MODTECH HOLDINGS INC - MODT Proxy Statement (definitive) (DEF 14A) Audit Committee Report

Audit Committee Report

The Audit Committee (“Committee”) assists the Board of Directors in fulfilling its oversight responsibilities by reviewing the financial information proposed to be provided to stockholders and others, the Company’s internal controls, and the audit process. Management has the primary responsibility for the financial statements and the reporting process. The Company’s independent auditor is responsible for expressing an opinion on the conformity of the Company’s audited financial statements to U.S. generally accepted accounting principles and the effectiveness of the Company’s internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). The Committee reviews the Company’s financial reporting process on behalf of the Board of Directors, but the activities of the Committee are in no way designed to supersede or alter the traditional responsibilities of the Board of Directors or independent auditor. The Committee’s role does not provide any special assurances with regard to the Company’s financial statements, nor does it involve a professional evaluation for the quality of the audits performed by the independent auditor.

The Committee has reviewed and discussed with management the audited financial statements and the audit conducted to assess the effectiveness of the Company’s internal control over financial reporting. The Committee has discussed with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees). The Committee received from the independent auditor the written disclosures required by Independence Standards Board No. 1 (Independence Discussions with Audit Committees) and discussed with them their independence from the Company and its management.

Based on the reviews and discussions referred to above, the Committee recommended to the Board of Directors that the audited financial statements and the report on the effectiveness of the Company’s internal control over financial reporting be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 for filing with the Securities and Exchange Commission. The Audit Committee has also recommended the selection of Squar, Milner, Peterson, Miranda & Williamson LLP as the Company’s independent auditor for the fiscal year ended December 31, 2007.

AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

Robert W. Campbell

Charles R. Gwirtsman

Stanley N. Gaines

The Audit Committee Report will not be deemed to be incorporated by reference into any filing by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates the report by reference.

Fees of Independent Auditors

Fees billed to the Company by Squar, Milner, Peterson, Miranda & Williamson LLP and by KPMG LLP, for services rendered during fiscal year 2006 and 2005 were as follows:

	2006 (2)		2005 (2)

Audit fees	$	344,346	$	542,186
Audit-related fees:	$	-	$	-
Tax fees(1):	$	54,199	$	35,411
All other fees:	$	-	$	-

_________________

(1)	Tax fees primarily consist of tax compliance.

(2)	KPMG's fees billed to the Company for services during fiscal year 2006 and 2005 were $50,000 and $55,150, respectively.

Squar, Milner, Peterson, Miranda & Williamson LLP have been selected by the Board of Directors as the independent auditor of the Company for the fiscal year ending December 31, 2007. Representatives of the firm are not expected to be present at the Annual Meeting.

Audit Committee Pre-Approval Policies

Our Audit Committee has adopted written pre-approval policies and procedures pursuant to which all audit, audit-related and tax services, and all permissible non-audit services, are pre-approved by category of service. The term of such pre-approval is generally 12 months, unless the Audit Committee determines otherwise. Pre-approval fee levels for all services to be provided by the independent auditor are established periodically by the Audit Committee. The levels encompass both estimated hours for specific services and hourly fee rates. Any proposed services exceeding these fee levels require specific pre-approval by the Audit Committee. The fees are budgeted, and actual fees versus the budget are monitored throughout the year. During the year, circumstances may arise when it may become necessary to engage the independent auditor for additional services not contemplated in the original pre-approval. In those instances, we will obtain the specific pre-approval of the Audit Committee before engaging the independent auditor. The policies require the Audit Committee to be informed of each service, and the policies do not include any delegation of the Audit Committee’s responsibilities to management. The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated will report any pre-approval decisions to the Audit Committee no later than at it’s next scheduled meeting.