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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2004

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

Commission File No. 000-25161

MODTECH HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (951) 943-4014

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

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

Common Stock, $.01 par value

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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

Yes x No ¨

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2004 was approximately $58,900,000. As of May 13, 2005, 14,834,535 shares of registrant’s common stock were outstanding.

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PART I

FORWARD LOOKING STATEMENTS

This annual 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 annual report, including the Notes to the 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. 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; and 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-Q. 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. We will not update these forward-looking statements, even though our situation may change in the future. We qualify all of our forward-looking statements by these cautionary statements.

OVERVIEW

Modtech Holdings, Inc. (“Modtech”, “we”, “our”, or the “Company”) was founded in 1982 with its initial business consisting of purchasing unfinished and outdated classroom shells and performing installation work. We subsequently changed our business to the design, manufacturing, marketing and installation of classroom and other custom modular projects. We have grown internally and through acquisitions to become one of the premier modular building manufacturers in the country. In February 1999, we merged with SPI Holdings Inc., a Colorado corporation, which designed and manufactured commercial and light industrial modular buildings in Arizona, Texas and California. In March 1999, we acquired Coastal Modular Buildings, Inc. and in March 2001 we acquired Innovative Modular Structures. Both companies were based in central Florida. All of the acquired companies have been fully integrated into Modtech Holdings, Inc. We are a Delaware corporation and maintain our corporate offices in Perris, California, USA.

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

PUBLIC FUNDING

Virtually all of our classroom sales are dependant on public funding. Funding initiatives passed by the voters of California have contributed to our growth and success.

In 2002, the California legislature approved spending approximately $25 billion on new classroom and school construction. The funding was to come from bond issues to be approved by the voters. Between 2002 and 2004, California voters approved the bond issues.

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

Further details on historical public funding and relevant legislative actions pertaining to the modular industry can be found in prior Form 10-K filings which are available at www.modtech.com free of charge.

INDUSTRY OVERVIEW

In recent years, the growth in population in California, both from births and from immigration, has led to increasing school enrollments. As a result, classrooms in many California school districts currently are reported to be among the most crowded in the nation, with an average of 29 students per class compared to a national average class size of 17. Additionally, changes in population demographics have left many existing permanent school facilities in older residential areas with excess capacity due to declining enrollments, while many new residential areas are faced with a continuing shortage of available classrooms. Consequently, it has become necessary to add additional classrooms at many existing facilities, and to build a number of new schools.

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

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

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

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increased space requirements. Permanent modular construction has many of the same time saving characteristics as do the relocatable buildings, but can experience the same site delays as conventional construction.

CALIFORNIA MODULAR RELOCATABLE CLASSROOMS

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

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

Our California classrooms are manufactured and installed in accordance with the applicable state building codes and Department of State Architect’s interpretive regulations, which supersedes all local building codes for purposes of school construction. The classrooms must comply with accessibility requirements for the handicapped, structural, and seismic and fire code requirements. We manufacture and install standard, largely pre-fabricated modular re-locatable classrooms, as well as customized classrooms, which are modular in design, but assembled on-site using components manufactured internally together with components purchased from third party suppliers. Our classrooms vary in size from two modular units containing a total of 960 square feet to 20 units that can be joined together to produce a facility comprising 9,600 square feet. Larger configurations are also possible. Typical prices for our standard classrooms range from $33,000 to $37,000, while prices for a custom classroom generally exceed $50,000, depending upon the extent of customization required.

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

Custom built classrooms, libraries and gymnasiums contain design variations and dimensions such as ceiling height, roof pitch, overall size and interior configuration. These units typically are not assembled at the factory but instead are shipped in pieces, including floors, walls and roofs, and assembled on-site. Contracts for custom-built units may include the design, engineering and layout for an entire school or an addition to a school, and

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involve site preparation, grading, concrete and asphalt work and landscaping. Customized classrooms are generally more expensive and take longer to complete than standard classrooms.

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

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

CUSTOMERS

In California, we market and sell our modular classrooms primarily to school districts. We also sell our classrooms to the State of California and leasing companies, both of which lease the classrooms principally to school districts. Sales of classrooms to California school districts, the State of California and leasing companies accounted for 51.1%, 64.6% and 58.1% of our total net sales for the years ended December 31, 2004, 2003 and 2002, respectively. Our customers typically pay cash from general operating funds or the proceeds of local bond issues, or lease classrooms through banks, leasing companies and other private funding sources.

Sales of classrooms to individual California school districts accounted for approximately 48.4%, 52.4% and 47.2%, of our net sales during the years ended December 31, 2004, 2003 and 2002, respectively, with sales of classrooms to third-party lessors to California school districts during these periods accounting for approximately 2.0%, 9.8% and 4.5%, respectively, of our net sales. The mix of school districts to which we sell our products varies somewhat from year to year. Sales of classrooms directly to the State of California during 2004 represented approximately 0.6% of our net sales, compared to approximately 2.5% and 6.4%, of our 2003 and 2002 net sales, respectively. One of the third-party lessors to which we sell classrooms for lease to California school districts was affiliated with us through ownership by one of our former officers until August, 2004. Sales to this affiliate for the seven months ended July 31, 2004 comprised approximately 0.8% of the annual net sales. For the years ended December 31, 2003 and 2002, sales of classrooms to this affiliated leasing company comprised approximately 2.0% and 3.4%, respectively, of our net sales.

We design and build modular buildings to customer specifications for a wide array of uses beyond California classrooms, including governmental, healthcare, educational, airport and correctional facilities; office and retail space; daycare centers; libraries; churches; construction trailers; golf clubhouses; police stations; convenience stores; fast food restaurants; classrooms and sales offices. The modular buildings serve as temporary, semi-permanent and permanent facilities and can function as free-standing buildings or additions to existing structures. These modular buildings range in size and complexity from a basic single-unit 100-square foot module to a 50,000-square foot building combining several structures and containing multiple stories. We sell our products directly to the end customer in some instances, particularly for major projects. We also sell to and through dealers and distributors. In some instances these dealers provide 3^rd party financing to the end customer for direct sales.

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SALES AND MARKETING

We utilize an internal sales force which focuses primarily on classroom and other major project opportunities. We rely on dealers and distributors for additional sales in all the markets we serve. Those markets are education; government (military, homeland security and other agencies); institutional (health care, day care, correctional); retail (banks, kiosks, remote restrooms, fast food, motels, and others) and other commercial.

Most of our contracts are awarded on an open bid basis. The marketing process for many of our contracts begins prior to the time the bid process begins. After we selects bids or contracts that we desires to pursue, our marketing and engineering personnel interface directly with various school boards, superintendents or architects during the process of formulating bid or contract specifications. We prepare our bids or proposals using various criteria, including current material prices, historical overhead costs and a targeted profit margin. Many of our contracts are “turnkey”; that is, they include engineering and design, manufacturing, transportation and installation. Open bid contracts are normally awarded to the lowest responsible bidder.

MANUFACTURING AND ON-SITE INSTALLATION

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

We are vertically-integrated in the manufacture of our modular classrooms, in that we fabricate substantially all of our own metal components at our facilities, including structural floor and roof joists, exterior roof panels, gutters, foundation vents, ramps, stairs and railings. We believe that the ability to fabricate our own metal components helps to reduce the costs of our products and controls our quality and delivery schedules. We maintain a quality control system throughout the manufacturing process, under the supervision of both our own quality control personnel and independent third party inspectors engaged by our customers. In addition, we track the status of all classrooms from sale through installation and completion.

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

We oversee installation of our classrooms and other buildings on-site, using our own employees for project supervision as the general contractor. In many projects, we supervise subcontracted electrical, plumbing, grading, paving, concrete work, and other site preparation work and services. We have general contractor’s licenses in the states where we engage in activities that require such licenses.

In addition to approvals by the Division of the State Architect, licensed inspectors representing school district customers are present at each of our California manufacturing facilities to continuously inspect the construction

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of classrooms for compliance to the approved plans. On-site inspections after installation are also made by independent third party inspectors for purposes of determining compliance with the approved plans and all applicable codes.

We also use a continuous flow assembly line process for our non-classroom buildings. Multiple structures are assembled simultaneously at various stations along the assembly line. Depending upon the complexity of the design for a particular modular building, the average construction time from approval of the design to shipment ranges from 30 to 45 days. Once construction of a typical modular building commences, the building can be completed in as few as seven to ten days.

At December 31, 2004, we had six manufacturing facilities. Two are located in Perris, California, which is approximately 60 miles east of Los Angeles. The third facility is in Lathrop, California, which is located approximately 75 miles east of San Francisco. In February 2005, we announced the closure of the Lathrop facility, which was completed on April 30, 2005. This closure is discussed in more detail in ITEM 2 of this report. The fourth manufacturing facility is located in Phoenix, Arizona. We have another facility in Glen Rose, Texas, which is located approximately 75 miles southwest of Dallas. Our sixth manufacturing facility is located in Plant City, Florida, approximately 30 miles northeast of Tampa.

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

BACKLOG

We manufacture classrooms and other buildings to fill existing orders only, and not for inventory. As of April 30, 2005, the backlog of sales orders was approximately $179.5 million, up from approximately $157.9 million at April 30, 2004. Backlog that will be converted into sales during the current fiscal year is approximately $125.0 million. The rate of booking new contracts varies month to month, and customer changes in delivery schedules occur. For these reasons, among others, our backlog as of any particular date may not be representative of actual sales for any succeeding period.

The backlog by region as of April 30, 2005 was as follows: California—$139.4 million; Arizona—$14.2 million; Texas—$4.5 million; and Florida—$21.4 million.

COMPETITION

The modular re-locatable classroom industry is highly competitive, with the market divided among a number of privately-owned companies whose share of the market is smaller than ours. We believe that the nature of the bidding process, the level of performance bonding required, and the industry’s regulated environment serve as barriers to market entry, and that the expertise of our management gives us an advantage over competitors.

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

As the demand for modular buildings has shifted in recent years from standardized buildings to more complex, customized buildings, we have had to modify our production process and, as a result, have at times experienced competitive disadvantages.

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We categorize our current competition based upon the geographic market served, as well as upon the relative degree of customization of products sold. The primary competitors in California are believed to be American Modular Systems and Design Mobile Systems, both of which are located in Northern California. Each of these competitors is a privately-owned company. With the upcoming closure of our Lathrop facility, our competitors in Northern California will have a competitive advantage relative to transportation costs. However, it is our belief that increased transportation costs will be offset by efficiency gains attributable to the consolidation of manufacturing into a more efficient operation. Previously reported competitors, Aurora Modular Industries and Turn Key Schools, both located in Perris, California discontinued operations in 2004.

Outside of the California classroom market, the nonresidential modular building industry is highly competitive and fragmented. For our highly customized modular buildings, the main competitive factor is the ability to meet end user requirements in a timely manner, while price is the main competitive factor for less customized structures. Because the cost of transporting completed modular buildings is substantial, most manufacturers limit their distribution to dealers located within a 400-mile radius of their manufacturing facility. As a result, the nonresidential modular building industry is highly fragmented and is composed primarily of small, regionally based private companies maintaining a single manufacturing facility. These small, regionally based private companies may have a competitive advantage relative to certain overhead costs associated with a comparatively larger, publicly traded company.

Our primary competitors for non-California classroom modular buildings are believed to be Modular Structures International, Walden Structures, Miller Building Systems and Indicom Building Systems.

PERFORMANCE BONDS

A substantial portion of our sales require bid, performance and payment bonds to ensure that the contracts will be performed and completed in accordance with contract terms and conditions, and to assure that subcontractors and suppliers will be paid. In determining whether to issue a performance bond on our behalf, bonding companies consider a variety of factors concerning the specific project to be bonded, as well as our levels of working capital, shareholders’ equity and outstanding indebtedness. From time to time we have had, and in the future may again encounter, difficulty in obtaining bonding for a given project. Although we have been able to obtain the bonding we have needed during the last twelve months, we believe that our difficulty in obtaining bonding for certain large projects from time to time in the past has been attributable to our levels of working capital, shareholders’ equity and indebtedness, and not concerns about our ability to perform the work required under the contract.

RAW MATERIAL AND COMPONENTS

The raw materials used in our business consist mainly of commodities such as steel, lumber and plywood, electrical components such as plugs, switches and lights, plumbing components such as pipe, fittings and fixtures, heating and air conditioning units and other general construction materials. We are not dependant upon a single source for our principal raw materials and such materials have historically been readily available. Although there were dramatic increases in the cost of steel during 2004, we did not experience any significant steel shortages. We believe we currently have ready access to adequate supplies of raw materials and components from numerous suppliers at competitive prices.

PATENTS, TRADEMARKS, LICENSES AND OTHER INTELLECTUAL PROPERTY

“Modtech” is our only registered trademark. We do not have any patents. We hold general contractors licenses in those states where our activities require such licenses. These licenses are readily available and renewable annually. We also hold certain intellectual property in the form of proprietary designs which have been approved for modular classroom design by the State of California. These approved designs and plans are required in order to sell classrooms into the State of California classroom market and create a short term barrier to entry into the

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California classroom market. We estimate that it takes approximately six months to obtain approval for a new set of plans. Our rights in our trademark and proprietary designs are for an indefinite term.

ENVIRONMENTAL AND HEALTH AND SAFETY MATTERS

Like other manufacturing concerns, we are subject to numerous laws and regulations that govern environmental and occupational health and safety matters. We believe that our operations are substantially in compliance with all such applicable laws and regulations. Such compliance has not caused us to incur, and we do not expect to incur any material expenditures or liabilities for environmental matters. As a result, our environmental obligations have not had a material effect on our capital expenditures, earnings or competitive position in the past, and we do not believe they will have a material effect in the future.

The Phoenix facility, which we lease, is located within a 25-square-mile area listed by the Arizona Department of Environmental Quality on the state priority list for contaminated sites. According to a 1999 environmental site assessment report pertaining to the Phoenix facility, neither we nor the prior operators or owners of the property have been identified as potentially responsible parties at this site. Additionally, the environment site assessment report identified no historical activity on the property we lease that was likely to have been a source of the contaminants at the site.

EMPLOYEES

The number of persons employed by us at year end 2004, 2003, and 2002 were 1,395, 901, and 1,273, respectively. None of our employees are represented by a labor union, and we have experienced no work stoppages. We believe that our employee relations are good.

INFORMATION AVAILABLE ON OUR WEBSITE

We make available free of charge on our internet website at www.modtech.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). Our SEC filings, as well as those of other companies that file electronically with the SEC, are available at the SEC’s Internet website at www.sec.gov. You may also read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C., 20549. Information on the operation of the public reference room may be obtained by calling the SEC at 1-800-SEC-0330. In addition to SEC filings, we also post on our website press releases, information regarding our Whistle Blower program and information about other company initiatives such as our Six Pillars of Excellence Award Program and our Lean Enterprise Team Charter.

Our principal executive and administrative facilities are located in approximately 17,000 square feet of modular buildings at our primary manufacturing facility located in Perris, California. This manufacturing facility occupies 25 acres, with approximately 226,000 square feet of covered production space under roof, pursuant to a lease expiring in 2014. A second facility in Perris occupies approximately thirty acres, with approximately 120,000 square feet of covered production space under roof, pursuant to a lease expiring in 2014. This second facility also includes approximately 80,000 square feet under roof used as a metal working facility.

Our third plant consists of a 400,000 square foot manufacturing facility, with approximately 160,000 square feet of covered production space under roof, on a 30-acre site in Lathrop, California that is leased through 2019. On February 1, 2005, management approved plans to consolidate our manufacturing facilities by closing the Lathrop plant in Northern California and shifting production to our other plants, principally those located in Southern

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California. The closure, which was completed on April 30, 2005, resulted in the elimination of approximately 140 employee positions. We expect that the plant closure will reduce costs and enhance profitability. We estimate that the aggregate costs incurred in connection with the plant closure, including redeployment of assets, and related costs will be approximately $700,000.

The fourth plant consists of approximately 50,000 square feet of covered production space under roof, on a 10-acre site in Phoenix, Arizona, pursuant to a lease expiring in 2007. The fifth plant consists of approximately 80,000 square feet of manufacturing area on a 20-acre site in Glen Rose, Texas, outside the Dallas-Fort Worth metropolitan area. The Texas lease expires in 2008. We purchased a sixth facility in January 2003 for approximately $2.5 million. This facility, including office space, consists of 106,000 square feet on a 17-acre site in Plant City, Florida, northeast of Tampa.

During 2003, we closed three facilities. We chose not to renew our lease for a plant in Glendale, Arizona. The operations at this plant were consolidated into the Phoenix operation. We also chose not to renew our lease for a plant in St. Petersburg, Florida. The operations from this plant and from a company-owned facility also in St. Petersburg were consolidated into the newly purchased and expanded operations in Plant City, Florida and the leased facility was turned back to the owner. The company-owned property in St. Petersburg was sold during 2004.

We believe that our facilities are well maintained and in good operating condition, and meet the requirements for our immediately foreseeable business needs.

We are not involved in any legal proceedings other than those of a nature considered normal to our business, including product liability, employment disputes, administrative proceedings and commercial litigation. Such proceedings often do not specify the amount of damages sought, are subject to many uncertainties and outcomes that are not predictable with assurance. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these pending proceedings. While these matters could affect operating results of any one quarter when resolved in future periods, it is management’s opinion that after final disposition, any monetary liability or financial impact to us beyond that provided for at year-end would not be material to our financial position or results of operations.

No matters were submitted to the vote of security holders during the fourth quarter of fiscal 2004.

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PART II

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

On May 13, 2005, the closing sales price on the NASDAQ National Market for a share of our Common Stock was $7.46. The approximate number of holders of record of our Common Stock on May 13, 2005, was 56.

STOCK COMPENSATION PLAN TABLE

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

DIVIDEND POLICY

We have not paid a dividend on common stock at any time since 1990. The Board of Directors currently intends to follow a policy of retaining all earnings, if any, to finance our continued growth and development and does not anticipate paying cash dividends on our common stock in the foreseeable future. Our current credit facilities prohibit the payment of dividends. Any future determination as to the payment of cash dividends will be dependent upon our financial condition and results of operations, the provisions of our then current credit facilities, and other factors deemed relevant by the Board of Directors.

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The selected financial data presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes thereto included elsewhere in this report. Our statement of operations data for the years ended December 31, 2004, 2003, and 2002 and our balance sheet data as of December 31, 2004 and 2003 have been derived from our audited consolidated financial statements included elsewhere in this report which have been audited by KPMG LLP, whose report is included elsewhere in this report. Our statement of operations data for the years ended December 31, 2001 and 2000 and our balance sheet data as of December 31, 2002, 2001, and 2000 have been derived from our audited consolidated financial statements, which are not presented in this report.

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OVERVIEW

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

Key factors which impact demand for our products include a growing population and the resulting increase in school age children in the regions we serve, natural disasters such as the hurricanes in Florida during 2004 and increased demand from military bases. Demand increased in 2004 resulting in 15.8% increase in net sales over the prior year.

Throughout 2004 our raw material costs were significantly and adversely affected by the rapid rise in steel costs which nearly doubled for certain steel used in our products. Lumber and plywood costs also increased significantly during 2004. Pricing for these commodities has stabilized in recent months and we believe that a more stable pricing environment will continue. We responded by raising our selling prices to the extent possible, but many of our existing contracts were fixed price contracts that did not allow us to pass through raw material price increases. Our profit margins were eroded because we were not able to fully offset our increased costs through price increases to our customers. Whenever possible, we attempt to negotiate a provision in our new contracts that will allow us to pass through cost increases to our customers.

We are one of several contractors working on the construction of the Heritage High School project in Brentwood, California. We bid this project in 2003 with the understanding that it was to be built in a “modular friendly” manner, but this has not occurred. A number of issues have come up with the architect for the school district as to what we are obligated to do under the contract. Our efforts to resolve these issues have resulted in cost overruns of $9.7 million which are discussed in greater detail in “Results of Operations” below.

Severance payments incurred in connection with the departure of three corporate officers, our former Chief Executive Officer, President and Secretary, during the quarter ended September 30, 2004 had a significant impact on the full year’s performance. In addition, we had several adjustments to inventory, project costs for some complex permanent modular construction projects and other increases in selling, general & administrative (SG&A) costs.

In order to comply with the Sarbanes Oxley Act of 2002, in 2004 we engaged consultants to assist with documentation and testing of our internal controls and added staff at year-end to strengthen such controls. The costs of these measures significantly increased our expenses in 2004 and we anticipate that we will incur significant expenses in the future as a result of continued compliance.

We sought additional financing during the quarter ending December 31, 2004 and were able to secure a $25 million subordinated convertible note by December 31, 2004. Subsequent to year-end we were able to secure a long-term debt agreement for a $38 million senior credit facility with a new lender which allowed us to replace the prior lender group.

We view 2005 as a transition year as we continue to grow and plan to return to profitability by focusing on several initiatives which include strict inventory management, utilization of national contracts for materials and other services and implementation of lean enterprise improvements. In recent months, we have focused on higher-margin less-complex permanent modular construction projects. As a result, the margin in our backlog of permanent modular construction has improved. An increased focus on new market opportunities consistent with our manufacturing core competence has also shifted the reliance from complex lower-margin projects to higher-margin less-complex sales in these new markets.

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Certain corrections have been made to prior periods related to the initial recognition of an expected receivable for a legal settlement. The receivable was recorded in the amount of $735,000, of which $242,000 was recorded in 2002, $383,000 in 2001 and $110,000 in 2000. After reviewing this accounting treatment, we have revised our current year presentation as a correction of an immaterial error in prior periods. The result of this correction was a decrease in other assets and retained earnings as of December 31, 2003 of $735,000. Final settlement of this legal case resulted in $795,000 recognized in other income during 2004. The effect of this correction on previously reported 2002 financial statements is summarized below and in note 19 to our consolidated financial statements.

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.

PERCENTAGE OF NET SALES

YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003

Net sales for the year ended December 31, 2004, increased by $25.3 million, or approximately 15.8%, when compared to the prior year. When compared to the prior year, Florida sales of $24.3 million were up 51.8%; Texas sales of $12.4 million were up 38.0%; Arizona sales of $30.3 million were up 69.6% and California sales of $118.2 million were up 1.0%. The significantly increased sales in Florida are a result of the much anticipated

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school market opening up because of available state and local funding. The increased sales in Arizona are largely attributable to U.S. military troop housing solutions as bases were reorganized. General improvement in the commercial market sold primarily through dealers also contributed to the sales increase across the company.

California classroom sales, including both relocatable and permanent modular construction declined 8.3% to $94.6 million when compared to the prior year. This decline in net sales is due to timing of specific projects as the overall backlog of California classroom projects grew significantly during the year.

Gross loss for the year ended December 31, 2004 was $2.9 million, a decrease of $14.9 million, or approximately 124.5%, when compared to the previous year. Gross loss as a percentage of net sales decreased to 1.6% in 2004 from a gross profit of 7.5% in 2003. The decrease in gross profit was due to several factors.

Cost overruns of $9.7 million were charged to the Heritage High School project in Brentwood, California. Four million dollars of these costs overruns resulted from events that occurred in 2004 and this portion of the cost overrun was identified by us prior to December 31, 2004. The remaining $5.7 million in additional cost overruns was identified in April and May 2005 prior to the issuance of our 2004 consolidated financial statements. These overruns are included in the 2004 results because they relate to certain contract conditions that existed as of December 31, 2004 and the subsequent information obtained during April and May 2005 allowed for the refinement of the loss estimate on this contract prior to the issuance of our consolidated financial statements. This refinement is made pursuant to paragraph 82 of the AICPA’s Statement of Position (SOP) 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, which states that cost estimate refinements obtained subsequent to the balance sheet date should be included as an adjustment to the unissued financial statements. The Heritage project was substantially completed in the first week of June 2005.

Of the total $9.7 million in cost overruns on the Heritage project, approximately $3.0 million was due to additional material, labor, project supervision and related costs. The additional costs were caused by what we consider differences between the architect’s plans and the specifications on which we bid the project.

Approximately $4.8 million of the Heritage project cost overruns arose out of a dispute between us and the architect concerning the structural integrity of our welds as called for in the original scope of the project. At the school district’s insistence, the welds were tested in 2004 at a direct cost of approximately $1 million. The district delayed in approving the results of the test and a second test had to be conducted in 2005. The test results were approved by the school district and the structural integrity of the welds confirmed in late March 2005. The delay in approving the welds resulted in an accelerated timeline to complete the Heritage project which, in turn, led to approximately $3.8 million in additional costs. The additional costs were primarily labor costs, including the subcontracting of additional laborers and overtime charges.

Finally, approximately $1.9 million of the Heritage cost overruns were the result of correcting construction quality problems discovered during 2005 as a result of the inspection of the weld tests.

Inventory write-downs accounted for approximately $1.7 million of the gross margin erosion. Certain costs were associated with inventory that had been set aside for a specific project that was cancelled during the quarter ended September 30, 2004. It was also determined that the inventory would not be usable in a replacement project. This inventory included steel and restricted use elevators that were not transferable to other projects. Other steel inventory was written down when it was determined after the quarterly inventory that the specific lengths and specifications were not usable.

Another significant factor in the loss incurred during 2004 was the increased prices for commodities such as steel, lumber and plywood. Some steel components used in our products nearly doubled in price during 2004 and overall our steel costs were up in excess of 30%.

Although we experienced a loss in 2004, we expect higher margins in the future because certain of the events we experienced in 2004 are not expected to continue into 2005. We do not anticipate commodity

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prices to increase in 2005 as they did in 2004, and we are attempting to negotiate the right in our new contracts to pass future commodity price increases on to our customers. Also, we have shifted our product focus away from the lower margin complex customized structures to the higher margin standard buildings.

In 2004, selling, general and administrative (SG&A) expenses increased $6.4 million over the prior year with SG&A costs representing 7.8% of net sales compared to 5.1% of net sales in the prior year. This increase is attributable to costs of $2.1 million associated with the senior management change that occurred in the quarter ended September 30, 2004, increased professional fees associated with compliance with the Sarbanes Oxley Act of 2002, professional and settlement fees associated with certain benefits plans and to increases attributable to higher sales activities across the company. We expect to continue the higher costs associated with our anticipated growth. We also expect Sarbanes Oxley compliance costs to continue with higher internal costs and continued costs associated with independent testing. The costs associated with the management change and certain professional and other fees are not expected to recur.

We recognized a gain of $745,000 on the sale of property in Florida in 2004.

There was no impairment of goodwill recorded for the year ended December 31, 2004 because our fair value (as determined by the December 31, 2004 closing stock price) exceeded book value. In the future, goodwill may be impaired by events or circumstances that lower the fair value below book value. These events or circumstances include, but are not limited to, things such as continued operating losses; unanticipated competition; a significant adverse change in legal factors or in the business climate; or other factors leading to a decline in estimated future cash flows.

In 2004, net interest expense increased from $1.4 million in 2003 to $2.9 million in 2004. The increase is attributable to higher interest rates and a significantly higher average revolver usage due to our operating losses during 2004. Also included in 2004 is the amortization of debt issuance costs of $643,000 as a result of the partial extinguishment of the prior credit facility at year-end. Interest expense will be higher in 2005 due to the increased debt and increased interest rates.

We recognized $795,000 of other income related to the settlement of a lawsuit we filed.

The benefit for income tax of $0.1 million for the year ended December 31, 2004 compares to a provision of $0.9 million for the year ended December 31, 2003. Although we expect to return to profitability in 2005, minimal tax benefit was recognized because our cumulative losses for the three years ended December 31, 2004 created significant negative evidence that it is more likely than not that we will not be able to realize our net deferred tax assets. We were not able to overcome the negative evidence with the objective positive evidence and therefore recorded a valuation allowance against our net deferred tax assets of $7.3 million. Our 2004 effective tax rate was 39.6% before the deferred tax asset valuation adjustment compared to prior year at 39.2% and is expected to remain approximately within this range for 2005.

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

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

Gross profit for the year ended December 31, 2003 was $11.9 million, a decrease of $11.3 million, or approximately 48.5%, when compared to the previous year. Gross profit as a percentage of net sales decreased to 7.5% in 2003 from 13.8% in 2002. The decrease in gross profit was due to several factors.

Unplanned costs on certain projects were driven by the transition to more complex, multi-story projects that accelerated during 2003. With these complex projects accounting for more than 50% of the net revenue in 2003,

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up significantly over the prior year, we went through a significant learning curve, particularly for the on-site portion of the contracts.

Unabsorbed fixed and semi-variable costs associated with the decline in production during the fourth quarter contributed significantly to the decline in gross margin for 2003. Fourth quarter sales of $23.1 million were down $13.1 million from the prior year fourth quarter.

During 2003 we closed three leased facilities, consolidating three facilities into one in Florida and two facilities into one in Arizona. These plant consolidations increased incremental costs in fiscal 2003, as compared to fiscal 2002.

In 2003, selling, general and administrative (SG&A) expenses increased $0.4 million over the prior year with SG&A costs representing 5.1% of sales compared to 4.6% of sales the prior year. This increase was directly attributable to increased sales activities in the Florida classroom market and to the shift to direct sales for non-classroom sales.

In 2002, in accordance with SFAS No. 142, we took an impairment charge to goodwill of $37,289,000, which was recognized as a cumulative effect of a change in accounting principle in the three month period ended March 31, 2002. Effective January 1, 2002 we ceased amortizing our goodwill and continued to amortize the covenants not to compete we received in our acquisitions of businesses over their respective useful lives. In 2003, covenant amortization decreased $0.3 million as a result of certain covenants not to compete becoming fully amortized. The remaining covenants not to compete will be fully amortized in 2006.

Net interest expense declined from $1.6 million in 2002 to $1.4 million in 2003. The decrease was attributable to repayments on long-term debt. As a percentage of net sales, net interest expense decreased to 0.8% in 2003 from 1.0% in 2002.

The provision for income taxes was $0.9 million for the year ended December 31, 2003, compared to $5.8 million for 2002. Our effective tax rate decreased from 42.8% for the year ended December 31, 2002 to 39.2% for the year ended December 31, 2003. The decrease in income taxes was attributed to the decrease in income before income taxes and a decrease in estimated taxes for tax settlements.

LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations and capital expenditures mostly with cash generated internally by operations, and borrowings under various credit facilities as well as cash received from exercised options. During the year ended December 31, 2004 we used cash of approximately $9.1 million for operations; for the years ended December 31, 2003 and 2002, our operations provided cash in the amounts of approximately $14.1 million and $8.2 million, respectively. At December 31, 2004, we had $11.8 million in cash and cash equivalents and working capital of $11.6 million.

Cash increased over the prior year due to the sale of a senior secured, convertible note presented in more detail below. Accounts receivable increased primarily due to the higher revenues occurring during the fourth quarter of 2004 compared to 2003, resulting from favorable market conditions and recovery over the prior year. Inventories increased primarily due to increased purchases of steel during 2004 as we attempted to manage both price impact and possible shortages resulting from the world-wide steel commodity issues experienced throughout 2004.

Current liabilities increased during the fourth quarter of 2004 compared to 2003 due to an increase in accounts payable attributable primarily to increased volume inventory purchases and a lengthening of payment terms and to an increase in current revolving credit.

We had working capital of $11.6 million, $21.5 million and $28.0 million at December 31, 2004, 2003 and 2002, respectively. In 2004, current assets increased by $24.4 million over the prior year, with an increase of $10.7

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million in cash, an increase of $10.8 million in contracts receivable and an increase of $6.8 million in inventory accounting for the majority of the increase. These increases were offset by a decrease in current deferred tax assets of $2.9 million. Current liabilities increased by $34.3 million for 2004 when compared to the prior year. This increase is primarily attributable to an increase of $14.0 million in accounts payable, an $8.5 million increase in current debt year-over-year, an increase of $4.2 million in accrued estimated future contract losses and $5.2 million in derivatives and warrants relating to a $25 million convertible note issued on December 31, 2004.

Our financial performance during 2004 resulted in the violation of certain bank covenants under our loan agreement during the year and at year-end for which we received a waiver from our lenders. On December 29, 2004 we entered into an Amendment and Forbearance Agreement with our existing senior lending group which provided for, among other things, relief from our financial covenants through March 31, 2005 to allow for refinancing our debt. At December 31, 2004, $16.9 million was outstanding under the revolving credit line and $5.0 million was outstanding under the term portion of the facility with the existing senior lending group.

On December 31, 2004, we entered into a securities purchase agreement (the Agreement) with an institutional investor, pursuant to which we issued and sold to the investor a $25 million convertible note (the Note) and a related warrant.

The principal owing under the Note is due on December 31, 2009. The Note holder has the option to cause us to redeem up to $8.33 million face amount of the Note on each of June 30 of 2006, 2007 and 2008. The principal is payable in cash; provided, however, that if our senior credit facility would prevent such cash redemption, at our option, the principal may be repaid by converting the principal amount to be repaid into common stock at a conversion price of 95% of the arithmetic average trading price of the common stock for a specified number of trading days prior to the scheduled principal payment date and if other specified conditions are satisfied, including compliance with Nasdaq National Market regulations. We have the right to prepay the principal amount owing under the Note in cash after December 31, 2007 if certain conditions are met, among other things that the price of our common stock exceeds 175% of the Conversion Price.

The Note bears interest at 7% per annum. Interest on the Note is payable quarterly in cash.

The holder of the Note may convert the Note into common stock at any time or from time-to-time at $8.70 per share (the Conversion Price). The Note has a weighted average anti-dilution provision that would cause an adjustment to the Conversion Price and the number of shares issuable under the Note upon the occurrence of specified events.

The Note contains restrictive covenants, including covenants that prohibit us from incurring certain indebtedness, establishing certain liens on our assets or issuing any variable priced securities. The terms of the Note require us to maintain certain financial ratios on a quarterly basis. The covenants are substantially similar to the covenants contained in our new senior credit facility.

The Note is secured by a $10 million cash collateral account. The cash collateral is not accessible for use by us until such time as it is released. The cash held in the cash collateral account will be reduced as certain financial milestones are met and can be used, in part, to fund optional redemptions that may be exercised by the Note holder on June 30 of 2006, 2007 and 2008, or upon an “event of default” under the Note.

The Note is also secured by a security interest in our assets, subordinated only to certain senior indebtedness, including our existing credit facility with our senior lenders.

As part of the transaction, we issued to the investor a five-year warrant to purchase shares of common stock exercisable for 8% of the shares underlying the Note. The exercise price of the warrant is equal to the Conversion Price. The warrant may be exercised at any time after issuance and expires December 31, 2009. The warrant has a weighted average anti-dilution provision that would cause an adjustment to the exercise price of, and number of shares issuable under, the warrant upon the occurrence of specified events.

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We are required to seek stockholder approval prior to any future issuance of our common stock or securities convertible into our common stock that would constitute a dilutive issuance under the Note and warrant, with certain exceptions (such as issuances of common stock under our stock option plans or in connection with any acquisition in an amount not to exceed 20% of the outstanding shares of common stock in any twelve month period).

On February 25, 2005, we entered into a Financing Agreement (the New Credit Facility) with Fortress Credit Corp., as administrative and collateral agent, and certain senior lenders as identified in the New Credit Facility. The New Credit Facility provides $17 million in revolving credit loans (the Revolving Credit Loan) and a $21 million term loan (the Term Loan). The Revolving Credit Loan also provides for a letter of credit subfacility in the maximum amount of $10 million. The New Credit Facility is secured by substantially all of our assets.

The Revolving Credit Loan will bear interest at a variable rate of 3.75% to 4.75% per annum plus the greater of 5% or JPMorgan Chase Bank’s prime rate. Interest is payable monthly. The Term Loan will bear interest at the 30-day LIBOR rate plus a variable rate of 7.5% to 8.5% per annum payable monthly. The variable rates depend on our senior secured leverage ratio.

Amounts owed under the New Credit Facility may be accelerated under various circumstances more fully described in the New Credit Facility, including, but not limited to, the failure to make principal or interest payments due under the New Credit Facility, breaches of certain covenants, representations and warranties set forth in the New Credit Facility, the occurrence of certain insolvency or receivership events affecting us and certain events having a material adverse effect on our business, assets, operations or condition taken as a whole.

The New Credit Facility contains customary affirmative and negative covenants for credit facilities of this type, including, without limitation, restrictions on our ability to, among other things, incur debt, create liens, make investments, pay dividends, sell assets, undertake transactions with affiliates, and enter into unrelated lines of business.

In connection with the New Credit Facility, on February 25, 2005, we terminated our existing credit agreement with Wells Fargo, N.A., as administrative agent and the lenders that were parties to such agreement (the “Prior Credit Facility”). We paid off all amounts borrowed and due under the Prior Credit Facility, which aggregated approximately $22.3 million. We did not incur any penalties in connection with the termination of the Prior Credit Facility.

Capital expenditures amounted to $1.4 million, $4.7 million and $1.1 million during the years ended December 31, 2004, 2003 and 2002, respectively. In all three years, the majority of expenditures were a result of expanding production capacity at our various facilities. We expect to expend approximately $5.0 million in capital projects in 2005.

The Company has suffered a significant operating loss as well as negative operating cash flow in the latest fiscal year and continues to be subject to certain risks common to companies in this industry as further described in “Factors That Could Affect Future Results.” Our financial performance for the quarter ended March 31, 2005 resulted in the violation of certain financial covenants within the New Credit Facility and, thru cross default provision, the Note. We have obtained waivers for all such covenant violations at March 31, 2005 and are still able to borrow under the facility. However, we are in discussions with our lenders regarding amendments to the New Credit Facility in order to avoid possible future violations. Based upon our discussions, any covenant amendments to the New Credit Facility will be conditioned upon the closing of the financing described below.

To strengthen our financial condition we have been exploring additional financing opportunities and in this regard executed a nonbinding term sheet on June 14, 2005 for a private placement of equity securities in the aggregate amount of $11.7 million. Pursuant to the term sheet, the investors will purchase shares of the Company’s common stock at $5.67 per share, based on 85% of the average closing price for May 26, 2005 thru June 2, 2005. The stock will include five-year warrants to purchase additional shares equal to one-half the number of shares initially sold. The warrants will have an exercise price of $8.00 per share. We expect to close this transaction in July 2005.

Although we believe that we will be successful in closing the private placement and in obtaining covenant amendments, there can be no assurance that these events will occur or occur on favorable terms.

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COMMITMENTS AND CONTINGENCIES

The following table represents a list of our contractual obligations and commitments as of December 31, 2004:

USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES

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

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

We are 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 (IBNR) claims. It is important to recognize that variation from the estimates of future liability 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.

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.

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

New Accounting Standards

In November 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 151, “Inventory Costs”, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. This statement requires those items be recognized as current-period charges. The provisions of this statement shall be effective for inventory costs incurred during fiscal periods beginning after June 15, 2005. We do not expect adoption of this statement to have a material impact on our consolidated financial statements.

In December 2004, the FASB issued Statement No. 123R, Share-Based Payment, a revision to Statement No. 123, Accounting for Stock-Based Compensation. This statement replaces Statement No. 123 and supercedes APB No. 25. This statement addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. Statement 123R will require us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. We are required to adopt Statement 123R effective January 1, 2006 and have two transition options under the new standard; however, the recognition of compensation expense is the same under both options. We believe the adoption of Statement 123R may have a material effect on our financial results during the period of adoption, however, the full effect of adopting Statement 123R has not been determined.

SEASONALITY

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

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

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

INFLATION

We are subject to the effects of changing prices. During 2004, we realized dramatic and unprecedented increases in the price of certain commodities used in the production of our products, in particular steel, dimensional lumber

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and plywood products. While the cost outlook for commodities used in our production is not certain, management believes it can manage these inflationary pressures with sales price adjustments as allowed by our newer contracts and by actively pursuing internal cost reduction efforts, including improved supply chain and inventory management.

FACTORS THAT COULD AFFECT FUTURE RESULTS

Our business is subject to a number of business risks and uncertainties that could impact the accuracy of any future looking statements in this report and cause actual results to differ materially from those projected or anticipated. These risk and uncertainties include, but are not limited to the following:

We experienced significant operating losses in 2004 as well as negative operating cash flow for the year and may experience future operating losses and negative operating cash flow. Future losses or negative operating cash flow may adversely affect our liquidity and ability to obtain bonding. We have been negotiating for additional financing in 2005. Although we signed a non-binding term sheet on June 14, 2005 for a private placement of common stock and warrants in the aggregate amount of $11.7 million, there is no assurance that the transaction will close. Because the stock will be sold at $5.67 per share, the transaction will be dilutive to existing shareholders.

The availability of funding for new school construction and rehabilitation of existing schools by school districts is subject to financial and political considerations which vary from district to district and is not tied to demand. In the past, the level of funding available from the states in which we do business to the school districts which are the end customers of our classrooms have caused such districts to experience budget shortfalls and to reduce their demand for our products despite growing student populations.

We receive a significant portion of our revenues from the sale of classrooms to California school districts, to leasing companies that lease to such school districts and to a small number of independent dealers. The loss of any one of these customers or failure to collect a receivable from them could adversely affect our operations and financial position.

We are not always able to obtain the right in our contracts to pass through raw material price increases to our customers. Should we experience significant increases in the price of raw materials as we did in 2004, our profitability could be adversely affected.

Prior to 2002, the demand from school districts was mostly for standardized buildings which we were experienced in assembling in our factories. In the last two years, the demand shifted to more complex customized buildings which required more on-site work. Initially, we were not as experienced in this type of work as we were in the factory construction of standardized buildings. In some cases, this resulted in inefficiencies on our part. We believe we now have sufficient expertise and experience to handle the current demand for customized buildings, but should the type of buildings demanded by our customers change again, we may, for a time, experience inefficiencies that could reduce profitability.

We closed our plant in Lathrop, California on April 30, 2005. The effect of this closure will increase our transportation costs for jobs in Northern California. This increase in costs could reduce our ability to obtain future work in Northern California or to complete any jobs obtained at prior profit margins. If we are unable to effectively integrate our former operations at Lathrop into our remaining plants, it could have a material adverse

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effect on our overall operations. Additionally, if we are unable to sublease the Lathrop facility for at least the rent that we remain obligated to pay through December 31, 2019, it will have an adverse effect on our cash flow.

Although the requirement of having state approved plans creates a barrier to entry in California in the modular school building market, no such barrier exists in the commercial and light industrial modular building industry. The barriers in that market are relatively low, consisting primarily of capital required to develop manufacturing facilities and the availability of a qualified labor pool. Manufacturers of other modular buildings, including housing and classrooms, who possess a skilled work force and manufacturing facilities, could easily adapt their manufacturing facilities to produce modular structures. We expect continued competition from existing competitors as well as competition from new entrants into the modular building market.

Our Management’s Report on Internal Controls over Financial Reporting set forth in Item 9A below in accordance with Section 404 of the Sarbanes-Oxley Act has identified certain material weaknesses in our internal controls. We are in the process of remediating the material weaknesses. We do not expect to complete our remediation before September 2005. If we fail to complete our remediation or if we complete the remediation but fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain an effective internal control environment could prevent us from reporting our financial results in a timely and accurate basis or cause investors to lose confidence in our reported financial information.

Our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal controls over financial reporting and our external auditors’ audit of that assessment has required the commitment of significant financial and managerial resources. Our compliance efforts have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Direct costs relating to 2004 Sarbanes-Oxley compliance were approximately $500,000.

In addition to the foregoing, other risks and uncertainties that may affect our future operations are described in our other filings with the Securities and Exchange Commission, including, without limitation, our reports on Form 10-Q. Additional risks and uncertainties not known to us or that we currently deem immaterial may also impair our business operations.

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 financial instruments that are subject to such risks, but we are exposed to the risk of increased interest rates on our current credit facility and the risk of loss on credit extended to our customers.

INTEREST RATE RISK

We are exposed to the risk of fluctuation in interest rates on our credit facilities. During 2004, we did not use interest rate swaps or other types of derivative financial instruments. The carrying value of our prior credit facility at December 31, 2004 approximates fair value as the interest rate is variable and resets frequently. Indebtedness under the replacement credit facility we obtained in 2005 bears interest at LIBOR plus additional interest of between 7.5% and 8.50%. The additional interest charge is based upon certain financial ratios. We

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estimate that the average amount of debt outstanding under the credit facility for 2005 will be $28 million. Therefore, a one-percentage point increase in interest rates would result in an increase in interest expense of $280,000 for the year.

CREDIT RISK

Our credit terms generally are “net 30” for dealer accounts and defined by contracts which vary for direct sales. We actively monitor the risk of loss through a variety of control procedures involving senior management. Historically, credit losses have been less than 0.5% of sales and within our expectations.

The consolidated financial statements of the Company, along with the notes thereto and the Report of Independent Registered Public Accounting Firm report thereon, required to be filed in response to this Item 8 are attached hereto as exhibits under Item 15.

On April 11, 2005, KPMG LLP (“KPMG”) advised us that it will not stand for reelection as our independent registered public accounting firm following completion of its audit of our consolidated financial statements for the year ended December 31, 2004, and management’s assessment of internal control over financial reporting as of December 31, 2004 and the effectiveness of internal control over financial reporting as of December 31, 2004.

The audit reports of KPMG on our consolidated financial statements as of and for the years ended December 31, 2004 and 2003 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. The audit reports of KPMG on management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting as of December 31, 2004 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that KPMG’s report indicates that we did not maintain effective internal control over financial reporting as of December 31, 2004 because of the effect of material weaknesses on the achievement of the objectives of the control criteria and contains explanatory paragraphs as described in Item 9A(d), Report of Independent Registered Public Accounting Firm.

In connection with the audits of the two fiscal years ended December 31, 2004, and the subsequent interim period through April 11, 2005, there were: (1) no disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement, or (2) reportable events, except that KPMG reported on material weaknesses as described in Item 9A(d), Report of Independent Registered Public Accounting Firm.

On May 4, 2005, we engaged Peterson & Company (“Peterson”) as our independent registered public accountants for the interim periods after December 31, 2004 and the year ending December 31, 2005. The decision to retain Peterson was approved by our Audit Committee. During our two most recent fiscal years and all subsequent interim periods, we did not consult with Peterson (i) regarding the application of accounting principles to a specific transaction, either completed or proposed, (ii) on any matter that was the subject of a disagreement or a reportable event as defined in Items 304(a)(1)(iv) and (v) of Regulation S-K, or (iii) the type of audit opinion that might be rendered on our financial statements, nor during such period did Peterson provide to us, either a written report or oral advice, that was an important factor considered by us in reaching a decision as to an accounting, auditing or financial reporting issue.

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(a) Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, and because of the material weaknesses discussed below, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, our disclosure controls and procedures were not effective in ensuring that the information required to be filed or submitted under 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 accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

However, we believe that the accompanying consolidated financial statements fairly present the financial condition and results of operations for the fiscal years presented in this Annual Report on Form 10-K.

(b) Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15(d)-15(f) promulgated under the Securities Exchange Act 1934. Those rules define internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency (as defined in PCAOB Auditing Standard No. 2), or combination of control deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2004. The assessment identified the following material weaknesses in our internal control over financial reporting:

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In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Because of the material weaknesses described above, management concludes that, as of December 31, 2004, our internal control over financial reporting was not effective.

Our independent registered public accountants have issued an attestation report on management’s assessment of our internal controls over financial reporting. This report appears below.

(c) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal controls performed during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In order to address the material weaknesses described above, management has taken the following actions subsequent to December 31, 2004:

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Our management believes that the above remediation measures as outlined, will address the material weaknesses described above. The Audit Committee and management will continue to monitor the effectiveness of our internal controls and procedures on an ongoing basis and will take further action as appropriate.

(d) Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Modtech Holdings, Inc.:

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting (Item 9A (b)), that Modtech Holdings, Inc. (the Company) did not maintain effective internal control over financial reporting as of December 31, 2004, because of the effect of material weaknesses identified in management’s assessment, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented

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or detected. The following material weaknesses have been identified and included in management’s assessment as of December 31, 2004:

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We also have audited, in accordance with the standards of Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company. The aforementioned material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2004 consolidated financial statements, and this report does not affect our report dated June 16, 2005, which expressed an unqualified opinion on those consolidated financial statements.

In our opinion, management’s assessment that Modtech Holdings, Inc. did not maintain effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/    KPMG LLP

Costa Mesa, California

June 16, 2005

ITEM 9B.    OTHER INFORMATION

There was no information we were required to disclose in a report on Form 8-K during the fourth quarter 2004 that was not disclosed.

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PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) Board of Directors

Our current directors are as follows:

David M. Buckley, age 40, joined the Company in September 2004 as President and Chief Executive Officer. Prior to joining Modtech, for most of the past six years (from 1998 to 1999 and from 2001 through 2004) Mr. Buckley held senior executive and management positions at various divisions and subsidiaries of General Electric Company (“GE”) and GE Capital where he was responsible for generating sales growth and raising productivity and profitability by reducing product cycle-times, increasing inventory turns, and improving operational efficiencies. During 2000 through 2001, he was the President and Chief Executive Officer of TIMM Communications, Inc., a technology start-up business in the transportation marketplace. Prior to joining GE, Mr. Buckley was a Senior Manager and Principal Consultant for Price Waterhouse LLP (now known as PricewaterhouseCoopers) from 1995 to 1998 and a General Manager at Palmer Incorporated from 1992 to 1995. He has an MBA from the Wharton School of Business and a Bachelor of Science from the United States Naval Academy.

Robert W. Campbell, age 48, who was elected to the Board of Directors of Modtech, Inc. in 1991, is the Managing Director of Corporate Finance at B. Riley & Co. Inc. From 1993 to 1995, Mr. Campbell was Senior Vice President-Investment Banking at Baraban Securities, Incorporated. From 1982 to 1993, Mr. Campbell was employed by the Seidler Companies, Inc. as Senior Vice President-Corporate Finance.

Daniel J. Donahoe III, age 71, who was elected to the Board of Directors of Modtech, Inc. in 1998, is co-founder and President of Red Rock Resorts, which operates special, unique boutique resorts in the Western United States. He also serves as Chairman of Daybreak Investments, a privately-held investment company. Mr. Donahoe has been actively involved in the commercial and residential real estate market in the southwest over the past 30 years.

Stanley N. Gaines, age 70, has been a director of the Company since August 2000. Mr. Gaines served as the Chairman and CEO of GNB Incorporated from 1982 to 1988. He was Sr. Vice President International from 1981 through 1983 and Group Vice President, Batteries from 1971 through 1981 for Gould Incorporated. Mr. Gaines serves on the Board of Directors of Students in Free Enterprise.

Charles R. Gwirtsman, age 51, has been a director of the Company since February 1999. He is Managing Director of KRG Capital Partners, LLC, a middle-market private equity firm. Prior to joining KRG Capital in 1996, Mr. Gwirtsman served as Senior Vice President of FCM Fiduciary Capital Management Company, the manager of two mezzanine debt funds, from January 1994 to June 1996. Prior to this, Mr. Gwirtsman was employed as a Corporate Vice President at PaineWebber, Incorporated from 1988 to 1993 as a member of the Private Finance Group. Mr. Gwirtsman serves on the Board of Directors of Cuisine Solutions and a number of privately held companies.

Charles C. McGettigan, age 60, serves as Chairman of the Board and has been a director of Modtech, Inc. since June 1994. Mr. McGettigan is a co-founder and managing director of the investment banking firm of McGettigan, Wick & Co., Inc. and a co-founder and general partner of Proactive Investment Managers, L.P., the general partner of Proactive Partners, L.P., a merchant banking fund. Prior to founding McGettigan, Wick & Co., Inc., he was a Principal, Corporate Finance, of Hambrecht & Quist and a Senior Vice President of Dillon, Read & Co. Mr. McGettigan currently is a director of Cuisine Solutions, Inc., Onsite Energy, PMR Corporation, Sonex Research Corporation and Tanknology-NDE.

Myron A. Wick III, age 61, became a director of Modtech, Inc. in June 1994. Mr. Wick is currently a managing director and co-founder of McGettigan, Wick & Co., Inc., an investment banking firm formed in 1988, and a

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general partner of Proactive Investment Managers, L.P., the general partner of Proactive Partners, L.P., a merchant banking fund formed in 1991. Mr. Wick is a director of Sonex Research Corporation, Story First Communications, Citizens Communications and Tanknology-NDE.

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

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

The members of the Company’s Audit Committee are Robert W. Campbell, Stanley N. Gaines and Charles R. Gwirtsman. The Board of Directors has determined that Robert Campbell is an “audit committee financial expert” as defined under applicable Securities and Exchange Commission rules.

(b) Executive Officers

The executive officers of the Company are David M. Buckley, President and Chief Executive Officer, Dennis L. Shogren, Senior Vice President of Finance and Chief Financial Officer and Ronald C. Savona, Senior Vice President of Operations and Chief Operating Officer. Mr. Buckley is the only director employed by the Company. The business experience of Mr. Buckley is set forth above under the heading “Board of Directors”.

Mr. Shogren, age 51, joined Modtech in June 2003 as its Chief Financial Officer. Prior to joining the Company, Mr. Shogren held senior level positions at Haskel International from 2001 to 2003 and for Ameron International from 1997 to 2001, where he was responsible for corporate finance and reporting, manufacturing, engineering and support functions, with additional emphasis on lean manufacturing improvements. He holds an MBA degree from the University of Rochester’s William E. Simon Graduate School of Business Administration and a Bachelor of Science degree in accounting from the State University of New York at Brockport.

Mr. Savona, age 53, joined the Company in January 2003 as Director of Marketing and promoted to Chief Operating Officer in October 2004. Mr. Savona has more than 30 years of experience in top management positions in the modular building and construction industry. From 2000 through 2002, Mr. Savona was Chief Executive Officer of Eco Building Systems, Inc., a manufacturer of modular buildings utilizing a patented glass fiber reinforced concrete wall system. While the CEO of Eco Building Systems, Inc., Mr. Savona was primarily responsible for the manufacturing operations and growth of the company. During 2002, an involuntary petition for reorganization was filed against Eco Building Systems, Inc. under Chapter 11 of the Bankruptcy Code. Mr. Savona left Eco Building Systems, Inc. in December of 2002. He is a graduate of the UCLA executive management program.

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

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

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the Company’s officers and directors and persons who own more than ten percent of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership (Forms 3, 4 and 5) with the Securities and Exchange Commission and to furnish the Company with copies of all such forms which they file. To the Company’s knowledge, based solely on the Company’s review of such reports or written representations from certain reporting persons that no Forms 5 were required to be filed by those persons, the Company has determined that David Buckley, Dennis Shogren and Ron Savona were each inadvertently late in making their Form 3 filings.

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(d) Code of Conduct and Ethics

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

ITEM 11.    EXECUTIVE COMPENSATION

(a) Director Compensation

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

(b) Compensation of Executive Officers

The following table summarizes the annual and long term compensation paid by the Company during fiscal years ended December 31, 2004, 2003 and 2002 to those persons who were (i) the Chief Executive Officer during the last fiscal year and (ii) each additional executive officer at the end of the last fiscal year whose total compensation exceeded $100,000 during the year ended December 31, 2004.

Summary Compensation Table

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(c) Employment Agreement

We entered into an employment agreement in September 2004 with Mr. Buckley. This agreement expires in December 2006. It provides for early severance payments of between 12 and 18 months salary and includes, among other provisions, a base annual salary of not less than $345,000. Mr. Buckley is entitled to earn bonuses ranging from 68% to 158% of annual base salary, based on meeting certain performance targets. Mr. Buckley has the discretion to receive up to one-half (but no less than 25%) of the aggregate bonus earned in a given year in cash, with the remainder to be paid in stock options.

We entered into an employment agreement in December 2003 with Mr. Gruber. This agreement provided a base annual salary of $465,000 and included, among other provisions, early severance payments of between one and two years salary. Mr. Gruber was also entitled to earn bonuses of up to 100% of annual base salary based on performance. This agreement was terminated on August 7, 2004 upon Mr. Gruber’s discontinuation of employment with us.

(d) 401(k) Plan

Under our 401(k) Plan, our officers and other employees may elect to defer up to 12% of their compensation, subject to limitations under the Internal Revenue Code. We make contributions on a 50% matching basis. Amounts deferred are deposited by us in a trust account for distribution to employees upon retirement, attainment of age 59 ¹/2, permanent disability, death, termination of employment or the occurrence of conditions constituting extraordinary hardship. For the year ended December 31, 2004, the Company contributed $6,000 as matching contributions to the account of Mr. Gruber.

(e) Equity Compensation Plan Information

Refer to Item 5 for equity compensation plan information.

The following table sets forth certain information regarding options granted by us during the year ended December 31, 2004 to the executive officers identified in the Summary Compensation Table set forth above:

Options Granted in Fiscal Year 2004

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The following table sets forth information regarding options exercised during the year ended December 31, 2004 by the executive officers identified in the Summary Compensation Table set forth above, as well as the aggregate value of unexercised options held by such executive officers at December 31, 2004. We have no outstanding stock appreciation rights, either freestanding or in tandem with options.

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

(f) Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee during the fiscal year ended December 31, 2004 were Charles R. Gwirtsman, Charles C. McGettigan and Myron A. Wick III. Neither Mr. Gwirtsman nor Mr. Wick has ever been an officer or employee of ours or any of our subsidiaries. As stated above, Mr. McGettigan served as the interim Chief Executive Officer from August 2004 to September 2004. None of the executive officers served as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of such committee, the entire Board of Directors) of another entity during 2004.

(g) Compensation Committee Report

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

The principal component of the compensation of the executive officers is their base salaries. The committee also retains the discretion to award bonuses based on corporate or individual performance. The committee evaluates the practices of various industry groups, market data, including data obtained from time to time from outside compensation consultants, and other economic information to determine the appropriate ranges of base salary

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levels which will enable us to retain and incentivize the executive officers. Throughout the year, the committee members review the corporate and individual performance factors described above. The committee, based upon its review of performance for the previous year and its review of our operating plan, establishes salary levels and awards any bonuses to the executive officers, including the chief executive officer.

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

Salary for the chief executive officer is set through surveys adjusted for recent company performance with an additional bonus component based on company performance in the current year. In 2004, Mr. Gruber’s bonus was based on our performance through August 7, 2004 and Mr. Buckley’s bonus was a signing bonus deemed necessary to attract Mr. Buckley to join our Company.

The Report of the Compensation Committee will not be deemed to be incorporated by reference into any filing by us under the Securities Act of 1933 or the Securities Act of 1934, except to the extent we specifically incorporate the report by reference.

(h) Stock Performance Graph

The graph set forth below compares the stock price of our Company since January 1, 2000 against (1) the S&P 500, and (2) the composite of the companies listed by Hemscott in its non-residential building construction (“Peer Group”). The graph is based upon information provided to us by Hemscott.

COMPARE 5-YEAR CUMULATIVE TOTAL RETURN

AMONG MODTECH, INC.,

S&P 500 INDEX AND SIC CODE INDEX

ASSUMES $100 INVESTED ON JAN. 1, 2000

ASSUMES DIVIDEND REINVESTED

FISCAL YEAR ENDING DEC. 31, 2004

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(a) Principal Holders of Voting Securities

The following table sets forth information regarding the ownership of our Common Stock as of May 13, 2005, by (i) each of the current directors, (ii) each person or group known by us to be the beneficial owner of more than 5% of our outstanding Common Stock, and (iii) all current directors and executive officers as a group. Except as otherwise noted and subject to community property laws where applicable, each beneficial owner has sole voting and investment power with respect to all shares shown as beneficially owned by them. Except as otherwise indicated, the address of each holder identified below is in care of the Company, 2830 Barrett Avenue, Perris, California 92571.

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(b) Equity Compensation Plan Information

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

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ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

One of the companies to which we sold modular classrooms, Class Leasing, is partially owned by our former Chief Executive Officer, Evan M. Gruber. All sales to Class Leasing were on our standard terms and at our standard wholesale prices. The table below summaries these sales for the years 2004, 2003 and 2002. Mr. Gruber resigned from our Company effective August 7, 2004. Therefore, the sales for 2004 shown below are for the 7-month period ended July 31, 2004:

As of December 31, 2004 and 2003, the unpaid invoices resulting from the above transactions totaled $0 and $1,867,000, respectively. Additional amounts arising from these transactions are included in the following captions on our consolidated balance sheets:

Our manufacturing facilities in Perris, California and Lathrop, California are leased under non-cancelable operating leases through 2019 from Pacific Continental Modular Enterprises and BMG, respectively. Our former Chief Executive Officer, Evan Gruber, is a partner in both of these partnerships. Mr. Gruber resigned his positions with us effective August 7, 2004. The aggregate monthly lease payments for both properties is approximately $40,000 per month.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

(a) Summary of Annual Audit and Tax Fees

KPMG LLP was retained to serve as the Company’s independent registered public accounting firm for the fiscal years ending December 31, 2004 and 2003. Fees billed to the Company by KPMG LLP for services rendered during fiscal year 2004 and 2003 were as follows:

(b) Audit Committee’s pre-approval policies and procedures

Our Audit Committee has adopted written pre-approval policies and procedures pursuant to which audit, audit-related and tax services, and all permissible non-audit services, are pre-approved by category of service. The term of such pre-approval is generally 12 months, unless the Audit Committee determines otherwise.

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

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PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Exhibits and Financial Statement Schedules

1 & 2. Index to Financial Statements

The following financial statements and financial statement schedule of the Company, along with the notes thereto and the Report of Independent Registered Public Accounting Firm, are filed herewith, as required by Part II, Item 8 hereof.