling, general and administrative (“SG&A”)
      expenses increased $0.1 million over the prior year to $3.7 million with
      SG&A costs representing 15.5% of net sales compared to 8.0% of net sales in
      the prior year. The increase in SG&A was primarily attributable to an
      increase in non-cash stock compensation expense of $0.2 million. SG&A has
      increased as a percentage of sales due to the decrease in sales discussed
      above.





17




For
      the
      six months ended June 30, 2007, selling, general and administrative (“SG&A”)
      expenses increased $0.5 million over the prior year to $7.4 million with
      SG&A costs representing 14.3% of net sales compared to 8.4% of net sales in
      the prior year. The increase in SG&A was primarily attributable to an
      increase in non-cash stock compensation expense of $0.5 million. SG&A has
      increased as a percentage of sales due to the decrease in sales discussed
      above.





***Impairment
      Loss on 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 No. 142, “Goodwill and Other Intangible
      Assets” and it was determined that an impairment existed. As a result of this
      test, we recorded an estimated 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 was not
      completed in its entirety. This initial impairment charge represented
      management’s best estimate as to the actual charge.





During
      the three months ended June 30, 2007, we completed the final measurement of
      goodwill impairment, resulting in a determination that the remaining balance
      of
      goodwill was fully impaired. The fair value calculation was based on market
      approaches and an updated present value of future cash flows. As a result of
      this independent goodwill impairment measurement, we recognized an impairment
      loss for the remaining balance of goodwill of $38.3 million for the three and
      six month periods ended June 30, 2007. As a result of this full impairment
      recognition, goodwill has been reduced to zero as of June 30, 2007.





***Loss
      from Operations***





Loss
      from
      operations for the three and six months ended June 30, 2007, totaled $42.5
      million and $45.1 million, respectively. When excluding the $38.3 goodwill
      impairment loss, operating losses were $4.2 million, or 17.6% of net sales,
      for
      the quarter ended June 30, 2007 up from $0.7 million in losses, or 1.6% of
      net sales, for the quarter ended June 30, 2006. When excluding the $38.3
      goodwill impairment loss, operating losses were $6.8 million, or 13.1% of net
      sales, for the six month period ended June 30, 2007 up from $1.7 million in
      losses, or 2.1% of net sales, for the six month period ended June 30, 2006.
      The
      increase in operating losses in 2007, excluding the $38.3 goodwill impairment
      loss, was a result of the decline in net sales and gross margins and the
      increase in SG&A expenses as discussed above.





***Other
      (Expense) Income***





Interest
      expense decreased slightly to $497,000 in the quarter ended June 30, 2007
      compared to $536,000 in the quarter ended June 30, 2006. Interest expense
      decreased by $0.6 million for the six month period ended June 30, 2007 compared
      to the six month period ended June 30, 2006. These decreases are attributable
      to
      reduced debt balances over the same period.





For
      the
      six months ended June 30, 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 six months ended June 30,
      2007.





We
      recognized a non-cash gain of $0.9 million and $5.8 million related to warrant
      derivatives during the three and six month periods ended June 30, 2007,
      respectively. This compared to a gain recognized of $3.7 million and $4.5
      million related to warrant and embedded derivatives for the three and six month
      periods ended June 30, 2006, respectively. These gains were due to a decrease
      in
      the trading price of our stock for the respective periods, which caused our
      warrant derivative liability to decrease.





Amortization
      of debt issuance costs was $0.1 million for both the three months ended June
      30,
      2007 and 2006, respectively, and $0.4 million and $0.5 million for the six
      months ended June 30, 2007 and 2006, respectively.





Accretion
      of debt discount for the three months ended June 30, 2007 was $0.8 million,
      compared to an accretion of $1.1 million for the three months ended June 30,
      2006. Accretion of debt discount for the three months ended June 30, 2006
      included a $0.9 million incremental non-cash charge related to the conversion
      of
      convertible notes, which did not occur for the three months ended June 30,
      2007.
      Accretion of debt discount for the six months ended June 30, 2007 was $1.8
      million, compared to an accretion of $1.4 million for the six months ended
      June
      30, 2006. Accretion on debt discount for the six months ended June 30, 2007
      and
      2006 included $0.5 million and $0.9 million, respectively, in incremental
      non-cash charges related to the conversion of convertible notes





18




For
      the
      three and six months ended June 30, 2006 we recognized a non-cash early debt
      conversion fee of $1.9 million for the fair value of 189,189 restricted shares
      issued to a former note holder as consideration for the early conversion of
      a
      portion of convertible notes. No similar transaction occurred during the three
      and six month periods ended June 30, 2007.





***Income
      Tax Expense (Benefit)***





No
      benefit for income tax was recorded for the three and six month periods ended
      June 30, 2007. Although we expect to return to profitability in 2007 or early
      2008, 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 primarily 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 $2.7 million at June 30, 2007 compared to $6.3 million
      at
      December 31, 2006. The decrease was primarily due to the loss from operations,
      excluding the non-cash impairment loss on goodwill and non-cash stock
      compensation expense, and payments on our accounts payable, offset by cash
      provided by reductions in restricted cash and a decrease in accounts receivable.





Cash
      totaling $5.9 million was used by operating activities during the six months
      ended June 30, 2007 compared to cash used by operating activities of $1.1
      million during the six months ended June 30, 2006. During the six months ended
      June 30, 2007, net income, adjusted for non-cash expenses from depreciation
      and
      amortization, provision for contract adjustments, gain on sale of equipment,
      stock compensation expense, impairment loss on goodwill, gain on derivative
      liability and accretion on debt discount used $5.9 million of operating cash.
      Changes in remaining working capital balances offset during this period and
      did
      not use a significant amount of cash.





Net
      cash
      used by investing activities was $0.3 million in the six months ended June
      30,
      2007, which consisted of $0.8 million for capital expenditures offset by $0.6
      million in proceeds from sale of property and equipment. Sales of property
      and
      equipment consisted primarily of $0.5 million in proceeds received from the
      sale
      of land, building and equipment at our closed facility in Texas during the
      three
      months ended June 30, 2007.





Net
      cash
      provided by financing activities was $2.6 million during the six months ended
      June 30, 2007 consisting of proceeds from the reduction of restricted cash
      of
      $4.2 million, partially offset by $1.6 million in principal payments on
      long-term debt. During the six months ended June 30, 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 six months ended
      June 30, 2007, both of which were incremental non-cash charges.





Management‘s
      goals are to address liquidity issues, minimize losses and improve operating
      results in the remainder of fiscal 2007. Management has taken, and continues
      to
      take, actions to meet these goals, including restructuring debt agreements
      to
      extend maturities in the fourth quarter of 2006, closing of our Glen Rose,
      Texas
      manufacturing facility in the first quarter of 2007 and termination of the
      related leased portion in the second quarter of 2007, the sale and leaseback
      of
      our Plant City, Florida manufacturing facility in the fourth quarter of 2006
      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 second half of fiscal 2007 will
      contribute to a substantial recovery of our indirect expenses, leading to
      improved gross margins and elimination or significant reduction of operating
      losses. Management has developed an operating plan to manage costs in line
      with
      estimated total revenues for the remainder of fiscal 2007, including
      contingencies for further cost reductions if projected revenue growth and
      improvement in gross margins continue to not be fully realized. Accordingly,
      management believes that existing cash resources and operations will generate
      sufficient cash to meet continuing obligations for the foreseeable future.




19




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 or 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. We do not use interest
      rate swaps or other types of derivative financial instruments to hedge our
      interest rate risk. Our outstanding 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% to 3.75%. As of June 30, 2007, the prime rate
      was
      8.25%. The current principal debt outstanding under these notes at June 30,
      2007
      is $16.4 million. Therefore, a one-percentage point increase in interest rates
      would result in an increase in interest expense of approximately $164,000 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 June 30, 2007, a $1 increase or decrease in our stock
      price results in a non-cash derivative loss or gain of approximately $1.5
      million to $2.0 million. For the three and six months ended June 30, 2007,
      we
      experienced a $0.9 million and a $5.8 million non-cash gain on warrant
      derivatives, respectively, due to the decrease in our stock price from $4.95
      at
      December 31, 2006 to $2.70 at June 30, 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 June 30, 2007 and
      concluded that our disclosure controls and procedures were not effective as
      of
      June 30, 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
      June 30, 2007.





The
      material weaknesses reported in our 2006 10-K Report that had not been
      remediated as of June 30, 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 are
                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 June 30, 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 June 30, 2007 is as
      follows:





·
            We
                are utilizing 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**





We
      are a
      party to various claims, complaints and other legal actions that arise in the
      normal course of business from time to time. We believe the outcome of these
      pending legal proceedings, in the aggregate, will not have a material adverse
      effect on our results of operations or financial position.





**Item
      1A. Risk Factors**





There
      have been no material changes from the risk factors disclosed in our most
      recently filed 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**




At
      the
      Annual Meeting of Stockholders held on June 19, 2007, the seven nominees for
      the
      board of directors were elected based on the following votes:





Nominee
            For
            WithheldRobert
                W. Campbell
            14,157,199
            3,199,302Daniel
                J. Donahoe III
            14,594,623
            2,761,878Stanley
                N. Gaines
            14,197,321
            3,159,180Charles
                R. Gwirtsman
            13,789,361
            3,567,140Charles
                C. McGettigan
            13,789,386
            3,567,115Dennis
                L. Shogren
            14,197,321
            3,159,180Myron
                A. Wick III
            13,789,361
            3,567,140




There
      are
      no other members of the board of directors. No other matters were voted on
      at
      the meeting.





**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(3.2)
            
            Employment
                Agreement between the Company and Kenneth S. Cragun.10.8(2)
            
            Separation
                Agreement between the Company and Evan M. Gruber.10.9(2)
            
            Separation
                Agreement between the Company and Michael G. Rhodes.10.10(2)
            
            Employment
                Agreement between the Company and David M. Buckley10.11(4)
            
            Lease
                between the Company and Pacific Continental Modular Enterprises,
                relating
                to the Barrett property in Perris, California10.12(4)
            
            Lease
                between the Company and BMG, relating to the property in Lathrop,
                California10.13(5)
            
            Conversion
                and Repurchase Agreement, dated October 31, 200610.14(6)
            
            Securities
                Purchase Agreement, dated December 31, 200410.15(6)
            
            Senior
                Subordinated Secured Convertible Note, dated December 31,
                200410.16(6)
            
            Warrant
                to Purchase Common Stock issued December 31, 200410.17(6)
            
            Registration
                Rights Agreement, dated December 31, 200410.18(6)
            
            Pledge
                and Security Agreement, dated December 31, 200410.19(6)
            
            Intercreditor
                Agreement, dated December 31, 200410.20(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,
                2004.10.21(7)
            
            Financing
                Agreement between the Company and Fortress Credit Corp. as administrative
                agent, dated February 25, 2005.10.22(8)
            
            Amendment
                Number 1 to Industrial Real Estate Lease between Modtech Holdings,
                Inc.
                and BMG2 Enterprises, dated July 29, 200510.23(8)
            
            Sublease
                between Modtech Holdings, Inc. and Boise Building Solutions Distribution,
                L.L.C., dated July 29, 2005




24




**Exhibit****Number**
            
            **Name
                of Exhibit**10.24(9)
            
            Securities
                Purchase Agreement with Peninsula Fund, L.P. and others, dated August
                5,
                200510.25(9)
            
            First
                Amendment and Waiver of Financing Agreement between Fortress and
                Modtech
                Holdings, Inc., dated August 5, 200510.26(9)
            
            First
                Amendment and Restated Registration Rights Agreement, dated August
                5,
                200510.27(9)
            
            Amended
                and Restated Senior Subordinated Secured Convertible Note, dated
                August 5,
                200510.28(9)
            
            Consent,
                Waiver, Amendment and Exchange Agreement, dated August 5, 2005
                (“Waiver”)10.29(9)
            
            Form
                of Voting Agreement executed pursuant to Waiver10.30(9)
            
            Form
                of Lock Up Letter executed pursuant to the Securities Purchase Agreement,
                dated August 5, 200510.31(9)
            
            Form
                of Warrant issued pursuant to the Securities Purchase Agreement,
                dated
                August 5, 200510.32(9)
            
            Warrant
                for 8,276 shares of common stock, dated August 5, 200510.33(10)
            
            Second
                Amendment of Financing Agreement between Fortress and Modtech Holdings,
                Inc., dated September 19, 200510.34(11)
            
            Third
                Amendment of Financing Agreement between Fortress and Modtech Holdings,
                Inc., dated December 22, 200510.35(12)
            
            Intercreditor
                Agreement with Bank of America, N.A., dated, March 31,
                200610.36(12)
            
            Loan
                and Security Agreement with Bank of America, N.A., dated March 31,
                200610.37(12)
            
            Amendment
                Agreement, dated March 31, 200610.38(13)
            
            Amendment
                to 2002 Stock Option Plan, dated June 13, 200610.39(14)
            
            Exchange
                of Senior Subordinated Secured Convertible Notes, dated May 3,
                200610.40(15)
            
            Securities
                Purchase Agreement with Laurus Master Fund, Ltd. (and attached exhibits),
                dated October 21, 200610.41(15)
            
            Intellectual
                Property Security Agreement, dated October 31, 200610.42(15)
            
            Master
                Security Agreement with Laurus Master Fund, Ltd., dated October 31,
                200610.43(15)
            
            Registration
                Rights Agreement with Laurus Master Fund, Ltd., dated October 31,
                200610.44(15)
            
            Sale
                and Purchase Agreement and Joint Escrow Instructions with NL Ventures
                V,
                L.P. dated November 1, 200610.45(15)
            
            Lease
                Agreement with NL Ventures V Plant City, L.P. dated November 1,
                200610.46(16)
            
            Registration
                Rights Agreement with Amphora Limited, dated October 31,
                200610.47(16)
            
            Conversion
                and Repurchase Agreement, dated October 31, 200610.48(17)
            
            Amendment
                and Waiver Agreement with Laurus Master Fund, Ltd., dated December
                28,
                200610.49(17)
            
            Securities
                Purchase Agreement with Laurus Master Fund, Ltd., dated December
                28,
                2006




25




**Exhibit****Number**
            
            **Name
                of Exhibit**10.50(17)
            
            Secured
                Term Note issued to Laurus Master Fund, Ltd., dated December 28,
                200610.51(17)
            
            Common
                Stock Purchase Warrant issued to Laurus Master Fund, Ltd., dated
                December
                28, 200610.52(17)
            
            Amended
                and Restated Registration Rights Agreement with Laurus Master Fund,
                Ltd.,
                dated December 28, 200631.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200231.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200232.1
            
            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
                200232.2
            
            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).





(3.2)
            Incorporated
                by reference to Modtech Holdings, Inc.’s Form 8-K filed with the
                Commission on June 25, 2007 (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).





26


(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).




(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:
                August 10, 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