1075066--4/14/2008--MODTECH_HOLDINGS

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{debt, indebtedness, cash}

{regulation, government, change}

{personnel, key, retain}

{stock, price, operating}

{regulation, change, law}

{control, financial, internal}

{stock, price, share}

{competitive, industry, competition}

{cost, regulation, environmental}

{acquisition, growth, future}

{condition, economic, financial}

{cost, operation, labor}

{capital, credit, financial}

{operation, natural, condition}

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We have incurred significant operating losses, negative gross margins as well as negative operating cash flow and may continue to do so. This could adversely affect our liquidity, our ability to obtain bonding necessary for our construction projects and our ability to service our debt. In the past three years, we have breached the financial covenants of our debt instruments and credit facilities. Our substantial leverage could adversely affect our financial condition. Our future results may fluctuate or fail to meet expectations. The prices of raw materials have significantly increased in recent years and if we are unable to pass these costs onto our customers, our financial results could be significantly harmed. Our current promissory notes contain certain covenants and financial conditions that limit the way we conduct business. We have experienced significant turnover of senior management and our current executive management team has been together for a limited time, which could slow the growth of our business and cause our operating results to decline. We receive a significant portion of our revenues from the sale of classrooms to California school districts, the leasing companies that lease classrooms to such school districts and from a small number of independent dealers. The loss of any one of these customers or failure to collect a receivable from them could adversely affect our operations and financial position. Sales of our classroom product are dependent upon the legislative and educational policies and the financial condition of the states in which we do business. Despite the existence of some barriers to entry into our markets, our markets are competitive and our market share may be reduced if competitors enter the market or we are unable to respond to our competitors effectively. Fluctuations, seasonality and economic downturns in any of our end-markets may have adverse consequences for our business. If liabilities related to inspection and certification tests exceed our estimates, our profitability could be harmed. We are subject to government regulations and other standards that impose operational and reporting requirements. We have identified material weaknesses in our disclosure controls and procedures and our internal control over financial reporting, which, if not remedied effectively, could prevent us from reporting our financial results on a timely and accurate basis and result in a decrease in the trading price of our common stock and otherwise seriously harm our business. Costs related to our compliance with Section 404 of the Sarbanes-Oxley Act have been significant and may continue to negatively impact our cash flow and results of operations. We are underutilizing our manufacturing facilities and may continue to do so in the future. In the past we closed some of our facilities which may in the future result in our having inadequate facilities to meet an increase in demand for our products. We may be unable to hire sufficient numbers of employees when needed. Our share price has been subject to extreme price fluctuations and could be subject to such fluctuations in the future. Stockholders could have difficulty trading shares. The closing price of our stock has been below $1 for more than 30 consecutive business days and we are subject to being delisted by NASDAQ. We may decide to do a reverse stock split to avoid delisting. We have acquired and may continue to acquire other companies and may be unable to successfully integrate these companies into our operations. Earthquakes or other natural disasters may cause us significant losses. Anti-takeover provisions in our charter documents and under Delaware law may make an acquisition of us, which may be beneficial to our stockholders, more difficult.

Full 10-K form ▸

1075066--4/14/2008--MODTECH_HOLDINGS_INC