Modtech Inc – ‘424B4’ on 11/6/97

As of:  Thursday, 11/6/97   ·   Accession #:  892569-97-3011   ·   File #:  333-37473

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Prospectus   —   Rule 424(b)(4)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B4       424B4 Dated November 4, 1997                          62    372K 

Document Table of Contents

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                                                This filing is made pursuant
                                           to Rule 424(b)(4) under
                                         the Securities Act of
                                           1933 in connection with
                                              Registration No. 333-37473

PROSPECTUS                                                                      
MODTECH LOGO                                                                    

1,750,000 SHARES

 MODTECH, INC.

COMMON STOCK

  Of the 1,750,000 shares of Common Stock offered hereby (the "Offering"),
1,000,000 shares are being sold by Modtech, Inc. ("Modtech" or the "Company")   
and 750,000 shares are being sold by certain shareholders of the Company (the   
"Selling Shareholders"). See "Principal and Selling Shareholders." The Company  
will not receive any of the proceeds from the sale of shares by the Selling     
Shareholders. See "Use of Proceeds."                                            

  The Company's Common Stock is listed on The Nasdaq National Market under
the symbol "MODT." On November 3, 1997, the last reported sales price for a     
share of the Company's Common Stock on The Nasdaq National Market was $22.625.  
See "Market Information and Related Matters."                                   

------------------------

     SEE "RISK FACTORS" BEGINNING AT PAGE 7 FOR CERTAIN INFORMATION WHICH SHOULD
BE CAREFULLY CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED   
HEREBY.                                                                         

------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES 
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. 

                                                        [Enlarge/Download Table]
                                                                                                      
======================================================================================================
                                                     UNDERWRITING       PROCEEDS        PROCEEDS TO   
                                      PRICE TO       DISCOUNTS AND       TO THE         THE SELLING   
                                     THE PUBLIC     COMMISSIONS(1)     COMPANY(2)      SHAREHOLDERS   
------------------------------------------------------------------------------------------------------
Per Share.........................      $20.00           $1.10           $18.90           $18.90      
------------------------------------------------------------------------------------------------------
Total(3)..........................    $35,000,000     $1,925,000       $18,900,000      $14,175,000   
======================================================================================================

(1) The Company and the Selling Shareholders have agreed to indemnify the       
 Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."                 

(2) Before deducting expenses payable by the Company (including expenses of the 
Selling Shareholders) estimated at $300,000.                            

(3) Certain of the Selling Shareholders have granted the Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to 262,500
additional shares of the Company's Common Stock, at the same price and  
subject to the same Underwriting Discounts and Commissions as set forth 
    above, solely to cover over-allotments, if any. If the Underwriters exercise
  such option in full, the total Price to the Public, Underwriting Discounts
and Commissions and Proceeds to the Selling Shareholders will be        
  $40,250,000, $2,213,750 and $19,136,250, respectively. See "Underwriting."

------------------------

    The shares of Common Stock are offered subject to prior sale, when, as and
if delivered to and accepted by the Underwriters and subject to certain other   
conditions. The Underwriters reserve the right to withdraw, cancel or modify    
said offer and to reject orders in whole or in part. It is expected that        
delivery of the Common Stock will be made on or about November 7, 1997, at the  
offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167. 

BEAR, STEARNS & CO. INC.                                                        

CRUTTENDEN ROTH   
INCORPORATED  
                                              L.H. FRIEND, WEINRESS,
                                                        FRANKSON & PRESSON, INC.

THE DATE OF THIS PROSPECTUS IS NOVEMBER 4, 1997.

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[ PHOTOGRAPHS ] 

   CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,     
INCLUDING OVER-ALLOTMENTS, STABILIZING AND SHORT-COVERING TRANSACTIONS AND THE  
IMPOSITION OF PENALTY BIDS. SEE "UNDERWRITING."                                 

   CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ALSO ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET.   
SEE "UNDERWRITING."                                                             

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PROSPECTUS SUMMARY

    The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements and  
notes thereto appearing elsewhere in this Prospectus. Unless otherwise          
indicated, the information contained in this Prospectus assumes that there has  
been no exercise of the Underwriters' over-allotment option and options to      
purchase shares of Common Stock granted or to be granted under the Company's    
stock option plans.                                                             

THE COMPANY 

 Modtech designs, manufactures, markets and installs modular relocatable
classrooms. Based upon 1996 net sales, the Company believes that it is the      
largest manufacturer of modular relocatable classrooms in California. The       
Company's classrooms are sold primarily to California school districts, and to  
third parties and the State of California principally for lease to California's 
school districts. Modtech's products include standardized classrooms, as well as
customized structures for use as libraries, gymnasiums, computer rooms and      
bathroom facilities. The Company believes that its modular structures can be    
substituted for virtually any part of a school. The Company's classrooms are    
engineered and constructed in accordance with structural and seismic safety     
specifications adopted by the California Department of State Architects which   
regulates all school construction on public land, standards which are more      
rigorous than the requirements for other portable units.                        

     In recent years, population growth and demographic and geographic shifts in
California student enrollments have necessitated the addition of more classrooms
at existing schools and the construction of new schools to serve new residential
developments. However, as a consequence of budget shortfalls experienced by the 
State of California and many California school districts from 1991 through the  
middle of 1996, the level of funding for the construction of schools declined,  
even though school enrollments increased annually during this period. 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. Without the addition of 
new classrooms, the average class size will continue to grow since the          
California Department of Finance has estimated that student enrollment in grades
kindergarten through 12 will increase by approximately 18% from 1995 through    
2005.                                                                           

Funding for new school construction is provided primarily at the State
level, (i) through annual budget allocations of funds derived from general      
revenue sources and (ii) from the sale of statewide bond issues. As the State of
California budget deficit has ameliorated, the legislature has increased funding
for the addition of classrooms in an effort to reduce the average number of     
students per classroom. For the 1996 - 1997 school year, the State spent $822   
million in funding under the California Class Size Reduction Program adopted in 
1996, including $200 million specifically for facilities which may be           
relocatable classrooms. The Company believes that State funding for the         
reduction of class sizes during the 1997 - 1998 school year will be as high as  
$1.5 billion for both general operations and school facilities. In addition to  
funding out of its annual budget, the State is empowered to issue general       
obligation bonds to finance, among other things, the construction of school     
facilities. The California State School Facilities Conference Committee recently
adopted a package of bills which, if approved by the Legislature, would, among  
other things, place an $8.2 billion school construction bond on the June 1998   
California ballot. If these proposals are on the ballot and are approved by the 
voters, $4 billion of the bonds would be sold in 1998, followed by $4.2 billion 
in 2000, the proceeds of which would be used to construct and modernize existing
school facilities, acquire land to build new schools, and construct or add      
classrooms. See "Business -- Legislation and Funding."                          

    These factors have combined to increase the demand for modular relocatable
classrooms, which cost significantly less and take much less time to construct  
and install than conventional school facilities, and which permit a school      
district to relocate the units as student enrollments shift. In addition, the   
Company's products provide added flexibility to school districts in financing   
the costs of adding classroom space, since modular relocatable classrooms are   
considered personal property which can be financed out of a district's operating
budget in addition to its capital budget. In recognition of these advantages,   
California legislation currently requires, with certain exceptions, that at     
least 30% of all new classroom space added using State funds must be relocatable
structures. See "Business -- Legislation and Funding."                          

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The Company currently operates a total of six production lines at four
plants, which serve both the Northern and Southern California markets. The      
Company's manufacturing process is vertically integrated in that the Company    
fabricates many of the components used in the construction of its classrooms.   
The Company believes that this capability enables it to be one of the low-cost  
producers in California of standardized modular relocatable classrooms, and     
provides it with a competitive advantage over other manufacturers who must use  
third parties to supply these parts.                                            

During recent periods, the Company's net sales and profitability have 
increased. Net sales increased from $19.4 million for the year ended December   
31, 1995, to $49.9 million for the year ended December 31, 1996. During the     
first six months of 1997, net sales were $58.9 million, as compared to $12.7    
million during the same period of 1996. Net income for the year ended December  
31, 1996 and the six months ended June 30, 1997 was $4.3 million and $5.2       
million, respectively. The Company attributes these recent improved results to  
the heightened demand for modular relocatable classrooms in California, the     
Company's ability to increase production capacity to accommodate this demand,   
its efficient and cost effective manufacturing processes, and the quality and   
attractive pricing of its classrooms.                                           

 The Company's strategy is to expand its production capacity to meet the
increased demand for modular relocatable classrooms, to increase its share of   
the California market for such classrooms, and to continue to develop new       
product designs and manufacturing alternatives. In addition, the Company intends
to increase its efforts to expand the market for its classrooms to include      
neighboring states and to develop and more extensively market additional        
non-classroom products. Recent diversification initiatives have included the    
acquisition of a manufacturing operation that enhanced the Company's ability to 
produce relocatable buildings for sale to commercial customers and modular      
shelters for electronics used in the telecommunications industry. The Company   
also recently hired a salesperson to market the Company's relocatable classrooms
to customers in the States of Arizona and Nevada and to private schools and     
child care providers within California.                                         

    Organized in 1982, the Company is a California corporation whose executive
offices are located at 2830 Barrett Avenue, Perris, California 92571, and its   
telephone number is (909) 943-4014. The Company maintains a website that        
contains information concerning its products and personnel and copies of its    
most recent press releases, the address of which is http://www.modt.com.        

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RECENT DEVELOPMENTS 

The Company issued a press release on October 21, 1997, announcing    
operating results, for the third quarter ended September 30, 1997. Net sales for
the third quarter ended September 30, 1997 were $39.8 million, compared to $14.3
million for the quarter ended September 30, 1996, an increase of 178%. Net sales
for the nine months ended September 30, 1997 were $98.7 million, compared to    
$27.0 million for the nine months ended September 30, 1996, an increase of 266%.
Operating income for the third quarter of 1997 was $7.2 million, compared to    
operating income of $1.5 million for the third quarter of 1996. Net income for  
the third quarter of 1997 was $4.4 million, or $0.45 per share, compared to $1.3
million, or $0.14 per share, for the third quarter of 1996, and net income for  
the nine months ended September 30, 1997 was $9.7 million, or $1.00 per share,  
compared to $2.2 million, or $0.24 per share, for the nine months ended         
September 30, 1996. Net income per share is computed on a fully diluted basis.  
At September 30, 1997, the Company's backlog was $85.0 million, compared to     
$80.4 million at June 30, 1997 and $40.0 million at September 30, 1996.         

THE OFFERING

                                                        [Enlarge/Download Table]
                                                                                            
Common Stock offered by the Company........... 1,000,000 shares                             
Common Stock offered by the Selling                                                         
  Shareholders................................ 750,000 shares                               
Common Stock to be outstanding after the                                                    
  Offering(1)................................. 9,705,836 shares                             
Use of proceeds by the Company................ Debt repayment,  additions to working capital
                                               and other general corporate purposes. See    
                                               "Use of Proceeds."                           
Nasdaq National Market symbol................. MODT                                         

---------------                                                                 
(1) Excludes 1,206,933 shares issuable upon exercise of outstanding options, and
196,667 shares available for the grant of additional options under the  
Company's stock option plans. See "Management -- Stock Options."        

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SUMMARY FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 

 The historical income statement data, certain of the selected operating
data, and the balance sheet data set forth below have been derived from the     
Company's audited and unaudited financial statements included elsewhere herein  
and should be read in conjunction with such financial statements and the notes  
thereto.                                                                        

                                                        [Enlarge/Download Table]

                                                                             SIX MONTHS ENDED   
                                              YEAR ENDED DECEMBER 31,            JUNE 30,       
                                          -------------------------------   ------------------- 
                                           1994        1995        1996      1996        1997   
                                          -------     -------     -------   -------     ------- 
                                                                                                
INCOME STATEMENT DATA:                                                                          
Net sales................................ $20,355     $19,386     $49,886   $12,704     $58,906 
Gross profit.............................   2,589       2,985       7,257     1,842      11,218 
Income from operations...................   1,035       1,372       4,912       994       9,036 
Interest expense, net....................    (471)       (387)       (422)     (107)       (549)
Net income...............................     602         965       4,269       889       5,195 
Net income available for Common                                                                 
  Stock(1)...............................     602         799       4,221       841       5,195 
Earnings per common share(2)............. $  0.11     $  0.12     $  0.47   $  0.10     $  0.55 
Weighted average shares outstanding                                                             
  (in thousands)(2)......................   5,294       6,712       9,041     8,750       9,370 

SELECTED OPERATING DATA:                                                                        
Gross margin.............................    12.7%       15.4%       14.5%     14.5%       19.0%
Operating margin.........................     5.1%        7.1%        9.8%      7.8%       15.3%
Standard classrooms sold(3)..............     680         605       1,610       413       2,066 
Backlog at period end(4)................. $ 7,000     $ 4,100     $58,000   $20,400     $80,400 

                                                        [Enlarge/Download Table]

                                                                         AS OF JUNE 30, 1997   
                                                                       ------------------------
                                                                       ACTUAL    AS ADJUSTED(6)
                                                                       -------   --------------
                                                                                               
BALANCE SHEET DATA                                                                             
Working capital....................................................... $26,647      $ 31,915   
Total assets..........................................................  58,387        63,655   
Total liabilities.....................................................  37,800        24,468   
Long-term debt, excluding current portion(5)..........................  15,132         1,800   
Shareholders' equity..................................................  20,587        39,187   

---------------                                                                 
(1) After deduction of preferred stock dividends of $166,000 and $48,000 for the
 years ended December 31, 1995 and 1996, respectively, and $48,000 for the
 six months ended June 30, 1996. No preferred stock was outstanding during
  the six months ended June 30, 1997, and none currently is outstanding. See
Note 11 of Notes to Financial Statements.                               

(2) Computed on a fully diluted basis.                                          

(3) Determined by dividing the total square footage of floors sold during the   
year by 960 square feet, the floor area of a standard classroom. See    
"Business -- Modular Classrooms."                                       

(4) The Company manufactures classrooms to fill existing orders only, and not   
for inventory. Backlog consists of sales orders scheduled for completion
during the next 12 months.                                              

(5) For a description of the Company's long-term debt, see Notes 5 and 6 of     
Notes to Financial Statements.                                          

(6) Adjusted to reflect the sale of 1,000,000 shares of Common Stock by the     
 Company in the Offering at an offering price of $20.00 per share, and the
  application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."                                                   

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RISK FACTORS

In addition to the other information in this Prospectus, the following
risks and other factors should be considered carefully in evaluating the Company
and its business before purchasing any of the Common Stock offered hereby. The  
statements contained in this Prospectus that are not purely historical are      
forward-looking statements within the meaning of the Private Securities         
Litigation Reform Act of 1995, including but not limited to statements regarding
the Company's assumptions, expectations, anticipations, hopes, beliefs, plans,  
proposals, intentions or strategies regarding the future. Actual results could  
differ materially from those projected in any forward-looking statements as a   
result of a number of factors, including those detailed in this "Risk Factors"  
portion of this Prospectus as well as those set forth elsewhere in this         
Prospectus. The forward-looking statements are made as of the date of this      
Prospectus and the Company assumes no obligation to update the forward-looking  
statements, or to update the reasons why actual results could differ materially 
from those projected in the forward-looking statements.                         

LEGISLATION AND SCHOOL FUNDING                                                  

    The demand for modular relocatable classrooms in California is affected by
various statutes which, among other things, prescribe the way in which all      
school classrooms to be constructed on public lands must be designed and        
engineered, the methods by which the Company's customers, primarily individual  
school districts, obtain funding for the construction of new facilities, and the
manner in which available funding is to be spent. The Company's business        
therefore is, to a material degree, dependent upon the legislative and          
educational policies and financial condition of the State of California. Funding
for new school construction and rehabilitation of existing schools by California
school districts currently is provided primarily at the State level, through    
annual allocations of funds derived from general revenue sources and statewide  
bond issues. In addition, school districts obtain funding for the purchase or   
lease of school facilities through the imposition of Developers' Fees and local 
bond issuances. The availability of this funding is subject to financial and    
political considerations which vary from district to district. The use of       
funding provided by the State is also affected by the legislative policies of   
the State of California. For example, California legislation currently requires,
with certain exceptions, that 30% of new classroom space added using State funds
must be relocatable structures. The Company's classroom units qualify as        
relocatable structures. There are, however, alternative structures that are less
modular in nature than the Company's classrooms that may also satisfy this      
legislative requirement. Shortages of financial resources at either State or    
local levels, or changes in the legislative or educational policies of the State
of California, could have a material adverse effect upon the Company.           

The California State School Facilities Conference Committee recently  
adopted a package of proposals that, if approved by the Legislature, would      
provide, among other things, for the inclusion on the June 1998 ballot of an    
$8.2 billion bond issue for school construction and a proposed amendment to the 
California Constitution that would reduce the percentage of voter approval      
required for local bond issues from that currently specified in Proposition 13. 
In addition, the provision of California legislation which requires that 30% of 
all new classrooms added using State funds be relocatable structures would be   
eliminated. As currently drafted, approval of each of these proposals is linked,
and in order for any of them to become effective the $8.2 billion bond issue    
must be approved by a majority of the California voters and the proposed        
Constitutional Amendment must be approved by two-thirds of the California       
voters. See "Business -- Legislation and Funding."                              

CYCLICAL INDUSTRY                                                               

The Company's modular classrooms are purchased predominately by school
districts in California. The ability of California school districts to finance  
the acquisition of the Company's products is largely dependent upon the level of
funding available from the State. Although the need for additional classrooms   
remained unabated in the early to mid 1990's as California school districts     
continued to encounter student population growth, the increasing budget         
shortfalls that the State and many California school districts were experiencing
imposed severe limitations on the levels of funding for the construction of     
schools. As a result, the Company experienced declines in net sales, and        
reported losses from 1991 through 1993, forcing it to reduce the number of      
production lines in operation from six at the end of 1991 to two at the end of  
1993 and to reduce its workforce by approximately 53%.                          

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The State of California recently has increased the amount of funds    
available for expenditures on school facilities, and the market for the         
Company's modular relocatable classrooms has grown rapidly, particularly since  
the implementation of the State's Class Size Reduction Program in November 1996.
Since the beginning of 1995, the Company has re-opened three production lines   
and acquired a fourth line, resulting in six production lines in operation at   
the end of 1996. The Company currently is completing a seventh line and plans to
open another line in 1998. However, there can be no assurance that the funding  
for school construction provided by the State of California will continue to    
increase, or even remain at current levels, in future periods particularly since
the Class Size Reduction Program has already produced the desired result for    
over half of the student population in the target grade levels of kindergarten  
through the third grade. If demand for modular classrooms declines, or the      
Company's share of the market is reduced, the Company may again be faced with   
excess production capacity. On the other hand, if demand for the Company's      
classrooms were to increase to levels beyond current expectations, the Company's
growth would be restricted by its production capacity unless and until the      
Company were able to construct or acquire additional production lines, at costs 
and over a period of time which might prove substantial.                        

    Primarily as a result of the adoption of the Class Size Reduction Program,
the Company's net sales and profitability increased significantly in 1996, and  
have continued to increase during the first six months of 1997. Future operating
results could be affected by a number of factors, including changes in the      
legislative and educational policies and financial condition of the State of    
California, reductions in sales and/or margins caused by competitive pressures  
and other factors, increases in operating costs including costs of raw          
materials, production, supplies, personnel, equipment and transportation, and   
increases in governmental regulation imposed under federal, state or local laws,
including regulations applicable to environmental, labor and trade matters. For 
these reasons, among others, there can be no assurance that the Company will be 
able to sustain rates of revenue growth and profitability in future periods that
are comparable to those experienced in the past one and one-half years.         

CONCENTRATION OF CUSTOMERS                                                      

   The Company's sales to date have been almost exclusively limited to sales
of classrooms to customers in California, and the Company has sold only a       
limited number of classrooms to private schools and child care facilities. The  
Company markets and sells its modular classrooms primarily to California school 
districts, as well as to the State of California and leasing companies who lease
the classrooms principally to school districts. Given the costs of              
transportation, the Company believes that it can compete cost-effectively       
primarily within a radius of approximately 300 miles from any one of its        
production facilities. Although parts of Nevada and Arizona are within such     
distance, neither Nevada nor Arizona has a legislative and regulatory           
environment regarding the construction and financing of schools that is         
comparable to that which has given rise to the modular relocatable classroom    
industry in California. During the year ended December 31, 1996, approximately  
94% of the Company's net sales was attributable to the sale of classrooms, with 
sales of classrooms to individual school districts and third party lessors to   
school districts representing approximately 81% of the Company's net sales, and 
sales of classrooms directly to the State of California accounting for          
approximately 13% of net sales for the year. Unless and until the Company is    
successful in implementing its strategy for increasing sales out of state and of
non-classroom products, the Company's operating results will continue to be     
largely dependent on sales of modular relocatable classrooms to California      
school districts.                                                               

MANAGEMENT OF GROWTH                                                            

   The Company's business has grown rapidly during the past one and one-half
years and such growth has placed and, if sustained, will continue to place      
significant demands on the Company's management and resources. The Company's    
work force increased to 877 employees at June 30, 1997, from 93 employees at    
December 31, 1995. The Company's future operating results will depend on        
management's ability to manage future growth and there can be no assurance that 
efforts to manage future growth will be successful. Should such growth continue,
it is likely that the Company would be required to hire and train additional    
technical, marketing and administrative personnel, implement additional         
operating and financial controls, install additional reporting and management   
information systems for order processing, system monitoring, customer service   
and financial reporting, and otherwise improve coordination between the design  
and engineering, marketing, sales, manufacturing and finance functions.         

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   From time to time the Company has reviewed possible acquisitions of other
companies, with a view to expanding its operations to other geographic areas or 
acquiring the capability of manufacturing other, non-classroom products.        
Although it is not currently a party to any agreement or understanding with     
respect to any prospective acquisition, the Company expects that it will        
continue to explore possible acquisitions for the purpose of, among other       
things, implementing its strategies for reducing its dependence on sales of     
classrooms within California. Should the Company determine to make an           
acquisition to extend its operations outside of California, expand its          
non-classroom product line, increase its production capacity and/or market share
within California, or add the capability of manufacturing more of the components
used in the construction of its classrooms through one or more acquisitions, the
completion of any such acquisition could require sizeable amounts of capital and
is likely to involve the diversion of management's attention for other business 
concerns. There can be no assurance that any acquired operations will be        
integrated efficiently or prove profitable, and unexpected problems encountered 
in connection with any such acquisition could have a material adverse effect on 
the Company.                                                                    

DEPENDENCE ON KEY PERSONNEL                                                     

  The Company is dependent upon its executive officers, Evan M. Gruber and
Michael G. Rhodes, and the loss of either of these key executive officers could 
have a material adverse effect on the Company. Although the Company has entered 
into an employment agreement with Mr. Gruber which continues through December   
31, 1999, each of the these key executive officers may voluntarily terminate his
employment with the Company at any time. The continued success of the Company   
also will depend upon its ability to attract and retain skilled employees. See  
"Management."                                                                   

PRODUCT SPECIFICATIONS AND REGULATION                                           

 Most of the Company's contracts require the Company to build classrooms
which meet certain established state mandated function and manufacturing        
specifications. Under such contracts, which are typically fixed-price contracts,
the Company assumes the liability for correcting, without additional            
compensation, any deficiencies which cause its classrooms to fail inspection and
certification tests. The Company relies upon its experience and expertise to    
evaluate the potential for such liability inherent in prospective projects and  
to price its bids accordingly. In addition, the Company attempts to minimize the
risk of additional exposure by adopting strict quality control standards, and   
subjecting its units under construction to extensive testing under the          
supervision of inspectors hired by the Company's customers. To date, the        
Company's operating performance has not been materially impacted adversely by   
such liability. However, should the Company incur such liability significantly  
in excess of that estimated, its profitability would be adversely affected. See 
"Business -- Marketing; -- Manufacturing; -- Regulation."                       

COMPETITION                                                                     

    The modular relocatable classroom industry is highly competitive, with the
market divided among a number of privately owned companies each of whose share  
of the market the Company believes is smaller than that of the Company. In      
addition, other firms with resources greater than the Company's, including      
mobile home and modular office builders and recreational vehicle manufacturers, 
may enter into competition with the Company in the future. Furthermore, as the  
Company attempts to implement its strategy to increase sales outside of         
California and to increase its sales of non-classroom products, it is           
anticipated that it will encounter new competitors with more experience and a   
more established position than the Company in those markets. There can be no    
assurance that the Company will not encounter increased competition in the      
future which could limit the Company's ability to maintain or increase its      
market share and could adversely effect the Company's prices, gross margins, and
overall operating results. See "Business -- Competition."                       

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY                        

  The Company's quarterly revenue typically has been highest in the second
and third quarters of the year when school districts generally place a large    
number of orders for modular classrooms to be delivered in time for the upcoming
school year. Additionally, first and fourth quarter revenues typically are lower
due to a                                                                        

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greater number of holidays and days of inclement weather during such periods.   
The Company's operating results may vary significantly from quarter to quarter  
due to a variety of factors including legislative and funding developments,     
changes in the Company's product and customer mix, the availability and cost of 
raw materials, the introduction of new products by the Company or its           
competitors, pricing pressures, general economic and industry conditions that   
affect customer demand, and other factors. The Company's results of operations  
for any quarter would be adversely affected if orders are not shipped in any    
quarter as anticipated.                                                         

FLUCTUATION OF STOCK PRICE                                                      

In recent periods, there has been a relatively limited market for the 
Company's Common Stock, and the market price for a share of the Company's Common
Stock has fluctuated significantly. See "Market Information and Related         
Matters." Although both the number of shares of the Common Stock outstanding in 
the public float and the number of the Company's shareholders are expected to   
increase significantly following the Offering, there can be no assurance that a 
more active trading market for the Common Stock will develop or be sustained    
following the Offering. Factors such as quarterly variations in the Company's   
results of operations, trends in the Company's industry and market conditions   
generally, and the limited and sporadic trading volume of the Company's Common  
Stock which has been experienced from time to time, have caused, and may        
continue to cause, the market price of the Company's Common Stock to fluctuate  
significantly. In addition, the stock markets have experienced extreme price and
volume fluctuations during certain periods. These broad market fluctuations and 
other factors may adversely affect the market price of the Company's Common     
Stock for reasons unrelated to the Company's operating performance. Accordingly,
the price at which shares are offered hereby should not be considered an        
indication of any price at which the Common Stock may trade in the future.      

SHARES ELIGIBLE FOR FUTURE SALE                                                 

 Of the 9,705,836 shares of the Company's Common Stock to be outstanding
immediately following this Offering, 5,899,081 shares are held by affiliates of 
the Company but are not subject to the restrictions on resale under the         
Securities Act of 1933, as amended (the "Securities Act"), having been          
registered for public resale from time to time under the Securities Act. All of 
these shares (with certain limited exceptions) are subject to agreements which  
restrict their public sale for 180 days after the date of this Prospectus       
without prior approval of Bear, Stearns & Co. Inc. In addition, the Company has 
registered 1,650,000 shares of Common Stock issuable upon exercise of options   
granted and to be granted under the Company's existing stock option plans. Sales
of substantial amounts of these shares, or even the potential for such sales,   
could have a depressive effect on the market price of shares of the Company's   
Common Stock and could impair the Company's ability to raise capital through the
sale of its equity securities.                                                  

CONTROL BY EXISTING MANAGEMENT                                                  

Upon completion of this Offering, the current executive officers and  
directors of the Company will continue to own or have voting control over, in   
the aggregate, approximately 35% of the shares of the Company's Common Stock    
then outstanding. Accordingly, the Company's current management will continue to
be able to significantly influence the outcome of elections of directors and    
other matters presented to a vote of shareholders. See "Principal and Selling   
Shareholders."                                                                  

ABILITY TO ISSUE PREFERRED STOCK; ANTI-TAKEOVER DEVICES                         

The Company is authorized to issue up to 5,000,000 shares of Preferred
Stock in one or more series, the terms of which may be determined at the time of
issuance by the Board of Directors, without further action by the Company's     
shareholders, and may include voting rights, preferences as to dividends and    
liquidation, conversion and redemptive rights and sinking fund provisions.      
Although the Company currently has no plans to issue any shares of Preferred    
Stock, the issuance of Preferred Stock in the future could affect the rights of 
the holders of the Company's Common Stock and thereby reduce the value of the   
Common Stock. In particular, specific rights granted to future holders of       
Preferred Stock could be used to restrict the Company's ability to merge with or
sell its assets to a third party, or otherwise delay, discourage, or prevent a  
change in                                                                       

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control of the Company. In addition, the Company's Articles of Incorporation    
provide for the elimination of cumulative voting and the classification of the  
Company's Board of Directors in certain circumstances, provisions which are also
likely to delay, discourage, or prevent a change in control of the Company. The 
Company has been advised by the Underwriters that the number of holders of the  
Company's Common Stock is likely to increase to at least 800 as a consequence of
this Offering, in which event the Company intends to cause these provisions of  
its Articles of Incorporation to become operative by electing a classified Board
of Directors, without cumulative voting, at the next annual meeting of          
shareholders.                                                                   

USE OF PROCEEDS 

  The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered by the Company are estimated to be approximately $18.6     
million, based on an offering price of $20.00 per share, and after deduction of 
underwriting discounts and commissions and estimated offering expenses payable  
by the Company. The Company will not receive any proceeds from the sale of      
shares by the Selling Shareholders.                                             

 The Company plans to use a portion of the net proceeds to repay amounts
then outstanding under the Company's $20.0 million revolving loan agreement with
a bank (the "Credit Facility"). As of September 30, 1997, borrowings of $12.6   
million were outstanding under the Credit Facility. Amounts borrowed under the  
Credit Facility are secured by substantially all of the Company's assets, bear  
interest at a floating rate equal to 0.75% above the lender's reference rate,   
and must be repaid in full by September 30, 2000. The Company expects that it   
will continue to use the Credit Facility as a source of working capital after   
this Offering is consummated.                                                   

    The remaining net proceeds are expected to be used as additions to working
capital to finance higher levels of accounts receivable and inventories, and for
other general corporate purposes. Pending the uses described herein, it is      
anticipated that all or a portion of the net proceeds will be invested in high  
quality income-producing instruments such as short-term corporate investment    
grade or United States Government interest-bearing securities.                  

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MARKET INFORMATION AND RELATED MATTERS

The Company's Common Stock is currently traded on The Nasdaq National 
Market under the symbol "MODT." The following table sets forth on a per share   
basis the high and low closing sales prices per share for the Common Stock on   
The Nasdaq National Market for the periods indicated.                           

                                                                [Download Table]

                                                            HIGH         LOW  
                                                           -------     -------
                                                                              
1995                                                                          
First Quarter............................................  $ 1.750     $ 1.125
Second Quarter...........................................    1.875       1.125
Third Quarter............................................    2.625       1.188
Fourth Quarter...........................................    2.375       1.875

1996                                                                          
First Quarter............................................    3.625       2.250
Second Quarter...........................................    5.750       2.875
Third Quarter............................................    9.625       3.500
Fourth Quarter...........................................    9.500       6.875

1997                                                                          
First Quarter............................................   13.875       7.875
Second Quarter...........................................   13.000      10.625
Third Quarter............................................   25.250      11.625
Fourth Quarter (through November 3)......................   29.250      21.625

    On November 3, 1997, the closing sales price on The Nasdaq National Market
for a share of the Company's Common Stock was $22.625. The approximate number of
holders of record of the Company's Common Stock as of September 30, 1997, was   
78.                                                                             

DIVIDEND POLICY 

     The Company has not paid cash dividends on its Common Stock since 1990. The
Board of Directors currently intends to follow a policy of retaining all        
earnings, if any, to finance the continued growth and development of the        
Company's business and does not anticipate paying cash dividends in the         
foreseeable future. Any future determination as to the payment of cash dividends
will be dependent upon the Company's financial condition and results of         
operations and other factors deemed relevant by the Board of Directors.         
Moreover, the Company's Credit Facility currently prohibits the payment of cash 
dividends.                                                                      

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CAPITALIZATION

     The following table sets forth the capitalization of the Company as of June
30, 1997, and as adjusted to give effect to receipt by the Company of the net   
proceeds from the sale of the 1,000,000 shares of Common Stock offered by the   
Company hereby (at a public offering price of $20.00 per share) and the         
anticipated application of the net proceeds therefrom. See "Use of Proceeds."   

                                                        [Enlarge/Download Table]

                                                                             JUNE 30, 1997     
                                                                        -----------------------
                                                                        ACTUAL      AS ADJUSTED
                                                                        -------     -----------
                                                                            (IN THOUSANDS)     
                                                                                               
Long-term debt (1):                                                                            
  Bank debt (less current portion)....................................  $13,332       $    --  
  Industrial development bonds........................................    1,800         1,800  
                                                                        -------       -------  
          Total long-term debt........................................   15,132         1,800  
                                                                        =======       =======  

Shareholders' equity:                                                                          
  Preferred Stock, $0.01 par value: 5,000,000 shares authorized; none                          
     issued and outstanding...........................................       --            --  
  Common Stock, $0.01 par value: 20,000,000 shares authorized,                                 
     8,679,000 shares outstanding(2), (9,679,000 shares outstanding as                         
     adjusted)........................................................    4,043         4,053  
Additional paid-in capital............................................   15,744        34,334  
Retained earnings.....................................................      800           800  
                                                                        -------       -------  
     Total shareholders' equity.......................................   20,587        39,187  
                                                                        -------       -------  
          Total capitalization........................................  $35,719       $40,987  
                                                                        =======       =======  

---------------                                                                 

(1) For a description of the Company's long-term debt, see Notes 5 and 6 of     
Notes to Financial Statements.                                          

(2) Excludes 1,206,933 shares issuable upon exercise of currently outstanding   
 options, and 196,667 shares available for the grant of additional options
  under the Company's stock option plans. See "Management -- Stock Options."

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SELECTED FINANCIAL DATA 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 

  The selected income statement and balance sheet data set forth below for
the three years ended December 31, 1994, 1995 and 1996 have been derived from   
the audited financial statements of the Company included elsewhere herein. The  
selected income statement and balance sheet data set forth below for the years  
ended December 31, 1992 and 1993 have been derived from audited financial       
statements of the Company that are not included herein. The selected income     
statement and balance sheet data for the six month periods ended June 30, 1996  
and 1997 have been derived from the unaudited financial statements of the       
Company included elsewhere herein and, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a   
fair presentation of the results of the Company's operations for such periods.  
The selected income statement and balance sheet data set forth below should be  
read in conjunction with those financial statements (including the notes        
thereto) and with "Management's Discussion and Analysis of Results of Operations
and Financial Condition" also included elsewhere herein. The results of the     
Company's operations for the six months ended June 30, 1997 are not necessarily 
indicative of results to be expected for any future period or the fiscal year   
ending December 31, 1997.                                                       

                                                        [Enlarge/Download Table]

                                                                                                         SIX MONTHS ENDED    
                                                             YEAR ENDED DECEMBER 31,                         JUNE 30,        
                                             -------------------------------------------------------   --------------------- 
                                              1992        1993        1994        1995        1996      1996          1997   
                                             -------     -------     -------     -------     -------   -------       ------- 
                                                                                                                             
INCOME STATEMENT DATA:                                                                                                       
Net sales................................... $31,192     $19,658     $20,355     $19,386     $49,886   $12,704       $58,906 
Cost of sales...............................  30,601      21,764      17,766      16,401      42,629    10,862        47,688 
                                             -------     -------     -------     -------     -------   -------       ------- 
Gross profit (loss).........................     591      (2,106)      2,589       2,985       7,257     1,842        11,218 
Selling, general and administrative                                                                                          
  expenses..................................   2,193       1,871       1,554       1,613       2,345       848         2,182 
Restructuring charge(1).....................      --       2,470          --          --          --        --            -- 
                                             -------     -------     -------     -------     -------   -------       ------- 
Income (loss) from operations...............  (1,602)     (6,447)      1,035       1,372       4,912       994         9,036 
Interest expense, net.......................    (705)       (565)       (471)       (387)       (422)     (107)         (549)
Other income (expense)......................     (19)         47          42          (1)        (13)       22            64 
                                             -------     -------     -------     -------     -------   -------       ------- 
Income (loss) before income taxes...........  (2,326)     (6,965)        606         984       4,477       909         8,551 
Provision for income taxes..................      40           1           4          19         208        20         3,356 
                                             -------     -------     -------     -------     -------   -------       ------- 
Net income (loss)...........................  (2,366)     (6,966)        602         965       4,269       889         5,195 
                                             =======     =======     =======     =======     =======   =======       ======= 
Net income (loss) available for Common                                                                                       
  Stock(2).................................. $(2,366)    $(6,966)    $   602     $   799     $ 4,221   $   841       $ 5,195 
                                             =======     =======     =======     =======     =======   =======       ======= 
Earnings (loss) per common share(3)......... $ (0.64)    $ (1.97)    $  0.11     $  0.12     $  0.47   $  0.10       $  0.55 
Weighted average shares outstanding (in                                                                                      
  thousands)(3).............................   3,701       3,529       5,294       6,712       9,041     8,750         9,370 

                                                        [Enlarge/Download Table]

                                                               AS OF DECEMBER 31,                        AS OF JUNE 30,    
                                             -------------------------------------------------------  ---------------------
                                              1992        1993        1994        1995        1996     1996          1997  
                                             -------     -------     -------     -------     -------  -------       -------
                                                                                                                           
BALANCE SHEET DATA:                                                                                                        
Working capital............................. $ 6,263     $ 3,063     $ 4,403     $ 4,383     $14,069  $ 7,738       $26,647
Total assets................................  28,903      16,620      15,919      15,154      34,029   21,833        58,387
Total liabilities...........................  17,193      11,889       7,900       6,411      18,716   11,712        37,800
Long-term debt, excluding current                                                                                          
  portion(4)................................   6,075       6,506       4,400       3,590       7,844    5,642        15,132
Shareholders' equity........................  11,709       4,732       8,019       8,743      15,313   10,121        20,587

                                                        [Enlarge/Download Table]

                                                                                                         SIX MONTHS ENDED    
                                                             YEAR ENDED DECEMBER 31,                         JUNE 30,        
                                             -------------------------------------------------------   --------------------- 
                                              1992        1993        1994        1995        1996      1996          1997   
                                             -------     -------     -------     -------     -------   -------       ------- 
                                                                                                                             
SELECTED OPERATING DATA:                                                                                                     
Gross margin................................     1.9%      (10.7%)      12.7%       15.4%       14.5%     14.5%         19.0%
Operating margin............................    (5.1%)     (32.8%)       5.1%        7.1%        9.8%      7.8%         15.3%
Standard classrooms sold(5).................     899         698         680         605       1,610       413         2,066 
Backlog at period end(6).................... $13,000     $ 6,000     $ 7,000     $ 4,100     $58,000   $20,400       $80,400 

---------------                                                                 

(1) Reflects the write-off of intangible assets related to the Company's 1989   
purchase of "Del-Tec", which manufactured more extensively customized,  
    higher priced units, whose operations were discontinued in the third quarter
of 1993.                                                                

(2) After deduction of preferred stock dividends paid or accrued of $166,000 and
 $48,000 for the years ended December 31, 1995 and 1996, respectively, and
  $48,000 for the six months ended June 30, 1996. No shares of the Company's
   preferred stock were outstanding during the six months ended June 30, 1997,
  and no shares currently are outstanding. See Note 11 of Notes to Financial
Statements.                                                             

(3) Computed on a fully diluted basis.                                          

(4) For a description of the Company's long-term debt, see Notes 5 and 6 of     
Notes to Financial Statements.                                          

(5) Determined by dividing the total square footage of floors sold during the   
year by 960 square feet, the floor area of a standard classroom. See    
"Business -- Modular Classrooms."                                       

(6) The Company manufactures classrooms to fill existing orders only, and not   
for inventory. Backlog consists of sales orders scheduled for completion
during the next 12 months.                                              

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
RESULTS OF OPERATIONS AND FINANCIAL CONDITION 

GENERAL                                                                         

    Since its inception in 1982, the Company's principal business has been the
design, manufacture, marketing and installation of modular relocatable          
classrooms. The Company's primary customers consist of individual school        
districts located in California and the State of California. The need for new   
classrooms in California school districts is generally governed by the number of
students per class, which is a function of the net migration of families into   
and out of school districts and the total number of new students entering the   
school system in any given year.                                                

Specific provisions of California legislation govern the amount of the
State's budget which must be directed toward the public school system. A portion
of these funds may be allocated for the addition of new classrooms. In addition,
the State can raise funds to build or add new classrooms through the issuance of
general obligation bonds. One condition currently governing the receipt of State
funding for new classroom additions is that at least 30% of the classroom space 
to be added must be relocatable structures, unless the school district can      
demonstrate that the use of such structures is not practical in any given       
situation. See "Business -- Legislation and Funding."                           

  In the early to mid 1990's, California suffered through a recession that
resulted in statewide budgetary constraints. During this period, the amount of  
State funds available for the addition of new classrooms was severely limited.  
As a result, the Company experienced a decline in net sales in 1992 and 1993,   
and net sales in 1994 and 1995 were essentially the same as those generated in  
1993. In response, the Company initiated a cost control program which included  
layoffs of approximately 80% of its staff as compared to the June 1991 work     
force, and temporarily closed its plant in Lathrop, California. In addition, the
Chief Executive Officer of the Company agreed to a 50% salary reduction and each
of the Company's other top management personnel agreed to a 10% salary          
reduction.                                                                      

     Due in large measure to the amelioration of the State budget crises and the
realization that the need for new classrooms in California far exceeded supply, 
beginning in the second half of 1996 and continuing into 1997, the State has    
increased the amount of funds targeted specifically for the addition of new     
classrooms. In November 1996, the State implemented the Class Size Reduction    
Program, the goal of which is to reduce public school class sizes in            
kindergarten through the third grade. For the 1996-1997 school year the State   
spent $822 million under this program, including $200 million specifically for  
facilities, which may be relocatable classrooms. Primarily as a result of the   
implementation of the Class Size Reduction Program, the Company's net sales     
increased to $49.9 million for the year ended December 31, 1996, compared to    
$19.4 million in 1995, and have increased to $58.9 million for the first half of
1997, compared to $12.7 million in the first six months of 1996. Although the   
State's upcoming budget has not been finalized, based upon information available
to it, the Company believes that total State funding under the Class Size       
Reduction Program for the 1997-1998 school year will be as high as $1.5 billion 
for both general operations and school facilities. In addition, an $8.2 billion 
school construction bond issue has been proposed, as part of a package of       
legislation, for inclusion on the June 1998 California ballot, the proceeds of  
which, if on the ballot and approved by the voters, would be used to construct  
and modernize existing school facilities, acquire land to build new schools, and
construct or add classrooms. See "Business -- Legislation and Funding." In      
response to the increased demand for its modular relocatable classrooms, the    
Company re-opened the Northern California Lathrop plant in 1997, is expanding   
its Southern California production capacity in Perris, and intends to further   
expand production capacity at the Lathrop plant in late 1998.                   

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RESULTS OF OPERATIONS                                                           

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

PERCENTAGE OF NET SALES 

                                                        [Enlarge/Download Table]

                                                                               SIX MONTHS     
                                              YEARS ENDED DECEMBER 31,       ENDED JUNE 30,   
                                            -----------------------------   ----------------- 
                                            1994        1995        1996    1996        1997  
                                            -----       -----       -----   -----       ----- 
                                                                                              
Net sales.................................. 100.0%      100.0%      100.0%  100.0%      100.0%
Cost of sales..............................  87.3        84.6        85.5    85.5        81.0 
                                            ------      ------      ------  ------      ------
Gross profit...............................  12.7        15.4        14.5    14.5        19.0 
Selling, general and administrative                                                           
  expenses.................................   7.6         8.3         4.7     6.7         3.7 
                                            ------      ------      ------  ------      ------
Income from operations.....................   5.1         7.1         9.8     7.8        15.3 
Interest expense, net......................  (2.3)       (2.0)       (0.8)   (0.8)       (0.9)
Other income...............................   0.2          --          --     0.2         0.1 
                                            ------      ------      ------  ------      ------
Income before income taxes.................   3.0         5.1         9.0     7.2        14.5 
Provision for income taxes.................    --         0.1         0.4     0.2         5.7 
                                            ------      ------      ------  ------      ------
Net income.................................   3.0%        5.0%        8.6%    7.0%        8.8%
                                            ======      ======      ======  ======      ======

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996       

 Net sales for the six months ended June 30, 1997 were $58.9 million, an
increase of $46.2 million, or approximately 364%, over net sales of $12.7       
million for the six months ended June 30, 1996. The increase in net sales is    
principally attributable to the economic recovery of the State of California and
the continued implementation of the Class Size Reduction Program for            
kindergarten through third grade classes in California's public elementary      
schools, which was adopted in 1996.                                             

   Gross profit for the six months ended June 30, 1997 was $11.2 million, an
increase of $9.4 million over gross profit of $1.8 million for the same period  
in 1996. Gross profit as a percentage of net sales for the six months ended June
30, 1997 was 19.0%, compared to 14.5% for the same period in 1996. The increase 
was due to the increased volume, utilization of a previously idle facility, and 
the realization of manufacturing efficiencies.                                  

    Selling, general and administrative expenses for the six months ended June
30, 1997 totaled $2.2 million, representing an increase of $1.3 million over the
$848,000 in selling, general and administrative expenses incurred for the six   
months ended June 30, 1996. The increase was primarily due to an increase in the
number of employees required to handle the greater sales volume. However, as a  
percentage of net sales, selling, general and administrative expenses decreased 
to 3.7% for the six months ended June 30, 1997, from 6.7% for the same period in
1996, largely as a result of the Company's strategy of controlling selling,     
general and administrative expenses in a period of growth.                      

  Due to increased volume and average borrowings outstanding, net interest
expense increased from $107,000 for the six months ended June 30, 1996 to       
$549,000 for the six months ended June 30, 1997.                                

  The provision for income taxes was $3.4 million for the six months ended
June 30, 1997, compared to $20,000 for the six months ended June 30, 1996. The  
Company's effective tax rate increased to 39.3% for the six months ended June   
30, 1997, compared to 2.2% for the six months ended June 30, 1996. The effective
tax rate for the six months ended June 30, 1996 was favorably impacted by the   
federal income tax benefit of remaining net operating loss carryforwards that   
were generated in prior years.                                                  

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YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995           

    Net sales for the year ended December 31, 1996 increased to $49.9 million,
an increase of $30.5 million, or approximately 157%, from $19.4 million in 1995.
The increase in 1996 was due principally to the amelioration of the State of    
California budget deficit and the implementation during the year of the Class   
Size Reduction Program for kindergarten through third grade classes in          
California's public elementary schools.                                         

 For the year ended December 31, 1996, gross profit was $7.3 million, an
increase of $4.3 million, or approximately 143%, over 1995 gross profit of $3.0 
million. However, as a percentage of net sales, gross profit declined to 14.5%  
in 1996, from 15.4% in 1995. The decline of gross profit as a percentage of net 
sales was primarily attributable to a change in product mix as the Company      
focused its resources on manufacturing more standardized classrooms which could 
be sold in greater numbers.                                                     

 In 1996, selling, general and administrative expenses increased to $2.3
million from $1.6 million, due to increases in the number of employees and an   
increase in selling costs. However, because net sales increased substantially   
during the year, selling, general and administrative expenses as a percentage of
net sales decreased to 4.7% in 1996 from 8.3% in 1995.                          

 For the year ended December 31, 1996, net interest expense increased by
$35,000, from $387,000 in 1995 to $422,000 in 1996, due to slightly higher      
borrowings to finance growing levels of accounts receivables and                
work-in-progress inventories attributable to the large 1996 increase in net     
sales.                                                                          

     The provision for income taxes was $208,000 for the year ended December 31,
1996, compared to $19,000 for the year ended December 31, 1995. The Company's   
effective tax rate increased to 4.6% for the year ended December 31, 1996, from 
1.9% for the year ended December 31, 1995, due to differences between financial 
and tax accounting treatment of certain items, primarily accrued liabilities.   
The effective tax rate in both periods was positively impacted by the           
utilization for federal income tax purposes of net operating loss carryforwards 
generated in prior years.                                                       

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994           

Net sales for the year ended December 31, 1995 were $19.4 million, a  
decrease of $969,000, or approximately 5%, from 1994 net sales of $20.4 million.
This slight decline in net sales from year to year was indicative of a          
stabilized market during the California recession.                              

   Although net sales were slightly lower in 1995 than in 1994, gross profit
increased to $3.0 million in 1995, an increase of $396,000, or approximately    
15%, from $2.6 million in 1994. Gross profit as a percentage of sales increased 
to 15.4% in 1995 from 12.7% in 1994. These increases were primarily due to      
savings associated with the Company's cost cutting measures initiated in 1993.  

    In 1995 and 1994, selling, general and administrative expenses remained at
approximately $1.6 million. However, selling, general and administrative        
expenses as a percentage of net sales increased to 8.3% in 1995, from 7.6% in   
1994, as a result of the slight decline in 1995 net sales.                      

  Net interest expense for the year ended December 31, 1995 decreased from
$471,000 in 1994 to $387,000 in 1995, as borrowing decreased during part of the 
year due to a decline in sales. In addition, the Company was able to reduce its 
borrowing by utilizing the proceeds from the 1994 Financing described below     
under "Liquidity and Capital Resources."                                        

    The provision for income taxes was $19,000 for the year ended December 31,
1995, compared to $4,000 for the year ended December 31, 1994. The Company's    
effective tax rate increased to 1.9% for the year ended December 31, 1995, from 
0.7% for the year ended December 31, 1994, due to differences between financial 
and tax accounting treatment of certain items, primarily accrued liabilities.   
The effective tax rate in both periods was positively impacted by the           
utilization for federal income tax purposes of net operating loss carryforwards 
generated in prior years.                                                       

INFLATION                                                                       

  The Company does not believe that inflation had a material effect on its
results of operations during the past two years. However, there can be no       
assurance that the Company's business will not be affected by inflation in the  
future.                                                                         

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QUARTERLY RESULTS                                                               

   The Company's quarterly operating results may fluctuate significantly due
to a variety of factors, including changes in the Company's product and customer
mix, the introduction of new products by the Company or its competitors, pricing
pressures, general economic conditions and other factors. In addition, it can be
expected that the Company will continue to incur product development, marketing 
and promotional expenses based upon management's expectations as to future      
sales. Since many of these expenses are committed in advance, the Company       
generally is unable to adjust spending in a timely manner to compensate for any 
unexpected shortfall in sales. If operating revenues do not meet the Company's  
expectations in any given quarter, quarterly operating results may be adversely 
affected. There can be no assurance that the Company will be profitable in any  
given quarter.                                                                  

 Historically, the Company's 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. Additionally, first and fourth quarter  
revenues are typically lower due to a greater number of holidays and days of    
inclement weather during such periods. The Company typically has been able to   
add employees as needed to respond to the corresponding increases in            
manufacturing output required to meet this seasonal demand. In addition, the    
Company's 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.                                                                      

     The following table sets forth certain quarterly financial data for each of
the four quarters in 1995 and 1996 and the first two quarters of 1997 which has 
been derived from unaudited financial statements that, in the opinion of        
management, reflect all adjustments (consisting only of normal recurring        
adjustments) necessary for a fair presentation of such quarterly information.   
The operating results for any quarter are not necessarily indicative of the     
results to be expected for any future quarter. In contrast to the typical       
seasonality of the Company's business, net sales in the fourth quarter of 1996  
were much higher than in any other quarter of that year, reflecting the         
increasing demand for the Company's classrooms experienced in recent periods.   

                                                        [Enlarge/Download Table]

                                                                QUARTER ENDED                                        
                         ------------------------------------------------------------------------------------------- 
                                    FISCAL 1995                          FISCAL 1996                  FISCAL 1997    
                         ---------------------------------   -----------------------------------   ----------------- 
                          MAR.     JUNE    SEPT.     DEC.     MAR.     JUNE     SEPT.     DEC.      MAR.      JUNE   
                          31,      30,      30,      31,      31,      30,       30,       31,       30,       30,   
                          1995     1995     1995     1995     1996     1996     1996      1996      1997      1997   
                         ------   ------   ------   ------   ------   ------   -------   -------   -------   ------- 
                                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)                           
                                                                                                                     
Net sales..............  $3,665   $5,712   $6,758   $3,251   $3,621   $9,083   $14,285   $22,897   $25,813   $33,093 
Gross profit...........     516      877      958      634      433    1,409     2,121     3,294     4,376     6,842 
Income from                                                                                                          
  operations...........     123      412      630      207      117      877     1,498     2,420     3,338     5,698 
Interest income                                                                                                      
  (expense)............    (100)    (138)    (182)      33      (38)     (70)     (142)     (172)     (219)     (330)
Income before income                                                                                                 
  taxes................      21      280      457      226       97      812     1,378     2,190     3,135     5,416 
Net income.............      21      280      457      207       97      792     1,329     2,051     1,912     3,283 
Net income available                                                                                                 
  for Common                                                                                                         
  Stock(1).............      21      280      457       41       97      744     1,329     2,051     1,912     3,283 
Net income per common                                                                                                
  share(2).............  $ 0.01   $ 0.04   $ 0.07   $ 0.00   $ 0.01   $ 0.09   $  0.14   $  0.23   $  0.20   $  0.35 
Weighted average shares                                                                                              
  outstanding(2).......   6,123    6,128    6,550    6,712    7,358    8,750     9,200     9,041     9,350     9,370 

---------------                                                                 

(1) After deduction of preferred stock dividends paid or accrued of $166,000 and
$48,000 in the quarters ended December 31, 1995 and June 30 1996,       
 respectively. No shares of the Company's preferred stock were outstanding
during the six months ended June 30, 1997, and no shares currently are  
outstanding. See Note 11 of Notes to Financial Statements.              

(2) Computed on a fully diluted basis.                                          

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LIQUIDITY AND CAPITAL RESOURCES                                                 

Since the 1994 Financing described below, the Company has funded its  
operations and capital expenditures with cash generated internally by           
operations, supplemented by borrowings under various credit facilities. During  
the years ended December 31, 1994, 1995 and 1996, and the six months ended June 
30, 1997, the Company's operations provided (used) cash in the amounts of       
approximately $428,000, $1.2 million, ($4.9 million) and ($4.5 million),        
respectively. At June 30, 1997, the Company had approximately $2.7 million in   
cash.                                                                           

    In September 1997, the Company amended its Credit Facility to increase the
amount which the Company is entitled to borrow thereunder and extend the term of
the commitment to September 30, 2000. The Company is entitled to borrow, from   
time to time, up to $20.0 million, with actual borrowings limited to specified  
percentages of eligible accounts receivable, equipment and inventories. On June 
30, 1997, the Company was entitled to borrow up to the maximum amount of the    
Credit Facility, and approximately $13.3 million was outstanding. Interest on   
outstanding balances is payable at a floating rate equal to 0.75% above the     
lender's reference rate. Borrowings are secured by substantially all of the     
Company's assets.                                                               

  The Company had working capital of $4.4 million, $14.1 million and $26.6
million at December 31, 1995, December 31, 1996 and June 30, 1997, respectively.
In the first six months of 1997, current assets increased by $24.4 million, with
an increase of $18.3 million in contracts receivable and an increase of $3.7    
million in inventories, primarily as a result of the increase in net sales for  
the period. Current liabilities increased by $11.8 million, with accrued        
liabilities and billings in excess of costs and estimated earnings increasing by
$5.4 million and $5.7 million, respectively, as a result of the higher level of 
net sales. In 1996, contracts receivable, costs and estimated earnings in excess
of billings on contracts, and inventories increased by $7.1 million, $7.6       
million, and $3.5 million, respectively, as the Company's net sales increased   
significantly during the second half of the year following implementation of the
State's Class Size Reduction Program. Accounts payable and accrued liabilities  
increased by $5.3 million and $2.3 million, respectively, in 1996, also as a    
result of the increase in net sales.                                            

     Capital expenditures amounted to $482,000, $2.0 million and $570,000 during
the years ended December 31, 1995 and 1996 and the six months ended June 30,    
1997, respectively. In 1995, the majority of these expenditures was concentrated
on maintenance of equipment. Capital expenditures increased significantly in    
1996 primarily as a result of the re-opening of the Company's Lathrop,          
California manufacturing facility. In September 1997, the Company began         
construction of an additional production line at one of its Perris, California  
facilities. The Company estimates that 1997 capital expenditures, including the 
costs of this additional production line, will total approximately $2.0 million.
The Company expects that capital expenditures in 1998 will be approximately $2.0
million, which includes the costs of adding a new production line at the        
Northern California plant in Lathrop in late 1998.                              

  The Company has a $4.0 million Industrial Development Bond issued by the
Industrial Development Authority of the County of San Joaquin, California, the  
net proceeds of which were used to partially finance the $6.0 million cost of   
construction of the Company's Lathrop, California facility. The loan to the     
Company must be repaid over a 26 year period, and bears interest at a variable  
rate (initially 6.75% per annum), which is repriced weekly, subject to          
conversion to a fixed rate at the option of the Company under certain           
conditions. The Company's obligation to make payments of principal and interest 
on this loan is secured by an irrevocable letter of credit obtained by the      
Company from Union Bank of California N.A. Accordingly, the Company's borrowing 
capacity will be reduced during the period the letter of credit is outstanding. 
As of June 30, 1997, $1.9 million principal amount of this loan remained        
outstanding.                                                                    

    In May 1994, the Company raised net proceeds of approximately $2.7 million
through the sale of 2,850,000 shares of Series A Preferred Stock to several     
private investors who are Selling Shareholders in this Offering (the "1994      
Financing"). In April 1996, all of the Series A Preferred Stock was converted   
into 2,850,000 shares of Common Stock. In December 1996, warrants issued to the 
investors in connection with the 1994 Financing were exercised, resulting in    
cash proceeds to the Company of approximately $1.6 million and the issuance of  
2,204,000 additional shares of Common Stock.                                    

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Management believes that the Company's existing product lines and     
manufacturing capacity will enable the Company to generate sufficient cash      
through operations, supplemented by the net proceeds to the Company from this   
Offering and continued use of its existing line of credit, to finance the       
Company's business over the next twelve months. However, additional cash        
resources may be required if the Company's rate of growth exceeds currently     
anticipated levels. Moreover, it may prove necessary for the Company to         
construct or acquire additional manufacturing facilities in order for the       
Company to compete effectively in new market areas or states which are beyond a 
300 mile radius from one of its production facilities. The construction or      
acquisition of new facilities could require significant additional capital.     

NEW ACCOUNTING PRONOUNCEMENTS                                                   

In March 1997, the Financial Accounting Standards Board (FASB) issued 
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"), effective for fiscal years ending after December 15, 1997. SFAS 128      
introduces and requires the presentation of "basic" earnings per share which    
represents net earnings divided by the weighted average shares outstanding      
excluding all common stock equivalents. Dual presentation of "diluted" earnings 
per share, reflecting the dilutive effects of all common stock equivalents, will
also be required. The diluted presentation is similar to the current            
presentation of fully diluted earnings per share. Management has not determined 
whether the adoption of SFAS 128 will have a material impact on the Company's   
combined financial position or results of operations.                           

   In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes    
standards for the reporting and display of comprehensive income and its         
components (revenues, expenses, gains and losses) in a full set of general-     
purpose financial statements. SFAS 130 requires all items that are required to  
be recognized under accounting standards as components of comprehensive income  
to be reported in a financial statement that is displayed with the same         
prominence as other financial statements. SFAS 130 does not require a specific  
format for that financial statement but requires that an enterprise display an  
amount representing total comprehensive income for the period covered by that   
financial statement. SFAS 130 requires an enterprise to (a) classify items of   
other comprehensive income by their nature in a financial statement and (b)     
display the accumulated balance of other comprehensive income separately from   
retained earnings and additional paid-in capital in the equity section of a     
statement of financial position. SFAS 130 is effective for fiscal years         
beginning after December 15, 1997. Management has not determined whether the    
adoption of SFAS 130 will have a material impact on the Company's combined      
financial position or results of operations.                                    

   In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"  
("SFAS 131"). SFAS 131 establishes standards for public business enterprises to 
report information about operating segments in annual financial statements and  
requires that those enterprises report selected information about operating     
segments in interim financial reports issued to shareholders. It also           
establishes standards for related disclosures about products and services,      
geographic areas and major customers. This statement supersedes FASB Statement  
No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains
the requirement to report information about major customers. It amends FASB     
Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove 
the special disclosure requirements for previously unconsolidated subsidiaries. 
SFAS 131 requires, among other items, that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,  
and segment assets, information about the revenues derived from the enterprise's
products or services, and major customers. SFAS 131 also requires that the      
enterprise report descriptive information about the way that the operating      
segments were determined and the products and services provided by the operating
segments. SFAS 131 is effective for financial statements for periods beginning  
after December 15, 1997. In the initial year of application, comparative        
information for earlier years is to be restated. SFAS 131 need not be applied to
interim financial statements in the initial year of its application, but        
comparative information for interim periods in the initial year of application  
is to be reported in financial statements for interim periods in the second year
of application. Management has not determined whether the adoption of SFAS 131  
will have a material impact on the Company's segment reporting.                 

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BUSINESS
GENERAL                                                                         

     The Company designs, manufactures, markets and installs modular relocatable
classrooms. Based upon 1996 net sales, the Company believes that it is the      
largest manufacturer of modular relocatable classrooms in California. The       
Company's classrooms are sold primarily to California school districts and to   
third parties and the State of California principally for lease to California's 
school districts. The Company's products include standardized classrooms, as    
well as customized structures for use as libraries, gymnasiums, computer rooms  
and bathroom facilities. The Company believes that its modular structures can be
substituted for virtually any part of a school. The Company's products are      
engineered and constructed in accordance with structural and seismic safety     
specifications adopted by the California Department of State Architects which   
regulates all school construction on public land, standards which are more      
rigorous than the requirements for other portable units.                        

     As a result of net enrollment increases in California schools and budgetary
constraints experienced by the State of California which limited the            
availability of funds for the addition of new classrooms over the last few years
prior to 1996, California's schools are reported to be among the most crowded in
the nation. As the State budget deficit has ameliorated, the legislature has    
increased funding for new classrooms in an effort to reduce the average number  
of students per class. State funding initiatives include funds from both (i) the
State's operating budget, such as the $200 million allocated for construction or
addition of classrooms out of the total of $822 million spent under the Class   
Size Reduction Program for the 1996-1997 school year and as much as $1.5 billion
allocated for the 1997-1998 school year for both general operations and school  
facilities, and (ii) the sale of statewide bond issues, such as the $8.2 billion
bond issue for school construction, including the addition of classrooms,       
proposed as part of a package of legislation for inclusion on the June 1998     
ballot. See "Business -- Legislation and Funding."                              

    These factors have combined to increase the demand for modular relocatable
classrooms, which cost significantly less and take much less time to construct  
and install than conventional school facilities, and which permit a school      
district to relocate the units as student enrollments shift. In addition, the   
Company's products provide added flexibility to school districts in financing   
the costs of adding classroom space, since modular relocatable classrooms are   
considered personal property which can be financed out of a district's operating
budget in addition to its capital budget. In recognition of these advantages,   
California legislation currently requires, with certain exceptions, that at     
least 30% of all new classroom space added using state funds must be relocatable
structures. See "Business -- Legislation and Funding."                          

STRATEGY                                                                        

The Company's objective is to maintain and enhance its position as the
leading provider of modular relocatable classrooms to California's school       
districts, and to diversify its business by obtaining new customers for its     
classrooms both within and outside California and by further developing its     
non-classroom business. The Company has adopted the following strategies to     
achieve these goals: (i) further expand production capacity to meet the         
increased demand for modular relocatable classrooms in California; (ii) increase
market share in California by developing products designed and engineered to    
meet a variety of customer needs that can be manufactured and sold at           
competitive prices; (iii) expand the market for its modular relocatable         
classrooms to include private schools and day care facilities in California and 
public and private schools and day care facilities out of state; (iv) expand its
non-classroom product line; and (v) continue to refine its manufacturing        
processes to increase profit margins on modular relocatable classrooms.         

  Expand Capacity: As a result of increased demand for modular relocatable
classrooms, the Company currently is operating at or near capacity at both its  
Southern California and Northern California manufacturing facilities. The       
Company operates a total of six production lines in four plants, and is         
currently adding a seventh production line to serve the Southern California     
market. This line is expected to be fully operational by the end of 1997. The   
Company is also planning to add an eighth production line to serve the Northern 
California market in late 1998.                                                 

Increase Market Share: The Company believes that it has attained its  
position as the largest manufacturer of modular relocatable classrooms in       
California because of its ability to increase production capacity to accommodate
recent increases in demand, its efficient manufacturing processes which have    
enabled the Company to be one of the low-cost providers of modular relocatable  
classrooms in California, and the quality                                       

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and design features of its classrooms. In addition, the Company's Northern and  
Southern California manufacturing facilities enable it to serve efficiently all 
of California with a minimum of transportation costs. The Company believes that 
its streamlined organizational structure, the vertical integration of its       
manufacturing process, and the level of its bonding capacity and access to      
capital combine to provide it with several advantages over most of its          
competitors, which generally are smaller, privately-owned businesses. The       
Company intends to capitalize on these advantages by expanding its marketing    
efforts, aggressively pursuing new contract opportunities, and continuing to    
offer quality products at competitive prices, in an effort to further increase  
its share of the market.                                                        

Expand the Market for Modular Classrooms: In addition to the State of 
California and California school districts, the Company believes that there are 
a significant number of other potential customers for its classrooms both within
and outside of California. Several adjacent states such as Arizona and Nevada   
exhibit population growth and increasing levels of school enrollment. Although a
comparable regulatory environment does not exist in either of these states, the 
Company believes that Arizona and Nevada will face similar problems of          
overcrowded classrooms and limited funding for the financing of new classroom   
construction in the next several years. In an effort to increase classroom sales
to private schools in California, and to intensify the Company's classroom      
marketing efforts in Arizona and Nevada, the Company recently hired a           
salesperson whose primary responsibility will be to market and sell the         
Company's classrooms to these new customers.                                    

    Diversify Markets and Product Mix: The Company believes that opportunities
exist to significantly increase sales of non-classroom products from 1996       
levels. The Company recently has taken steps to take advantage of these         
opportunities. In 1996, the Company acquired a manufacturing facility in        
Patterson, California, which enhanced the Company's ability to manufacture and  
sell modular structures intended for uses other than as classrooms. Since 1995, 
the Company has designed, manufactured and sold a limited number of modular     
units which shelter valuable electronic equipment used by the cellular telephone
industry. From time to time, the Company also has used excess production        
capacity to manufacture a variety of modular, portable buildings for commercial 
uses that are not designed and engineered to the California Department of State 
Architect standards for classrooms. The Company believes that its manufacturing 
expertise and capacity will enable it to significantly increase its presence in 
these, and possibly other, non-classroom markets.                               

 Increase Profit Margins: The Company recently has been able to generate
increasing operating income margins. Operating income as a percentage of net    
sales for the years ended December 31, 1995 and 1996, and for the six months    
ended June 30, 1997, was 7.1%, 9.8% and 15.3%, respectively. These margin       
improvements have been the result of increased sales, improved operating        
efficiencies, and a disciplined management plan to permit only modest growth in 
the overall level of general and administrative expenses as revenue grows.      
Additional efficiencies are expected to be realized as the Company's new        
production lines are activated and attain normalized utilization rates. The     
Company also will continue to endeavor to develop new design and manufacturing  
enhancements or alternatives which could be expected to reduce production costs.

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. The California Department of   
Finance has estimated that student enrollment in grades kindergarten through 12 
will increase by approximately 18% over the period from 1995 through 2005.      
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.                                                        

    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,                                                            

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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.                                    

     In 1978, California voters approved Proposition 13, which rolled back local
property taxes (a traditional source of funding for school districts) and       
limited the ability of local school districts to raise taxes to finance the     
construction of school facilities. The passage of Proposition 13, coupled with  
growing student populations, has increased the need for local school districts  
to find ways to reduce the cost of adding classrooms. The California legislature
has adopted several statutes designed to alleviate some of the problems         
associated with the shortage of classrooms and lack of local funding            
alternatives. For example, in 1976, California adopted legislation that         
currently requires, with certain exceptions, that at least 30% of all new       
classroom space added using State funds must be relocatable structures. This    
requirement may be satisfied through the purchase or lease of the Company's     
classrooms. See "Business -- Legislation and Funding." Additionally, in 1979 the
California legislature adopted legislation that provides for State funding for  
the purchase of relocatable classrooms that could be leased to local school     
districts.                                                                      

As the number of students enrolled in California schools continued to 
increase throughout the 1990's, the State of California and California school   
districts experienced increasing budget shortfalls. The resulting shortage of   
funding available at both the State and local level led to declining sales of   
modular relocatable classrooms, by the Company and on an industry-wide basis.   
However, as the State budget deficit ameliorated, funding for modular           
relocatable classrooms began to increase. This growth was accelerated when the  
California Class Size Reduction Program was implemented in November 1996, the   
goal of which is to reduce class sizes to 20 students in public elementary      
schools at the kindergarten through third grade levels. For the 1996-1997 school
year, the State spent $822 million under this program, including $200 million   
specifically for facilities which may be relocatable classrooms. The Company    
believes that total State funding under the Class Size Reduction Program for the
1997-1998 school year will be as high as $1.5 billion for both general          
operations and school facilities. In addition, an $8.2 billion bond issue for   
school construction, including the addition of classrooms, has been proposed for
inclusion on the June 1998 ballot. As a result, the Company anticipates that the
near-term market for modular relocatable classrooms in California will be       
significantly greater than it was in 1996, when the Company believes that       
industry-wide sales of modular classrooms within California were approximately  
$175 million. See "Risk Factors -- Legislation and School Funding."             

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

                                                        [Enlarge/Download Table]
                                                                                      
Lower Cost                 --  The cost of the Company's standard classroom may be as 
                               low as $29,000 installed, as compared to $80,000 to    
                               $100,000 for conventional construction of a comparable 
                               classroom;                                             

Shorter Construction Time  --  A modular classroom can be built and ready for         
                               occupancy in a shorter period of time than that        
                               required for state approval and construction of a      
                               conventional facility;                                 

Flexibility of Use         --  Modular relocatable classrooms enable a school district
                               to use the units for short or long term needs and to   
                               move them if necessary to meet shifts in student       
                               populations; and                                       

Ease of Financing          --  As personal rather than real property, modular         
                               classrooms may be leased on a long or short-term basis 
                               from manufacturers and leasing companies. This allows  
                               school districts to finance modular classrooms out of  
                               both their operating and capital budgets.              

MODULAR RELOCATABLE CLASSROOMS                                                  

   The Company's modular relocatable classrooms are designed, engineered and
constructed in accordance with structural and seismic safety specifications     
adopted by the California Department of State Architects, standards which are   
more rigorous than the requirements for other portable units. The Department of 
State                                                                           

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Architects, 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 of 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. The Company           
subcontracts with structural engineering firms to interface with each school    
district's architect or engineer to process project specifications through the  
Department of State Architects. The Company believes that the regulated         
environment in which the Company's classrooms are manufactured serves as a      
significant barrier to market entry by prospective competitors. See             
"Business -- Competition."                                                      

    Conventional 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 the Company's 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 on-site inspection by a        
licensed architect or structural engineer is required during actual manufacture 
of the classrooms, with the school district obligated to reimburse the          
Department for the costs of such inspection.                                    

    The Company's classrooms are manufactured and installed in accordance with
the applicable Department of State Architects building code, which supersedes   
all local building codes for purposes of school construction. The classrooms    
must comply with accessibility requirements for the handicapped, seismic and    
fire code requirements.                                                         

The Company manufactures and installs standard, largely pre-fabricated
modular relocatable classrooms, as well as customized classrooms which are      
modular in design but assembled on-site using components manufactured by the    
Company together with components purchased from third party suppliers. The      
Company's 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 the Company's standard classrooms range from $29,000 to $34,000,     
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.
The Company's 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, 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 involve site    
preparation, grading, concrete and asphalt work and landscaping. Customized     
classrooms are generally more expensive and take longer to complete than the    
Company's standard classrooms.                                                  

     The interior and exterior of all of the Company's 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 relocatable partitions. The floor covering is  
usually carpet but may be linoleum or wood depending upon the intended use of   
the classroom. Interior wall material                                           

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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 siding material may also be applied.           

CLASSROOM CUSTOMERS                                                             

The Company markets and sells its modular classrooms primarily to     
California school districts. The Company also sells its classrooms to the State 
of California and leasing companies, both of which lease the classrooms         
principally to California school districts. Sales of classrooms accounted for   
90.5%, 94.2% and 97.2% of the Company's total net sales for the years ended     
December 31, 1995 and 1996 and the six months ended June 30, 1997. The Company's
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. See "Legislation and Funding."                   

     Sales of classrooms to individual California school districts accounted for
approximately 80.7%, 74.5% and 82.0%, respectively, of the Company's net sales  
during the years ended December 31, 1995 and 1996 and the six months ended June 
30, 1997, with sales of classrooms to third party lessors to California school  
districts during these periods accounting for approximately 3.1%, 7.2% and      
11.6%, respectively, of the Company's net sales. The mix of school districts to 
which the Company sells its products varies somewhat from year to year. Sales of
classrooms directly to the State of California during the six months ended June 
30, 1997 represented approximately 3.6% of the Company's net sales for the      
period, compared to approximately 12.5% of the Company's 1996 net sales and     
approximately 6.7% of the Company's 1995 net sales. Sales of classrooms to      
private schools, day care providers and out-of-state customers accounted for    
less than one percent of the Company's net sales during the years ended December
31, 1995 and 1996 and the six months ended June 30, 1997. One of the lessors to 
which the Company sells classrooms for lease to California school districts is  
affiliated with the Company through common ownership by two of the Company's    
directors. During the years ended December 31, 1995 and 1996 and the six months 
ended June 30, 1997, sales of classrooms to this affiliated leasing company     
comprised approximately 3.1%, 2.9% and 1.2%, respectively, of the Company's net 
sales. See "Management -- Certain Transactions."                                

OTHER PRODUCTS                                                                  

In addition to modular relocatable classrooms that are designed and   
manufactured in accordance with the California Department of State Architects   
standards, the Company also manufactures modular, portable buildings which can  
be used as office facilities and construction trailers and for other commercial 
purposes. Currently, most of these non-classroom products are manufactured at   
the Patterson, California plant which the Company acquired in 1996. During the  
years ended December 31, 1995 and 1996 and the six months ended June 30, 1997,  
sales of such modular, portable buildings to commercial customers accounted, in 
the aggregate, for approximately 9.5%, 5.8% and 2.8%, respectively, of the      
Company's net sales. The Company also manufactures a small number of modular    
structures that house and shelter electronic equipment used in the wireless     
telecommunications industry. During the years ended December 31, 1995 and 1996  
and the six months ended June 30, 1997, sales of modular telecommunications     
equipment shelters, which are included above in sales to commercial customers,  
accounted for less than one percent of the Company's net sales for each period. 

SALES AND MARKETING                                                             

The Company's classroom sales force is currently divided into three   
marketing regions: Northern, Central and Southern California. The Company       
currently employs three classroom salespersons, each of whom is compensated on a
commission basis. These salespersons maintain contact with the individual school
districts in their respective marketing regions on a quarterly basis. They are  
also in contact with architects and building inspectors employed by the school  
districts, as well as school officials who may be in a position to influence    
purchasing decisions.                                                           

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Most of the Company's contracts are awarded on an open bid basis. The 
marketing process for many of the Company's contracts begins prior to the time  
the bid process begins. After the Company selects bids or contracts that it     
desires to pursue, the Company's marketing and engineering personnel interface  
directly with various school boards, superintendents or architects during the   
process of formulating bid or contract specifications. The Company prepares its 
bids or proposals using various criteria, including current material prices,    
historical overhead costs and a targeted profit margin. Substantially all of the
Company's contracts are turnkey, including engineering and design,              
manufacturing, transportation, installation and necessary site work. Open bid   
contracts are normally awarded to the lowest responsible bidder.                

A fourth salesperson is charged with increasing the Company's sales of
buildings to the commercial and telecommunications markets. In addition,        
effective as of October 1997, the Company has hired a salesperson whose focus   
will be the sale of classrooms in Nevada and Arizona, and to private schools and
day care operators in California.                                               

MANUFACTURING AND ON-SITE INSTALLATION                                          

The Company uses an assembly-line approach in the manufacture of its  
standardized classrooms. The process begins with the fabrication of the steel   
floor joists. The floor joists are welded to steel frames to form the floor     
sub-assembly, which is covered by plywood flooring. Metal roof trusses and      
structural supports are fabricated separately and added as the unit progresses  
down the assembly-line. Installation of walls, insulation, suspended grid       
ceilings, electrical wiring, air conditioning, windows, doors, fire sprinklers, 
plumbing and chalk boards follow, with painting and finishing crews completing  
the process. Once construction of a standard 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.                        

     The Company is vertically-integrated in the manufacture of its standardized
modular classrooms, in that the Company fabricates substantially all of its own 
metal components at its facility in Perris, California, including structural    
floor and roof joists, exterior roof panels, gutters, down spouts, vents, ramps,
stairs and railings. The Company believes that the ability to fabricate its own 
metal components helps it reduce the costs of its products and to control their 
quality and delivery schedules. The Company maintains a quality control system  
throughout the manufacturing process, under the supervision of its own quality  
control personnel and inspectors engaged by its customers. In addition, the     
Company tracks the status of all classrooms from sale through installation.     

     Completed standard classroom units, or components used in customized units,
are loaded onto specially designed flat-bed trailers for towing by trucks to the
school building site. Upon arrival at the site, the units are structurally      
connected, or 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 under a unified roof, 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 gymnasium or cafeteria.                                               

    The Company oversees installation of its modular classrooms on-site, using
its own employees for job supervision as a general contractor and, whenever     
possible, for utility hook-ups and other tasks. In many custom projects, the    
Company performs or supervises subcontracted electrical, plumbing, grading,     
paving and foundation work, landscaping and other site preparation work and     
services. Sub-contractors are typically used for larger utility, grading,       
concrete and landscaping jobs. The Company has a general contractor's license in
the State of California.                                                        

  In addition to approvals by the Department of State Architects, licensed
inspectors representing various school districts are on-site at each            
manufacturing facility of the Company to continuously inspect the construction  
of classrooms for structural integrity. On-site inspections after installation  
are also made by local fire departments for purposes of determining adequate    
accessibility.                                                                  

     The Company currently has four manufacturing facilities. Two are located in
Southern California, in Perris, California which is approximately 60 miles east 
of Los Angeles. The Company has another two                                     

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facilities near Lathrop, California. Lathrop is located approximately 75 miles  
east of San Francisco. With the re-opening of the Lathrop plant in early 1997,  
the Company currently has a total of six production lines in operation, with a  
seventh scheduled to commence production in Perris by the end of 1997. An eighth
production line is scheduled to be added at the Lathrop plant in late 1998.     

 The standard contractual warranty for the Company's modular relocatable
classrooms is one year, although it may be varied by contract specifications.   
Purchased equipment installed by the Company, such as air conditioning units,   
carry the manufacturers' standard warranty. Warranty costs have not been        
material in the past.                                                           

    The Company believes that there are multiple sources of supplies available
for all raw materials and equipment used in manufacturing its classrooms, most  
of which are standard construction items such as steel, plywood and wallboard.  

BACKLOG                                                                         

   The Company manufactures classrooms to fill existing orders only, and not
for inventory. As of December 31, 1996, the backlog of sales orders was         
approximately $58.0 million, up from approximately $7.0 million at December 31, 
1994 and $4.1 million at December 31, 1995. Backlog at June 30, 1997 was $80.4  
million, compared to backlog of $20.4 million at June 30, 1996. Only orders     
which are scheduled for completion during the following 12-month period are     
included in the Company's backlog. The rate of booking new contracts can vary   
from month to month, and customer changes in delivery schedules can occur. For  
these reasons, among others, the Company's backlog as of any particular date may
not be representative of actual sales for any succeeding period.                

COMPETITION                                                                     

 The Company believes that, based upon 1996 net sales, it is the largest
modular relocatable classroom manufacturer in California. However, the modular  
relocatable classroom industry is highly competitive, with the market divided   
among a number of privately-owned companies whose share of the market is smaller
than that of the Company. The Company believes 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 its    
management gives it an advantage over competitors. Nevertheless, the Company    
believes that additional competitors may enter the market in the future, some of
whom may have significantly greater capital and other resources than are        
available to the Company, and that competition may therefore increase.          

The Company also believes that its expertise in site preparation and  
on-site installation gives it a competitive advantage over many manufacturers of
higher-priced, customized modular units, while its vertically integrated,       
assembly-line approach to manufacturing enables the Company to be one of the low
cost producers of standardized, modular relocatable classrooms in California.   
Unlike many of its competitors, the Company manufactures most of its own metal  
components which allows the Company 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. The Company also believes that the      
quality and appearance of its buildings, and its reputation for reliability in  
completion of its contracts, enable it to maintain a favorable position among   
its competition.                                                                

   The Company categorizes its current competition based upon the geographic
market served (Northern California versus Southern California), as well as upon 
the relative degree of customization of products sold. Beyond a radius of       
approximately 300 miles, the Company believes that transportation costs         
typically will either significantly increase the prices at which it bids for    
given projects, or will substantially erode the Company's gross profit margins. 

The primary competitors of the Company for standardized classrooms are
believed to be Aurora Modular Industries in Southern California and American    
Modular Systems in Northern California. Profiles Structures, Inc. in Southern   
California and Design Mobile Systems in Northern California are the Company's   
primary                                                                         

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competitors in the market for higher-priced, customized classrooms. Each of     
these four competitors is a privately-owned company.                            

PERFORMANCE BONDS                                                               

A substantial portion of the Company's sales require that the Company 
provide bonds to ensure that the contracts will be performed and completed in   
accordance with contract terms and conditions, and to assure that subcontractors
and materialmen will be paid. In determining whether to issue a performance bond
on behalf of the Company, bonding companies consider a variety of factors       
concerning the specific project to be bonded, as well as the Company's levels of
working capital, shareholders' equity and outstanding indebtedness. From time to
time the Company has had, and in the future may again encounter, difficulty in  
obtaining bonding for a given project. Although it has had no difficulty in     
obtaining the necessary bonding in the last twelve months, the Company believes 
that its difficulty in obtaining bonding for certain large projects from time to
time in the past has been attributable to the Company's levels of working       
capital, shareholders' equity and indebtedness, and not to concerns about the   
Company's ability to perform the work required under the contract. To assist the
Company in obtaining performance bonds in certain instances, the Company's      
executive officers have been required to indemnify the bonding companies against
all losses they might suffer as a result of providing performance bonds for the 
Company. The proceeds to the Company from this Offering are expected to enhance 
the Company's ability to obtain performance bonds, furnish security, and meet   
other financial requirements associated with bidding for larger contracts and   
performing work simultaneously under a greater number of contracts.             

REGULATION OF CLASSROOM CONSTRUCTION                                            

    In 1933, the California Legislature adopted the Field Act, which generally
provides that school facilities must be constructed in accordance with more     
rigorous structural and seismic safety specifications than are applicable to    
general commercial buildings. Under the Field Act, the Department of General    
Services, through the Department of State Architects, has prescribed extensive  
regulations regarding the design and construction of school facilities, and     
reviews all plans for the construction of 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. In addition, the Field Act provides for the submittal 
of complete plans, cost estimates, and filing fees by the school district to the
Department of General Services, for the adoption of regulations setting minimum 
qualifications for the preparation of plans and specifications, and the         
supervision of school construction by a licensed architect or structural        
engineer.                                                                       

  Additionally, California legislation provides that certain factory-built
school buildings may be pre-approved by the State for use in school             
construction. Once plans and specifications for a given classroom have been     
pre-approved by the Department of General Services, 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 thereby providing additional incentive to use factory-built relocatable 
classrooms. The Department of General Services provides for the continuous      
on-site inspection during actual manufacturing of the classrooms, with the      
school districts obligated to reimburse the Department for the costs of such    
inspection.                                                                     

LEGISLATION AND FUNDING                                                         

    The demand for modular relocatable classrooms in California is affected by
various statutes. These statutes, among other things, prescribe the methods by  
which the Company's customers, primarily individual school districts, obtain    
funding for the construction of new school facilities, and the manner in which  
available funding is to be spent by the school districts.                       

    In 1978, Proposition 13 was approved, which rolled back property taxes and
limited the ability of local school districts to rely upon revenue from such    
taxes to finance the construction of school facilities. As a result, financing  
for new school construction and rehabilitation of existing schools by California
school districts is currently provided, at the state level, by funds derived    
from general revenue sources or statewide bond                                  

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issues, and, at the local level, by local bond issues and fees imposed on the   
developers of residential, commercial and industrial real property ("Developer  
Fees"). Historically, the primary source of financing for the purchase or lease 
of relocatable classrooms has been state funding.                               

STATE FUNDING                                                               

  Until the adoption of the Class Size Reduction Program in 1996, the most
important source of funding at the State level for new school facilities was    
through the issuance and sale of statewide general obligation bonds which are   
repaid out of the State's General Funds. Proposals to issue such bonds are      
placed on statewide ballots from time-to-time in connection with general or     
special elections, and require approval by a majority of the votes cast in      
connection with such proposals. As in the case of the Class Size Reduction      
Program, the State also may annually allocate funds from the State's budget for 
the support of school districts and community college districts.                

   Authority for Bond Financing. Under the School Building Lease -- Purchase
Law of 1976, the State Allocation Board is empowered to purchase or lease school
facilities using funds from the periodic issuance of general obligation bonds of
the State of California. These purchased or leased school facilities may be made
available by the State Allocation Board to school districts. Certain matching   
funds, usually derived from Developer Fees, are required to be supplied by the  
school districts seeking state funded facilities. If the school districts       
acquire relocatable structures using Developer Fees, the amount of the required 
matching funds is reduced by the cost of such facilities. This reduction in     
matching funds is intended to provide an incentive for school districts to lease
relocatable classrooms. As a condition of funding any project under this        
program, at least 30% of new classroom space to be added must be comprised of   
relocatable structures, unless relocatable structures are not available or      
special conditions of terrain, climate or unavailability of space make the use  
of relocatable structures impractical. In addition, State funds under this      
program are not available to school districts which are determined to have an   
adequate amount of square footage available for their student population.       

     Recently, a package of bills was introduced that would, among other things,
(i) revise the School Building Lease-Purchase Law of 1976 including elimination 
of the requirement that at least 30% of all classroom space to be added using   
State funds be relocatable classrooms, (ii) place an $8.2 billion bond issue for
school construction on the June 1998 ballot, and (iii) include a proposed       
amendment to the California Constitution on the June 1998 ballot. The proposed  
Constitutional amendment would modify Proposition 13 by reducing the percentage 
vote required for approval of tax increases to support local bond issuances from
two-thirds to a simple majority. However, both houses of the California         
Legislature passed different versions of this package of bills, which were      
returned to a conference committee. Each bill must still be approved by both    
houses of the Legislature as revised by the conference committee. In addition,  
none of these bills would become operative as currently proposed unless the $8.2
billion bond issue is approved by a majority of the California voters and the   
proposed amendment to the California Constitution is approved by two-thirds of  
the California voters.                                                          

In response to the adoption of Proposition 13, the State of California
adopted the California Emergency Classroom Law of 1979, pursuant to which the   
State Allocation Board may spend up to $35 million per year from available funds
to purchase relocatable classrooms to be leased to school districts. Relocatable
classrooms are not available to school districts under this program if the      
school district has available local bond proceeds that could be used to purchase
classroom facilities, unless the district has approved projects pending under   
the School Building Lease-Purchase Law of 1976. The State has, in the past,     
funded this program primarily from the proceeds of statewide bond issues        
approved by voters.                                                             

  Budget Allocations. Proposition 98, which was approved in 1988, requires
the State to allocate annually from the State's budget, for the support of      
school districts and community college districts, a minimum amount equal to the 
same percentage of funds as was appropriated for the support of those           
institutions in fiscal year 1986-87. While this requirement may be suspended for
a given year by emergency legislation, it has the effect of limiting the ability
of the California legislature to reduce the level of school funding from that in
existence in 1986-87. The State raises the necessary funds through proceeds from
the sale of statewide bond                                                      

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issues, income tax revenues and other revenues. A recent reduction in           
California's corporate tax rates, and a proposed reduction in personal income   
tax rates, may affect future levels of the State's income tax revenues.         

   In November 1996, California implemented the Class Size Reduction Program
in response to overcrowding in classrooms in the state and its assumed negative 
impact on learning. An additional impetus for the program was a study conducted 
by Tennessee State University which indicated that students in small classrooms 
outperformed their peers from larger classes at least through the eighth grade  
on standardized tests in math and reading. The goal of the California Class Size
Reduction Program is to reduce public elementary school class sizes in          
kindergarten through the third grade. Under this program, schools that reduce   
class size to 20 students in those grades will receive additional funds. For the
1996-1997 school year, a school district was entitled to receive $25,000 for    
each new classroom added which reduced the average class size for a specified   
grade level to 20 students or less. Among other ways new classrooms can quickly 
and inexpensively be added, school districts may reconfigure existing space to  
convert it to classrooms from other uses, or purchase or lease a modular        
relocatable classroom.                                                          

LOCAL FUNDING                                                               

Local school districts in California have the ability to issue local  
general obligation bonds for the acquisition and improvement of real property   
for school construction. These bond issues require the approval of two-thirds of
the voters in the district and are repaid using the proceeds of increases in    
local property taxes. A local school district may also levy Developer Fees on   
new development projects in the district, subject to a maximum rate set by state
law. The Developer Fees can only be levied if the project can be shown to       
contribute to the need for additional school facilities and the fee levied is   
reasonably related to such need. In addition, California law provides for the   
issuance of bonds by Community Facilities Districts which can be formed by a    
variety of local government agencies, including school districts. These         
districts, known as "Mello-Roos" districts, can have flexible boundaries and the
tax imposed to repay the bonds can be based on property use, acreage, population
density or other factors.                                                       

OTHER LEGISLATION                                                               

     California legislation adopted in 1989 provides that school districts which
currently lease any building which does not meet the prescribed structural      
standards must have replaced nonconforming buildings with conforming ones by    
September 1, 1990. However, any district has the right to request a one-time    
waiver for a maximum of three years upon presentation of satisfactory evidence  
to the State Allocation Board that the district is proceeding in a timely       
fashion with a program that will eliminate the need for the nonconforming       
facilities within that time period. The State has authorized districts to renew 
these waivers through 2000 and may grant further waivers. The Company           
understands that a number of school districts have requested and been granted   
such waivers. Based upon information received by the State Allocation Board from
school districts and provided to the Company, it is believed that there are more
than 4,500 trailers currently being used as classrooms by school districts      
throughout California that eventually must be replaced with conforming          
facilities by these school districts.                                           

 California has taken steps to encourage local school districts to adopt
year-round school programs to help increase the use of existing school          
facilities and reduce the need for additional school facilities. School         
districts requesting state funding under the School Building Lease-Purchase Law 
of 1976 or the Emergency Classroom Law of 1979 discussed above must submit a    
study examining the feasibility of implementing in the district a year-round    
educational program that is designed to increase pupil capacity in the district 
or in overcrowded high school attendance areas. The feasibility study           
requirement is waived, however, if the district demonstrates that emergency or  
urgent conditions exist in the district that necessitate the immediate need for 
relocatable buildings. The demand for new school facilities, including          
relocatable classrooms, would be adversely affected in the event that a         
significant number of California school districts implemented year-round school 
programs. In addition, a significant increase in the level of voluntary or      
mandatory busing of students from overcrowded schools to schools with excess    
capacity could adversely affect demand for new school facilities.               

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LITIGATION                                                                      

  The Company from time to time is involved in various lawsuits related to
its ongoing business operations, primarily collection actions or vendor         
disputes. In the opinion of management, no pending lawsuit will result in any   
material adverse effect upon the Company or its financial condition.            

ENVIRONMENTAL MATTERS                                                           

The Company is subject to a variety of federal, state and local       
governmental regulations related to the storage, use and disposal of any        
hazardous materials used by the Company in connection with the manufacture of   
its products. Both the governmental regulations and the costs associated with   
complying with such regulations are subject to change in the future.            

EMPLOYEES                                                                       

At June 30, 1997, the Company had 877 employees, including 834 in     
manufacturing, 4 in sales, 20 in operations and 19 in general management and    
administration. The Company's employees are not represented by a labor union,   
and it has experienced no work stoppages. The Company believes that its employee
relations are good.                                                             

PROPERTIES                                                                      

     The Company's principal executive and administrative facilities are located
in approximately 11,400 square feet of modular buildings at its primary         
manufacturing facility located in Perris, California. This manufacturing        
facility occupies twenty-five acres, with approximately 200,000 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.   
The Company's third plant consists of a 400,000 square foot manufacturing       
facility on a 30-acre site in Lathrop, California that is leased through 2019.  
The fourth plant, which was leased for up to five years in October 1996,        
consists of approximately 50,000 square feet of manufacturing areas on a 4 acre 
site in Patterson, California. The Company believes that its existing facilities
are well-maintained and in good operating condition, and, with the additional   
production lines currently being added or planned for addition in 1998, meet the
requirements for its immediately foreseeable business needs. Each of the        
Company's current facilities other than the Patterson plant is leased from an   
affiliate. See "Management -- Certain Transactions."                            

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MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES                                 

   The directors, executive officers and key employees of the Company are as
follows:                                                                        

                                                        [Enlarge/Download Table]

             NAME               AGE                        POSITIONS                      
------------------------------  ----  ----------------------------------------------------
                                                                                          
Gerald B. Bashaw..............   62   Chairman of the Board of Directors                  
Evan M. Gruber................   44   Chief Executive Officer and Director                
Michael G. Rhodes.............   36   Chief Operating Officer and Chief Financial Officer 
Robert W. Campbell............   41   Director                                            
James D. Goldenetz............   47   Director                                            
Charles C. McGettigan.........   52   Director                                            
James M. Phillips, Jr.........   49   Director                                            
Myron A. Wick III.............   53   Director                                            

   Mr. Bashaw founded the Company in 1982. Previously, he served as the Vice
President of Operations and then President of Aurora Modular Industries, a      
manufacturer of modular classrooms, mobile homes, office trailers, and modular  
houses and buildings, which he co-founded in 1965.                              

Mr. Gruber joined the Company in January 1989 as its Chief Financial  
Officer, and was elected to the Company's Board of Directors and as its Chief   
Executive Officer in January 1990. Prior to joining the Company, Mr. Gruber, who
is a certified public accountant, worked at his own public accounting firm in   
Costa Mesa, California, which he founded in 1978.                               

Mr. Rhodes joined the Company in 1988 and was the Company's controller
through 1992. In 1993 he was elected Chief Financial Officer, and in 1996 was   
elected Chief Operating Officer. Prior to his joining the Company, Mr. Rhodes   
worked for a public accounting firm.                                            

    Mr. Campbell, who was elected to the Company's Board of Directors in 1992,
is a Managing Director of Corporate Finance at L.H. Friend, Weinress, Frankson &
Presson, 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.                                                 

Mr. Goldenetz, who currently serves as the President of Class Leasing,
Inc., joined the Company as a director in January 1988, after previously serving
as the President of Aurora Modular Industries since January 1982. He began work 
in the modular classroom industry, in production, at Aurora Modular Industries  
in 1969.                                                                        

Mr. McGettigan was elected to the Board of Directors in June 1994 in  
connection with the 1994 Financing. 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 formed in  
1991. 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 is a director of Digital Dictation, Inc.; I-Flow      
Corporation; Onsite Energy; Phoenix Network, Inc.; PMR Corporation; Sonex       
Research, Inc.; Vie de France Corporation; Tanknology-NDE and Wray-Tech         
Instruments Inc.                                                                

    Mr. Phillips became a director of the Company upon the consummation of the
Company's initial public offering in July 1990. Mr. Phillips has been an        
attorney for the last 20 years, practicing primarily in the areas of corporate  
and securities law. After practicing law for 13 years with a number of law      
firms, including Gibson, Dunn & Crutcher, Paul, Hastings, Janfosky & Walker, and
Brobeck, Phleger & Harrison, Mr. Phillips established his own firm in 1990.     

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     Mr. Wick joined the Company's Board of Directors in June 1994 in connection
with the 1994 Financing. Mr. Wick is currently a managing director and founder  
of McGettigan, Wick & Co., Inc., an investment banking firm formed in 1988, and 
a 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 Children's Discovery Centers; Digital Dictation Inc.; Electrostatic 
Devices; Tanknology-NDE; Sonex Research, Inc. and Wray-Tech Instruments Inc.    

EXECUTIVE COMPENSATION                                                          

   The following table summarizes the annual and long term compensation paid
by the Company during the fiscal years ended December 31, 1994, 1995 and 1996 to
those persons who were, as of December 31, 1996, (i) the Chief Executive Officer
of the Company, and (ii) the other compensated executive officers of the        
Company, if any, whose total annual salary and bonus exceeded $100,000 during   
the year ended December 31, 1996.                                               
SUMMARY COMPENSATION TABLE

                                                        [Enlarge/Download Table]

                                                                              LONG-TERM COMPENSATION                     
                                                                          ------------------------------                 
                                                                                 AWARDS                                  
                                                                          --------------------                           
                                                 ANNUAL COMPENSATION      RESTRICTED             PAYOUTS                 
                                             ---------------------------    STOCK                -------     ALL OTHER   
                                              SALARY     BONUS     OTHER    AWARDS     OPTIONS    LTIP    COMPENSATION(1)
     NAME AND PRINCIPAL POSITION       YEAR     $          $         $        $           #      PAYOUTS         $       
-------------------------------------  ----  --------   --------   -----  ----------   -------   -------  ---------------
                                                                                                                         
Evan M. Gruber.......................  1996  $158,000   $137,000     --       --       110,000      --        $ 4,615    
  Chief Executive Officer              1995   150,000     15,000     --       --       25,000       --          3,654    
  and Director                         1994   125,000         --     --       --       350,000      --          4,030    
Michael G. Rhodes....................  1996  $ 90,000   $ 24,000     --       --       105,000      --        $ 4,827    
  Chief Operating Officer,             1995    87,000     12,100     --       --       20,000       --            129    
  Chief Financial Officer              1994    85,000         --     --       --       10,000       --          4,124    

---------------                                                                 

(1) The figures shown in the last column designated "All Other Compensation"    
    represent the executive officer's share of the Company's contribution to the
401(k) Plan. See "Management -- 401(k) Plan."                           

Each non-employee director is paid an annual retainer of $4,000, plus 
$1,000 for each board and board committee meeting attended, and is granted an   
option to purchase 5,000 shares of the Company's Common Stock at the end of each
year of service on the Board of Directors. See "Management -- Stock Options."   
The Company has and will continue to pay the expenses of its non-employee       
directors in attending Board meetings. No additional compensation is paid to any
employee director for serving on the Company's Board of Directors.              

EMPLOYMENT AGREEMENT                                                            

In connection with the 1994 Financing, the Company entered into a     
three-year employment agreement with Mr. Gruber, which in September 1996 the    
Compensation Committee voted unanimously to extend through 1999. The agreement  
includes, among other provisions, a base annual salary of not less than $150,000
per year, which was increased to $200,000 in October 1996, with periodic        
increases equal to the rate of increase in the Consumer Price Index, and the    
grant of an option to purchase 200,000 shares of the Company's Common Stock at  
$1.50 per share. Additionally, under the agreement, Mr. Gruber is entitled to   
receive a bonus equal to two and one-half percent of the amount, if any, by     
which the net income before taxes of the Company for the year in question       
exceeds $1 million.                                                             

401(K) PLAN                                                                     

Under the Company's 401(k) Plan, officers and other employees of the  
Company may elect to defer up to 12% of their compensation, subject to          
limitations under the Internal Revenue Code. The Company makes annual           
contributions on a 50% matching basis. Amounts deferred are deposited by the    
Company 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, 1996, the Company contributed $4,615 and $4,827 as      
matching contributions for the accounts of Mr. Gruber and Mr. Rhodes,           
respectively.                                                                   

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STOCK OPTIONS                                                                   

   In June 1989, the Company's Board of Directors adopted, and the Company's
shareholders approved, the Modtech, Inc. 1989 Stock Option Plan (the "1989      
Plan"). The 1989 Plan provides for the grant of both incentive and nonstatutory 
options to purchase up to an aggregate of 400,000 shares of the Company's Common
Stock. Incentive stock options can be granted only to employees, including      
officers, of the Company, while nonstatutory stock options can be granted to    
employees, non-employee officers and Directors, consultants, vendors, customers 
and others expected to provide significant services to the Company. Participants
in the 1989 Plan are selected by the Board of Directors of the Company, or by a 
committee of Directors selected by the Board as a whole. The Board or the       
committee is empowered to determine the terms and conditions of each option     
granted under the 1989 Plan, subject to the limitations that the exercise price 
of incentive stock options cannot be less than the fair market value of the     
Common Stock on the date of grant (110% if granted to an employee who owns 10%  
or more of the Common Stock), no option can have a term in excess of ten years  
(five years if granted to an employee owning 10% or more of the Common Stock)   
and no incentive stock option can be granted to anyone other than a full-time   
employee of the Company or its subsidiaries. Nonstatutory options may be granted
under the 1989 Plan with an exercise price of not less than 85% of the fair     
market value of the Common Stock at the date of grant. As of December 31, 1996, 
options to purchase 265,500 shares, at a weighted average exercise price of     
$1.92, were outstanding under the 1989 Plan.                                    

 In March 1994, the Company's Board of Directors authorized the grant of
options to purchase up to 200,000 shares of the Company's Common Stock, and, in 
connection with the private placement of Series A Preferred Stock in May 1994,  
authorized the grant of options to purchase up to an additional 500,000 shares  
of the Company's Common Stock (collectively, the "1994 Plans"). Since approval  
of these options by the shareholders of the Company has not and will not be     
sought, all options granted under the 1994 Plans will be deemed nonstatutory    
options that do not entitle the recipients thereof the special federal income   
tax treatment afforded to the recipients of incentive stock options. The        
Company's Board of Directors, with Mr. Gruber abstaining, approved the grant to 
Mr. Gruber of an option to purchase up to 150,000 shares of Common Stock at     
$1.19 per share, and in May 1994, again with Mr. Gruber abstaining, approved the
grant of an option to Mr. Gruber to purchase up to an additional 200,000 shares 
of Common Stock under the 1994 Plans, at $1.50 per share, as required by his new
employment agreement. See "Management -- Employment Agreements." As of December 
31, 1996, options to purchase a total of 620,000 of these shares, at exercise   
prices ranging from $1.19 to $4.50, were outstanding.                           

In July 1996, the Company's Board of Directors authorized the grant of
options to purchase up to 500,000 shares of the Company's Common Stock. These   
non-statutory options may be granted to employees, non-employee officers and    
Directors, consultants, vendors, customers and others expected to provide       
significant service to the Company. The exercise price of the stock options     
cannot be less than the fair market value at the date of the grant (110% if     
granted to an employee who owns 10% or more of the common stock). Additionally, 
each non-employee director will be granted a non-statutory stock option to      
purchase 5,000 shares at fair market value per share on the date of grant, for  
each year of continuous service on the Company's Board of Directors. At December
31, 1996, options to purchase an aggregate of 110,000 of these shares, at the   
exercise price of $4.50 per share, were outstanding.                            

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The following table sets forth certain information regarding options  
granted by the Company during the year ended December 31, 1996 to the executive 
officers of the Company identified in the Summary Compensation Table set forth  
above:                                                                          

OPTIONS GRANTED IN CALENDAR YEAR 1996 

                                                        [Enlarge/Download Table]

                                                                                       POTENTIAL REALIZED  
                                                                                        VALUE AT ASSUMED   
                                         NO. OF       % OF                            ANNUAL RATES OF STOCK
                                         SHARES      TOTAL                             PRICE APPRECIATION  
                                       SUBJECT TO   OPTIONS                            FOR OPTION TERM(3)  
                                        OPTIONS    GRANTED TO  EXERCISE   EXPIRATION  ---------------------
          NAME OF OPTIONEE             GRANTED(1)  EMPLOYEES   PRICE(2)      DATE        5%          10%   
-------------------------------------  ----------  ----------  ---------  ----------  --------     --------
                                                                                                           
Evan M. Gruber.......................    110,000       35%       $2.13    12/31/2005  $129,000     $318,000
Michael G. Rhodes....................    105,000       33%     2.13-4.50   7/11/2006   188,500      464,500

---------------                                                                 

(1) Options are exercisable starting 12 months after the grant date with 25%    
vesting each year.                                                      

(2) The exercise price was the market price of a share of the Company's Common  
Stock on the date of grant.                                             

(3) On December 31, 1996, the closing sales price for a share of the Company's  
Common Stock on The Nasdaq National Market was $7.875.                  

The following table sets forth information regarding options exercised
during the year ended December 31, 1996 by the executive officers of the Company
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, 1996. The Company has no outstanding stock appreciation rights,    
either freestanding or in tandem with options.                                  

AGGREGATED OPTION EXERCISES LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES

                                                        [Enlarge/Download Table]

                                                                                     VALUE OF UNEXERCISED     
                                                      NUMBER OF UNEXERCISED          IN-THE-MONEY OPTIONS     
                             SHARES                OPTIONS AT FISCAL YEAR END      AT FISCAL YEAR END($)(1)   
                           ACQUIRED ON   VALUE    -----------------------------  -----------------------------
          NAME             EXERCISE(#)  REALIZED  EXERCISABLE     UNEXERCISABLE  EXERCISABLE     UNEXERCISABLE
-------------------------  -----------  --------  -----------     -------------  -----------     -------------
                                                                                                              
Evan M. Gruber...........         --         --     201,250          333,750     $ 1,312,000      $ 2,095,000 
Michael G. Rhodes........         --         --      62,000          148,000         248,000          760,000 

---------------                                                                 

(1) Calculated based on the closing sales price of the Company's Common Stock as
reported on The Nasdaq National Market on December 31, 1996, which was  
$7.875 per share.                                                       

CERTAIN TRANSACTIONS                                                            

  The Company leases its two facilities located in Perris, California, and
the land on which the manufacturing facility is located in Lathrop, California, 
from Mr. Bashaw and general partnerships of which Messrs. Bashaw, Goldenetz and 
Gruber together own a controlling interest, pursuant to standard industrial     
leases. Under the terms of these leases, the Company is obligated to pay base   
monthly payments which aggregate $67,000, subject to escalation in accordance   
with changes in applicable cost of living indices. Due to the recent declines in
real estate values, Mr. Bashaw and the general partnerships reduced the base    
monthly lease rates for the year ending December 31, 1994, for the manufacturing
facilities to an aggregate of $36,000. This base rent is subject to upward      
adjustment to market rates each year based on annual market surveys conducted by
the parties. Because real estate values have remained depressed, no such        
adjustment has yet been made. These leases expire in 2014 and 2019.             

     Messrs. Goldenetz and Gruber together own 60% of the capital stock of Class
Leasing, Inc., a California corporation ("Class Leasing"), in which the Company 
has no ownership interest. Mr. Goldenetz is a full-time employee of Class       
Leasing, serving as its President. In 1996, Mr. Gruber spent less than 10 hours 
per month in connection with the affairs of Class Leasing. Class Leasing        
purchases modular relocatable classrooms from the Company, upon standard terms  
and at standard wholesale prices, and leases them to third parties primarily    

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under three-year leases, cancelable yearly. During the years ended December 31, 
1994, 1995, and 1996, and the six months ended June 30, 1997, the Company sold  
modular relocatable classrooms to Class Leasing for aggregate purchase prices of
$1,009,000, $600,000, $1,453,000 and $745,000, respectively, which represented  
approximately 5%, 3%, 3% and 1% of the Company's net sales for each of those    
periods.                                                                        

Messrs. Gruber and Rhodes have personally guaranteed certain of the   
Company's obligations and the repayment by the Company of amounts which surety  
companies may be required to expend under the terms of performance bonds issued 
in connection with manufacturing contracts undertaken by the Company. No        
payments have been made to Messrs. Gruber and Rhodes for the guarantees provided
by them.                                                                        

In 1996, the Company paid $7,500 to L.H. Friend, Weinress, Frankson & 
Presson, Inc. ("L.H. Friend") for certain financial advisory services. Robert W.
Campbell, a director of the Company, is an executive officer of L.H. Friend. In 
addition, L.H. Friend is one of the Underwriters of this Offering.              

  For legal services rendered, the Company paid the law firm of Phillips &
Haddan LLP legal fees of approximately $20,000 during the year ended December   
31, 1996. James M. Phillips, Jr., a director of the Company, is a principal of  
the law firm of Phillips & Haddan LLP.                                          

   The Company is a party to an employment agreement with Mr. Gruber, and to
indemnification agreements with each of its directors and executive officers.   
See "Management -- Employment Agreement" and "Description of Capital            
Stock -- Limitation of Liability and Indemnification."                          

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PRINCIPAL AND SELLING SHAREHOLDERS

     The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1997, and as        
adjusted to reflect the sale of 1,000,000 shares by the Company and the sale of 
750,000 shares by the Selling Shareholders, by (i) each director of the Company,
(ii) each person or group known to the Company to be the beneficial owner of    
more than 5% of the outstanding Common Stock, (iii) each Selling Shareholder,   
and (iv) all Directors and executive officers of the Company as a group. Except 
as may be indicated in the footnotes to the table, each of such persons has the 
sole voting and investment power with respect to the shares owned, subject to   
applicable community property laws. Except as otherwise indicated, the address  
of each holder identified below is in care of the Company, 2830 Barrett Avenue, 
Perris, California 92571.                                                       

                                                        [Enlarge/Download Table]

                                                       SHARES                           SHARES       
                                                 BENEFICIALLY OWNED               BENEFICIALLY OWNED 
                                                      PRIOR TO        NUMBER OF        AFTER THE     
                                                     OFFERING(1)        SHARES        OFFERING(1)    
                                                 -------------------    BEING     -------------------
                     NAME                          NUMBER    PERCENT   OFFERED      NUMBER    PERCENT
-----------------------------------------------  ----------  -------  ----------  ----------  -------
                                                                                                     
Gerald B. Bashaw (2)(15).......................     583,674     6.7%     175,000     408,674     4.2%
Evan M. Gruber (3)(15).........................     416,995     4.6       75,000     341,995     3.4 
Michael G. Rhodes (4)..........................      88,250     1.0       25,000      63,250       * 
Robert W. Campbell (5).........................      21,000       *           --      21,000       * 
James D. Goldenetz (6)(15).....................     159,531     1.8       25,000     134,531     1.4 
Charles C. McGettigan (7)(14)..................   3,014,186    34.6      450,000   2,564,186    26.4 
James M. Phillips, Jr. (8).....................      15,000       *           --      15,000       * 
Myron A. Wick, III (7)(14).....................   3,014,186    34.6      450,000   2,564,186    26.4 
Jon D. Gruber (9)(14)..........................   5,259,096    60.4      450,000   4,809,096    49.5 
J. Patterson McBaine (10)(14)..................   5,199,896    59.7      450,000   4,749,896    48.9 
Gruber & McBaine Capital Management (11)(14)...   2,172,410    24.9           --   2,172,410    22.4 
Platinum Partners, L.P. (12)...................     522,000     6.0           --     522,000     5.4 
Proactive Partners, L.P. (13)(14)(15)..........   2,983,441    34.3      450,000   2,533,441    26.1 
All directors and officers as a group (9                                                             
  persons) (2)(3)(4)(5)(6)(7)(8)(15)...........   4,298,636    46.5      750,000   3,548,636    34.6 

---------------                                                                 

*  Less than one percent.                                                   

(1) In calculating beneficial and percentage ownership, all shares of Common  
  Stock which a named shareholder will have the right to acquire within 60
days of the date of this Prospectus upon exercise of stock options are
     deemed to be outstanding for the purpose of computing the ownership of such
shareholder, but are not deemed to be outstanding for the purpose of  
     computing the percentage of Common Stock owned by any other shareholder. As
 of September 30, 1997, an aggregate of 8,705,836 shares of Common Stock
were outstanding. Does not give effect to the potential issuance of   
   1,206,933 shares of Common Stock upon exercise of stock options that have
    been granted but currently are not, and within 60 days of the date of this
    Prospectus will not be, exercisable, or of up to 196,667 additional shares
     issuable upon exercise of options available for the future grant of options
    under the Company's stock option plans. See "Management -- Stock Options."

(2) Includes 10,000 shares issuable upon exercise of stock options.           

(3) Includes 316,250 shares issuable upon exercise of stock options, but does 
  not include 352,083 shares issuable upon exercise of stock options which
     have been granted but currently are not exercisable. Evan M. Gruber and Jon
D. Gruber are not related.                                            

(4) Includes 61,250 shares issuable upon exercise of stock options, but does  
  not include 204,250 shares issuable upon exercise of stock options which
have been granted but currently are not exercisable.                  

(5) Includes 15,000 shares issuable upon exercise of stock options.           

(6) Includes 105,000 shares issuable upon exercise of stock options.          

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(7) Includes 20,745 shares owned of record directly by each of Messrs.        
    McGettigan and Wick, and all shares owned of record by Proactive Partners,
L.P. and affiliates of which Messrs. McGettigan and Wick are general  
   partners. Also includes options to purchase 10,000 shares which have been
     granted to each of Messrs. McGettigan and Wick for serving on the Company's
Board of Directors.                                                   

(8) All of these shares are issuable upon exercise of stock options.          

(9) Includes 103,245 shares owned of record directly by Mr. Gruber, all shares
  owned of record by Proactive Partners, L.P. and affiliates, of which Mr.
 Gruber is a general partner, and all shares owned of record by Gruber &
     McBaine Capital Management and affiliates, of which Mr. Gruber is a general
partner. Jon D. Gruber and Evan M. Gruber are not related.            

(10) Includes 44,045 shares owned of record directly by Mr. McBaine, all shares 
    owned of record by Proactive Partners and affiliates, of which Mr. McBaine
  is a general partner, and all shares owned of record by Gruber & McBaine
Capital Management and affiliates, of which Mr. McBaine is a general  
partner.                                                              

(11) Includes 110,200 shares owned of record directly by Gruber & McBaine       
    Capital Management, all shares owned of record by Proactive Partners, L.P.
     and affiliates, and 2,062,210 shares owned of record by Lagunitas Partners,
  Gruber & McBaine International and GMJ Investments, affiliated entities.

(12) These shares are owned of record by Platinum Partners, L.P., a             
    Massachusetts limited partnership (the "Partnership"), and also are deemed
     to be beneficially owned by Hori Capital Management, Inc., the sole general
  partner of the Partnership, and by Calvin G. Hori, the sole shareholder,
 director and President of Hori Capital Management, Inc., the address of
each of which is One Washington Mall, 7th Floor, Boston, Massachusetts
02108.                                                                

(13) Includes 2,828,884 shares owned of record by Proactive Partners, L.P. and  
     154,557 shares owned of record by Fremont Proactive Partners, an affiliated
entity.                                                               

(14) The address of each of Charles C. McGettigan, Myron A. Wick, III, Jon D.   
Gruber, J. Patterson McBaine, Gruber & McBaine Capital Management and 
Proactive Partners, L.P. is 50 Osgood Place, San Francisco, CA 94133. 

(15) In the event the Underwriter's over-allotment option is exercised in full, 
  Messrs. Bashaw, Gruber and Goldenetz, and Proactive Partners, L.P. would
     sell an additional 18,125, 25,000, 15,000 and 204,375 shares, respectively,
     and would beneficially own 4.0%, 3.2%, 1.2% and 24.0%, respectively, of the
Common Stock outstanding after the Offering.                          

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DESCRIPTION OF CAPITAL STOCK

 The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, $.01 par value, of which 8,705,836 shares were issued and         
outstanding as of September 30, 1997, and 5,000,000 shares of Preferred Stock,  
$.01 par value, of which no shares currently are outstanding.                   

COMMON STOCK                                                                    

Holders of the Common Stock are entitled to one vote per share on each
matter submitted to a vote of the shareholders of the Company and to cumulate   
votes for the election of directors. Subject to preferences that may be         
applicable to the holders of any outstanding Preferred Stock, each holder of    
Common Stock is entitled to receive ratably such dividends, if any, as may be   
declared by the Company's Board of Directors out of funds legally available     
therefor. See "Dividend Policy." Upon the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to share ratably in all
assets of the Company which are legally available for distribution, after       
payment of all debts and other liabilities and the liquidation preference of any
outstanding Preferred Stock. Holders of Common Stock have no preemptive,        
subscription, redemption or conversion rights. The outstanding shares of Common 
Stock are, and the shares to be sold by the Company in this Offering, will be,  
when issued and delivered, validly issued, fully-paid and nonassessable under   
the laws of the State of California.                                            

PREFERRED STOCK                                                                 

    The Company's Board of Directors is authorized, subject to any limitations
prescribed by the laws of the State of California, but without further vote or  
action by the Company's shareholders, to provide for the issuance of Preferred  
Stock in one or more series, to establish from time to time the number of shares
to be included in each such series, to fix the designations, powers, preferences
and rights of the shares of each such series and any qualifications, limitations
or restrictions thereof, and to increase or decrease the number of shares of any
such series (but not below the number of shares of such series then             
outstanding). The Board may authorize and issue Preferred Stock with voting or  
conversion rights that could adversely affect the voting power or other rights  
of the holders of Common Stock. In addition, the issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the 
Company. The Company has no current plans to issue any shares of Preferred      
Stock.                                                                          

TRANSFER AGENT AND REGISTRAR                                                    

The transfer agent and registrar for the Common Stock is ChaseMellon  
Shareholder Services L.L.C.                                                     

LIMITATION OF LIABILITY AND INDEMNIFICATION                                     

As allowed by the California General Corporation Law, the Articles of 
Incorporation of the Company provide that the liability of the directors of the 
Company for monetary damages shall be eliminated to the fullest extent          
permissible under California law. This is intended to eliminate the personal    
liability of a director for monetary damages in an action brought by or in the  
right of the Company for breach of a director's duties to the Company or its    
shareholders except for liability for acts or omissions that involve intentional
misconduct or knowing and culpable violation of law, for acts or omissions that 
a director believes to be contrary the best interests of the Company or its     
shareholders or that involve the absence of good faith on the part of the       
director, for any transaction from which a director derived an improper personal
benefit, for acts or omissions that show a reckless disregard for the director's
duty to the Company or its shareholders in circumstances in which the director  
was aware, or should have been aware, in the ordinary course of performing a    
director's duties, of a risk of serious injury to the Company or its            
shareholders, for acts or omissions that constitute an unexcused pattern of     
inattention that amounts to an abdication of the director's duty to the Company 
or its shareholders, with respect to certain contracts in which a director has a
material financial interest and for approval of certain improper distributions  
to shareholders or certain loans or guarantees. This provision does not limit or
eliminate the rights of the Company or any shareholder to seek non-monetary     
relief such as an injunction or rescission in the event of a breach of a        
director's duty of care.                                                        

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The Company's Bylaws require the Company to indemnify its officers,   
directors, employees and other agents to the full extent permitted by law,      
including those circumstances in which indemnification would otherwise be       
discretionary. In addition, the Company's Articles of Incorporation expressly   
authorize the use of indemnification agreements and, with the approval of its   
shareholders, the Company has entered into separate indemnification agreements  
with each of its directors. The Company's Board of Directors has authorized     
similar indemnification agreements for the Company's officers. These agreements 
may require the Company, among other things, to indemnify directors and officers
against certain liabilities that may arise by reason of their status or service 
as directors and officers, and to advance their expenses incurred as a result of
any proceeding against them as to which they could be indemnified.              

CHANGES UPON BECOMING A LISTED CORPORATION                                      

     The Articles of Incorporation of the Company provide that, upon the Company
becoming a "listed corporation" (as defined below), the Board of Directors will 
be divided into three classes of directors, serving staggered three-year terms, 
and cumulative voting will be eliminated. As a result, if the Company becomes a 
listed corporation, approximately one-third of the Board of Directors will be   
elected each year and no shareholder will be entitled to cumulate votes in the  
election of directors.                                                          

The Company will be deemed to be a "listed corporation" if it has     
outstanding shares listed on the New York or American Stock Exchanges or the    
Company has outstanding securities designated as qualified for trading as a     
national market system security on the National Association of Securities       
Dealers Automated Quotation System ("Nasdaq"), or any successor national market 
system, if the Company has at least 800 holders of its equity securities as of  
the record date of the Company's most recent annual meeting of shareholders. For
purposes of determining the number of holders of the Company's equity           
securities, there would be included, in addition to the number of record holders
reflected on the Company's stock records, the number of holders of the equity   
securities held in the name of any nominee holder and certified by such nominee 
holder. The Company would be required to maintain any such certification with   
the record of shareholders for inspection and copying as provided under the     
General Corporation Law of California.                                          

The Company's Common Stock currently is listed on The Nasdaq National 
Market, and the Company has been advised by the Underwriters that the number of 
holders of the Company's Common Stock is likely to increase to at least 800 as a
consequence of this Offering. In such event, the Company would be deemed to be a
"listed corporation," and intends to cause the classified board provision in its
Articles of Incorporation to become operative by electing a classified board,   
without cumulative voting, at its next annual meeting of shareholders. This may 
discourage a third party from making a tender offer or otherwise attempting to  
obtain control of the Company, even though such an attempt might be beneficial  
to the Company and its shareholders. In addition, the classified board provision
could delay shareholders who do not like the policies of the Board of Directors 
from removing a majority of the Board for two years, unless they can show cause 
and obtain the requisite vote. Also, without cumulative voting, a purchaser of a
block of stock of the Company constituting less than a majority of the          
outstanding shares will have no assurance of proportional representation on the 
Board of Directors. Following this offering, the current directors and executive
officers of the Company will continue to own or have voting control over an     
aggregate of 3,548,636 shares of the Company's Common Stock, or approximately   
35% of the shares then outstanding. See "Principal and Selling Shareholders."   

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UNDERWRITING

  The Underwriters named below have severally agreed, subject to the terms
and conditions of the Underwriting Agreement, to purchase from the Company and  
the Selling Shareholders the number of shares of Common Stock set forth opposite
their respective names below. The Underwriters are required to purchase and pay 
for all of such shares if any are purchased.                                    

                                                                [Download Table]

                                                                  NUMBER OF  
                                                                  SHARES OF  
                      NAME OF UNDERWRITER                        COMMON STOCK
---------------------------------------------------------------  ------------
                                                                             
Bear, Stearns & Co. Inc........................................    1,225,000 
Cruttenden Roth Incorporated...................................      262,500 
L.H. Friend, Weinress, Frankson & Presson, Inc.................      262,500 
                                                                   --------- 
          Total................................................    1,750,000 
                                                                   ========= 

     The Underwriters have advised the Company and the Selling Shareholders that
they propose to offer the Common Stock to the public on the terms set forth on  
the cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $0.66 per share, and the Underwriters may allow, and
such dealers may re-allow, a concession of not more than $0.10 per share to     
certain other dealers. After the initial offering, the price and concessions and
re-allowances to dealers may be changed by the Underwriters. The Common Stock is
offered subject to receipt and acceptance by the Underwriters and to certain    
other conditions, including the right to reject orders in whole or in part.     

 Certain of the Selling Shareholders have granted a 30-day option to the
Underwriters to purchase up to a maximum of 262,500 additional shares of Common 
Stock to cover over-allotments, if any, at the same price per share as the      
initial 1,750,000 shares to be purchased by the Underwriters. To the extent the 
Underwriters exercise this option, each of the Underwriters will be committed,  
subject to certain conditions, to purchase such additional shares in            
approximately the same proportion as set forth in the foregoing table. The      
Underwriters may purchase such shares only to cover over-allotments made in     
connection with the sale of the Common Stock offered hereby.                    

The Underwriting Agreement provides that the Company and the Selling  
Shareholders will indemnify the Underwriters against certain liabilities,       
including liabilities under the Securities Act, or will contribute to payments  
the Underwriters may be required to make in respect thereof.                    

  The Company has also agreed not to offer, issue, sell, contract to sell,
grant any option for the sale of, or otherwise dispose of, directly or          
indirectly, any shares of Common Stock or any securities convertible into or    
exercisable or exchangeable for Common Stock or any rights to acquire Common    
Stock for a period of 90 days after the date of this Prospectus, without the    
prior written consent of Bear, Stearns & Co. Inc., subject to certain limited   
exceptions. The executive officers and directors of the Company, including the  
Selling Shareholders, have agreed with the Underwriters that they that they will
not, without the prior written consent of Bear, Stearns & Co. Inc., offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any      
securities convertible into or exchangeable for Common Stock for a period of 180
days after the date of this Prospectus, subject to certain limited exceptions.  

   The Underwriters may engage in over-allotments, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing            
transactions permit bids for and purchases of the Common Stock so long as the   
stabilizing bids do not exceed a specified maximum. Syndicate covering          
transactions involve purchase of the Common Stock in the open market in order to
cover syndicate short positions. Penalty bids permit the Underwriters to reclaim
a selling concession from a syndicate member when the shares of Common Stock    
originally sold by such syndicate member are purchased in a stabilizing         
transaction or syndicate covering transaction to cover syndicate short          
positions. Such stabilizing transactions, syndicate covering transactions and   
penalty bids may cause the price of the Common Stock to be higher than it would 
otherwise be in the absence of such transactions. These transactions, if        
commenced, may be discontinued at any time.                                     

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LEGAL MATTERS 

    Certain legal matters with respect to the legality under California law of
the issuance of the shares of Common Stock offered hereby will be passed upon   
for the Company and the Selling Shareholders by Phillips & Haddan LLP, Newport  
Beach, California. James M. Phillips, Jr., a principal in the firm of Phillips &
Haddan LLP, is a member of the Company's Board of Directors and holds options to
purchase 15,000 shares of the Company's Common Stock. Certain legal matters will
be passed upon for the Underwriters by Gibson, Dunn & Crutcher LLP, Los Angeles,
California.                                                                     

EXPERTS 

  The financial statements and schedules of the Company as of December 31,
1995 and 1996, and for each of the years in the three-year period ended December
31, 1996, have been included herein and in the Registration Statement in        
reliance upon the report of KPMG Peat Marwick LLP, independent certified public 
accountants, appearing elsewhere herein, and upon the authority of said firm as 
experts in accounting and auditing.                                             

AVAILABLE INFORMATION 

    The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance        
therewith file reports, proxy statements and other information with the         
Securities and Exchange Commission (the "Commission"). The Commission file      
number for the Company is 0-18680. Such reports and other information may be    
inspected and copied at the Commission's Public Reference Section, Room 1024,   
450 Fifth Street, N.W., Washington, D.C. 20549, where copies can be obtained at 
prescribed rates, as well as at the Commission's regional offices at Northwest  
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 
7 World Trade Center, Suite 1300, New York, New York 10048. The Commission also 
maintains a website that contains reports, proxy and other information filed    
electronically with the Commission, the address of which is http://www.sec.gov. 
In addition, this material may also be inspected at the offices of The Nasdaq   
National Market at 1735 K Street, N.W., Washington, D.C. 20006, where copies may
be obtained at prescribed rates.                                                

     The Company has filed with the Commission under the Securities Act of 1933,
as amended (the "Securities Act"), a Registration Statement on Form S-1 (the    
"Registration Statement") with respect to the shares of Common Stock to be      
offered and sold hereby. This Prospectus is included as a part of the           
Registration Statement, but does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance    
with the rules and regulations of the Commission. Statements contained in this  
Prospectus as to the contents of any contract or other document referred to     
herein are not necessarily complete, and in each instance reference is made to  
the copy of such contract or other document filed as an exhibit or appendix to  
the Registration Statement, each such statement being qualified in all respects 
by such reference. The Registration Statement in full, including the exhibits   
and schedules thereto, may be inspected without charge at the Commission's      
Public Reference Section, Room 1024, located at 450 Fifth Street, N.W.,         
Washington, D.C. 20549. Copies thereof may also be obtained from the Commission 
upon payment of prescribed fees by writing to the Commission at the above       
address.                                                                        

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INDEX TO FINANCIAL STATEMENTS 

                                                        [Enlarge/Download Table]

                                                                                       PAGE
                                                                                       ----
                                                                                           
Independent Auditors' Report..........................................................  F-2
Balance Sheets:                                                                            
  December 31, 1995 and 1996, and June 30, 1997 (unaudited)...........................  F-3
Statements of Income:                                                                      
  Years ended December 31, 1994, 1995 and 1996, and                                        
     Six Months ended June 30, 1996 and 1997 (unaudited)..............................  F-4
Statements of Shareholders' Equity:                                                        
  Years ended December 31, 1994, 1995 and 1996, and                                        
     Six Months ended June 30, 1997 (unaudited).......................................  F-5
Statements of Cash Flows:                                                                  
  Years ended December 31, 1994, 1995 and 1996, and                                        
     Six Months ended June 30, 1996 and 1997 (unaudited)..............................  F-6
Notes to Financial Statements.........................................................  F-7

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INDEPENDENT AUDITORS' REPORT

The Board of Directors                                                          
Modtech, Inc.:                                                                  

We have audited the accompanying balance sheets of Modtech, Inc. as of
December 31, 1995 and 1996 and the related statements of income, shareholders'  
equity and cash flows for each of the years in the three-year period ended      
December 31, 1996. These financial statements are the responsibility of the     
Company's management. Our responsibility is to express an opinion on these      
financial statements based on our audits.                                       

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion.          

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Modtech, Inc. as of December
31, 1995 and 1996 and the results of its operations and its cash flows for each 
of the years in the three-year period ended December 31, 1996, in conformity    
with generally accepted accounting principles.                                  

KPMG Peat Marwick LLP                                                           

Orange County, California                                                       
March 21, 1997                                                                  

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MODTECH, INC. 

BALANCE SHEETS

                                                        [Enlarge/Download Table]

                                                                DECEMBER 31,                     
                                                          -------------------------    JUNE 30,  
                                                             1995          1996          1997    
                                                          -----------   -----------   -----------
                                                                                      (UNAUDITED)
                                                                                                 
ASSETS (Note 5)                                                                                  
Current assets:                                                                                  
  Cash..................................................  $   561,000   $   405,000   $ 2,703,000
  Contracts receivable, less allowance for contract                                              
     adjustments of $408,000, $413,000 and $410,000 at                                           
     December 31, 1995, 1996 and June 30, 1997                                                   
     (unaudited), respectively (note 2).................    3,169,000    10,310,000    28,659,000
  Costs and estimated earnings in excess of billings on                                          
     contracts (notes 3 and 8)..........................    1,454,000     9,103,000     8,945,000
  Inventories...........................................      646,000     4,167,000     7,852,000
  Due from affiliates (note 8)..........................      766,000       754,000       886,000
  Notes receivable from affiliates (note 8).............      483,000        45,000        45,000
  Prepaid assets........................................       73,000       137,000       204,000
  Other current assets..................................       52,000        20,000        21,000
                                                          -----------   -----------   -----------
          Total current assets..........................    7,204,000    24,941,000    49,315,000
                                                          -----------   -----------   -----------
Property and equipment, net (note 4)....................    7,158,000     8,553,000     8,577,000
                                                          -----------   -----------   -----------
Notes receivable from affiliates (note 8)...............      237,000            --            --
Other assets............................................      555,000       535,000       495,000
                                                          -----------   -----------   -----------
          Total other assets............................      792,000       535,000       495,000
                                                          -----------   -----------   -----------
                                                          $15,154,000   $34,029,000   $58,387,000
                                                          ===========   ===========   ===========

LIABILITIES AND SHAREHOLDERS' EQUITY                                                             
Current liabilities:                                                                             
  Accounts payable......................................  $ 1,105,000   $ 6,410,000   $ 7,137,000
  Accrued liabilities...................................      956,000     3,214,000     8,580,000
  Billings in excess of costs and estimated earnings on                                          
     contracts (notes 3 and 8)..........................      760,000     1,148,000     6,851,000
  Current maturities of long-term debt (notes 6 and                                              
     8).................................................           --       100,000       100,000
                                                          -----------   -----------   -----------
          Total current liabilities.....................    2,821,000    10,872,000    22,668,000
Note payable (note 5)...................................    1,590,000     5,944,000    13,332,000
Long-term debt, less current maturities (notes 6 and                                             
  8)....................................................    2,000,000     1,900,000     1,800,000
                                                          -----------   -----------   -----------
          Total liabilities.............................    6,411,000    18,716,000    37,800,000
                                                          -----------   -----------   -----------

Shareholders' equity:                                                                            
  5% Convertible Preferred Stock, Series A. Authorized                                           
     5,000,000 shares; issued and outstanding 2,850,000,                                         
     none and none at December 31, 1995, 1996 and June                                           
     30, 1997 (unaudited), respectively (note 11).......    2,685,000            --            --
  Common Stock, $.01 par. Authorized 20,000,000 shares;                                          
     issued and outstanding 3,053,000, 8,649,000 and                                             
     8,679,000 at December 31, 1995, 1996 and June 30,                                           
     1997 (unaudited), respectively (notes 10 and 11)...    1,055,000     4,015,000     4,043,000
  Additional paid-in capital............................   13,619,000    15,693,000    15,744,000
  Retained earnings (deficit)...........................   (8,616,000)   (4,395,000)      800,000
                                                          -----------   -----------   -----------
          Total shareholders' equity....................    8,743,000    15,313,000    20,587,000
Commitments and contingencies (notes 3, 5, 8 and 14)....                                         
                                                          -----------   -----------   -----------
                                                          $15,154,000   $34,029,000   $58,387,000
                                                          ===========   ===========   ===========

See accompanying notes to financial statements. 

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MODTECH, INC. 

STATEMENTS OF INCOME

                                                        [Enlarge/Download Table]

                                        YEARS ENDED DECEMBER 31,           SIX MONTHS ENDED JUNE 30, 
                                 ---------------------------------------   ------------------------- 
                                    1994          1995          1996          1996          1997     
                                 -----------   -----------   -----------   -----------   ----------- 
                                                                                  (UNAUDITED)        
                                                                                                     
Net sales (notes 8 and 12)...... $20,355,000   $19,386,000   $49,886,000   $12,704,000   $58,906,000 
Cost of goods sold (note 8).....  17,766,000    16,401,000    42,629,000    10,862,000    47,688,000 
                                 -----------   -----------   -----------   -----------   ----------- 
     Gross profit...............   2,589,000     2,985,000     7,257,000     1,842,000    11,218,000 
Selling, general and                                                                                 
  administrative expenses.......   1,554,000     1,613,000     2,345,000       848,000     2,182,000 
                                 -----------   -----------   -----------   -----------   ----------- 
     Income from operations.....   1,035,000     1,372,000     4,912,000       994,000     9,036,000 
                                 -----------   -----------   -----------   -----------   ----------- 
Other income (expense):                                                                              
  Interest expense..............    (576,000)     (486,000)     (446,000)     (127,000)     (572,000)
  Interest income (note 8)......     105,000        99,000        24,000        20,000        23,000 
  Other -- net..................      42,000        (1,000)      (13,000)       22,000        64,000 
                                 -----------   -----------   -----------   -----------   ----------- 
                                    (429,000)     (388,000)     (435,000)      (85,000)     (485,000)
                                 -----------   -----------   -----------   -----------   ----------- 
     Income before income                                                                            
       taxes....................     606,000       984,000     4,477,000       909,000     8,551,000 
Income taxes (note 7)...........       4,000        19,000       208,000        20,000     3,356,000 
                                 -----------   -----------   -----------   -----------   ----------- 
     Net income................. $   602,000   $   965,000   $ 4,269,000   $   889,000   $ 5,195,000 
                                 -----------   -----------   -----------   -----------   ----------- 
5% Convertible Preferred Stock                                                                       
  dividend (note 11)............          --      (166,000)      (48,000)      (48,000)           -- 
     Net income available for                                                                        
       Common Stock............. $   602,000   $   799,000   $ 4,221,000   $   841,000   $ 5,195,000 
                                 ===========   ===========   ===========   ===========   =========== 
Primary earnings per share...... $      0.12   $      0.13   $      0.49   $      0.10   $      0.55 
                                 ===========   ===========   ===========   ===========   =========== 
Weighted-average shares                                                                              
  outstanding...................   5,098,000     6,027,000     8,709,000     8,750,000     9,370,000 
                                 ===========   ===========   ===========   ===========   =========== 
Fully diluted earnings per                                                                           
  share......................... $      0.11   $      0.12   $      0.47   $      0.10   $      0.55 
                                 ===========   ===========   ===========   ===========   =========== 
Weighted-average shares                                                                              
  outstanding...................   5,294,000     6,712,000     9,041,000     8,750,000     9,370,000 
                                 ===========   ===========   ===========   ===========   =========== 

See accompanying notes to financial statements. 

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MODTECH, INC. 

STATEMENTS OF SHAREHOLDERS' EQUITY

                                                        [Enlarge/Download Table]

                              5% CONVERTIBLE PREFERRED                              STOCK                                
                                       STOCK                  COMMON STOCK         PURCHASE   ADDITIONAL      RETAINED   
                              ------------------------   ----------------------     NOTES       PAID-IN       EARNINGS   
                                SHARES       AMOUNT       SHARES       AMOUNT     RECEIVABLE    CAPITAL      (DEFICIT)   
                              ----------   -----------   ---------   ----------   ----------  -----------   ------------ 
                                                                                                                         
Balance, December 31,                                                                                                    
  1993......................          --   $        --   3,209,000   $1,109,000   $(274,000)  $13,913,000   $(10,017,000)
Sale of preferred stock                                                                                                  
  (note 11).................   2,850,000     2,685,000          --           --          --            --             -- 
Net income..................          --            --          --           --          --            --        602,000 
                              ----------   -----------   ---------   ----------   ---------   -----------   ------------ 
Balance, December 31,                                                                                                    
  1994......................   2,850,000   $ 2,685,000   3,209,000   $1,109,000   $(274,000)  $13,913,000   $ (9,415,000)
Adjustment of stock purchase                                                                                             
  notes receivable..........          --            --    (156,000)     (54,000)    274,000      (294,000)            -- 
Dividend (note11)...........          --            --          --           --          --            --       (166,000)
Net income..................          --            --          --           --          --            --        965,000 
                              ----------   -----------   ---------   ----------   ---------   -----------   ------------ 
Balance, December 31,                                                                                                    
  1995......................   2,850,000     2,685,000   3,053,000    1,055,000          --    13,619,000     (8,616,000)
Conversion of preferred                                                                                                  
  stock (note 11)...........  (2,850,000)   (2,685,000)  2,850,000    2,685,000          --            --             -- 
Conversion of options and                                                                                                
  warrants (notes 10 and                                                                                                 
  11).......................          --            --   2,746,000      275,000          --     2,074,000             -- 
Dividend (note 11)..........          --            --          --           --          --            --        (48,000)
Net income..................          --            --          --           --          --            --      4,269,000 
                              ----------   -----------   ---------   ----------   ---------   -----------   ------------ 
Balance, December 31,                                                                                                    
  1996......................          --            --   8,649,000    4,015,000          --    15,693,000     (4,395,000)
Conversion of options (notes                                                                                             
  10 and 11) (unaudited)....          --            --      30,000       28,000          --        51,000             -- 
Net income (unaudited)......          --            --          --           --          --            --      5,195,000 
                              ----------   -----------   ---------   ----------   ---------   -----------   ------------ 
Balance, June 30, 1997                                                                                                   
  (unaudited)...............          --   $        --   8,679,000   $4,043,000   $      --   $15,744,000   $    800,000 
                              ==========   ===========   =========   ==========   =========   ===========   ============ 

See accompanying notes to financial statements. 

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MODTECH, INC. 

STATEMENTS OF CASH FLOWS

                                                        [Enlarge/Download Table]

                                                       YEAR ENDED DECEMBER 31,              SIX MONTHS ENDED JUNE 30,   
                                             -------------------------------------------   ---------------------------- 
                                                1994            1995            1996          1996             1997     
                                             -----------     -----------     -----------   -----------     ------------ 
                                                                                                   (UNAUDITED)          
                                                                                                                        
Cash flows from operating activities:                                                                                   
  Net income...............................  $   602,000     $   965,000     $ 4,269,000   $   889,000     $  5,195,000 
  Adjustments to reconcile net income to                                                                                
    net cash provided by (used in)                                                                                      
    operating activities:                                                                                               
    Depreciation and amortization..........      608,000         563,000         540,000       257,000          534,000 
    Increase (decrease) in allowance for                                                                                
      contract adjustments.................     (275,000)        (17,000)         (5,000)           --            3,000 
    Loss (gain) on sale of equipment.......      (39,000)        (20,000)         17,000        (5,000)              -- 
    Changes in assets and liabilities:                                                                                  
    (Increase) decrease in contracts                                                                                    
      receivable...........................    1,363,000         (65,000)     (7,136,000)   (3,575,000)     (18,352,000)
    (Increase) decrease in costs and                                                                                    
      estimated earnings in excess of                                                                                   
      billings.............................     (551,000)        330,000      (7,649,000)   (3,005,000)         158,000 
    (Increase) decrease in inventories.....     (174,000)        338,000      (3,521,000)     (857,000)      (3,685,000)
    (Increase) decrease in amounts due from                                                                             
      affiliates...........................     (290,000)       (257,000)        687,000       555,000         (132,000)
    (Increase) decrease in prepaids and                                                                                 
      other assets.........................      183,000          54,000         (12,000)       93,000          (28,000)
    Increase (decrease) in accounts                                                                                     
      payable..............................   (1,583,000)       (436,000)      5,305,000     1,988,000          727,000 
    Increase in accrued liabilities........      475,000          35,000       2,258,000       210,000        5,366,000 
    Increase (decrease) in billings in                                                                                  
      excess of costs and earnings.........      109,000        (276,000)        388,000       951,000        5,703,000 
                                             -----------     -----------     -----------   -----------     ------------ 
    Net cash provided by (used in)                                                                                      
      operating activities.................      428,000       1,214,000      (4,859,000)   (2,499,000)      (4,511,000)
                                             -----------     -----------     -----------   -----------     ------------ 
Cash flows from investing activities:                                                                                   
  Proceeds from sale of equipment..........       81,000          46,000           6,000        12,000           12,000 
  Purchase of property and equipment.......     (200,000)       (482,000)     (1,958,000)     (353,000)        (570,000)
                                             -----------     -----------     -----------   -----------     ------------ 
    Net cash used in investing                                                                                          
      activities...........................     (119,000)       (436,000)     (1,952,000)     (341,000)        (558,000)
                                             -----------     -----------     -----------   -----------     ------------ 
Cash flows from financing activities:                                                                                   
  Net principal borrowings (payments) under                                                                             
    revolving credit lines.................   (1,804,000)       (310,000)      4,354,000     2,152,000        7,388,000 
  Principal payments on long-term debt.....   (1,185,000)       (503,000)             --            --         (100,000)
  (Adjustment of) stock purchase note                                                                                   
    receivable by exchange of Common                                                                                    
    Stock..................................           --         (74,000)             --            --               -- 
  Net proceeds from issuance of Common                                                                                  
    Stock shares...........................           --              --       2,349,000            --           79,000 
  Declared dividends.......................           --        (166,000)        (48,000)      (48,000)              -- 
  Conversion of stock warrants and                                                                                      
    options................................           --              --              --       536,000               -- 
  Net proceeds from sale of convertible                                                                                 
    preferred stock (note 11)..............    2,685,000              --              --            --               -- 
                                             -----------     -----------     -----------   -----------     ------------ 
    Net cash provided by (used in)                                                                                      
      financing activities.................     (304,000)     (1,053,000)      6,655,000     2,640,000        7,367,000 
                                             -----------     -----------     -----------   -----------     ------------ 
    Net increase (decrease) in cash........        5,000        (275,000)       (156,000)     (200,000)       2,298,000 
Cash at beginning of year..................      831,000         836,000         561,000       561,000          405,000 
                                             -----------     -----------     -----------   -----------     ------------ 
Cash at end of year........................  $   836,000     $   561,000     $   405,000   $   361,000     $  2,703,000 
                                             ===========     ===========     ===========   ===========     ============ 

See accompanying notes to financial statements. 

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MODTECH, INC. 

NOTES TO FINANCIAL STATEMENTS 
DECEMBER 31, 1994, 1995, 1996 
AND JUNE 30, 1996 AND 1997 (UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES     

DESCRIPTION OF BUSINESS                                                         

   Modtech, Inc. (the "Company") designs, manufactures, markets and installs
modular relocatable classrooms.                                                 

     The Company's classrooms are sold primarily to California school districts.
The Company also sells classrooms to the State of California and to leasing     
companies, who lease the classrooms principally to California school districts. 

  Effective October 1, 1996, the Company acquired substantially all of the
operating assets of Miller Structures, Inc. - California. In addition, the      
Company assumed certain liabilities. The Company entered into a lease agreement 
to rent the manufacturing facility. Miller Structures, Inc. - California        
manufactures and markets factory-built buildings.                               

USE OF ESTIMATES                                                                

The preparation of financial statements in conformity with generally  
accepted accounting principles requires management to make estimates and        
assumptions that affect the reported amounts of assets and liabilities and      
disclosures of contingent assets and liabilities at the date of the financial   
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.                       

CASH AND CASH EQUIVALENTS                                                       

 For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months or less 
to be cash equivalents. Substantially all cash deposits are maintained in one   
financial institution.                                                          

FAIR VALUE OF FINANCIAL INSTRUMENTS                                             

The carrying value of cash, contracts receivable and notes receivable,
costs and estimated earnings in excess of billings on contracts, prepaid and    
other assets, accounts payable, accrued liabilities, billings in excess of      
estimated earnings on contracts and notes payable are measured at cost which    
approximates their fair value.                                                  

CONSTRUCTION CONTRACTS                                                          

The accompanying financial statements have been prepared 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. Most contracts are completed within one 
year.                                                                           

Contract costs include all direct material and labor costs and those  
indirect costs related to contract performance, such as indirect labor,         
supplies, tools, repairs and depreciation costs. Selling, general and           
administrative costs are charged to expense as incurred. At the time a loss on a
contract becomes known, the entire amount of the estimated ultimate loss is     
recognized in the financial statements.                                         

   The current asset, "Costs and Estimated Earnings in Excess of Billings on
Contracts," represents revenues recognized in excess of amounts billed. The     
current liability, "Billings in Excess of Costs and Estimated Earnings on       
Contracts," represents billings in excess of revenues recognized.               

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MODTECH, INC. 

NOTES TO FINANCIAL STATEMENTS (CONTINUED) 
DECEMBER 31, 1994, 1995, 1996 
AND JUNE 30, 1996 AND 1997 (UNAUDITED)

The current contra asset, "Allowance for Contract Adjustments," is    
management's estimated adjustments to contract amounts due to disputes and or   
litigation.                                                                     

INVENTORIES                                                                     

   Inventories are valued at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method. Inventories, generally include only   
raw materials, as any work-in-process or finished goods are accounted for in    
percentage of completion allocations. The Company held finished inventory of    
$202,000 and $0 at December 31, 1995 and 1996, respectively.                    

PROPERTY AND EQUIPMENT                                                          

     Property and equipment are stated at cost. Depreciation and amortization is
provided using the straight-line and accelerated methods over the following     
estimated useful lives:                                                         

                                                                [Download Table]
                                                              
Leasehold improvements........................  15 to 31 years
Machinery and equipment.......................   5 to 7 years 
Trucks and automobiles........................   3 to 5 years 
Office equipment..............................   5 to 7 years 

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF         

 The Company adopted the provisions of Statement of Financial Accounting
Standard No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived   
Assets and for Long-Lived Assets to Be Disposed Of," on January 1, 1996. This   
Statement requires that long-lived assets and certain identifiable intangibles  
be reviewed for impairment whenever events or changes in circumstances indicate 
that the carrying amount of an asset may not be recoverable. Recoverability of  
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is        
measured by the amount by which the carrying amount of the assets exceed the    
fair value of the assets. Assets to be disposed of are reported at the lower of 
the carrying amount of fair value less costs to sell. Adoption of this Statement
did not have a material impact on the Company's financial position, results of  
operations or liquidity.                                                        

STOCK OPTION PLAN                                                               

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

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MODTECH, INC. 

NOTES TO FINANCIAL STATEMENTS (CONTINUED) 
DECEMBER 31, 1994, 1995, 1996 
AND JUNE 30, 1996 AND 1997 (UNAUDITED)

TAXES ON INCOME                                                                 

Income taxes are accounted for under the asset and liability method.  
Deferred tax assets and liabilities are recognized for the future tax           
consequences attributable to differences between the financial statement        
carrying amounts of existing assets and liabilities and their respective tax    
bases and tax credit carryforwards. Deferred tax assets and liabilities are     
measured using enacted tax rates expected to apply to taxable income in the     
years in which those temporary differences are expected to be recovered or      
settled. The effect on deferred tax assets and liabilities of a change in tax   
rates is recognized in income in the period that includes the enactment date.   

EARNINGS PER SHARE                                                              

     Earnings per share are computed on the basis of the weighted average number
of common and dilutive common equivalent shares outstanding during each year.   

RECLASSIFICATION                                                                

Certain amounts in the 1994 and 1995 financial statements have been   
reclassified to conform to the 1996 presentation.                               

2. CONTRACTS RECEIVABLE                                                       

Contracts receivable consisted of customer billings for:              

                                                        [Enlarge/Download Table]

                                                     DECEMBER 31,                      
                                              --------------------------    JUNE 30,   
                                                 1995           1996          1997     
                                              ----------     -----------   ----------- 
                                                                           (UNAUDITED) 
                                                                                       
Completed contracts.......................... $  675,000     $ 7,723,000   $ 1,366,000 
Contracts in progress........................  2,613,000       2,103,000    25,288,000 
Retentions...................................    289,000         897,000     2,415,000 
                                              ----------     -----------   ----------- 
                                               3,577,000      10,723,000    29,069,000 
Less allowance for contract adjustments......   (408,000)       (413,000)     (410,000)
                                              ----------     -----------   ----------- 
                                              $3,169,000     $10,310,000   $28,659,000 
                                              ==========     ===========   =========== 

3. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON CONTRACTS            

Net costs and estimated earnings in excess of billings on contracts   
consisted of:                                                                   

                                                        [Enlarge/Download Table]

                                                   DECEMBER 31,                        
                                           -----------------------------    JUNE 30,   
                                               1995             1996          1997     
                                           ------------     ------------   ----------- 
                                                                           (UNAUDITED) 
                                                                                       
Net costs and estimated earnings on                                                    
  uncompleted contracts................... $ 22,744,000     $ 39,093,000   $93,369,000 
Billings to date..........................  (22,213,000)     (31,173,000)   91,266,000 
                                           ------------     ------------   ----------- 
                                                531,000        7,920,000     2,103,000 
Net unbilled receivables (payables) from                                               
  completed contracts.....................      163,000           35,000        (9,000)
                                           ------------     ------------   ----------- 
                                           $    694,000     $  7,955,000   $ 2,094,000 
                                           ============     ============   =========== 

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MODTECH, INC. 

NOTES TO FINANCIAL STATEMENTS (CONTINUED) 
DECEMBER 31, 1994, 1995, 1996 
AND JUNE 30, 1996 AND 1997 (UNAUDITED)

These amounts are shown in the accompanying balance sheets under the  
following captions:                                                             

                                                        [Enlarge/Download Table]

                                                     DECEMBER 31,                      
                                              --------------------------    JUNE 30,   
                                                 1995           1996          1997     
                                              ----------     -----------   ----------- 
                                                                           (UNAUDITED) 
                                                                                       
Costs and estimated earnings in excess of                                              
  billings on uncompleted contracts.......... $1,254,000     $ 8,971,000   $ 8,812,000 
Costs and estimated earnings in excess of                                              
  billings on completed contracts............    200,000         132,000       133,000 
                                              ----------     -----------   ----------- 
     Costs and estimated earnings in excess                                            
       of billings...........................  1,454,000       9,103,000     8,945,000 
                                              ----------     -----------   ----------- 
Billings in excess of costs and estimated                                              
  earnings on uncompleted contracts..........   (722,000)     (1,052,000)   (6,709,000)
Billings in excess of costs and estimated                                              
  earnings on completed contracts............    (38,000)        (96,000)     (142,000)
                                              ----------     -----------   ----------- 
  Billings in excess of costs and estimated                                            
     earnings................................   (760,000)     (1,148,000)   (6,851,000)
                                              ----------     -----------   ----------- 
                                              $  694,000     $ 7,955,000   $ 2,094,000 
                                              ==========     ===========   =========== 

4. PROPERTY AND EQUIPMENT, NET                                                

Property and equipment, net consists of:                              

                                                        [Enlarge/Download Table]

                                                                  DECEMBER 31,         
                                                           --------------------------- 
                                                              1995            1996     
                                                           -----------     ----------- 
                                                                                       
Leasehold improvements.................................... $ 7,241,000     $ 7,581,000 
Machinery and equipment...................................   2,492,000       3,536,000 
Trucks and automobiles....................................     164,000         107,000 
Office equipment..........................................     469,000         222,000 
Construction in progress..................................     261,000         567,000 
                                                           -----------     ----------- 
                                                            10,627,000      12,013,000 
Less accumulated depreciation and amortization............  (3,469,000)     (3,460,000)
                                                           -----------     ----------- 
                                                           $ 7,158,000     $ 8,553,000 
                                                           ===========     =========== 

5. NOTE PAYABLE -- REVOLVING CREDIT AGREEMENT                                 

    In 1995 the Company entered into a new revolving loan commitment that will
expire in September 1998. The Company is entitled to borrow, from time to time, 
up to $10,000,000 with actual borrowings limited to specific percentages of     
eligible contracts receivable, equipment and inventories. On December 31, 1996, 
borrowings were limited to $8,136,000 and actual outstanding borrowings were    
$5,944,000. The interest rate is calculated at the prime lending rate (8.25% at 
December 31, 1996) plus two percent (2%) per annum. The loan is secured by      
substantially all of the Company's assets.                                      

     In addition, the Company has one standby letter of credit with the bank for
$2,036,000 on which no amounts were outstanding as of December 31, 1996.        

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MODTECH, INC. 

NOTES TO FINANCIAL STATEMENTS (CONTINUED) 
DECEMBER 31, 1994, 1995, 1996 
AND JUNE 30, 1996 AND 1997 (UNAUDITED)

6. LONG-TERM DEBT                                                             

Long-term debt consists of:                                           

                                                        [Enlarge/Download Table]

                                                                   DECEMBER 31,        
                                                             ------------------------- 
                                                                1995           1996    
                                                             ----------     ---------- 
                                                                                       
Industrial development bonds................................ $2,000,000     $2,000,000 
Less current portion of long-term debt......................         --       (100,000)
                                                             ----------     ---------- 
                                                             $2,000,000     $1,900,000 
                                                             ==========     ========== 

 In June 1990, the Industrial Development Authority of the County of San
Joaquin, California issued $4,200,000 of Industrial Development Bonds. The net  
proceeds of approximately $4,000,000 were used to fund the construction of a    
manufacturing facility on leased property located in Lathrop, California. The   
Company fully utilized the bonds at December 31, 1991. The Company has executed 
financing statements covering the plant and equipment financed, as security for 
repayment of the bonds. The bonds are secured by a $2 million letter of credit, 
and bear interest at an initial rate of 6.75% and fluctuate weekly. The interest
rate was 3.75% at December 31, 1996. Repayment of the bonds will be $100,000 per
year through 2015, with the remaining balance paid off in 2016.                 

     Annual maturities of long-term debt outstanding at December 31, 1996 are as
follows:                                                                        

                                                                [Download Table]
                                                                             
Year ending December 31:                                                     
  1997...........................................................  $  100,000
  1998...........................................................     100,000
  1999...........................................................     100,000
  2000...........................................................     100,000
  2001...........................................................     100,000
  Thereafter.....................................................   1,500,000
                                                                   ----------
                                                                   $2,000,000
                                                                   ==========

7. INCOME TAXES                                                                 

   The components of the 1994, 1995 and 1996 provision for Federal and state
income taxes are summarized below:                                              

                                                        [Enlarge/Download Table]

                                                                 SIX MONTHS ENDED JUNE 
                                    YEAR ENDED DECEMBER 31,               30,          
                                -------------------------------  ----------------------
                                 1994       1995         1996     1996          1997   
                                ------     -------     --------  -------     ----------
                                                                      (UNAUDITED)      
                                                                                       
Current:                                                                               
  Federal...................... $   --     $14,000     $ 91,000  $ 8,000     $2,600,000
  State........................  4,000       5,000      117,000   12,000        756,000
                                ------     -------     --------  -------     ----------

Deferred:                                                                              
  Federal......................     --          --           --       --             --
  State........................     --          --           --       --             --
                                ------     -------     --------  -------     ----------
                                $4,000     $19,000     $208,000  $20,000     $3,356,000
                                ======     =======     ========  =======     ==========

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MODTECH, INC. 

NOTES TO FINANCIAL STATEMENTS (CONTINUED) 
DECEMBER 31, 1994, 1995, 1996 
AND JUNE 30, 1996 AND 1997 (UNAUDITED)

     Income tax expense attributable to income from operations differed from the
amounts computed by applying the U.S. Federal income tax rate to pretax income  
from operations as a result of the following:                                   

                                                        [Enlarge/Download Table]

                                                                                 SIX MONTHS    
                                                                                    ENDED      
                                                   YEAR ENDED DECEMBER 31,        JUNE 30,     
                                                 ---------------------------   --------------- 
                                                 1994       1995       1996    1996       1997 
                                                 -----      -----      -----   -----      ---- 
                                                                                 (UNAUDITED)   
                                                                                               
Taxes, U.S. statutory rates.....................  34.0%      34.0%      34.0%   34.0%     34.0%
State taxes, less Federal benefit...............    --         --         --      --       5.8 
Utilization of income tax benefit relating to                                                  
  loss carryover................................ (34.0)     (34.0)     (34.0)  (34.0)     (7.2)
Other...........................................   0.7        1.9        4.6     2.2       6.7 
                                                 -----      -----      -----   -----      ---- 
          Total taxes on income.................   0.7%       1.9%       4.6%    2.2%     39.3%
                                                 =====      =====      =====   =====      ==== 

Deferred tax liabilities, which amounted to approximately $68,000 and 
$270,000 at December 31, 1995 and 1996, respectively, primarily result from     
temporary differences between financial and tax accounting treatment of revenue 
recognition on contracts and depreciation. Deferred tax assets, which amounted  
to approximately $2,819,000 and $1,429,000 at December 31, 1995 and 1996,       
respectively, were mainly comprised of net operating loss carryforwards and     
accrued liabilities. The Company's net operating loss carryforward at December  
31, 1996 amounted to approximately $615,000, and expires in 2008 and 2009. For  
the years ended December 31, 1995 to 1996 the Company reduced the net deferred  
tax asset to zero by a valuation allowance. The valuation allowance for the net 
deferred tax assets as of December 31, 1995 was $2,751,000. The net change for  
the year ended December 31, 1996 was a decrease of $1,592,000, resulting in a   
remaining valuation allowance of $1,159,000.                                    

8. TRANSACTIONS WITH RELATED PARTIES                                          

SALES                                                                           

     The Company sells modular classrooms to certain companies and partnerships,
the shareholders and partners of which are either officers, shareholders or key 
employees of the Company. The buildings are then leased to various school       
districts by the related companies and partnerships.                            

The table below summarizes the classroom sales to related parties:    

                                                        [Enlarge/Download Table]

                                                                             SIX MONTHS ENDED    
                                         YEAR ENDED DECEMBER 31,                 JUNE 30,        
                                  --------------------------------------   --------------------- 
                                     1994          1995          1996        1996         1997   
                                  ----------     --------     ----------   --------     -------- 
                                                                                (UNAUDITED)      
                                                                                                 
Sales............................ $1,009,000     $600,000     $1,453,000   $269,000     $745,000 
Cost of goods sold...............    870,000      531,000      1,239,000    236,000      655,000 
Gross profit percentage..........       13.8%        11.5%          14.7%      12.3%        12.1%
                                  ==========     =========    ==========   =========    =========

The related party purchases modular relocatable classrooms from the   
Company, upon standard terms and at standard wholesale prices.                  

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MODTECH, INC. 

NOTES TO FINANCIAL STATEMENTS (CONTINUED) 
DECEMBER 31, 1994, 1995, 1996 
AND JUNE 30, 1996 AND 1997 (UNAUDITED)

  Due from affiliates includes a portion of unpaid invoices as a result of
the above transactions. As of December 31, 1995 and 1996 these amounts totaled  
$376,000 and $432,000, respectively. Additional amounts arising from these      
transactions are included in the following captions:                            

                                                        [Enlarge/Download Table]

                                                           DECEMBER 31,                
                                                        -------------------   JUNE 30, 
                                                          1995       1996       1997   
                                                        --------   --------   -------- 
                                                                                       
Costs and estimated earnings in excess of billings on                                  
  uncompleted contracts................................ $     --   $418,000   $397,000 
Billings in excess of costs and estimated earnings on                                  
  uncompleted contracts................................  (30,000)   (13,000)   (47,000)
                                                        ========   ========   ======== 

NOTES RECEIVABLE                                                                

   At December 31, 1995, the Company had two notes receivable from a related
party partnership aggregating $483,000. The partnership is composed of officers 
and shareholders of the Company. One note was paid in full during 1996 and the  
other note, in the amount of $45,000, which bears interest at 10% and is payable
upon demand, remained outstanding at December 31, 1996.                         

At December 31, 1995 the Company also had demand notes receivable of  
$132,000 and $105,000 due from related party partnerships. These notes were paid
in full during 1996.                                                            

     Unpaid interest related to the above notes totaled $390,000 at December 31,
1995 and $322,000 at December 31, 1996 and are included in due from affiliates. 
The Company is negotiating payment terms on the accrued interest and anticipates
full payment during 1997.                                                       

OPERATING LEASES                                                                

The Company leases various land at its manufacturing facilities. The  
present manufacturing facility leases are with the Company's primary shareholder
and partnerships composed of officers and shareholders. All related party leases
require monthly payments which aggregate $67,000. In connection with the lease  
at the Lathrop facility, the Company made a $83,000 security deposit during     
1990.                                                                           

In 1994, due to declines in real estate values the Company's primary  
shareholder and partnerships reduced the monthly lease rates for the            
manufacturing facilities to an aggregate of $36,000. The reduced rents will     
continue for as long as real estate values remain depressed.                    

    Future minimum lease payments under these leases are discussed in Note 14.
Included in cost of sales is $418,000, $435,000 and $447,000 in rent expense    
paid to related parties for the years ended December 31, 1994, 1995 and 1996,   
respectively.                                                                   

9. 401(K) PLAN                                                                

 The Company has a tax deferred savings plan under Section 401(k) of the
Internal Revenue Code. Eligible employees can contribute up to 12% of gross     
annual earnings. Company contributions, made on a 50% matching basis, are       
determined annually. The Company's contributions were $41,000, $37,000 and      
$53,000 in 1994, 1995 and 1996, respectively.                                   

10. STOCK OPTIONS                                                               

    In 1989, the Company's shareholders approved a stock option plan (the 1989
Plan). The 1989 Plan provides for the grant of both incentive and non-qualified 
options to purchase up to 400,000 shares of the                                 

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MODTECH, INC. 

NOTES TO FINANCIAL STATEMENTS (CONTINUED) 
DECEMBER 31, 1994, 1995, 1996 
AND JUNE 30, 1996 AND 1997 (UNAUDITED)

Company's Common Stock. The incentive stock options can be granted only to      
employees, including officers of the Company, while non-qualified stock options 
can be granted to employees, non-employee officers and directors, consultants,  
vendors, customers and others expected to provide significant services to the   
Company.                                                                        

     The exercise price of the stock options cannot be less than the fair market
at the date of the grant (110% if granted to an employee who owns 10% or more of
the common stock).                                                              

   Stock options outstanding under this 1989 Plan are summarized as follows:

                                                                [Download Table]

                                                              WEIGHTED-AVERAGE
                                                    SHARES     EXERCISE PRICE 
                                                   --------   ----------------
                                                                              
December 31, 1993.................................  400,000        $ 1.91     
  Granted.........................................   75,000          1.50     
  Terminated......................................  (75,000)         1.45     
  Exercised.......................................       --            --     
                                                   --------        ------     
December 31, 1994.................................  400,000          1.92     
  Granted.........................................   45,000         2.125     
  Terminated......................................  (45,000)         3.00     
  Exercised.......................................       --            --     
                                                   --------        ------     
December 31, 1995.................................  400,000          1.82     
  Granted.........................................       --            --     
  Terminated......................................       --            --     
  Exercised....................................... (134,500)         1.62     
                                                   --------        ------     
December 31, 1996.................................  265,500          1.92     
  Granted.........................................       --            --     
  Terminated......................................       --            --     
  Exercised (unaudited)...........................  (13,650)         2.78     
                                                   --------        ------     
June 30, 1997 (unaudited).........................  251,850        $ 1.87     
                                                   ========        ======     

As of December 31, 1996, 185,900 options are vested and exercisable at
prices ranging from $.625 to $10.00 per share under the 1989 Plan.              

   As of June 30, 1997, 179,750 options are vested and exercisable at prices
ranging from $.625 to $10.00 per share under the 1989 Plan (unaudited).         

In March of 1994, pursuant to a vote of the Board of Directors, a     
nonqualified option plan was approved (the March 1994 Plan). The March 1994 Plan
provides for the grant of 200,000 options to purchase shares of the Company's   
common stock. The exercise price of the stock options cannot be less than the   
fair market at the date of the grant. All of these options were granted during  
1994.                                                                           

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MODTECH, INC. 

NOTES TO FINANCIAL STATEMENTS (CONTINUED) 
DECEMBER 31, 1994, 1995, 1996 
AND JUNE 30, 1996 AND 1997 (UNAUDITED)

Stock options outstanding under the March 1994 Plan, are summarized as
follows:                                                                        

                                                                [Download Table]

                                                              WEIGHTED-AVERAGE
                                                    SHARES     EXERCISE PRICE 
                                                   --------   ----------------
                                                                              
December 31, 1993.................................  180,000        $ 1.19     
  Granted.........................................   20,000          1.50     
  Terminated......................................       --            --     
  Exercised.......................................       --            --     
                                                    -------        ------     
December 31, 1994.................................  200,000          1.22     
  Granted.........................................       --            --     
  Terminated......................................       --            --     
  Exercised.......................................       --            --     
                                                    -------        ------     
December 31, 1995.................................  200,000          1.22     
  Granted.........................................       --            --     
  Terminated......................................       --            --     
  Exercised.......................................  (20,000)         1.19     
                                                    -------        ------     
December 31, 1996.................................  180,000          1.22     
  Granted.........................................       --            --     
  Terminated......................................       --            --     
  Exercised (unaudited)...........................  (14,500)         1.37     
                                                    -------        ------     
June 30, 1997 (unaudited).........................  165,500        $ 1.21     
                                                    =======        ======     

As of December 31, 1996, 95,000 options are vested and exercisable at 
prices ranging from $1.19 to $1.50 per share under the March 1994 Plan.         

   As of June 30, 1997, 123,000 options are vested and exercisable at prices
ranging from $1.19 to $1.50 per share under the March 1994 Plan (unaudited).    

   In May of 1994, in conjunction with the offering of preferred stock (note
11), the Board of Directors voted and approved an additional stock option plan  
(the May 1994 Plan). The May 1994 Plan provides for the grant of both incentive 
and non-qualified options to purchase up to 500,000 shares of the Company's     
common stock. The incentive stock options can be granted only to employees,     
including officers of the Company, while non-qualified stock options can be     
granted to employees, non-employee officers and directors, consultants, vendors,
customers and others expected to provide significant services to the Company.   
The exercise price of the stock options cannot be less than the fair market at  
the date of the grant (110% if granted to an employee who owns 10% or more of   
the common stock).                                                              

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MODTECH, INC. 

NOTES TO FINANCIAL STATEMENTS (CONTINUED) 
DECEMBER 31, 1994, 1995, 1996 
AND JUNE 30, 1996 AND 1997 (UNAUDITED)

Stock options outstanding under this May 1994 Plan, are summarized as 
follows:                                                                        

                                                                [Download Table]

                                                              WEIGHTED-AVERAGE
                                                    SHARES     EXERCISE PRICE 
                                                    -------   ----------------
                                                                              
December 31, 1994.................................. 285,000        $ 1.50     
  Granted..........................................  35,000         2.125     
  Terminated....................................... (35,000)         1.50     
  Exercised........................................      --            --     
                                                    -------        ------     
December 31, 1995.................................. 285,000          1.60     
  Granted.......................................... 205,000          2.59     
  Terminated....................................... (37,500)         1.50     
  Exercised........................................ (12,500)         1.50     
                                                    -------        ------     
December 31, 1996.................................. 440,000          2.06     
  Granted..........................................      --            --     
  Terminated.......................................      --            --     
  Exercised (unaudited)............................  (1,250)         2.13     
                                                    -------        ------     
June 30, 1997 (unaudited).......................... 438,750        $ 2.06     
                                                    =======        ======     

As of December 31, 1996, 108,750 options are vested and exercisable at
prices ranging from $1.50 to $4.50 per share under the May 1994 Plan.           

   As of June 30, 1997, 198,750 options are vested and exercisable at prices
ranging from $1.50 to $4.50 per share under the May 1994 Plan (unaudited).      

In July 1996, the Company's Board of Directors authorized the grant of
options to purchase up to 500,000 shares of the Company's common stock. The     
non-statutory options may be granted to employees, non-employee officers and    
directors, consultants, vendors, customers and others expected to provide       
significant service to the Company. The exercise price of the stock options     
cannot be less than the fair market value at the date of the grant (110% if     
granted to an employee who owns 10% or more of the common stock). At December   
31, 1996, 110,000 options were granted at an exercise price of $4.50 and of     
these, 30,000 options were vested and exercisable. In January 1997, an          
additional 215,833 options were granted at an exercise price of $7.88 and in    
June 1997, 25,000 options were granted at an exercise price of $12.62. At June  
30, 1997, 30,000 options were vested and exercisable at $4.50 per share under   
the 1996 Plan (unaudited).                                                      

   The per share weighted-average fair value of stock options granted during
1995 and 1996 was $1.28 and $1.94, respectively, on the date of grant using the 
Black Scholes option-pricing model with the following weighted-average          
assumptions; 1995 -- expected dividend yield 0%, risk-free interest rate of     
7.80%, volatility factor of 72.66%, and an expected life of four years;         
1996 -- expected dividend yield 0%, risk-free interest rate ranging from 6.57%  
to 7.80%, volatility factor of 72.66%, and an expected life of four years. The  
Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, 
no compensation cost has been recognized for its stock options in the financial 
statements. Had the Company determined compensation cost                        

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MODTECH, INC. 

NOTES TO FINANCIAL STATEMENTS (CONTINUED) 
DECEMBER 31, 1994, 1995, 1996 
AND JUNE 30, 1996 AND 1997 (UNAUDITED)

based on the fair value at the grant date for its stock options under SFAS No.  
123, the Company's net income would have been reduced to the pro forma amounts  
indicated below:                                                                

                                                        [Enlarge/Download Table]

                                                                SIX MONTHS ENDED JUNE 
                                      YEAR ENDED DECEMBER 31,            30,          
                                      -----------------------  -----------------------
                                        1995          1996       1996          1997   
                                      --------     ----------  --------     ----------
                                                                     (UNAUDITED)      
                                                                                      
Net income:                                                                           
  As reported........................ $965,000     $4,269,000  $889,000     $5,195,000
  Pro forma..........................  862,000      3,658,000   783,000      4,434,000
                                      ========     ==========  ========     ==========
Primary earnings per share:                                                           
  As reported........................ $   0.13     $     0.49  $   0.10     $     0.55
  Pro forma..........................     0.11           0.42      0.09           0.47
                                      ========     ==========  ========     ==========
Fully diluted earnings per share:                                                     
  As reported........................ $   0.12     $     0.47  $   0.10     $     0.55
  Pro forma..........................     0.11           0.40      0.09           0.47
                                      ========     ==========  ========     ==========

Pro forma net income reflects only options granted in 1995 and 1996.  
Therefore, the full impact of calculating compensation cost for stock options   
under SFAS No. 123 is not reflected in the pro forma net income amounts         
presented above because compensation cost is reflected over the options' vesting
period of four years and compensation cost for options granted prior to January 
1, 1995 is not considered.                                                      

11. 5% CONVERTIBLE PREFERRED STOCK AND WARRANTS                                 

 In May of 1994, in a private transaction without registration under the
Securities Act, the Company sold 2,850,000 shares of Series A 5% Convertible    
Preferred Stock. The preferred stock was sold at the price of $1.00 per share   
resulting in proceeds before costs and expenses of $2,850,000. All of the Series
A 5% Convertible Preferred Stock was converted into Common Stock during 1996. In
connection with this private placement of the Series A 5% Preferred Stock, the  
shareholders were granted warrants to purchase an aggregate of 1,385,000 shares 
of common stock at $1.50 (subject to adjustment in certain events), as well as  
warrants to purchase an aggregate of 1,375,000 additional shares at $2.00 per   
share (subject to adjustments in certain events). All warrants were exercised   
during 1996 resulting in the issuance of 2,204,000 shares of common stock and   
proceeds to the Company of approximately $1,643,000. Dividends in the amount of 
$166,000 and $48,000 were declared for the years ended December 31, 1995 and    
1996, respectively.                                                             

The Company also had outstanding 375,000 stock warrants at a price of 
$1.1875 in connection with a 1994 bank financing agreement. All these warrants  
were exercised during 1996.                                                     

12. MAJOR CUSTOMERS                                                             

     The Company had sales to one major customer which represented the following
percentage of net sales:                                                        

                                                                [Download Table]

                                                      YEAR ENDED DECEMBER 31,  
                                                      ------------------------ 
                                                      1994      1995      1996 
                                                      ----      ----      ---- 
                                                                               
State of California.................................    28%        9%       13%
                                                        ==         =        == 

    Sales to individual California school districts accounted 67.0%, 87.9% and
79.4% of the Company's net sales for 1994, 1995 and 1996, respectively.         

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MODTECH, INC. 

NOTES TO FINANCIAL STATEMENTS (CONTINUED) 
DECEMBER 31, 1994, 1995, 1996 
AND JUNE 30, 1996 AND 1997 (UNAUDITED)

13. SUPPLEMENTAL CASH FLOW DISCLOSURES                                          

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                               

                                                                [Download Table]

                                                              SIX MONTHS ENDED  
                                YEAR ENDED DECEMBER 31,           JUNE 30,      
                             ------------------------------  -------------------
                               1994       1995       1996      1996       1997  
                             --------   --------   --------  --------   --------
                                                                 (UNAUDITED)    
                                                                                
Cash paid during the year                                                       
  for:                                                                          
  Interest.................. $531,000   $248,000   $421,000  $180,000   $506,000
  Income taxes..............       --         --     24,000        --         --
                             ========   ========   ========  ========   ========

SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:                       

 During 1995, $274,000 of notes receivable from officer shareholders was
repaid by delivery of 155,988 shares of common stock at market value.           

  During 1996, 2,850,000 shares of Series A 5% convertible Preferred Stock
were converted into 2,850,000 shares of common stock, in accordance with the    
private placement (note 11).                                                    

14. COMMITMENTS AND CONTINGENCIES                                               

LAND LEASES                                                                     

    The Company has entered into agreements to lease land at its manufacturing
facilities in Perris and Lathrop, California. Minimum lease payments under these
noncancelable operating leases for the next five years and thereafter are as    
follows:                                                                        

                                                                [Download Table]
                                                             
Year ending December 31:                                     
  1997...........................................  $  496,000
  1998...........................................     489,000
  1999...........................................     480,000
  2000...........................................     435,000
  2001...........................................     435,000
  Thereafter.....................................   6,325,000
                                                   ----------
                                                   $8,660,000
                                                   ==========

   Of the $8,660,000 in future rental payments, substantially all is payable
to related parties (note 8). Rent expense for the years ended December 31, 1994,
1995 and 1996 was $418,000, $435,000 and $447,000, respectively.                

WARRANTY                                                                        

 The Company provides a one year warranty relating to the workmanship on
their modular units. To date, warranty costs incurred on completed contracts    
have been immaterial.                                                           

PENDING CLAIMS AND LITIGATION                                                   

 In the normal course of business, the Company has been named in several
claims and lawsuits arising out of the failure to pay subcontractors or for     
alleged breach of assigned security. In the opinion of management, the outcome  
of the claims will not have a material effect on the Company's financial        
position or results of operations.                                              

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======================================================                          

NO DEALER, SALES REPRESENTATIVE, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO 
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED  
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS   
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING   
SHAREHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE       
SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN     
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR          
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR      
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL 
TO MAKE SUCH OFFER OR SOLICITATION. UNDER NO CIRCUMSTANCES SHALL THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER CREATE ANY IMPLICATION THAT         
INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO
DATE OF THIS PROSPECTUS.                                                        

------------------------

TABLE OF CONTENTS 

                                                                [Download Table]

                                        PAGE
                                        ----
                                            
Prospectus Summary.....................    3
Risk Factors...........................    7
Use of Proceeds........................   11
Market Information and Related              
  Matters..............................   12
Dividend Policy........................   12
Capitalization.........................   13
Selected Financial Data................   14
Management's Discussion and Analysis of     
  Results of Operations and Financial       
  Condition............................   15
Business...............................   21
Management.............................   32
Principal and Selling Shareholders.....   37
Description of Capital Stock...........   39
Underwriting...........................   41
Legal Matters..........................   42
Experts................................   42
Available Information..................   42
Index to Financial Statements..........  F-1

======================================================                          
======================================================                          

1,750,000 SHARES

MODTECH LOGO

COMMON STOCK
--------------------
PROSPECTUS
--------------------

BEAR, STEARNS & CO. INC.

CRUTTENDEN ROTH 
INCORPORATED

L.H. FRIEND, WEINRESS,
FRANKSON & PRESSON, INC.

NOVEMBER 4, 1997

======================================================                          

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘424B4’ Filing		Date		First		Last			Other Filings
		9/30/00		11		19
		12/31/99		9
		12/31/97		14					10-K,  10-K/A
		12/15/97		20
		11/7/97		1
Filed on:		11/6/97
		11/4/97		1		62
		11/3/97		1		12			S-1/A
		10/21/97		5
		9/30/97		5		39			10-Q
		6/30/97		4		60			10-Q
		3/21/97		44
		12/31/96		4		60			10-K
		10/1/96		49
		9/30/96		5					10-Q
		6/30/96		6		60
		1/1/96		50
		12/31/95		4		60
		1/1/95		59
		12/31/94		14		60
		12/31/93		14		57
		12/31/92		14
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