Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10‑K(Mark One) ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the Fiscal Year Ended December 28, 2018.Or☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934For the Transition Period from to .Commission File Number 001‑33076WILLDAN GROUP, INC.(Exact name of registrant as specified in its charter)Delaware(State or other jurisdiction ofincorporation or organization)14‑1951112(I.R.S. EmployerIdentification No.)2401 East Katella Avenue, Suite 300, Anaheim, California 92806(Address of principal executive offices) (Zip Code)(800) 424‑9144(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:Common Stock, $0.01 par value NASDAQ Global Market(Title of class) (Name of exchange)Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of1934. Yes ☐ No ☒Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subjectto such filing requirements for the past 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant toRule 405 of Regulation S‑T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant wasrequired to submit such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not becontained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10‑K or any amendment to this Form 10‑K. ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, or a smaller reportingcompany. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” inRule 12b‑2 of the Exchange Act.Large accelerated filer ☐Accelerated filer ☒Non‑accelerated filer ☐Smaller reporting company ☐Emerging growth company ☐ The aggregate market value of the voting and non‑voting common equity held by non‑affiliates computed by reference to the price at which thecommon equity was last sold, as reported on the NASDAQ Global Market, as of the last business day of the registrant’s most recently completedsecond fiscal quarter was $255.1 million.Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒On March 7, 2019, there were 11,016,042 shares of the registrant’s common stock issued and outstanding.DOCUMENTS INCORPORATED BY REFERENCE Part III of this Form 10‑K incorporates information by reference from the registrant’s definitive proxy statement for the 2018 Annual Meeting tobe filed on or prior to 120 days after the end of our fiscal year. Table of ContentsTABLE OF CONTENTS Page PART I ITEM 1. BUSINESS2ITEM 1A. RISK FACTORS13ITEM 1B. UNRESOLVED STAFF COMMENTS37ITEM 2. PROPERTIES37ITEM 3. LEGAL PROCEEDINGS37ITEM 4. MINE SAFETY DISCLOSURES38 PART II ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERSAND ISSUER PURCHASES OF EQUITY SECURITIES38ITEM 6. SELECTED FINANCIAL DATA40ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS42ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK61ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA62ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE62ITEM 9A. CONTROLS AND PROCEDURES62ITEM 9B. OTHER INFORMATION63 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE64ITEM 11. EXECUTIVE COMPENSATION64ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED SHAREHOLDER MATTERS64ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE64ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES64 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES65ITEM 16. FORM 10-K SUMMARY67 i Table of ContentsCAUTIONARY STATEMENT REGARDING FORWARD‑LOOKING INFORMATIONThis Annual Report on Form 10-K (this “10-K”) contains statements that constitute forward-looking statements asthat term is defined by the Private Securities Litigation Reform Act of 1995, as amended. These statements concern ourbusiness, operations and financial performance and condition as well as our plans, objectives and expectations for ourbusiness operations and financial performance and condition, which are subject to risks and uncertainties. All statementsother than statements of historical fact included in this 10-K are forward-looking statements. These statements may includewords such as “aim,” “anticipate,” “assume,” “believe,” “can have,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,”“likely,” “may,” “objective,” “plan,” “potential,” “positioned,” “predict,” “should,” “target,” “will,” “would” and otherwords and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financialperformance or other events or trends. For example, all statements we make relating to our plans and objectives for futureoperations, growth or initiatives and strategies are forward-looking statements.These forward-looking statements are based on current expectations, estimates, forecasts and projections about ourbusiness and the industry in which we operate and our management’s beliefs and assumptions. We derive many of ourforward-looking statements from our own operating budgets and forecasts, which are based upon many detailed assumptions.While we believe that our assumptions are reasonable, we caution that predicting the impact of known factors is verydifficult, and we cannot anticipate all factors that could affect our actual results.All of our forward-looking statements are subject to risks and uncertainties that may cause our actual results to differmaterially from our expectations. Important factors that could cause actual results to differ materially from our expectationsinclude, but are not limited to:·our ability to adequately complete projects in a timely manner,·our ability to compete successfully in the highly competitive energy services market,·changes in state, local and regional economies and government budgets,·our ability to win new contracts, to renew existing contracts (including with our three primary customers and thetwo primary customers of recently acquired Lime Energy Inc. (“Lime Energy”)) and to compete effectively forcontracts awarded through bidding processes,·our ability to successfully integrate our acquisitions, including our recent acquisition of Lime Energy, andexecute on our growth strategy, and·our ability to obtain financing and to refinance our outstanding debt as it matures.The above is not a complete list of factors or events that could cause actual results to differ from our expectations,and we cannot predict all of them. All written and oral forward-looking statements attributable to us, or persons acting on ourbehalf, are expressly qualified in their entirety by the cautionary statements disclosed under “Risk Factors,” “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this 10-K, as such disclosuresmay be amended, supplemented or superseded from time to time by other reports we file with the Securities and ExchangeCommission (the “SEC”), including subsequent Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, CurrentReports on Form 8-K, and public communications. You should evaluate all forward-looking statements made in this 10-Kand otherwise in the context of these risks and uncertainties.Potential investors and other readers are urged to consider these factors carefully in evaluating the forward-lookingstatements and are cautioned not to place undue reliance on any forward-looking statements we make. These forward-lookingstatements speak only as of the date of this 10-K and are not guarantees of future performance or developments and involveknown and unknown risks, uncertainties and other factors that are in many cases beyond our control. Except as required bylaw, we undertake no obligation to update or revise any forward-looking statements publicly, whether as a result of newinformation, future developments or otherwise.1 Table of Contents PART I ITEM 1. BUSINESSOverviewWe are a provider of professional technical and consulting services to utilities, private industry, and public agenciesat all levels of government. We enable our clients to realize cost and energy savings by providing a wide range of specializedservices.We seek to establish close working relationships with our clients and expand the breadth and depth of the serviceswe provide to them over time. We operate our business through a nationwide network of offices spread across 20 states andthe District of Columbia. Our business with public and private utilities is concentrated primarily in California and New York,including 16 of the 25 largest electric utilities and five of the 10 largest municipal utilities in the United States. Our businesswith public agencies is concentrated in California, New York and Arizona. We also serve special districts, school districts, arange of public agencies and private industry.We operate within two segments for financial reporting purposes, Energy and Engineering and Consulting.Our Energy segment consists of the business of our subsidiary, Willdan Energy Solutions (“WES”), which offersenergy efficiency and sustainability consulting services to utilities, public agencies and private industry under a variety ofbusiness names, including Willdan Lighting & Electric, Abacus Resource Management Company, 360 Energy Engineers,LLC, Genesys Engineering P.C., Integral Analytics, Inc., Newcomb Anderson McCormick, Inc. and Lime Energy. Thissegment is currently our largest segment based on contract revenue, representing approximately 72% and 73% of ourconsolidated contract revenue for fiscal years 2018 and 2017, respectively. We expect that consolidated contract revenuegenerated from our Energy segment as a percentage of our total consolidated contract revenue will continue to grow in fiscalyear 2019 as a result of our acquisition of Lime Energy.Our Engineering and Consulting segment includes the operations of our subsidiaries, Willdan Engineering, WilldanInfrastructure, Public Agency Resources, Willdan Financial Services and Willdan Homeland Solutions. Willdan Engineeringprovides civil engineering‑related construction management, building and safety, city engineering, city planning,geotechnical, material testing and other engineering consulting services to our clients. Willdan Infrastructure providesengineering services to larger rail, port, water, mining and other civil engineering projects. Public Agency Resourcesprimarily provides staffing to Willdan Engineering. Willdan Financial Services provides economic and financial consultingto public agencies. Willdan Homeland Solutions provides national preparedness and interoperability services andcommunications and technology solutions. Contract revenue for the Engineering and Consulting segment representedapproximately 28% and 27% of our consolidated contract revenue for fiscal years 2018 and 2017, respectively.We were founded in 1964 and Willdan Group, Inc., a Delaware corporation, was formed in 2006 to serve as ourholding company. Historically, our clients have been public agencies in communities with populations ranging from 10,000to 300,000 people. We believe communities of this size are underserved by large outsourcing companies that tend to focuson securing large federal and state projects and private sector projects. Since expanding into energy efficiency services, ourclient base has grown to include investor-owned and other public utilities as well as substantial energy users in governmentand business.Since December 31, 2014, we have successfully completed seven acquisitions:·On January 15, 2015, we and our wholly-owned subsidiary WES acquired all of the outstanding shares ofAbacus Resource Management Company, an Oregon-based energy engineering company, and substantially allof the assets of 360 Energy Engineers, LLC, a Kansas-based energy engineering company.·On April 3, 2015, our wholly-owned subsidiary, Willdan Financial Services, acquired substantially all of theassets of Economists LLC, a Texas-based economic analysis and financial solutions firm serving the municipaland public sectors.2 Table of Contents·On March 4, 2016, we and WES acquired substantially all of the assets of Genesys Engineering, P.C., a NewYork-based energy engineering firm.·On July 28, 2017, we and WES acquired Integral Analytics, Inc., a data analytics and software company.·On April 30, 2018, we and WES acquired Newcomb Anderson McCormick, Inc., an energy engineering andconsulting company with offices in San Francisco and Los Angeles that provides clients with mechanicalengineering expertise and comprehensive energy efficiency programs and services.·On November 9, 2018, we and WES acquired Lime Energy, a designer and implementer of energy efficiencyprograms for utility clients.Our MarketsWe provide energy efficiency and sustainability, engineering, construction management and planning, economicand financial consulting and national preparedness and interoperability services primarily to public agencies and utilities, aswell as private utilities and firms. We believe the market for these services is, and will be, driven by a number of factors,including:·Increased demand for services and solutions that provide energy efficiency, sustainability, water conservation,infrastructure development and renewable energy in the public and private sectors;·Aging infrastructure, which leads to a need for increased capacity in engineering consulting services;·The need for small and medium sized communities to obtain highly specialized services without incurring thecosts of hiring permanent staffing and the associated support structure;·Demand by constituents for a wider variety of services; and·Government funding programs and various state legislation that provide funds for local communities to provideservices to their constituents.Energy ServicesIn response to an increased awareness of global warming and climate change issues, private industry and publicagencies are increasingly seeking out cost‑effective, turnkey solutions that provide innovative energy efficiency, renewableenergy, water conservation and sustainability services. State and local governments are frequently turning to specializedresource conservation firms to strike the balance between environmental responsibility and economic competitiveness. Ourconsultants have the expertise to develop efficient and cost effective solutions. The use of energy efficiency services,including audits, program design, benchmark analysis, metering and partnerships provides government agencies, utilitiesand private firms with the ability to realize long‑term savings.Engineering and Consulting ServicesOur Engineering and Consulting segment provides a variety of services to a diverse customer base, with a focus onproviding our customers with design, construction oversight, advisory and training services. Many of our customers find itmore efficient to outsource such services to service providers rather than maintain the necessary staff and resources to providesuch services themselves. For example, we design and provide construction oversight of public infrastructure projects forfederal, state and local governments who have increased their infrastructure-related funding as a result of population growth,increase in local and state funding and aging infrastructure. Relatedly, we provide consulting services to public agencies asthey raise the necessary funds to develop such infrastructure projects and provide other services. We also advise publicagencies on disaster and emergency preparedness which, as a result of terrorist attacks and natural and man-made disastersover the last two decades, have placed increased strain on state, regional and local agencies.3 Table of ContentsOur ServicesWe specialize in providing professional technical and consulting services to utilities, private industry and publicagencies at all levels of government. Our core client base is composed of public and private utilities, commercial andindustrial firms, cities, counties, special districts, other local and state agencies and tribal governments.We offer services in two segments: (1) Energy and (2) Engineering and Consulting. The interfaces and synergiesamong these segments are key elements of our strategy. Management established these segments based upon the servicesprovided, the different marketing strategies associated with these services and the specialized needs of their respectiveclients. The following table presents, for the years indicated, the approximate percentage of our consolidated contractrevenue attributable to each segment. We expect that consolidated contract revenue generated from our Energy segment as apercentage of our total consolidated contract revenue will continue to grow in fiscal year 2019 as a result of our acquisitionof Lime Energy. Fiscal Year 2018 2017 2016 Energy 72% 73% 68%Engineering and Consulting 28% 27% 32%See Note 13 “—Segment Information” for additional segment information.Energy ServicesWe commenced providing energy services with the creation of our subsidiary, WES and its acquisition of IntergyCorporation in fiscal year 2008. Since then, we have grown our Energy segment through organic growth and through theacquisitions by WES of all of the capital stock or substantially all of the assets of Abacus Resource Management Companyand 360 Energy Engineers, LLC in January 2015, Genesys Engineering, P.C. in March 2016, Integral Analytics, Inc. in July2017, Newcomb Anderson McCormick, Inc. in April 2018 and Lime Energy in November 2018.Through WES and its subsidiaries, we provide specialized, innovative, comprehensive energy solutions tobusinesses, utilities, state agencies, municipalities, and non‑profit organizations in the U.S. Our experienced engineers,consultants and staff help our clients realize cost and energy savings by tailoring efficient and cost‑effective solutions toassist them in optimizing their energy spend. Our energy services include comprehensive surveys, program design, masterplanning, benchmarking analyses, design engineering, construction management, performance contracting, installation,alternative financing, and measurement and verification services.We believe that our recent acquisition of Lime Energy will further expand our presence in the energy servicesmarket and enhance our product offerings. The acquisition of Lime Energy provides us the opportunity to diversify ourgeographical presence, including in the southeastern and mid-Atlantic regions of the United States where we previously hadlimited operations. Lime Energy also expands our utility customer base, as Lime Energy delivers energy efficiency programsto some of the largest electric utilities that were not previously our clients. In addition, we believe that the acquisition ofLime Energy will better position us to take advantage of the anticipated upcoming expansions in energy efficiency budgetsand contracts in California and the Northeastern United States.Our range of energy efficiency services are described below:Energy Efficiency. We provide complete energy efficiency consulting and engineering services, including: programdesign, management and administration; marketing, customer outreach, and project origination; energy audits and feasibilityanalyses; retro‑commissioning; implementation, training and management; data management and reporting; andmeasurement and verification services.Program Design and Implementation. We assist utilities and governmental clients with the design, developmentand implementation of energy efficiency plans and programs. These plans include energy efficiency4 Table of Contentsdesign, outreach implementation, water conservation, renewable energy planning and greenhouse gas reduction strategies.Direct Customer Support. We assist clients (including utilities, schools and private companies) in developing andmanaging facilities and related infrastructures through a holistic, practical approach to facility management. Our servicescover audits, local compliance, operations and maintenance review, renewable energy planning, master plans, infrastructureanalyses, Leadership in Energy and Environmental Design (LEED) certification for buildings, and energy spend andgreenhouse gas reduction strategies. Turnkey Facility and Infrastructure Projects. We provide turnkey/design-build facility and infrastructureimprovement projects to a wide array of public and private clients including municipalities, county governments, public andprivate K-12 schools, and higher education institutions. Our services cover preliminary planning, project design,construction management, commissioning and post-project support and measurement and verification services. Representative Projects. The following are examples of typical ongoing projects in the Energy segment:·Consolidated Edison, New York. We serve as Consolidated Edison’s program manager and implementer for itsCDI program across the utility’s New York City and Westchester County service area. This new programreplaces and expands Consolidated Edison’s predecessor SBDI program, which we had implemented since2009, by increasing the size of eligible commercial customers and diversifying the program offerings. The CDIprogram, Consolidated Edison’s largest energy efficiency program, helps customers save energy, lower theirbills and protect the environment by providing financial incentives to identify and buy down the cost of energyefficiency measures. To support this effort, we provide full-service program implementation including outreachand direct sales to potential commercial customers, on-site energy efficiency assessments, direct implementationof energy savings measures and subcontractor management. During the fiscal year 2018, we delivered over 9megawatts of electric demand reduction in the load pocket and over 85 million kilowatt hours of energy savingsacross the CDI program.·Dormitory Authority-State New York (“DASNY”), New York. WES provides services to Genesys in itsperformance of rehabilitation and construction management work and architectural and engineering services atvarious sites within New York State for DASNY under these contracts, including energy efficient design, utilitycost evaluation, and various regulatory compliance services. Specific project descriptions are set out byDASNY in work authorizations, which are issued under the terms of the contracts.·Marshak Science Building Rehabilitation, The City University of New York. The Marshak Science Building is amid-rise, 750,000 square foot science building, which consists of a 350,000 square foot 13-story tower and300,000 square foot plaza level and underground. The science building includes research and teaching labs, avivarium, a morgue, office areas, a library, an auditorium, a gymnasium and a pool. We are responsible for thestudy, design and construction management for a renovation of the Marshak Science Building that includes theretrofit of 200 standard flow fume hoods to low flow high efficiency hoods and installation of high entrainmentfume hood exhaust systems, new lab make-up air units with heat recovery, liquid desiccant dehumidificationsystems, new supply air risers and general exhaust risers throughout the tower, new hot water and chilled waterrisers, new central station air handling equipment, new high temperature hot water to low temperature hot waterheat exchangers and lab fit-out with chilled beam secondary heating and cooling. ·San Diego Gas and Electric (“SDG&E”), California. We provide peak-load reduction and energy savings toSDG&E by coordinating the installation of proven energy efficiency measures, including chiller retrofits, chillervariable-frequency drives (“VFDs”), HVAC VFDs, evaporative cooling, demand control ventilation, two-wayvalves, and chilled water pump VFDs. These measures produce both peak-load reductions and energy savings.During the fiscal year 2018, we delivered 4.6 megawatts of load reduction and energy savings.5 Table of Contents·Healthcare Energy Efficiency Program (“HEEP”), Southern California Edison (“SCE”). We are theimplementer of HEEP, which offers full-service support to healthcare-related facilities to implement energyefficiency projects related to lighting, HVAC, boilers, medical equipment, building automation systems, VFDs,sensors, vending controls and retro-commissioning. We perform ASHRAE Level I and II audits and ongoinganalysis and support of installed measures and develop customized energy efficiency measures includingenergy savings and peak demand reduction estimates. Further, we provide financial calculations includingforecasted cost savings, payback, and return on investment, assist with contractor referrals, request for proposalsand oversight of installation and perform and install M&V to ensure achieved energy savings.·Baldwin High School, Kansas. We are providing a central plant HVAC replacement and building wide HVACcontrols installation. We installed a new chilled water and boiler plant and refurbished two large air handlingunits. We also installed new heating hot water control valves on all variable air volume boxes and new HVACcontrols.·Entergy Corporation, Louisiana. We are supporting Entergy’s investments in grid data and analyticscapabilities across its electric distribution footprint by adopting LoadSEER, the modeling application ofIntegral Analytics. LoadSEER was developed to provide unique insights and modeling capability fordistributed energy resources (“DERs”) and the evolving distribution grid. The application is used in short- andlong-term circuit-level planning and to proactively integrate renewables, energy storage, and efficiencyinvestments. LoadSEER combines multi-layer risk, geospatial, and scenario modeling; utilities’ existing tools;engineering efforts; and multiple data sources in order to deliver dynamic, granular load profiles and performvaluation analyses.Engineering and Consulting ServicesWe provide a broad range of engineering and consulting services to the public sector and limited services to theprivate sector. In general, contracts for engineering and consulting services (as opposed to construction oversight contracts)are awarded by public agencies based primarily upon the qualifications of the engineering professional, rather than theproposed fees. We have longstanding relationships with many of these agencies and are recognized as having relevantexpertise and customer focused services. A substantial percentage of our work is for existing clients that we have served formany years.Since 1999, our subsidiary Willdan Financial Services, a public finance consulting business, has supplemented theengineering services that we offer our clients. In general, we supply expertise and support for the various financingtechniques employed by public agencies to finance their operations and infrastructure. We also support the mandatedreporting and other requirements associated with these financings. We do not provide underwriting or financial advisoryservices for municipal securities. Further, our subsidiary Willdan Homeland Solutions provides emergency preparednessplanning, emergency preparedness training and emergency preparedness exercises that focus on integrating local resourcesand assets within state and federal systems to cities, counties and related municipal service agencies, such as utility and watercompanies, as well as school districts, port and transportation authorities, tribal governments and large business enterpriseswith a need for homeland security related services.The following are examples of the services that we provide in the Engineering and Consulting segment:Building and Safety. Our building and safety services range from managing and staffing an entire municipalbuilding department to providing specific outsourced services, such as plan review and field inspections. Other relatedservices that we offer under this umbrella include performing accessibility compliance and providing disaster recovery teams,energy compliance evaluations, permit processing and issuance, seismic retrofitting programs, and structural plan review.Many of our building and safety services engagements are with municipalities and counties where we supplement thecapacity of in‑house staff.City Engineering and Code Enforcement. We provide municipalities with city engineering services and assistmunicipalities with the development, implementation and enforcement of building and development codes. These6 Table of Contentsservices are tailored to the unique needs of each municipality, ranging from staffing an entire engineering department tocarrying out specific projects within a municipality.Development Review. We offer development plan review and inspection services including Americans withDisabilities Act (“ADA”) compliance, preliminary and final plats (maps), grading and drainage services, completeinfrastructure improvements for residential site plans, commercial site plans, industrial development and subdivision, andmajor master plan development services. Previously, we have reviewed grading plans, street lighting and traffic signal plans,erosion control plans, storm drain plans, street improvement plans, and sewer water and utility plans.Disaster Recovery. We provide disaster recovery services to cities, counties and local government. Our experiencein disaster recovery includes assisting communities in the disaster recovery process following earthquakes, firestorms,mudslides and other natural disasters. We typically organize and staff several local disaster recovery centers which functionas “one‑stop permit centers” that guarantee turn‑around performance for fast‑track plan checking and inspection services.Additionally, we have performed street and storm drain clean‑up, replacement or repair of damaged storm drains, streets, andbridges, debris management and preparation and implementation of a near‑term erosion and sediment control program.Geotechnical. Our geotechnical and earthquake engineering services include soil engineering, earthquake andseismic hazard studies, geology and hydrogeology engineering, and construction inspection. We operate a licensed,full‑service geotechnical laboratory at our headquarters in Anaheim, California, which offers an array of testing services,including construction materials testing and inspection.Planning and Surveying. We assist communities with a full range of planning services, from the preparation oflong‑range policy plans to assistance with the day-to-day operations of a planning department. For several cities, we providecontract staff support, which range from staffing entire departments to providing interim or long-term services to entities thathave determined that it is not cost-effective to have a full-time engineer on staff, to relieve peak workload situations or to fillvacant positions during a job search. Typical assignments include land use studies, development of specific plans or generalplan elements, design guidelines, and zoning ordinances. We also provide surveying and mapping services, including majorconstruction layout, design survey, topographic survey, aerial mapping, Geographic Information Systems, and right-of-wayengineering.Program and Construction Management. We provide comprehensive program and construction managementservices to our public sector clients. These services include construction administration, inspection, observation, laborcompliance, and community relations, depending on the client’s needs and the scope of the specific project. Our constructionmanagement experience encompasses projects such as streets, bridges, sewers and storm drains, water systems, parks, pools,public buildings, and utilities.Structures. Our structural engineering services include bridge design, bridge evaluation and inspection, highwayand railroad bridge planning and design, highway interchange design, railroad grade separation design, bridge seismicretrofitting, building design and retrofit, sound wall and retaining wall design, and planning and design for bridgerehabilitation and replacement.Transportation and Traffic. We provide a wide range of services relating to transportation, traffic and otherinfrastructure projects. For example, our transportation engineering services cover a full spectrum of support functions,including right of way, utility relocation, landscape, survey and mapping, geographic information systems, public outreach,and interagency coordination. Our traffic engineering services include serving as the contract city traffic engineer incommunities, as well as performing design and traffic planning projects for our clients.Water Resources. We assist clients in addressing the many facets of water development, treatment, distribution andconservation, including energy savings, technical, financial, legal, political, and regulatory requirements. Our corecompetencies include hydraulic modeling, master planning, rate studies and design and construction services. Our designexperience includes reservoirs, pressure reducing stations, pump and lift stations, and pipeline alignment studies, as well aswater/wastewater collection, distribution, and treatment facilities. We also provide a complete analysis and projection ofstorm flows for use in drainage master plans and for individual storm drain systems to reduce flooding in streets and7 Table of Contentsadjacent properties. We design open and closed storm drain systems and detention basin facilities, for cities, counties and theArmy Corp of Engineers.District Administration. We administer special districts on behalf of public agencies. The types of special districtsadministered include community facilities districts (in California, Mello‑Roos districts), assessment districts, landscape andlighting districts, school facilities improvement districts, benefit assessment districts, fire suppression districts, and businessimprovement districts. Our district administration services include calculating the annual levy for each parcel in the district;billing charges directly or through a county tax roll; preparing the annual Engineer’s Report, budget and resolutions;reporting on collections and payment status; calculating prepayment quotes; and providing financial analyses, modeling andbudget forecasting.The key to our district administration services is our proprietary software package, MuniMagic+: MunicipalAdministration & Government Information Coordinator, which we developed internally to redefine the way we administerspecial districts. MuniMagic+ is a database management program that maintains parcel data; calculates special taxes,assessments, fees and charges; manages payment tracking; maintains bond‑related information in a single, central location;and provides reporting, financial modeling and analysis at multiple levels of detail. MuniMagic+ offers a significantcompetitive advantage in an industry driven by the ability to accurately process large quantities of data.Financial Consulting. We perform economic analyses and financial projects for public agencies, including fee andrate studies, such as cost allocation studies and user fee analysis; utility rate analysis and utility system appraisals andacquisitions; economic development and redevelopment planning; Community Choice Aggregation feasibility studies, inwhich local entities contemplate aggregating buying power in order to secure alternative energy supply contracts; real estateand market analysis associated with planning efforts, and development fee studies; special district formation and otherspecial projects.Federal Compliance. We offer several services that support bonded debt compliance reporting for cities, counties,states, school districts, water districts, housing authorities, 501C-3 and other municipal entities. We provide federalcompliance services to approximately 750 issuers in 42 states and the District of Columbia managing approximately$70 billion in municipal debt.Emergency Preparedness, Planning and Training. We design, develop, implement, review and evaluate public andprivate agencies’ emergency operations and hazard mitigation preparedness and plans and provide customized trainingcourses and exercises.The following are examples of typical projects we have in the Engineering and Consulting segment:·City of Palm Springs, California, Engineering and Construction Management Services. We provideconstruction management and public works inspection services related to the City’s Police DepartmentRemodel Project. The project involves the remodeling of the training center, lobby, records area, detectivebureau, and men’s and women’s locker rooms. We are acting as Owner’s Representative and ConstructionManager responsible for coordinating all aspects of the construction, including coordination with the City’sBuilding Inspection Staff.·Contra Costa County, California, City Engineering Services. We provide finance review, financial analysis,and contact administration services for the Contra Costa County Public Works Department. Willdan isproviding municipal services in a variety of professional and technical administrative and finance measures.·County of Los Angeles, California, Traffic Engineering Services. We provide professional traffic engineeringservices for the Lower Azusa Road/Los Angeles Street Traffic Signal Synchronization Project. The servicesinclude meetings and project coordination with Los Angeles County and various municipalities as well as fieldreview, equipment inventory, report for recommended improvements, traffic signal base plans, traffic signalimprovement plans and traffic signal utility plans for 29 signalized intersection along the Lower Azusa/LosAngeles Street corridor.8 SMSMSM Table of Contents·County of Orange, California, Code Enforcement Services. Our code enforcement team is responsible forresponding to citizen concerns and investigations of a variety of code violations throughout the unincorporatedareas of Orange County in support of its Neighborhood Preservation Program, including the reviewing,processing, and closing of code enforcement cases related to land use, zoning, building, grading, nuisance, andproperty maintenance violations. Our staff performs review of all case files, inspection of properties, filingnotices and complaints against violators, documenting, and preparing violation cases for the district attorney’soffice and/or County counsel and testifying in court. We assist in the entitlement/development processconsisting of general land use, zoning and building violations.·State of Nevada, Building and Safety Services. We have provided building safety/plan check services for theState of Nevada Public Works Department since 2007. Projects for the State of Nevada include several for theUniversity of Nevada, Las Vegas and Reno campuses. The projects consist of installation of photo voltaic andparking lot lighting upgrades, new baseball clubhouse, to the complete structural upgrade and remodel ofseveral historic buildings at the Reno campus.·Town of Superior, Arizona, Various Engineering Services. We have been working in the Town of Superior forover twenty years and we report directly to the Mayor and Town Manager. There are several large projectscoming up in 2019 including: Community Center Planning and Design, the New Town Park Extension,working with the local mine company (Magma BHP), resurfacing local streets, Magma Historic BridgeRestoration and several private development projects in the historic downtown area.·Property Assessed Clean Energy (“PACE”). PACE is a financing mechanism that enables low-cost, long-termfunding for energy efficiency, renewable energy and water conservation projects. PACE financing is repaid asan assessment on the property owner’s regular tax bill, and is processed the same way as other local publicbenefit assessments that have been utilized for decades. Depending on local legislation, PACE can be used topay for new heating and cooling systems, solar panels, insulation and more for commercial, nonprofit andresidential properties. This allows property owners to implement improvements without a large up-front cashpayment. We have partnered with Ygrene Energy Fund to provide a national PACE program. The programspans over 40 counties in California and 10 counties in Florida, and it is currently expanding into Texas,Missouri and Georgia.·New York State Metropolitan Transportation Authority - Advanced Security and Emergency ResponseTraining. We are providing an advanced, instructor led, decision-based curriculum that incorporates videoscenarios and simulations, creating a realistic training environment and facilitating discussion for this effort.The knowledge and skills taught in this course enables “first contact” employees, as “on-scene” responders, tobetter secure themselves and their peers, as well as their work environment and customers, by quickly reactingto potentially threatening and stressful events and emergencies. The curriculum supporting the Phase III FirstLine of Defense course received Federal Emergency Management Agency approval, through the NationalTraining and Education Division, for inclusion in the Approved Sponsored Course Catalog.·US Department of Homeland Security, Federal Emergency Management Agency, National Exercise Division.We are currently a part of a team of firms providing emergency preparedness exercise planning and conducttechnical assistance for jurisdictions across the U.S., in support of the Federal Emergency Management Agency,National Exercise Division’s National Exercise Program. Willdan supports the implementation of this programby leading the design, planning, delivery, and evaluation of emergency preparedness response and recoverytraining exercises, for jurisdictions, regions, and states throughout the U.S.ClientsOur clients primarily consist of investor and municipal owned utilities, public and governmental agencies includingcities, counties, redevelopment agencies, water districts, school districts and universities, state agencies, federal agencies anda variety of other special districts and agencies. We also provide services to private industry.9 Table of ContentsWe are organized to profitably manage numerous small and large contracts at the same time. Our contracts typicallyrange from $1,000 to over $10,000,000 in contract revenue. Our contracts typically have a duration of between two andthirty-six months, although we have city services contracts that have been in effect for over 30 years. At December 28, 2018,we had approximately 3,549 open projects.Our largest clients are based in New York and California. In fiscal year 2018, services provided to clients inCalifornia accounted for approximately 35% of our contract revenue and services provided to clients in New York accountedfor approximately 29% of our contract revenue.Along with our more typical shorter-term projects, we also derive substantial revenue from three significant long-term contracts with Consolidated Edison of New York, Inc. (“Consolidated Edison”), the City of Elk Grove (the “City of ElkGrove”) and the Dormitory Authority-State of New York (“DASNY”). For fiscal year 2018, Consolidated Edison, City of ElkGrove and DASNY represented 19%, 9% and 8%, respectively, of our consolidated contract revenue.In January 2017, we announced a new three-year contract with Consolidated Edison to implement ConsolidatedEdison’s Commercial Direct Install (“CDI”) program across the utility's New York City and Westchester County service area.This program replaced and expanded Consolidated Edison's Small Business Direct Install (“SBDI”) program, which we hadimplemented since 2009, by increasing the size of eligible commercial customers and diversifying the program offerings. TheConsolidated Edison contract continues through the end of 2019. The CDI program, Consolidated Edison's largest energyefficiency program, helps customers save energy, lower their bills and protect the environment by providing financialincentives to identify and buy down the cost of energy efficiency measures. To support this effort, we provide full-serviceprogram implementation including outreach and direct sales to potential commercial customers, on-site energy efficiencyassessments, direct implementation of energy savings measures and subcontractor management. While the contract does notobligate Consolidated Edison to engage us for a minimum amount of services, the contract terms, including amendments,provide for an anticipated budget for our services of up to $91.7 million of services over a three-year period, of which $35.2million remained as of December 28, 2018. Consolidated Edison may terminate the contract at any time for any reason.In connection with our acquisition of substantially all of the assets of Genesys Engineering, P.C. (“Genesys”) inMarch 2016, we entered into an administrative services agreement with Genesys pursuant to which our subsidiary, WES,provides Genesys with ongoing administrative, operational and other non-professional support services. Under suchadministrative services agreement, WES provides administrative services for a series of Genesys’s DASNY contracts. WESprovides administrative services to Genesys in its performance of rehabilitation and construction work and architectural andengineering services at various sites within New York State for DASNY under these contracts, including energy efficientdesign, utility cost evaluation and review, and various regulatory compliance services. Specific project descriptions are setout by DASNY in work authorizations, which are issued under the terms of the contracts. The termination dates of theDASNY contracts vary; the latest of which was February 13, 2019. Work authorized but not yet completed under this contractcontinues to be bound by the terms of the agreement beyond the termination date until completion of the projects. Genesysexpects to receive an amendment from DASNY to the master contract extending the termination date under DASNY’s optionto extend this contract term twice, one year at a time. DASNY may at any time terminate any of the contracts or suspend allprojects, for its convenience and without cause.Further, with our acquisition of Lime Energy in November 2018, we assumed Lime Energy’s customer relationshipswith Los Angeles Department of Water and Power and Duke Energy Corp. For Lime Energy’s fiscal year ended December 31,2017, revenue generated from Lime Energy’s utility programs associated with Los Angeles Department of Water and Powerand Duke Energy Corp. represented 67% of Lime Energy’s consolidated revenue. The amounts due from these two utilitiesrepresented 43% of the outstanding accounts receivable of Lime Energy as of December 31, 2017. For the nine months endedSeptember 30, 2018, these utility programs represented 66% of Lime Energy’s consolidated revenue.10 Table of ContentsContract StructureWe generally provide our services under contracts, purchase orders or retainer letters. The agreements we enter intowith our clients typically incorporate one of three principal types of pricing provisions:·Time-and-materials provisions provide for reimbursement of costs and overhead plus a fee for labor based onthe time expended on a project multiplied by a negotiated hourly billing rate. The profitability achievable on atime-and-materials basis is driven by billable headcount and cost control.·Unit-based provisions require the delivery of specific units of work, such as energy efficiency savings goalsmeasured in kWh or Therms, arbitrage rebate calculations, dissemination of municipal securities continuingdisclosure reports, or building plan checks, at an agreed price per unit, with the total payment under the contractdetermined by the actual number of units performed.·Fixed price provisions require all work under a contract to be performed for a specified lump sum, which may besubject to adjustment if the scope of the project changes. Contracts with fixed price provisions carry certaininherent risks, including risks of losses from underestimating costs, delays in project completion, problems withnew technologies, price increases for materials, and economic and other changes that may occur over thecontract period. Consequently, the profitability, if any, of fixed price contracts can vary substantially. Willdantypically hedges some of these risks through the use of fixed price subcontracts for services, material andequipment.The following table presents, for the periods indicated, the approximate percentage of our contract revenue subjectto each type of pricing provision: Fiscal Year 2018 2017 Time-and-materials 27% 19%Unit-based 47% 32%Fixed price 26% 49%Total 100% 100%In relation to the pricing provisions, our service-related contracts, including operations and maintenance servicesand a variety of technical assistance services, are accounted for over the period of performance, in proportion to the cost ofperformance. Award and incentive fees are recorded when they are fixed and determinable and consider customer contractterms.For time-and-materials and fixed price contracts, we bill our clients periodically in accordance with the contractterms based on costs incurred, on either an hourly fee basis or on a percentage of completion basis, as the project progresses.For unit-based contracts, we bill our clients upon delivery of the contracted item or service, and in some cases, in advance ofdelivery.Our contracts come up for renewal periodically and at the time of renewal may be subject to renegotiation, whichcould impact the profitability on that contract. In addition, during the term of a contract, public agencies may requestadditional or revised services which may impact the economics of the transaction. Most of our contracts permit our clients,with prior notice, to terminate the contracts at any time without cause. While we have a large volume of transactions andgenerally low customer concentration, the renewal, termination or modification of a contract may have a material effect onour consolidated operations.CompetitionThe market for our services is highly fragmented. We often compete with many other firms ranging from small localfirms to large national firms. Contract awards are based primarily on qualifications, relevant experience, staffing capabilities,geographic presence, stability and price.11 Table of ContentsDoing business with utilities and governmental agencies is complex and requires the ability to comply withintricate regulations and satisfy periodic audits. We have been serving cities, counties, special districts and other publicagencies for over 50 years. We believe that the ability to understand these requirements and to successfully conduct businesswith utilities, governmental entities and agencies is a barrier to entry for potential competitors.Our competition varies by type of client, type of service and geography. The range of competitors for any oneproject can vary depending upon technical specialties, the relative value of the project, geographic location, financial terms,risks associated with the work, and any client imposed restrictions. Unlike most of our competitors, we focus our services onutilities and public sector clients. Utility and public sector clients generally choose among competing firms by weighing thequality, experience, innovation and timeliness of the firm’s services. When selecting consultants for engineering projects,many utilities and government agencies are required to, and others choose to, employ Qualifications Based Selection(“QBS”). QBS requires the selection of the most technically qualified firms for a project, while the financial and legal termsof the engagement are generally secondary.Our competition varies geographically. Although we provide services in several states, we may be stronger in certainservice lines in some geographical areas than in other regions. Similarly, some of our larger competitors are stronger in someservice lines in certain localities but are not as competitive in others. Our smaller competitors generally are limited bothgeographically as well as by the services they are able to provide.We believe that our Energy and Engineering and Consulting segments compete with numerous competitors and nosingle competitor has sufficient market share to influence the market.InsuranceWe currently maintain the following insurance coverage: commercial general liability insurance, automobileliability insurance, workers’ compensation and employer’s liability insurance and cyber liability insurance. We also carryprofessional liability insurance and an umbrella/excess liability insurance. We are liable to pay these claims from our assets ifand when the aggregate settlement or judgment amount exceeds our policy limits.EmployeesAt December 28, 2018, we had approximately 927 full‑time employees and 275 part‑time employees. All PublicAgency Resources’ employees are classified as part‑time. Our employees include, among others, licensed electrical,mechanical, structural and civil engineers, land surveyors, certified building officials, licensed geotechnical engineers andengineering geologists, certified inspectors and plans examiners, licensed architects and landscape architects, certifiedplanners, and information technology specialists. We believe that we attract and retain highly skilled personnel withsignificant industry experience and strong client relationships by offering them challenging assignments in a stable workenvironment. We believe that our employee relations are good.The following table sets forth the number of our employees in each of our business segments and our holdingcompany: As of Fiscal Year End 2018 2017 2016 Energy 677 381 334 Engineering and Consulting 469 448 446 Holding Company Employees (Willdan Group, Inc.) 56 53 51 Total 1,202 882 831 At December 28, 2018, we contracted with approximately 100 former and current public safety officers to conducthomeland security services training courses. These instructors are classified as subcontractors and not employees.12 Table of ContentsIntellectual PropertyThe Willdan, Willdan Group, Inc., Willdan Engineering, Willdan Infrastructure, Willdan Financial Services, WilldanEnergy Solutions and Willdan Homeland Services names are service marks of ours, and we have obtained a service mark forthe Willdan and “W” logo. In connection with our acquisition of Integral Analytics, we have obtained the patent for“Optimization of Microgrid Energy Use and Distribution.” In connection with our acquisition of Lime Energy, we haveobtained the service marks for the Enerpath, Enerworks and Lime/Green Dial Design. In addition, we have obtained theregistered copyright of Lime, Lime Energy, Lime Energy “less is more” design and Main Street Efficiency. We have alsoobtained federal service mark registration with the United States Patent and Trademark Office for the “Willdan” name,“Willdan Group, Inc.” name and the “extending your reach” tagline. We believe we have strong name recognition in thewestern United States and New York, and that this provides us a competitive advantage in obtaining new business.Consequently, we believe it is important to protect our brand identity through trademark registrations. The name and logo ofour proprietary software, MuniMagic+, are registered service marks of Willdan Financial Services, and we have registered afederal copyright for the source code for the MuniMagic+ software.Available InformationOur website is www.willdan.com and our investor relations page is under the caption “Investors” on our website. Wemake available on this website under “SEC Filings,” free of charge, our annual reports on Form 10‑K, quarterly reports onForm 10‑Q, current reports on Form 8‑K, and amendments to those reports as soon as reasonably practicable after weelectronically file or furnish such materials to the SEC. We also make available on this website our prior earnings calls underthe heading “Investors—Investor Relations” and our Code of Ethical Conduct under the heading “Investors—CorporateGovernance.” The information on our website is not a part of or incorporated by reference into this filing. The SEC maintainsan Internet site that contains reports, proxy and information statements and other information regarding our filings athttp://www.sec.gov. ITEM 1A. RISK FACTORS Risks Relating to Our Business and IndustryWe operate in a changing environment that involves numerous known and unknown risks and uncertainties thatcould materially adversely affect our operations. Set forth below and elsewhere in this report and in other documents wefile with the SEC are descriptions of risks and uncertainties that could cause our actual results to differ materially from theresults and expectations contained in this report. Additional risks we do not yet know of or that we currently think areimmaterial may also affect our business operations. If any of the events or circumstances described in the following risksactually occurs, our business, financial condition or results of operations could be materially adversely affected.If we fail to complete a project in a timely manner, miss a required performance standard, or otherwise fail to adequatelyperform on a project, then we may incur a loss on that project, which may reduce or eliminate our overall profitability.Our engagements often involve large‑scale, complex projects. The quality of our performance on such projectsdepends in large part upon our ability to manage the relationship with our clients and our ability to effectively manage theproject and deploy appropriate resources, including third‑party contractors and our own personnel, in a timely manner. Wemay commit to a client that we will complete a project by a scheduled date or that, when completed, a project will achievespecified performance standards (e.g., some of our contracts stipulate certain energy savings requirements). If the project isnot completed by the scheduled date or fails to meet required performance standards, we may either incur significantadditional costs or be held responsible for the costs incurred by the client to rectify damages due to late completion or failureto achieve the required performance standards. The uncertainty of the timing of a project can present difficulties in planningthe amount of personnel needed for the project. If the project is delayed or canceled, we may bear the cost of an underutilizedworkforce that was dedicated to fulfilling the project. In addition, performance of projects can be affected by a number offactors beyond our control, including, among other things, unavoidable delays from government inaction, public opposition,inability to obtain financing, weather conditions, unavailability of vendor materials, changes in the project scope of servicesrequested by our clients, industrial accidents,13 SMSM Table of Contentsenvironmental hazards, and labor disruptions. To the extent these events occur, the total costs of the project could exceed ourestimates, and we could experience reduced profits or, in some cases, incur a loss on a project, which may reduce or eliminateour overall profitability. Further, any defects or errors, or failures to meet our clients’ expectations, could result in claims fordamages against us. Failure to meet performance standards or complete performance on a timely basis could also adverselyaffect our reputation and client base.We are susceptible to risks relating to the energy services industry, which represented 72% of our consolidated contractrevenue in fiscal year 2018, and a loss of customers or other downturn in demand for those services could have a materialimpact on our revenues, profitability and financial condition.Consolidated contract revenue generated from our Energy segment has continued to increase, from 49% of ourconsolidated contract revenues in fiscal year 2014 to 72% of our consolidated contract revenues in fiscal year 2018. Thisincrease is primarily due to acquisitions we have made in this segment in recent fiscal years, including our acquisition ofLime Energy in fiscal year 2018, as well as an increase in demand for these services. We expect that consolidated contractrevenue generated from our Energy segment as a percentage of our total consolidated contract revenue will continue to growin fiscal year 2019 as a result of our acquisition of Lime Energy. A loss of customers, inability to procure or maintaincontracts, or downturn in demand could have a material adverse impact on our business, results of operations and financialcondition. To address risks related to increased dependence on the energy efficiency services business, we must do thefollowing:·Maintain and expand our current utility relationships and develop new relationships;·Maintain, enhance and add to our existing energy efficiency services;·Execute our business and marketing strategies successfully; and·Achieve the energy savings that are specified in our contracts.If we are unable to accomplish these objectives and we suffer a downturn in business from energy efficiencyservices, we may not be able to supplement the loss of revenue from our other services and it may result in lower revenuesand have an adverse impact on our business, results of operations and financial condition.Our top three clients accounted for 36% of our consolidated contract revenue for fiscal year 2018 and Lime Energy’s toptwo utility programs accounted for 66% of its consolidated contract revenue for the nine months ended September 30,2018. If we have a loss or reduction of business from any of these clients or utility programs, it could result in significantharm to our revenue, profitability and financial condition.For fiscal year 2018, our top three clients accounted for 36% of our consolidated contract revenue. ConsolidatedEdison, the City of Elk Grove and DASNY accounted for 19%, 9% and 8%, respectively, of our consolidated contractrevenue in fiscal year 2018. These clients are not committed to purchase any minimum amount of our services, as ouragreements with them are based on a “purchase order” model. As a result, they may discontinue utilizing some or all of ourservices with little or no notice.We acquired Lime Energy on November 9, 2018. For the nine months ended September 30, 2018, contract revenuegenerated from Lime Energy’s utility programs associated with the Los Angeles Department of Water and Power and DukeEnergy Corp. represented 66% of Lime Energy’s consolidated contract revenue. The amounts due from clients associatedwith these two utility programs represented 70% of outstanding accounts receivable of Lime Energy as of September 30,2018. These utility programs are not committed to purchase any minimum amount of Lime Energy’s services, as theiragreements with Lime Energy are based on a “purchase order” model. As a result, they may discontinue utilizing some or allof Lime Energy’s services with little or no notice. As well, certain of Lime Energy’s contracts (for example, Lime Energy’scontract relating to Los Angeles Department of Water and Power) are with other entities that are periodically funded by theapplicable utility. Such funding is subject to periodic renewal and is outside the control of Lime Energy or its contractcounterparty and may, at times, be delayed or inhibited.14 Table of ContentsThe loss of any of these clients or utility programs (or financial difficulties at either of these clients or utilityprograms, which result in nonpayment or nonperformance) could have a significant and adverse effect on our business,results of operations and financial condition. We expect Consolidated Edison, DASNY and the utility programs associatedwith each of the Los Angeles Department of Water and Power and Duke Energy Corp. to continue to account for a significantportion of our consolidated contract revenue for the foreseeable future. If these clients or utility programs significantlyreduce their business or orders with us, default on their agreements with us or fail to renew or terminate their agreements withus, our business, results of operations and financial condition could be materially and adversely affected. We may not be ableto win new contracts to replace these contracts if they are terminated early or expire as planned without being renewed. In addition, the potential for requests from certain clients, including Consolidated Edison and City of Elk Grove, orthe utility programs associated with the Los Angeles Department of Water and Power and Duke Energy Corp. to significantlyincrease the services we provide them requires us to have sufficient resource capacity available in the regions where they arelocated. If we are unable to maintain such resource capacity, these clients or utility programs may reduce or stop purchasingcertain services from us. If such clients or utility programs reduce or stop purchasing certain services from us, we may havesubstantial capacity available in regions where we do not have corresponding clients to service.Our failure to win new contracts and renew existing contracts with private and public sector clients could adversely affectour business, results of operations and financial condition.Our business depends on our ability to win new contracts and renew existing contracts with private and publicsector clients. Contract proposals and negotiations are complex and frequently involve a lengthy bidding and selectionprocess. If we are not able to replace the revenue from expiring contracts, either through follow-on contracts or new contracts,our business, results of operations and financial condition may be adversely affected. A number of factors affect our ability towin new contracts and renew existing contracts, including, among other things, market conditions, financing arrangements,required governmental approvals, our client relationships and professional reputation. For example, a client may require usto provide a bond or letter of credit to protect the client should we fail to perform under the terms of the contract. If negativemarket conditions arise, or if we fail to secure adequate financial arrangements or the required government approval, we maynot be able to pursue particular projects, which could adversely affect our business, results of operations and financialcondition. Any factor that diminishes our reputation or client relationships with federal, state and local governments, as wellas commercial clients, could make it substantially more difficult for us to compete successfully for both new engagementsand qualified employees. To the extent our reputation and/or client relationships deteriorate, our business, results ofoperations and financial condition could be adversely affected.Our contracts may contain provisions that are unfavorable to us and permit our clients to, among other things, terminateour contracts partially or completely at any time prior to completion.Certain of our contracts contain provisions that allow our clients to terminate or modify the contract at theirconvenience upon short notice. For example, Consolidated Edison, the City of Elk Grove and DASNY, our three largestsources of revenue, may terminate their contracts with us at any time for any reason. Similarly, the utility programs associatedwith the Los Angeles Department of Water and Power and Duke Energy Corp., the two largest sources of revenue of ourindirect subsidiary Lime Energy, may terminate their contracts with Lime Energy at any time for any reason. If one of theseclients or utility programs terminates their contract for convenience, we may only bill the client or utility program, asapplicable, for work completed prior to the termination, plus any commitments and settlement expenses such client or utilityprogram agrees to pay, but not for any work not yet performed.In addition, many of our government contracts and task and delivery orders are incrementally funded asappropriated funds become available. The reduction or elimination of such funding can result in contract options not beingexercised and further work on existing contracts and orders being curtailed. In any such event, we would have no right toseek lost fees or other damages. If a client were to terminate, decline to exercise options under, or curtail further performanceunder one or more of our major contracts, it could have a material adverse effect on our business, results of operations andfinancial condition.15 Table of ContentsOur substantial leverage and significant debt service obligations due to debt incurred in connection with our acquisition ofLime Energy could adversely affect our business, results of operations and financial condition.We have traditionally operated our business with little to no outstanding indebtedness. For example, as ofSeptember 28, 2018, we had no outstanding consolidated indebtedness and $2.7 million in letters of credit issued andoutstanding. Our interest payments were approximately $75,000 for the nine months ended September 28, 2018. Inconnection with the completion of our acquisition of Lime Energy in November 2018, we incurred approximately $70.0million in indebtedness. As of December 28, 2018, we had approximately $71.7 million of consolidated indebtedness(excluding intercompany indebtedness) outstanding, of which $70.0 million was secured obligations (exclusive of $2.7million of outstanding undrawn letters of credit) and we have an additional $30.0 million of availability under our revolvingcredit facility (after giving effect to outstanding letters of credit), all of which would be secured debt, if drawn. Our financialperformance could be adversely affected by our substantial leverage. We may also incur significant additional indebtednessin the future, subject to various conditions.This significant level of indebtedness could have important negative consequences to us, including, among otherthings:·we may have difficulty satisfying our obligations with respect to our outstanding debt obligations;·we may have difficulty obtaining financing in the future for working capital, capital expenditures, acquisitionsor other general corporate purposes;·we may need to use all, or a substantial portion, of our available excess cash flow to pay interest and principalon our debt, which will reduce the amount of money available to finance our operations and other businessactivities, including, among other things, working capital requirements, capital expenditures, acquisitions, orother general corporate purposes;·our debt level increases our vulnerability to general economic downturns and adverse industry conditions;·our debt level could limit our flexibility in planning for, or reacting to, changes in our business and in ourindustry in general;·we are exposed to the risk of increased interest rates as some of our borrowings have variable interest rates;·our substantial amount of debt and the amount we must pay to service our debt obligations could place us at acompetitive disadvantage compared to our competitors that have less debt;·we may have increased borrowing costs;·our clients or insurance carriers may react adversely to our significant debt level; and·our failure to comply with the financial and other restrictive covenants in our debt instruments which, amongother things, require us to maintain specified financial ratios and limit our ability to incur debt and sell assets,could result in an event of default that, if not cured or waived, could have a material adverse effect on ourbusiness or prospects.Our high level of indebtedness relative to our historical performance requires that we use a substantial portion of ourcash flow from operations to pay principal of, and interest on, our indebtedness, which will reduce the availability of cash tofund working capital requirements, future acquisitions, capital expenditures or other general corporate or business activities.Debt outstanding under our term loan and revolving credit facility bear interest at variable rates. If market interest ratesincrease, debt service on our variable-rate debt will rise, which could adversely affect our cash flow, results of operations andfinancial position. For the fiscal year ended December 28, 2018, a 1.00% increase in interest rates would have increased totalinterest expense under our term loan and revolving credit facility by $0.7 million.16 Table of ContentsAlthough we may employ hedging strategies such that a portion of our variable rate debt carries a fixed rate of interest, anyhedging arrangement put in place may not offer complete protection from this risk. Additionally, the remaining portion ofour variable rate debt that is not hedged will be subject to changes in interest rates.In addition, our term loan will amortize quarterly in an amount equal to 10% annually. Our ability to makescheduled payments on or refinance our debt obligations depends on our financial condition and operating performance,which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative,regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operatingactivities sufficient to permit us to pay the amounts due on our indebtedness.If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantialliquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of materialassets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able toeffect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, thosealternative actions may not allow us to meet our scheduled debt service obligations. The Credit Agreement restricts ourability to dispose of assets and use the proceeds from those dispositions and also restricts our ability to raise debt or equitycapital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions orto obtain proceeds in an amount sufficient to meet any debt service obligations then due. Our inability to generate sufficientcash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, wouldmaterially adversely affect our financial position and results of operations. If we cannot make scheduled payments on ourdebt, we will be in default and the lenders under our Credit Agreement could terminate their commitments to loan money andcould foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation.We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders,which may impact our ability to execute on our current or future business strategies.We anticipate that our current cash, cash equivalents, cash provided by operating activities and borrowing abilityunder our revolving line of credit will be sufficient to meet our current and anticipated needs for general corporate purposesduring the next 12 months. It is possible, however, that we may not generate sufficient cash flow from operations or otherwisehave the capital resources to meet our future capital needs, particularly given our increased level of indebtedness due to ourrecent acquisition of Lime Energy.If we do not generate sufficient cash flow from operations or otherwise, we may need additional financing to executeon our current or future business strategies, including hiring additional personnel, developing new or enhancing existingservice lines, expanding our business geographically, enhancing our operating infrastructure, acquiring complementarybusinesses, or otherwise responding to competitive pressures. We cannot assure you that additional financing will beavailable to us on favorable terms, or at all. Furthermore, if we raise additional funds through the issuance of convertible debtor equity securities, the percentage ownership of our stockholders could be significantly diluted, and these newly issuedsecurities may have rights, preferences or privileges senior to those of existing stockholders. If adequate funds are notavailable or are not available on acceptable terms, if and when needed, our ability to fund our operations, meet obligations inthe normal course of business, take advantage of strategic business opportunities, or otherwise respond to competitivepressures would be significantly limited.Restrictive covenants in our Credit Agreement may restrict our ability to pursue certain business strategies.Our Credit Agreement limits or restricts our and our subsidiaries ability to, among other things:·incur, create or assume additional indebtedness;·incur, create or assume liens securing debt or other encumbrances on our assets;·purchase, hold or acquire unpermitted acquisitions or investments;17 Table of Contents·make loans or advances;·pay dividends or make distributions to our stockholders;·purchase or redeem our stock;·repay indebtedness that is junior to indebtedness under our Credit Agreement;·acquire the assets of, or merge or consolidate with, other companies; and·sell, lease, or otherwise dispose of assets.Our Credit Agreement also requires that we maintain a maximum total leverage ratio and a minimum fixed chargecoverage ratio, tested on a quarterly basis, which we may not be able to achieve. The covenants may impair our ability tofinance future operations or capital needs or to engage in other favorable business activities. Failing to comply with thesecovenants could result in an event of default under the Credit Agreement, which could result in us being required to repaythe amounts outstanding thereunder prior to maturity. These prepayment obligations could have an adverse effect on ourbusiness, results of operations and financial condition.Furthermore, if we are unable to repay the amounts due and payable under the Credit Agreement, the lenders couldproceed against the collateral granted to them to secure that indebtedness. In the event the lenders accelerate the repaymentof our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.Changes in banks’ inter-bank lending rate reporting practices or the method pursuant to which LIBOR is determined mayadversely affect our business, results of operations and financial condition.London Interbank Offered Rate (“LIBOR”) and other indices which are deemed “benchmarks” are the subject ofrecent national, international, and other regulatory guidance and proposals for reform. Some of these reforms are alreadyeffective while others are still to be implemented. These reforms may cause such benchmarks to perform differently than inthe past, or have other consequences which cannot be predicted. At this time, it is not possible to predict the effect of anysuch changes, any establishment of alternative reference rates or any other reforms to LIBOR that may be implemented in theUnited Kingdom or elsewhere. Uncertainty as to the nature of such potential changes, alternative reference rates or otherreforms may adversely affect our indebtedness the interest on which is determined by reference to LIBOR.Any of the above changes or any other consequential changes to LIBOR or any other “benchmark”, or any furtheruncertainty in relation to the timing and manner of implementation of such changes, could have a material adverse effect onour financial condition, cash flow and results of operations. In addition, any of these alternative methods may result ininterest payments that do not correlate over time with the payments that would have been made on our indebtedness ifLIBOR was available in its current form.Changes to tax laws and regulations, including changes to the energy efficient building deduction, could adversely affectour business, results of operations and financial condition.Tax laws and regulations are highly complex and subject to interpretation, and the tax laws and regulations towhich we are subject to change over time. Our tax filings are based upon our interpretation of the tax laws in effect in variousjurisdictions for the periods for which the filings are made. As our business grows, we are required to comply withincreasingly complex taxation rules and practices. We are subject to tax in multiple U.S. tax jurisdictions. Changes in federal,state and local tax laws and regulations could adversely affect our business, results of operations and financial condition.On December 22, 2017, the legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) wasenacted into law. The Tax Act reduces the U.S. federal corporate income tax rate from 35% to 21%, restricts the18 Table of Contentsdeductibility of certain business expenses, requires companies to pay a one-time transition tax on earnings of certain foreignsubsidiaries that were previously deferred from U.S. tax and creates new U.S. taxes on certain foreign sourced earnings,among other provisions. In the fourth quarter of fiscal year 2017, which was the period of enactment, we made a reasonableestimate of the effects of the Tax Act and recognized a provisional decrease in deferred tax expense of $1.3 million.Shortly after the Tax Act was enacted, the SEC issued guidance under Staff Accounting Bulletin No. 118, IncomeTax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) to address the application of GAAP and directtaxpayers to consider the impact of the Tax Act as “provisional” when a registrant does not have the necessary informationavailable, prepared or analyzed (including computations) in reasonable detail to complete the accounting for the change intax law. SAB 118 provided a measurement period that should not extend beyond one year from the Tax Act enactment datefor companies to complete the accounting under ASC 740. In the third quarter of 2018, we completed our accounting for theincome tax effects of the Tax Act and increased deferred tax expense by $0.2 million due to the corporate tax rate changeimpact on adjustments to temporary differences that were estimated at the time of the tax provision and finalized for the taxreturn.Our future effective income tax rate may be impacted by a number of factors, including, among other things:·governmental authorities increasing taxes or eliminating deductions;·changes in the jurisdictions in which earnings are taxed;·the resolution of issues arising from tax audits with various tax authorities;·changes in the valuation of our deferred tax assets and liabilities due to changes in applicable accountingstandards;·adjustments to estimated taxes upon finalization of various tax returns;·changes in available tax credits;·changes in stock-based compensation;·other changes in tax laws and regulations, and·new or modified interpretation of tax laws and/or administrative practices, including the Tax Act.For example, we utilized the energy efficient building deduction under Section 179D of the Internal Revenue Code,in fiscal years 2016 and 2017. However, we were not able to utilize the energy efficient building deduction in the fiscal year2018 tax provision due to Congress not enacting an extension of this deduction for tax year 2018. The inability to utilizesuch deduction in fiscal year 2018 did not have a material adverse effect on our business, results of operations and financialcondition.Any significant increase in our future effective income tax rate could reduce net earnings and free cash flow forfuture periods.19 Table of ContentsDemand for our services is cyclical and vulnerable to economic downturns. If economic growth slows, government fiscalconditions worsen, public and private construction/renovation activity slows, or client spending declines, it may have amaterial adverse effect on our business, results of operations and financial condition. In particular, changes in the localand regional economies of New York, California and North Carolina could have a material adverse effect on our business,results of operations and financial condition.Demand for our services is cyclical, and vulnerable to economic downturns and reductions in government andprivate industry spending. Such downturns or reductions may result in clients delaying, curtailing or canceling proposed andexisting projects. Our business traditionally lags the overall recovery in the economy; therefore, our business may notrecover immediately when the economy improves. If economic growth slows, government fiscal conditions worsen, or clientspending declines, it may have a material adverse effect on our business, results of operations and financial condition. Ourgovernment clients may face budget deficits that prohibit them from funding new or existing projects. In addition, ourexisting and potential clients may either postpone entering into new contracts or request price concessions. Difficultfinancing and economic conditions may cause some of our clients to demand better pricing terms or delay payments forservices we perform, thereby increasing the average number of days our receivables are outstanding, and the potential ofincreased credit losses of uncollectible invoices. Further, these conditions may result in the inability of some of our clients topay us for services that we have already performed. If we are not able to reduce our costs quickly enough to respond to therevenue decline from these clients, our operating results may be adversely affected. Accordingly, these factors affect ourability to forecast our future revenue and earnings from business areas that may be adversely impacted by market conditions.In particular, adverse economic and other conditions affecting the local and regional economies of New York,California and North Carolina may reduce the demand for our services, which could have a material adverse effect on ourbusiness, results of operations and financial condition. During fiscal year 2018, approximately 35% and 29% of ourconsolidated contract revenue was derived from services rendered to public agencies, utilities, and private industry inCalifornia and New York, respectively. As a result of our acquisition of Lime Energy, we expect the percentage of ourconsolidated contract revenue derived from North Carolina to increase in fiscal year 2019. California, New York and NorthCarolina each experienced an economic downturn in fiscal year 2009, which negatively impacted our revenue andprofitability. Any future downturns could have similar significant adverse impacts on our business, results of operations andfinancial condition.Our business, financial condition and results of operations may also be adversely affected by conditions that impactthe construction sector in general, including, among other things:·Changes in national and local market conditions due to changes in general or local economic conditions andneighborhood characteristics;·Slow‑growth or no‑growth initiatives or legislation;·Adverse changes in local and regional governmental policies on investment in infrastructure;·Adverse changes in federal and state policies regarding the allocation of funds to local and regional agencies;·The impact of present or future environmental legislation and compliance with environmental laws and otherregulatory requirements;·Changes in real estate tax rates and assessments;·Increases in interest rates and changes in the availability, cost and terms of financing;·Adverse changes in other governmental rules and fiscal policies; and20 Table of Contents·Earthquakes, fires, floods and other natural disasters, which can cause uninsured losses, and other factors whichare beyond our control.Any of these factors could adversely affect the demand for our services, which could have a material adverse effecton our business, results of operations and financial condition.Because we primarily provide services to municipalities, public utilities and other public agencies, we are more susceptibleto the unique risks associated with government contracts.We primarily work for utilities, municipalities and other public agencies. Consequently, we are exposed to certainrisks associated with public agency and government contracting, any one of which can have a material adverse effect on ourbusiness, results of operations and financial condition. These risks include:·The ability of the public agency to terminate the contract with 30 days’ prior notice or less;·Changes in public agency spending and fiscal policies which can have an adverse effect on demand for ourservices;·Contracts that are subject to public agency budget cycles, and often are subject to renewal on an annual basis;·The often wide variation of the types and pricing terms of contracts from agency to agency;·The difficulty of obtaining change orders and additions to contracts; and·The requirement to perform periodic audits as a condition of certain contract arrangements.Each year, client funding for some of our government contracts rely on government appropriations or public‑supportedfinancing. If adequate public funding is delayed or is not available, then we may not be able to realize all of ouranticipated revenue and profits from such contracts, which could adversely affect our business, results of operations andfinancial condition.A substantial portion of our revenue is derived from contracts with agencies and departments of state and localgovernments. During fiscal 2018 and 2017, approximately 49% and 59%, respectively, of our consolidated contract revenuewas derived from contracts with government entities.Each year, client funding for some of our government contracts may directly or indirectly rely on governmentappropriations or public‑supported financing. Legislatures may appropriate funds for a given project on a year‑by‑year basis,even though the project may take more than one year to perform. In addition, public‑supported financing such as state andlocal municipal bonds may be only partially raised to support existing projects. Similarly, the impact of the economicdownturn on state and local governments may make it more difficult for them to fund projects. In addition to the state of theeconomy and competing political priorities, public funds and the timing of payment of these funds may be influenced by,among other things, curtailments in the use of government contracting firms, increases in raw material costs, delaysassociated with insufficient numbers of government staff to oversee contracts, budget constraints, the timing and amount oftax receipts, and the overall level of government expenditures. If adequate public funding is not available or is delayed, thenour profits and revenue could decline and we will not realize all of our potential revenue and profit from that contract.21 Table of ContentsWe derive significant revenue and profit from contracts awarded through a competitive bidding process, which can imposesubstantial costs on us, and we will lose revenue and profit if we fail to compete effectively.We derive significant revenue and profit from contracts that are awarded through a competitive bidding process.Competitive bidding imposes substantial costs and presents a number of risks, including:·The substantial cost and managerial time and effort that we spend to prepare bids and proposals;·The need to estimate accurately the resources and costs that will be required to service any contracts we areawarded, sometimes in advance of the final determination of their full scope;·The expense and delay that may arise if our competitors protest or challenge awards made to us pursuant tocompetitive bidding, as discussed below; and·The opportunity cost of not bidding on and winning other contracts we may have otherwise pursued.To the extent we engage in competitive bidding and are unable to win particular contracts, we not only incursubstantial costs in the bidding process that negatively affect our operating results, but we may lose the opportunity tooperate in the market for the services provided under those contracts for a number of years. Even if we win a particularcontract through competitive bidding, our profit margins may be depressed or we may even suffer losses as a result of thecosts incurred through the bidding process and the need to lower our prices to overcome competition.Our financial results may suffer if we do not effectively manage our expanded operations following our acquisition of LimeEnergy. We have incurred, and will incur, significant integration costs related to those efforts.Due to our acquisition of Lime Energy, the size of our business has increased significantly. The $120.0 millionpurchase price represented approximately 85.3% of our total consolidated assets as of September 28, 2018. Our future successwill depend, in part, upon our ability to manage and integrate this expanded business, which will pose substantial challengesfor management, including challenges related to the management and monitoring of additional operations and associatedincreased costs and complexity. There can be no assurances we will be successful or that we will realize the expected benefitscurrently anticipated from our acquisition of Lime Energy.As a result, we anticipate that we will incur significant integration expenses; however, we cannot identify thetiming, nature and amount of all such charges as of the date of this Annual Report on Form 10-K. These transaction expensesand integration costs have been, and will continue to be charged as an expense in the period incurred. The significanttransaction expenses and integration costs could materially affect our results of operations in the period in which suchcharges are recorded. Although we believe that the elimination of duplicative costs, as well as the realization of otherefficiencies related to the integration of Lime Energy’s business, will offset incremental transaction and integration costsover time if we complete the acquisition of Lime Energy, this net benefit may not be achieved in the near term, or at all.We have made and expect to continue to make acquisitions that could disrupt our operations and adversely impact ourbusiness, results of operations and financial condition. Our failure to conduct due diligence effectively, or our inability tosuccessfully integrate acquisitions, could impede us from realizing all of the benefits of the acquisitions, which couldweaken our results of operations.A key part of our growth strategy, as shown by our seven acquisitions from 2015 through 2018, is to acquire othercompanies that complement our lines of business, broaden our technical capabilities and/or expand our geographic presence.We expect to continue to acquire companies as an element of our growth strategy; however, our ability to make acquisitionsmay be restricted by our inability to incur additional indebtedness and/or make unpermitted acquisitions or investmentsunder our Credit Agreement. Acquisitions involve certain known and unknown risks that22 Table of Contentscould cause our actual growth or operating results to differ from our expectations or the expectations of securities analysts.For example: ·we may not be able to identify suitable acquisition candidates or to acquire additional companies on acceptableterms; ·we compete with others to acquire companies, which may result in decreased availability of, or increased pricefor, suitable acquisition candidates; ·we may not be able to obtain the necessary financing, on favorable terms or at all, to finance any of ourpotential acquisitions; ·we may ultimately fail to consummate an acquisition even if we announce that we plan to acquire a company;and ·acquired companies may not perform as we expect, and we may fail to realize anticipated revenue and profits. Our acquisition strategy may divert management’s attention away from our existing businesses, resulting in the lossof key clients or key employees, and expose us to unanticipated problems or legal liabilities, including responsibility as asuccessor-in-interest for undisclosed or contingent liabilities of acquired businesses or assets. If we fail to conduct due diligence on our potential targets effectively, we may, for example, not identify problems attarget companies, or fail to recognize incompatibilities or other obstacles to successful integration. Our inability tosuccessfully integrate future acquisitions within the intended timeframes or at all could impede us from realizing all of thebenefits of those acquisitions and could severely weaken our business operations. The integration process may disrupt ourbusiness and, if implemented ineffectively, may preclude realization of the full benefits expected by us and could harm ourresults of operations. In addition, the overall integration of the combining companies may result in unanticipated problems,expenses, liabilities and competitive responses and may cause our stock price to decline. The difficulties of integrating anacquisition include, among others: ·issues in integrating information, communications and other systems; ·incompatibility of logistics, marketing and administration methods; ·maintaining employee morale and retaining key employees; ·consequences from a change in tax treatment; ·the ability to deduct or claim tax attributes or benefits such as operating losses or business tax credits; ·integrating the business cultures and management philosophies of both companies; ·preserving important strategic client relationships; ·potential unknown liabilities and unforeseen increased expenses or delays associated with the acquisition,including costs to integrate beyond current estimates; ·consolidating corporate and administrative infrastructures and eliminating duplicative operations; and ·coordinating and integrating geographically separate organizations. 23 Table of ContentsEven if the operations of an acquisition are integrated successfully, we may not realize the full benefits of theacquisition, including the synergies, cost savings or growth opportunities that we expect. These benefits may not beachieved within the anticipated time frame, or at all. Further, acquisitions may cause us to: ·issue common stock that would dilute our current stockholders’ ownership percentage; ·use a substantial portion of our cash resources; ·increase our interest expense, leverage and debt service requirements (if we incur additional debt to pay for anacquisition); ·assume liabilities, including environmental liabilities, for which we do not have indemnification from theformer owners. Further, indemnification obligations may be subject to dispute or concerns regarding thecreditworthiness of the former owners; ·record goodwill and non-amortizable intangible assets that are subject to impairment testing and potentialimpairment charges; ·experience volatility in earnings due to changes in contingent consideration related to acquisition earn-outliability estimates; ·incur amortization expenses related to certain intangible assets; ·lose existing or potential contracts as a result of conflict of interest issues; ·incur large and immediate write-offs; or ·become subject to litigation. If we are not able to successfully manage our growth strategy, our business, results of operations and financial conditionmay be adversely affected.Our expected future growth presents numerous managerial, administrative, operational, and other challenges. Ourability to manage the growth of our operations will require us to continue to improve our management information systemsand our other internal systems and controls. In addition, our growth will increase our need to attract, develop, motivate, andretain both our management and professional employees. The inability to effectively manage our growth or the inability ofour employees to achieve anticipated performance could have a material adverse effect on our business, results of operationsand financial condition.Moreover, our continued expansion into new states will increase our legal and regulatory risk. Our failure, or allegedfailure, to comply with applicable laws and regulations in any new jurisdiction in which we operate, and ensuing inquiries orinvestigations by regulatory and enforcement authorities, may result in regulatory action, including suspension or revocationof one or more of our licenses, civil or criminal penalties or other disciplinary actions and restrictions on or suspension ofsome or all of our business operations. As a result, our business could suffer, our reputation could be harmed, one or more ofour contracts with governmental or non-governmental entities could be terminated and we could be subject to additionallegal risk. This could, in turn, increase the size and number of claims and damages asserted against us, subject us toadditional regulatory investigations, enforcement actions or other proceedings or lead to increased regulatory or supervisoryconcerns. We may also be required to spend additional time and resources on any necessary remedial measures. Our successdepends, in part, on our ability to anticipate these risks and manage these challenges. We cannot predict the timing or form ofany current or future regulatory or law enforcement initiatives, and any such initiatives could have a material adverse effecton our business, results of operations and financial condition.24 Table of ContentsOur acquired businesses, including Lime Energy and Integral Analytics, may underperform relative to our expectations.We may not be able to maintain the levels of growth, revenue, earnings or operating efficiency that we and our acquiredbusinesses, including Lime Energy and Integral Analytics, have historically achieved or might achieve separately. Thebusiness and financial performance of our acquired businesses, including Lime Energy and Integral Analytics are subject tocertain risks and uncertainties, including, among other things: ·the risk of the loss of, or changes to, our acquired businesses’ relationships with their clients; ·in the case of Lime Energy, the dependence on a limited number of utility programs and terminable contracts togenerate substantially all of its revenue; ·the inability of our acquired businesses to generate new customers to diversify their customer base; ·our acquired businesses often rely on subcontractors to meet their contractual obligations and the failure bysuch subcontractors to properly and effectively perform their services in a timely manner may cause delays inthe delivery of our acquired businesses’ services; ·negative publicity or reputation from any prior investigations and settlements that our acquired businesses areinvolved in; and ·reliance on the senior management and key employees of our acquired businesses. If our goodwill or other intangible assets become impaired, then our profits may be significantly reduced.Because we have recently completed a number of acquisitions, goodwill and other intangible assets represent asubstantial portion of our assets. As of December 28, 2018, our goodwill was $97.7 million and other intangible assets were$44.4 million. Under generally accepted accounting principles in the United States, we are required to perform a goodwillimpairment test for potential impairment at least on an annual basis. We also assess the recoverability of the unamortizedbalance of our intangible assets when indications of impairment are present based on expected future profitability andundiscounted expected cash flows and their contribution to our overall operations. The goodwill impairment test requires usto determine the fair value of our reporting units, which are the components at or one level below our reportable segments. Indetermining fair value, we make significant judgments and estimates, including assumptions about our strategic plans withregard to our operations. We also analyze current economic indicators and market valuations to help determine fair value. Tothe extent economic conditions that would impact the future operations of our reporting units change, our goodwill may bedeemed to be impaired, and we would be required to record a non-cash charge that could result in a material adverse effect onour business, results of operations and financial condition. We had no goodwill impairment in fiscal 2016, fiscal 2017, orfiscal 2018.In addition, if we experience a decrease in our stock price and market capitalization over a sustained period, wecould have to record an impairment charge in the future. The amount of any impairment could be significant and could havea material adverse impact on our financial condition and results of operations for the period in which the charge is taken.We often rely on subcontractors. The quality of our service and our ability to perform under some of our contracts would beadversely affected if qualified subcontractors are unavailable for us to engage, if our subcontractors fail to satisfy theirobligations to us or other parties, or if we are unable to maintain these relationships which, in each case, could adverselyaffect our business, results of operations and financial condition.Under some of our contracts, we rely on the efforts and skills of subcontractors for the performance of some of thetasks. Subcontractor services and other direct costs comprised approximately 49% and 56% of our consolidated contractrevenue in fiscal years 2018 and 2017, respectively. Our use of subcontractors has increased in recent years as a25 Table of Contentsresult of the increase in the percentage of our revenues derived from the direct installation of energy efficiency measures,including performance contracting and construction management services for more complex projects. The growth in theseactivities has been derived both from our acquisitions and from organic growth in the form of new and expanded energyefficiency programs that include the direct installation of energy efficiency measures. We expect these activities to continueto grow in 2019 as a percentage of our total revenues. Our Energy segment generally utilizes a higher percentage ofsubcontractors than Engineering and Consulting segment. The absence of qualified subcontractors with whom we have asatisfactory relationship could adversely affect the quality of our service offerings and therefore, adversely affect ourbusiness, results of operations and financial condition.If our contractors and subcontractors fail to satisfy their obligations to us or other parties, or if we are unable to maintainthese relationships, our business, results of operations and financial condition could be adversely affected.We depend on subcontractors in conducting our business and, in particular, we rely heavily on subcontractors in ourEnergy segment, the operation of which is conducted substantially through our WES subsidiary. There is a risk that we mayhave disputes with our subcontractors arising from, among other things, the quality and timeliness of work performed by thesubcontractor, client concerns about the subcontractor, or our failure to extend existing task orders or issue new task ordersunder a subcontract. In addition, if a subcontractor fails to deliver on a timely basis the agreed‑upon supplies, fails to performthe agreed‑upon services, or goes out of business, then we may be required to purchase the services or supplies from anothersource at a higher price, and our ability to fulfill our obligations as a prime contractor may be jeopardized. This may reducethe profit to be realized or result in a loss on a project for which the services or supplies are needed.We also rely on relationships with other contractors when we act as their subcontractor or joint venture partner. Theabsence of qualified subcontractors with which we have a satisfactory relationship could adversely affect the quality of ourservice and our ability to perform under some of our contracts. Our future revenue and growth prospects could be adverselyaffected if other contractors eliminate or reduce their subcontracts or teaming arrangement relationships with us, or if agovernment agency terminates or reduces these other contractors’ programs, does not award them new contracts, or refuses topay under a contract.Our actual business and financial results could differ from the estimates and assumptions that we use to prepare ourconsolidated financial statements, which may significantly reduce or eliminate our profits.To prepare consolidated financial statements in conformity with GAAP, management is required to make estimatesand assumptions as of the date of the consolidated financial statements. These estimates and assumptions affect the reportedvalues of assets, liabilities, revenue and expenses, as well as disclosures of contingent assets and liabilities. For example, wetypically recognize revenue of our fixed price contracts using the percentage-of-completion method over the life of acontract based on the proportion of costs incurred to date compared to the total costs estimated to be incurred at completionfor the entire project. Areas requiring significant estimates by our management include:·the application of the percentage‑of‑completion method of accounting and revenue recognition on contracts,change orders, and contract claims, including related unbilled accounts receivable;·unbilled accounts receivable, including amounts related to requests for equitable adjustment to contracts thatprovide for price redetermination, primarily with the U.S. federal government. These amounts are recorded onlywhen they can be reliably estimated and realization is probable;·provisions for uncollectible receivables, client claims, and recoveries of costs from subcontractors, vendors, andothers;·provisions for income taxes, valuation allowances, and unrecognized tax benefits;·value of goodwill and recoverability of other intangible assets;26 Table of Contents·valuations of assets acquired and liabilities assumed in connection with business combinations;·valuation of contingent earn‑out liabilities recorded in connection with business combinations;·valuation of employee benefit plans;·valuation of stock‑based compensation expense; and·accruals for estimated liabilities, including litigation and insurance reserves.Our actual business and financial results could differ from those estimates, which may significantly reduce oreliminate our profits.We are subject to various routine and non-routine governmental reviews, audits and investigations, and unfavorablegovernment audit results could force us to adjust previously reported operating results, could affect future operatingresults, could subject us to a variety of penalties and sanctions, and could result in harm to our reputation.Government departments and agencies and their representatives audit and review our contract performance, pricingpractices, cost structure, financial capability and compliance with applicable laws, rules and regulations. Audits could raiseissues that have significant adverse effects, including, among other things, substantial adjustments to our previously reportedoperating results and substantial effects on future operating results. Historically, we have not experienced significantdisallowed costs as a result of government audits. However, we can provide no assurance that government audits will notresult in material disallowances for incurred costs in the future. In addition, we must also comply with other governmentregulations related to employment practices, environmental protection, health and safety, tax, accounting, and anti-fraudmeasures, as well as many other regulations in order to maintain our government contractor status. These laws andregulations affect how we do business with our clients and, in some instances, impose additional costs on our businessoperations. Although we take precautions to prevent and deter fraud, misconduct, and non-compliance, we face the risk thatour employees or outside partners may engage in misconduct, fraud, or other improper activities. If a government audit,review or investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties andadministrative sanctions, including termination of contracts, repayment of amounts already received under contracts,forfeiture of profits, suspension of payments, fines and suspension or debarment from doing business with federal and stateand local government agencies and departments, any of which could adversely affect our reputation, our business, results ofoperations and financial condition, and/or the value of our stock. We may also lose business if we are found not to besufficiently able to meet ongoing cash flow and financial obligations on a timely basis. In addition, we could suffer seriousharm to our reputation and our stock price could decline if allegations of impropriety are made against us, whether true ornot.Our profitability could suffer if we are not able to maintain adequate utilization of our workforce.The cost of providing our services, including the extent to which we utilize our workforce, affects our profitability.The rate at which we utilize our workforce is affected by a number of factors, including, among other things:·our ability to transition employees from completed projects to new assignments and to hire and assimilate newemployees;·our ability to forecast demand for our services and thereby maintain an appropriate headcount in each of ourgeographies and workforces;·our ability to manage attrition;·our need to devote time and resources to training, business development, professional development, and othernon‑chargeable activities; and27 Table of Contents·our ability to match the skill sets of our employees to the needs of the marketplace.If we over‑utilize our workforce, our employees may become disengaged, which could impact employee attrition. Ifwe under‑utilize our workforce, our profit margin and profitability could suffer.If we are unable to accurately estimate and control our contract costs, then we may incur losses on our contracts, whichcould decrease our operating margins and reduce our profits. In particular, our fixed-price contracts could increase theunpredictability of our earnings.In fiscal year 2018, approximately 26% of our consolidated contract revenue was derived from fixed-price contracts.Under fixed-price contracts, we receive a fixed price irrespective of the actual costs we incur (which protects clients) and,consequently, we are exposed to a number of risks than either time-and-materials and unit-based contracts. We realize a profiton fixed price contracts only if we can control our costs and prevent cost overruns on our contracts. Fixed price contractsrequire cost and scheduling estimates that are based on a number of assumptions, including those about future economicconditions, costs, and availability of labor, equipment and materials, and other exigencies. We could experience costoverruns if these estimates were initially inaccurate as a result of errors or ambiguities in the contract specifications, orbecome inaccurate as a result of a change in circumstances following the submission of the estimate due to, among otherthings, unanticipated technical or equipment problems, difficulties in obtaining permits or approvals, changes in local lawsor labor conditions, weather delays, changes in costs of raw materials, or the inability of our vendors or subcontractors toperform their obligations. If cost overruns occur, we could experience reduced profits or, in some cases, a loss for that project.If a project is significant, or if there are one or more common issues that impact multiple projects, costs overruns couldincrease the unpredictability of our earnings, as well as have a material adverse impact on our business, results of operationsand financial condition.Under our time-and-material contracts, we are generally paid for our efforts at negotiated hourly billing rates for ourstaff, plus reimbursement for subcontractors and other direct costs. Profitability on these contracts is driven by control overthe number of hours required to execute the tasks, the mix of staff utilized and the percentage of staff time expended ondirectly billable activities. Many of our time-and-materials contracts are subject to maximum contract values. In the eventthat we estimate the potential to exceed those maximum contract values at the contracted rates, revenue relating to thesecontracts is recognized as if these contracts were fixed-price contracts.If we are unable to accurately estimate and manage our costs, we may incur losses on our contracts, which coulddecrease our operating margins and significantly reduce or eliminate our profits. Certain of our contracts require us to satisfyspecific design, engineering, procurement, or construction milestones in order to receive payment for the work completed orequipment or supplies procured prior to achievement of the applicable milestone. As a result, under these types ofarrangements, we may incur significant costs or perform significant amounts of services prior to receipt of payment. If a clientdetermines not to proceed with the completion of the project or if the client defaults on its payment obligations, we may facedifficulties in collecting payment of amounts due to us for the costs previously incurred or for the amounts previouslyexpended to purchase equipment or supplies.Our use of the percentage‑of‑completion method of revenue recognition on our fixed price contracts could result in areduction or reversal of previously recorded revenue and profits.We account for our fixed price contracts on the percentage‑of‑completion method of revenue recognition. Generally,our use of this method results in recognition of revenue and profit ratably over the life of the contract, based on theproportion of costs incurred to date to total costs expected to be incurred for the entire project. The effects of revisions torevenue and estimated costs, including the achievement of award fees and the impact of change orders and claims, arerecorded when the amounts are known and can be reasonably estimated. Such revisions could occur in any period and theireffects could be material. While we have historically made reasonably reliable estimates of the progress towards completionof long‑term contract, the uncertainties inherent in the estimating process make it possible for actual costs to vary materiallyfrom estimates, including reductions or reversals of previously recorded revenue and profit.28 Table of ContentsLegislation, policy, rules or regulations may be enacted that limit or change the ability of state, regional or local agenciesto contract for our privatized services. Such changes would affect our ability to obtain new contracts and may decrease thedemand for our services.Legislation is proposed periodically, particularly in the states of New York and California, that attempts to limit theability of governmental agencies to contract with private consultants to provide services. Should such changes occur and beupheld, demand for our services may be materially adversely affected. During fiscal year 2018, approximately 91% of ourconsolidated contract revenue was derived from services rendered to public agencies, including public utilities. Whileattempts at such legislation have failed in the past, such measures could be adopted in the future.Changes in energy, environmental, or infrastructure industry laws, regulations, and programs could directly or indirectlyreduce the demand for our services, which could in turn negatively impact our revenue.Some of our services are directly or indirectly impacted by changes in U.S. federal, state, or local laws andregulations pertaining to the energy, environmental, and infrastructure industries. Accordingly, a relaxation or repeal ofthese laws and regulations, or changes in governmental policies regarding the funding, implementation or enforcement ofthese programs, could result in a decline in demand for our services, which could in turn negatively impact our revenue. State and other public employee unions may bring litigation that seeks to limit the ability of public agencies to contractwith private firms to perform government employee functions in the area of public improvements. Judicial determinationsin favor of these unions could affect our ability to compete for contracts and may have an adverse effect on our business,results of operations and financial condition. For more than 20 years, state and other public employee unions have challenged the validity of propositions,legislation, charters and other government regulations that allow public agencies to contract with private firms to provideservices in the fields of engineering, design and construction of public improvements that might otherwise be provided bypublic employees. These challenges could have the effect of eliminating, or severely restricting, the ability of municipalitiesto hire private firms for the purpose of designing and constructing public improvements, and otherwise require them to useunion employees to perform the services.For example, the Professional Engineers in California Government, or PECG, a union representing state civil serviceemployees, began challenging Caltrans’ hiring of private firms in 1986, and in 2002 began a judicial challenge of Caltrans’hiring practices based on Caltrans’ interpretation of the effect of Proposition 35 (Professional Engineers in CaliforniaGovernment, et al. v. Kempton). The California Supreme Court ruled in favor of Caltrans, concluding that Caltrans may hireprivate contractors to perform architectural and engineering services on public works. Although Caltrans was successful inthis litigation, similar claims may be brought in the future and we cannot predict their outcome. If a state or other publicemployee union is successful in its challenge and as a result the ability of state agencies to hire private firms is severelylimited, such a decision would likely lead to additional litigation challenging the ability of the state, counties,municipalities and other public agencies to hire private engineering, architectural and other firms, the outcome of whichcould affect our ability to compete for contracts and may have an adverse effect on our business, results of operations andfinancial condition.Changes in elected or appointed officials could have a material adverse effect on our ability to retain an existing contractwith or obtain additional contracts from a public agency.Since the decision to retain our services is made by individuals, such as city managers, city councils and otherelected or appointed officials, our business and financial results or condition could be adversely affected by the results oflocal and regional elections. A change in the individuals responsible for selecting consultants for and awarding contracts onbehalf of a public agency (for example, due to an election) could adversely affect our ability to retain an existing contractwith or obtain additional contracts from such public agency.29 Table of ContentsThe loss of key personnel or our inability to attract and retain qualified personnel could impair our ability to provideservices to our clients and otherwise conduct our business effectively.As primarily a professional and technical services company, we are labor‑intensive and, therefore, our ability toattract, retain, and expand our senior management and our professional and technical staff, including management and staffacquired in connection with our business acquisitions, is an important factor in determining our future success. We believethere are only a limited number of available qualified executives in the energy services industry, and we therefore haveencountered, and will likely continue to encounter, intense competition for qualified employees from other companies in theindustry. In addition, the market for qualified engineers is competitive and, from time to time, it may be difficult to attractand retain qualified individuals with the required expertise within the timeframe demanded by our clients. Further, we relyheavily upon the expertise and leadership of our senior management. If we are unable to retain executives and other keypersonnel, the roles and responsibilities of those employees will need to be filled, which may require that we devote time andresources to identify, hire, and integrate new employees. The loss of the services of any of these key personnel couldadversely affect our business, results of operations and financial condition. We do not maintain key-man life insurancepolicies on any of our executive officers or senior managers. Our failure to attract and retain key individuals could impair ourability to provide services to our clients and conduct our business effectively.We operate in a highly competitive and fragmented industry, and we may not be able to compete effectively with our largercompetitors. If we are unable to compete successfully, our business, results of operations and financial condition will beadversely affected.The markets for energy efficiency and sustainability, engineering, construction management, economic andfinancial consulting, design planning and national preparedness services is competitive and highly fragmented. Contractawards in our market, while ultimately dependent on the size and scope of a particular project, are based primarily on qualityof service, relevant experience, staffing capabilities, reputation, past performance, customer relationships, technology,geographic presence, stability and price. We face strong competition primarily from other regional, national, andinternational providers of energy efficiency and sustainability consulting services, local electrical and mechanicalcontractors and engineering firms, lighting and lighting fixture manufacturers and lighting fixture distributors. Some of ourcompetitors in certain service areas have more personnel and greater financial, technical and marketing resources than us.Others are smaller and more specialized, and concentrate their resources in particular areas of expertise. Further, the technicaland professional aspects of some of our services generally do not require large upfront capital expenditures and providelimited barriers against new competitors.For example, our Energy segment, which represented approximately 72% and 73% of our consolidated contractrevenue for fiscal years 2018 and 2017, respectively, competes with larger energy efficiency and sustainability consultingfirms such as Lockheed‑Martin Corp., KEMA Laboratories (a division of the DNV GL Group AS), CLEAResult Consulting,Inc., AM Conservation Group, Inc., Ameresco, Inc., Navigant Consulting, Inc., ICF International, Inc., and Nexant, Inc.Similarly, our Engineering and Consulting segment, which represented approximately 28% and 27% of our consolidatedcontract revenue for fiscal years 2018 and 2017, respectively, competes with many larger consulting firms such as CharlesAbbott & Associates, Inc., Harris & Associates, Inc., RBF Consulting, Inc., Tetra Tech, Inc., Stantec, Inc., Michael BakerCorporation, TRC Companies, Inc., AECOM Technology Corporation, NV5 Holdings, Inc., Ecology & Environment, Inc.,Iteris, Inc., Kimley-Horn and Associates, Inc., Kleinfelder, Inc., HNTB Corporation, and Jacobs Engineering Group, Inc. Inaddition, in certain public finance consulting services, we may compete with large accounting firms. We can offer noassurance that we will be able to compete successfully in the future with these or other competitors.In addition to our existing competitors, new competitors such as large national or international engineering and/orconstruction companies could enter our markets. Many of these current and potential competitors are better capitalized thanwe are, have longer operating histories and strong existing client relationships, greater name recognition, and more extensiveengineering, technology and sales and marketing capabilities. Competitors could focus their substantial resources ondeveloping a competing business model or energy efficiency services that may be potentially more attractive to clients thanour products or services. In addition, we may face competition from other products or technologies that reduce demand forelectricity. Our competitors may also offer energy efficiency services at reduced prices in order to improve their competitivepositions. Any of these competitive factors could make it more difficult for30 Table of Contentsus to attract and retain clients, require us to lower our prices in order to remain competitive, and reduce our revenue andprofitability, any of which could have a material adverse effect on our business, results of operations and financial condition.Our services may expose us to liability in excess of our current insurance coverage, which may have a material adverseeffect on our liquidity.Our services involve significant risks of professional and other liabilities, which may substantially exceed the feeswe derive from our services. In addition, from time to time, we assume liabilities as a result of indemnification provisionscontained in our service contracts. We cannot predict the magnitude of these potential liabilities.We are liable to pay these claims from our assets if and when the aggregate settlement or judgment amount exceedsour policy limits. We are liable to pay claims from our assets if and when the aggregate settlement or judgment amountexceeds our policy limits. Our professional liability policy is a “claims made” policy. Thus, only claims made during theterm of the policy are covered. If we terminate our professional liability policy and do not obtain retroactive coverage, wewould be uninsured for claims made after termination even if these claims are based on events or acts that occurred during theterm of the policy. Further, our insurance may not protect us against liability because our policies typically have variousexceptions to the claims covered and also require us to assume some costs of the claim even though a portion of the claimmay be covered. In addition, if we expand into new markets, we may not be able to obtain insurance coverage for these newactivities or, if insurance is obtained, the dollar amount of any liabilities incurred could exceed our insurance coverage. Apartially or completely uninsured claim, if successful and of significant magnitude, could have a material adverse effect onour liquidity.Unavailability or cancellation of third-party insurance coverage would increase our overall risk exposure as well asdisrupt the management of our business operations.We maintain insurance coverage from third-party insurers as part of our overall risk management strategy andbecause some of our contracts require us to maintain specific insurance coverage limits. If any of our third-party insurers fail,suddenly cancel our coverage, or otherwise are unable to provide us with adequate insurance coverage, then our overall riskexposure and our operational expenses would increase and the management of our business operations would be disrupted. In addition, there can be no assurance that any of our existing insurance coverage will be renewable upon the expiration ofthe coverage period or that future coverage will be affordable at the required limits.Product liability and personal injury claims could have a material adverse effect on our business, results of operations andfinancial condition.We face exposure to product liability and personal injury claims in the event that our services cause bodily injury orproperty damage. Since the majority of our products use electricity, it is possible that the products we use could result ininjury, whether due to product malfunctions, defects, improper installation or other causes. Further, we face exposure topersonal injury claims in the event that an individual is injured because of our negligence or the negligence of one of oursubcontractors. Moreover, we may not have adequate resources in the event of a successful claim against us. A successfulproduct liability or personal injury claim against us that is not covered by insurance or is in excess of our available insurancelimits could require us to make significant payments of damages which could materially adversely affect our business, resultsof operations and financial condition.If our business partners fail to perform their contractual obligations on a project, we could be exposed to legal liability,loss of reputation and profit reduction or loss on the project.We routinely enter into subcontracts and, occasionally, joint ventures, teaming arrangements, and other contractualarrangements so that we can jointly bid and perform on a particular project. Success under these arrangements depends inlarge part on whether our business partners fulfill their contractual obligations satisfactorily. In addition, when we operatethrough a joint venture in which we are a minority holder, we have limited control over many project decisions, includingdecisions related to the joint venture’s internal controls, which may not be subject to the same internal control proceduresthat we employ. If these unaffiliated third parties do not fulfill their contract31 Table of Contentsobligations, the partnerships or joint ventures may be unable to adequately perform and deliver their contracted services. Under these circumstances, we may be obligated to pay financial penalties, provide additional services to ensure theadequate performance and delivery of the contracted services, and may be jointly and severally liable for the other’s actionsor contract performance. These additional obligations could result in reduced profits and revenues or, in some cases,significant losses for us with respect to the joint venture, which could also affect our reputation in the industries we serve.If our reports and opinions are not in compliance with professional standards and other regulations or without theappropriate disclaimers or in a misleading or incomplete manner, we could be subject to monetary damages and penalties.We issue reports and opinions to clients based on our professional engineering expertise, as well as our otherprofessional credentials. Our reports and opinions may need to comply with professional standards, licensing requirements,securities regulations, and other laws and rules governing the performance of professional services in the jurisdiction inwhich the services are performed. In addition, we could be liable to third parties who use or rely upon our reports or opinionseven if we are not contractually bound to those third parties. For example, if we deliver an inaccurate report or one that is notin compliance with the relevant standards, and that report is made available to a third party, we could be subject tothird‑party liability, resulting in monetary damages and penalties.In addition, the reports and other work product we produce for clients sometimes include projections, forecasts andother forward-looking statements. Such information by its nature is subject to numerous risks and uncertainties, any of whichcould cause the information produced by us to ultimately prove inaccurate. While we include appropriate disclaimers in thereports that we prepare for our clients, once we produce such written work product, we do not always have the ability tocontrol the manner in which our clients use such information. As a result, if our clients reproduce such information to solicitfunds from investors for projects without appropriate disclaimers and the information proves to be incorrect, or if our clientsreproduce such information for potential investors in a misleading or incomplete manner, our clients or such investors maythreaten to or file suit against us for, among other things, securities law violations.We may be required to pay liquidated damages if we fail to meet milestone requirements in our contracts.We may be required to pay liquidated damages if we fail to meet milestone requirements in our contracts. Failure tomeet any of the milestone requirements could result in additional costs, and the amount of such additional costs couldexceed the projected profits on the project. These additional costs include liquidated damages paid under contractualpenalty provisions, which can be substantial and can accrue on a regular basis.Force majeure events, including natural disasters and terrorist actions, could negatively impact the economies in which weoperate or disrupt our operations, which may adversely affect our business, results of operations and financial condition.Force majeure or extraordinary events beyond the control of the contracting parties, such as natural and man‑madedisasters, as well as terrorist actions, could negatively impact the economies in which we operate by causing the closure ofoffices, interrupting projects, and forcing the relocation of employees. We typically remain obligated to perform our servicesafter a terrorist action or natural disaster unless the contract contains a force majeure clause that relieves us of our contractualobligations in such an extraordinary event. If we are not able to react quickly to force majeure, our operations may beaffected significantly, which would have a negative impact on our business, results of operations and financial condition.We have only a limited ability to protect our intellectual property rights, and our failure to protect our intellectualproperty rights could adversely affect our competitive position.Our success depends, in part, upon our ability to protect our proprietary information and other intellectual property.We rely principally on trade secrets to protect much of our intellectual property where we do not believe that patent orcopyright protection is appropriate or obtainable. However, trade secrets are difficult to protect. Although our employees aresubject to confidentiality obligations, this protection may be inadequate to deter or prevent32 Table of Contentsmisappropriation of our confidential information. In addition, we may be unable to detect unauthorized use of ourintellectual property or otherwise take appropriate steps to enforce our rights. Failure to obtain or maintain trade secretprotection could adversely affect our competitive business position. In addition, if we are unable to prevent third parties frominfringing or misappropriating our trademarks or other proprietary information, our competitive position could be adverselyaffected.Employee, agent, or partner misconduct, or our failure to comply with anti-bribery and other laws or regulations, couldharm our reputation, reduce our revenue and profits, and subject us to criminal and civil enforcement actions.Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by one of ouremployees, agents, or partners could have a significant negative impact on our business and reputation. Such misconductcould include the failure to comply with government procurement regulations, regulations regarding the protection ofclassified information, regulations prohibiting bribery and other foreign corrupt practices, regulations regarding the pricingof labor and other costs in government contracts, regulations on lobbying or similar activities, regulations pertaining to theinternal controls over financial reporting, environmental laws, and any other applicable laws or regulations. Our policiesmandate compliance with these regulations and laws, and we take precautions to prevent and detect misconduct. However,since our internal controls are subject to inherent limitations, including human error, it is possible that these controls couldbe intentionally circumvented or become inadequate because of changed conditions. As a result, we cannot assure that ourcontrols will protect us from reckless or criminal acts committed by our employees or agents. Our failure to comply withapplicable laws or regulations, or acts of misconduct could subject us to fines and penalties, loss of security clearances, andsuspension or debarment from contracting, any or all of which could harm our reputation, reduce our revenue and profits, andsubject us to criminal and civil enforcement actions.Our failure to implement and comply with our safety program could adversely affect our operating results or financialcondition.Our safety program is a fundamental element of our overall approach to risk management, and the implementation ofthe safety program is a significant issue in our dealings with our clients. We maintain an enterprise-wide group of health andsafety professionals to help ensure that the services we provide are delivered safely and in accordance with standard workprocesses. Unsafe job sites and office environments have the potential to increase employee turnover, increase the cost of aproject to our clients, expose us to types and levels of risk that are fundamentally unacceptable, and raise our operatingcosts. The implementation of our safety processes and procedures are monitored by various agencies and rating bureaus, andmay be evaluated by certain clients in cases in which safety requirements have been established in our contracts. Our failureto meet these requirements or our failure to properly implement and comply with our safety program could result in reducedprofitability or the loss of projects or clients or potential litigation, and could have a material adverse effect on our business,results of operations and financial condition.We may be subject to liabilities under environmental laws and regulations. For example, our retrofitting processfrequently involves responsibility for the removal and disposal of components containing hazardous materials and at timesrequires that our contractors or subcontractors work in hazardous conditions, either of which could give rise to a claimagainst us.Our services are subject to numerous U.S. and international environmental protection laws and regulations that arecomplex and stringent. For example, we must comply with a number of U.S. federal government laws that strictly regulatethe handling, removal, treatment, transportation, and disposal of toxic and hazardous substances. Under the ComprehensiveEnvironmental Response Compensation and Liability Act of 1980, as amended (“CERCLA”), and comparable state laws, wemay be required to investigate and remediate regulated hazardous materials. CERCLA and comparable state laws typicallyimpose strict, joint and several liabilities without regard to whether a company knew of or caused the release of hazardoussubstances. The liability for the entire cost of clean-up could be imposed upon any responsible party. Other principal U.S.federal environmental, health, and safety laws affecting us include, but are not limited to, the Resource Conversation andRecovery Act, National Environmental Policy Act, the Clean Air Act, the Occupational Safety and Health Act, the FederalMine Safety and Health Act of 1977 (the “Mine Act”), the Toxic Substances Control Act, and the Superfund Amendmentsand Reauthorization Act. Our business operations may also be33 Table of Contentssubject to similar state and international laws relating to environmental protection. Further, past business practices atcompanies that we have acquired may also expose us to future unknown environmental liabilities. Liabilities related toenvironmental contamination or human exposure to hazardous substances, or a failure to comply with applicable regulations,could result in substantial costs to us, including clean-up costs, fines, civil or criminal sanctions, and third-party claims forproperty damage or personal injury or cessation of remediation activities. Our continuing work in the areas governed bythese laws and regulations exposes us to the risk of substantial liability.For example, when we retrofit a client’s facility, we assume responsibility for removing and disposing of its existinglighting fixtures. Certain components of these fixtures contain trace amounts of mercury and other hazardous materials. Oldercomponents may also contain trace amounts of polychlorinated biphenyls, or PCBs. We utilize licensed and insuredhazardous waste disposal companies to remove and/or dispose of such components. Failure to properly handle, remove ordispose of the components containing these hazardous materials in a safe, effective and lawful manner could give rise toliability against us, or could expose our workers, our subcontractor’s workers or other persons to these hazardous materials,which could result in claims against us. Further, our workers and subcontractor’s workers are sometimes required to work inhazardous environments that present a risk of serious personal injury, which could result in claims against us. A successfulpersonal injury claim against us that is not covered by insurance or is in excess of our available insurance limits couldrequire us to make significant payments of damages and could materially adversely affect our business, results of operationsand financial condition. Our bylaws, our certificate of incorporation and Delaware law contain provisions that could discourage another companyfrom acquiring us and may prevent attempts by our stockholders to replace or remove our current management.Provisions of our bylaws, our certificate of incorporation and Delaware law may discourage, delay or prevent amerger or acquisition that stockholders may consider favorable, including transactions in which our stockholders mightotherwise receive a premium for their shares. In addition, these provisions may frustrate or prevent any attempts by ourstockholders to replace or remove our current management by making it more difficult for stockholders to replace or removeour board of directors. These provisions include:·eliminating the ability of stockholders to call special meetings of stockholders;·requiring at least a supermajority vote of the outstanding shares of our common stock for stockholders to amendour bylaws or certain provisions of our certificate of incorporation;·not providing for cumulative voting in the election of directors;·prohibiting stockholder action by written consent;·establishing advance notice procedure for stockholders to make nominations of candidates for election asdirectors, or bring other business before an annual or special meeting of the stockholders; and·authorizing the Board of Directors to issue “blank check” preferred stock or authorized but unissued shares ofcommon stock without stockholder approval.In addition, we are subject to Section 203 of the Delaware General Corporation Law. In general, subject to someexceptions, Section 203 prohibits a Delaware corporation from engaging in any business combination with any “interestedstockholder” (which is generally defined as an entity or person who, together with the person’s affiliates and associates,beneficially owns, or within three years prior to the time of determination of interested stockholder status did own, 15% ormore of the outstanding voting stock of the corporation), for a three-year period following the date that the stockholderbecame an interested stockholder. Section 203 could have the effect of delaying, deferring or preventing a change in controlthat our stockholders might consider to be in their best interests.Together, these charter and statutory provisions could make the removal of management more difficult and maydiscourage transactions that otherwise could involve payment of a premium over prevailing market prices for our34 Table of Contentscommon stock. The existence of the foregoing provisions and anti-takeover measures could limit the price that investorsmight be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of ourcompany, thereby potentially reducing the likelihood that our stockholders could receive a premium for their common stockin an acquisition.Systems and information technology interruption could adversely impact our ability to operate.We rely heavily on computer, information, and communications technology and systems to operate. From time totime, we experience system interruptions and delays. If we are unable to effectively deploy software and hardware, upgradeour systems and network infrastructure, and take steps to improve and protect our systems, systems operations could beinterrupted or delayed. In addition, our computer and communications systems and operations could be damaged orinterrupted by natural disasters, telecommunications failures, acts of war or terrorism, and similar events or disruptions. Anyof these or other events could cause system interruption, delays, and loss of critical data that could delay or preventoperations, and could have a material adverse effect on our business, results of operations and financial condition, and couldnegatively impact our clients.Cyber security breaches or other improper disclosure of confidential and personal data could result in liability, harm ourreputation and impact our ability to operate.We store and process increasingly large amounts of confidential information concerning our employees, customers,contractors and vendors, as well as confidential information on behalf of our customers (such as information regardingapplicants in programs on which we perform services through our contractual relationships with customers). Therefore, wemust ensure that we are at all times compliant with various privacy laws, rules, and regulations. The risk of failing to complywith these laws, rules, and regulations increases as we continue to expand. For example, the European’s Union General DataProtection Regulation, which became effective in May 2018, extends the scope of the European Union data protection lawsto all companies processing data of European Union residents, regardless of the company’s location. Moreover, we mustensure that all of our vendors who have access to such information also have the appropriate privacy policies, procedures andprotections in place. We also need to protect our own internal trade secrets and other business confidential information fromdisclosure.Although we rely on industry-accepted security measures and technology to securely maintain all confidential andproprietary information on our information systems, the continued occurrence of high-profile data breaches of othercompanies provides evidence of an external environment increasingly hostile to information security. In the ordinary courseof business, we have been targeted by malicious cyber-attacks. Cybersecurity attacks in particular are evolving, and we facethe constant risk of cybersecurity threats, including, among other things, computer viruses, malicious code, attacks bycomputer hackers, organized cyber‑attacks, and other electronic security breaches that could lead to disruptions in criticalsystems, unauthorized release of confidential or otherwise protected information and/or corruption of data. Improperdisclosure of this information could harm our reputation, lead to legal exposure from customers, or subject us to liabilityunder laws, rules and regulations that protect personal or other confidential data, resulting in increased costs or loss ofrevenue.This environment demands that we continuously improve our design and coordination of security controls. We havedevoted and will continue to devote significant resources to the security of our computer systems, but they may still bevulnerable to threats. For example, a user who circumvents security measures could misappropriate confidential orproprietary information, including information regarding us, our personnel and/or our customers, or cause interruptions ormalfunctions in operations. As a result, we may be required to expend significant resources to protect against the threat ofthese system disruptions and security breaches or to alleviate problems caused by these disruptions and breaches. We alsorely in part on third-party software and information technology vendors to run our critical accounting, project managementand financial information systems. We depend on our software and information technology vendors to provide long-termsoftware and hardware support for our information systems. Our software and information technology vendors may decide todiscontinue further development, integration or long-term software and hardware support for our information systems, inwhich case we may need to abandon one or more of our current information systems and migrate some or all of ouraccounting, project management and financial information to other systems, thus increasing our operational expense, as wellas disrupting the management of our business operations. Despite these35 Table of Contentsefforts, it is possible that our security controls over data, our training, and other practices we follow may not prevent theimproper disclosure of personally identifiable or other confidential information. Any of these events could damage ourreputation and have a material adverse effect on our business, financial condition, results of operations and cash flows.The diversity of the services we provide, and the clients we serve, may create actual, potential, and perceived conflicts ofinterest and conflicts of business that limit our growth and could lead to potential liabilities for us.Because we provide services to a wide array of both government and commercial clients, occasions arise where, dueto actual, potential, or perceived conflicts of interest or business conflicts, we cannot perform work for which we arequalified. A number of our contracts contain limitations on the work we can perform for others, such as, for example, when weare assisting a government agency or department in developing regulations or enforcement strategies. Actual, potential, andperceived conflicts limit the work we can do and, consequently, can limit our growth and adversely affect our operatingresults. In addition, if we fail to address actual or potential conflicts properly, or even if we simply fail to recognize aperceived conflict, we may be in violation of our existing contracts, may otherwise incur liability, and may lose futurebusiness for not preventing the conflict from arising, and our reputation may suffer. Particularly as we grow our commercialbusiness, we anticipate that conflicts of interest and business conflicts will pose a greater risk.The price of our common stock has fluctuated significantly in the past year and may continue to be volatile, which maymake it difficult for you to resell your common stock when you want or at prices you find attractive.The price of our common stock is volatile and may fluctuate significantly. For example, during our fiscal year endedDecember 28, 2018, the closing price of our stock ranged from a high of $38.31 per share to a low of $19.59 per share. Wecannot assure you as to the prices at which our common stock will trade or that an active trading market in our common stockwill be sustained in the future. In addition to the matters discussed in other risk factors included herein, some of the reasonsfor fluctuations in our stock price could include:·our operating and financial performance and prospects, including quarter-to-quarter variations;·the depth and liquidity of the market for our common stock;·investor perception of us and the industry in which we operate;·the level, or lack thereof, of research coverage of our common stock;·general financial, political, domestic, international, economic and other market conditions;·proposed or completed acquisitions by us or our competitors;·the hiring or departure of key personnel; and·adverse judgments or settlements obligating us to pay damages.In addition, public stock markets have experienced, and may in the future experience, extreme price and tradingvolume volatility. This volatility has significantly affected the market prices of securities of many companies, including ourpeer companies, and such volatility has often been unrelated to the operating performance of these companies. These broadmarket fluctuations may adversely affect the market price of our common stock.A significant drop in the price of our stock could expose us to the risk of securities class action lawsuits which couldresult in substantial costs and divert management’s attention and resources, which could adversely affect our business.Additionally, volatility or a lack of positive performance in our stock price may adversely affect our ability to retain keyemployees, many of whom are awarded equity securities, the value of which is dependent on the performance of our stockprice.36 Table of ContentsWe do not expect to pay any cash dividends for the foreseeable future.We currently expect to retain all available funds and future earnings, if any, for use in the operation and growth ofour business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to paydividends will be at the discretion of our Board of Directors, subject to compliance with applicable law and any contractualprovisions, including under the Credit Agreement governing our credit facility and agreements governing any additionalindebtedness we may incur in the future, that restrict or limit our ability to pay dividends, and will depend upon, amongother factors, our results of operations, financial condition, earnings, capital requirements and other factors that our Board ofDirectors deems relevant. Further, because we are a holding company, our ability to pay dividends depends on our receipt ofcash dividends from our operating subsidiaries, which may further restrict our ability to pay dividends as a result of the lawsof their jurisdiction of organization, agreements of our subsidiaries or covenants under our existing or future indebtedness.Our Credit Agreement limits our ability to pay dividends on our common stock. Our ability to pay dividends may also berestricted by the terms of any future credit agreement or any future debt or preferred equity securities of ours or of oursubsidiaries.If securities or industry analysts publish inaccurate or unfavorable research about us, our stock price and trading volumecould decline.The trading market for our common stock will depend in part on the research reports that securities or industryanalysts publish about us, our business and our industry. Assuming we obtain securities or industry analyst coverage, if oneor more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about us, ourbusiness or our industry, our stock price would likely decline. If one or more of these analysts cease coverage of our companyor fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and tradingvolume to decline. ITEM 1B. UNRESOLVED STAFF COMMENTSNone. ITEM 2. PROPERTIESOur corporate headquarters are located in approximately 18,000 square feet of office space that we lease at 2401East Katella Avenue, Anaheim, California. In addition, we lease office space in 50 other locations nationwide, principally inCalifornia and New York. In total, our facilities contain approximately 223,000 square feet of office space and are subject toleases that expire through 2025. We rent a small portion of this space on a month‑to‑month basis. We believe that ourexisting facilities are adequate to meet current requirements and that suitable additional or substitute space will be availableas needed to accommodate any expansion of operations and for additional offices. ITEM 3. LEGAL PROCEEDINGSWe are subject to claims and lawsuits from time to time, including those alleging professional errors or omissionsthat arise in the ordinary course of business against firms that operate in the engineering and consulting professions. We carryprofessional liability insurance, subject to certain deductibles and policy limits, for such claims as they arise and may fromtime to time establish reserves for litigation that is considered probable of a loss.In accordance with accounting standards regarding loss contingencies, we accrue an undiscounted liability for thosecontingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and we disclose theamount accrued and an estimate of any reasonably possible loss in excess of the amount accrued, if such disclosure isnecessary for our financial statements not to be misleading. We do not accrue liabilities when the likelihood that the liabilityhas been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be onlyreasonably possible or remote.Because litigation outcomes are inherently unpredictable, our evaluation of legal proceedings often involves aseries of complex assessments by management about future events and can rely heavily on estimates and assumptions. If37 Table of Contentsthe assessments indicate that loss contingencies that could be material to any one of our financial statements are notprobable, but are reasonably possible, or are probable, but cannot be estimated, then we disclose the nature of the losscontingencies, together with an estimate of the possible loss or a statement that such loss is not reasonably estimable. Whilethe consequences of certain unresolved proceedings are not presently determinable, and a reasonable estimate of theprobable and reasonably possible loss or range of loss in excess of amounts accrued for such proceedings cannot be made, anadverse outcome from such proceedings could have a material adverse effect on our earnings in any given reporting period.However, in the opinion of our management, after consulting with legal counsel, and taking into account insurance coverage,the ultimate liability related to current outstanding claims and lawsuits is not expected to have a material adverse effect onour financial statements. ITEM 4. MINE SAFETY DISCLOSURESNot applicable. PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS ANDISSUER PURCHASES OF EQUITY SECURITIESMarket Information for Common StockSince November 21, 2006, the common stock of Willdan Group, Inc. has been listed and traded on the NASDAQGlobal Market under the symbol “WLDN”.StockholdersAs of March 7, 2019, there were 153 stockholders of record of our common stock. This number does not includepersons who hold our common stock in nominee or “street name” accounts through brokers or banks.DividendsWe did not declare or pay cash dividends on our common stock in fiscal years 2018 and 2017.We currently expect to retain all available funds and future earnings, if any, for use in the operation and growth ofour business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to paydividends will be at the discretion of our board of directors, subject to compliance with applicable law and any contractualprovisions, including under the credit agreements governing our indebtedness and agreements governing any additionalindebtedness we may incur in the future, that restrict or limit our ability to pay dividends, and will depend upon, amongother factors, our results of operations, financial condition, earnings, capital requirements and other factors that our board ofdirectors deems relevant. Because we are a holding company, our ability to pay dividends depends on our receipt of cashdividends from our operating subsidiaries, which may further restrict our ability to pay dividends as a result of the laws oftheir jurisdiction of organization, agreements of our subsidiaries or covenants under our existing or future indebtedness. Ourcredit facility also limits our ability to pay dividends on our capital stock. Our ability to pay dividends may also be restrictedby the terms of any future credit agreement or any future debt or preferred equity securities of ours or of our subsidiaries.Performance GraphThe graph below compares the 5-year cumulative return of our common stock, the NASDAQ Composite and acustomized peer group. The new peer group consists of six companies: Ecology & Environment, Inc., Iteris, Inc., NV5Holdings, Inc., Navigant Consulting, Inc., ICF International, Inc. and Ameresco, Inc. The old peer group included LimeEnergy Co. in place of the current Navigant Consulting, Inc. The peer group investment is weighted by market capitalizationas of December 27, 2013, and is adjusted monthly. An investment of $100, with reinvestment of all dividends, is assumed tohave been made in our common stock, in the peer group and in the NASDAQ Composite on38 Table of ContentsDecember 27, 2013, and the relative performance of each is tracked through December 28, 2018. The stock price performanceshown in the graph is not necessarily indicative of future stock price performance. Recent Sales of Unregistered SecuritiesNone.Issuer Purchases of Equity SecuritiesNone.39 Table of Contents ITEM 6. SELECTED FINANCIAL DATAThe financial data set forth below should be read in conjunction with our corresponding consolidated financialstatements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operationsincluded elsewhere in this annual report. Fiscal Year 2018 2017 2016 2015 2014 (in thousands except per share amounts) Consolidated Statement of Operations Data: Contract revenue $272,252 $273,352 $208,941 $135,103 $108,080 Direct costs of contract revenue (inclusive of directlyrelated depreciation and amortization): Salaries and wages 46,588 44,743 39,024 31,880 28,207 Subcontractor services and other direct costs 132,693 151,919 104,236 50,200 35,611 Total direct costs of contract revenue 179,281 196,662 143,260 82,080 63,818 General and administrative expenses: Salaries and wages, payroll taxes, employee benefits 45,248 36,534 31,084 25,741 21,394 Facilities and facility related 5,600 4,624 4,085 4,246 4,371 Stock-based compensation 6,262 2,774 1,239 777 258 Depreciation and amortization 6,060 3,949 3,204 2,072 459 Lease abandonment, net — — — — 9 Other 17,030 15,105 14,525 12,657 9,462 Total general and administrative expenses 80,200 62,986 54,137 45,493 35,953 Income from operations 12,771 13,704 11,544 7,530 8,309 Other (expense) income: Interest income — — — — 8 Interest expense (700) (111) (179) (207) (16) Other, net 90 98 2 18 125 Total other (expense) income, net (610) (13) (177) (189) 117 Income before income tax expense 12,161 13,691 11,367 7,341 8,426 Income tax expense (benefit) 2,131 1,562 3,068 3,082 (990) Net income $10,030 $12,129 $8,299 $4,259 $9,416 Earnings per common share: Basic $1.08 $1.42 $1.01 $0.54 $1.26 Diluted $1.03 $1.32 $0.97 $0.52 $1.22 Weighted average common shares outstanding: Basic 9,264 8,541 8,219 7,834 7,488 Diluted 9,763 9,155 8,565 8,113 7,739 Other Operating Data (unaudited): Adjusted EBITDA(1) $25,422 $21,814 $16,428 $10,944 $9,151 Employee headcount at period end(2) 1,202 882 831 688 637 Fiscal Year Ended December28, December29, December30, January1, January2, 2018 2017 2016 2016 2015 Consolidated Balance Sheet Data: Cash and cash equivalents $15,259 $14,424 $22,668 $16,487 $18,173 Working capital 44,784 26,832 24,189 22,499 27,537 Total assets 301,836 138,172 108,347 72,345 49,330 Total indebtedness(3) 72,255 3,332 6,590 5,823 985 Total stockholders’ equity 144,289 70,652 49,918 37,616 30,413 40 Table of Contents(1)Adjusted EBITDA, a non-GAAP measure, is a supplemental measure used by our management to measure ouroperating performance. We define Adjusted EBITDA as net income plus interest expense (income), income taxexpense (benefit), stock-based compensation, interest accretion, transaction costs, depreciation and amortizationand less gain on sale of assets. Adjusted EBITDA is not a measure of net income determined in accordance with U.S.generally accepted accounting principles, or GAAP. We believe Adjusted EBITDA is useful because it allows ourmanagement to evaluate our operating performance and compare the results of our operations from period to periodand against our peers without regard to our financing methods, capital structure and non-operating expenses. We useAdjusted EBITDA to evaluate our performance for, among other things, budgeting, forecasting and incentivecompensation purposes. Adjusted EBITDA has limitations as an analytical tool and should not be considered as analternative to, or more meaningful than, net income as determined in accordance with GAAP. Certain items excludedfrom Adjusted EBITDA are significant components in understanding and assessing a company’s financialperformance, such as a company’s costs of capital, as well as the historical costs of depreciable assets. Our definitionof Adjusted EBITDA may also differ from those of many companies reporting similarly named measures.The following is a reconciliation of net income to Adjusted EBITDA (in thousands): Fiscal Year 2018 2017 2016 2015 2014 Net income $10,030 $12,129 $8,299 $4,259 $9,416 Interest income — — — — (8) Interest expense 700 111 179 207 16 Income tax expense (benefit) 2,131 1,562 3,068 3,082 (990) Stock-based compensation 6,262 2,774 1,239 777 258 Interest accretion(a) (1,425) 1,156 439 547 — Depreciation and amortization 6,211 4,082 3,204 2,072 459 Transaction costs(b) 1,527 178 59 293 — Gain on sale of equipment (14) — — — 11 Adjusted EBITDA $25,422 $21,992 $16,487 $11,237 $9,171 (a)Interest accretion represents the imputed interest on the earn-out payments to be paid by us in connectionwith the acquisitions of Abacus and substantially all of the assets of 360 Energy in January 2015, theacquisition of Integral Analytics, Inc. in July 2017 and the acquisition of Newcomb Anderson McCormick,Inc. (“NAM”) in April 2018. Interest accretion is included in other expenses.(b)Transaction costs for fiscal year 2018 represented costs associated with our acquisitions of NAM and LimeEnergy and related financings.(2)Includes full-time and part-time employees.(3)Total indebtedness includes notes payable outstanding under our Delayed Draw Term Loan Facility and notespayable that we issued to the sellers of Abacus and the sellers of substantially all of the assets of 360 Energy inconnection with our acquisitions of each in January 2015. We had $70.0 million outstanding under our DelayedDraw Term Loan Facility as of December 28, 2018. Total indebtedness does not include the earn-out payments owedin connection with our acquisitions of Abacus, Economists.com, LLC (“Economists LLC”), Integral Analytics, NAMand substantially all of the assets of 360 Energy.41 Table of Contents ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONSOverviewWe are a provider of professional technical and consulting services to utilities, private industry, and public agenciesat all levels of government. We enable our clients to realize cost and energy savings by providing a wide range of specializedservices. We assist our clients with a broad range of complementary services relating to energy services and engineering andconsulting services.We operate our business through a nationwide network of offices spread across 20 states and the District ofColumbia. As of December 28, 2018, we had 1,202 employees which includes licensed engineers and other professionals.We seek to establish close working relationships with our clients and expand the breadth and depth of the serviceswe provide to them over time. Our business with public and private utilities is concentrated primarily in New York,California and North Carolina, but we also have business with utilities in other states. We currently serve more than 25 majorutility customers across the country, including 16 of the top 25 major U.S. utilities. Our business with public agencies isconcentrated in New York and California. We provide services to many of the cities and counties in California. We also servespecial districts, school districts, a range of public agencies and private industry.We were founded in 1964 and Willdan Group, Inc., a Delaware corporation, was formed in 2006 to serve as ourholding company. Historically, our clients were public agencies in communities with populations ranging from 10,000 to300,000 people. Since expanding into energy services, our client base has grown to include investor-owned and other publicutilities as well as substantial energy users in government and business.We consist of a group of wholly-owned companies that operate within two segments for financial reportingpurposes:·Energy. Our Energy segment consists of the business of our subsidiary Willdan Energy Solutions (“WES”)which offers energy efficiency and sustainability consulting services to utilities, public agencies and privateindustry under a variety of business names, including Willdan Energy Solutions, Abacus ResourceManagement, 360 Energy Engineers, Genesys Engineering, Integral Analytics, NAM and Lime Energy. Thissegment is currently our largest segment based on contract revenue, representing approximately 72% and 73%of our consolidated contract revenue for fiscal years 2018 and 2017, respectively. As a result of our acquisitionof Lime Energy in November 2018, we expect this segment to increase as a percentage of our revenue in fiscalyear 2019.·Engineering and Consulting. Our Engineering and Consulting segment includes the operations of oursubsidiaries, Willdan Engineering, Willdan Infrastructure, Public Agency Resources, Willdan Financial Servicesand Willdan Homeland Solutions. Willdan Engineering provides civil engineering‑related constructionmanagement, building and safety, city engineering, city planning, geotechnical, material testing and otherengineering consulting services to our clients. Willdan Infrastructure, which was launched in fiscal year 2013,provides engineering services to larger rail, port, water, mining and other civil engineering projects. PublicAgency Resources primarily provides staffing to Willdan Engineering. Contract revenue for the Engineeringand Consulting segment represented approximately 28% and 27% of our consolidated contract revenue forfiscal years 2018 and 2017, respectively.During the three months ended March 30, 2018, we revised our segment reporting to conform to changes in ourinternal management reporting. Segment information has been revised for comparison purposes for all periods presented inthe condensed consolidated financial statements. For additional information regarding the changes to the reportablesegments, see Note 10 “Segment Information” of the notes to our condensed consolidated financial statements includedelsewhere in this report. 42 Table of ContentsAcquisition of Lime Energy Co. and Related FinancingsOn November 9, 2018, we acquired all of the outstanding shares of capital stock of Lime Energy through two of ourwholly-owned subsidiaries pursuant to an agreement and plan of merger, dated October 1, 2018. Lime Energy designs andimplements energy efficiency programs for its utility clients targeted to commercial customers of the utilities. Lime Energy’sprograms help these businesses use less energy through the upgrade of existing equipment with new, more energy efficientequipment. This service allows the utility to delay investments in transmission and distribution upgrades and new powerplants while cost-effectively complying with increasing environmental regulations. The same programs provide benefits tothe utility customers in the form of lower energy bills, improved equipment reliability, reduced maintenance costs and abetter overall operating environment. For the fiscal year ended December 31, 2017, Lime Energy had revenues of $124.6million, gross profit of $42.9 million and pre-tax income of $4.7 million. For the nine months ended September 30, 2018,Lime Energy had revenues of $111.7 million, gross profit of $36.7 million and pre-tax income of $1.0 million. Theconsolidated financial statements for Lime Energy as of and for each of the fiscal years in the two-year period endedDecember 31, 2017 and as of and for the nine months ended September 30, 2018 and 2017 have been included in our CurrentReport on Form 8-K/A filed with the SEC on January 23, 2019 and are incorporated by reference herein. We believe theaddition of Lime Energy’s capabilities will significantly expand and diversify our client base within the energy efficiencyservices market and geographic presence across the United States. The aggregate purchase price paid in the acquisition of Lime Energy was $120.0 million, exclusive of closingholdbacks and adjustments. A portion of the purchase price was deposited into escrow accounts to secure certain potentialpost-closing obligations of the participating securityholders. We paid the purchase price for the acquisition using acombination of proceeds from borrowings under our Delayed Draw Term Loan Facility described below and cash on hand(including $50.0 million of the $56.4 million in net proceeds received from our completed equity offering described below). In connection with the acquisition of Lime Energy, we entered into a new credit agreement on October 1, 2018 witha syndicate of financial institutions as lenders and BMO Harris Bank, N.A., as administrative agent. The Credit Agreementinitially provided for up to a $90.0 million delayed draw term loan facility (the “Delayed Draw Term Loan Facility”) and a$30.0 million revolving credit facility (collectively, the “New Credit Facilities”), each maturing on October 1, 2023. OnOctober 10, 2018, as a result of our completed equity offering, the amount available for borrowing under the Delayed DrawTerm Loan Facility was reduced to $70.0 million. On November 9, 2018, in connection with the closing of the acquisition ofLime Energy, we borrowed $70.0 million under the Delayed Draw Term Loan Facility. The proceeds of such borrowing wereused to pay part of the consideration owed in connection with the acquisition along with related fees and expenses. Terms ofthe New Credit Facilities are described below under “—Liquidity and Capital Resources—Outstanding Indebtedness.” As part of the financing of the acquisition of Lime Energy, we also completed an equity offering on October 9, 2018of 2,012,500 shares of our common stock (which included 262,500 shares of common stock issued upon the exercise by theunderwriters of their option to purchase additional shares of common stock) at a price of $28.05 per share, after deductingunderwriters discounts and commissions. We received $56.4 million in net proceeds, after deducting underwriters discountsand commissions and offering expenses. Components of Revenue and ExpenseContract RevenueWe generally provide our services under contracts, purchase orders or retainer letters. The agreements we enter intowith our clients typically incorporate one of four principal types of pricing provisions: time-and-materials, unit-based, fixedprice and service-related contracts. Revenue on our time-and-materials and unit-based contracts are recognized as the work isperformed in accordance with specific terms of the contract. Approximately 27% of our contracts are time-and-materialscontracts and approximately 47% of our contracts are unit-based contracts. Willdan expects the acquisition of Lime Energywill significantly increase the percentage of revenue derived from unit-based contracts. Some of these contracts includemaximum contract prices, but contract maximums are often adjusted to reflect the level of effort to achieve client objectivesand thus the majority of these contracts are not expected to exceed the43 Table of Contentsmaximum. Contract revenue on our fixed price contracts is determined on the percentage of completion method basedgenerally on the ratio of direct costs incurred to date to estimated total direct costs at completion. Many of our fixed pricecontracts involve a high degree of subcontracted fixed price effort and are relatively short in duration, thereby lowering therisks of not properly estimating the percent complete. Our service-related contracts, including operations and maintenanceservices and a variety of technical assistance services, are accounted for over the period of performance, in proportion to thecost of performance.Adjustments to contract cost estimates are made in the periods in which the facts requiring such revisions becomeknown. When the revised estimate indicates a loss, such loss is recognized in the current period in its entirety. Claims andchange orders that have not been finalized are evaluated to determine whether or not a change has occurred in theenforceable rights and obligations of the original contract. If these non-finalized changes qualify as a contract modification,a determination is made whether to account for the change in contract value as a modification to the existing contract, or aseparate contract and revenue under the claims or change orders is recognized accordingly. Costs related to un-priced changeorders are expensed when incurred, and recognition of the related revenue is based on the assessment above of whether or nota contract modification has occurred. Estimated profit for un‑priced change orders is recognized only if collection isprobable.Our contracts come up for renewal periodically and at the time of renewal may be subject to renegotiation, whichcould impact the profitability on that contract. In addition, during the term of a contract, public agencies may requestadditional or revised services which may impact the economics of the transaction. Most of our contracts permit our clients,with prior notice, to terminate the contracts at any time without cause. While we have a large volume of contracts, therenewal, termination or modification of a contract, in particular contracts with Consolidated Edison, the City of Elk Grove,DASNY, and utility programs associated with Los Angeles Department of Water and Power and Duke Energy Corp., mayhave a material effect on our consolidated operations.Some of our contracts include certain performance guarantees, such as a guaranteed energy saving quantity. Suchguarantees are generally measured upon completion of a project. In the event that the measured performance level is lessthan the guaranteed level, any resulting financial penalty, including any additional work that may be required to fulfill theguarantee, is estimated and charged to direct expenses in the current period. We have not experienced any significant costsunder such guarantees.Direct Costs of Contract RevenueDirect costs of contract revenue consist primarily of that portion of salaries and wages that have been incurred inconnection with revenue producing projects. Direct costs of contract revenue also include material costs, subcontractorservices, equipment and other expenses that are incurred in connection with revenue producing projects. Direct costs ofcontract revenue exclude that portion of salaries and wages related to marketing efforts, vacations, holidays and other timenot spent directly generating revenue under existing contracts. Such costs are included in general and administrativeexpenses. Additionally, payroll taxes, bonuses and employee benefit costs for all of our personnel are included in generaland administrative expenses since no allocation of these costs is made to direct costs of contract revenue.Other companies may classify as direct costs of contract revenue some of the costs that we classify as general andadministrative costs. We expense direct costs of contract revenue when incurred.General and Administrative ExpensesGeneral and administrative expenses include the costs of the marketing and support staffs, other marketingexpenses, management and administrative personnel costs, payroll taxes, bonuses and employee benefits for all of ouremployees and the portion of salaries and wages not allocated to direct costs of contract revenue for those employees whoprovide our services. General and administrative expenses also include facility costs, depreciation and amortization,professional services, legal and accounting fees and administrative operating costs. Within general and administrativeexpenses, “Other” includes expenses such as professional services, legal and accounting, computer costs, travel andentertainment, marketing costs and acquisition costs. We expense general and administrative costs when incurred.44 Table of ContentsCritical Accounting PoliciesThis discussion and analysis of financial condition and results of operations is based upon our consolidatedfinancial statements, which have been prepared in accordance with generally accepted accounting principles in the U.S., orGAAP. To prepare these financial statements in conformity with GAAP, we must make estimates and assumptions that affectthe reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenue andexpenses in the reporting period. Our actual results may differ from these estimates. We have provided a summary of oursignificant accounting policies in Note 2 to our consolidated financial statements included elsewhere in this report. Wedescribe below those accounting policies that require material subjective or complex judgments and that have the mostsignificant impact on our financial condition and results of operations. Our management evaluates these estimates on anongoing basis, based upon information currently available and on various assumptions management believes are reasonableas of the date of this report.Contract Assets and LiabilitiesAmounts classified as “Costs and estimated earnings in excess of billings on uncompleted contracts” and “Billingsin excess of costs and estimated earnings on uncompleted contracts” on the consolidated balance sheets and statements ofcash flows for the year ended December 29, 2017 have been reclassified as “Contract assets” and “Contract liabilities”,respectively, on the condensed consolidated balance sheets and statements of cash flows for 2018. In addition, contract assetsinclude retainage amounts withheld from billings to our clients pursuant to provisions in our contracts.Billing practices are governed by the contract terms of each project based upon costs incurred, achievement ofmilestones or pre-agreed schedules. Billings do not necessarily correlate with revenue recognized. Contract assets includeunbilled amounts typically resulting from revenue under contracts where the percentage-of-completion method of revenuerecognition is utilized and revenue recognized exceeds the amount billed to the customer. Contract liabilities consist ofadvance payments and billings in excess of revenue recognized and deferred revenue.The increase in contract assets was primarily attributable to the reclassification of retainage from accountsreceivable to contract assets as of December 30, 2017 due to the adoption of Accounting Standards Update (“ASU) 2014-09,offset by normal business operations for the fiscal year ended December 28, 2018. The decrease in contract liabilities wasprimarily related to normal business operations for the fiscal year ended December 28, 2018.Contract AccountingWe enter into contracts with our clients that contain various types of pricing provisions, including fixed price, time-and-materials, unit-based and service related provisions. We recognize revenues in accordance with ASU 2014-09, Revenuefrom Contracts with Customer, codified as ASC Topic 606 and the related amendments (collectively, “ASC 606”). As such,we identify a contract with a customer, identify the performance obligations in the contract, determine the transaction price,allocate the transaction price to each performance obligation in the contract and recognize revenue when (or as) we satisfy aperformance obligation.The following table reflects our two reportable segments and the types of contracts that each most commonly entersinto for revenue generating activities.SegmentContract TypeRevenue Recognition Method Time-and-materialsTime-and-materialsEnergyUnit-basedUnit-based Software licenseUnit-based Fixed pricePercentage-of-completion Time-and-materialsTime-and-materialsEngineering and ConsultingUnit-basedUnit-based Fixed pricePercentage-of-completion 45 Table of ContentsRevenue on the vast majority of our contracts will continue to be recognized over time because of the continuoustransfer of control to the customer. Revenue on fixed price contracts is recognized on the percentage-of-completion methodbased generally on the ratio of direct costs incurred-to-date to estimated total direct costs at completion. We use thepercentage-of-completion method to better match the level of work performed at a certain point in time in relation to oureffort that will be required to complete a project. In addition, the percentage-of-completion method is a common method ofrevenue recognition in our industry.Revenue on time-and-materials and unit-based contracts is recognized as the work is performed in accordance withthe specific rates and terms of the contract. We recognize revenues for time-and-materials contracts based upon the actualhours incurred during a reporting period at contractually agreed upon rates per hour and also include in revenue allreimbursable costs incurred during a reporting period. Certain of our time-and-materials contracts are subject to maximumcontract values and, accordingly, when revenue is expected to exceed the maximum contract value, these contracts aregenerally recognized under the percentage-of-completion method, consistent with fixed price contracts. For unit-basedcontracts, we recognize the contract price of units of a basic production product as revenue when the production product isdelivered during a period. Revenue recognition for software licenses issued by the Energy segment is generally recognizedutilizing the unit-based revenue recognition method at a point in time, upon acceptance of the software by the customer andin recognition of the fulfillment of the performance obligation. Certain additional performance obligations beyond the basesoftware license may be separated from the gross license fee and recognized on a straight-line basis over time. Revenue foramounts that have been billed but not earned is deferred and such deferred revenue is referred to as contract liabilities in theaccompanying condensed consolidated balance sheets.To determine the proper revenue recognition method for contracts, we evaluate whether two or more contractsshould be combined and accounted for as one single contract and whether the combined contract should be accounted for asone performance obligation. With respect to our contracts, it is rare that multiple contracts should be combined into a singleperformance obligation. This evaluation requires significant judgment and the decision to combine a group of contracts orseparate a single contract into multiple performance obligations could change the amount of revenue and profit recorded in agiven period. Contracts are considered to have a single performance obligation if the promise to transfer the individual goodsor services is not separately identifiable from other promises in the contracts, which is mainly because we provide asignificant service of integrating a complex set of tasks and components into a single project or capability.We may enter into contracts that include separate phases or elements. If each phase or element is negotiatedseparately based on the technical resources required and/or the supply and demand for the services being provided, weevaluate if the contracts should be segmented. If certain criteria are met, the contracts would be segmented which could resultin revenues being assigned to the different elements or phases with different rates of profitability based on the relative valueof each element or phase to the estimated total contract revenue. Segmented contracts may comprise up to approximately2.0% to 3.0% of our consolidated contract revenue.Contracts that cover multiple phases or elements of the project or service lifecycle (development, design,construction and maintenance and support) may be considered to have multiple performance obligations even when they arepart of a single contract. For contracts with multiple performance obligations, we allocate the transaction price to eachperformance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract.For the periods presented, the value of the separate performance obligations under contracts with multiple performanceobligations (generally measurement and verification tasks under certain energy performance contracts) were not material. Incases where we do not provide the distinct good or service on a standalone basis, the primary method used to estimatestandalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfyinga performance obligation and then adds an appropriate margin for the distinct good or service.We provide quality of workmanship warranties to customers that are included in the sale and are not priced or soldseparately or do not provide customers with a service in addition to assurance of compliance with agreed-upon specificationsand industry standards. We do not consider these types of warranties to be separate performance obligations.46 Table of ContentsIn some cases, we have a master service or blanket agreement with a customer under which each task order releasesus to perform specific portions of the overall scope in the service contract. Each task order is typically accounted for as aseparate contract because the task order establishes the enforceable rights and obligations, and payment terms.Under ASC 606, variable consideration should be considered when determining the transaction price and estimatesshould be made for the variable consideration component of the transaction price, as well as assessing whether an estimate ofvariable consideration is constrained. For certain of our contracts, variable consideration can arise from modifications to thescope of services resulting from unapproved change orders or customer claims. Variable consideration is included in thetransaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur whenthe uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration anddetermination of whether to include estimated amounts in the transaction price are based largely on assessments of legalenforceability, our performance, and all information (historical, current and forecasted) that is reasonably available to us.Due to the nature of the work required to be performed on many of our performance obligations, the estimation oftotal revenue and cost at completion is complex, subject to many variables and requires significant judgment. As asignificant change in one or more of these estimates could affect the profitability of our contracts, we review and update ourcontract-related estimates regularly through a company-wide disciplined project review process in which managementreviews the progress and execution of our performance obligations and the estimate at completion (EAC). As part of thisprocess, management reviews information including, but not limited to, any outstanding key contract matters, progresstowards completion and the related program schedule and the related changes in estimates of revenues and costs.Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the workto be performed, the cost and availability of materials, the performance of subcontractors, and the availability and timing offunding from the customer, among other variables.We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under thismethod, the impact of the adjustment on profit recorded to date is recognized in the period the adjustment is identified.Revenue and profit in future periods of contract performance is recognized using the adjusted estimate. If at any time theestimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the period it isidentified.Contracts are often modified to account for changes in contract specifications and requirements. We considercontract modifications to exist when the modification either creates new rights or obligations or changes the existingenforceable rights or obligations. Most of our contract modifications are for goods or services that are not distinct fromexisting contracts due to the significant integration provided in the context of the contract and are accounted for as if theywere part of the original contract. The effect of a contract modification that is not distinct from the existing contract on thetransaction price and our measure of progress for the performance obligation to which it relates is recognized as anadjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.For contract modifications that result in the promise to deliver goods or services that are distinct from the existingcontract and the increase in price of the contract is for the same amount as the standalone selling price of the additionalgoods or services included in the modification, we account for such contract modifications as a separate contract.We include claims to vendors, subcontractors and others as a receivable and a reduction in recognized costs whenenforceability of the claim is established by the contract and the amounts are reasonably estimable and probable of beingrecovered. The amounts are recorded up to the extent of the lesser of the amounts management expects to recover or to costsincurred.Billing practices are governed by the contract terms of each project based upon costs incurred, achievement ofmilestones or pre-agreed schedules. Billings do not necessarily correlate with revenue recognized using the percentage-of-completion method of revenue recognition.47 Table of ContentsAccounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based uponour review of all outstanding amounts on a quarterly basis. Management determines allowances for doubtful accountsthrough specific identification of amounts considered to be uncollectible and potential write-offs, plus a non-specificallowance for other amounts for which some potential loss has been determined to be probable based on current and pastexperience. Historical credit losses have been minimal with governmental entities and large public utilities, but disputes mayarise related to these receivable amounts. Accounts receivable are written off when deemed uncollectible. Recoveries ofaccounts receivable previously written off are recorded when received. For further information on the types of contracts underwhich we perform our services, see “Business—Contract Structure” in our Annual Report on Form 10-K for the year endedDecember 29, 2017.GoodwillWe test our goodwill at least annually for possible impairment. We complete our annual testing of goodwill as of thelast day of the first month of our fourth fiscal quarter each year to determine whether there is impairment. In addition to ourannual test, we regularly evaluate whether events and circumstances have occurred that may indicate a potential impairmentof goodwill. We did not recognize any goodwill impairment charges in fiscal years 2018, 2017, or 2016. We had goodwill ofapproximately $97.7 million as of December 28, 2018, which primarily relates to our acquisition of Lime Energy in October2018, our acquisition of Integral Analytics in July 2017 and other acquisitions in 2015 and 2016.We test our goodwill for impairment at the level of our reporting units, which are components of our operatingsegments. In January 2017, the Financial Accounting Standards Board (the “FASB”) issued Update No. 2017‑04 (“ASU2017‑04”), Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This accounting guidanceeliminates the requirement to compare the implied fair value of reporting unit goodwill with the carrying amount of thatgoodwill (commonly referred to as Step 2) from the goodwill impairment test. The new standard does not change how agoodwill impairment is identified. We will continue to perform our quantitative and qualitative goodwill impairment test bycomparing the fair value of each reporting unit to its carrying amount, but if we are required to recognize a goodwillimpairment charge, under the new standard the amount of the charge will be calculated by subtracting the reporting unit’sfair value from its carrying amount. Under the prior standard, if we were required to recognize a goodwill impairment charge,Step 2 required us to calculate the implied value of goodwill by assigning the fair value of a reporting unit to all of its assetsand liabilities as if that reporting unit had been acquired in a business combination and the amount of the charge wascalculated by subtracting the reporting unit’s implied fair value of goodwill from its actual goodwill balance.To estimate the fair value of our reporting units, we use both an income approach based on management’s estimatesof future cash flows and other market data and a market approach based upon multiples of earnings before interest, taxes,depreciation and amortization, or EBITDA, earned by similar public companies. Once the fair value is determined, we thencompare the fair value of the reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit isdetermined to be less than the carrying value, we perform an additional assessment to determine the extent of the impairmentbased on the implied fair value of goodwill compared with the carrying amount of the goodwill. In the event that the currentimplied fair value of the goodwill is less than the carrying value, an impairment charge is recognized.Inherent in such fair value determinations are significant judgments and estimates, including but not limited toassumptions about our future revenue, profitability and cash flows, our operational plans and our interpretation of currenteconomic indicators and market valuations. To the extent these assumptions are incorrect or economic conditions that wouldimpact the future operations of our reporting units change, any goodwill may be deemed to be impaired, and an impairmentcharge could have in a material impact on our financial position or results of operation. Almost all of our goodwill iscontained in our Energy segment, with the remainder in our Engineering and Consulting segment. At our measurement date,the estimated fair value of our Energy segment exceeded its carrying value. Any reduction in the estimated fair value of ourEnergy segment could result in an impairment charge of goodwill associated with this segment in future periods.48 Table of ContentsAccounting for Claims against UsWe accrue an undiscounted liability related to claims against us for which the incurrence of a loss is probable andthe amount can be reasonably estimated. We disclose the amount accrued and an estimate of any reasonably possible loss inexcess of the amount accrued, if such disclosure is necessary for our financial statements not to be misleading. We do notaccrue liabilities related to claims when the likelihood that a loss has been incurred is probable but the amount cannot bereasonably estimated, or when the liability is believed to be only reasonably possible or remote. Losses related to recordedclaims are included in general and administrative expenses.Determining probability and estimating claim amounts is highly judgmental. Initial accruals and any subsequentchanges in our estimates could have a material effect on our consolidated financial statements.Business CombinationsThe acquisition method of accounting for business combinations requires us to use significant estimates andassumptions, including fair value estimates, as of the business combination date. For reporting periods prior to thecompletion of our procedures to value assets and liabilities, the acquisition method requires us to refine those estimates asnecessary during the measurement period (defined as the period, not to exceed one year, in which we may adjust theprovisional amounts recognized for a business combination) based upon new information about facts that existed on thebusiness combination date.Under the acquisition method of accounting, we recognize separately from goodwill the identifiable assets acquired,the liabilities assumed, and any non-controlling interests in an acquiree, at the acquisition date fair value. We measuregoodwill as of the acquisition date as the excess of consideration transferred over the net of the acquisition date amounts ofthe identifiable assets acquired and liabilities assumed. Costs that we incur to complete the business combination such asinvestment banking, legal and other professional fees are not considered part of consideration. We charge these acquisitioncosts to other general and administrative expense as they are incurred.Should the initial accounting for a business combination be incomplete by the end of a reporting period that fallswithin the measurement period, we report provisional amounts in our financial statements. During the measurement period,we adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts andcircumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amountsrecognized as of that date and we record those adjustments to our financial statements. We recognize adjustments toprovisional amounts that are identified during the measurement period in the reporting period in which the adjustmentamounts are determined, including the effect on earnings of changes in depreciation, amortization or other income effects, ifany, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at theacquisition date.On March 4, 2016, we acquired substantially all of the assets of Genesys, a New York-based energy engineeringcompany. On July 28, 2017, we acquired Integral Analytics, a data analytics and software company. On April 30, 2018, weacquired Newcomb Anderson McCormick, Inc. (“NAM”), an energy engineering and consulting company with offices in SanFrancisco and Los Angeles that provides clients with mechanical engineering expertise and comprehensive energy efficiencyprograms and services. On November 9, 2018, we acquired Lime Energy, a designer and implementer of energy efficiencyprograms for utility clients.As of December 28, 2018, we had not yet completed our final estimate of fair value of the assets acquired andliabilities assumed relating to the acquisitions of NAM and Lime Energy due to the timing of the transactions and lack ofcomplete information necessary to finalize such estimates of fair value. Accordingly, we have preliminarily estimated the fairvalues of the assets acquired and the liabilities assumed and will finalize such fair value estimates within twelve months ofthe acquisition date. For further discussion of our acquisitions, see “—Acquisition of Lime Energy Co. and RelatedFinancings” above and Note 3 “—Business Combinations” of the notes to our consolidated financial statements includedelsewhere in this report.49 Table of ContentsIncome TaxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities arerecognized for the future tax consequences of temporary differences between the financial reporting basis and tax basis of ourassets and liabilities, subject to a judgmental assessment of the recoverability of deferred tax assets. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates isrecognized in income in the period that includes the enactment date. A valuation allowance is recorded when it is more-likely-than-not that some of the deferred tax assets may not be realized. Significant judgment is applied when assessing theneed for valuation allowances. Areas of estimation include our consideration of future taxable income and ongoing prudentand feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the utilization ofdeferred tax assets in future years, we would adjust the related valuation allowances in the period that the change incircumstances occurs, along with a corresponding increase or charge to income. On December 22, 2017, the Tax Act wasenacted into law, which, among other items, lowered the U.S. corporate tax rate from 35% to 21%, effective January 1, 2018.As a result of the Tax Act, we recorded a one-time decrease in deferred tax expense of $1.3 million for the fiscal quarter endedDecember 29, 2017 to account for the remeasurement of our deferred tax assets and liabilities on the enactment date. As ofDecember 28, 2018, our accounting for the Tax Act is complete. An adjustment of $0.2 million additional deferred taxexpense was recorded due to the corporate tax rate change impact on adjustments to temporary differences that wereestimated at the time of the tax provision and finalized for the tax return. During each fiscal year, management assesses the available positive and negative evidence to estimate if sufficientfuture taxable income will be generated to utilize existing deferred tax assets. For fiscal years 2018 and 2017, we ultimatelydetermined that it was more-likely-than-not that the entire California net operating loss will not be utilized prior toexpiration. Significant pieces of objective evidence evaluated included our history of utilization of California net operatinglosses in prior years for each of our subsidiaries, as well as our forecasted amount of net operating loss utilization for certainmembers of the combined group. As a result, we recorded a valuation allowance in the amount of $86,000 and $87,000 at theend of fiscal year 2018 and 2017, respectively, related to California net operating losses.For acquired business entities, if we identify changes to acquired deferred tax asset valuation allowances orliabilities related to uncertain tax positions during the measurement period and they relate to new information obtainedabout facts and circumstances that existed as of the acquisition date, those changes are considered a measurement periodadjustment and we record the offset to goodwill. We record all other changes to deferred tax asset valuation allowances andliabilities related to uncertain tax positions in current period income tax expense.We recognize the tax benefit from uncertain tax positions if it is more-likely-than-not that the tax positions will besustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measuredbased on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. We recognizeinterest and penalties related to unrecognized tax benefits in income tax expense. As of December 28, 2018, we recorded aliability of $424,000 for uncertain tax positions related to miscellaneous tax deductions taken in open tax years, all of which,if recognized, would affect the effective tax rate. Approximately $0.1 million of interest and penalties have been recordedrelated to unrecognized tax benefits as of December 28, 2018.During the three months ended December 28, 2018, the Internal Revenue Service continued its audit of our taxreturn for the fiscal year ended December 30, 2016. We have not determined the impact of this examination due to the auditprocess having not been completed.50 Table of ContentsResults of OperationsThe following table sets forth, for the periods indicated, certain information derived from our consolidatedstatements of operations expressed as a percentage of contract revenue. Amounts may not add to the totals due to rounding. Fiscal Year 2018 2017 2016 Statement of Operations Data: Contract revenue 100% 100% 100%Direct costs of contract revenue (inclusive of directly related depreciation andamortization): Salaries and wages 17.1 16.4 18.7 Subcontractor services and other direct costs 48.7 55.6 49.9 Total direct costs of contract revenue 65.8 71.9 68.6 General and administrative expenses: Salaries and wages, payroll taxes and employee benefits 16.6 13.4 14.9 Facilities and facility related 2.1 1.7 2.0 Stock-based compensation 2.3 1.0 0.6 Depreciation and amortization 2.2 1.4 1.5 Other 6.3 5.5 7.0 Total general and administrative expenses 29.5 23.0 26.0 Income from operations 4.7 5.0 5.4 Other income (expense): Interest expense, net (0.2) — (0.1) Other, net 0.0 — — Total other expense, net (0.2) — (0.1) Income before income taxes 4.5 5.0 5.3 Income tax expense 0.8 0.6 1.5 Net income 3.7% 4.4% 3.8% Fiscal Year 2018 Compared to Fiscal Year 2017Contract revenue. Our contract revenue was $272.3 million for fiscal year 2018, with $196.8 million attributable tothe Energy segment and $75.4 million attributable to the Engineering and Consulting segment. Consolidated contractrevenue decreased $1.1 million, or 0.4%, to $272.3 million for fiscal year 2018 from $273.4 million for fiscal year 2017. Thiswas primarily the result of a decrease in contract revenue for our Energy segment of $2.8 million, or 1.4%, to $196.8 millionfor fiscal year 2018 from $199.6 million for fiscal year 2017 and an increase in contract revenue for our Engineering andConsulting segment of $1.7 million, or 2.3%, to $75.4 million for fiscal year 2018 from $73.7 million for fiscal year 2017.Contract revenue for the Energy segment decreased primarily due to the substantial completion of certain large constructionmanagement projects with high pass-through subcontractor costs during fiscal year 2018, offset by the addition ofincremental contract revenue of $24.4 million as a result of our acquisition of Lime Energy. Contract revenue for theEngineering and Consulting segment increased primarily due to the increased subcontractor revenues under certain of ourexisting capital improvement projects and continued growth across the country in the Property Assessed Clean EnergyProgram (PACE) that Willdan Financial Services manages, along with an increased demand for consulting services in Texasand Arizona.Direct costs of contract revenue. Direct costs of contract revenue decreased by $17.4 million, or 8.8%, compared tothe prior year, to $179.3 million for fiscal year 2018, with $136.6 million attributable to the Energy segment and$42.7 million attributable to the Engineering and Consulting segment. Direct costs of contract revenue for our Energysegment decreased by $18.2 million, or 11.7%, compared to the prior year, primarily due to the completion of certain largeconstruction management projects during fiscal year 2018 that resulted in the decrease of related pass-through expenses,offset by $18.8 million that was attributable to the incremental costs as a result of our acquisition of51 Table of ContentsLime Energy. Direct costs of contract revenue increased for our Engineering and Consulting segment by $0.8 million, or1.9%, in conjunction with the increase in revenue in that segment.Subcontractor services and other direct costs decreased by $19.2 million and salaries and wages increased by$1.8 million compared to the prior year. Within direct costs of contract revenue, salaries and wages increased to 17.1% ofcontract revenue for fiscal year 2018 as compared to 16.4% for fiscal year 2017. Subcontractor services and other direct costsdecreased to 48.7% of contract revenue for fiscal year 2018 from 55.6% of contract revenue for fiscal year 2017.Subcontractor services decreased primarily as a result of a reduction in pass-through subcontractor expenses as a result of thecompletion of certain Energy construction management projects, partially offset by increased use of subcontractor servicesunder certain of our existing Engineering and Consulting engineering capital improvement projects.General and administrative expenses. General and administrative expenses increased by $17.2 million, or 27.3%, to$80.2 million for fiscal year 2018 from $63.0 million for fiscal year 2017. This reflected increases of $8.4 million in generaland administrative expenses of the Energy segment, $2.4 million in general and administrative expenses of the Engineeringand Consulting segment and $6.4 million in general and administrative expenses of the unallocated corporate expenses.General and administrative expenses increased by $5.9 million primarily as a result of incremental expenses associated withthe acquisition of Lime Energy and NAM, as well as the growth of contract revenues in Engineering and Consulting segment.General and administrative expenses as a percentage of contract revenue were 29.5% for fiscal year 2018 as compared to23.0% for fiscal year 2017. Our general and administrative expenses increased as a percentage of contract revenue, comparedto the prior year, primarily due to increases in salaries and wages, employee taxes and employee benefits from the addition ofemployees from the acquisitions of Lime Energy and NAM, the implementation of a performance based restricted stock unitaward program that increased stock compensation under our unallocated corporate expenses.Of the $17.2 million increase in general and administrative expenses, approximately $8.7 million resulted from anincrease in salaries and wages, payroll taxes and employee benefits, $3.5 million resulted from an increase in stock-basedcompensation, $2.1 million resulted from an increase in depreciation and amortization, $1.9 million resulted from an increasein other general and administrative expenses and $1.0 million resulted from an increase in facilities and facility relatedexpenses. The increase in salaries and wages, payroll taxes and employee benefits was primarily due to the addition ofemployees from the acquisitions of Lime Energy and NAM. The increase in stock-based compensation expenses wasprimarily due to the implementation of a performance based restricted stock unit award program and issuing grants to currentemployees and the Board of Directors. The increase in depreciation and amortization was primarily due to an increase inamortization of intangible assets from the acquisitions of Lime Energy and NAM. The increase in other general andadministrative expenses was primarily due to acquisition costs related to the acquisition of Lime Energy. The increase infacilities and facility related expenses was primarily due to the addition of NAM offices in San Francisco and Los Angeles,upgrades to data services lines in current offices and overall increase in base rent.Income from operations. As a result of the above factors, our operating income decreased by $0.9 million or 6.8% to$12.8 million for fiscal year 2018 as compared to $13.7 million for fiscal year 2017. The decrease was primarily due to theincrease in general and administrative expenses. Income from operations, as a percentage of contract revenue, was 4.7% forfiscal year 2018 and 5.0% for fiscal year 2017. The decrease in operating margin was primarily due to an increase in totalgeneral and administrative expenses, partially offset by an increase in contract revenues, net of subcontracting and otherdirect costs.Total other expense, net. Total other expense, net, increased to $610,000 for fiscal year 2018 as compared $13,000for fiscal year 2017. This increase in total other expense, net is primarily the result of higher interest expense during fiscalyear 2018, due to borrowing of $70.0 million under our Delayed Draw Term Loan for the acquisition of Lime Energy.Income tax expense. We recorded an income tax expense of $2.1 million for fiscal year 2018, as compared to $1.6million for fiscal year 2017. The effective tax rate for fiscal year 2018 was 17.5%, as compared to 11.4% for fiscal year 2017. The increase in the year-over-year effective tax rate for fiscal year 2018 and the difference between the tax expense recordedand the expense that would be recorded by applying the federal statutory rate was primarily52 Table of Contentsattributable to increased state taxes, decreased deductions for stock options and disqualifying dispositions and the impact ofthe Tax Act recognized in 2017, partially offset by energy efficient commercial building deductions recognized in 2018 andincreased research and development credits. The difference between the tax expense recorded and the expense that would berecorded by applying the federal statutory rate in fiscal year 2017 primarily relates to stock options and disqualifyingdispositions and the impact of the Tax Act.On December 22, 2017, the Tax Act was enacted into law, which, among other items, lowered the U.S. corporate taxrate from 35% to 21%, effective January 1, 2018. As a result of the Tax Act, we recorded a one-time decrease in deferred taxexpense of $1.3 million for the fiscal quarter ended December 29, 2017 to account for the remeasurement of our deferred taxassets and liabilities on the enactment date. For further discussion of our income tax provision, see Note 12 “—IncomeTaxes” of notes to our consolidated financial statements.Shortly after the Tax Act was enacted, the SEC issued guidance under SAB 118 to address the application of GAAPand directing taxpayers to consider the impact of the Tax Act as “provisional” when a registrant does not have the necessaryinformation available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for thechange in tax law. In accordance with SAB 118, we recognized the provisional tax impacts. As of December 28, 2018, ouraccounting for the Tax Act is complete. An adjustment of $0.2 million additional deferred tax expense was recorded due tothe corporate tax rate change impact on adjustments to temporary differences that were estimated at the time of the taxprovision and finalized for the tax return.Net income. As a result of the above factors, our net income was $10.0 million for fiscal year 2018, as compared tonet income of $12.1 million for fiscal year 2017.Fiscal Year 2017 Compared to Fiscal Year 2016Contract revenue. Our contract revenue was $273.4 million for fiscal year 2017, with $199.6 million attributable tothe Energy segment and $73.7 million attributable to the Engineering and Consulting segment. Consolidated contractrevenue increased $64.4 million, or 30.8%, to $273.4 million for fiscal year 2017 from $208.9 million for fiscal year 2016.This was primarily the result of an increase in contract revenue for our Energy segment of $57.7 million, or 40.7%, to $199.6million for fiscal year 2017 from $141.9 million for fiscal year 2016 and an increase in contract revenue for our Engineeringand Consulting segment of $6.7 million, or 10.0%, to $73.7 million for fiscal year 2017 from $67.1 million for fiscal year2016. Contract revenue for the Energy segment increased primarily due to the ramp up of new contracts and programs forperformance contracts in Kansas and New Jersey, multi-family lighting contracts in New York and other utility contractexpansions, including Rocky Mountain Power and San Diego Gas & Electric. Additionally, there was expanded demand forservices from the Energy segment under existing contracts and the recognition of contract revenue of Genesys for an entireyear compared to the prior year when the acquisition was executed. As the economy continues to grow, utility customers andgovernmental agencies continue to see demand from their constituents for a greener, more productive supply of energy andinvestment in governmental infrastructure. Contract revenue for the Engineering and Consulting segment increased primarilydue to (i) greater demand for our planning services across all clients, building and safety services in California and Arizona,and geotechnical and public works services in California, (ii) the continued growth across the country in the PropertyAssessed Clean Energy Program (PACE) that Willdan Financial Services manages, along with an increased demand forconsulting services in Texas and Arizona and (iii) a greater demand for emergency preparedness training offerings to ourclients.Direct costs of contract revenue. Direct costs of contract revenue increased by $53.4 million, or 37.3%, compared tothe prior year, to $196.7 million for fiscal year 2017, with $154.8 million attributable to the Energy segment and$41.9 million attributable to the Engineering and Consulting segment. Direct costs of contract revenue for our Energysegment increased by $49.0 million, or 46.3%, compared to the prior year, primarily due to the expanded revenue base fromnew contracts and programs commencing during the year and the recognition of direct costs of revenue of Genesys for anentire year compared to the prior year when the acquisition was executed. Direct costs of contract revenue also increased forour Engineering and Consulting segment by $4.4 million, or 11.9%. Direct costs of contract revenue increased for ourEngineering and Consulting segment primarily due to the increased number of staff members required to execute increasedprojects throughout the segment.53 Table of ContentsSubcontractor services and other direct costs increased by $47.7 million and salaries and wages increased by$5.7 million compared to the prior year. Within direct costs of contract revenue, salaries and wages decreased to 16.4% ofcontract revenue for fiscal year 2017 as compared to 18.7% for fiscal year 2016. Subcontractor services and other direct costsincreased to 55.6% of contract revenue for fiscal year 2017 from 49.9% of contract revenue for fiscal year 2016.Subcontractor services and other direct costs increased as a percentage of contract revenue primarily due to a higher mix ofrevenues from performance contracts and the direct installation of energy efficiency measures compared to the prior year.General and administrative expenses. General and administrative expenses increased by $8.8 million, or 16.3%, to$63.0 million for fiscal year 2017 from $54.1 million for fiscal year 2016. This reflected an increase of $13.3 million ingeneral and administrative expenses of the Energy segment, offset by decreases of $4.1 million and $0.4 million in generaland administrative expenses of the unallocated corporate expenses and Engineering and Consulting segment, respectively. General and administrative expenses as a percentage of contract revenue were 23.0% for fiscal year 2017 as compared to26.0% for fiscal year 2016. Our general and administrative expenses decreased as a percentage of contract revenue, whileincreasing in amount, compared to the prior year, primarily due to our increased revenue base from fiscal year 2016 to fiscalyear 2017. As discussed above under “—Components of Revenue and Expense—Direct Costs of Contract Revenue,” we onlyallocate that portion of salaries and wages related to time spent directly generating revenue to direct costs of contractrevenue, and the remainder is allocated to general and administrative expenses. As a result of our increased business levelsand revenue, we have been allocating more salaries and wages to direct costs of revenues, which has correspondinglydecreased the amount of salaries and wages we have allocated to general and administrative expenses.Of the $8.8 million increase in general and administrative expenses, approximately $5.5 million resulted from anincrease in salaries and wages, payroll taxes and employee benefits, $1.5 million resulted from an increase in stock-basedcompensation, $0.7 million resulted from an increase in depreciation and amortization, $0.6 million resulted from an increasein other general and administrative expenses, and $0.5 million resulted from an increase in facilities and facility relatedexpenses. The increase in salaries and wages, payroll taxes and employee benefits was primarily due to increased activityrequiring us to hire additional administrative employees and increased compensation for our current employees. The increasein stock-based compensation expenses was primarily due to an increase in the issuance of grants to new employees and anemployee stock purchase plan change that gives our employees a 15% purchasing discount compared to 5% in our previousplan. The increase in depreciation and amortization was primarily due to increased use of computer hardware, companyvehicles and field equipment. The increase in depreciation and amortization expense was primarily due to an increase inamortization of intangible assets from our 2016 and 2017 acquisitions. The increase in other general and administrativeexpenses was primarily due to interest accretion on the earn-out payments relating to our acquisitions of Economists LLC,Integral Analytics and substantially all of the assets of 360 Energy. The increase in facilities and facility related expenses wasprimarily due to the opening of new offices in Connecticut, New York, Ohio and Utah.Income from operations. As a result of the above factors, our operating income increased by $2.2 million or 18.7%to $13.7 million for fiscal year 2017 as compared to $11.5 million for fiscal year 2016. The increase was primarily due to alarger revenue base over direct costs. Income from operations, as a percentage of contract revenue, was 5.0% for fiscal year2017 and 5.4% for fiscal year 2016. The decrease in operating margin was primarily due to direct costs of contract revenueincreasing more than contract revenue increased.Total other expense, net. Total other expense, net, decreased to $13,000 for fiscal year 2017 as compared $177,000for fiscal year 2016. This decrease in total other expense, net is primarily the result of lower interest expense during fiscalyear 2017, due to the decreasing principal amounts outstanding on the notes payable related to our previous acquisitions.Income tax expense. We recorded an income tax expense of $1.6 million for fiscal year 2017, as compared to $3.1million for fiscal year 2016. The effective tax rate for fiscal year 2017 was 11.4%, as compared to 27.0% for fiscal year 2016. The reduction in the year-over-year effective tax rate for fiscal year 2017 and the difference between the tax expense recordedand the expense that would be recorded by applying the federal statutory rate was primarily attributable to increaseddeductions for stock options and disqualifying dispositions and the impact of the Tax Act,54 Table of Contentspartially offset by energy efficient commercial building deductions that we were utilizing in 2016 and that were notavailable in 2017. The difference between the tax expense recorded and the expense that would be recorded by applying thefederal statutory rate in fiscal year 2016 primarily relates to energy efficient commercial building deductions.On December 22, 2017, the Tax Act was enacted into law, which, among other items, lowered the U.S. corporate taxrate from 35% to 21%, effective January 1, 2018. As a result of the Tax Act, we recorded a one-time decrease in deferred taxexpense of $1.3 million for the fiscal quarter ended December 29, 2017 to account for the remeasurement of our deferred taxassets and liabilities on the enactment date. The Tax Act also includes provisions that may partially offset the benefit of thetax rate reduction. As of December 29, 2017, based on our initial assessment of the Tax Act, we believed that the mostsignificant impact on our financial statements would be the remeasurement of our deferred taxes. Quantifying all of theimpacts of the Tax Act required significant judgment by our management, including the inherent complexities involved indetermining the timing of reversals of our deferred tax assets and liabilities. As of December 29, 2017, we were continuing toanalyze the impacts of the Tax Act and recording any further adjustments to our deferred tax assets and liabilities. For furtherdiscussion of our income tax provision, see Note 12 “—Income Taxes” of notes to our consolidated financial statements.Shortly after the Tax Act was enacted, the SEC issued guidance under SAB 118 to address the application of GAAPand directing taxpayers to consider the impact of the Tax Act as “provisional” when a registrant does not have the necessaryinformation available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for thechange in tax law. In accordance with SAB 118, we have recognized the provisional tax impacts. Although, we do notbelieve there will be any material adjustments in subsequent reporting periods, the ultimate impact may differ from theprovisional amounts, due to, among other things, the limitation on the deductibility of certain executives’ compensationpursuant to Section 162(m) of the Internal Revenue Code, a detailed evaluation of the contractual terms of our fourth quarter2017 capital additions to determine whether they qualify for the 100% expensing pursuant to the Tax Act, the significantcomplexity of the Tax Act and anticipated additional regulatory guidance that may be issued by the IRS and changes inanalysis, interpretations and assumptions we have made and actions we may take as a result of the Tax Act. The accountingwas completed when the 2017 U.S. corporate income tax return was filed in 2018.Net income. As a result of the above factors, our net income was $12.1 million for fiscal year 2017, as compared tonet income of $8.3 million for fiscal year 2016.Liquidity and Capital ResourcesAs of December 28, 2018, we had $15.3 million of cash and cash equivalents. Our cash increased by $0.8 millionsince December 29, 2017. We generated cash flow from operations of $7.6 million during fiscal year 2018, partially offset bynet cash used for acquisitions and capital expenditures. Our primary source of liquidity is cash generated fromoperations. We also have a $70.0 million delayed draw term loan facility (the “Delayed Draw Term Loan Facility”) and a$30.0 million revolving credit facility with BMO, each maturing on October 1, 2023. As of December 28, 2018, the DelayedDraw Term Loan Facility was fully drawn, we had $27.3 million available for borrowing under the revolving credit facilityand $2.7 million letters of credit issued. We believe that our cash and cash equivalents on hand, cash generated by operatingactivities and available borrowings under our revolving credit facility will be sufficient to finance our operating activities forat least the next 12 months.Cash Flows from Operating ActivitiesCash flows provided by operating activities were $7.6 million for fiscal year 2018, as compared to $11.1 million and$21.6 million for fiscal years 2017 and 2016, respectively. Cash flows provided by operating activities for fiscal year 2018resulted primarily from our net income, as adjusted for non-cash activity such as depreciation and amortization and stock-based compensation and collections of accounts receivable, partially offset by increases in contract assets combined withdecreases in accrued liabilities and accounts payable. Cash flows provided by operating activities for fiscal year 2017resulted primarily from our net income and increases in accrued liabilities and accounts payable, partially offset by increasesin accounts receivable. Cash flows provided by operating activities for fiscal year 2016 resulted primarily from our netincome and increases in accrued liabilities and contract liabilities and collections of accounts receivable.55 Table of ContentsCash Flows used in Investing ActivitiesCash flows used in investing activities were $126.4 million for fiscal year 2018, as compared to $16.8 million and$10.5 million for fiscal years 2017 and 2016, respectively. Cash flows used in investing activities for fiscal year 2018 wereprimarily due to cash paid for the acquisition of Lime Energy. Cash flows used in investing activities for fiscal year 2017were primarily due to cash paid for the acquisition of Integral Analytics and the purchase of equipment and leaseholdimprovements. Cash flows used in investing activities for fiscal year 2016 were primarily due to cash paid in the acquisitionof substantially all of the assets of Genesys and the purchase of equipment and leasehold improvements.Cash Flows from Financing ActivitiesCash flows provided by financing activities were $119.7 million for fiscal year 2018, as compared to cash flowsused in financing activities of $2.5 million for fiscal year 2017 and $4.9 million for fiscal year 2016. Cash flows provided byfinancing activities for fiscal year 2018 were primarily attributable to borrowings under our Delayed Draw Term LoanFacility and the net proceeds from our equity offering, each related to our acquisition of Lime Energy. Cash flows used infinancing activities for fiscal year 2017 were primarily attributable to payments on notes payable and payments oncontingent consideration related to our previous acquisitions, which were partially offset by proceeds from stock optionexercises and borrowings under our line of credit. Cash flows used in financing activities for fiscal year 2016 were primarilyattributable to payments on notes payable to Abacus and 360 Energy and cash paid for earn-out payments owed to the sellersof 360 Energy, which were partially offset by proceeds from notes payable and proceeds from stock option exercises.Outstanding IndebtednessIn connection with the acquisition of Lime Energy, we entered into a new credit agreement on October 1, 2018 witha syndicate of financial institutions as lenders and BMO Harris Bank, N.A., as administrative agent. The Credit Agreementinitially provided for up to a $90.0 million delayed draw term loan facility (the “Delayed Draw Term Loan Facility”) and a$30.0 million revolving credit facility (collectively, the “New Credit Facilities”), each maturing on October 1, 2023. OnOctober 10, 2018, as a result of our completed equity offering, the amount available for borrowing under the Delayed DrawTerm Loan Facility was reduced to $70.0 million. On November 9, 2018, in connection with the closing of the acquisition ofLime Energy, we borrowed $70.0 million under the Delayed Draw Term Loan Facility. The proceeds of such borrowing wereused to pay part of the consideration owed in connection with the acquisition along with related fees and expenses. TheCredit Agreement replaced our prior $35.0 million revolving line of credit with BMO Harris Bank, N.A.The New Credit Facilities bear interest at a rate equal to either, at the our option, (i) the highest of the prime rate, theFederal Funds Rate plus 0.50% or one-month LIBOR plus 1.00% (“Base Rate”) or (ii) LIBOR, in each case plus an applicablemargin ranging from 0.25% to 3.00% with respect to Base Rate borrowings and 1.25% to 4.00% with respect to LIBORborrowings. The applicable margin is based upon our consolidated total leverage ratio. We will also pay a commitment feefor the unused portion of the revolving credit facility, which ranges from 0.20% to 0.40% per annum depending on ourconsolidated total leverage ratio, and fees on the face amount of any letters of credit outstanding under the revolving creditfacility, which range from 0.94% to 4.00% per annum, in each case, depending on whether such letter of credit is aperformance or financial letter of credit and our consolidated total leverage ratio. The Delayed Draw Term Loan Facility willamortize quarterly in an amount equal to 10% annually, with a final payment of all then remaining principal due on thematurity date on October 1, 2023.Willdan Group, Inc. is the borrower under the Credit Agreement and its obligations under the Credit Agreement areguaranteed by its present and future domestic subsidiaries (other than inactive subsidiaries), including Lime Energy and itssubsidiaries (other than inactive subsidiaries). In addition, subject to certain exceptions, all such obligations are secured bysubstantially all of the assets of Willdan Group, Inc. and the subsidiary guarantors, including Lime Energy and itssubsidiaries (other than inactive subsidiaries).56 Table of ContentsThe Credit Agreement requires compliance with financial covenants, including a maximum total leverage ratio anda minimum fixed charge coverage ratio. The Credit Agreement also contains customary restrictive covenants, including(i) restrictions on the incurrence of additional indebtedness and additional liens on property, (ii) restrictions on permittedacquisitions and other investments and (iii) limitations on asset sales, mergers and acquisitions. Further, the CreditAgreement limits our payment of future dividends and distributions and share repurchases by us. Subject to certainexceptions, the New Credit Facilities are also subject to mandatory prepayment from (a) any issuances of debt or equitysecurities, (b) any sale or disposition of assets, (c) insurance and condemnation proceeds (d) representation and warrantyinsurance proceeds related to the Merger Agreement and (e) excess cash flow. The Credit Agreement includes customaryevents of default.As of March 8, 2019, $70.0 million was outstanding under the Delayed Draw Term Loan and $2.7 million in lettersof credit were issued.We believe that, as of December 28, 2018, we were in compliance with all covenants contained in the CreditAgreement.Insurance Premiums We have also financed, from time to time, insurance premiums by entering into unsecured notes payable withinsurance companies. During our annual insurance renewals in the fourth quarter of our fiscal year ended December 28, 2018,we elected to finance our insurance premiums for the 2019 fiscal year. Included in our insurance renewal terms are individualstop loss amount of $100,000 and the aggregate of 125%. The unpaid balance of the financed premiums totaled $1.5 millionand $0 for fiscal years 2018 and 2017, respectively.Contractual ObligationsWe have certain cash obligations and other commitments which will impact our short and long‑term liquidity. AtDecember 28, 2018, such obligations and commitments consisted of long‑term debt, operating leases and capital leases. Thefollowing table sets forth our contractual obligations as of December 28, 2018: Less than More than Contractual Obligations Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years Long term debt(1) $71,711,000 $8,572,000 $14,139,000 $49,000,000 $— Interest payments on debt outstanding(2) 15,521,000 3,926,000 6,631,000 4,964,000 — Operating leases 12,589,000 4,442,000 4,918,000 2,233,000 996,000 Capital leases 565,000 335,000 230,000 — — Total contractual cash obligations $100,386,000 $17,275,000 $25,918,000 $56,197,000 $996,000 (1)Long‑term debt includes $70.0 million outstanding under our Credit Agreement as of December 28, 2018, our insurancepremiums and IBM software. We have no borrowings under our revolving credit facility as of December 28, 2018 andhave assumed no future borrowings or repayments of such borrowings for purposes for this table.(2)Borrowings under our Delayed Draw Term Loan Facility bear interest at a variable rate. Future interest payments on ourDelayed Draw Term Loan Facility are estimated using floating rates in effect as of December 28, 2018.We are obligated to pay earn-out payments in connection with our acquisitions of Integral Analytics and NAM andsubstantially all of the assets of 360 Energy Engineers, LLC (“360 Energy”). We are obligated to pay up to (i) $12.0 millionin cash based on future work obtained from the business of Integral Analytics during the three years after the closing of theacquisition, payable in installments, if certain financial targets are met during the three years, (ii) $1.0 million in cash, over aone-year earn out period if certain financial targets are met by NAM and (iii) $1.2 million in cash, if certain financial targetsof our divisions made up of the assets acquired from, and former employees of, 360 Energy are met for fiscal year 2019. As ofDecember 28, 2018, we had contingent consideration payable of $4.7 million related to these acquisitions offset by adiscount of $0.5 million. For fiscal 2018, our statement of operations includes $1.0 million of accretion (excluding fair valueadjustments) related to the contingent consideration.57 Table of ContentsOff‑Balance Sheet ArrangementsOther than operating lease commitments, we do not have any off‑balance sheet financing arrangements or liabilities.In addition, our policy is not to enter into derivative instruments, futures or forward contracts. Finally, we do not have anymajority‑owned subsidiaries or any interests in, or relationships with, any special‑purpose entities that are not included in theconsolidated financial statements. We have, however, entered into an administrative services agreement with Genesyspursuant to which WES, our wholly-owned subsidiary, will provide Genesys with ongoing administrative, operational andother non-professional support services. We manage Genesys and have the power to direct the activities that mostsignificantly impact Genesys’ performance, in addition to being obligated to absorb expected losses from Genesys.Accordingly, we are the primary beneficiary of Genesys and consolidate Genesys as a variable interest entity.Adoption of New Accounting Standards On December 30, 2017, we adopted ASC 606, using the modified retrospective method applied to those contractswhich were not completed as of December 29, 2017. Prior to adopting ASC 606, we established an implementation team,which included senior managers from our finance and accounting group. The implementation team evaluated the impact ofadopting ASC 606 on our contracts expected to be uncompleted as of December 30, 2017 (the date of adoption). Theevaluation included reviewing our accounting policies and practices to identify differences that would result from applyingthe requirements of the new standard. We identified and made changes to our processes, systems and controls to supportrecognition and disclosure under the new standard. The implementation team worked closely with various professionalconsultants and attended several formal conferences and seminars to conclude on certain interpretative issues. We recognize engineering and consulting contract revenue over time using the percentage-of-completion method,based primarily on contract cost incurred to date compared to total estimated contract cost. Revenue on the vast majority ofour contracts will continue to be recognized over time because of the continuous transfer of control to the customer. Revenuerecognition for software licenses issued by the Energy segment is recognized at a point in time, upon acceptance of thesoftware by the customer and in recognition of the fulfillment of the performance obligation. Certain additional performanceobligations beyond the base software license may be separated from the gross license fee and recognized on a straight-linebasis over time. Disaggregation of Revenue The following tables provides information about disaggregated revenue of our two segments Energy andEngineering and Consulting by contract type, client type and geographical region for the year ended December 28, 2018: Contract Type Energy Engineering andConsulting TotalTime-and-materials $13,790,000 $59,744,000 $73,534,000Unit-based 113,749,000 13,300,000 127,049,000Fixed price 69,294,000 2,375,000 71,669,000Total $196,833,000 $75,419,000 $272,252,000 Client Type Energy Engineering andConsulting TotalCommercial $20,715,000 $4,882,000 $25,597,000Government 62,897,000 70,091,000 132,988,000Utilities 113,221,000 446,000 113,667,000Total $196,833,000 $75,419,000 $272,252,000 Geography Energy Engineering andConsulting TotalDomestic $196,833,000 $75,419,000 $272,252,000 58 Table of ContentsContract Balances Results for operating periods beginning after December 30, 2017 are presented under ASC 606, while comparativeinformation has not been restated and continues to be reported in accordance with the accounting standards in effect forthose periods. We recognized the cumulative effect of initially applying ASC 606 as an adjustment to retained earnings in thebalance sheet as of December 30, 2017 as follows: Balance at Adjustments Balance at December 29, Due to December 30, 2017 ASC 606 2017Assets Accounts receivable, net of allowance for doubtful accounts $38,441,000 $(8,560,000) $29,881,000Contract assets $24,732,000 $9,328,000 $34,060,000 Liabilities Deferred income taxes, net $2,463,000 $(215,000) $2,248,000 Equity Retained earnings $19,588,000 $553,000 $20,141,000 The impact of adoption on our condensed consolidated balance sheet and cash flows for the fiscal year endedDecember 28, 2018 was as follows: For the year ended December 28, 2018 As Balances Without Effect of Change Reported Adoption of ASC 606 Higher/(Lower)Assets Accounts receivable, net of allowance for doubtful accounts $61,346,000 $68,240,000 $(6,894,000)Contract assets $51,851,000 $44,981,000 $6,870,000 Liabilities Deferred income taxes, net $ — $112,000 $(112,000) Equity Retained earnings $30,171,000 $29,889,000 $282,000 For the year ended December 28, 2018 As Balances Without Effect of Change Reported Adoption of ASC 606 Higher/(Lower)Cash flows from operating activities Accounts receivable, net of allowance for doubtful accounts $3,177,000 $(3,717,000) $6,894,000Contract assets (11,539,000) (4,645,000) (6,894,000)Total cash flows used in operating activities $(8,362,000) $(8,362,000) $ — The impact of adoption on our opening balance sheet was primarily related to deferred revenues and unrecognizedlicense renewals associated with software license agreements currently in force reclassified to retained earnings, net of thedeferred income tax impact and reclassification of amounts between accounts receivable net of allowance for doubtfulaccounts and contract assets based on whether an unconditional right to consideration has been established or not. The impact of adoption on our balance sheet at December 28, 2018 was primarily related to conforming theaccounting treatment of most of our non-cancellable software license contracts, which were previously recorded over59 Table of Contentstime based on prior acceptable accounting methods, and now recognize the full amount of such licenses upon acceptance ofthe software by the customer.The impact of adoption on our statement of operations was not material for the fiscal year ended December 28, 2018.Stock CompensationIn March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements toEmployee Share-Based Payment Accounting (“ASU 2016-09”), which amends the current stock compensation guidance. Theamendments simplify the accounting for the taxes related to stock-based compensation, including adjustments to how excesstax benefits and a company's payments for tax withholdings should be classified. The standard is effective for fiscal periodsbeginning after December 15, 2016, with early adoption permitted. We elected to early adopt ASU 2016-09 on a prospectivebasis, which resulted in a decrease to tax expense of approximately $0.3 million and $1.6 million for the fiscal years endedDecember 28, 2018 and December 29, 2017, respectively.Statement of Cash FlowsIn August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2016-15, Statement of Cash Flows: Clarification of Certain Cash Receipts and Cash Payments, which eliminates the diversityin practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding orclarifying guidance on eight specific cash flow issues. ASU 2016-15 was effective for annual and interim reporting periodsbeginning after December 15, 2017 and early adoption is permitted. ASU 2016-15 provides for retrospective application forall periods presented.Recent Accounting PronouncementsLeasesIn February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued this update to increasetransparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheetand disclosing key information about leasing arrangements. The updated guidance is effective for annual periods beginningafter December 15, 2018, including interim periods within those fiscal years. Early adoption of the update is permitted. Whilewe are evaluating the impact of the adoption of this update on our consolidated financial statements, we currently expect thatthe adoption of the new guidance will result in a significant increase in the assets and liabilities on our consolidated balancesheets and will likely have an immaterial impact on our consolidated statements of operations and statements of cash flows.Intangibles-Goodwill and Other In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350), which eliminatesthe requirement to compare the implied fair value of reporting unit goodwill with the carrying amount of that goodwill(commonly referred to as Step 2) from the goodwill impairment test. The new standard does not change how a goodwillimpairment is identified. We will continue to perform its quantitative and qualitative goodwill impairment test by comparingthe fair value of each reporting unit to its carrying amount, but if we were required to recognize a goodwill impairmentcharge, under the new standard the amount of the charge would be calculated by subtracting the reporting unit’s fair valuefrom its carrying amount. Under the prior standard, if we were required to recognize a goodwill impairment charge, Step 2required us to calculate the implied value of goodwill by assigning the fair value of a reporting unit to all of its assets andliabilities as if that reporting unit had been acquired in a business combination and the amount of the charge was calculatedby subtracting the reporting unit’s implied fair value of goodwill from its actual goodwill balance. The new standard iseffective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted, andshould be applied prospectively from the date of adoption. We elected to adopt60 Table of Contentsthe new standard for future goodwill impairment tests at the beginning of the fourth quarter of 2019, because it significantlysimplifies the evaluation of goodwill for impairment.Stock CompensationIn June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements toNonemployee Share-Based Payment Accounting, which expands the scope of current stock compensation recognitionstandards to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07will become effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.Early adoption is permitted, but no earlier than an entity’s adoption date of ASU 2014-09 (Topic 606), which we adopted onDecember 30, 2017. We are evaluating the impact ASU 2018-07 and do not believe the guidance will have a material impacton our consolidated financial statements.Proposed Accounting StandardsA variety of proposed or otherwise potential accounting standards are currently being studied by standard-settingorganizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards,we have not yet determined the effect, if any, that the implementation of such proposed standards would have on ourconsolidated financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKMarket risk is the risk of loss to future earnings, to fair values or to future cash flows that may result from changes inthe price of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates,exchange rates, commodity prices, equity prices and other market changes. Market risk is attributed to all market risksensitive financial instruments, including long‑term debt.We had cash and cash equivalents of $15.3 million as of December 28, 2018. This amount represents cash on handin business checking accounts with BMO.As of December 28, 2018, we did not engage in trading activities and do not participate in foreign currencytransactions or utilize derivative financial instruments. On January 31, 2019, we entered into an interest swap agreement for$35 million notional amount. The interest swap agreement was designated as a cash flow hedge to fix the variable interestrate on a portion of the borrowings under our Delayed Draw Term Loan Facility. The interest swap fixed rate is 2.47% and theamortization is quarterly in an amount equal to 10% annually. The interest swap agreement expires on January 31, 2022.We are subject to interest rate risk in connection with borrowings under our Delayed Draw Term Loan Facility andrevolving credit facility, each of which bears interest at variable rates. At December 28, 2018, we had $70.0 million ofborrowings outstanding under our Delayed Draw Term Loan and no borrowings under our $30.0 million revolving creditfacility with $2.7 million in letters of credit issued and $27.3 million available for borrowing. Borrowings under the CreditAgreement bear interest at a rate equal to either, at our option, (i) the highest of the prime rate, the Federal Funds Rate plus0.5% or one-month LIBOR plus 1.00% (the “Base Rate”) or (ii) LIBOR, in each case plus an applicable margin ranging from0.25% to 3.00% with respect to Base Rate borrowings and 1.25% to 4.00% with respect to LIBOR borrowings. Theapplicable margin will be based upon our consolidated leverage ratio. We will also be required to pay a commitment fee forthe unused portion of the revolving line of credit, which will range from 0.20% to 0.40% per annum, and fees on any lettersof credit drawn under the facility, which will range from 0.94% to 4.00%, in each case, depending on whether such letter ofcredit is a performance or financial letter of credit and our consolidated total leverage ratio. The Delayed Draw Term LoanFacility will amortize quarterly in an amount equal to 10% annually, with a final payment of all then remaining principal dueon the maturity date on October 1, 2023. We do not have any interest rate hedges or swaps. Based upon the amount ofoutstanding indebtedness as of December 28, 2018, a one percentage point change in the assumed interest rate would changeour annual interest expense by approximately $0.7 million in 2018.61 Table of Contents ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe financial statements and related financial information, as listed under Item 15, appear in a separate section ofthis annual report beginning on page F‑1.Index to Consolidated Financial Statements PageReports of Independent Registered Public Accounting Firms F-1Consolidated Balance Sheets as of December 28, 2018 and December 29, 2017 F-4Consolidated Statements of Operations for each of the fiscal years in the three‑year period ended December 28,2018 F-5Consolidated Statements of Stockholders’ Equity for each of the fiscal years in the three‑year periodended December 28, 2018 F-6Consolidated Statements of Cash Flows for each of the fiscal years in the three‑year period ended December 28,2018 F-7Notes to Consolidated Financial Statements F-8 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSUREThere were no changes in and/or disagreements with accountants on accounting and financial disclosure during thefiscal year ended December 28, 2018. ITEM 9A. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresWe maintain disclosure controls and procedures defined in Rule 13a‑15(e) under the Exchange Act, as controls andother procedures that are designed to ensure that information required to be disclosed by the issuer in the reports that it filesor submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in theSEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed toensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act isaccumulated and communicated to our management, including our Chairman and Chief Executive Officer, Thomas Brisbin,and our Chief Financial Officer, Stacy McLaughlin, as appropriate to allow timely decisions regarding required disclosure.In connection with the preparation of this Annual Report, an evaluation was performed under the supervision andwith the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of theeffectiveness of our disclosure controls and procedures as of December 28, 2018. Based on that evaluation, our ChiefExecutive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, at areasonable assurance level, as of December 28, 2018. No change in our internal control over financial reporting occurredduring the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.Management’s Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting(as defined in Rule 13a‑15(f) under the Securities Exchange Act of 1934, as amended). Internal control over financialreporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposesin accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internalcontrol over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statementswould be prevented or detected. Our management, with the participation of our Chief Executive Officer and Chief FinancialOfficer, assessed the effectiveness of our internal control over financial62 Table of Contentsreporting as of December 28, 2018. In making this assessment, our management used the criteria set forth by the Committeeof Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013Framework). Our management has concluded that, as of December 28, 2018, our internal control over financial reporting waseffective based on these criteria.As discussed in Note 3 to our consolidated financial statements, we acquired Lime Energy on November 9, 2018. Aspermitted by guidelines established by the SEC for newly acquired business, we excluded the acquisitions from the scope ofour annual report on internal controls over financial reporting for the fiscal year ended December 28, 2018. This acquisitioncontributed approximately $54.4 million to our consolidated total assets as of December 28, 2018, and $24.4 million to ourconsolidated revenues for the fiscal year ended December 28, 2018. We are in the process of integrating this business into ouroverall internal controls over financial reporting process and plan to include it in our scope for the fiscal year ended January3, 2020.Report of Independent Registered Public Accounting FirmCrowe LLP, the independent registered public accounting firm that audited the fiscal year 2018 consolidatedfinancial statements included in this Annual Report on Form 10‑K, has issued an attestation report on the effectiveness of ourinternal control over financial reporting as of December 28, 2018, which is included herein.Changes in Internal ControlsDuring the quarter ended December 28, 2018, we completed the acquisition of Lime Energy. Prior to the acquisition,Lime Energy was a privately-held company and was not subject to the Sarbanes-Oxley Act of 2002, the rules and regulationsof the SEC, or other corporate governance requirements applicable to public reporting companies. As part of our ongoingintegration activities, we are continuing to incorporate our controls and procedures into Lime Energy and to augment ourcompany-wide controls to reflect the risks that may be inherent in acquisitions of privately-held companies.Other than our integration of Lime Energy, there have been no changes in our internal control over financialreporting during the quarter ended December 28, 2018 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATIONNone.63 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required by this item is incorporated by reference to Willdan Group, Inc.’s Proxy Statement for its2019 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the Company’s 2018 fiscalyear.We have posted our Code of Ethical Conduct on our website, www.willdan.com, under the heading “Investors—Corporate Governance—Governance Documents.” The Code of Ethical Conduct applies to our Chief Executive Officer andChief Financial Officer. Upon request and free of charge, we will provide any person with a copy of the Code of EthicalConduct. See “Item 1. Business—Available Information.” ITEM 11. EXECUTIVE COMPENSATIONThe information required by this item is incorporated by reference to Willdan Group, Inc.’s Proxy Statement for its2019 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the Company’s 2018 fiscalyear. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSHAREHOLDER MATTERSThe information required by this item is incorporated by reference to Willdan Group, Inc.’s Proxy Statement for its2019 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the Company’s 2018 fiscalyear. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required by this item is incorporated by reference to Willdan Group, Inc.’s Proxy Statement for its2019 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the Company’s 2018 fiscalyear. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESThe information required by this item is incorporated by reference to Willdan Group, Inc.’s Proxy Statement for its2019 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the Company’s 2018 fiscalyear.64 Table of Contents PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES(a) The following documents are filed as part of this report:1.Financial StatementsThe following financial statements of Willdan Group, Inc. and report of independent auditors are included in Item 8of this annual report and submitted in a separate section beginning on page F‑1: PageReports of Independent Registered Public Accounting FirmsF‑1Consolidated Balance Sheets as of December 28, 2018 and December 29, 2017 F‑4Consolidated Statements of Operations for each of the fiscal years in the three‑year period ended December 28,2018 F‑5Consolidated Statements of Stockholders’ Equity for each of the fiscal years in the three‑year period endedDecember 28, 2018 F‑6Consolidated Statements of Cash Flows for each of the fiscal years in the three‑year period ended December 28,2018 F‑7Notes to Consolidated Financial Statements F‑82.Financial Statements SchedulesAll required schedules are omitted because they are not applicable or the required information is shown in thefinancial statements or the accompanying notes.3.ExhibitsThe exhibits filed as part of this annual report are listed in Item 15(b).(b) Exhibits.The following exhibits are filed as a part of this report:ExhibitNumber Exhibit Description2.1Merger Agreement, dated as of October 1, 2018, by and among Willdan Energy Solutions, Luna Fruit, Inc.,Lime Energy Co. and Luna Stockholders Representative, LLC, as representative of the participatingsecurityholders of Lime Energy Co. (incorporated by reference to Exhibit 2.1 to Willdan Group, Inc.’s CurrentReport on Form 8-K filed on October 3, 2018)3.1 First Amended and Restated Certificate of Incorporation of Willdan Group, Inc. (incorporated by reference toWilldan Group, Inc.’s Registration Statement on Form S-1, filed with the SEC on August 9, 2006, as amended(File No. 333-136444))3.2 Amended and Restated Bylaws of Willdan Group, Inc. (incorporated by reference to Willdan Group, Inc.’sCurrent Report on Form 8-K, filed with the SEC on March 7, 2019) 4.1 Specimen Stock Certificate for shares of the Registrant’s Common Stock (incorporated by reference to WilldanGroup, Inc.’s Registration Statement on Form S-1, filed with the SEC on August 9, 2006, as amended (File No.333-136444))65 Table of ContentsExhibitNumber Exhibit Description4.2 The Company agrees to furnish to the Securities and Exchange Commission upon request a copy of eachinstrument with respect to issues of long‑term debt of Willdan Group, Inc. and its subsidiaries, the authorizedprincipal amount of which does not exceed 10% of the consolidated assets of Willdan Group, Inc. and itssubsidiaries.10.1 Credit Agreement, dated as of October 1, 2018, by and among Willdan Group, Inc., as Borrow, the Guanrantors(as defined therein), the Lenders (as defined therein) from time to time party thereto, BMO Harris Bank N.A., asArranger and Administrative Agent and MUFG Union Bank, N.A., as Arranger (incorporated by reference toExhibit 10.1 to Willdan Group, Inc.’s Current Report on Form 8-K filed on October 3, 2018)10.2 Security Agreement, dated as of October 1, 2018, by and among Willdan Group, Inc. the other Debtors (asdefined therein) and BMO Harris Bank N.A. (incorporated by reference to Exhibit 10.2 to Willdan Group, Inc.’sCurrent Report on Form 8-K filed on October 3, 2018)10.3† Willdan Group, Inc. 2006 Stock Incentive Plan (incorporated by reference to Willdan Group, Inc.’sRegistration Statement on Form S-1, filed with the SEC on August 9, 2006, as amended (File No. 333-136444))10.4† Form of Incentive Stock Option Agreement (incorporated by reference to Willdan Group, Inc.’s RegistrationStatement on Form S-1, filed with the SEC on August 9, 2006, as amended (File No. 333-136444))10.5† Form of Non‑Qualified Stock Option Agreement (incorporated by reference to Willdan Group, Inc.’sRegistration Statement on Form S-1, filed with the SEC on August 9, 2006, as amended (File No. 333-136444)) 10.6† Willdan Group, Inc. Amended and Restated 2008 Performance Incentive Plan (incorporated by reference toWilldan Group, Inc.’s Current Report on Form 8-K, filed with the SEC on June 9, 2017)10.7† Amended and Restated Willdan Group, Inc. 2006 Employee Stock Purchase Plan (incorporated by reference toWilldan Group, Inc.’s Current Report on Form 8-K, filed with the SEC on June 9, 2017)10.8† Form of Indemnification Agreement between Willdan Group, Inc. and its Directors and Officers (incorporatedby reference to Willdan Group, Inc.’s Current Report on Form 8-K, filed with the SEC on June 13, 2016)10.9† Offer Letter from Willdan Group, Inc. to Daniel Chow dated October 29, 2008 and accepted November 9, 2008(incorporated by reference to Willdan Group, Inc.’s Current Report on Form 8-K, filed with the SEC onDecember 17, 2008)10.10† Employment Agreement, dated as of May 3, 2011 by and between Willdan Group, Inc. and Thomas D. Brisbin(incorporated by reference to Willdan Group, Inc.’s Current Report on Form 8-K, filed with the SEC on May 4,2011)10.11† Employment Agreement, dated as of December 17, 2014, by and between Willdan Group, Inc. and Mike Bieber(incorporated by reference to Willdan Group, Inc.’s Current Report on Form 8-K, filed with the SEC on January7, 2015)10.12†* Form of Performance Based Restricted Stock Unit Award Agreement21.1* Subsidiaries of Willdan Group, Inc. 23.1* Consent of Crowe LLP23.2* Consent of KPMG LLP24.1* Power of Attorney (included on signature page hereto)31.1* Certification of Chief Executive Officer pursuant to Rule 13a‑14(a) and 15d‑14(a) under the SecuritiesExchange Act of 1934, as adopted pursuant to § 302 of the Sarbanes‑Oxley Act of 200266 Table of ContentsExhibitNumber Exhibit Description31.2* Certification of Chief Financial Officer pursuant to Rule 13a‑14(a) or 15d‑14(a) under the Securities ExchangeAct of 1934, as adopted pursuant to § 302 of the Sarbanes‑Oxley Act of 200232.1* Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adoptedpursuant to § 906 of the Sarbanes‑Oxley Act of 2002101* Interactive data files pursuant to Rule 405 of Regulation S‑T: (i) the Consolidated Balance Sheets as ofDecember 28, 2018 and December 29, 2017; (ii) the Consolidated Statements of Operations for each of thefiscal years in the three‑year period ended December 28, 2018; (iii) the Consolidated Statements ofStockholders’ Equity for each of the fiscal years in the three‑year period ended December 28, 2018; (iv) theConsolidated Statement of Cash Flows for each of the fiscal years in the three‑year period ended December 28,2018; and (v) the Notes to the Consolidated Financial Statements. *Filed herewith.†Indicates a management contract or compensating plan or arrangement.ITEM 16. FORM 10-K SUMMARYNone.67 Table of Contents SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WILLDAN GROUP, INC. /s/ Stacy B. McLaughlin Stacy B. McLaughlin Chief Financial Officer and Vice President March 8, 2019 KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes andappoints Stacy McLaughlin his/her attorney‑in‑fact, with the power of substitution, for him/her in any and all capacities, tosign any amendments to this Report on Form 10‑K and to file the same, with Exhibits thereto and other documents inconnection therewith with the SEC, hereby ratifying and confirming all that said attorney‑in‑fact, or substitute or substitutesmay do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the followingpersons on behalf of the registrant and in the capacities and on the dates indicated.Signature Title Date /s/ Thomas D. BrisbinChairman and Chief Executive Officer (principalexecutive officer)March 8, 2019Thomas D. Brisbin /s/ Stacy B. McLaughlin Chief Financial Officer and Vice President (principalfinancial officer and principal accounting officer) March 8, 2019Stacy B. McLaughlin /s/ Keith W. Renken Director March 8, 2019Keith W. Renken /s/ Steven A. Cohen Director March 8, 2019Steven A. Cohen /s/ Debra G. Coy Director March 8, 2019Debra G. Coy /s/ Raymond W. Holdsworth Director March 8, 2019Raymond W. Holdsworth /s/ Douglas J. McEachern Director March 8, 2019Douglas J. McEachern /s/ Dennis V. McGinn Director March 8, 2019Dennis V. McGinn /s/ Curtis Probst Director March 8, 2019Curtis Probst /s/ Mohammad Shahidehpour Director March 8, 2019Mohammad Shahidehpour 68 Table of ContentsReport of Independent Registered Public Accounting Firm Shareholders and the Board of Directors of Willdan Group, Inc.Anaheim, CA Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheet of Willdan Group, Inc. (the "Company") as of December 28,2018, the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December28, 2018, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’sinternal control over financial reporting as of December 28, 2018, based on criteria established in Internal Control –Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of theCompany as of December 28, 2018, and the results of its operations and its cash flows for the year ended December 28, 2018in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, theCompany maintained, in all material respects, effective internal control over financial reporting as of December 28, 2018,based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control overfinancial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in theaccompanying Management’s Report on Internal Controls Over Financial Reporting. Our responsibility is to express anopinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reportingbased on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board(United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and performthe audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whetherdue to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the financial statements included performing procedures to assess the risks of material misstatement of thefinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such proceduresincluded examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our auditalso included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting includedobtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, andtesting and evaluating the design and operating effectiveness of internal control based on the assessed risk. As permitted, theCompany has excluded the operations of Lime Energy acquired during 2018, which is described in Note 3 of theconsolidated financial statements, from the scope of management’s report on internal control over financial reporting. Assuch, it has also been excluded from the scope of our audit of internal control over financial reporting. Our audits alsoincluded performing such other procedures as we considered necessary in the circumstances. We believe that our auditsprovide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and thatreceipts and expenditures of the company are being made only in accordance with authorizations ofF-1 Table of Contentsmanagement and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financialstatements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/Crowe LLP We have served as the Company's auditor since 2018. Sherman Oaks, CAMarch 7, 2019F-2 Table of ContentsReport of Independent Registered Public Accounting Firm To the Stockholders and Board of DirectorsWilldan Group, Inc.: Opinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated balance sheet of Willdan Group, Inc. (the Company) as of December 29,2017, the related consolidated statements of operations, stockholders’ equity, and cash flows for the years endedDecember 29, 2017 and December 30, 2016, and the related notes (collectively, the consolidated financial statements). In ouropinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Companyas of December 29, 2017, and the results of its operations and its cash flows for the years ended December 29, 2017 andDecember 30, 2016, in conformity with U.S. generally accepted accounting principles.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these consolidated financial statements based on our audits. We are a public accounting firmregistered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to beindependent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules andregulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and performthe audit to obtain reasonable assurance about whether the consolidated financial statements are free of materialmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of materialmisstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respondto those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in theconsolidated financial statements. Our audits also included evaluating the accounting principles used and significantestimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Webelieve that our audits provide a reasonable basis for our opinion./s/ KPMG LLPWe served as the Company’s auditor from 2015 to 2017.Irvine, CaliforniaMarch 9, 2018, except with respect to our opinion on the consolidated financial statements insofar as it relates to notes 2(Segment Information and Contract Accounting), 4, and 13, as to which the date is October 3, 2018.F-3 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS December 28, December 29, 2018 2017 Assets Current assets: Cash and cash equivalents $15,259,000 $14,424,000 Accounts receivable, net of allowance for doubtful accounts of $442,000 and$369,000 at December 28, 2018 and December 29, 2017, respectively 61,346,000 38,441,000 Contract assets 51,851,000 24,732,000 Other receivables 1,893,000 1,833,000 Prepaid expenses and other current assets 5,745,000 3,760,000 Total current assets 136,094,000 83,190,000 Equipment and leasehold improvements, net 7,998,000 5,306,000 Goodwill 97,748,000 38,184,000 Other intangible assets, net 44,364,000 10,666,000 Other assets 3,311,000 826,000 Deferred income taxes, net 12,321,000 — Total assets $301,836,000 $138,172,000 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $36,829,000 $20,826,000 Accrued liabilities 37,401,000 23,293,000 Contingent consideration payable 3,113,000 4,246,000 Contract liabilities 5,075,000 7,321,000 Notes payable 8,572,000 383,000 Capital lease obligations 320,000 289,000 Total current liabilities 91,310,000 56,358,000 Contingent consideration payable 1,616,000 5,062,000 Notes payable 63,139,000 2,500,000 Capital lease obligations, less current portion 224,000 160,000 Deferred lease obligations 724,000 614,000 Deferred income taxes, net — 2,463,000 Other noncurrent liabilities 534,000 363,000 Total liabilities 157,547,000 67,520,000 Commitments and contingencies Stockholders’ equity: Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued andoutstanding — — Common stock, $0.01 par value, 40,000,000 shares authorized; 10,968,000 and8,799,000 shares issued and outstanding at December 28, 2018 and December 29,2017, respectively 110,000 88,000 Additional paid-in capital 114,008,000 50,976,000 Retained earnings 30,171,000 19,588,000 Total stockholders’ equity 144,289,000 70,652,000 Total liabilities and stockholders’ equity $301,836,000 $138,172,000 See accompanying notes to consolidated financial statements.F-4 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Year 2018 2017 2016Contract revenue $272,252,000 $273,352,000 $208,941,000 Direct costs of contract revenue (inclusive of directly relateddepreciation and amortization): Salaries and wages 46,588,000 44,743,000 39,024,000Subcontractor services and other direct costs 132,693,000 151,919,000 104,236,000Total direct costs of contract revenue 179,281,000 196,662,000 143,260,000 General and administrative expenses: Salaries and wages, payroll taxes and employee benefits 45,248,000 36,534,000 31,084,000Facilities and facility related 5,600,000 4,624,000 4,085,000Stock-based compensation 6,262,000 2,774,000 1,239,000Depreciation and amortization 6,060,000 3,949,000 3,204,000Other 17,030,000 15,105,000 14,525,000Total general and administrative expenses 80,200,000 62,986,000 54,137,000Income from operations 12,771,000 13,704,000 11,544,000 Other income (expense): Interest expense, net (700,000) (111,000) (179,000)Other, net 90,000 98,000 2,000Total other expense, net (610,000) (13,000) (177,000)Income before income taxes 12,161,000 13,691,000 11,367,000 Income tax expense 2,131,000 1,562,000 3,068,000Net income $10,030,000 $12,129,000 $8,299,000 Earnings per share: Basic $1.08 $1.42 $1.01Diluted $1.03 $1.32 $0.97 Weighted-average shares outstanding: Basic 9,264,000 8,541,000 8,219,000Diluted 9,763,000 9,155,000 8,565,000See accompanying notes to consolidated financial statements.F-5 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Additional Common Stock Paid-in Shares Amount Capital RetainedEarnings TotalBalances at January 1, 2016 7,904,000 $79,000 $38,377,000 $(840,000) $ 37,616,000Shares of common stock issued in connection with employeestock purchase plan 24,000 — 209,000 — 209,000Shares of common stock issued in connection with incentivestock plan 164,000 2,000 325,000 — 327,000Stock issued to acquire business 256,000 2,000 2,226,000 — 2,228,000Stock-based compensation — — 1,239,000 — 1,239,000Net income — — — 8,299,000 8,299,000Balances at December 30, 2016 8,348,000 $83,000 $42,376,000 $7,459,000 $ 49,918,000Shares of common stock issued in connection with employeestock purchase plan 62,000 1,000 829,000 — 830,000Shares of common stock issued in connection with incentivestock plan 298,000 3,000 1,898,000 — 1,901,000Stock issued to acquire businesses 91,000 1,000 3,099,000 — 3,100,000Stock-based compensation — — 2,774,000 — 2,774,000Net income — — — 12,129,000 12,129,000Balance at December 29, 2017 8,799,000 $88,000 $50,976,000 $19,588,000 $ 70,652,000Shares of common stock issued in connection with employeestock purchase plan 65,000 1,000 1,299,000 — 1,300,000Shares of common stock issued in connection with incentivestock plan 85,000 1,000 667,000 — 668,000Unregistered sales of equity securities and use of proceeds (15,000) — (442,000) — (442,000)Restricted Stock Awards 22,000 — — — —Stock issued to acquire businesses 2,012,000 20,000 55,246,000 — 55,266,000Stock-based compensation expense — — 6,262,000 — 6,262,000Net income — — — 10,030,000 10,030,000Cumulative effect from adoption of ASC 606 — — — 553,000 553,000Balance at December 28, 2018 10,968,000 $110,000 $114,008,000 $30,171,000 $ 144,289,000See accompanying notes to consolidated financial statements.F-6 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Year 2018 2017 2016 Cash flows from operating activities: Net income $10,030,000 $12,129,000 $8,299,000 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 6,211,000 4,082,000 3,220,000 Deferred income taxes, net (2,890,000) 621,000 1,225,000 (Gain) loss on sale/disposal of equipment (12,000) 27,000 4,000 Provision for (recovery of) doubtful accounts 470,000 (189,000) 216,000 Stock-based compensation 6,262,000 2,774,000 1,239,000 Accretion and fair value adjustments of contingent consideration (1,426,000) 1,156,000 21,000 Changes in operating assets and liabilities, net of effects from businessacquisitions: Accounts receivable 3,177,000 (7,412,000) 1,288,000 Contract assets (11,539,000) (5,744,000) (4,057,000) Other receivables 4,081,000 (1,126,000) 82,000 Prepaid expenses and other current assets (154,000) (1,096,000) (519,000) Other assets (778,000) 25,000 (169,000) Accounts payable (1,583,000) 3,186,000 206,000 Accrued liabilities (1,945,000) 4,329,000 8,409,000 Contract liabilities (2,272,000) (1,593,000) 2,159,000 Deferred lease obligations (64,000) (100,000) (23,000) Net cash provided by operating activities 7,568,000 11,069,000 21,600,000 Cash flows from investing activities: Purchase of equipment and leasehold improvements (2,105,000) (2,178,000) (1,662,000) Proceeds from sale of equipment 59,000 — 15,000 Cash paid for acquisitions, net of cash acquired (124,344,000) (14,603,000) (8,857,000) Net cash used in investing activities (126,390,000) (16,781,000) (10,504,000) Cash flows from financing activities: Payments on contingent consideration (4,296,000) (1,709,000) (1,284,000) Payments on notes payable (477,000) (4,164,000) (4,378,000) Payments on debt issuance costs (1,300,000) — — Proceeds from notes payable 1,805,000 — 733,000 Borrowings under delayed draw term loan facility 70,000,000 1,000,000 — Repayments under line of credit (2,500,000) — — Principal payments on capital lease obligations (367,000) (390,000) (522,000) Proceeds from stock option exercise 668,000 1,901,000 327,000 Proceeds from sales of common stock under employee stock purchase plan 1,300,000 830,000 209,000 Proceeds from equity raise 55,266,000 — — Unregistered sales of equity securities and use of proceeds (442,000) — — Net cash provided by (used in) financing activities 119,657,000 (2,532,000) (4,915,000) Net increase (decrease) in cash and cash equivalents 835,000 (8,244,000) 6,181,000 Cash and cash equivalents at beginning of period 14,424,000 22,668,000 16,487,000 Cash and cash equivalents at end of period $15,259,000 $14,424,000 $22,668,000 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $494,000 $111,000 $179,000 Income taxes 3,163,000 2,750,000 1,875,000 Supplemental disclosures of noncash investing and financing activities: Issuance of notes payable related to business acquisitions $ — $ — $4,569,000 Issuance of common stock related to business acquisitions — 3,100,000 2,228,000 Contingent consideration related to business acquisitions 943,000 5,400,000 — Other working capital adjustment 63,000 113,000 — Equipment acquired under capital leases 462,000 294,000 373,000 See accompanying notes to consolidated financial statements. F-7 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFiscal Years 2018, 2017 and 2016 1. ORGANIZATION AND OPERATIONS OF THE COMPANYWilldan Group, Inc. and subsidiaries (the “Company”) is a provider of professional technical and consultingservices to utilities, private industry, and public agencies at all levels of government. The Company enables its clients torealize cost and energy savings by providing a wide range of specialized services without having to incur and maintain theoverhead necessary to develop staffing in-house. Such services include energy and sustainability, engineering, constructionmanagement and planning, economic and financial consulting and national preparedness and interoperability. The Companyoperates its business through a nationwide network of offices spread across 20 states and the District of Columbia. Its clientsprimarily consist of public and governmental agencies, including cities, counties, public utilities, redevelopment agencies,water districts, school districts and universities, state agencies, federal agencies, a variety of other special districts andagencies, private utilities and industry and tribal governments. The Company’s business with public and private utilities isconcentrated primarily in California, New York and North Carolina and its business with public agencies is concentrated inCalifornia, New York and Arizona.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples of ConsolidationThe consolidated financial statements include the accounts of Willdan Group, Inc. and its wholly-ownedsubsidiaries, Willdan Energy Solutions (“WES”), Willdan Engineering, Willdan Infrastructure, Public Agency Resources,Willdan Financial Services and Willdan Homeland Solutions and their respective subsidiaries. All significant intercompanybalances and transactions have been eliminated in consolidation.The Company accounts for variable interest entities in accordance with Accounting Standards Codification (“ASC”)810, Consolidation. Under ASC 810, a variable interest entity (“VIE”) is created when any of the following criteria arepresent: (a) the equity investment at risk in the entity is not sufficient to permit the entity to finance its activities withoutadditional subordinated financial support provided by other parties, including the equity holders; (b) the entity’s equityholders as a group either (i) lack the direct or indirect ability to make decisions about the entity, (ii) are not obligated toabsorb expected losses of the entity or (iii) do not have the right to receive expected residual returns of the entity; or (c) theentity’s equity holders have voting rights that are not proportionate to their economic interests, and the activities of theentity involve or are conducted on behalf of the equity holder with disproportionately few voting rights. If an entity isdeemed to be a VIE pursuant to ASC 810, the enterprise that has both (i) the power to direct the activities of a VIE that mostsignificantly impact the entity’s economic performance and (ii) the obligation to absorb the expected losses of the entity orright to receive benefits from the entity that could be potentially significant to the VIE is considered the primary beneficiaryand must consolidate the VIE. In accordance with ASC 810, the Company performs ongoing reassessments of whether anenterprise is the primary beneficiary of a VIE.As of December 28, 2018, the Company had one VIE — Genesys Engineering, P.C. (“Genesys”). Pursuant to NewYork law, the Company does not own capital stock of Genesys and does not have control over the professional decisionmaking of Genesys’s engineering services. The Company, however, has entered into an administrative services agreementwith Genesys pursuant to which WES, the Company’s wholly-owned subsidiary, will provide Genesys with ongoingadministrative, operational and other non-professional support services. The Company manages Genesys and has the powerto direct the activities that most significantly impact Genesys’s performance, in addition to being obligated to absorbexpected losses from Genesys. Accordingly, the Company is the primary beneficiary of Genesys and consolidates Genesys asa VIE.Management also concluded there is no noncontrolling interest related to the consolidation of Genesys becausemanagement determined that (i) the shareholder of Genesys does not have more than a nominal amount of equityF-8 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 investment at risk, (ii) WES absorbs the expected losses of Genesys through its deferral of Genesys’s service fees owed toWES and the Company has, since entering into the administrative services agreement, had to continuously defer service feesfor Genesys, and (iii) the Company believes Genesys will continue to have a shortfall on payment of its service fees for theforeseeable future, leaving no expected residual returns for the shareholder. For more information regarding Genesys, seeNote 3 “Business Combinations.”Fiscal YearsThe Company operates and reports its annual financial results based on 52 or 53-week periods ending on the Fridayclosest to December 31, with consideration of business days. The Company operates and reports its quarterly financial resultsbased on the 13-week period ending on the Friday closest to March 31, June 30 and September 30 and the 13 or 14-weekperiod ending on the Friday closest to December 31, as applicable, with consideration of business days. Fiscal years 2018,2017 and 2016 contained 52 weeks. All references to years in the notes to consolidated financial statements represent fiscalyears.Cash and Cash EquivalentsAll highly liquid investments purchased with a remaining maturity of three months or less are considered to be cashequivalents. Cash and cash equivalents consisted of the following: December 28, December 29, 2018 2017 Operating bank accounts $15,248,000 $14,414,000 Petty cash 11,000 10,000 $15,259,000$14,424,000The Company from time to time may be exposed to credit risk with its bank deposits in excess of the FDIC insurancelimits and with uninsured money market investments. The Company has not experienced any losses in such accounts andbelieves it is not exposed to any significant credit risk on cash and cash equivalents.Fair Value of Financial InstrumentsAs of December 28, 2018 and December 29, 2017, the carrying amounts of the Company's cash and cashequivalents, accounts receivable, contract assets, other receivables, prepaid expenses and other current assets, accountspayable, accrued liabilities and contract liabilities, approximate their fair values because of the relatively short period of timebetween the origination of these instruments and their expected realization or payment. The carrying amounts of debtobligations approximate their fair values since the terms are comparable to terms currently offered by local lendinginstitutions for loans of similar terms to companies with comparable credit risk.Segment InformationWilldan Group, Inc. (“WGI”) is a holding company with six wholly-owned subsidiaries. The Company presentssegment information externally consistent with the manner in which the Company’s chief operating decision maker reviewsinformation to assess performance and allocate resources. WGI performs administrative functions on behalf of its subsidiaries,such as treasury, legal, accounting, information systems, human resources and certain business development activities, andearns revenue that is only incidental to the activities of the enterprise. As a result, WGI does not meet the definition of anoperating segment. The Company’s two segments are Energy, and Engineering and Consulting. The Company’s principalsegment, Energy, consists of the business of its subsidiary, WES, which offersF-9 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 energy and sustainability consulting services to utilities, public agencies and private industry. The Company’s Engineeringand Consulting segment includes the operation of its remaining subsidiaries, Willdan Engineering, Willdan Infrastructure,Public Agency Resources, Willdan Financial Services and Willdan Homeland Solutions. Willdan Engineering provides civilengineering-related construction management, building and safety, city engineering, city planning, geotechnical, materialtesting and other engineering services to its clients. Willdan Infrastructure, which was launched in fiscal year 2013, providesengineering services to larger rail, port, water, mining and other civil engineering projects. Public Agency Resourcesprimarily provides staffing to Willdan Engineering. Willdan Financial Services provides economic and financial consultingto public agencies. Willdan Homeland Solutions provides national preparedness and interoperability services andcommunications and technology solutions. See Note 13 “Segment Information” for revised and restated segmentinformation.Contract Assets and LiabilitiesAmounts classified as “Costs and estimated earnings in excess of billings on uncompleted contracts” and “Billingsin excess of costs and estimated earnings on uncompleted contracts” on the consolidated balance sheets and statements ofcash flows of the Company’s Annual Report on Form 10-K for the year ended December 29, 2017 have been reclassified as“Contract assets” and “Contract liabilities”, respectively, on the condensed consolidated balance sheets and statements ofcash flows for 2018. In addition, contract assets include retainage amounts withheld from billings to the Company’s clientspursuant to provisions in our contracts.Billing practices are governed by the contract terms of each project based upon costs incurred, achievement ofmilestones or pre-agreed schedules. Billings do not necessarily correlate with revenue recognized using the percentage-of-completion method of revenue recognition. Contract assets include unbilled amounts typically resulting from revenue undercontracts where the percentage-of-completion method of revenue recognition is utilized and revenue recognized exceeds theamount billed to the customer. Contract liabilities consist of advance payments and billings in excess of revenue recognizedand deferred revenue.The increase in contract assets was primarily attributable to the reclassification of retainage from accountsreceivable to contract assets as of December 30, 2017 due to the adoption of Accounting Standards Update (“ASU”) 2014-09,offset by normal business operations for the fiscal year ended December 28, 2018. The decrease in contract liabilities wasprimarily related to normal business operations for the fiscal year ended December 28, 2018.Off‑Balance Sheet ArrangementsOther than operating lease commitments, the Company does not have any off‑balance sheet financing arrangementsor liabilities. In addition, the Company’s policy is not to enter into derivative instruments, futures or forward contracts.Finally, the Company does not have any majority‑owned subsidiaries or any interests in, or relationships with, anyspecial‑purpose entities that are not included in the consolidated financial statements. The Company has, however, enteredinto an administrative services agreement with Genesys pursuant to which WES, the Company’s wholly-owned subsidiary,will provide Genesys with ongoing administrative, operational and other non-professional support services. The Companymanages Genesys and has the power to direct the activities that most significantly impact Genesys’ performance, in additionto being obligated to absorb expected losses from Genesys. Accordingly, the Company is the primary beneficiary of Genesysand consolidate Genesys as a variable interest entity.Contract AccountingThe Company enters into contracts with its clients that contain various types of pricing provisions, including fixedprice, time-and-materials, unit-based and service-related provisions. The Company recognizes revenues inF-10 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 accordance with ASU 2014-09, Revenue from Contracts with Customer, codified as ASC Topic 606 and the relatedamendments (collectively “ASC 606”). As such, the Company identifies a contract with a customer, identifies theperformance obligations in the contract, determines the transaction price, allocates the transaction price to each performanceobligation in the contract and recognizes revenues when (or as) the Company satisfies a performance obligation.The following table reflects the Company’s two reportable segments and the types of contracts that each mostcommonly enters into for revenue generating activities.SegmentContract TypeRevenue Recognition Method Time-and-materialsTime-and-materialsEnergyUnit-basedUnit-based Software licenseUnit-based Fixed pricePercentage-of-completion Time-and-materialsTime-and-materialsEngineering and ConsultingUnit-basedUnit-based Fixed pricePercentage-of-completion Revenue on the vast majority of the Company’s contracts will continue to be recognized over time because of thecontinuous transfer of control to the customer. Revenue on fixed price contracts is recognized on the percentage-of-completion method based generally on the ratio of direct costs incurred-to-date to estimated total direct costs at completion.The Company uses the percentage-of-completion method to better match the level of work performed at a certain point intime in relation to the effort that will be required to complete a project. In addition, the percentage-of-completion method is acommon method of revenue recognition in the Company’s industry.Many of the Company’s fixed price contracts involve a high degree of subcontracted fixed price effort and arerelatively short in duration, thereby lowering the risks of not properly estimating the percent complete. Revenue on time-and-materials and unit-based contracts is recognized as the work is performed in accordance with the specific rates and termsof the contract. The Company recognizes revenues for time-and-materials contracts based upon the actual hours incurredduring a reporting period at contractually agreed upon rates per hour and also includes in revenue all reimbursable costsincurred during a reporting period. Certain of the Company’s time-and-materials contracts are subject to maximum contractvalues and, accordingly, when revenue is expected to exceed the maximum contract value, these contracts are generallyrecognized under the percentage-of-completion method, consistent with fixed price contracts. For unit-based contracts, theCompany recognizes the contract price of units of a basic production product as revenue when the production product isdelivered during a period. Revenue recognition for software licenses issued by the Energy segment is generally recognized ata point in time, utilizing the unit-based revenue recognition method, upon acceptance of the software by the customer and inrecognition of the fulfillment of the performance obligation. Certain additional performance obligations beyond the basesoftware license may be separated from the gross license fee and recognized on a straight-line basis over time. Revenue foramounts that have been billed but not earned is deferred, and such deferred revenue is referred to as contract liabilities in theaccompanying condensed consolidated balance sheets. To determine the proper revenue recognition method for contracts, the Company evaluates whether two or morecontracts should be combined and accounted for as one single contract and whether the combined contract should beaccounted for as one performance obligation. With respect to the Company’s contracts, it is rare that multiple contractsshould be combined into a single performance obligation. This evaluation requires significant judgment and the decision tocombine a group of contracts or separate a single contract into multiple performance obligations could change the amount ofrevenue and profit recorded in a given period. Contracts are considered to have a single performance obligation if thepromise to transfer the individual goods or services is not separately identifiable from other promises inF-11 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 the contracts, which is mainly because the Company provides a significant service of integrating a complex set of tasks andcomponents into a single project or capability.The Company may enter into contracts that include separate phases or elements. If each phase or element isnegotiated separately based on the technical resources required and/or the supply and demand for the services beingprovided, the Company evaluates if the contracts should be segmented. If certain criteria are met, the contracts would besegmented which could result in revenues being assigned to the different elements or phases with different rates ofprofitability based on the relative value of each element or phase to the estimated total contract revenue. Segmentedcontracts may comprise up to approximately 2.0% to 3.0% of the Company’s consolidated contract revenue.Contracts that cover multiple phases or elements of the project or service lifecycle (development, construction andmaintenance and support) may be considered to have multiple performance obligations even when they are part of a singlecontract. For contracts with multiple performance obligations, the Company allocates the transaction price to eachperformance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract.For the periods presented, the value of the separate performance obligations under contracts with multiple performanceobligations (generally measurement and verification tasks under certain energy performance contracts) were not material. Incases where the Company does not provide the distinct good or service on a standalone basis, the primary method used toestimate standalone selling price is the expected cost plus a margin approach, under which the Company forecasts theCompany’s expected costs of satisfying a performance obligation and then adds an appropriate margin for the distinct goodor service.The Company provides quality of workmanship warranties to customers that are included in the sale and are notpriced or sold separately or do not provide customers with a service in addition to assurance of compliance with agreed-uponspecifications and industry standards. The Company does not consider these types of warranties to be separate performanceobligations.In some cases, the Company has a master service or blanket agreement with a customer under which each task orderreleases the Company to perform specific portions of the overall scope in the service contract. Each task order is typicallyaccounted for as a separate contract because the task order establishes the enforceable rights and obligations, and paymentterms.Under ASC 606, variable consideration should be considered when determining the transaction price and estimatesshould be made for the variable consideration component of the transaction price, as well as assessing whether an estimate ofvariable consideration is constrained. For certain of the Company’s contracts, variable consideration can arise frommodifications to the scope of services resulting from unapproved change orders or customer claims. Variable consideration isincluded in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized willnot occur when the uncertainty associated with the variable consideration is resolved. The Company estimates of variableconsideration and determination of whether to include estimated amounts in the transaction price are based largely onassessments of legal enforceability, the Company’s performance, and all information (historical, current and forecasted) thatis reasonably available to the Company.Due to the nature of the work required to be performed on many of the Company’s performance obligations, theestimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment.As a significant change in one or more of these estimates could affect the profitability of the Company’s contracts, theCompany reviews and updates the Company’s contract-related estimates regularly through a company-wide disciplinedproject review process in which management reviews the progress and execution of the Company’s performance obligationsand the estimate at completion (EAC). As part of this process, management reviews information including, but not limited to,any outstanding key contract matters, progress towards completion and the related programF-12 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 schedule and the related changes in estimates of revenues and costs. Management must make assumptions and estimatesregarding labor productivity and availability, the complexity of the work to be performed, the cost and availability ofmaterials, the performance of subcontractors, and the availability and timing of funding from the customer, among othervariables.The Company recognizes adjustments in estimated profit on contracts under the cumulative catch-up method. Underthis method, the impact of the adjustment on profit recorded to date is recognized in the period the adjustment is identified.Revenue and profit in future periods of contract performance is recognized using the adjusted estimate. If at any time theestimate of contract profitability indicates an anticipated loss on the contract, the Company recognizes the full amount ofestimated loss in the period it is identified.Contracts are often modified to account for changes in contract specifications and requirements. The Companyconsiders contract modifications to exist when the modification either creates new rights or obligations or changes theexisting enforceable rights or obligations. Most of the Company’s contract modifications are for goods or services that arenot distinct from existing contracts due to the significant integration provided in the context of the contract and areaccounted for as if they were part of the original contract. The effect of a contract modification that is not distinct from theexisting contract on the transaction price and the Company’s measure of progress for the performance obligation to which itrelates is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-upbasis.For contract modifications that result in the promise to deliver goods or services that are distinct from the existingcontract and the increase in price of the contract is for the same amount as the standalone selling price of the additionalgoods or services included in the modification, the Company accounts for such contract modifications as a separate contract.The Company includes claims to vendors, subcontractors and others as a receivable and a reduction in recognizedcosts when enforceability of the claim is established by the contract and the amounts are reasonably estimable and probableof being recovered. The amounts are recorded up to the extent of the lesser of the amounts management expects to recover orto costs incurred.Billing practices are governed by the contract terms of each project based upon costs incurred, achievement ofmilestones or pre-agreed schedules. Billings do not necessarily correlate with revenue recognized using the percentage-of-completion method of revenue recognition.Direct costs of contract revenue consist primarily of that portion of technical and nontechnical salaries and wagesthat has been incurred in connection with revenue producing projects. Direct costs of contract revenue also includeproduction expenses, subcontractor services and other expenses that are incurred in connection with revenue producingprojects.Direct costs of contract revenue exclude that portion of technical and nontechnical salaries and wages related tomarketing efforts, vacations, holidays and other time not spent directly generating revenue under existing contracts. Suchcosts are included in general and administrative expenses. Additionally, payroll taxes, bonuses and employee benefit costsfor all Company personnel are included in general and administrative expenses in the accompanying consolidatedstatements of operations since no allocation of these costs is made to direct costs of contract revenue. No allocation offacilities costs is made to direct costs of contract revenue. Other companies may classify as direct costs of contract revenuesome of the costs that the Company classifies as general and administrative costs. The Company expenses direct costs ofcontract revenue when incurred.F-13 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 Included in revenue and costs are all reimbursable costs for which the Company has the risk or on which the fee wasbased at the time of bid or negotiation. No revenue or cost is recorded for costs in which the Company acts solely in thecapacity of an agent and has no risks associated with such costs.Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based upon areview of all outstanding amounts on a quarterly basis. Management determines allowances for doubtful accounts throughspecific identification of amounts considered to be uncollectible and potential write-offs, plus a non-specific allowance forother amounts for which some potential loss has been determined to be probable based on current and past experience. TheCompany’s historical credit losses have been minimal with governmental entities and large public utilities, but disputes mayarise related to these receivable amounts. Accounts receivable are written off when deemed uncollectible. Recoveries ofaccounts receivable previously written off are recorded when received.Retainage, included in contract assets, represents amounts withheld from billings to the Company’s clients pursuantto provisions in the contracts and may not be paid to the Company until specific tasks are completed or the project iscompleted and, in some instances, for even longer periods. At December 28, 2018 and December 29, 2017, contract assetsincluded retainage of approximately $6.7 million and $8.6 million, respectively.General and Administrative ExpensesGeneral and administrative expenses include the costs of the marketing and support staff, other marketing expenses,management and administrative personnel costs, payroll taxes, bonuses and employee benefits for all of the Company’semployees and the portion of salaries and wages not allocated to direct costs of contract revenue for those employees whoprovide the Company’s services. General and administrative expenses also include facility costs, depreciation andamortization, professional services, legal and accounting fees and administrative operating costs. Within general andadministrative expenses, “Other” includes expenses such as provision for billed or unbilled receivables, professionalservices, legal and accounting, computer costs, travel and entertainment, marketing costs and acquisition costs. TheCompany expenses general and administrative costs when incurred.LeasesAll of the Company’s office leases are classified as operating leases and rent expense is included in facilitiesexpense in the accompanying consolidated statements of operations. Some of the lease terms include rent concessions andrent escalation clauses, all of which are taken into account in computing minimum lease payments. Minimum lease paymentsare recognized on a straight‑line basis over the minimum lease term. The excess of rent expense recognized over the amountscontractually due pursuant to the underlying leases is reflected as a liability in the accompanying consolidated balancesheets. The cost of improvements that the Company makes to the leased office space is capitalized as leaseholdimprovements. The Company is subject to non‑cancellable leases for offices or portions of offices for which use has ceased.For each of these abandoned leases, the present value of the future lease payments, net of estimated sublease payments, alongwith any unamortized tenant improvement costs, are recognized as lease abandonment expense in the Company’sconsolidated statements of operations with a corresponding liability in the Company’s consolidated balance sheets.Equipment and Leasehold ImprovementsEquipment and leasehold improvements are stated at cost less accumulated depreciation and amortization.Equipment under capital leases is stated at the present value of the minimum lease payments as of the acquisition date.Depreciation and amortization on equipment are calculated using the straight‑line method over estimated useful lives ofF-14 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 two to five years. Leasehold improvements and assets under capital leases are amortized using the straight‑line method overthe shorter of estimated useful lives or the term of the related lease.Following are the estimated useful lives used to calculate depreciation and amortization:Category Estimated Useful Life Furniture and fixtures 5years Computer hardware 3years Computer software 3years Automobiles and trucks 3years Field equipment 5years Long-lived assetsLong-lived assets, such as equipment, leasehold improvements and purchased intangible assets subject toamortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount ofan asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carryingamount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amountof an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carryingamount of the asset exceeds the fair value of the asset.GoodwillGoodwill represents the excess of costs over fair value of the assets acquired. The Company completes its annualtesting of goodwill as of the last day of the first month of its fourth fiscal quarter each year to determine whether there isimpairment. Goodwill, which has an indefinite useful life, is not amortized, but instead tested for impairment at leastannually or more frequently if events and circumstances indicate that the asset might be impaired. Impairment losses forreporting units are recognized to the extent that a reporting unit’s carrying amount exceeds its fair value.Accounting for Claims against the CompanyThe Company accrues an undiscounted liability related to claims against it for which the incurrence of a loss isprobable and the amount can be reasonably estimated. The Company discloses the amount accrued and an estimate of anyreasonably possible loss in excess of the amount accrued, if such disclosure is necessary for its financial statements not to bemisleading. The Company does not accrue liabilities related to claims when the likelihood that a loss has been incurred isprobable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible orremote. Losses related to recorded claims are included in general and administrative expenses.Determining probability and estimating claim amounts is highly judgmental. Initial accruals and any subsequentchanges in the Company’s estimates could have a material effect on its consolidated financial statements.Stock OptionsThe Company accounts for stock options under the fair value recognition provisions of the accounting standardentitled “Compensation—Stock Compensation.” This standard requires the measurement of compensation cost at the grantdate, based upon the estimated fair value of the award, and requires amortization of the related expense over the employee’srequisite service period.F-15 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 Business CombinationsThe acquisition method of accounting for business combinations requires the Company to use significant estimatesand assumptions, including fair value estimates, as of the business combination date and to refine those estimates asnecessary during the measurement period (defined as the period, not to exceed one year, in which the Company may adjustthe provisional amounts recognized for a business combination based upon new information about facts that existed on thebusiness combination date).Under the acquisition method of accounting, the Company recognizes separately from goodwill the identifiableassets acquired, the liabilities assumed, and any non-controlling interests in an acquiree, at the acquisition date fair value.The Company measures goodwill as of the acquisition date as the excess of consideration transferred over the net of theacquisition date amounts of the identifiable assets acquired and liabilities assumed. Costs that the Company incurs tocomplete the business combination such as investment banking, legal and other professional fees are not considered part ofconsideration. The Company charges these acquisition costs to general and administrative expense as they are incurred.On November 9, 2018, the Company completed the acquisition of Lime Energy, Co. On April 30, 2018, theCompany acquired all of the outstanding equity interests of Newcomb Anderson McCormick, Inc. On July 28, 2017, theCompany acquired all of the outstanding shares of Integral Analytics. On March 4, 2016, the Company acquiredsubstantially all of the assets of Genesys and assumed certain specified liabilities of Genesys. For further discussion of theseacquisitions, see Note 3 “—Business Combinations” below.Income TaxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities arerecognized for the future tax consequences of temporary differences between the financial reporting basis and tax basis of theCompany’s assets and liabilities, subject to a judgmental assessment of the recoverability of deferred tax assets. Deferred taxassets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which thosetemporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change intax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when it ismore-likely-than-not that some of the deferred tax assets may not be realized. Significant judgment is applied when assessingthe need for valuation allowances. Areas of estimation include the Company’s consideration of future taxable income andongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment aboutthe utilization of deferred tax assets in future years, the Company would adjust the related valuation allowances in the periodthat the change in circumstances occurs, along with a corresponding increase or charge to income. On December 22, 2017,the Tax Act was enacted into law, which among other items, lowered the U.S. corporate tax rate from 35% to 21%, effectiveJanuary 1, 2018. As a result of the Tax Act, the Company recorded a one-time decrease in deferred tax expense of $1.3million for the fiscal quarter ended December 29, 2017 to account for the remeasurement of the Company’s deferred taxassets and liabilities on the enactment date. As of December 28, 2018, the Company’s accounting for the Tax Act iscomplete. An adjustment of $0.2 million additional deferred tax expense was recorded due to the corporate tax rate changeimpact on adjustments to temporary differences that were estimated at the time of the tax provision and finalized for the taxreturn.During each fiscal year, management assesses the available positive and negative evidence to estimate if sufficientfuture taxable income will be generated to utilize existing deferred tax assets. For fiscal years 2018 and 2017, the Companyultimately determined that it was more-likely-than-not that the entire California net operating loss will not be utilized priorto expiration. Significant pieces of objective evidence evaluated included the Company’s history of utilization of Californianet operating losses in prior years for each of the Company’s subsidiaries, as well as theF-16 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 Company’s forecasted amount of net operating loss utilization for certain members of the combined group. As a result, werecorded a valuation allowance in the amount of $86,000 and $87,000 at the end of fiscal year 2018 and 2017, respectively,related to California net operating losses.For acquired business entities, if the Company identifies changes to acquired deferred tax asset valuationallowances or liabilities related to uncertain tax positions during the measurement period and they relate to new informationobtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurementperiod adjustment and the Company records the offset to goodwill. The Company records all other changes to deferred taxasset valuation allowances and liabilities related to uncertain tax positions in current period income tax expense.The Company recognizes the tax benefit from uncertain tax positions if it is more likely than not that the taxpositions will be sustained on examination by the tax authorities, based on the technical merits of the position. The taxbenefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimatesettlement. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.Operating CycleIn accordance with industry practice, amounts realizable and payable under contracts that extend beyond one yearare included in current assets (included in contract assets) and current liabilities.Use of EstimatesThe preparation of consolidated financial statements in conformity with generally accepted accounting principles inthe U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates also affect thereported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.LiquidityAs of December 28, 2018, the Company had $15.3 million of cash and cash equivalents. The Company’s primarysource of liquidity is cash generated from operations. In addition, as of December 28, 2018, the Company also had a $70.0million delayed draw term loan facility (the “Delayed Draw Term Loan Facility”) and a $30.0 million revolving creditfacility with BMO, each maturing on October 1, 2023 (see Note 10 “Debt”). As of December 28, 2018, the Delayed DrawTerm Loan Facility was fully drawn, the Company had $27.3 million available for borrowing under the revolving creditfacility and $2.7 million letters of credit issued. The Company believes that its cash and cash equivalents on hand, cashgenerated by operating activities and available borrowings under our revolving credit facility will be sufficient to finance itsoperating activities for at least the next 12 months.Adoption of New Accounting StandardsOn December 30, 2017, the Company adopted ASC 606, using the modified retrospective method applied to thosecontracts which were not completed as of December 29, 2017. Prior to adopting ASC 606, the Company established animplementation team, which included senior managers from its finance and accounting group. The implementation teamevaluated the impact of adopting ASC 606 on its contracts expected to be uncompleted as of December 30, 2017 (the date ofadoption). The evaluation included reviewing its accounting policies and practices to identify differences that would resultfrom applying the requirements of the new standard. The Company identified and made changes to its processes, systems andcontrols to support recognition and disclosure under the new standard. TheF-17 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 implementation team worked closely with various professional consultants and attended several formal conferences andseminars to conclude on certain interpretative issues.The Company recognizes engineering and consulting contract revenue over time using the percentage-of-completion method, based primarily on contract cost incurred to date compared to total estimated contract cost. Revenue onthe vast majority of its contracts will continue to be recognized over time because of the continuous transfer of control to thecustomer. Revenue recognition for software licenses issued by the Energy segment is recognized at a point in time, uponacceptance of the software by the customer and in recognition of the fulfillment of the performance obligation. Certainadditional performance obligations beyond the base software license may be separated from the gross license fee andrecognized on a straight-line basis over time. Disaggregation of Revenue The following tables provides information about disaggregated revenue of the Company’s two segments Energy andEngineering and Consulting by contract type, client type and geographical region for the year ended December 28, 2018: Contract Type Energy Engineering andConsulting TotalTime-and-materials $13,790,000 $59,744,000 $73,534,000Unit-based 113,749,000 13,300,000 127,049,000Fixed price 69,294,000 2,375,000 71,669,000Total $196,833,000 $75,419,000 $272,252,000 Client Type Energy Engineering andConsulting TotalCommercial $20,715,000 $4,882,000 $25,597,000Government 62,897,000 70,091,000 132,988,000Utilities 113,221,000 446,000 113,667,000Total $196,833,000 $75,419,000 $272,252,000 Geography Energy Engineering andConsulting TotalDomestic $196,833,000 $75,419,000 $272,252,000 Contract Balances Results for operating periods beginning after December 30, 2017 are presented under ASC 606, while comparativeinformation has not been restated and continues to be reported in accordance with the accounting standards in effect forthose periods. F-18 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 The Company recognized the cumulative effect of initially applying ASC 606 as an adjustment to retained earningsin the balance sheet as of December 30, 2017 as follows: Balance at Adjustments Balance at December 29, Due to December 30, 2017 ASC 606 2017Assets Accounts receivable, net of allowance for doubtful accounts $38,441,000 $(8,560,000) $29,881,000Contract assets $24,732,000 $9,328,000 $34,060,000 Liabilities Deferred income taxes, net $2,463,000 $(215,000) $2,248,000 Equity Retained earnings $19,588,000 $553,000 $20,141,000 The impact of adoption on its condensed consolidated balance sheet and cash flows for the fiscal year endedDecember 28, 2018 was as follows: For the year ended December 28, 2018 As Balances Without Effect of Change Reported Adoption of ASC 606 Higher/(Lower)Assets Accounts receivable, net of allowance for doubtful accounts $61,346,000 $68,240,000 $(6,894,000)Contract assets $51,851,000 $44,981,000 $6,870,000 Liabilities Deferred income taxes, net $ — $112,000 $(112,000) Equity Retained earnings $30,171,000 $29,889,000 $282,000 For the year ended December 28, 2018 As Balances Without Effect of Change Reported Adoption of ASC 606 Higher/(Lower)Cash flows from operating activities Accounts receivable, net of allowance for doubtful accounts $3,177,000 $(3,717,000) $6,894,000Contract assets (11,539,000) (4,645,000) (6,894,000)Total cash flows used in operating activities $(8,362,000) $(8,362,000) $ — The impact of adoption on its opening balance sheet was primarily related to deferred revenues and unrecognizedlicense renewals associated with software license agreements currently in force reclassified to retained earnings, net of thedeferred income tax impact and reclassification of amounts between accounts receivable net of allowance for doubtfulaccounts and contract assets based on whether an unconditional right to consideration has been established or not. The impact of adoption on its balance sheet at December 28, 2018 was primarily related to conforming theaccounting treatment of most of our non-cancellable software license contracts, which were previously recorded over timebased on prior acceptable accounting methods, and now recognize the full amount of such licenses upon acceptance of thesoftware by the customer.F-19 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 The impact of adoption on its statement of operations was not material for the fiscal year ended December 28, 2018.Stock CompensationIn March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements toEmployee Share-Based Payment Accounting (“ASU 2016-09”), which amends the current stock compensation guidance. Theamendments simplify the accounting for the taxes related to stock-based compensation, including adjustments to how excesstax benefits and a company's payments for tax withholdings should be classified. The standard is effective for fiscal periodsbeginning after December 15, 2016, with early adoption permitted. The Company has elected to early adopt ASU 2016-09 ona prospective basis, which resulted in a decrease to tax expense of approximately $0.3 million and $1.6 million for the fiscalyears ended December 28, 2018 and December 29, 2017, respectively.Statement of Cash FlowsIn August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2016-15, Statement of Cash Flows: Clarification of Certain Cash Receipts and Cash Payments, which eliminates the diversityin practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding orclarifying guidance on eight specific cash flow issues. ASU 2016-15 was effective for annual and interim reporting periodsbeginning after December 15, 2017 and early adoption is permitted. ASU 2016-15 provides for retrospective application forall periods presented.Recent Accounting PronouncementsLeasesIn February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued this update to increasetransparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheetand disclosing key information about leasing arrangements. The updated guidance is effective for annual periods beginningafter December 15, 2018, including interim periods within those fiscal years. Early adoption of the update is permitted. Whilethe Company is evaluating the impact of the adoption of this update on its consolidated financial statements, it currentlyexpects that the adoption of the new guidance will result in a significant increase in the assets and liabilities on itsconsolidated balance sheets and will likely have an immaterial impact on the Company’s consolidated statements ofoperations and statements of cash flows.Stock CompensationIn June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements toNonemployee Share-Based Payment Accounting, which expands the scope of current stock compensation recognitionstandards to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07will become effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.Early adoption is permitted, but no earlier than an entity’s adoption date of ASU 2014-09 (Topic 606), which the Companyadopted on December 30, 2017. The Company is evaluating the impact ASU 2018-07 and does not believe the guidance willhave a material impact on its consolidated financial statements.F-20 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 Intangibles-Goodwill and OtherIn January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350), which eliminatesthe requirement to compare the implied fair value of reporting unit goodwill with the carrying amount of that goodwill(commonly referred to as Step 2) from the goodwill impairment test. The new standard does not change how a goodwillimpairment is identified. The Company will continue to perform its quantitative and qualitative goodwill impairment test bycomparing the fair value of each reporting unit to its carrying amount, but if the Company were required to recognize agoodwill impairment charge, under the new standard the amount of the charge would be calculated by subtracting thereporting unit’s fair value from its carrying amount. Under the prior standard, if the Company were required to recognize agoodwill impairment charge, Step 2 required the Company to calculate the implied value of goodwill by assigning the fairvalue of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a businesscombination and the amount of the charge was calculated by subtracting the reporting unit’s implied fair value of goodwillfrom its actual goodwill balance. The new standard is effective for interim and annual reporting periods beginning afterDecember 15, 2019, with early adoption permitted, and should be applied prospectively from the date of adoption. TheCompany elected to adopt the new standard for future goodwill impairment tests at the beginning of the fourth quarter of2019, because it significantly simplifies the evaluation of goodwill for impairment.Proposed Accounting StandardsA variety of proposed or otherwise potential accounting standards are currently being studied by standard-settingorganizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards,the Company has not yet determined the effect, if any, that the implementation of such proposed standards would have on itsconsolidated financial statements. 3. BUSINESS COMBINATIONSAcquisition of Lime EnergyOn October 1, 2018, the Company, through two of its wholly-owned subsidiaries, Willdan Energy Solutions(“WES”) and Luna Fruit, Inc., a Delaware corporation and wholly-owned subsidiary of WES (“Merger Sub”), entered into anagreement to acquire all of the outstanding shares of capital stock of Lime Energy Co. (“Lime Energy”), pursuant to anagreement and plan of merger dated October 1, 2018 (the “Merger Agreement”), by and among WES, Merger Sub, LimeEnergy, and Luna Stockholder Representative, LLC, as representative of the participating securityholders of Lime Energy.The Company believes the addition of Lime Energy’s capabilities will significantly expand and diversify its client basewithin the energy efficiency services market and geographic presence across the United States.On November 9, 2018, the Company completed the acquisition and, pursuant to the Merger Agreement, Merger Subwas merged with and into Lime Energy, with Lime Energy surviving as a wholly-owned indirect subsidiary of the Company.The aggregate purchase price paid in the acquisition was $120.0 million, exclusive of closing holdbacks and adjustments. Aportion of the purchase price was deposited into escrow accounts to secure certain potential post-closing obligations of theparticipating securityholders. The Company paid the purchase price for the acquisition using a combination of cash on hand(including $50.0 million of the $56.4 million in net proceeds received from the Company’s equity offering in October 2018)and proceeds from the Company’s borrowings under its Delayed Draw Term Loan Facility (see Note 10 “—Debt Obligations”below).The acquisition was accounted for as a business combination in accordance with ASC 805. Under ASC 805, theCompany recorded the acquired assets and assumed liabilities at their estimated fair value with the excess allocated toF-21 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 goodwill. Goodwill represents the value the Company expects to achieve through the operational synergies and theexpansion into new markets. The Company estimates that the entire $57.5 million of goodwill resulting from the acquisitionwill not be tax deductible. Consideration for the acquisition includes the following preliminary information: Lime EnergyCash paid $122,376,000Other working capital adjustment 63,000Total consideration $122,439,000 The following table summarizes the preliminary amounts for the acquired assets recorded at their estimated fairvalue as of the acquisition date: Lime EnergyCurrent assets (1) $45,401,000Non-current assets (2) 13,847,000Cash 1,090,000Equipment and leasehold improvements, net 1,892,000Liabilities (33,603,000)Customer relationships 19,400,000Tradename 5,970,000Developed technology 10,200,000Backlog 730,000Goodwill 57,512,000Net assets acquired $122,439,000 (1)Excluded from current assets is cash(2)Excluded from non-current assets are equipment and leasehold improvements, net, customer relationships,tradename, developed technology, backlog and goodwill.Acquisition related costs of $1.5 million are included in other general and administrative expenses in theconsolidated statements of operations for the fiscal year ended December 28, 2018.F-22 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 The following unaudited pro forma financial information for the fiscal years ended December 28, 2018 andDecember 29, 2017 assumes that acquisition of all the outstanding shares of Lime Energy occurred on December 31, 2016 asfollows: Year Ended December 28, December 29,In thousands (except per share data) 2018 2017Pro forma revenue $401,703 $400,217 Pro forma income from operations $13,415 $7,230Pro forma net income (1) $10,725 $4,618 Earnings per share: Basic $0.99 $0.44Diluted $0.95 $0.41 Weighted average shares outstanding: Basic 10,828 10,554Diluted 11,327 11,168 (1)Adjustments to pro forma net income include income from operations, amortization and interest expenses.This pro forma supplemental information does not purport to be indicative of what the Company’s operating resultswould have been had this transaction occurred on December 31, 2016 and may not be indicative of future operating results.During the fiscal year ended December 28, 2018, the acquisition of Lime Energy contributed $24.4 million inrevenue and $2.1 million of income from operations.Acquisition of Newcomb Anderson McCormick On April 30, 2018, the Company, through its wholly-owned subsidiary, WES, acquired all of the outstanding equityinterests of Newcomb Anderson McCormick, Inc. (“NAM”). NAM is an energy engineering and consulting company withoffices in San Francisco and Los Angeles that provides clients with mechanical engineering expertise and comprehensiveenergy efficiency programs and services. Pursuant to the terms of the Stock Purchase Agreement, dated April 30, 2018, byand among the Company, WES and NAM, WES will pay NAM shareholders a maximum purchase price of $4.0 million,subject to potential earn-out payments plus working capital adjustments, to be paid in cash. In connection with theCompany’s New Credit Facilities (as defined herein), as of October 8, 2018, the earn-out payments to NAM shareholdersbecame subject to certain subordination provisions in favor of BMO, as the Company’s senior secured lender, under the NewCredit Facilities. The Company expects to finalize the purchase price allocation with respect to this transaction by thesecond quarter of 2019. NAM’s financial information is included within the Energy segment.Acquisition of Integral AnalyticsOn July 28, 2017, the Company and the Company’s wholly-owned subsidiary WES acquired all of the outstandingshares of Integral Analytics, a data analytics and software company, pursuant to the Stock PurchaseF-23 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 Agreement, dated July 28, 2017 (the “Purchase Agreement”), by and among Willdan Group, WES, Integral Analytics, thestockholders of Integral Analytics (the “IA Stockholders”) and the Sellers’ Representative (as defined therein). The Companybelieves the addition of Integral Analytics’ capabilities will improve the ability to target locational energy savings andmicrogrids and can provide a clear technical advantage on energy efficiency programs.Pursuant to the terms of the Purchase Agreement, WES will pay the IA Stockholders a maximum purchase price of$30.0 million, consisting of (i) $15.0 million in cash paid at closing (subject to certain post-closing tangible net asset valueadjustments), (ii) 90,611 shares of common stock, par value $0.01 per share, of Willdan Group, Inc. (“Common Stock”) issuedat closing, equaling $3.0 million, calculated based on the volume-weighted average price of shares of Common Stock for theten trading days immediately prior to, but not including, the closing date of the acquisition of Integral Analytics (the“Closing Date”) and (iii) up to $12.0 million in cash for a percentage of sales attributable to the business of IntegralAnalytics during the three years after the Closing Date, as more fully described below (such potential payments of up to$12.0 million, being referred to as “Earn-Out Payments” and $12.0 million in respect thereof, being referred to as the“Maximum Payout”). The Company used cash on hand for the $15.0 million cash payment paid at closing. As of September30, 2018, we finalized the purchase price allocation (as detailed in the table below) with respect to this transaction.The size of the Earn-Out Payments to be paid will be determined based on two factors. First, the IA Stockholders willreceive 2% of gross contracted revenue for new work sold by the Company in close collaboration with Integral Analyticsduring the three years following the Closing Date (the “Earn-Out Period”). Second, the IA Stockholders will receive 20% ofthe gross contracted revenue specified in each executed and/or effective software licensing agreement, entered into by theCompany or one of its affiliates that contains pricing either equal to or greater than standard pricing, of software offered forlicensing by Integral Analytics during the Earn-Out Period. The amounts due to the IA Stockholders pursuant to these twofactors will in no event, individually or in the aggregate, exceed the Maximum Payout. Earn-Out Payments will be made inquarterly installments for each year of the Earn-Out Period. For the purposes of both of these factors credit will be given toIntegral Analytics for the gross contracted revenue in the quarter in which the contract/license is executed, regardless of whenthe receipt of payment thereunder is expected. The amount of gross contracted revenue for contracts with unfunded ceilingsor of an indeterminate contractual value will be mutually agreed upon. Further, in the event of a change of control of WESduring the Earn-Out Period, any then-unpaid amount of the Maximum Payout will be paid promptly to the IA Stockholders,even if such Earn-Out Payments have not been earned at that time. The Company has agreed to certain covenants regardingthe operation of Integral Analytics during the Earn-Out Period, of which a violation by the Company could result in damagesbeing paid to the IA Stockholders in respect of the Earn-Out. In addition, as of October 6, 2018, the Earn-Out Payments weresubject to certain subordination provisions in favor of BMO, as the Company’s senior secured lender, under the New CreditFacilities (see Note 10 “Debt” below).WES has also established a bonus pool for the employees of Integral Analytics to be paid based on IntegralAnalytics’ performance against certain targets.The acquisition was accounted for as a business combination in accordance with ASC 805. Under ASC 805, theCompany recorded the acquired assets and assumed liabilities at their estimated fair value with the excess allocated togoodwill. Goodwill represents the value the Company expects to achieve through the operational synergies and theexpansion into new markets. The Company estimates that the entire $16.0 million of goodwill resulting from theF-24 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 acquisition will be tax deductible. Consideration for the acquisition includes the following information: Integral AnalyticsCash paid $15,000,000Other payable for working capital adjustment 113,000Issuance of common stock 3,100,000Contingent consideration 5,600,000Total consideration $23,813,000The following table summarizes the final purchase price allocation for the acquired assets recorded at their estimatedfair value as of the acquisition date: Integral AnalyticsCurrent assets (1) $626,000Non-current assets (2) 2,000Cash 397,000Equipment and leasehold improvements, net 5,000Liabilities (946,000)Customer relationships 1,950,000Tradename 1,410,000Developed technology 2,720,000In-process technology 1,690,000Goodwill 15,959,000Net assets acquired $23,813,000(1)Excluded from current assets is cash(2)Excluded from non-current assets are equipment and leasehold improvements, net, customer relationships, tradename,developed technology, in-process technology and goodwill.As of December 28, 2018, the Company has contingent consideration payable of $3.5 million related to theacquisition of Integral Analytics offset by a discount of $0.5 million. For fiscal 2018, the statement of operations includes$0.7 million of accretion (excluding fair value adjustments) related to the contingent consideration. Contingentconsideration is subject to change for each reporting period through settlement. The Company measures the contingent earn-out liabilities at fair value on the date of acquisition and on a recurring basis using significant unobservable inputs classifiedwithin Level 3 of the fair value hierarchy. The Company uses a probability-weighted discounted income approach as avaluation technique to convert future estimated cash flows to a single present value amount. The significant unobservableinputs used in the fair value measurements are operating income projections over the earn-out period, and the probabilityoutcome percentages assigned to each scenario. Significant increases or decreases to either of these inputs in isolation wouldresult in a significantly higher or lower liability, with a higher liability capped by the contractual maximum of thecontingent earn-out obligation. Ultimately, the liability will be equivalent to the amount paid, and the difference betweenthe fair value estimate and amount paid will be recorded in earnings. There were no changes to the ranges of estimatedpayments or discount rates.There were no acquisition related costs associated with Integral Analytics included in other general andadministrative expenses in the consolidated statements of operations for the fiscal year ended December 28, 2018.F-25 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 The following unaudited pro forma financial information for the years ended December 29, 2017 and December 30,2016 assumes that acquisition of all the outstanding shares of Integral Analytics occurred on January 2, 2016 as follows: Year Ended December 29, December 30,In thousands (except per share data) 2017 2016Pro forma revenue $275,622 $227,504 Pro forma income from operations $11,991 $10,107Pro forma net income (1) $10,345 $7,627 Earnings per share: Basic $1.21 $0.92Diluted $1.13 $0.88 Weighted average shares outstanding: Basic 8,541 8,310Diluted 9,155 8,656(1)Adjustments to pro forma net income include income from operations, amortization and interest expenses.This pro forma supplemental information does not purport to be indicative of what the Company’s operating resultswould have been had this transaction occurred on January 2, 2016 and may not be indicative of future operating results.During the fiscal year ended December 28, 2018, the acquisition of all of the outstanding shares of IntegralAnalytics contributed $5.5 million in revenue and $0.1 million of income from operations.Acquisition of Substantially All of the Assets of GenesysOn March 4, 2016, the Company and the Company’s wholly-owned subsidiary, WES acquired substantially all ofthe assets of Genesys and assumed certain specified liabilities of Genesys (collectively, the “Purchase”) pursuant to an AssetPurchase and Merger Agreement, dated as of February 26, 2016 (the “Agreement”), by and among Willdan Group, Inc., WES,WESGEN (as defined below), Genesys and Ronald W. Mineo (“Mineo”) and Robert J. Braun (“Braun” and, together withMineo, the “Genesys Shareholders”). On March 5, 2016, pursuant to the terms of the Agreement, WESGEN, Inc., a non-affiliated corporation (“WESGEN”), merged (the “Merger” and, together with the Purchase, the “Acquisition”) with Genesys,with Genesys remaining as the surviving corporation. Genesys was acquired to strengthen the Company’s power engineeringcapability in the northeastern U.S., and also to increase client exposure and experience with universities.Pursuant to the terms of the Agreement, WES or WESGEN, as applicable, paid the Genesys Shareholders anaggregate purchase price (the “Purchase Price”) of approximately $15.1 million, including post-closing working capital andtax adjustments. The Purchase Price consisted of (i) $6.0 million in cash, paid at closing, and $2.9 million paid in cash afterclosing for working capital and tax adjustments, (ii) 255,808 shares of common stock, par value $0.01 per share (the“Common Stock”), with a fair value on the date of closing of $2.2 million, (iii) $4.6 million in cash, payable in twenty-four(24) equal monthly installments beginning on March 26, 2016 (the “Installment Payments”), and (iv)F-26 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 offset by a $0.6 million receivable paid to WES for working capital adjustments. Until the third anniversary of the ClosingDate (the “Closing Date”), the Genesys Shareholders are prohibited from transferring or disposing of any Common Stockreceived in connection with the Acquisition.The Agreement contains customary representations and warranties regarding the Company, WES, WESGEN,Genesys and the Genesys Shareholders, indemnification provisions and other provisions customary for transactions of thisnature. Pursuant to the terms of the Agreement, the Company and WES also provided guarantees to the Genesys Shareholderswhich guarantee certain of WESGEN’s and Genesys’s obligations under the Agreement, including the Installment Payments.Genesys has a sole shareholder who is a licensed engineer in New York (the “Shareholder”).The Company used cash on hand to pay the $8.9 million due to the Genesys Shareholders at closing.Genesys continues to be a professional corporation organized under the laws of the State of New York, wholly-owned by one or more licensed engineers. Pursuant to New York law, the Company does not own capital stock of Genesys.The Company has entered into an agreement with the Shareholder of Genesys pursuant to which the Shareholder will beprohibited from selling, transferring or encumbering the Shareholder’s ownership interest in Genesys without the Company’sconsent. Notwithstanding the Company’s rights regarding the transfer of Genesys’s stock, the Company does not havecontrol over the professional decision making of Genesys’s engineering services. The Company has entered into anadministrative services agreement with Genesys pursuant to which WES will provide Genesys with ongoing administrative,operational and other non-professional support services. Genesys pays WES a service fee, which consists of all of the costsincurred by WES to provide the administrative services to Genesys plus ten percent of such costs, as well as any other coststhat relate to professional service supplies and personnel costs. As a result of the administrative services agreement, theCompany absorbs the expected losses of Genesys through its deferral of Genesys’s service fees owed to WES.The acquisition was accounted for as a business combination in accordance with ASC 805. Under ASC 805, theCompany recorded the acquired assets and assumed liabilities at their estimated fair value with the excess allocated togoodwill. Goodwill represents the value the Company expects to achieve through the operational synergies and theexpansion into new markets. The Company estimates that the entire $6.2 million of goodwill resulting from the acquisitionwill be tax deductible. Consideration for the acquisition includes the following: Genesys Cash paid $8,857,000 Other receivable for working capital adjustment (604,000) Issuance of common stock 2,228,000 Deferred purchase price, payable in 24 monthly installments 4,569,000 Total consideration $15,050,000 F-27 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 The following table summarizes the amounts for the acquired assets recorded at their estimated fair value as of theacquisition date: Genesys Current assets (1) $14,952,000 Non-current assets (2) 36,000 Cash 101,000 Equipment and leasehold improvements, net 117,000 Liabilities (12,643,000) Customer relationships 3,260,000 Backlog 1,050,000 Tradename 1,690,000 Non-compete agreements 320,000 Goodwill 6,167,000 Net assets acquired $15,050,000 (1)Excluded from current assets is cash(2)Excluded from non-current assets are equipment and leasehold improvements, net, customer relationships,backlog, tradename, non-compete agreements and goodwill.The following unaudited pro forma financial information for the fiscal years ended December 30, 2016 and January1, 2016 assumes the acquisition of substantially all of the assets of Genesys occurred on January 2, 2015 as follows: Year Ended December 30, January 1, In thousands (except per share data) 2016 2016 Pro forma revenue $222,914 $167,479 Pro forma income from operations $12,504 $7,755 Pro forma net income (1) $8,907 $4,498 Earnings per share: Basic $1.08 $0.57 Diluted $1.04 $0.55 Weighted average shares outstanding: Basic 8,219 7,834 Diluted 8,565 8,113 (1)Adjustments to pro forma net income include income from operations, amortization and interest expenses.F-28 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 This pro forma supplemental information does not purport to be indicative of what the company’s operating resultswould have been had these transactions occurred on January 2, 2015 and may not be indicative of future operating results.Acquisition related costs of $71,000 and $0.2 million are included in other general and administrative expense inthe consolidated statements of operations for the fiscal years ended December 30, 2016 and January 1, 2016, respectively.There were no acquisition costs related to Genesys recorded during the fiscal year ended December 28, 2018.4. GOODWILL AND OTHER INTANGIBLE ASSETSAs of December 28, 2018, the Company had $97.7 million of goodwill, which primarily relates to the Energyreporting segment and the acquisitions within this segment of Lime Energy, NAM, Integral Analytics and Abacus andsubstantially all of the assets of Genesys and 360 Energy. The remaining goodwill relates to the Engineering and Consultingreporting segment and the acquisition within this segment of Economists LLC. The changes in the carrying value ofgoodwill by reporting unit for the fiscal year ended December 28, 2018 were as follows: December 30, Additional Additions / December 29, 2016 Purchase Cost Adjustments 2017Reporting Unit: Energy $21,198,000 $16,379,000 $(142,000) $37,435,000Engineering and Consulting 749,000 — — 749,000 $21,947,000 $16,379,000 $(142,000) $38,184,000 December 29, Additional Additions / December 28, 2017 Purchase Cost Adjustments 2018Reporting Unit: Energy $37,435,000 $59,466,000 $98,000 $96,999,000Engineering and Consulting 749,000 — — 749,000 $38,184,000 $59,466,000 $98,000 $97,748,000 The gross amounts and accumulated amortization of the Company’s acquired identifiable intangible assets withfinite useful lives as of December 28, 2018 and December 29, 2017, included in other intangible assets, net in theaccompanying consolidated balance sheets, were as follows: December 28, 2018 December 29, 2017 Gross Accumulated Gross Accumulated Amortization Amount Amortization Amount Amortization Period (yrs) Backlog $2,514,000 $2,155,000 $1,398,000 $989,000 5.0 Tradename 10,301,000 3,118,000 3,779,000 2,050,000 2.5 - 6.0 Non-compete agreements 1,420,000 1,042,000 1,331,000 745,000 4.0 Developed technology 12,920,000 944,000 2,760,000 144,000 8.0 In-process research and technology (1) 1,690,000 — 1,650,000 — 10.0 Customer relationships 25,219,000 2,441,000 4,960,000 1,284,000 5.0 - 8.0 $54,064,000 $9,700,000 $15,878,000 $5,212,000 (1)In-process research and technology will not be amortized until put into use.F-29 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 The Company’s amortization expense for acquired identifiable intangible assets with finite useful lives was$4.5 million for the fiscal year ended December 28, 2018, and $2.4 million and $1.9 million for the fiscal years endedDecember 29, 2017 and December 30, 2016, respectively. Estimated amortization expense for acquired identifiableintangible assets for fiscal year 2019 and the succeeding years is as follows:Fiscal year: 2019 $7,577,000 2020 7,165,000 2021 6,473,000 2022 6,287,000 2023 5,642,000 Thereafter 11,220,000 $44,364,000 At the time of acquisition, the Company estimates the fair value of the acquired identifiable intangible assets basedupon the facts and circumstances related to the particular intangible asset. Inherent in such estimates are judgments andestimates of future revenue, profitability, cash flows and appropriate discount rates for any present value calculations. TheCompany preliminarily estimates the value of the acquired identifiable intangible assets and then finalizes the estimated fairvalues during the purchase allocation period, which does not extend beyond 12 months from the date of acquisition.The Company tests its goodwill at least annually for possible impairment. The Company completes its annualtesting of goodwill as of the last day of the first month of its fourth fiscal quarter each year to determine whether there isimpairment. In addition to the Company’s annual test, it regularly evaluates whether events and circumstances have occurredthat may indicate a potential impairment of goodwill. No impairment was recorded during the three-year period endedDecember 28, 2018.5. EARNINGS PER SHARE (“EPS”)Basic EPS is computed by dividing net income available to common stockholders by the weighted‑average numberof common shares outstanding. Diluted EPS is computed by dividing net income by the weighted‑average number ofcommon shares outstanding and dilutive potential common shares for the period. Potential common shares include theweighted‑average dilutive effects of outstanding stock options and restricted stock awards using the treasury stock method.F-30 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 The following table sets forth the number of weighted‑average common shares outstanding used to compute basicand diluted EPS: Fiscal Year 2018 2017 2016 Net income $10,030,000 $12,129,000 $8,299,000 Weighted-average common shares outstanding 9,264,000 8,541,000 8,219,000 Effect of dilutive stock options and restricted stock awards 499,000 614,000 346,000 Weighted-average common shares outstanding-diluted 9,763,000 9,155,000 8,565,000 Earnings per share: Basic $1.08 $1.42 $1.01 Diluted $1.03 $1.32 $0.97 For the fiscal year ended December 28, 2018, 247,800 options were excluded from the calculation of dilutivepotential common shares, compared to 114,600 and 322,200 options, for fiscal years 2017 and 2016, respectively. Theseoptions were not included in the computation of dilutive potential common shares because the assumed proceeds per shareexceeded the average market price per share for the respective periods. Accordingly, the inclusion of these options wouldhave been anti‑dilutive.6. ACCOUNTS RECEIVABLEAccounts receivable consisted of the following at December 28, 2018 and December 29, 2017: December 28, December 29, 2018 2017 Billed $61,788,000 $30,250,000 Unbilled (1) 45,158,000 24,732,000 Contract retentions 6,693,000 8,560,000 Other assets (2) 1,626,000 — 115,265,000 63,542,000 Allowance for doubtful accounts (442,000) (369,000) $114,823,000 $63,173,000 (1)Unbilled portion represents contract assets which is presented separately from accounts receivable on theconsolidated balance sheets.(2)Other assets represents a portion of receivables greater than one year from the normal course of businesspresented separately from current assets on the consolidated balance sheets.F-31 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 The movements in the allowance for doubtful accounts consisted of the following for fiscal years 2018, 2017 and2016: Fiscal Year 2018 2017 2016 Balance as of the beginning of the year $369,000 $785,000 $760,000 (Recovery of) provision for doubtful accounts 470,000 (189,000) 216,000 Write-offs of uncollectible accounts (397,000) (227,000) (191,000) Balance as of the end of the year $442,000 $369,000 $785,000 Billed accounts receivable represent amounts billed to clients that have yet to be collected. Unbilled accountsreceivable represent revenue recognized but not yet billed pursuant to contract terms or accounts billed after the period end.Substantially all unbilled receivables as of December 28, 2018 and December 29, 2017 are or were expected to be billed andcollected within twelve months of such date. Contract retentions represent amounts invoiced to clients where payments havebeen withheld pending the completion of certain milestones, other contractual conditions or upon the completion of theproject. These retention agreements vary from project to project and could be outstanding for several months.Allowances for doubtful accounts have been determined through specific identification of amounts considered to beuncollectible and potential write‑offs, plus a non‑specific allowance for other amounts for which some potential loss has beendetermined to be probable based on current and past experience.As of December 28, 2018, Dormitory Authority-State of New York (“DASNY”) accounted for 21% and ConsolidatedEdison of New York, Inc. (“Consolidated Edison”) accounted for 9% of outstanding receivables, as compared to DASNYaccounting for 20% and Consolidated Edison accounting for 15% of the Company’s outstanding receivables as of December29, 2017. For the fiscal year 2018, DASNY and Consolidated Edison represented 8% and 19%, respectively, of ourconsolidated contract revenue.7. EQUIPMENT AND LEASEHOLD IMPROVEMENTSEquipment and leasehold improvements consisted of the following at December 28, 2018 and December 29, 2017: December 28, December 29, 2018 2017 Furniture and fixtures $3,551,000 $3,011,000 Computer hardware and software 10,874,000 8,355,000 Leasehold improvements 1,419,000 1,121,000 Equipment under capital leases 1,304,000 1,095,000 Automobiles, trucks, and field equipment 2,635,000 2,100,000 19,783,000 15,682,000 Accumulated depreciation and amortization (11,785,000) (10,376,000) Equipment and leasehold improvements, net $7,998,000 $5,306,000 Included in accumulated depreciation and amortization is $374,000 and $380,000 of amortization expense relatedto equipment held under capital leases in fiscal years 2018 and 2017, respectively.F-32 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 8. ACCRUED LIABILITIESAccrued liabilities consisted of the following at December 28, 2018 and December 29, 2017: December 28, December 29, 2018 2017 Accrued bonuses $5,273,000 $2,687,000 Accrued interest 127,000 5,000 Paid leave bank 3,512,000 2,533,000 Compensation and payroll taxes 2,544,000 1,859,000 Accrued legal 153,000 103,000 Accrued workers’ compensation insurance 273,000 305,000 Accrued rent 233,000 192,000 Employee withholdings 2,137,000 1,812,000 Client deposits 280,000 92,000 Accrued subcontractor costs 21,446,000 13,103,000 Other 1,423,000 602,000 Total accrued liabilities $37,401,000 $23,293,000 9. EQUITY PLANSAs of December 28, 2018, the Company had two share‑based compensation plans, which are described below. TheCompany may no longer grant awards under the 2006 Stock Incentive Plan. The compensation expense that has beenrecognized for stock options, restricted stock awards and performance-based restricted stock units issued under these planswas $5,813,000, $2,426,000 and $1,239,000 for fiscal years 2018, 2017 and 2016, respectively.2006 STOCK INCENTIVE PLANIn June 2006, the Company’s board of directors adopted the 2006 Stock Incentive Plan (“2006 Plan”) and itreceived stockholder approval. The Company re‑submitted the 2006 Plan to its stockholders for post‑IPO approval at the2007 annual meeting of the stockholders and it was approved. The 2006 Plan terminated in June 2016 and no additionalawards were granted under the 2006 Plan after the Company’s shareholders approved the 2008 Plan (as defined below) inJune 2008. The 2006 Plan had 300,000 shares of common stock reserved for issuance to the Company’s directors, executives,officers, employees, consultants and advisors. Approximately 70,333 shares that were available for award grant purposesunder the 2006 Plan have become available for grant under the 2008 Plan following shareholder approval of the 2008 Plan.Options granted under the 2006 Plan could be “non‑statutory stock options” which expire no more than 10 years from thedate of grant or “incentive stock options” as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the“Internal Revenue Code”). Upon exercise of non‑statutory stock options, the Company is generally entitled to a taxdeduction on the exercise of the option for an amount equal to the excess over the exercise price of the fair market value ofthe shares at the date of exercise. The Company is generally not entitled to any tax deduction on the exercise of an incentivestock option. As of December 28, 2018, there were no outstanding stock options under the 2006 Plan.AMENDED AND RESTATED 2008 PERFORMANCE INCENTIVE PLANIn March 2008, the Company’s board of directors adopted the 2008 Performance Incentive Plan (“2008 Plan”), andit received stockholder approval at the 2008 annual meeting of the stockholders in June 2008. The 2008 Plan will currentlyterminate on April 17, 2027. The 2008 Plan initially had 450,000 shares of common stock reserved for issuanceF-33 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 (not counting any shares originally available under the 2006 Plan that “poured over.”) At the 2010, 2012, 2016 and 2017annual meetings of the stockholders, the stockholders approved 350,000, 500,000, 500,000 and 875,000 share increases,respectively, to the 2008 Plan. The maximum number of shares of the Company’s common stock that may be issued ortransferred pursuant to awards under the 2008 Plan can also be increased by any shares subject to stock options granted underthe 2006 Plan and outstanding as of June 9, 2008 which expire, or for any reason are cancelled or terminated, after June 9,2008 without being exercised. The 2008 Plan currently has 53,000 shares of common stock reserved for issuance. Awardsauthorized by the 2008 Plan include stock options, stock appreciation rights, restricted stock, stock bonuses, stock units,performance stock, and other share‑based awards. No participant may be granted an option to purchase more than 300,000shares in any fiscal year. Options generally may not be granted with exercise prices less than fair market value at the date ofgrant, with vesting provisions and contractual terms determined by the compensation committee of the board of directors ona grant-by-grant basis, subject to the minimum vesting provisions contained in the 2008 Plan. Options granted under the2008 Plan may be “nonqualified stock options” or “incentive stock options” as defined in Section 422 of the InternalRevenue Code. The maximum term of each option shall be 10 years. Upon exercise of nonqualified stock options, theCompany is generally entitled to a tax deduction on the exercise of the option for an amount equal to the excess over theexercise price of the fair market value of the shares at the date of exercise. The Company is generally not entitled to any taxdeduction on the exercise of an incentive stock option. For awards other than stock options, the Company is generallyentitled to a tax deduction at the time the award holder recognizes income with respect to the award equal to the amount ofcompensation income recognized by the award holder. Options and other awards provide for accelerated vesting if there is achange in control (as defined in the 2008 Plan) and the outstanding awards are not substituted or assumed in connection withthe transaction. Through December 28, 2018, outstanding awards granted, net of forfeitures and exercises, under the 2008Plan consisted of 535,000 shares of incentive stock options, 700,000 shares of non-statutory stock options, 64,000 shares ofrestricted stock awards and 280,000 shares of performance-based restricted stock units.The fair value of each option is calculated using the Black‑Scholes option valuation model that uses theassumptions noted in the following table. Expected volatility is based upon historical volatility of “guideline companies”since the length of time the Company’s shares have been publicly traded is equal to the contractual term of the options. Theexpected term of the option, taking into account both the contractual term of the option and the effects of employees’expected exercise and expected post‑vesting termination behavior is estimated based upon the simplified method. Under thisapproach, the expected term is presumed to be the mid‑point between the vesting date and the end of the contractual term.The risk‑free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at thetime of grant. The assumptions are as follows: 2018 2017 2016 Expected volatility 37%-38%38%-41%39%-41%Expected dividends 0% 0% 0%Expected term (in years) 6 6 6 Risk-free rate 2.65%-2.78%1.86%-2.08%1.2%-1.84%The Company’s restricted stock awards are valued on the closing price of the Company’s common stock on the dateof grant and typically vest over a three-year period.The Company’s performance-based restricted stock unit awards are valued on the closing price of the Company’scommon stock on the date of grant and vest over a four-year performance period. Under the Company’s new performance-based restricted stock unit (“PBRSU”) design, 50% of each award will vest based upon the Company’s EBITDA performanceover a four-year performance period (“EBITDA Units”), and the remaining 50% of each award will vest based upon theCompany’s earnings per share performance over a four-year performance period (“EPS Units”). The Company must achieve a10% growth rate for the threshold number of EBITDA Units and EPS Units to vest for anyF-34 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 performance year, and the target number of EBITDA Units and EPS Units will only vest in any performance year if theCompany is able to achieve a 20% growth rate. The Compensation Committee determined to move away from its historicalpractice of granting only time-based equity awards and introduced the PBRSUs in order to further align the interests of theCompany’s executives with those of shareholders by strengthening the relationship between executive pay and theCompany’s performance against two critical performance metrics that the Company believes will drive value creation for itsshareholders.Summary of Stock Option ActivityA summary of option activity under the 2006 Plan and 2008 Plan as of December 28, 2018 and changes during thefiscal years ended December 28, 2018, December 29, 2017 and December 30, 2016 is presented below. The intrinsic value ofthe fully‑vested options is $18,265,000 based on the Company’s closing stock price of $34.98 and the average exercise priceof outstanding options on December 28, 2018. Weighted- Weighted- Average Average Remaining Exercise Contractual Options Price Term (Years) Outstanding at December 29, 2017 1,207,000 $14.04 7.02 Granted 158,000 31.54 — Exercised (85,000) 7.85 — Forfeited or expired (28,000) 5.07 — Outstanding at December 28, 2018 1,252,000 $16.87 6.62 Vested and expected to vest at December 28, 2018 1,252,000 $16.87 6.62 Exercisable at December 28, 2018 838,000 $12.20 5.58 Weighted- Weighted- Average Average Remaining Exercise Contractual Options Price Term (Years) Outstanding at December 30, 2016 1,311,000 $10.15 6.69 Granted 199,000 30.28 — Exercised (271,000) 7.02 — Forfeited or expired (32,000) 15.65 — Outstanding at December 29, 2017 1,207,000 $14.04 7.02 Vested and expected to vest at December 29, 2017 1,207,000 $14.04 7.02 Exercisable at December 29, 2017 660,000 $8.84 5.58 F-35 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 Weighted- Weighted- Average Average Remaining Exercise Contractual Options Price Term (Years) Outstanding at January 1, 2016 964,000 $7.22 6.04 Granted 440,000 15.28 — Exercised (75,000) 4.41 — Forfeited or expired (18,000) 9.81 — Outstanding at December 30, 2016 1,311,000 $10.15 6.69 Vested and expected to vest at December 30, 2016 1,311,000 $10.15 6.69 Exercisable at December 30, 2016 658,000 $6.21 4.21 A summary of the status of the Company’s nonvested options and changes in nonvested options during the fiscalyears ended December 28, 2018, December 29, 2017 and December 30, 2016, is presented below: Weighted- Average Grant-Date Options Fair Value Nonvested at December 29, 2017 547,000 $6.43 Granted 158,000 12.73 Vested (263,000) 7.29 Forfeited (28,000) 5.07 Nonvested at December 28, 2018 414,000 8.69 Weighted- Average Grant-Date Options Fair Value Nonvested at December 30, 2016 653,000 $4.75 Granted 199,000 12.23 Vested (273,000) 6.68 Forfeited (32,000) 15.65 Nonvested at December 29, 2017 547,000 6.43 Weighted- Average Grant-Date Options Fair Value Nonvested at January 1, 2016 340,000 $3.77 Granted 440,000 6.15 Vested (109,000) 7.82 Forfeited (18,000) 9.81 Nonvested at December 30, 2016 653,000 4.75 F-36 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 Summary of Restricted Stock ActivityA summary of restricted stock activity under the 2008 Plan as of December 28, 2018 and changes during the fiscalyears ended December 28, 2018 and December 29, 2017, is presented below. Weighted- Average Restricted Stock Grant DateFair Value Outstanding at December 29, 2017 87,000 $17.67 Awarded 22,000 28.17 Vested (45,000) 16.09 Forfeited — — Outstanding at December 28, 2018 64,000 $22.28 Outstanding at December 30, 2016 99,000 $11.37 Awarded 28,000 31.53 Vested (40,000) 33.02 Forfeited — — Outstanding at December 29, 2017 87,000 $17.67 Outstanding at January 1, 2016 38,000 $11.66 Awarded 82,000 10.89 Vested (21,000) 9.89 Forfeited — — Outstanding at December 30, 2016 99,000 $11.37 Summary of Performance-Based Restricted Stock Unit ActivityA summary of performance-based restricted stock unit activity under the 2008 Plan as of December 28, 2018 andchanges during the fiscal year ended December 28, 2018. Performance-Based Weighted-Average Restricted Stock Unit Grant Date Fair ValueOutstanding at December 29, 2017 — $ —Awarded 280,000 21.94Vested — —Forfeited — —Outstanding at December 28, 2018 280,000 $22.28The total unrecognized compensation expense related to nonvested stock options was $3,598,000, $3,514,000 and$3,101,000 for the fiscal years ended December 28, 2018, December 29, 2017 and December 30, 2016, respectively. The totalunrecognized compensation expense related to restricted stock awards was $1,012,000, $1,162,000 and $874,000 for thefiscal years ended December 28, 2018, December 29, 2017 and December 30, 2016, respectively. The total unrecognizedcompensation expense related to performance-based restricted stock units was $12,254,000 for the fiscal year endedDecember 28, 2018. That expense is expected to be recognized over a weighted-average period of 1.23 years. There were nooptions granted that were immediately vested during the fiscal years ended December 28, 2018, December 29, 2017 andDecember 30, 2016.F-37 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 AMENDED AND RESTATED 2006 EMPLOYEE STOCK PURCHASE PLANThe Company adopted its Amended and Restated 2006 Employee Stock Purchase Plan (“ESPP”) to allow eligibleemployees the right to purchase shares of common stock, at semi‑annual intervals, with their accumulated payrolldeductions. The plan received stockholder approval in June 2006. The Company re‑submitted the plan to its stockholders forpost‑IPO approval at the 2007 annual stockholders’ meeting where approval was obtained. The ESPP initially had 300,000shares of common stock reserved for issuance. At the 2017 annual meeting of the stockholders, the stockholders approved an825,000 share increase to the ESPP. A total of 1,125,000 shares of the Company’s common stock have been reserved forissuance under the plan.The plan has semi‑annual periods beginning on each January 1 and ending on each June 30 and beginning on eachJuly 1 and ending on each December 31. The first offering period commenced on February 10, 2007 and ended on June 30,2007. Participants make contributions under the plan only by means of payroll deductions each payroll period. The rate ofpayroll contributions elected by a Participant may not be less than one percent (1%) nor more than ten percent (10%) of theParticipant’s Earnings for each payroll period, and only whole percentages may be elected. The accumulated contributionsare applied to the purchase of shares. Shares are purchased under the plan on or as soon as practicable after, the last day of theoffering period. The purchase price per share equals 85% of the fair market value of a share on the lesser price of the share onthe first day or last day of the offering period.The Company’s Amended and Restated 2006 Employee Stock Purchase Plan is a compensatory plan. As ofDecember 28, 2018, there were 740,000 shares available for issuance under the plan.10. DEBT OBLIGATIONSDebt obligations, excluding obligations under capital leases (see Note 11 “—Commitments—Leases” below),consist of the following: December 28, December 29, 2018 2017 Outstanding borrowings on revolving credit facility $ — $2,500,000 Outstanding borrowings on delayed draw term loan 70,000,000 — Notes payable for insurance, 11 month term, bearing interest at 4.3%, payable in monthlyprincipal and interest installments of $92,296 through October 2019. 1,500,000 — Notes payable for IBM Software, 36 month term, bearing interest at 4.656% payable inmonthly principal and interest installments of $6,315 through November 2021. 211,000 — Deferred purchase price for the acquisition of substantially all of the assets of Genesys,bearing interest at 0.650%, payable in monthly principal and interest installments of$191,667 through March 2018. — 383,000 Total debt obligations 71,711,000 2,883,000 Less current portion 8,572,000 383,000 Debt obligations, less current portion $63,139,000 $2,500,000 F-38 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 The following table summarizes the combined principal installments for the Company’s debt obligations, excludingcapital leases, over the next five years and beyond, as of December 28, 2018:Fiscal Year: 2019 8,572,0002020 7,071,0002021 7,068,0002022 7,000,000Thereafter 42,000,000 $71,711,000 New Credit FacilitiesIn connection with the acquisition of Lime Energy, the Company entered into a new credit agreement on October 1,2018 (the “Credit Agreement”) with a syndicate of financial institutions as lenders, and BMO Harris Bank, N.A., asadministrative agent. The Credit Agreement initially provided for up to a $90.0 million delayed draw term loan facility (the“Delayed Draw Term Loan Facility”) and a $30.0 million revolving credit facility (collectively, the “New Credit Facilities”),each maturing on October 1, 2023. On October 10, 2018, as a result of the Company’s completed equity offering, the amountavailable for borrowing under the Delayed Draw Term Loan Facility was reduced to $70.0 million. On November 9, 2018, inconnection with the closing of the acquisition of Lime Energy, the Company borrowed $70.0 million under the DelayedDraw Term Loan Facility. The proceeds of such borrowing were used to pay part of the consideration owed in connectionwith the acquisition along with related fees and expenses. The Credit Agreement replaced the Company’s prior $35.0 millionrevolving line of credit with BMO Harris Bank, N.A.The New Credit Facilities bear interest at a rate equal to either, at the Company’s option, (i) the highest of the primerate, the Federal Funds Rate plus 0.50% or one-month LIBOR plus 1.00% (“Base Rate”) or (ii) LIBOR, in each case plus anapplicable margin ranging from 0.25% to 3.00% with respect to Base Rate borrowings and 1.25% to 4.00% with respect toLIBOR borrowings. The applicable margin is based upon the Company’s consolidated total leverage ratio. The Companywill also pay a commitment fee for the unused portion of the revolving credit facility, which ranges from 0.20% to 0.40% perannum depending on the Company’s consolidated total leverage ratio, and fees on the face amount of any letters of creditoutstanding under the revolving credit facility, which range from 0.94% to 4.00% per annum, in each case, depending onwhether such letter of credit is a performance or financial letter of credit and the Company’s consolidated total leverage ratio.The Delayed Draw Term Loan Facility will amortize quarterly in an amount equal to 10% annually, with a final payment ofall then remaining principal due on the maturity date on October 1, 2023.Willdan Group, Inc. is the borrower under the Credit Agreement and its obligations under the Credit Agreement areguaranteed by its present and future domestic subsidiaries (other than inactive subsidiaries), including Lime Energy and itssubsidiaries (other than inactive subsidiaries). In addition, subject to certain exceptions, all such obligations are secured bysubstantially all of the assets of Willdan Group, Inc. and the subsidiary guarantors, including Lime Energy and itssubsidiaries (other than inactive subsidiaries).The Credit Agreement requires compliance with financial covenants, including a maximum total leverage ratio anda minimum fixed charge coverage ratio. The Credit Agreement also contains customary restrictive covenants including (i)restrictions on the incurrence of additional indebtedness and additional liens on property, (ii) restrictions on permittedacquisitions and other investments and (iii) limitations on asset sales, mergers and acquisitions. Further, the CreditAgreement limits the Company’s payment of future dividends and distributions and share repurchases by the Company.Subject to certain exceptions, the New Credit Facilities are also subject to mandatory prepayment from (a)F-39 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 any issuances of debt or equity securities, (b) any sale or disposition of assets, (c) insurance and condemnation proceeds (d)representation and warranty insurance proceeds related to the Merger Agreement and (e) excess cash flow. The CreditAgreement includes customary events of default.As of March 8, 2019, $70.0 million was outstanding under the Delayed Draw Term Loan and $2.7 million in lettersof credit were issued.The Company believes that, as of December 28, 2018, it was in compliance with all covenants contained in theCredit Agreement.Prior Credit FacilityOn January 20, 2017, the Company and each of its subsidiaries, as guarantors, entered into an Amended andRestated Credit Agreement (the “Prior Credit Agreement”) with BMO, as lender. The Credit Agreement amended andextended the Company’s prior Credit Agreement. The Prior Credit Agreement provided for a $35.0 million revolving lineof credit, including a $10.0 million standby letter of credit sub-facility, and matures on January 20, 2020. Borrowings underthe Prior Credit Agreement bore interest at a rate equal to either, at the Company’s option, (i) the highest of the prime rate, theFederal Funds Rate plus 0.5% or one-month London Interbank Offered Rate (“LIBOR”) plus 1% (the “Base Rate”) or(ii) LIBOR, in each case plus an applicable margin ranging from 0.25% to 1.00% with respect to Base Rate borrowings and1.25% to 2.00% with respect to LIBOR borrowings. The applicable margin was based upon the consolidated leverage ratio ofthe Company. The Company was also required to pay a commitment fee for the unused portion of the revolving line of credit,which ranged from 0.20% to 0.35% per annum, and fees on any letters of credit drawn under the facility, which ranged from0.94% to 1.50%, in each case, depending on the Company’s consolidated leverage ratio.Borrowings under the revolving line of credit were guaranteed by all of the Company’s direct and indirectsubsidiaries and secured by substantially all of the Company’s and the Guarantors’ assets. On October 1, 2018, in connectionwith the Company entering into the Credit Agreement, the Prior Credit Agreement was terminated.Deferred Purchase Price The Asset Purchase and Merger Agreement for the acquisition of substantially all of the assets of Genesys datedMarch 4, 2016, included deferred payments to Messrs. Braun and Mineo in the amount of $2.3 million (“DeferredPayments”), each. The Deferred Payments are to be paid in twenty-four (24) equal monthly installments in the amount of$95,834, inclusive of interest at the rate of 0.65% per annum. Payments commenced April 4, 2016 and concluded March 4,2018. From issuance through December 28, 2018, the Company made payments of $4.6 million inclusive of interest and asof December 28, 2018, there were no outstanding balances for either Messrs. Braun or Mineo.Insurance PremiumsThe Company has also financed, from time to time, insurance premiums by entering into unsecured notes payablewith insurance companies. During the Company’s annual insurance renewals in the fourth quarter of its fiscal year endedDecember 28, 2018, the Company elected to finance its insurance premiums for the upcoming fiscal year. Included in theCompany’s insurance renewal terms are individual stop loss amount of $100,000 and an aggregate of 125%. The unpaidbalance of the financed premiums totaled $1.5 million and $0 for fiscal years ended December 28, 2018 and December 29,2017, respectively.F-40 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 11. COMMITMENTSLeasesThe Company is obligated under capital leases for certain furniture and office equipment that expire at various datesthrough 2021.The Company also leases certain office facilities under non‑cancelable operating leases that expire at various datesthrough 2025.Future minimum rental payments under capital and non‑cancelable operating leases are summarized as follows: Capital Operating Fiscal year: 2019 $335,000 4,442,000 2020 204,000 2,882,000 2021 26,000 2,036,000 2022 — 1,565,000 2023 — 668,000 2023 — 996,000 Total future minimum lease payments 565,000 $12,589,000 Amount representing interest (at rates ranging from 3.25% to 3.75%) (21,000) Present value of net minimum lease payments under capital leases 544,000 Less current portion 320,000 $224,000 Rent expense and related charges for common area maintenance for all facility operating leases for fiscal years 2018,2017 and 2016 was approximately $4,486,000, $3,624,000 and $3,215,000, respectively. Employee Benefit PlansThe Company has a qualified profit sharing plan pursuant to Code Section 401(a) and qualified cash or deferredarrangement pursuant to Code Section 401(k) covering all employees. Employees may elect to contribute up to 50% of theircompensation limited to the amount allowed by tax laws. Company contributions are made solely at the discretion of theCompany’s board of directors.The Company also had a defined contribution plan (the “Plan”) covering employees who have completed threemonths of service and who have attained 21 years of age. The Company elected to make matching contributions equal to50% of the participants’ contributions to the Plan up to 6% of the individual participant’s compensation. Under the definedcontribution plan, the Company may make discretionary matching contributions to employee accounts.The Company made matching contributions of approximately $1,120,000, $1,021,000 and $900,000 during fiscalyears 2018, 2017 and 2016, respectively.The Company has a discretionary bonus plan for regional managers, division managers and others as determined bythe chief executive officer or Company president. Bonuses are awarded if certain financial goals are achieved. The financialgoals are not stated in the plan; rather they are judgmentally determined each year. In addition, the board of directors maydeclare discretionary bonuses to key employees and all employees are eligible for bonuses forF-41 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 outstanding performance. The Company’s compensation committee of the board of directors determines the compensation ofthe president and chief executive officer and other executive officers. Bonus expense for fiscal years 2018, 2017 and 2016totaled approximately $5,094,000, $3,535,000 and $2,709,000, respectively, of which approximately $4,089,000 and$2,687,000 are included in accrued liabilities at December 28, 2018 and December 29, 2017, respectively.Post-Employment Health BenefitsIn May 2006, the Company’s board of directors approved providing lifetime health insurance coverage for WinWestfall, the Company’s former chief executive officer and current director, and his spouse and for Linda Heil, the widow ofthe Company’s former chief executive officer, Dan Heil. These benefits relate to past services provided to the Company.Accordingly, there is no unamortized compensation cost for the benefits.Included in accrued liabilities in the accompanying consolidated balance sheets related to this obligation is thepresent value of expected payments for health insurance coverage, $122,000 as of December 28, 2018 and $93,000 as ofDecember 29, 2017. 12. INCOME TAXESThe provision for income taxes is comprised of: Fiscal Year 2018 2017 2016 Current federal taxes $3,632,000 $635,000 $1,441,000 Current state taxes 1,389,000 306,000 402,000 Deferred federal taxes (2,539,000) 431,000 900,000 Deferred state taxes (351,000) 190,000 325,000 $2,131,000 $1,562,000 $3,068,000 The provision for income taxes reconciles to the amounts computed by applying the statutory federal tax rate of21% for fiscal year 2018 and 34% for fiscal years 2017 and 2016 to the Company’s income before income taxes. The sourcesand tax effects of the differences for fiscal years 2018, 2017 and 2016 are as follows: 2018 2017 2016 Computed “expected” federal income tax expense $2,554,000 $4,655,000 $3,865,000 Permanent differences 77,000 (61,000) 86,000 Stock options and disqualifying dispositions (354,000) (1,629,000) (232,000) Tax Act - federal rate change — (1,277,000) — Energy efficient building deduction (919,000) — (912,000) Current and deferred state income tax expense, net of federal benefit 815,000 287,000 481,000 Change in valuation allowances on deferred tax assets — 15,000 (1,000) Federal deferred tax adjustments 220,000 (441,000) — Adjustment for uncertain tax positions 61,000 363,000 — Research and development tax credit (313,000) (188,000) — Adjustment to prior earn-out liability (198,000) — — Non-deductible transaction expenses 203,000 — — Other (15,000) (162,000) (219,000) $2,131,000 $1,562,000 $3,068,000 F-42 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 Differences between the Company’s effective income tax rate and what would be expected if the federal statutoryrate was applied to income before income tax from continuing operations are primarily due to state income tax expense,energy efficient building deductions, stock options and disqualifying dispositions. On December 22, 2017, the Tax Cuts andJobs Act (the “Tax Act”) was enacted into law, which, among other items, lowered the U.S. corporate tax rate from 35% to21%, effective January 1, 2018. As a result of the Tax Act, the Company recorded a one-time decrease in deferred tax expenseof $1.3 million for the fiscal quarter ended December 29, 2017 to account for the remeasurement of the Company’s deferredtax assets and liabilities on the enactment date. Shortly after the Tax Act was enacted, the Securities and Exchange Commission issued guidance under StaffAccounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) to address theapplication of generally accepted accounting principles in the United States of America, or GAAP, and directing taxpayers toconsider the impact of the Tax Act as “provisional” when a registrant does not have the necessary information available,prepared or analyzed (including computations) in reasonable detail to complete the accounting for the change in tax law. Inaccordance with SAB 118, the Company recognized the provisional tax impacts during fiscal year 2017. As of December 28,2018, the Company’s accounting for the Tax Act is complete. An adjustment of $0.2 million additional deferred tax expensewas recorded due to the corporate tax rate change impact on adjustments to temporary differences that were estimated at thetime of the tax provision and finalized for the tax return. The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets andliabilities are as follows: December 28, December 29, 2018 2017Deferred tax assets: Accounts receivable allowance $122,000 $104,000Other accrued liabilities 2,714,000 1,413,000Federal and state net operating losses 20,569,000 191,000Intangible assets — 2,466,000Stock compensation 2,167,000 —Adjustments to fair value of assets 733,000 —Other 173,000 1,126,000 26,478,000 5,300,000Valuation allowance (86,000) (87,000)Net deferred tax assets $26,392,000 $5,213,000Deferred tax liabilities: Deferred revenue $(5,702,000) $(6,935,000)Fixed assets (116,000) (463,000)Intangible assets (8,041,000) —Other (212,000) (278,000) (14,071,000) (7,676,000)Net deferred tax liability $12,321,000 $(2,463,000) At December 28, 2018, the Company had federal and state operating loss carryovers of $83.7 million and $51.2million, respectively. The carryovers expire through 2036. During each fiscal year, management assesses the available positive and negative evidence to estimate if sufficientfuture taxable income will be generated to utilize existing deferred tax assets. For fiscal years 2018 and 2017, the Companyultimately determined that it was more-likely-than-not that the entire California net operating loss will notF-43 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 be utilized prior to expiration. Significant pieces of objective evidence evaluated included the Company’s history ofutilization of California net operating losses in prior years for each of the Company’s subsidiaries, as well as the Company’sforecasted amount of net operating loss utilization for certain members of the combined group. As a result, we recorded avaluation allowance in the amount of $86,000 and $87,000 at the end of fiscal year 2018 and 2017, respectively, related toCalifornia net operating losses.In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting,” which amends the current stock compensation guidance.The amendments simplify the accounting for the taxes related to stock-based compensation, including adjustments to howexcess tax benefits and a company's payments for tax withholdings should be classified. The standard is effective for fiscalperiods beginning after December 15, 2016, with early adoption permitted. The Company has elected to early adopt ASU2016-09 on a prospective basis, which resulted in a decrease to tax expense of approximately $0.3 million and $1.6 millionfor the fiscal years ended December 28, 2018 and December 29, 2017, respectively.During the fiscal year ending December 28, 2018, the Company increased their recorded liability for uncertain taxpositions from fiscal year end 2017 to be $424,000. This increase is a result of the recognition of interest and penaltiesrelated to unrecognized tax benefits in income tax expense. The Company may be subject to examination by the InternalRevenue Service (“IRS”) for calendar years 2015 through 2018. However, the company is currently under examination by theIRS for the 2016 tax year. The Company is unable to determine the outcome of this audit at this time. The Company mayalso be subject to examination on certain state and local jurisdictions for the years 2014 through 2018.The Company's policy is to recognize interest and penalties related to unrecognized tax benefits in income taxexpense. Following is reconciliation of beginning and ending amounts of unrecognized tax benefits: AmountBalance as of December 29, 2017 $363,000Additions based on tax positions related to the current year —Additions for tax positions of prior years 61,000Reductions for tax positions related to the current year —Reduction for tax positions of prior years —Balance as of December 28, 2018 $424,000During the year ended December 28, 2018, the Internal Revenue Service continued its audit of the Company’s taxreturn for the fiscal year ended December 30, 2016. The Company has not determined the impact of this examination due tothe audit process having not been completed.13. SEGMENT INFORMATIONDuring the three months ended March 30, 2018, the Company revised its segment reporting to conform to changesin its internal management reporting. As a result, beginning with the three months ended March 30, 2018, the Company’stwo segments are Energy and Engineering and Consulting, and the Company’s chief operating decision maker, whichcontinues to be its chief executive officer, receives and reviews financial information in this format. Accordingly, segmentinformation has been revised for comparison purposes for all periods presented in the accompanying consolidated financialstatements.F-44 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 The Company’s principal segment, Energy, which consists of the business of the Company’s subsidiary, WES,remains unchanged. WES provides energy and sustainability consulting services to utilities, public agencies, municipalities,private industry and non-profit organizations. The Engineering and Consulting segment includes the operation of theCompany’s remaining subsidiaries, Willdan Engineering, Willdan Infrastructure, Public Agency Resources, WilldanFinancial Services and Willdan Homeland Solutions. The Engineering and Consulting segment combines the Company’sprevious Engineering Services segment, Public Finance Services segment and Homeland Security Services segment. Theformer Public Finance Services segment and former Homeland Security Services segment represent an insignificant portion ofthe Engineering and Consulting segment. The Engineering and Consulting segment offers a broad range of engineering andplanning services to the Company’s public and private sector clients, expertise and support for the various financingtechniques employed by public agencies to finance their operations and infrastructure, along with the mandated reportingand other requirements associated with these financings, and national preparedness, homeland security consulting, publicsafety and emergency response services to cities, related municipal service agencies and other entities.The accounting policies applied to determine the segment information are the same as those described in thesummary of significant accounting policies. There were no intersegment sales in any of the three fiscal years ended December28, 2018. The Company’s chief operating decision maker evaluates the performance of each segment based upon income orloss from operations before income taxes. Certain segment asset information including expenditures for long‑lived assets hasnot been presented as it is not reported to or reviewed by the chief operating decision maker. In addition, enterprise‑wideservice line contract revenue is not included as it is impracticable to report this information for each group of similar services.Financial information with respect to the reportable segments and reconciliation to the amounts reported in theCompany’s consolidated financial statements follows: Engineering Unallocated Consolidated Energy & Consulting Corporate Intersegment Total Fiscal Year 2018 Contract revenue $196,833,000 $75,419,000 $ — $ — $272,252,000 Depreciation and amortization 5,274,000 786,000 — — 6,060,000 Interest expense 312,000 388,000 — — 700,000 Segment profit (loss) before income tax expense 8,959,000 7,589,000 (4,387,000) — 12,161,000 Income tax (benefit) expense 1,570,000 1,330,000 (769,000) — 2,131,000 Net income (loss) 7,390,000 6,259,000 (3,619,000) — 10,030,000 Segment assets(1) 252,124,000 20,402,000 52,440,000 (23,130,000) 301,836,000 Fiscal Year 2017 Contract revenue $199,609,000 $73,743,000 $ — $ — $273,352,000 Depreciation and amortization 3,145,000 804,000 — — 3,949,000 Interest expense (90,000) (21,000) — — (111,000) Segment profit (loss) before income tax expense 5,589,000 9,054,000 (952,000) — 13,691,000 Income tax (benefit) expense 638,000 1,033,000 (109,000) — 1,562,000 Net income (loss) 4,951,000 8,021,000 (843,000) — 12,129,000 Segment assets(1) 65,872,000 20,774,000 74,656,000 (23,130,000) 138,172,000 Fiscal Year 2016 Contract revenue $141,888,000 $67,053,000 $ — $ — $208,941,000 Depreciation and amortization 2,511,000 693,000 — — 3,204,000 Interest expense (163,000) (16,000) — — (179,000) Segment profit before income tax expense 5,895,000 6,887,000 (1,415,000) — 11,367,000 Income tax expense (benefit) 1,591,000 1,859,000 (382,000) — 3,068,000 Net income 4,304,000 5,028,000 (1,033,000) — 8,299,000 Segment assets(1) 63,140,000 20,100,000 48,237,000 (23,130,000) 108,347,000 (1)Segment assets are presented net of intercompany receivables.F-45 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 The following sets forth the assets that are included in Unallocated Corporate as of December 28, 2018 and December 29,2017. 2018 2017Assets: Cash and cash equivalents $14,863,000 $47,654,000Accounts Receivable, net (1,826,000) (1,046,000)Prepaid expenses 1,606,000 1,285,000Intercompany receivables 135,507,000 131,667,000Goodwill 2,000 2,000Other receivables 201,000 1,687,000Equipment and leasehold improvements, net 1,180,000 1,504,000Investments in subsidiaries 23,130,000 23,130,000Other 963,000 438,000Deferred income taxes 12,321,000 — $187,947,000 $206,321,000 14. CONTINGENCIESClaims and LawsuitsThe Company is subject to claims and lawsuits from time to time, including those alleging professional errors oromissions that arise in the ordinary course of business against firms that operate in the engineering and consultingprofessions. The Company carries professional liability insurance, subject to certain deductibles and policy limits, for suchclaims as they arise and may from time to time establish reserves for litigation that is considered probable of a loss.In accordance with accounting standards regarding loss contingencies, the Company accrues an undiscountedliability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, anddiscloses the amount accrued and an estimate of any reasonably possible loss in excess of the amount accrued, if suchdisclosure is necessary for the Company’s financial statements not to be misleading. The Company does not accrue liabilitieswhen the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or whenthe liability is believed to be only reasonably possible or remote.Because litigation outcomes are inherently unpredictable, the Company’s evaluation of legal proceedings ofteninvolves a series of complex assessments by management about future events and can rely heavily on estimates andassumptions. If the assessments indicate that loss contingencies that could be material to any one of the Company’s financialstatements are not probable, but are reasonably possible, or are probable, but cannot be estimated, then the Company willdisclose the nature of the loss contingencies, together with an estimate of the possible loss or a statement that such loss is notreasonably estimable. While the consequences of certain unresolved proceedings are not presently determinable, and areasonable estimate of the probable and reasonably possible loss or range of loss in excess of amounts accrued for suchproceedings cannot be made, an adverse outcome from such proceedings could have a material adverse effect on theCompany’s earnings in any given reporting period. However, in the opinion of the Company’s management, after consultingwith legal counsel, and taking into account insurance coverage, the ultimate liability related to current outstanding claimsand lawsuits is not expected to have a material adverse effect on the Company’s financial statements.F-46 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT’DFiscal Years 2018, 2017 and 2016 15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)The tables below reflect selected quarterly information for the fiscal years ended December 28, 2018 and December29, 2017. Fiscal Three Months Ended March 30, June 29, September28, December28, 2018 2018 2018 2018 (in thousands except per share amounts) Contract revenue $54,595 $59,833 $71,386 $86,438 Income from operations 1,974 4,205 4,913 1,679 Income tax (benefit) expense (242) 869 1,597 (93) Net income 2,203 3,315 3,311 1,201 Earnings per share: Basic $0.25 $0.38 $0.37 $0.11 Diluted $0.24 $0.36 $0.35 $0.11 Weighted-average shares outstanding: Basic 8,753 8,796 8,844 10,662 Diluted 9,185 9,288 9,343 11,217 Fiscal Three Months Ended March 31, June 30, September29, December29, 2017 2017 2017 2017 (in thousands except per share amounts) Contract revenue $68,351 $71,833 $69,007 $64,161 Income from operations 1,964 4,563 4,183 2,994 Income tax expense (673) 1,220 1,292 (277) Net income 2,641 3,312 2,886 3,290 Earnings per share: Basic $0.32 $0.38 $0.33 $0.38 Diluted $0.30 $0.36 $0.31 $0.36 Weighted-average shares outstanding: Basic 8,281 8,603 8,730 8,689 Diluted 8,854 9,136 9,248 9,231 16. SUBSEQUENT EVENTS On January 31, 2019, we entered into an interest swap agreement for $35 million notional amount. The interest swapagreement was designated as a cash flow hedge to fix the variable interest rate on a portion of the borrowings under ourDelayed Draw Term Loan Facility. The interest swap fixed rate is 2.47% and the amortization is quarterly in an amount equalto 10% annually. The interest swap agreement expires on January 31, 2022. Subsequent events were evaluated through to the filing date of March 8, 2019.F-47 Exhibit 10.12 NOTICE OF PERFORMANCE-BASED RESTRICTED STOCK UNIT GRANT WILLDAN GROUP, INC.AMENDED AND RESTATED 2008 PERFORMANCE INCENTIVE PLAN Name ofGrantee: [·] TargetNumber ofPerformance -Based Restricted Stock Units: [·] target number of Performance-Based Restricted Stock Units (the “Performance-BasedRestricted Stock Units”) Date of Grant: [·] Vesting: In general, and with limited exceptions set forth below, (1) fifty percent (50%) of the target numberof Performance-Based Restricted Stock Units (the “EPS Target Units”) are subject to vesting basedon the Corporation’s EPS (as defined below) growth as of the end of each applicable PerformancePeriod, and (2) fifty percent (50%) of the target number of Performance-Based Restricted StockUnits (the “Adjusted EBITDA Target Units”) are subject to vesting based on the Corporation’sEBITDA (as defined below) growth as of the end of each applicable Performance Period. The actualnumber of Performance-Based Restricted Stock Units that become earned and vested for anyPerformance Period may range from 0% to 250% of the target number of Performance-BasedRestricted Stock Units eligible to vest during the Performance Period, based on actual performanceduring the applicable Performance Period. The vesting requirements, and the limited exceptions, areset forth in more detail below. Reference to a “Performance Period” herein shall mean the [·], [·],[·], or [·] calendar year, as applicable. EPS Vesting Condition. Subject to earlier termination as provided herein and in the Terms andConditions of Performance-Based Restricted Stock Unit Award, twenty-five percent (25%) of yourEPS Target Units are subject to a vesting requirement based on the Corporation’s EPS achieved foreach Performance Period as of the close of each Performance Period (the number of EPS TargetUnits related to each Performance Period shall be referred to herein as the “EPS Target Units”). For purposes of this Award Agreement, “EPS” means the Corporation’s trailing three yearsnumerical average diluted earnings per share for the applicable Performance Period as determinedin accordance with GAAP, before stock compensation expense net of tax, plus or minus the effectof any extraordinary item or extraordinary transaction. The [·] Performance Period EPS shall be theaverage of [·], [·] and [·]. The EPS performance goals and the percentage of the EPS Target Units eligible to become earnedand vested with respect to the Performance Periods are set forth in the table below: PerformanceEPS Growth RateCalculated Based onTrailing Three YearsNumerical Average% of EPS Target UnitsEligible to BecomeEarned and VestedThreshold<[·]%0%Target[·]%100%Maximum[·]%250% Adjusted EBITDA Vesting Condition. Subject to earlier termination as provided herein and inthe Terms and Conditions of Performance-Based Restricted Stock Unit Award, twenty-fivepercent (25%) of your Adjusted EBITDA Target Units are subject to a vesting requirement basedon the Corporation’s Adjusted EBITDA achieved for each Performance Period as of the close ofeach Performance Period (the number of Adjusted EBITDA Target Units related to eachPerformance Period shall be referred to herein as the “Adjusted EBITDA Target Units”).For purposes of this Award Agreement, “Adjusted EBITDA” means the Corporation’s netincome (loss) for the applicable Performance Period as determined in accordance with GAAP,plus (1) interest expense (income) and interest accretion, (2) income tax expense (benefit), (3)stock-based compensation expense, (4) depreciation and amortization, and (5) plus or minus theeffect of any extraordinary item or extraordinary transaction. The baseline for this calculationshall be the [·]’s forecast of $[·].The Adjusted EBITDA performance goals and the percentage of the Adjusted EBITDA TargetUnits eligible to become earned and vested with respect to each Performance Periods are setforth in the table below: PerformanceAdjusted EBITDAAnnual Growth Ratefrom Baseline% of AdjustedEBITDA Target UnitsEligible to BecomeEarned and VestedThreshold<[·]%0%Target[·]%100%Maximum[·]%250% Except as described below, the EPS Target Units and Adjusted EBITDA Target Units eligible tovest in respect of each Performance Period shall terminate if the achieved EPS or AdjustedEBITDA amount, as applicable, for the applicable Performance Period is below the thresholdamount listed in the tables above. With respect to each Performance Period, if the Corporationachieves an EPS or Adjusted EBITDA amount between the amounts listed in the tables above,the percentage of the EPS Target Units or the Adjusted EBITDA Target Units, as applicable, thatwill become earned and vested will be interpolated on a2 straight-line basis between the closest two percentages listed in the tables above. The maximumpercentage of the EPS Target Units or the Adjusted EBITDA Target Units, as applicable, thatmay become earned and vested for any Performance Period is the maximum percentage listed inthe table above. Any of the Performance-Based Restricted Stock Units that do not becomeearned and vested at the end of each Performance Period based on the Corporation’s EPS orAdjusted EBITDA achieved for the Performance Period will automatically terminate withoutconsideration at the end of such Performance Period. For the avoidance of doubt, theperformance results for each Performance Period shall be measured independently of each otherPerformance Period, and no Performance-Based Restricted Stock Units shall be eligible tobecome earned and vested based on cumulative performance results over multiple PerformancePeriods.The Performance-Based Restricted Stock Units are not intended as Performance-Based Awardsas defined in the Plan, and shall not be subject to any of the requirements in the Plan that applyto Performance-Based Awards.Example. In order to illustrate the calculation of earned and vested Performance-BasedRestricted Stock Units using the tables above, assume the following: (i) you were granted 2,000target Performance-Based Restricted Stock Units (1,000 EPS Target Units and 1,000 AdjustedEBITDA Target Units), (ii) the EPS growth rate for the [·] Performance Period is [·]% as shownbelow, and (iii) the Adjusted EBITDA growth rate for the [·] Performance Period is [·]%.For the [·] Performance Period, (i) [·] Performance-Based Restricted Stock Units subject to EPSperformance metrics will be earned and vested ([·] EPS Target Units * average 3-year EPSgrowth rate that results in 250% achieved interpolated EPS performance level. The EPS growthrate in [·] = [·]%, in [·] = [·]%, and in [·] = [·]%, thus the three year numerical growth rateaverage = [·]%. Accordingly, [·] EPS Target Units * 250% performance level = [·]Performance-Based Restricted Stock Units.) and (ii) [·] Performance-Based Restricted StockUnits subject to Adjusted EBITDA performance metrics will be earned and vested ([·] AdjustedEBITDA Target Units * 175% achieved interpolated Adjusted EBITDA performance level).Change in Control. If a Change in Control occurs after the Date of Grant and prior to the end ofany Performance Period, on the date of the consummation of such Change in Control, thenumber of Performance-Based Restricted Stock Units that shall be eligible to vest (the“Contingently Vested Units”) shall be calculated as follows: (i) with respect to the pendingPerformance Period in-progress at the time of the Change in Control, the greater of (with the EPSTarget Units and Adjusted EBITDA Target Units being evaluated separately and not in theaggregate) (A) the target number of EPS Target Units or Adjusted EBITDA Target Unitsassociated with such Performance Period and (B) the number of EPS Target Units or AdjustedEBITDA Target Units that become earned based on actual performance (assuming the last day ofsuch Performance Period is the date of the consummation of such Change in Control, with theAdministrator to make such appropriate pro-rating adjustments to the performance metrics asshall be necessary to reflect the shortened Performance Period), plus (ii) with respect to anyPerformance Period(s) remaining that have not commenced, the greater of (with the EPS TargetUnits and Adjusted EBITDA Target Units being evaluated separately and not in the aggregate)(X) the target number of EPS Target Units or Adjusted EBITDA Target3 Units associated with such Performance Period(s) and (Y) the average number (measured as apercentage of target) of EPS Target Units or Adjusted EBITDA Target Units that have becomeearned based on actual performance for all Performance Periods that have been completed (andare not in-progress) as of the date of the Change in Control. Any Performance-Based RestrictedStock Units that are not Contingently Vested Units as of the date of the consummation of suchChange in Control shall automatically terminate without consideration as of such date.The Contingently Vested Units shall become earned and vested on the first anniversary date ofthe consummation of such Change in Control, subject to your continued employment or servicewith the Corporation or its Subsidiaries (or any successor thereto) through such date; provided,however, that if your employment or service is terminated (i) by the Corporation or any of itsSubsidiaries (or any successor thereto) without Cause, (ii) by you for Good Reason, or (iii) dueto your death or Disability, in each case, prior to such first anniversary of the Change in Control,the Contingently Vested Units shall become earned and vested on such termination date. AnyContingently Vested Units that do not vest pursuant to the preceding sentence shallautomatically terminate without consideration on such termination date.For purposes of this Award Agreement, a “Change in Control” of the Corporation shall bedeemed to have occurred if a consummation of any of the following events occurs:(i) Any “person” or “group” (within the meaning of Sections 13(d) and 14(d)(2) of theExchange Act), other than a trustee or other fiduciary holding securities under anemployee benefit plan of the Corporation (an “Acquiring Person”), is or becomes the“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly orindirectly, of more than 33 1/3% of the then outstanding voting stock of the Corporation;(ii) Consummation of a merger or consolidation of the Corporation with any othercorporation, other than a merger or consolidation which would result in the votingsecurities of the Corporation outstanding immediately prior thereto continuing torepresent (either by remaining outstanding or by being converted into voting securities ofthe surviving entity) at least 51% of the combined voting power of the voting securitiesof the Corporation or surviving entity outstanding immediately after such merger orconsolidation;(iii) Consummation of a sale or other disposition by the Corporation of all or substantially allof the Corporation’s assets;(iv) During any period of two (2) consecutive years (beginning on or after the Date ofGrant), individuals who at the beginning of such period constitute the Board and anynew director (other than a director who is a representative or nominee of an AcquiringPerson) whose election by the Board or nomination for election by the Corporation’sshareholders was approved by a vote of at least a majority of the directors then still inoffice who either were directors at the beginning of the period or whose election4 or nomination was previously so approved, no longer constitute a majority of the Board;provided, however, in no event shall any acquisition of securities, a change in thecomposition of the Board or a merger or other consolidation pursuant to a plan ofreorganization under chapter 11 of the Bankruptcy Code with respect to the Corporation,or a liquidation under the Bankruptcy Code, constitute a Change in Control. In addition,a Change in Control shall not be deemed to have occurred in the event of a sale orconveyance in which the Corporation continues as a holding company of an entity orentities that conduct the business or businesses formerly conducted by the Corporation,or any transaction undertaken for the purpose of reincorporating the Corporation underthe laws of another jurisdiction, if such transaction does not materially affect thebeneficial ownership of the Corporation’s capital stock.For purposes of this Award Agreement, “Cause” shall have the meaning set forth in youremployment agreement, offer letter or similar agreement with the Corporation or a Subsidiary,and if you do not have such an agreement or “Cause” is not defined therein, “Cause” shall mean(i) you are convicted of a felony, (ii) you engage in any fraudulent or other dishonest act to thedetriment of the Corporation, (iii) you fail to report for work on a regular basis, except forperiods of authorized absence or bona fide illness, (iv) you misappropriate trade secrets,customer lists, or other proprietary information belonging to the Corporation, or (v) you engagein any willful misconduct designed to harm the Corporation or its shareholders.For purposes of this Award Agreement, “Good Reason” shall have the meaning set forth in youremployment agreement, offer letter or similar agreement with the Corporation or a Subsidiary,and if you do not have such an agreement or “Good Reason” is not defined therein, “GoodReason” shall mean your resignation within 180 days following (1) a reduction in your annualbase salary or target annual incentive opportunity, or (2) a relocation of your primary place ofbusiness for the performance of your duties to a location which is more than fifty (50) milesfrom its prior location, or (3) a material breach by the Corporation or a Subsidiary of anyagreement with the Corporation or a Subsidiary to which you are a party, provided that none ofthe events described in the foregoing clauses shall constitute Good Reason unless you havenotified the Corporation in writing describing the events that constitute Good Reason within 60days following the first occurrence of such events and then only if the Corporation fails to curesuch events within thirty (30) days after its receipt of such written notice.For purposes of this Award Agreement, “Disability” shall have the meaning set forth in youremployment agreement, offer letter or similar agreement with the Corporation or a Subsidiary,and if you do not have such an agreement, or “Disability” is not defined therein, “Disability”shall mean a physical or mental impairment which, as reasonably determined by theAdministrator, renders you unable to perform the essential functions of your employment orservice with the Corporation or its Subsidiaries (or a successor thereto), even with reasonableaccommodation that does not impose an undue hardship on the Corporation or its Subsidiaries(or a successor thereto), for more than 180 days in any 12-month5 period, unless a longer period is required by federal or state law, in which case that longer periodwould apply.Certain Terminations of Employment or Services. If your employment or service with theCorporation or its Subsidiaries terminates prior to the end of any Performance Period and theconsummation of a Change in Control due to your death or Disability, then the number ofPerformance-Based Restricted Stock Units that shall become earned and vested shall be asfollows: (i) with respect to the pending Performance Period in-progress at the time of your deathor Disability, the greater of (with the EPS Target Units and Adjusted EBITDA Target Units beingevaluated separately and not in the aggregate) (A) the target number of EPS Target Units orAdjusted EBITDA Target Units associated with such Performance Period and (B) the number ofEPS Target Units or Adjusted EBITDA Target Units that become earned based on actualperformance for the entire Performance Period (including any shortened Performance Periodresulting from a Change in Control), plus (ii) with respect to any Performance Period(s)remaining that have not commenced, the target number of Performance-Based Restricted StockUnits associated with such remaining Performance Period(s). Any Performance-Based RestrictedStock Units that do not vest pursuant to the preceding sentence shall automatically terminatewithout consideration effective as of such termination date.For the avoidance of doubt, (i) if the termination of your employment or services occurs otherthan in the circumstances and the periods set forth above, you will not be entitled to any vestingpursuant to this Award Agreement, and (ii) except as set forth above, no additional portion of theAward will become earned and vested based on performance after a termination of employment.Continued Service Vesting Condition. Except as provided above in connection with a Change inControl and/or certain terminations of your employment or services, the Performance-BasedRestricted Stock Units will become earned and vested only if you are employed by or providingservices to the Corporation or its Subsidiaries on the last day of the Performance Period. If youremployment or service terminates for any reason other than described above prior to theapplicable vesting date provided for above, the Performance-Based Restricted Stock Units shallterminate in accordance with the Terms and Conditions of Performance-Based Restricted StockUnit Award.In the event of any inconsistencies between the terms of this Agreement and the terms of any other documents, theterms of this Agreement will control.By signing your name below, you accept this Performance-Based Restricted Stock Unit award and acknowledge andagree that the units are granted under and governed by the terms and conditions of the Willdan Group, Inc. Amendedand Restated 2008 Performance Incentive Plan (the “Plan”) and the Terms and Conditions of Performance-BasedRestricted Stock Unit Award, both of which are hereby made a part of this document. 6 “GRANTEE” WILLDAN GROUP, INC., a Delaware corporation Signature By: Its: 7 TERMS AND CONDITIONS OF PERFORMANCE-BASEDRESTRICTED STOCK UNIT AWARD WILLDAN GROUP, INC.AMENDED AND RESTATED 2008 PERFORMANCE INCENTIVE PLAN 1. Grant of Performance-Based Restricted Stock Units.(a) Award. These Terms and Conditions of Performance-Based Restricted Stock Unit Award (these“Terms”) apply to a particular restricted stock unit award (the “Award”) that is incorporated by reference in the Noticeof Performance-Based Restricted Stock Unit Grant (the “Grant Notice”) corresponding to that particular grant. Therecipient of the Award identified in the Grant Notice is referred to as the “Grantee.” The effective date of grant of theAward as set forth in the Grant Notice is referred to as the “Date of Grant.” The Award was granted under and subjectto the Willdan Group, Inc. Amended and Restated 2008 Performance Incentive Plan (the “Plan”). The number ofshares covered by the Award are subject to adjustment under Section 7.1 of the Plan. Capitalized terms used in theGrant Notice or these Terms are defined in the Plan if not otherwise defined in the Grant Notice or these Terms. TheAward has been granted to the Grantee in addition to, and not in lieu of, any other form of compensation otherwisepayable or to be paid to the Grantee. The Grant Notice and these Terms are collectively referred to as the “AwardAgreement” applicable to the Award.(b) Performance-Based Restricted Stock Units. As used herein, a “Performance-Based RestrictedStock Unit” is a non-voting unit of measurement which is deemed for bookkeeping purposes to be equivalent in valueto one outstanding share of Common Stock of the Corporation. The Performance-Based Restricted Stock Units shall beused solely as a device for the determination of any payment to eventually be made to the Grantee if and when suchPerformance-Based Restricted Stock Units vest and become earned pursuant to Section 2. The Performance-BasedRestricted Stock Units create no fiduciary duty to the Grantee and shall create only a contractual obligation on the partof the Corporation to make payments, subject to vesting and the other terms and conditions hereof, as provided inSection 6 below. The Performance-Based Restricted Stock Units shall not be treated as property or as a trust fund ofany kind. No assets have been secured or set aside by the Corporation with respect to the Award and, if amountsbecome payable to the Grantee pursuant to this Award Agreement, the Grantee’s rights with respect to such amountsshall be no greater than the rights of any general unsecured creditor of the Corporation.2. Vesting. As set forth in the Grant Notice, this Award shall vest and become earned in percentageinstallments, subject to earlier termination or acceleration and subject to adjustment as provided herein and in thePlan. The Award may be subject to time and/or performance-based vesting conditions, as set forth in the GrantNotice. Continued employment will not entitle the Grantee to any proportionate vesting or avoid or mitigate atermination of rights or benefits in connection with the end of a performance period to the extent the relatedperformance condition(s) are not satisfied.3. Continuance of Employment/Service Required; No Employment/Service Commitment. The vestingschedule requires continued employment or service through each applicable vesting date as a condition to the vestingof the applicable installment of the Award and the rights and benefits under this Award Agreement. Employment orservice for only a portion of the vesting period, even if a substantial portion, will not entitle the Grantee to anyproportionate vesting or avoid or mitigate a termination of rights and benefits upon or following a termination ofemployment or services as provided in Section 7 below or under the Plan. Nothing contained in this Award Agreement or the Plan constitutes a continued employment or servicecommitment by the Corporation or any of its Subsidiaries, affects the Grantee’s status, if he or she is an employee, as anemployee at will who is subject to termination without cause, confers upon the Grantee any right to remain employedby or in service to the Corporation or any Subsidiary, interferes in any way with the right of the Corporation or anySubsidiary at any time to terminate such employment or service, or affects the right of the Corporation or anySubsidiary to increase or decrease the Grantee’s other compensation. Nothing in this paragraph, however, is intendedto adversely affect any independent contractual right of the Grantee under any written employment agreement, offerletter or similar agreement with the Corporation or a Subsidiary.4. Dividend and Voting Rights.(a) Limitations on Rights Associated with Units. The Grantee shall have no rights as a stockholder of theCorporation, no dividend rights (except as expressly provided in Section 4(b) hereof) and no voting rights with respectto the Performance-Based Restricted Stock Units or any shares of Common Stock issuable in respect of suchPerformance-Based Restricted Stock Units, until shares of Common Stock are actually issued to and held of record bythe Grantee. No adjustments will be made for dividends or other rights of a holder for which the record date is prior tothe date of issuance of the stock certificate evidencing the shares.(b) Dividend Equivalent Reinvestment. As of each date that the Corporation pays an ordinary cashdividend on its outstanding Common Stock for which the related record date occurs after the Date of Grant and prior tothe date all Performance-Based Restricted Stock Units subject to the Award have either been paid or have terminated,the Corporation shall credit the Grantee with an additional number of Performance-Based Restricted Stock Units equalto (a) the amount of the ordinary cash dividend paid by the Corporation on a single share of Common Stock on thatdate, multiplied by (b) the number of Performance-Based Restricted Stock Units subject to the Award outstanding andunpaid as of such record date (including any Performance-Based Restricted Stock Units previously credited under thisSection 4(b) and with such total number subject to adjustment pursuant to Section 7.1 of the Plan), divided by (c) theclosing price of a share of Common Stock on that date. Any Performance-Based Restricted Stock Units creditedpursuant to the foregoing provisions of this Section 4(b) will be subject to the same vesting, payment, termination andother terms, conditions and restrictions as the original Performance-Based Restricted Stock Units to which theyrelate. No crediting of Performance-Based Restricted Stock Units will be made pursuant to this Section 4(b) withrespect to any Performance-Based Restricted Stock Units which, as of the related record date, have either been paid orhave terminated.5. Restrictions on Transfer. Prior to the time the Performance-Based Restricted Stock Units are vestedand paid, neither the Performance-Based Restricted Stock Units comprising the Award nor any interest therein oramount payable in respect thereof may be sold, assigned, transferred, pledged or otherwise disposed of, alienated orencumbered, either voluntarily or involuntarily, other than by will or the laws of descent and distribution.6. Timing and Manner of Payment of Performance-Based Restricted Stock Units. Except as otherwiseprovided in the Grant Notice, the Performance-Based Restricted Stock Units subject to this Award Agreement shall bepaid in an equivalent number of whole shares of Common Stock (with any fractional Performance-Based RestrictedStock Units credited in respect of the Performance-Based Restricted Stock Units that are paid initially rounded up to thenearest whole number of shares of Common Stock and subsequently rounded down to the nearest whole number ofshares of Common Stock as necessary to arrive at the appropriate whole number of shares in the aggregate) promptlyafter becoming earned and vested (and in all events not later than the first March 15 following the year in which suchPerformance-Based Restricted Stock Units became earned and vested) in accordance with the terms hereof. Each suchpayment of Performance-Based Restricted Stock Units shall be subject to the tax withholding2 provisions of Section 9 hereof and Section 8.5 of the Plan and subject to adjustment as provided in Section 7.1 of thePlan and shall be in complete satisfaction of such earned and vested Performance-Based Restricted Stock Units. TheGrantee or any other person entitled under the Plan to receive a payment of shares of Common Stock shall deliver to theCorporation any representations or other documents or assurances required pursuant to Section 8.1 of the Plan.7. Effect of Termination of Employment or Services. Except as otherwise provided in the Grant Notice,the Grantee’s Performance-Based Restricted Stock Units shall terminate to the extent such units have not becomeearned and vested upon the first date the Grantee is no longer employed by or providing services to the Corporation orone of its Subsidiaries, regardless of the reason for the termination of such employment or services, whether with orwithout cause, voluntarily or involuntarily. If the Grantee is employed by a Subsidiary and that entity ceases to be aSubsidiary, such event shall be deemed to be a termination of employment of the Grantee for purposes of this AwardAgreement, unless the Grantee otherwise continues to be employed by the Corporation or another of its Subsidiariesfollowing such event. If the Grantee is not an employee or director of the Corporation or a Subsidiary, theAdministrator shall be the sole judge for purposes of this Award Agreement whether the Grantee continues to renderservices to the Corporation or a Subsidiary and the date, if any, upon which such services shall be deemed to haveterminated. The Corporation shall have no obligation as to any Performance-Based Restricted Stock Units that areterminated pursuant to the Grant Notice or this Section 7.8. Adjustments Upon Specified Events. Upon the occurrence of certain events relating to theCorporation’s stock contemplated by Section 7.1 of the Plan, the Administrator will make adjustments if appropriate inthe number of Performance-Based Restricted Stock Units contemplated hereby and the number and kind of securitiesthat may be issued in respect of the Award.9. Tax Withholding. The Corporation shall reasonably determine the amount of any federal, state, local orother income, employment, or other taxes which the Corporation or any of its affiliates may reasonably be obligated towithhold with respect to the grant, vesting, payment or other event with respect to the Performance-Based RestrictedStock Units. Unless the Grantee has previously notified ETrade that the Grantee will pay the amount of any applicablefederal, state, local or other tax law withholding taxes directly to the Company in cash, ETrade shall withhold asufficient number of shares of Common Stock in connection with the vesting or payment of the Performance-BasedRestricted Stock Units at the then fair market value of the Common Stock (determined either as of the date of suchwithholding or as of the immediately preceding trading day, as determined by the Corporation in its discretion) tosatisfy any applicable withholding obligations that arise with respect to the vesting or payment of such Performance-Based Restricted Stock Units. The Corporation has the right to withhold taxes without notice to the Grantee and shallremit to the Grantee the balance of any proceeds from withholding such shares in excess of the amount reasonablydetermined to be necessary to satisfy such withholding obligations. If, however, any withholding event occurs withrespect to the Performance-Based Restricted Stock Units other than the vesting or payment of such units, or if thewithholding obligations are not satisfied by either a cash payment from the Grantee or through the Corporationwithholding shares as provided above in this Section 9, the Corporation shall be entitled to deduct from othercompensation payable to the Grantee the amount of any such withholding obligations.10. Notices. Any notice to be given under the terms of this Award Agreement shall be in writing andaddressed to the Corporation at its principal office to the attention of the Secretary, and to the Grantee at the Grantee’slast address reflected on the Corporation’s records, or at such other address as either party may hereafter designate inwriting to the other. Any such notice shall be given only when received, but if the Grantee is no longer an employee ofthe Corporation or one of its Subsidiaries, shall be deemed to have been duly given by the Corporation when enclosedin a properly sealed envelope addressed3 as aforesaid, registered or certified, and deposited (postage and registry or certification fee prepaid) in a post office orbranch post office regularly maintained by the United States Government.11. Plan. The Award and all rights of the Grantee under this Award Agreement are subject to, and theGrantee agrees to be bound by, all of the terms and conditions of the provisions of the Plan, incorporated herein by thisreference. The Grantee agrees to be bound by the terms of the Plan and of this Award Agreement. The Granteeacknowledges reading and understanding the Plan, the prospectus for the Plan, and this Award Agreement. Unlessotherwise expressly provided in other sections of this Award Agreement, provisions of the Plan that conferdiscretionary authority on the Board or the Administrator do not (and shall not be deemed to) create any rights in theGrantee unless such rights are expressly set forth herein or are otherwise in the sole discretion of the Board or theAdministrator so conferred by appropriate action of the Board or the Administrator under the Plan after the date hereof.12. Entire Agreement. This Award Agreement and the Plan together constitute the entire agreement andsupersede all prior understandings and agreements, written or oral, of the parties hereto with respect to the subjectmatter hereof. The Plan and this Award Agreement may be amended pursuant to Section 8.6 of the Plan. Suchamendment to this Award Agreement must be in writing and signed by the Corporation. The Corporation may,however, unilaterally waive any provision hereof in writing to the extent such waiver does not adversely affect theinterests of the Grantee hereunder, but no such waiver shall operate as or be construed to be a subsequent waiver of thesame provision or a waiver of any other provision hereof.13. Counterparts. This Award Agreement may be executed simultaneously in any number of counterparts,each of which shall be deemed an original but all of which together shall constitute one and the same instrument.14. Section Headings. The section headings of this Award Agreement are for convenience of referenceonly and shall not be deemed to alter or affect any provision hereof.15. Governing Law. This Award Agreement and the rights of the parties hereunder with respect to theAward shall be governed by and construed and enforced in accordance with the laws of the State of Delaware withoutregard to conflict of law principles thereunder.16. Clawback Policy. The Performance-Based Restricted Stock Units are subject to the terms of theCorporation’s recoupment, clawback or similar policy as it may be in effect from time to time, as well as any similarprovisions of applicable law, any of which could in certain circumstances require repayment or forfeiture of thePerformance-Based Restricted Stock Units or any shares of Common Stock or other cash or property received withrespect to the Performance-Based Restricted Stock Units (including any value received from a disposition of the sharesacquired upon payment of the Performance-Based Restricted Stock Units).17. Six-Month Delay. Notwithstanding any provision of these Terms to the contrary, if the Grantee is a“specified employee” as defined in Section 409A of the Code, the Grantee shall not be entitled to any payment withrespect to the Award in connection with the Grantee’s “separation from service” (as that term is used for purposes ofSection 409A of the Code) until the earlier of (a) the date which is six (6) months after the Grantee’s separation fromservice for any reason other than the Grantee’s death, or (b) the date of the Grantee’s death. Any amounts otherwisepayable to the Grantee following the Grantee’s separation from service that are not so paid by reason of this Section 17shall be paid as soon as practicable for the Corporation (and in all events within thirty (30) days) after the date that is six(6) months after the Grantee’s separation from service (or, if earlier, the date of the Grantee’s death). The provisions ofthis Section 17 shall only apply if, and to the extent, required to comply with Section 409A of the Code.4 18. Construction. It is intended that the terms of the Award will not result in the imposition of any taxliability pursuant to Section 409A of the Code. This Award Agreement shall be construed and interpreted consistentwith that intent.5 Exhibit 21.1WILLDAN GROUP, INC.LIST OF SUBSIDIARIESAS OF DECEMBER 28, 2018 Name of Entity Jurisdiction ofOrganization 1. Willdan Engineering California 2. Willdan Energy Solutions California 3. Willdan Engineers and Constructors California 4. Willdan Financial Services California 5. Willdan Homeland Solutions California 6. Willdan Infrastructure California 7 Willdan Lighting & Electric, Inc. Delaware 8. Willdan Lighting & Electric of California California 9. Willdan Lighting & Electric of Washington, Inc. Washington 10. Electrotech of NY Electrical Inc. New York 11. Public Agency Resources California 12. Abacus Resource Management Company Washington 13. Integral Analytics, Inc. Ohio 14. Newcomb Anderson McCormick, Inc. California 15. Lime Energy Co. Delaware Exhibit 23.1Consent of Independent Registered Public Accounting FirmThe Board of DirectorsWilldan Group, Inc.:We consent to the incorporation by reference in Registration Statements on Forms S-3 and S-8 (Nos. 333-217356, 333-219133, 333-219129, 333-168787, 333-212907, 333-184823, 333-152951, and 333-139127)of Willdan Group, Inc. of our report dated March 7, 2019 relating to the consolidated financial statements asof and for the year ended December 28, 2018 and the related notes thereto, and effectiveness of internalcontrol over financial reporting as of December 28, 2018, appearing in this Annual Report on Form 10-K ofWilldan Group, Inc. /s/ Crowe LLPSherman Oaks, CAMarch 7, 2019 Exhibit 23.2CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of DirectorsWilldan Group, Inc.:We consent to the incorporation by reference in the registration statements (No. 333-217356, No. 333-219133, No. 333-219129, No. 333-139127, No. 333-152951, No. 333-168787, No. 333-184823 and No. 333-212907) on Forms S-3 and S-8 ofWilldan Group, Inc. of our report dated March 9, 2018, except as to notes 2 (Segment Information and Contract Accounting),4, and 13, which is as of October 3, 2018, with respect to the consolidated balance sheet of Willdan Group, Inc. as ofDecember 29, 2017, the related consolidated statements of operations, stockholders’ equity, and cash flows for the yearsended December 29, 2017 and December 30, 2016, and the related notes, which report appears in this Annual Report on Form10-K of Willdan Group, Inc./s/ KPMG LLPIrvine, California March 7, 2019 Exhibit 31.1SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICERI, Thomas D. Brisbin, certify that:1. I have reviewed this report on Form 10‑K of Willdan Group, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of,and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting(as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of anannual report) that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (orpersons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significantrole in the registrant’s internal control over financial reporting.Date: March 8, 2019 (Prin By:/s/ THOMAS D. BRISBIN Thomas D. Brisbin Chief Executive Officer(Principal Executive Officer) Exhibit 31.2SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICERI, Stacy B. McLaughlin, certify that:1.I have reviewed this report on Form 10‑K of Willdan Group, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of,and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case ofan annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (orpersons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significantrole in the registrant’s internal control over financial reporting.Date: March 8, 2019 By:/s/ STACY B. MCLAUGHLIN Stacy B. McLaughlin Chief Financial Officer and Vice President(Principal Financial Officer) Exhibit 32.1Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350,as Adopted Pursuant to § 906 of the Sarbanes‑Oxley Act of 2002In connection with the Annual Report on Form 10‑K of Willdan Group, Inc. (the “Company”) for the annual periodended December 28, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”),Thomas D. Brisbin, as Chief Executive Officer of the Company, and Stacy B. McLaughlin, as Chief Financial Officer, eachhereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes‑Oxley Act of 2002, that, to thebest of his or her knowledge:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Actof 1934; and(2)The information contained in the Report fairly presents, in all material respects, the financial conditionand results of operations of the Company. By:/s/ THOMAS D. BRISBIN Thomas D. Brisbin Chief Executive Officer(Principal Executive Officer) March 8, 2019 By:/s/ STACY B. MCLAUGHLIN Stacy B. McLaughlin Chief Financial Officer and Vice President(Principal Financial Officer) March 8, 2019 This certification accompanies the Report pursuant to § 906 of the Sarbanes‑Oxley Act of 2002 and shall not, exceptto the extent required by the Sarbanes‑Oxley Act of 2002, be deemed filed by the Company for purposes of § 18 of theSecurities Exchange Act of 1934, as amended. A signed original of this written statement required by § 906 has beenprovided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission orits staff upon request.
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