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Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended January 2, 2009.Oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the Transition Period
from                                   to     
                              .


Commission File Number 001-33076

WILLDAN GROUP, INC.(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

14-1951112(I.R.S. Employer
Identification 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(Title of class)

NASDAQ Global Market(Name of exchange)


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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

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 of
1934. Yes o    No ý

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ý    No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller
reporting company)

Smaller reporting company ý


The
aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was
last sold, as reported on the NASDAQ Global Market, as of the last business day of the registrant's most recently completed second fiscal quarter was $29.3 million.

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

On March 31, 2009, 7,188,251 shares of the registrant's common stock were 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 2009 Annual
Meeting to be filed on or prior to May 2, 2009.



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Table of Contents



TABLE OF CONTENTS



PagePART IITEM 1.

BUSINESS


1ITEM 1A.

RISK FACTORS


16ITEM 1B.

UNRESOLVED STAFF COMMENTS


23ITEM 2.

PROPERTIES


23ITEM 3.

LEGAL PROCEEDINGS


24ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


24PART IIITEM 5.

MARKET FOR THE REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES


25ITEM 6.

SELECTED FINANCIAL DATA


27ITEM 7.

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


29ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


42ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


42ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


43ITEM 9A.

CONTROLS AND PROCEDURES


43ITEM 9B.

OTHER INFORMATION


44PART IIIITEM 10.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


45ITEM 11.

EXECUTIVE COMPENSATION


45ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS


45ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


45ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES


45PART IVITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


46


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PART I

ITEM 1.    BUSINESS

Overview

We are a provider of outsourced services to small and mid-sized public agencies in California and other western states.
Outsourcing enables these agencies to provide a wide range of specialized services, without having to incur and maintain the overhead necessary to develop staffing in-house. We provide a
broad range of services to public agencies and to a lesser extent, private industry, including:



We
operate our business through a network of offices located throughout California and other western states and had a staff of 550 as of January 2, 2009 that includes licensed
engineers and other professionals. We ranked 154 out of 500 top design firms in Engineering News-Record's 2008 Design Survey. Our core clients are public agencies in communities with
populations ranging from 10,000 to 300,000 people. We believe communities of this size are underserved by large outsourcing companies that tend to focus on securing large federal and state projects,
as well as projects for the
private sector. We seek to establish close working relationships with our public agency clients and, over time, to expand the breadth and depth of the services we provide to them.

While
we currently serve communities throughout the country, our business is concentrated in California and neighboring states. We provide services to approximately 60% of the 490 cities
and over 60% of the 58 counties in California. We also serve special districts, school districts, a range of public agencies, and to a lesser extent, private industry.

General
economic conditions have recently declined due to a number of factors including slower economic activity, a lack of available credit, decreased consumer confidence and reduced
corporate profits and capital spending. These conditions have led to a slowdown in construction, particularly residential housing construction, in the western United States. As a result of this
slowdown, our engineering services segment has suffered declines in revenue and we have made several reductions in workforce and facility leases in order to align resources to workload and reduce
costs. We believe that the reductions achieved through January 2, 2009 will be sufficient to align resources with expected future demand for our services. However, should the economic slowdown
continue for longer than expected or worsen, we will need to evaluate further reductions in headcount and facilities in geographic areas that are underperforming. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation."

We
were founded over 40 years ago and Willdan Group, Inc., a Delaware corporation, was formed in 2006 to serve as our holding company. Today, we consist of a family of
wholly-owned companies that operate within the following segments for financial reporting purposes:

Engineering Services.Our Engineering Services segment includes the operations of our subsidiaries, Willdan Engineering, Willdan
Geotechnical,
Willdan Energy Solutions, Willdan Resource Solutions, and Public Agency Resources (PARs). These businesses collectively provide engineering-related services, geotechnical engineering services,
environmental engineering and environmental related services and energy efficiency, water conservation, sustainability and renewable energy services.

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Additionally,
PARs primarily provides staffing to Willdan Engineering. For fiscal years 2008 and 2007, revenue for the Engineering Services segment represented 78.3% and 81.7% respectively, of our
overall contract revenue.

Public Finance Services.Our Public Finance Services segment consists of the operations of our subsidiary, Willdan Financial Services
(WFS), which
offers financial and economic consulting services to
public agencies. For fiscal years 2008 and 2007, contract revenue for the Public Finance Services segment represented 18.7% and 16.1%, respectively, of our overall contract revenue.

Homeland Security Services.Our Homeland Security Services segment consists of the operations of our subsidiary, Willdan Homeland
Solutions, which
offers homeland security, public safety consulting and management consulting services. We formed this subsidiary in fiscal year 2004 and began operations in the second half of fiscal year 2005. For
fiscal years 2008 and 2007, contract revenue for our Homeland Security Services segment represented 3.0% and 2.2% respectively, of our overall contract revenue.

In
the second quarter of fiscal year 2008, there were changes to our senior management and our Board of Directors. On April 20, 2008, Ms. Chell Smith, resigned from her
positions as a member of our Board of Directors, Audit, Compensation and Nominating and Corporate Governance Committees, and as chairperson of our Investment, Finance and Strategy Committee. On
April 22, 2008, our Board of Directors announced the appointment of Mr. Wayne Shelton to the Board. Mr. Shelton currently serves as the chairperson of our Compensation Committee
and as a member of our Audit and Investment, Finance and Strategy Committees. Mr. Tracy Lenocker filled the vacancy left by Ms. Smith on the Nominating and Corporate Governance Committee
and currently serves as chairperson of that committee. Additionally, Ms. Mallory McCamant, our Chief Operating Officer, Senior Vice President and Assistant Secretary, resigned effective
May 10, 2008.

Our Markets

We provide engineering, public finance and homeland security services primarily to government agencies. We believe the market for these
privatized governmental services is, and will be, driven by a number of factors, including:



Engineering services encompass a variety of disciplines associated with the design and construction of public infrastructure
improvements. We expect continued population growth in California and other western states to place a significant strain on the infrastructure in those areas, driving the need for both new
infrastructure and the rehabilitation of aging structures. Federal, state and local governments have

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responded
to this need by proposing an increase in their funding of infrastructure related activities, and voters in California and Arizona have recently passed sales tax increases to fund
transportation improvements.

Private
industry and public agencies, in response to an increased awareness of global warming and climate change issues among their constituents, are increasingly seeking out
cost-effective solutions, turn-key solutions that provide innovative resource management, energy efficiency, resource conservation and sustainability services. State and local
governments are frequently turning to specialized resource conservation firms to strike the balance between environmental responsibility and economic competitiveness. Consultants 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 with local
governments and utilities, provides city, local and state governments with the ability to realize long-term savings.



Public agencies face an increasing burden to raise the necessary funding to build, improve and maintain infrastructure and to provide
services to their local communities. While tax revenues are a primary source of funding, in California there are property tax and spending limits that curtail the generation of these funds.
Alternatives include the issuance of tax-exempt securities; the formation of special financing districts to assess property owners on a parcel basis for infrastructure and public
improvements, such as assessment districts and community facilities districts (known as Mello-Roos districts in California); the implementation of development impact fee programs that
require developers to bear the cost of the impact of development on local infrastructure; user fee programs that pass costs along to the actual users of services; optimization of utility rates; and
special taxes enacted by voters for specific purposes.

Public
agencies frequently contract with private consultants to provide the advance studies, manage the processes and provide the administration necessary to support these methods.
Consultants have the expertise necessary to form the special financing districts and produce an impact fee study used to develop a schedule of developer fees. Privatized services are also utilized to
implement the programs or revised rate schedules, and in the case of special financing districts, administer the districts through the life of the bonds. Consultants also frequently provide the
services necessary to comply with federal requirements for tax-exempt debt, such as arbitrage rebate calculations and continuing disclosure reports. Use of such services allows public
agencies to capitalize on innovative public finance techniques without incurring the cost of developing in-house expertise.



After September 11, 2001, the need to protect civil infrastructure and implement additional security measures became a priority
at all levels of government. In addition to the threat of terrorism, Hurricanes Katrina and Rita highlighted the vulnerability of our country's infrastructure to natural disasters. These events placed
an increased burden on local and regional public agencies to be prepared to respond. In addition to fire and safety personnel, agencies responsible for the physical safety of infrastructure elements,
such as water and wastewater systems, ports and airports, roads and highways, bridges and dams, are under increased pressure to prepare for natural and man-made disasters. Accordingly, the
federal government now considers public works staff members to be "first responders" to such incidents and we believe that agencies are allocating resources accordingly.

For
fiscal year 2009, under the Department of Homeland Security Grant Program, (HSGP), the federal government will provide $1.7 billion to the states, which in turn will disburse
these funds to local law enforcement and other agencies. The federal Department of Homeland Security, or DHS, has designated 62 metropolitan areas throughout the country to receive almost half of the
HSGP funds

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through
a program called the DHS Urban Area Security Initiative, or UASI. Designated UASI metropolitan areas include six metropolitan areas in California; the Phoenix, Arizona (Maricopa County)
metropolitan area; Denver, Colorado; and Las Vegas, Nevada. Homeland security funding has remained constant over the last three fiscal years and we do not anticipate a change in funding levels at the
federal or state levels in the foreseeable future.

Our Services

We specialize in providing privatized services to public agencies. Our core client base is composed of cities, counties, special
districts, other local and state agencies, tribal governments, and to a lesser extent, private industry.

We
are organized to profitably manage numerous small to mid-size contracts at the same time. With our focus on local and regional agencies, typical contracts can range from
$5,000 to over $1,000,000 in contract revenue. Our typical project contract has a duration of less than 12 months, although we have city services contracts that have been in effect for over
26 years. At January 2, 2009, we had approximately 2,500 open projects.

We
offer services in three segments: Engineering Services, Public Finance Services, and Homeland Security Services. The interfaces and synergies among these segments are key elements of
our strategy. Management established these segments based upon the services provided, the different marketing strategies associated with these services and the specialized needs of their respective
clients. The following table presents, for the periods indicated, the approximate percentage of our consolidated contract revenue attributable to each segment:

Fiscal Year2008

2007

2006Engineering Services


78.3
%

81.7
%

84.1
%Public Finance Services


18.7
%

16.1
%

14.7
%Homeland Security Services


3.0
%

2.2
%

1.2
%


See
Item 8 of Part II, "Financial Statements and Supplementary Data" for additional segment information.

Engineering Services

We provide a broad range of engineering services to the public sector and limited services to the private sector. In general, contracts
for engineering services (as opposed to construction contracts) are awarded by public agencies based primarily upon the qualifications of the engineering professional, rather than the proposed fees.
Many jobs are awarded without a mandated proposal process, especially if an agency has a longstanding relationship with an engineering professional with relevant expertise. A substantial percentage of
our engineering related work is for existing clients and represents an extension of our long-term associations with them.

Our
broad range of engineering services are listed in the following table and described individually below:

City Engineering

Landscape ArchitectureBuilding and Safety

Geotechnical EngineeringPublic Works and Infrastructure Design

Flood ControlConstruction Management

Code EnforcementTraffic Engineering

Energy EfficiencyWater and Wastewater Engineering

SustainabilityStructural Engineering

Water ConservationPlanning

Environmental


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City Engineering.We specialize in providing engineering services tailored to the unique needs of municipalities. City Engineering can
range from
staffing an entire engineering department to carrying out specific projects within a municipality, such as developing a pavement management program or reviewing engineering plans on behalf of a city.
This is the core of our original business and was the first service offered when we were founded.

Building and Safety.Our building and safety services can range from managing and staffing an entire municipal building department to
providing
specific outsourced services such as plan review and field inspections. Other aspects of this discipline 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 in high growth areas where workloads exceed the capacity of in-house staff.

Public Works and Infrastructure Design.This sector constitutes our traditional engineering design function. Our engineers design
streets and
highways, airport and transit facilities, freeway interchanges, high occupancy vehicle lanes, pavement reconstruction, and other elements of city, county and state infrastructure.

Construction Management.We have developed construction and program management systems specifically devoted to our public sector
clients. We provide
inspection services, along with full construction management and support, depending on the client's needs and the scope of the specific project. Our construction management experience encompasses
projects such as streets, bridges, sewers and storm drains, water systems, parks, pools and utilities.

Traffic Engineering.Our traffic engineering services involve serving as the contract city traffic engineer in communities, as well as
performing
design and traffic planning projects for our clients. These services and projects include parking management studies, intersection analyses and improvements, traffic impact reports, and traffic signal
and control systems.

Water and Wastewater Engineering.Our water and wastewater engineering services include design and project management of public water
and wastewater
facilities. Our core competencies include hydraulic
modeling, master planning, rate studies and design and construction services. Our design experience includes reservoirs, pressure reducing stations, pump and lift stations, and pipeline alignment
studies, as well as water/wastewater collection, distribution and treatment facilities.

Structural Engineering.Our structural engineering services include bridge design, bridge evaluation and inspection, highway and
railroad bridge
planning and design, highway interchange design, railroad grade separation design, bridge seismic retrofitting, building design and retrofit, sound wall and retaining wall design, and planning and
design for bridge rehabilitation and replacement.

Planning.We offer services to planning agencies as well as community development/redevelopment departments within cities. Typically,
cities contract
with us to relieve peak workload situations or to fill vacant planning positions on an interim basis. In other instances, we handle the entire planning function for small or newly incorporated cities.

Landscape Architecture.Our services in the area of landscape architecture include design, planning, landscape management and urban
forestry.
Specific projects include park design and master planning, bidding and construction documents, water conservation plans, urban beautification programs, landscape maintenance management, site planning
and assessment district management.

Geotechnical Engineering.We provide geotechnical engineering services, including soil testing, slope stability evaluations, earthquake
engineering,
engineering geology and hydrogeology. We have a

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licensed,
full service geotechnical laboratory at our headquarters in Anaheim, California, which offers an array of testing services, including construction materials testing and inspection.

Flood Control.We provide a complete analysis and projection of storm flows for use in master drainage plans and for individual storm
drain systems
to reduce flooding in streets and adjacent properties.

Code Enforcement.We assist municipalities with the development and implementation of neighborhood preservation programs and the
staffing of code
enforcement personnel.

Energy Efficiency.We provide complete energy efficiency services, including comprehensive surveys and audits, marketing services,
implementation
services, program design, benchmark analysis, metering, and partnering with local governments and utilities. We also create and implement innovative information technology solutions for the energy
industry.

Sustainability.We assist clients, including utilities, schools and private companies, in developing and managing facilities and
infrastructures
through a holistic, practical approach to sustainability. Our services in the area of sustainability cover renewable energy, master plans, Leadership in Energy and Environmental Design (LEED)
certification for buildings, reduction strategies for Green House Gas Emission (GHG), and the development of Assembly Bill No. 811 (AB-811) projects.

Water Conservation.We offer a full range of water and wastewater management services. Our services in the area of water conservation
cover water
efficiency hardware retrofits, comprehensive audits and custom developed processes to ensure that the audits result in actual measurable installations of conservation measures. We work with local
governments and water agencies, to provide solutions that are complete and all-embracing, from initial analysis and design to implementation.

Environmental.We provide environmental consulting and remediation services to cities, counties and local government. Our environmental
services
encompass many technical disciplines and programs including human health and ecological risk assessment, hazardous materials and waste management, construction management and environmental compliance.

Representative Projects.Examples of typical ongoing projects we have in the Engineering Services segment include:



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Public Finance Services

We acquired our public finance consulting business in 1999 to supplement the services we offer our public sector clients. In general,
we supply expertise and support for the various financing techniques employed by public agencies to finance their operations and infrastructure. We also support the mandated reporting and other
requirements associated with these financings. We do not provide underwriting or financial advisory services for municipal securities.

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Unlike our Engineering Services business, we often compete for business, at least initially, through a competitive bid process. However, since many public sector
financing instruments, such as tax-exempt bonds, remain outstanding for up to 30 years, once we have established a client relationship, the client tends to retain us for as long as
the financing remains in place. Our services in this segment include the following:

District Administration.We administer special districts on behalf of public agencies. The types of special districts administered
include community
facilities districts (in California, Mello-Roos districts), assessment districts, landscape and lighting districts, school facilities improvement districts, water districts, benefit
assessment districts, fire suppression districts, and business improvement districts. Our 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 and budget forecasting. From July 2008 to June 2009, we expect to administer over 1,900 districts on behalf of more than 220 public agencies, involving an annual levy of
more than 7.8 million parcels that is expected to generate approximately $670 million in public revenue.

The
key to our District Administration services is our proprietary software package, MuniMagic®: Municipal Administration & Government Information Coordinator, which
we developed internally to redefine the way we administer special 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 significant competitive advantage in an industry driven by the ability to accurately process extremely large quantities of data. MuniMagic® is also
available for licensing by our existing clients. See "Intellectual Property" for a discussion of the licensing terms.

Financial Consulting Services.We perform economic analyses and financial projects for public agencies, including:



Federal Compliance Services.We offer federal compliance services to issuers of municipal securities, which can be cities, towns,
school districts,
housing authorities and other entities that are eligible to issue tax-exempt securities. Specifically, we provide arbitrage rebate calculations and municipal disclosure services that help
issuers remain in compliance with federal regulations. We provide these reports, together with related compliance services such as bond elections, temporary period yield restriction, escrow fund
monitoring, rebate payments and refund requests. In terms of continuing disclosure services, we both produce the required annual reports and disseminate those

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reports
on behalf of the issuers. We provide federal compliance services to approximately 575 issuers in 38 states and the District of Columbia on more than 2,100 bond issues totaling over
$54 billion in municipal debt.

Representative Projects.Examples of typical projects we have in the Public Finance Services segment include:



Homeland Security Services

In fiscal 2004, we formed our subsidiary Willdan Homeland Solutions (WHS), formerly known as American Homeland Solutions. We provide
homeland security and public safety consulting services to

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cities,
counties and related municipal service agencies such as utility and water companies, as well as school districts, port and transportation authorities, tribal governments and large business
enterprises with a need for homeland security related services. We staff our projects in this area with former high-level local and regional public safety officers and focus on solutions
tailored for local agencies and their personnel. Our services include:

Training Services.We design customized training courses for all aspects of disaster, unusual occurrence and emergency responses. In
this regard, we
have developed and own several training courses that meet or exceed the requirements for the federal National Incident Management System, or NIMS, training. These courses assist clients in meeting
their obligations to prepare their staff to utilize the NIMS. Our courses have been approved by California's Commission on Peace Officers Standards and Training, the California Office of Emergency
Services and the Federal National Integration Center, Training and Education Division, formerly the Department of Homeland Security's "Office of Grants and Training".

Emergency Operations Planning.We design, develop, implement, review and evaluate public and private agencies' emergency operations and
hazard
mitigation plans, including compliance and consistency with federal, state and local laws and policies. Plans are tailored to respond to terrorism, intentional acts of sabotage and natural disasters.
We also provide command and control and emergency response training for all types of unusual occurrences. WHS has developed emergency operations, continuity and hazard mitigation plans for municipal
governments, special districts, school districts, and private industry clients.

Terrorism and Threat Vulnerability Assessments.These assessments involve the development of policies and procedures to assess threats
and the
vulnerability of local, regional, state and national infrastructures, including city and county buildings, ports and airports, facilities, power supplies, water supplies, communications networks and
transportation systems.

Planning Evaluations and Exercises.We conduct planning sessions and exercises, including those relating to weapons of mass destruction,
 large
events, mass casualty transportation disasters, terrorism incident response, natural disaster response and recovery, and civil disorder events. We design these exercises for multi-agency involvement
and are fully compliant with the federal government's Homeland Security Exercise and Evaluation Program (HSEEP), the State Emergency Management System (SEMS) for California, and the National Response
Framework. Exercises are designed to evaluate and test "first responders" and support personnel, as well as elected officials and agency management.

Public Safety and Management Consulting.We provide independent analyses, evaluations and recommendations for enhancing the performance
of public
safety agencies, such as police and fire departments. Management consulting service areas include organizational assessments and studies, staffing and outsourcing support for new and existing cities,
management training and development, administrative investigations, and background investigations. These services are provided to local, state, and tribal governments and agencies; private companies;
trade associations; non-profit organizations; and educational institutions from K-12 through colleges and universities.

Representative Projects.Examples of typical Homeland Security Services projects include:



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Competitive Strengths

Founded over 40 years ago, we have a well-established track record of providing a wide range of privatized services
to the public sector. We have developed the experience base, professional staff and support technology and software necessary to quickly and effectively respond to the needs of our clients. We believe
we have developed a reputation within our industry as problem solvers across a broad range of client issues. Some of our competitive strengths include:

Quality of service.We pride ourselves on the quality of service that we provide to our clients. The work for which we compete is
awarded primarily
based on the company's qualifications, rather than the fees proposed. We believe that our service levels, experience and expertise satisfy even the most rigorous qualification standards. We have
developed a strong reputation for quality, based upon our depth of experience, ability to attract quality professionals, customized technology and software that support our services, local knowledge
and the expertise we possess across multiple disciplines. We believe we are well-positioned to serve public sector clients due to our knowledge of the unique

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reporting
processes and operating procedures of public agencies, which differ substantially from the private sector. We believe our high quality of service is a significant reason we currently provide
services to over 60% of the cities and counties in California.

Broad range of services.Our focus on customer service has led us to continually broaden the scope of the services we provide. At
different stages in
our 40-year history, as the needs of our public sector clients have evolved, we have developed service capabilities complementary to our core engineering business, including building and
safety services, financial and economic services, planning services, geotechnical services, code enforcement services and, most recently, disaster planning and homeland security services. Further,
because we recognize that local public sector projects and issues often cross departmental lines, we have developed the ability to deliver multiple services in a cohesive manner to better serve our
client communities as a whole.

Strategic locations in key markets.Local agencies want professionals who understand their local needs. Therefore, we deliver our
services through a
network of offices dispersed throughout the western United States. Each of our offices is staffed with quality professionals, including former management
level public sector employees, such as planners, engineers, inspectors, and police and fire department personnel. These professionals understand the local and regional markets in which they work.

Strong, long-term client relationships.We have developed strong relationships with our public agency clients, some of whom we have
worked with for over 25 years. The value of these long-term relationships is reflected in the recurring award of new projects, ongoing staffing assignments, and
long-term projects that require high-level supervision. We also seek to maintain close personal relationships with public agency decision-makers to strengthen our relationships
with them and the agencies with which they work. We frequently develop new client relationships as our public agency contacts are promoted or move to other agencies. Our strong culture of community
involvement and leadership in key public agency organizations underscores our customer focus and helps us cultivate and expand our client base.

Experienced, talented and motivated employees.Our staff consists of seasoned professionals with a broad array of specialties, and a
strong customer
service orientation. Our corporate culture places a high priority on investing in our people, including providing opportunities for stock ownership to attract, motivate and retain top professionals.
Our executive officers have an average of more than 24 years of experience in or supporting the public sector, and an average of 6 years with our company.

Clients

Our clients primarily consist of cities, counties, redevelopment agencies, water districts, school districts and universities, state
agencies, federal agencies, a variety of other special districts and agencies, tribal governments and to a lesser extent, private industry. Our typical client is an agency serving a community of
10,000 to 300,000 people. In fiscal year 2008, we served over 800 distinct clients. No individual client accounted for over 3.5% of our consolidated contract revenue in fiscal year 2008. For fiscal
year 2008, each of our top eight clients accounted for between 1.6% and 3.5% of our consolidated contract revenue. Our clients are predominantly based in California. We also have clients in Arizona,
Nevada and, to a lesser extent, other states throughout the United States. In fiscal year 2008, services provided to public agencies and, to a lesser extent, private industry in California accounted
for approximately 91% of our contract revenue.

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Contract Structure

We provide our services under contracts, purchase orders or retainer letters. The contracts we enter into with our clients contain
three principal types of pricing provisions:



The
following table presents, for the periods indicated, the approximate percentage of our contract revenue subject to each type of pricing provision:

Fiscal Year2008

2007Time-and-materials


50
%

59
%Unit-based


23
%

25
%Fixed price


27
%

16
%Total


100
%

100
%


The
percentage of our contract revenue derived from fixed price contracts increased to 27% in fiscal year 2008 from 16% in fiscal year 2007 primarily because of our acquisition of
Willdan Energy Solutions in June 2008. Willdan Energy Solutions has fixed price provisions in a higher percentage of their contracts than our other operating subsidiaries.

For
time-and-materials and fixed price contracts, we bill our clients periodically in accordance with the contract terms 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, in
some cases, in advance of delivery.

Our
contracts come up for renewal periodically and at the time of renewal may be subject to renegotiation, which could impact the profitability on that contract. In addition, during the
term of a contract, public agencies may request additional 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 the renewal, termination or modification of a contract may materially impact an individual project, we do not believe the renewal, termination
or modification of any specific contract would have a material adverse effect on our consolidated operations due to our large volume of transactions and low customer concentration.

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Competition

The market for our services is highly fragmented. We often compete with many other firms ranging from small local firms to large
national firms. Contract awards are based primarily on qualifications, relevant experience, staffing capabilities, geographic presence, stability and price.

Doing
business with governmental agencies is complex and requires the ability to comply with intricate regulations and satisfy periodic audits. We have been serving cities, counties,
special districts and other public agencies for over 40 years. We believe that the ability to understand these requirements and to successfully conduct business with 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 one project 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 on public sector clients.
Public sector clients generally choose among competing firms by weighing the quality, experience, innovation and timeliness of the firm's services. When selecting consultants for engineering projects,
many government agencies are required to, and others choose to, employ Qualifications Based Selection, or QBS. QBS requires the selection of the most technically qualified firms for a project, while
the financial and legal terms of the engagement are generally secondary. QBS applies primarily to work done by our Engineering Services segment. Contracts in the Public Finance Services and Homeland
Security Services areas typically are not subject to mandatory QBS standards, and often are awarded through a competitive bid process.

Our
competition varies geographically. Although we provide services in several states, we may be stronger in certain service lines in some geographical areas than in other regions.
Similarly, some of our larger competitors are stronger in some service lines in certain localities but are not as competitive in others. Our smaller competitors generally are limited both
geographically as well as in the services they are able to provide.

We
believe that the primary competitors for our Engineering Services segment include Charles Abbott & Associates, Inc., Bureau Veritas, Harris & Associates, Psomas,
RBF Consulting, Tetra Tech, Inc., Stantec, Inc., Michael Baker Corporation, TRC Companies, Inc., AECOM Technology Corporation, CH2M Hill and Jacobs Engineering Group, Inc.
Our chief competitors in our Public Finance Services segment include David Taussig & Associates, Harris & Associates, NBS Government Finance Group and Ernst & Young LLP. We
believe the Homeland Security Services segment competes primarily with EG&G (a division of URS Corporation) and SRA International, Inc.

Insurance

We currently maintain general liability insurance, with coverage in the amount of $1.0 million per occurrence, subject to a
$2.0 million general aggregate limit; and professional liability insurance, with $5.0 million in coverage per claim, and a $10.0 million annual aggregate limit. Our professional
liability policy is a "claims made" policy. We also carry excess coverage of an additional $9.0 million for general, automobile and employer's liability claims. We are liable to pay these
claims from our assets if and when the aggregate settlement or judgment amount exceeds our policy limits.

Employees

At January 2, 2009, we had approximately 385 full-time employees and 165 part-time employees. All Public
Agency Resources' employees are classified as part-time. Our employees include, among others, licensed civil, traffic and structural engineers, land surveyors, certified building
officials, licensed geotechnical engineers and engineering geologists, certified inspectors and plans examiners, licensed

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architects
and landscape architects, certified planners, and information technology specialists. We believe that we attract and retain highly skilled personnel with significant industry experience and
strong client relationships by offering them challenging assignments in a stable work environment. 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 holding company:

As of Fiscal Year End2008

2007

2006Engineering Services


401


496


542Public Finance Services


74


75


78Homeland Security Services


16


8


4Holding Company Employees (Willdan Group, Inc.)


59


49


46Total


550


628


670


At
January 2, 2009, we contracted with approximately 93 former and current public safety officers to conduct homeland security services training courses. These instructors are
classified as subconsultants and not employees. At January 2, 2009, we had one field survey employee covered by a Master Labor Agreement between the International Union of Operating Engineers Local
Union No. 12 and the Southern California Association of Civil Engineers and Land Surveyors, which expires in October 2010.

Intellectual Property

The "Willdan" name, the logo and the tag line "extending your reach" are service marks of ours, and we have applied for federal
trademark registrations for each with the United States Patent and Trademark Office. We believe we have strong name recognition in the western United States 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 of our proprietary software,
MuniMagic®, are registered trademarks of Willdan Financial Services, and we have registered a federal copyright for the source code for the MuniMagic® software. We license the
MuniMagic® software to existing clients pursuant to licensing agreements that allow varying levels of access to data. This technology allows clients to view their own data and is a form of
deliverable to our clients. The use of licensing provides us protection for this proprietary technology. MuniMagic® is not a commercial product offered for sale.

Available Information

Our website iswww.willdan.comand our investor relations page is under the caption
"Investors" on our website. We make available on this website under "SEC Filings," free of charge, our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials
to the U.S. Securities and Exchange Commission, or SEC. We also make available on this website our prior earnings calls and, under the heading "InvestorsCorporate Governance," our
Code of Ethical Conduct. Further, a copy of this annual report on Form 10-K is located at the SEC's Public Reference Room at 100 F Street, NE, Room 1580, Washington,
D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy and information statements and other information regarding our filings athttp://www.sec.gov.

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ITEM 1A.    RISK FACTORS

Risks Relating to Our Business and Industry

A downturn in public and private sector construction activity in the regions we serve may have a material adverse effect on our business, financial condition and results of
operations.

A downturn in construction activity in our geographic service areas may affect demand for our services, which could have a material
adverse effect on the results of our operations and our financial condition. During fiscal year 2008, a majority of our contract revenue was generated by services rendered to public agencies in
connection with private and public sector construction projects.

The
current recession in the United States has led to a slowdown in construction, particularly residential housing construction, in the western United States. As a result of this
slowdown, our engineering services segment has suffered declines in revenue and we have made several reductions in workforce and facility leases in order to align resources to workload and reduce
costs. We believe that the reductions achieved through January 2, 2009 will be sufficient to align resources with expected future demand for our services. However, should the economic slowdown
continue for longer than expected or worsen, we will need to evaluate further reductions in headcount and facilities in geographic areas that are underperforming.

Our
business, financial condition and results of operations may also be adversely affected by conditions that impact the construction sector in general, including, among other
things:



Any
of these factors could adversely affect the demand for our services, which could have a material adverse effect on our business, results of operations and financial condition.

Changes in the local and regional economies of California could have a material adverse effect on our business, financial condition and results of operations.

Adverse economic and other conditions affecting the local and regional economies of California may reduce the demand for our services,
which could have a material adverse effect on our business, financial condition and results of operations. During fiscal year 2008, approximately 91% of our contract revenue was derived from services
rendered to public agencies and, to a lesser extent, private industry in California. From 1991 to 1996, California experienced an economic downturn that had a negative impact on the construction and
development sectors. This economic downturn caused us to experience cash flow difficulties and substantial operating losses. California is currently experiencing

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another
economic downturn, which has negatively impacted our revenue and profitability. Our revenue in fiscal year 2008 decreased by 7.1% from fiscal year 2007 and we sustained a net loss of
$1.6 million for fiscal year 2008 as compared to net income of $2.1 million for fiscal year 2007. We believe the downturn in the residential housing market has had a significant impact
on our results, in particular the loss of revenue from fees associated with building permits and inspection services.

We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders.

We anticipate that our current cash, cash equivalents, cash provided by operating activities and funds available through our revolving
line of credit will be sufficient to meet our current and anticipated needs for general corporate purposes during the next 12 months. It is possible, however, that we may not generate
sufficient cash flow from operations or otherwise have the capital resources to meet our future capital needs. For example, at the end of our third and fourth fiscal quarters in 2008, we did not meet
certain financial covenants under our revolving credit facility with Wells Fargo Bank, National Association ("Wells Fargo"). As of January 2, 2009, we had no outstanding borrowings under this
facility, but as a result of these covenant violations, Wells Fargo was no longer obligated to extend funds to us under the revolving credit agreement. Wells Fargo has waived these breaches and
eliminated or modified certain financial covenants in the credit agreement in exchange for a reduction in the commitment from $10 million to $5 million, increased pricing and additional
collateral being provided. However, we cannot provide any assurance that Wells Fargo will make any loans under the facility if we violate the remaining financial covenant in the future. If we fail to
comply with this or any other covenant in the credit agreement, any loans outstanding at that time could be accelerated by Wells Fargo and Wells Fargo would not be obligated to make any new loans
under the revolving credit facility. If this occurs and we do not generate sufficient cash flow from operations or otherwise, we may need additional financing to execute on our current or future
business strategies, which include the following:



If
we raise additional funds through the issuance of convertible debt or equity securities, the percentage ownership of our stockholders could be significantly diluted, and these newly
issued securities may have rights, preferences or privileges senior to those of existing stockholders. We cannot assure you that additional financing will be available on terms favorable to us, or at
all. If adequate funds are not available or are not available on acceptable terms, if and when needed, our ability to fund our operations, take advantage of strategic opportunities, or otherwise
respond to competitive pressures would be significantly limited.

Reductions in state and local government budgets could negatively impact their capital spending and adversely affect our business, financial condition and results of
operations.

Several of our state and local government clients are currently facing budget deficits, resulting in smaller budgets and reduced
capital spending, which has negatively impacted our revenue and profitability. Our state and local government clients may continue to face budget deficits that prohibit them from funding new or
existing projects. In addition, existing and potential clients may either

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postpone
entering into new contracts or request price concessions. If we are not able to reduce our costs quickly enough to respond to the revenue decline from these clients that may occur, our
operating results would be adversely affected. Accordingly, these factors affect our ability to accurately forecast our future revenue and earnings from business areas that may be adversely impacted
by market conditions.

Legislation may be enacted that limits the ability of state, regional or local agencies to contract for our privatized services. Such legislation would affect our ability to
obtain new contracts and may decrease the demand for our services.

Legislation is proposed periodically, particularly in California, that attempts to limit the ability of governmental agencies to
contract with private consultants to provide services. Should such legislation pass and be upheld, demand for our services may be materially adversely affected. During fiscal year 2008, approximately
91% of our contract revenue was derived from services rendered to public agencies in California. While attempts at such legislation have failed in the past, as the composition of California's
legislative body changes over time there is an increased risk that measures could be adopted in the future that limit the market for privatized services.

State and other public employee unions may bring litigation that seeks to limit the ability of public agencies to contract with private firms to perform government employee
functions in the area of public improvements. Judicial determinations in favor of these unions could affect our ability to compete for contracts and may have an adverse effect on our revenue and
profitability.

Over at least the last 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 provide services in the fields of engineering, design and construction of public
improvements that might otherwise be provided by public employees. These challenges could have the affect of eliminating, or severely restricting, the ability of
municipalities to hire private firms for the purpose of designing and constructing public improvements, and otherwise require them to use union employees to perform the services.

For
example, the Professional Engineers in California Government, or PECG, a union representing state civil service employees, has been challenging Caltrans' hiring of private firms
since 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 California Government, et
al. v. Jeff Morales, et al.). The California Supreme Court ruled in favor of Caltrans, concluding that Caltrans may hire private contractors to perform architectural and engineering services on public
works. Although Caltrans was successful in this recent litigation, similar claims may be brought in the future and we cannot predict their outcome. If a state or other public employee union is
successful in its challenge and as a result the ability of state agencies to hire private firms is severely limited, 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 which could affect our ability to compete for contracts and
may have an adverse effect on our revenue and profitability.

Changes in elected or appointed officials could have a material adverse effect on our ability to retain an existing contract with 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 other elected or appointed
officials, our business and financial results or condition could be adversely affected by the results of local and regional elections. A change in the individuals responsible for selecting consultants
for and awarding contracts on behalf of a public agency due to an election could adversely affect our ability to retain an existing contract with or obtain additional contracts from such public
agency.

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Fixed price contracts under which we perform some of our services impose risks to our ability to maintain or grow our profitability.

In fiscal year 2008, approximately 27% of our contract revenue was derived from fixed price contracts, which increased from 16% in
fiscal year 2007. This increase was primarily a result of our June 2008 acquisition of Willdan Energy Solutions, which has fixed price provisions in a higher percentage of their contracts than our
other operating subsidiaries. Under fixed price contracts, we perform services under a contract at a stipulated price which protects clients but exposes us to a greater number of risks than
time-and-materials and unit-based contracts. These risks include:



The
occurrence of any such risk could have a material adverse effect on our results of operations or financial condition.

Because we primarily provide services to municipalities and other public agencies, we are more susceptible to the unique risks associated with government contracts.

We primarily work for municipalities and other public agencies. Consequently, we are exposed to certain risks associated with
government contracting, any one of which can have a material adverse effect on our business, financial condition or results of operations. These risks include:



Changes in the perceived risk of acts of terrorism or natural disasters could have a material adverse effect on our ability to grow our Willdan Homeland Solutions business.

If there is a significant decrease in the perceived risk of the likelihood that one or more acts of terrorism will be conducted in the
United States, or a significant decrease in the perceived risk of the occurrence of natural disasters, our ability to grow and generate revenue through Willdan Homeland Solutions, or WHS, could be
negatively affected. WHS provides training and consulting services to local and regional agencies related to preparing for and responding to incidents of terrorism and natural disaster. Should the
perceived risk of such incidence decline, federal and state funding for homeland security and emergency preparedness could be reduced which might decrease demand for our services and have a material
adverse affect on our business, financial condition and results of operations.

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The loss of certain of our key executives could adversely affect our business, including our ability to secure and complete engagements and attract and retain employees.

We have experienced significant turnover in our management team since 2006. In 2006, our co-founder and Chief Executive
Officer, Dan Heil, passed away unexpectedly. Just prior to Mr. Heil's death, and at his recommendation, our Board of Directors elected Win Westfall to succeed Mr. Heil.
Mr. Westfall resigned as our Chief Executive Officer in February 2007 and we appointed Thomas Brisbin as our new President and Chief Executive Officer in April 2007. In July 2007, Kimberly Gant
was appointed as our Chief Financial Officer when Mallory McCamant, our former Chief Financial Officer, assumed the role of Chief Operations Officer. Ms. McCamant resigned in May 2008.
Additionally, Richard Kopecky, our former Senior Vice President and President of Willdan Engineering, was terminated in February 2007 and replaced by David Hunt, who has been with us for more than
21 years. In December 2008, Daniel Chow replaced Mr. Hunt as Chief Executive Officer and President of Willdan Engineering and Mr. Hunt assumed the role of Chief Operations Officer
for Willdan Engineering.

Because
of the turnover of our management team, any additional losses of our management team or key employees could have a material adverse effect on our business, including the ability
to secure or complete contracts and to attract and retain additional employees. Our success is highly dependent upon the efforts, talents, abilities, marketing skills and operational execution of our
key executives and managers.

Our ability to grow and compete in our industry will be hampered if we are unable to retain the continued service of our key professionals or to identify, hire and retain
additional qualified professionals.

A critical factor to our business is our ability to attract and retain qualified professionals. We are continually at risk of losing
current professionals or being unable to hire additional professionals as needed. If we are unable to attract new qualified employees, our ability to grow will be adversely affected. If we are unable
to retain current employees, our financial condition and results of operations may be adversely affected. We would also be increasing our competition, as former employees pose the greatest threat of
significant competition to our business.

We operate in a highly fragmented industry, and we may not be able to compete effectively with our larger competitors.

The market for services in the engineering, municipal consulting, public finance consulting, geotechnical, homeland security and other
technical services industries is competitive and highly fragmented. Contract awards are based primarily on quality of service, relevant experience, staffing capabilities, reputation, geographic
presence, stability and price. Some of our competitors in certain service areas have more personnel and greater financial, technical and marketing resources than us. With regard to engineering related
services, which represented approximately 78% and 82% of our contract revenue for fiscal years 2008 and 2007, respectively, our competitors include many larger consulting firms such as AECOM
Technology Corporation, CH2M Hill, Jacobs Engineering Group Inc. and Tetra Tech, Inc. In certain public finance consulting services, we may compete with large accounting firms, such as
Ernst & Young LLP. We can offer no assurance that we will be able to compete successfully in the future with these or other competitors.

Our services may expose us to liability in excess of our current insurance coverage, which may have a material adverse effect on our liquidity.

Our services involve significant risks of professional and other liabilities, which may substantially exceed the fees we derive from
our services. In addition, from time to time, we assume liabilities as a

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result
of indemnification provisions contained in our service contracts. We cannot predict the magnitude of these potential liabilities.

We
currently maintain general liability insurance, with coverage in the amount of $1.0 million per occurrence, subject to a $2.0 million general aggregate limit; and
professional liability insurance, with $5.0 million in coverage per claim, and a $10.0 million annual aggregate limit. We also carry excess coverage of an additional $9.0 million
for general, automobile and employer's liability claims. Claims may be made against us that exceed these limits. We are liable to pay claims from our assets if and when the aggregate settlement or
judgment amount exceeds our policy limits. In 2002, we experienced two claims against our professional liability insurance that exceeded by $3.1 million the aggregate annual limit of our
coverage, which at that time was $5.0 million. Following resolution of these disputes, we were liable for the $3.1 million in excess of our policy limits. Our professional liability
policy is a "claims made" policy. Thus, only claims made during the term of the policy are covered. If we terminate our professional liability policy and do not obtain retroactive coverage, we would
be uninsured for claims made after termination even if these claims are based on events or acts that occurred during the term of the policy. Further, our insurance may not protect us against liability
because our policies typically have various exceptions to the claims covered and also require us to assume some costs of the claim even though a portion of the claim may be covered. In addition, if we
expand into new markets, we may not be able to obtain insurance coverage for these new activities or, if insurance is obtained, the dollar amount of any liabilities incurred could exceed our insurance
coverage. A partially or completely uninsured claim, if successful and of significant magnitude, could have a material adverse effect on our liquidity.

The quality of our service and our ability to perform under some of our contracts would be adversely affected if qualified subconsultants are unavailable for us to engage.

Under some of our contracts, we rely on the efforts and skills of subconsultants for the performance of some of the tasks. In fiscal
years 2008 and 2007, subconsultant costs comprised approximately 10.6% and 5.8%, respectively, of our contract revenue. The absence of qualified subconsultants with whom we have a satisfactory
relationship could adversely affect the quality of our service offerings and therefore our financial results.

Potential future acquisitions could be difficult to integrate, divert the attention of key personnel, disrupt our business, dilute stockholder value and impair our financial
results.

As part of our business strategy, we intend to consider acquisitions of companies that are complementary to our business, such as our
acquisition of Intergy Corporation in June 2008. Appropriate acquisitions could allow us to expand into new geographical locations, offer new services, or acquire additional talent. Accordingly, our
future performance will be impacted by our ability to identify appropriate businesses to acquire, negotiate favorable terms for such acquisitions and then effectively and efficiently integrate such
acquisitions into our existing businesses. There is no certainty that we will succeed in such endeavors.

Acquisitions
involve numerous risks, any of which could harm our business, including:



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Acquisitions
also frequently result in the recording of goodwill and other intangible assets which are subject to potential impairment in the future that could harm our financial
results. In addition, if we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders may be diluted, which could lower the market price of our common stock. As
a result, if we fail to properly evaluate acquisitions or investments, we may not achieve the anticipated benefits of any such acquisitions, and we may incur costs in excess of amounts that we
anticipate.

If we fail to comply with the requirements imposed by Section 404 of the Sarbanes-Oxley Act, the trading price of our stock could drop significantly.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, we are required to provide a management
certification on our internal controls over financial reporting. Because we are a smaller reporting company, we will be required to provide an attestation report related to the effectiveness of our
internal controls over financial reporting from our independent registered public accounting firm for the first time for fiscal year 2009. In order to achieve compliance with Section 404 of
Sarbanes-Oxley, in 2007 we engaged outside professional consultants to assist us in documenting and evaluating our internal control over financial reporting. This exercise was both costly and
challenging. We believe the efforts we have put forth to date give us the basis to conclude that we have effective internal controls over financial reporting. When our independent auditors attest to
the effectiveness of our internal controls over financial reporting this upcoming fiscal year end and in future years, our auditors may not agree with our management's conclusion and, as a result, may
not be able to conclude that our internal controls over financial reporting are effective. Moreover, the costs to comply with the provisions of Section 404 of Sarbanes-Oxley, as presently in
effect, could continue to be significant.

In
addition, during the course of testing the design and effectiveness of our internal controls, we or our independent registered public accounting firm may identify deficiencies that we
may not be able to remediate in time to allow for an unqualified report from our independent registered public accounting firm. Furthermore, if we fail to achieve and maintain the adequacy of our
internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404 of Sarbanes-Oxley. Effective internal controls, particularly those related to revenue recognition, are necessary for us to
produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be
harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly.

We have incurred, and will continue to incur, significant costs as a public company.

As a public company, we incur significant legal, accounting and other expenses that we did not incur prior to November 2006 as a
private company. New rules and regulations for public companies may increase our legal and financial compliance costs and will make some activities more

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time-consuming
and costly. For example, we expect rules and regulations applicable to public companies to make it more difficult and more expensive for us to maintain director and officer
liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage.

The concentration of ownership of our stock may delay or prevent a change of control of our company or changes in our management, and as a result may hinder the ability of
our stockholders to take advantage of a premium offer.

The concentration of ownership of our stock may have the effect of delaying or preventing a change in control of the company or a
change in our management and may adversely affect the voting or other rights of other holders of our common stock. As of March 19, 2009 our directors and executive officers beneficially own
1,325,229 shares of common stock, or approximately 18.2% of our outstanding common stock. Of these shares, 923,120 shares, or approximately 12.8% of our outstanding common stock, are owned by
Linda L. Heil, a member of our board of directors.

Cautionary Statement Regarding Forward-Looking Information

In addition to current and historical information, this report contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements relate to our future operations, prospects, potential products, services, developments and business strategies. These statements can, in some
cases, be identified by the use of words like "may," "will," "should," "could," "would," "intend," "expect," "plan," "anticipate," "believe," "estimate," "predict," "project," "potential," or
"continue" or the negative of such terms or other
comparable terminology. This report includes, among others, forward-looking statements regarding our:



These
statements involve certain known and unknown risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking
statements. Such risks and uncertainties include, among others, those listed in this section. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the
date of this report to reflect actual results or future events or circumstances.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.

ITEM 2.    PROPERTIES

Our corporate headquarters are located in approximately 42,000 square feet of office space that we lease at 2401 East Katella Avenue,
Anaheim, California. In addition, we lease office space in 19 other locations principally in California, Nevada, and Arizona. In total, our facilities contain approximately 104,000 square feet of
office space and are subject to leases that expire through fiscal year 2014. We also rent additional office space on a month-to-month basis. We believe that our existing
facilities are

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adequate
to meet current requirements and that suitable additional or substitute space will be available as needed to accommodate any expansion of operations and for additional offices.

ITEM 3.    LEGAL PROCEEDINGS

We are subject to claims and lawsuits from time to time, including those alleging professional errors or omissions, that arise in the
ordinary course of business against firms, like ours, that operate in the engineering and consulting professions. We carry professional liability insurance, subject to certain deductibles and policy
limits, for such claims as they arise and may from time to time establish reserves for litigation that is considered probable of a loss. We may incur substantial expenses in defending against third
party claims. In the event of a determination adverse to us, we may incur substantial monetary liability and be required to change our business practices. Either of these results could have a material
adverse effect on our financial position, results of operations or cash flows.



A
complaint was filed against us on February 28, 2008 relating to a project for the reconstruction of a portion of Valley Center Road located in an
unincorporated area of San Diego County. The design was completed by us and a contract was awarded to a construction contractor for construction of the improvements. The construction was originally
scheduled for completion in December 2008; however completion has been delayed until fall 2009. The lawsuit alleges that the delays in construction were caused by errors and omissions in our
preparation of reports and design and engineering of the project, resulting in additional design and construction costs, in an amount to be determined but believed to be in excess of
$5.0 million. We deny the allegations asserted in the lawsuit and will vigorously defend against the claims.



This
suit concerns a project by the City of Laguna Beach to reconstruct a retaining wall supporting a city road. We served as the construction observer for
this project and designed the retaining wall. Subsequent to completion of the project, a slope below the retaining wall failed damaging the plaintiffs' residence. The retaining wall did not fail. The
construction work was performed from February to March 2005 and the slope failure occurred in June 2005. The plaintiffs were not injured in the incident. The plaintiffs allege that the City of Laguna
Beach violated its own ordinances by not obtaining appropriate geotechnical data during the design stage and by allowing the work to be constructed during the rainy season. The lawsuit names Merit
Engineering, the project designer, Peterson-Chase Engineering, the general contractor and us, the construction observer, as defendants. We were named as a defendant in the first amended complaint
filed on October 17, 2007. The plaintiffs filed a mediation brief on April 25, 2008 indicating damages to real and personal property in the amount of $0.8 million and general
damages between $1.6 million and $4.7 million. A cross-complaint has been filed in the action by Peterson-Chase against us seeking equitable apportionment. We deny the allegations
asserted in the lawsuit and cross-complaint and will vigorously defend against the claims.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our stockholders during the last quarter of our fiscal year ended January 2, 2009.

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PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



Since November 21, 2006, the common stock of Willdan Group, Inc. has been listed and traded on the Nasdaq Global Market
under the symbol "WLDN". The following table sets out the high and low daily closing sale prices as reported on the NASDAQ Global Market for fiscal years 2008 and 2007. These reported prices reflect
inter-dealer prices without adjustments for retail markups, markdowns, or commissions.

2008

2007High

Low

High

Low1st Quarter

$
6.88

$
5.00

$
10.10

$
8.902nd Quarter

$
5.94

$
4.71

$
10.07

$
9.003rd Quarter

$
5.09

$
1.79

$
10.49

$
9.584th Quarter

$
2.21

$
1.50

$
10.40

$
6.31


On
March 31, 2009 the closing sales price per share of our common stock, as reported on the Nasdaq Global Market, was $1.70.



As of March 31, 2009, there were 108 stockholders of record of our common stock.



We did not declare or pay cash dividends on our common stock in fiscal years 2007 and 2006. We declared our final S Corporation
distribution of $6.3 million to holders of our common stock in 2006. The distribution was paid in two equal portions in December 2006 and January 2007. Our revolving credit agreement prohibits
the payment of any dividend or distribution on our common stock either in cash, stock or any other property without the lender's consent.



In the three years preceding the filing of this report, we have issued the following securities that were not registered under the
Securities Act:

In
connection with our purchase of Willdan Energy Solutions (formerly, Intergy Corporation) on June 9, 2008, we agreed to make potential earn-out payments of up to
$6.2 million to the sellers if Willdan Energy Solutions achieves certain levels of earnings before interest and taxes in each of the first three years following completion of the acquisition.
If any earn-out payments are due, we may elect, in our sole discretion, to pay up to 50% of such earn-out payments in shares of our common stock as long as (a) our
market capitalization at the time of any such earn-out payment is between $57.0 million and $86.0 million and (b) the shares of common stock are traded on a United
States national securities exchange or reported through NASDAQ as of the end of the applicable period for which the earn-out was achieved. If the Average Daily Trading Volume (as defined
in the Stock Purchase Agreement) of our common stock as of the end of an applicable earn-out period is less than 0.42% of our then-issued and outstanding common stock, we may
not pay more than 25% of the applicable earn-out payment in shares of our common stock.

On
November 27, 2006, we issued stock warrants in connection with our initial public offering to the underwriter, Wedbush Morgan Securities, Inc., for the right to purchase
290,000 common shares at

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120%
of the IPO share price (or $12.00 per share). The warrants became exercisable on November 20, 2007 and expire on November 20, 2011. The stock warrants were issued in reliance on
Regulation D promulgated under the Securities Act of 1933, as amended.

On
June 30, 2006, we issued an aggregate of 4,712,640 shares of our common stock to the 75 shareholders of The Willdan Group of Companies, Inc., a California corporation
("Willdan California"). The shares were issued in connection with the merger of Willdan California into Willdan Group in order to effect its reincorporation in the state of Delaware. The shares were
issued in reliance on Rule 145(a)(2) of the Securities Act of 1933, as amended.

Unless
otherwise stated, the sales of the above securities were deemed by the Registrant to be exempt from registration under the Securities Act in reliance upon Section 4(2) of
the Securities Act as transactions by an issuer not involving any public offering. The purchasers comprised a select group of our officers, directors, managers and service providers who, as a group,
have had longstanding relationships with and knowledge of our Company, our senior management and our board of directors. The purchasers were provided financial and other information concerning us and
were allowed the opportunity to ask questions and receive information from us prior to making their investment decisions. The purchasers represented their intention to acquire the securities for
investment purposes and not with a view to sell or for sale in connection with any distribution thereof. Based on the limited nature of the offering, the level of knowledge and relationships of the
purchasers with us, the provision and access to information and the restrictions on transfer, we believe our offerings satisfied the Section 4(2) exemption of the Act.



None.

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Table of Contents

ITEM 6.    SELECTED FINANCIAL DATA

The financial data set forth below should be read in conjunction with our corresponding consolidated financial statements and notes
thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this annual report.

Fiscal Year2008

2007

2006

2005

2004(in thousands except per share amounts)Consolidated Statement of Operations Data:Contract revenue

$
73,190

$
78,798

$
78,339

$
67,263

$
58,263Direct costs of contract revenue (exclusive of depreciation and amortization shown separately below):Salaries and wages


21,991


25,769


24,602


20,918


15,623Subconsultant services


7,750


4,600


4,168


4,745


6,089Other direct costs


2,973


1,568


1,496


1,529


1,497Total direct costs of contract revenue


32,714


31,937


30,266


27,192


23,209General and administrative expenses:Salaries and wages, payroll taxes, employee benefits


24,439


25,061


26,051


22,720


19,711Facilities and facility related


4,803


4,546


4,046


3,481


3,267Stock-based compensation


214


209


38


2,737


Depreciation and amortization


1,978


1,747


1,584


1,257


1,056Lease abandonment


742











Impairment of goodwill


148











Litigation accrual (reversal)





1,049


(1,049
)

2,686


Other


10,952


11,727


10,359


7,935


6,923Total general and administrative expenses


43,276


44,339


41,029


40,816


30,957(Loss) income from operations


(2,800
)

2,522


7,044


(745
)

4,097Other income (expense):Interest income


313


693


135


19


2Interest expense


(33
)

499


(773
)

(630
)

(272
)Other, net


(15
)

(27
)

2,335


(8
)

(8
)Total other income (expense)


265


1,165


1,697


(619
)

(278
)(Loss) income before income tax expense


(2,535
)

3,687


8,741


(1,364
)

3,819Income tax (benefit) expense


(930
)

1,543


2,021


17


47Net (loss) income

$
(1,605
)
$
2,144

$
6,720

$
(1,381
)
$
3,772(Loss) earnings per common share, basic and diluted(1)

$
(0.22
)
$
0.30

$
1.37

$
(0.35
)
$
1.03Weighted average common shares outstanding:Basic(1)


7,159


7,149


4,900


3,994


3,653Diluted


7,160


7,150


4,900


3,994


3,653S Corporation distributions paid per share(1)







$
1.16

$
0.46

$
0.30Pro Forma Data (unaudited)(2):Pro forma provision for income taxes







$
2,596

$
549

$
1,528Pro forma net income (loss)







$
6,145

$
(1,913
)
$
2,291Pro forma earnings per common share, basic and diluted







$
1.25

$
(0.48
)
$
0.63Other Operating Data (unaudited):Adjusted EBITDA(3)

$
68

$
5,326

$
7,651

$
5,951

$
5,163Revenue per employee(4)

$
133

$
132

$
131

$
125

$
119Employee headcount at period end(5)


550


628


670


599


508


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Fiscal Year EndedJanuary 2,
2009

December 28,
2007

December 29,
2006

December 30,
2005

December 31,
2004Consolidated Balance Sheet Data:Cash and cash equivalents

$
8,144

$
15,511

$
20,633

$
3,066

$
266Working capital


19,820


30,171


26,721


9,429


7,195Total assets


47,570


48,226


57,108


32,797


23,223Total indebtedness


394


1,547


1,632


1,858


3,543Total redeemable common stock











14,660


11,477Total stockholders' equity


34,336


35,652


33,264








---



Fiscal Year2008

2007

2006

2005

2004Net loss (income)

$
(1,605
)
$
2,144

$
6,720

$
(1,381
)
$
3,772Interest income


(313
)

(693
)

(135
)

(19
)

(2
)Interest expense


33


(499
)

773


630


272Income tax (expense) benefit


(930
)

1,543


2,021


17


47Lease abandonment expense


742











Goodwill impairment


148











Depreciation and amortization


1,978


1,755


1,584


1,257


1,056Loss (gain) on sale of assets


15


27


(13
)

24


18Life insurance proceeds








(2,250
)




Litigation accrual





1,049


(1,049
)

2,686


Stock-based compensation expense recorded in anticipation of our IPO











2,737


Adjusted EBITDA

$
68

$
5,326

$
7,651

$
5,951

$
5,163


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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a provider of outsourced services to small and mid-sized public agencies in California and other western states.
Outsourcing enables these agencies to provide a wide range of specialized services, without having to incur and maintain the overhead necessary to develop staffing in-house. We provide a
broad range of services to public agencies and to a lesser extent, private industry, including:



We
operate our business through a network of offices located throughout California and other western states and had a staff of 550 as of January 2, 2009 that includes licensed
engineers and other professionals. We ranked 154 out of 500 top design firms inEngineering News-Record's2008 Design Survey. Our core
clients are public agencies in communities with populations ranging from 10,000 to 300,000 people. We believe communities of this size are underserved by large outsourcing companies that tend to focus
on securing large federal and state projects, as well as projects for the private sector. We seek to establish close working relationships with our public agency clients and, over time, to expand the
breadth and depth of the services we provide to them.

While
we currently serve communities throughout the country, our business is concentrated in California and neighboring states. We provide services to approximately 60% of the 490 cities
and over 60% of the 58 counties in California. We also serve special districts, school districts, a range of public agencies, and to a lesser extent, private industry.

Prior
to our initial public offering in November 2006, we were taxed as an S Corporation for purposes of federal and state income taxes. As a result of the offering, our S Corporation
status terminated and we are now taxed as a C Corporation under federal and state tax laws. In fiscal year 2006, we recognized a net deferred income tax liability of $1.5 million resulting from
the termination of our S Corporation status.

Willdan
Group, Inc. is a Delaware corporation formed in 2006 for the purpose of effecting the reincorporation of The Willdan Group of Companies, a California corporation, formed
in 2001 to serve as our holding company. The reincorporation was completed effective June 30, 2006. We were founded over 40 years ago, and today consist of a family of wholly owned
companies that operate within the following segments for financial reporting purposes:



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Recent Developments

General economic conditions have recently declined due to a number of factors including slower economic activity, a lack of available
credit, decreased consumer confidence and reduced corporate profits and capital spending. These conditions have led to a slowdown in construction, particularly residential housing construction, in the
western United States. As a result of this slowdown, our engineering services segment has suffered declines in revenue and we have made several workforce reductions in order to align resources,
primarily human capital, to workload. Additionally, we have terminated and/or abandoned five facility leases, subleased portions of two facilities and reduced the size of an additional facility lease
in order to reduce costs. We believe that the reductions in workforce and facility leases achieved through January 2, 2009 will be sufficient to align resources with future demand for our
services. However, should the economic slowdown worsen, we will need to evaluate further reductions in headcount and facilities in geographic areas that are underperforming. We will also continue to
focus on reducing discretionary expenditures and the efficient procurement of necessary services.

Declining
revenue resulting from the economic conditions discussed above also contributed to us having two consecutive fiscal quarters with net income after taxes of less than $1.00,
which violated one of the covenants in our revolving credit agreement with Wells Fargo Bank, National Association ("Wells Fargo") for the quarter ended September 26, 2008. Wells Fargo agreed to
waive this default for the quarter ended September 26, 2008, but in connection with such waiver, we amended the credit agreement to reduce the aggregate revolving loan commitment from
$10.0 million to $5.0 million and amend certain financial covenants. For the year ended January 2, 2009, we also failed to meet our maximum net loss before tax covenant. In March
2009, Wells Fargo agreed to waive this default and eliminate or modify certain financial covenants in exchange for our agreement to cash collateralize the commitment and increase pricing. The terms of
our amended credit agreement are discussed in more detail below under "Liquidity and Capital ResourcesOutstanding Indebtedness." While we believe that our cash on hand, cash
generated by operating activities and funds available under our amended credit facility with Wells Fargo will be sufficient to finance our operating activities for the next 12 months, if we do
experience a cash flow shortage or violate the current terms of our credit agreement, we may have difficulty obtaining additional funds on favorable terms, if at all, in the current credit market.

Components of Income and Expense

Contract Revenue

We enter into contracts with our clients that contain three principal types of pricing provisions: fixed price,
time-and-materials and unit-based. Contract revenue on our fixed price contracts is

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determined
on the percentage-of-completion method based generally on the ratio of direct costs incurred to date to estimated total direct costs at completion. Many of our fixed
price contracts are relatively short in duration, thereby lowering the risks of not properly estimating the percent complete. Revenue on our time-and-materials and
unit-based contracts are recognized as the work is performed in accordance with specific terms of the contract. Approximately half of our contracts are based on contractual rates per hour
plus costs incurred. Some of these contracts include maximum contract prices, but the majority of these contracts are not expected to exceed the maximum.

Adjustments
to contract cost estimates are made in the periods in which the facts requiring such revisions become known. When the revised estimate indicates a loss, such loss is provided
for currently in its entirety. Claims revenue is recognized only upon resolution of the claim. Change orders in dispute are evaluated as claims. Costs related to unpriced change orders are expensed
when incurred and recognition of the related contract revenue is based on an evaluation of the probability of recovery of the costs. Estimated profit is recognized for unpriced change orders if
realization of the expected price of the change order is assured beyond a reasonable doubt.

Direct Costs of Contract Revenue

Direct costs of contract revenue consist primarily of that portion of technical and nontechnical salaries and wages that has been
incurred in connection with revenue producing projects. Direct costs of contract revenue also include production expenses, subconsultant services and other expenses that are incurred in connection
with revenue producing projects. Direct costs of contract revenue exclude depreciation and amortization, that portion of technical and nontechnical salaries and wages related to marketing efforts,
vacations, holidays and other time not spent directly generating revenue under existing contracts. Such costs are included in general and administrative expenses. Additionally, payroll taxes, bonuses
and employee benefit costs for all of our personnel are included in general and administrative expenses since no allocation of these costs is made to direct costs of contract revenue. No allocation of
facilities costs is made to direct costs of contract revenue nor is depreciation and amortization allocated to direct costs. We expense direct costs of contract revenue when incurred.

As
a firm that provides multiple and diverse outsourced services, we do not believe gross margin is a consistent or appropriate indicator of our performance and therefore we do not use
this measure as construction contractors and other types of consulting firms may. Other companies may classify as direct costs of contract revenue some of the costs that we classify as general and
administrative expenses. As a result, our direct costs of contract revenue may not be comparable to direct costs for other companies, either as a line item expense or as a percentage of contract
revenue.

General and Administrative Expenses

General and administrative expenses include the costs of the marketing and support staffs, other marketing expenses, management and
administrative personnel costs, payroll taxes, bonuses and employee benefits for all of our employees and the portion of salaries and wages not allocated to direct costs of contract revenue for those
employees who provide 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 administrative expenses, "Other" includes expenses such as professional services, legal and accounting, computer costs, travel and entertainment and marketing
costs. We expense general and administrative costs when incurred.

Until
November 2006, we had not operated as a public company. As a public company, we have and will continue to incur significant legal, accounting and other expenses that we did not
incur as a private company, and we expect our general and administrative expenses to increase as a result. Our management and other personnel need to devote a substantial amount of time to comply with
the requirements of being a public company. Moreover, rules and regulations for public companies have

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increased
our legal and financial compliance costs and has made some activities more time-consuming and costly.

Critical Accounting Policies

This discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with generally accepted accounting principles in the U.S., or GAAP. To prepare these financial statements in conformity with GAAP, we must make estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amount of revenue and expenses in the reporting period. Our actual results may differ from these estimates. We have provided a summary of our significant accounting policies in Note 2 to our
consolidated financial statements included elsewhere in this report. We describe below those accounting policies that require material subjective or complex judgments and that have the most
significant impact on our financial condition and results of operations. Our management evaluates these estimates on an ongoing basis, based upon information currently available and on various
assumptions management believes are reasonable as of the date of this report.

Contract Accounting

Applying the percentage-of-completion method of recognizing revenue requires us to estimate the indicated
outcome of our long-term contracts. We forecast such outcomes to the best of our knowledge and belief of current and expected conditions and our expected course of action. Differences
between our estimates and actual results often occur resulting in changes to reported revenue and earnings. Such changes could have a material effect on our future consolidated financial statements.

Accounts
receivable are carried at original invoice amount less an estimate made for doubtful accounts based upon our review of all outstanding amounts on a monthly basis. We determine
the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Our credit risk is minimal with governmental entities. Account
receivables are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received. For further information on the types of contracts under
which we perform our services, see "BusinessContract Structure" elsewhere in this report.

Goodwill

The Statement of Financial Accounting Standards No. 142,"Goodwill and Other Intangible
Assets"(SFAS No. 142) requires that we test goodwill, at least annually, for possible impairment. Accordingly, we complete our annual testing of goodwill as of the last
day of the first month of our fourth fiscal quarter each year to determine whether there is impairment. In addition to our annual test, we regularly evaluate whether events and circumstances have
occurred that may indicate a potential impairment of goodwill. We recognized impairment charges for fiscal year 2008 related to our Homeland Security Services reporting unit. Our Homeland Security
Services reporting unit had no remaining goodwill following this impairment charge. We did not recognize any impairment charges in fiscal years 2007 and 2006.

We
test our goodwill for impairment at the level of our reporting units, which are components of our operating segments. The reporting units that have material amounts of goodwill are
Willdan Energy Solutions, which is part of our engineering services segment, and Willdan Financial Services, which constitutes our public finance services segment. The process of testing goodwill for
impairment involves the determination of the fair value of the applicable reporting units. To estimate the fair value of our reporting units, we have historically used an income approach based on a
multiple of historical cash flows, management's estimates of future cash flows and other market data. In fiscal year 2008, we

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expanded
our methodology to include a market approach based upon multiples of EBITDA earned by similar public companies. For our fiscal year 2008 annual impairment test, we weighted the income
approach and the market approach at 80% and 20%, respectively. The income approach was given a higher weight because it has a more direct correlation to the specific economics of the reporting units
than the market approach, which is based on multiples of companies that, although comparable, may not provide the same mix of services as our reporting units.

Once
the fair value is determined, we then compare the fair value of the reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit is determined
to be less than the carrying value, we perform an additional assessment to determine the extent of the impairment based on the implied fair value of goodwill compared with the carrying amount of the
goodwill. In the event that the current implied 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 to assumptions about our future revenue, profitability and cash flows, our
operational plans and our interpretation of current economic indicators and market valuations. To the extent these assumptions are incorrect or economic conditions that would impact the future
operations of our reporting units change, our goodwill may be deemed to be impaired, and an impairment charge could result in a material adverse effect on our financial position or results of
operation. For example, if we experienced a 10% decrease in the fair value of each of our reporting units that have goodwill from that determined during our 2008 annual impairment testing, we would
require an impairment charge of approximately $0.3 million.

Accounting for Claims Against the Company

We record liabilities to claimants for probable and estimable claims on our consolidated balance sheet, which is included in accrued
liabilities, and record a corresponding receivable from our insurance company for the portion of the claim that is probable of being covered by insurance, which is included in other receivables. The
estimated claim amount net of the amount estimated to be recoverable from the insurance company is included in our general and administrative expenses. Determining probability and estimating claim
amounts is highly judgmental. Initial accruals
and any subsequent changes in our estimates could have a material effect on our consolidated financial statements.

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Results of Operations

The following table sets forth, for the periods indicated, certain information derived from our consolidated statements of operations
expressed as a percentage of contract revenue. Amounts may not add to the totals due to rounding.

Fiscal Year2008

2007

2006Statement of Operations Data:Contract revenue


100.0
%

100.0
%

100.0
%Direct costs of contract revenue (exclusive of depreciation and amortization shown separately below):Salaries and wages


30.0


32.7


31.4Subconsultant services


10.6


5.8


5.3Other direct costs


4.1


2.0


1.9Total direct costs of contract revenue


44.7


40.5


38.6General and administrative expenses:Salaries and wages, payroll taxes, employee benefits


33.4


31.8


33.3Facilities and facility related


6.6


5.8


5.2Stock-based compensation


0.3


0.3


Depreciation and amortization


2.7


2.2


2.0Lease abandonment


1.0





Impairment of goodwill


0.2





Litigation accrual (reversal)





1.3


(1.3
)Other


15.0


14.9


13.2Total general and administrative expenses


59.1


56.3


52.4(Loss) income from operations


(3.8
)

3.2


9.0Other income (expense):Interest income


0.4


0.9


0.2Interest expense





0.6


(1.0
)Other, net








3.0Total other income (expense), net


0.4


1.5


2.2(Loss) income before income tax expense


(3.5
)

4.7


11.2Income tax (benefit) expense


(1.3
)

2.0


2.6Net (loss) income


(2.2
)%

2.7
%

8.6
%


Fiscal Year 2008 Compared to Fiscal Year 2007

Contract revenue.Our contract revenue was $73.2 million for the fiscal year ended January 2, 2009, with $57.3 million
attributable to the Engineering Services segment and $13.7 million attributable to the Public Finance Services segment. Our Homeland Security Services segment generated $2.2 million
during this period. Consolidated contract revenue decreased $5.6 million, or 7.1%, from $78.8 million in the fiscal year ended December 28, 2007. This decrease was due primarily
to a decrease of $7.1 million, or 11.0%, in contract revenue of the Engineering Service segment, offset by increases of $1.0 million, or 7.9%, and $0.5 million, or 29.4%, in
contract revenue of the Public Finance Services and Homeland Security Services segments, respectively. Our revenue for fiscal year

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2008
also includes $7.8 million of revenue since June 2008 from Willdan Energy Solutions, which we acquired in June 2008.

Contract
revenue of the Engineering Services segment has been significantly impacted by the decline in the California residential housing market and state and local government budget
cuts. A source of revenue in our Engineering Services segment is fees assessed for building permits. Since the second half of fiscal 2007, we have experienced reductions in revenue from these fees
because of the continuing slowdown in residential construction in the western United States. The $7.1 million decrease in contract revenue for the Engineering Services segment is net of
$7.8 million of revenue recognized by Willdan Energy Solutions following our acquisition of Willdan Energy Solutions in June 2008. Our Public Finance Services business, specifically district
administration projects, tends to run counter-cyclical to the residential housing market. Revenue in the Public Finance Services segment increased primarily due to increased district formation
services to fund infrastructure projects as well as increased delinquency management services in our district administration services. Revenue in the Homeland Security Services segment has increased
due to an increase in our emergency response training courses, particularly in Southern California. Additionally, our Homeland Security Services segment has expanded its service offerings beyond its
traditional training services to include training exercises and management consulting services.

Direct costs of contract revenue.Direct costs of contract revenue was $32.7 million for the fiscal year ended January 2,
2009, with
$27.8 million attributable to the Engineering Services segment and $3.7 million attributable to the Public Finance Services segment. The additional $1.2 million is attributable to
direct costs of contract revenue for our Homeland Security Services segment. Direct costs of contract revenue increased $0.8 million, or 2.5%, from $31.9 million for the fiscal year
ended December 28, 2007. Of this total increase, direct costs of contract revenue increased $0.1 million, or 0.3%, in the Engineering Services segment and $0.4 million, or 11.7%,
in the Public Finance Services segment. The remaining $0.3 million increase was attributable to the Homeland Security Services segment. The increase in direct costs of contract revenue for our
Engineering Services segment is primarily due to increased salary, subconsultant and other direct costs related to Willdan Energy Solutions which we acquired in June 2008, offset by decreases in
direct salary costs across other areas of the segment. Increases in direct costs of contract revenue for our Public Finance Services and Homeland Security Services segments were primarily the result
of the increased volume of activity that generated the increased contract revenue previously discussed for these operating segments. Direct
costs of contract revenue as a percentage of contract revenue for the fiscal year ended January 2, 2009 increased to 44.7% from 40.5% for the fiscal year ended December 28, 2007,
primarily because contract revenue in our Engineering Services segment decreased at a higher rate than the direct costs of contract revenue attributable to this segment.

Within
direct costs of contract revenue, salaries and wages decreased to 30.0% of contract revenue for the fiscal year ended January 2, 2009 from 32.7% for the fiscal year ended
December 28, 2007. Comparing those same periods, subconsultant services increased to 10.6% of contract revenue from 5.8% of contract revenue. Subconsultant costs increased primarily due to our
acquisition of Willdan Energy Solutions which utilizes a higher percentage of subconsultants than our other subsidiaries.

General and administrative expenses.General and administrative expenses decreased by $1.1 million, or 2.3%, to $43.2 million
for the
fiscal year ended January 2, 2009 from $44.3 million for the fiscal year ended December 28, 2007. The $1.1 million decrease in general and administrative expenses primarily
relates to decreases in salaries and wages, payroll taxes and employee benefits and other general and administrative expenses. The reduction in employee related costs primarily resulted from
reductions in headcount and cost control measures. The reduction in other general and administrative expenses related to cost control measures and reductions in professional service costs primarily
related to the legal costs incurred during fiscal year 2007 for the settlement of the West Hollywood litigation and lower professional fees during fiscal year 2008 as compared to fiscal year 2007

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primarily
because we had to comply with Section 404 of the Sarbanes-Oxley Act for the first time in fiscal year 2007. The decreases in general and administrative expenses were partially offset
by increases of $0.3 million in amortization of acquired intangibles related to Willdan Energy Solutions, $0.7 million of lease abandonment costs and $0.1 million of goodwill
impairments. Fiscal year 2007 general and administrative expenses also included a $1.0 million litigation accrual for the West Hollywood litigation.

Lease
abandonment expense includes future rental obligations and other costs associated with leased space that is no longer utilized by us or sublease tenants.

As
discussed above under "Components of Income and ExpenseDirect Costs of Contract Revenue," we do not allocate that portion of salaries and wages not related
to time spent directly generating revenue to direct costs of contract revenue.

(Loss) income from operations.As a result of the above factors, loss from operations was $2.8 million for the fiscal year ended
January 2, 2009 as compared to income from operations of $2.5 million for the
fiscal year ended December 28, 2007. (Loss) income from operations as a percentage of contract revenue decreased to (3.8)% for the fiscal year ended January 2, 2009, from 3.2% for the
fiscal year ended December 28, 2007.

Other income (expense).Other income, net, decreased by $0.9 million, or 77.3%, to $0.3 million in the fiscal year ended
January 2, 2009 from $1.2 million of income in the fiscal year ended December 28, 2007. This was due primarily to (i) a decrease in interest income of $0.4 million
resulting primarily from a reduction in average invested balances due to the purchase of Willdan Energy Solutions, and (ii) an increase in interest expense of $0.5 million related
primarily to the inclusion in fiscal year 2007 of a reversal of $0.6 million of accrued interest related to the West Hollywood litigation that was settled without payment of interest.

Income tax (benefit) expense.Income tax benefit was $0.9 million for the fiscal year ended January 2, 2009, as compared to
income tax
expense of $1.5 million for the fiscal year ended December 28, 2007.

Net (loss) income.As a result of the above factors, our net loss was $1.6 million for the fiscal year ended January 2, 2009,
compared
to net income of $2.1 million for the fiscal year ended December 28, 2007.



Contract revenue.Our contract revenue was $78.8 million for fiscal year ended December 28, 2007, with $64.4 million
attributable to the Engineering Services segment and $12.7 million attributable to the Public Finance Services segment. Our Homeland Security Services segment generated $1.7 million
during this period. Consolidated contract revenue increased $0.5 million, or 0.6%, from $78.3 million in the fiscal year ended December 29, 2006. This increase was due primarily
to an increase of $1.2 million, or 10.3%, and $0.8 million, or 82.0%, in contract revenue of the Public Finance Services and Homeland Security Services segments, respectively, offset by
a decrease of $1.5 million, or 2.3%, in contract revenue of the Engineering Services segment. Revenue in the Public Finance Services segment increased primarily due to increased district
formation services to fund infrastructure projects as well as increased delinquency management services in our district administration services. Revenue in Homeland Security Services has increased due
to an increase in our emergency response training
courses, particularly in Southern California. Our Engineering Services segment decline was due in part to the slowdown in residential housing construction in the western United States. A source of
revenue in our Engineering Services segment is fees assessed for building permits. In the latter part of fiscal year 2006 and throughout fiscal year 2007, we experienced a reduction in revenue from
these fees because of the downturn in the housing market.

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Direct costs of contract revenue.Direct costs of contract revenue was $31.9 million for the fiscal year ended December 28,
2007, with
$27.7 million attributable to the Engineering Services segment and $3.4 million attributable to the Public Finance Services segment. The additional $0.8 million is attributable to
direct costs of contract revenue for our Homeland Security Services segment. Direct costs of contract revenue increased $1.7 million, or 5.6%, from $30.3 million for the fiscal year
ended December 29, 2006. Of this total increase, direct costs of contract revenue increased $0.8 million, or 2.6%, in the Engineering Services segment and $0.6 million, or 21.4%,
in the Public Finance Services segment. The remaining $0.3 million increase was attributable to the Homeland Security Services segment. Direct costs of contract revenue as a percentage of
contract revenue for the fiscal year ended December 28, 2007 increased to 40.5% from 38.6% for the fiscal year ended December 29, 2006, primarily because our direct costs of contract
revenue increased without a corresponding increase in our revenue. This is due in part to higher levels of non-salaries and wages costs which are passed through to clients at a lower
mark-up than salaries and wages.

Within
direct costs of contract revenue, salaries and wages increased to 32.7% of contract revenue for the fiscal year ended December 28, 2007 from 31.4% for the fiscal year ended
December 29, 2006. Comparing those same periods, subconsultant services increased to 5.8% of contract revenue from 5.3% of contract revenue.

General and administrative expenses.General and administrative expenses increased by $3.3 million, or 8.1%, to $44.3 million
for the
fiscal year ended December 28, 2007 from $41.0 million for the fiscal year ended December 29, 2006. This was due primarily to increases of $3.1 million and
$0.2 million in general and administrative expenses of the Engineering Services and Homeland Security Services segments, respectively. General and administrative expenses for the Public Finance
Services segment and unallocated corporate expenses remained flat. The Engineering Services segment increase includes a $2.0 million change in our litigation accrual as a result of the
$1.0 million charge in fiscal year 2007 for reversal of the $1.0 million recovery of a prior indemnity claim recorded during fiscal year 2006. Also included in our general and
administrative expenses are the costs associated with management changes in the fiscal year ended December 28, 2007. These costs resulted in an increase of approximately $0.6 million in
expenses for the payment of severance and other employee benefits. Overall, general and
administrative expenses as a percentage of contract revenue increased to 56.3% in the fiscal year ended December 28, 2007 from 52.4% in the fiscal year ended December 29, 2006.

The
increases in general and administrative expenses also resulted from (i) an increase of approximately $1.4 million, or 13.2%, in other general and administrative
expenses, which includes $0.4 million of legal fees related to the settlement of the West Hollywood litigation and (ii) an increase of $1.5 million related to increased costs
associated with being a public company, of which $0.5 million related to costs associated with compliance with Section 404 of the Sarbanes-Oxley Act. The balance includes additional
audit and legal fees and Board of Director fees. Additionally, approximately $0.4 million of the increase to other general and administrative expenses resulted from increased insurance
premiums, computer expenses and other costs associated with our increase in contract revenue offset by decreases in marketing expenses, bad debt expenses and other expenses of approximately
$0.9 million.

As
discussed above under "Components of Income and ExpenseDirect Costs of Contract Revenue," we do not allocate that portion of salaries and wages not related
to time spent directly generating revenue to direct costs of contract revenue.

Income from operations.As a result of the above factors, income from operations was $2.5 million for the fiscal year ended
December 28, 2007 as compared to $7.0 million for the fiscal year ended December 29, 2006. Income from operations as a percentage of contract revenue, decreased to 3.2% in the
fiscal year ended December 28, 2007 from 9.0% in the prior year period.

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Other income (expense).Other income (expense), net, decreased by $0.5 million, or 31.4%, to $1.2 million of income in the
fiscal year
ended December 28, 2007 from $1.7 million of income in the fiscal ended December 29, 2006. This decrease was primarily due to $2.3 million of life insurance proceeds
received in 2006 as a result of the death of our former chief executive officer in May 2006, partially offset by a decrease in interest expense of approximately $1.3 million primarily as a
result of (i) the reversal of $0.6 million of accrued interest payable associated with the West Hollywood litigation settlement and (ii) an increase in interest income of
approximately $0.5 million from invested initial public offering proceeds.

Income tax expense.Effective as of the first day of trading of our common stock, November 21, 2006, the S Corporation status of
our Company
and the "qualified S subsidiary" status of our subsidiaries terminated and thereafter we were subject to federal and state income taxes as a C Corporation. Thus we were taxed at regular corporate
rates during the fiscal year ended December 28, 2007 and the income tax expense for fiscal year 2007 and 2006 is not comparable.

Net income.As a result of the above factors, our net income was $2.1 million for the fiscal year ended December 28, 2007,
compared to
net income of $6.7 million for the fiscal year ended December 29, 2006.

Liquidity and Capital Resources

As of January 2, 2009, we had $8.1 million of cash and cash equivalents. Our primary sources of liquidity are cash
generated from operations and borrowings under our revolving line of credit. We believe that our cash on hand, cash generated by operating activities and funds available under our credit facility will
be sufficient to finance our operating activities for at least the next 12 months.



Cash flows provided by operating activities were $3.5 million for fiscal year 2008 compared to cash flows used in operating
activities of $0.3 million for fiscal year 2007 and cash flows provided by operating activities of $6.3 million for fiscal year 2006. The cash flows provided by operating activities in
fiscal year 2008 were comparatively higher than in fiscal year 2007 due primarily to increased collection of accounts receivable and the payment of accrued liabilities related to the West Hollywood
litigation accrued in fiscal year 2007, net of amounts paid for by our insurance company. These increases were partially offset by decreases related to the net loss incurred in fiscal year 2008
compared to net income earned in fiscal year 2007. In the 2006 period, net cash provided by operating activities included $2.3 million of life insurance proceeds received as a result of the
death of our former chief executive officer in May 2006.



Cash flows used in investing activities were $9.5 million for fiscal year 2008 compared to $1.9 million for fiscal year
2007 and $2.9 million for fiscal year 2006. The increase in cash used in investing activities for fiscal year 2008 over fiscal year 2007 resulted primarily from $10.2 million used by the
acquisition of Willdan Energy Solutions, partially offset by cash provided by net sales of liquid investments. The decrease of cash used in investing activities for fiscal year 2007 over fiscal year
2006 resulted primarily from the decrease in expenditures for equipment and leasehold improvements, partially offset by an increase of net purchases of liquid investments. Fiscal year 2006 included
higher than historical levels of equipment and leasehold improvements purchases due to the establishment of new office locations and the relocation of existing office facilities, including our
corporate offices.

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Cash flows used in financing activities were $1.4 million for fiscal year 2008 compared to cash flows used in financing
activities of $2.9 million for fiscal year 2007 and cash flows provided by financing activities $14.2 million for fiscal year 2006. The decrease of cash used in financing activities for
fiscal year 2008 over fiscal year 2007 resulted primarily from the fiscal year 2007 payment of $3.2 million in distributions to holders of our redeemable common stock, partially offset by an
increase in net payments of notes payable of $1.1 million. The fiscal year 2007 distribution was our final S corporation distribution to our stockholders and we used the proceeds from
our initial public offering to pay this amount. We will not make a similar distribution in the future because we can no longer elect to be treated as an S corporation. The net change between
fiscal years 2007 and 2006 for cash from financing activities is $17.2 million, which is primarily the result of net proceeds of $20.4 million received in fiscal 2006 from the sale of
stock in our initial public offering and the exercise of the overallotment option, partially offset by a decrease of $2.3 million in distributions paid to holders of our redeemable common
stock.



We currently have a revolving line of credit with Wells Fargo Bank, National Association ("Wells Fargo"), which was amended on
March 30, 2009. We have also financed, from time to time, insurance premiums by entering into unsecured notes payable with insurance companies. During our annual insurance renewals in the
fourth quarter of our fiscal year ended January 2, 2009, we elected not to finance our insurance premiums for the upcoming fiscal year.

Under
the terms of our credit agreement with Wells Fargo, we can borrow up to $5.0 million from time to time (as may be limited by the covenants in the credit agreement as
discussed below) up to and until January 1, 2010. Loans made under the revolving line of credit will accrue interest at either (i) the floating rate equal to the prime rate in effect
from time to time or (ii) the fixed rate of 1.75% above LIBOR, at our election. For prime rate loans, the interest rate will be adjusted when each prime rate change by the bank is announced and
becomes effective. There were no outstanding borrowings under this agreement as of January 2, 2009.

Borrowings
under the credit agreement are secured by all of our accounts receivable and other rights to payment, general intangibles, inventory and equipment, including those of our
subsidiaries. In addition, borrowings under the credit agreement are secured by investment property we hold in a securities account at Wells Fargo that must at all times have a collateral value of at
least $5.0 million. Each of our subsidiaries (except Public Agency Resources and Willdan Resource Solutions) has signed an unconditional guaranty of our obligations under the agreements.

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The
credit agreement contains customary representations and affirmative covenants, including a covenant to maintain a tangible net worth of at least $18.0 million at all times.
Tangible net worth is defined in the credit agreement as stockholders' equity less intangible assets and loans or advances to, or investments in, any related entities or individuals. As of
January 2, 2009, our tangible net worth as defined under our credit agreement was $21.8 million(1).

---

The following is a reconciliation of stockholders' equity to tangible net worth:

Year Ended
January 2, 2009Stockholders' equity

$
34,336,000Goodwill and other intangibles, net


(12,512,000
)Related party loans, advances or investments


Tangible net worth

$
21,824,000


Prior to the amendment of the credit agreement in March 2009, the credit agreement contained additional financial covenants, including minimum net
income and maximum net loss covenants. As
discussed above in "Recent Developments," we breached our minimum net income covenant for the quarter ended September 26, 2008 and, in exchange for Wells Fargo's waiver of this
breach, we amended our credit agreement in December 2008 to reduce the amount available under the facility from $10.0 million to $5.0 million and to revise the financial covenants under
the facility. We also breached our maximum net loss covenant for the year ended January 2, 2009 by sustaining net losses before taxes greater than $1.0 million. In March 2009, Wells
Fargo waived this breach and eliminated or modified certain financial covenants in the credit agreement in exchange for increased pricing and additional collateral being provided.

The
credit agreement also includes customary negative covenants, including a covenant that prohibits the incurrence of additional indebtedness by us or our subsidiaries other than
purchase money indebtedness not to exceed $2.0 million and indebtedness existing on the date of the credit agreement, and a covenant that prohibits payment of dividends on our stock and
redemptions, repurchases or other acquisitions of our stock; provided that we can repurchase stock with an aggregate fair market value up to $5.0 million in any calendar year. In addition, the
credit agreement includes customary events of default for a credit facility. Upon a default, the interest rate will be increased by a default rate margin of 4.0%. Upon the occurrence of an event of
default under the credit agreement, including a breach of any of the covenants discussed above, Wells Fargo has the option to make any loans then outstanding under the credit agreement immediately due
and payable and is no longer obligated to extend further credit to us under the credit agreement.

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We have certain cash obligations and other commitments which will impact our short- and long-term liquidity. At
January 2, 2009, such obligations and commitments consisted of long-term debt, operating leases and capital leases. The following table sets forth our contractual obligations as of
January 2, 2009:

Contractual Obligations

Total

Less than
1 Year

1 - 3 Years

3 - 5 Years

More than
5 YearsLong term debt(1)

$
1,070,000

$
1,053,000

$
17,000

$


$
Operating leases


14,596,000


4,043,000


6,580,000


3,246,000


727,000Capital leases


444,000


240,000


197,000


7,000


Total contractual cash obligations

$
16,110,000

$
5,336,000

$
6,794,000

$
3,253,000

$
727,000


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New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157,"Fair Value
Measurements"(SFAS 157) which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. We adopted
SFAS 157 on the first day of fiscal year 2008 and the adoption did not have a material effect on our financial statements and disclosures.

In
February 2007, the FASB issued SFAS No. 159,"The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of
FASB Statement No. 115"(SFAS 159). SFAS 159 provides companies with an option to measure, at specified election dates, many financial instruments and
certain other items at fair value that are not currently measured at fair value. A company that adopts SFAS 159 will report unrealized gains and losses on items for which the fair value option
has been elected in earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that
choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The provisions of
SFAS 159 are elective, and through January 2, 2009, we had not elected to adopt SFAS 159 for any of our financial assets and liabilities.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007),"Business Combinations"(SFAS 141R). SFAS 141R
establishes the principles and requirements for how an acquirer: (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what
information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R makes significant changes to existing
accounting practices for acquisitions. Under SFAS 141R, adjustments to the acquired entity's deferred tax assets and uncertain tax position balances occurring outside the measurement period are
recorded as a component of the income tax expense, rather than goodwill, which nullifies EITF 93-7,Uncertainties Related to Income Taxes in a Purchase
Business Combination,(EITF 93-7). This requirement applies to all business combinations regardless of consummation date. SFAS 141R applies
prospectively to business combinations, for which the acquisition date is on or after the beginning of the first annual reporting period on or after December 15, 2008, except for the transition
provisions of EITF 93-7. We

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adopted
SFAS 141R on January 3, 2009 and this had no effect on our financial statements. We will reevaluate the impact, if any, that SFAS 141R will have on future business
combinations.

In
April 2008, the FASB issued FSP 142-3,"Determination of the Useful Life of Intangible Assets"(FSP 142-3). FSP
142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS
No. 142,Goodwill and Other Intangible Assets. FSP 142-3 will be effective for fiscal years beginning after December 15, 2008.
We are currently assessing the effect of FSP 142-3 on our consolidated financial statements.

In
May 2008, the FASB issued SFAS No. 162,"The Hierarchy of Generally Accepted Accounting Principles"(SFAS 162), which
identifies the sources of accounting principles and provides a framework, or hierarchy, for selecting the principles to be used in preparing U.S. GAAP financial statements for nongovernmental
entities. SFAS 162, effective November 15, 2008, makes the hierarchy explicitly and directly applicable to preparers of financial statements. This recognizes the preparers'
responsibilities for selecting the accounting principles for their financial statements. We do not believe that the adoption of SFAS 162 will have a material effect on our consolidated
financial statements.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may result from changes in the 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 risk sensitive financial instruments, including long-term debt.

As
a result of our initial public offering, we had cash and cash equivalents of $8.1 million as of January 2, 2009. This amount includes $0.4 million invested in the
Wells Fargo Stage Coach Sweep Investment Account, $6.0 million invested in the Wells Fargo Money Market Mutual Fund and $0.6 million invested in the Wells Fargo Advantage Heritage Fund.
Although these investments are subject to variable interest rates, we do not believe we are subject to significant market risk for these short-term investments.

We
do not engage in trading activities and do not participate in foreign currency transactions or utilize derivative financial instruments. Additionally, as of January 2, 2009, we
did not have any outstanding debt under our revolving credit facility that bears interest at variable or fixed rates.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and related financial information, as listed under Item 15, appear in a separate section of this annual
report beginning on page F-1.

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Index to Consolidated Financial Statements



PageReport of Independent Registered Public Accounting Firm

F-1Consolidated Balance Sheets as of January 2, 2009 and December 28, 2007

F-2Consolidated Statements of Operations for each of the fiscal years in the three-year period ended January 2,
 2009

F-3Consolidated Statements of Redeemable Common Stock and Stockholders' Equity for each of the fiscal years in the
three-year period ended January 2, 2009

F-4Consolidated Statements of Cash Flows for each of the fiscal years in the three-year period ended January 2,
 2009

F-5Notes to Consolidated Financial Statements

F-6


ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no changes in and/or disagreements with accountants on accounting and financial disclosure during the year ended
January 2, 2009.

ITEM 9A.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures defined in Rule 13a-15(e) under the Exchange Act, as controls and
other procedures that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to our management, including our President and Chief
Executive Officer, Thomas Brisbin, and our Chief Financial Officer, Kimberly Gant, 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 and with the participation of management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures were effective as of January 2, 2009.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate control over financial reporting (as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Internal control over financial reporting is a process to provide reasonable assurance regarding the
reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control
over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Our management assessed the effectiveness of our
internal control over financial reporting as of January 2, 2009. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework. Our management has concluded that, as of January 2, 2009, our internal control over financial reporting was effective based
on these criteria.

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Report of Independent Registered Public Accounting Firm

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control
over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission
that permit the company to provide only management's report in this annual report.

Changes in Internal Controls

Based on our evaluation carried out in accordance with SEC Rule 15d-15(b) under the supervision and with the
participation of our management, including our President and Chief Executive Officer and our Chief Financial Officer, we concluded that there were no changes during the fourth fiscal quarter of 2008
of our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

ITEM 9B.    OTHER INFORMATION

None.

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Table of Contents

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated by reference to Willdan Group, Inc.'s Proxy Statement for its 2009 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the Company's 2008 fiscal year.

We
have posted our Code of Ethical Conduct on our website,www.willdan.com, under the heading "InvestorsCorporate
Governance." The Code of Ethical Conduct applies to our Chief
Executive Officer and Chief Financial Officer. Upon request, we will provide any person with a copy of the Code of Ethical Conduct. See "Item 1. BusinessAvailable Information."

ITEM 11.    EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to Willdan Group, Inc.'s Proxy Statement for its 2009 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the Company's 2008 fiscal year.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The information required by this item is incorporated by reference to Willdan Group, Inc.'s Proxy Statement for its 2009 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the Company's 2008 fiscal year.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to Willdan Group, Inc.'s Proxy Statement for its 2009 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the Company's 2008 fiscal year.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference to Willdan Group, Inc.'s Proxy Statement for its 2009 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the Company's 2008 fiscal year.

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PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



The
following financial statements of Willdan Group, Inc. and report of independent auditors are included in Item 8 of this annual report and submitted in a separate
section beginning on page F-1:



PageReport of Independent Registered Public Accounting Firm

F-1Consolidated Balance Sheets as of January 2, 2009 and December 28, 2007

F-2Consolidated Statements of Operations for each of the fiscal years in the three-year period ended January 2,
 2009

F-3Consolidated Statements of Redeemable Common Stock and Stockholders' Equity for each of the fiscal years in the
three-year period ended January 2, 2009

F-4Consolidated Statements of Cash Flows for each of the fiscal years in the three-year period ended January 2,
 2009

F-5Notes to Consolidated Financial Statements

F-6




All
required schedules are omitted because they are not applicable or the required information is shown in the financial statements or the accompanying notes.



The
exhibits filed as part of this annual report are listed in Item 15(b).



The
following exhibits are filed as a part of this report:

Exhibit
Number

Exhibit Description2.1

Stock Purchase Agreement, dated as of June 9, 2008, by and among Willdan Group, Inc., Intergy Corporation and the Stockholders of Intergy Corporation(1)3.1

Articles of Incorporation of Willdan Group, Inc., including amendments thereto(2)3.2

Bylaws of Willdan Group, Inc.(2)4.1

Specimen Stock Certificate for shares of the Registrant's Common Stock(2)4.2

The Company agrees to furnish to the Securities and Exchange Commission upon request a copy of each instrument with respect to issues of long-term debt of Willdan Group, Inc. and its subsidiaries, the authorized
principal amount of which does not exceed 10% of the consolidated assets of Willdan Group, Inc. and its subsidiaries.10.1

Credit Agreement, dated December 28, 2007, between Willdan Group, Inc. and Wells Fargo Bank, National Association, relating to the Revolving Line of Credit Note in 10.6(3)10.2

First Amendment to Credit Agreement, dated May 8, 2008, between Willdan Group, Inc. and Wells Fargo Bank, National Association(4)10.3

Second Amendment to Credit Agreement, dated June 9, 2008, between Willdan Group, Inc. and Wells Fargo Bank, National Association(4)


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Exhibit
Number

Exhibit Description10.4

Third Amendment to Credit Agreement, entered into on December 19, 2008, between Willdan Group, Inc. and Wells Fargo Bank, National Association(5)10.5

Fourth Amendment to Credit Agreement, entered into on March 30, 2009, between Willdan Group, Inc. and Wells Fargo Bank, National Association*10.6

Revolving Line of Credit Note for $5,000,000, dated March 30, 2009, by Willdan Group, Inc. in favor of Wells Fargo Bank, National Association*10.7

Security Agreement: Equipment, dated December 28, 2007, between Willdan Group, Inc. and Wells Fargo Bank, National Association, relating to the Revolving Line of Credit Note in 10.6(3)10.8

Continuing Security Agreement: Rights to Payment and Inventory, dated December 28, 2007, between Willdan Group, Inc. and Wells Fargo Bank, National Association, relating to the Revolving Line of Credit Note
in 10.6(3)10.9

Security Agreement: Securities Account, dated March 30, 2009, between Willdan Group, Inc. and Wells Fargo Bank, National Association, relating to the Revolving Line of Credit Note in 10.6*10.10

Willdan Group, Inc. 2006 Stock Incentive Plan(2)10.11

Form of Incentive Stock Option Agreement(2)10.12

Form of Non-Qualified Stock Option Agreement(2)10.13

Amended and Restated Willdan Group, Inc. 2006 Employee Stock Purchase Plan(6)10.14

Willdan Group, Inc. 2008 Performance Incentive Plan(7)10.15

Form of Indemnification Agreement between Willdan Group, Inc. and its Directors and Officers(2)10.16

Office Lease by and between Spectrum Waples Street, LLC, a California limited liability company, Spectrum Lambert Plaza, LLC, a California limited liability company and The Willdan Group of Companies dated
October 15, 2004 for the principal office located at 2401 East Katella Avenue, Anaheim, California(2)10.17

First Amendment to Lease by and between 2401 Katella, LLC and The Willdan Group of Companies, dated February 27, 2006 for the principal office located at 2401 Katella Avenue, Anaheim,
California(2)10.18

Second Amendment to Lease by and between 2401 Katella, LLC and The Willdan Group of Companies dated March 6, 2006 for the principal office located at 2401 Katella Avenue, Anaheim, California(2)10.19

Warrant Agreement between Willdan Group, Inc. and Wedbush Morgan Securities Inc.(2)10.20

Indemnification Agreement between Willdan Group, Inc. and Linda Heil(2)10.21

Employment Agreement between Willdan Group, Inc. and Thomas D. Brisbin dated April 2, 2007(8)10.22

Employment Agreement between Willdan Group, Inc. and Kimberly D. Gant dated July 23, 2007(9)10.23

Offer Letter from Willdan Group, Inc. to Daniel Chow dated October 29, 2008 and accepted November 9, 2008(10)


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Table of Contents

Exhibit
Number

Exhibit Description14.1

Code of Ethical Conduct of Willdan Group, Inc.(6)21.1

Subsidiaries of Willdan Group, Inc.*23.1

Consent of Independent Registered Public Accounting Firm*24.1

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 Securities Exchange Act of 1934, as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002*31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002*32.1

Certifications 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 2002*


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SIGNATURES AND CERTIFICATIONS

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Anaheim, State of California, on April 2, 2009.

WILLDAN GROUP, INC./s/KIMBERLY D. GANT Kimberly D. Gant Chief Financial Officer and Senior Vice PresidentDate: April 2, 2009


KNOW
ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Kimberly D. Gant his/her attorney-in-fact, with the
power of substitution, for him/her in any and all capacities, to sign any amendments to this Report on Form 10-K and to file the same, with Exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or substitute or substitutes may 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 following persons on behalf of the Registrant and in the capacities and on the
dates indicated.

Signature

Title

Date/s/ THOMAS D. BRISBIN Thomas D. Brisbin

Director, President and Chief Executive Officer

April 2, 2009/s/ KIMBERLY D. GANT Kimberly D. Gant

Chief Financial Officer and Senior Vice President

April 2, 2009/s/ WIN WESTFALL Win Westfall

Director

April 2, 2009/s/ LINDA L. HEIL Linda L. Heil

Director

April 2, 2009/s/ W. TRACY LENOCKER W. Tracy Lenocker

Director

April 2, 2009/s/ KEITH W. RENKEN Keith W. Renken

Director

April 2, 2009


49

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Table of Contents

Signature

Title

Date/s/ WAYNE SHELTON Wayne Shelton

Director

April 2, 2009/s/ JOHN M. TOUPS John M. Toups

Director

April 2, 2009


50

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The
Board of Directors and Stockholders
Willdan Group, Inc.

We
have audited the accompanying consolidated balance sheets of Willdan Group, Inc. and subsidiaries as of January 2, 2009 and December 28, 2007, and the related
consolidated statements of operations, redeemable common stock and stockholders' equity, and cash flows for each of the fiscal years in the three-year period ended January 2, 2009.
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Willdan Group, Inc. and
subsidiaries as of January 2, 2009 and December 28, 2007, and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended
January 2, 2009, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP


March 31,
2009
Los Angeles, California

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS

January 2,
2009

December 28,
2007AssetsCurrent assets:Cash and cash equivalents

$
8,144,000

$
15,511,000Liquid investments





1,300,000Cash, cash equivalents and liquid investments


8,144,000


16,811,000Accounts receivable, net of allowance for doubtful accounts of $662,000 and $372,000 at January 2, 2009 and December 28, 2007,
respectively


12,862,000


15,090,000Costs and estimated earnings in excess of billings on uncompleted contracts


8,281,000


7,336,000Income tax receivable


956,000


Other receivables


48,000


157,000Prepaid expenses and other current assets


1,784,000


2,067,000Total current assets


32,075,000


41,461,000Equipment and leasehold improvements, net


2,377,000


3,354,000Goodwill


11,145,000


2,911,000Other intangible assets, net


1,367,000


85,000Other assets


373,000


415,000Deferred income taxes, net of current portion


233,000


Total assets

$
47,570,000

$
48,226,000Liabilities and Stockholders' EquityCurrent liabilities:Excess of outstanding checks over bank balance

$
448,000

$
633,000Accounts payable


2,111,000


1,136,000Purchase price payable


1,000,000


Accrued liabilities


5,253,000


5,314,000Billings in excess of costs and estimated earnings on uncompleted contracts


704,000


941,000Current portion of notes payable


52,000


1,088,000Current portion of capital lease obligations


168,000


176,000Current portion of deferred income taxes


2,519,000


2,002,000Total current liabilities


12,255,000


11,290,000Notes payable, less current portion


17,000


Capital lease obligations, less current portion


157,000


283,000Deferred lease obligations


805,000


606,000Deferred income taxes, net of current portion





395,000Total liabilities


13,234,000


12,574,000Commitments and contingenciesStockholders' equity:Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding





Common stock, $0.01 par value, 40,000,000 shares authorized; 7,164,000 and 7,150,000 shares issued and outstanding at January 2, 2009 and
December 28, 2007, respectively


72,000


71,000Additional paid-in capital


33,084,000


32,796,000Retained earnings


1,180,000


2,785,000Total stockholders' equity


34,336,000


35,652,000Total liabilities and stockholders' equity

$
47,570,000

$
48,226,000


See accompanying notes to consolidated financial statements.

F-2

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WILLDAN GROUP, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS

Fiscal Year2008

2007

2006Contract revenue

$
73,190,000

$
78,798,000

$
78,339,000Direct costs of contract revenue (exclusive of depreciation and amortization shown separately below):Salaries and wages


21,991,000


25,769,000


24,602,000Subconsultant services


7,750,000


4,600,000


4,168,000Other direct costs


2,973,000


1,568,000


1,496,000Total direct costs of contract revenue


32,714,000


31,937,000


30,266,000Gross profit


40,476,000


46,861,000


48,073,000General and administrative expenses:Salaries and wages, payroll taxes and employee benefits


24,439,000


25,061,000


26,051,000Facilities and facility related


4,803,000


4,546,000


4,046,000Stock-based compensation


214,000


209,000


38,000Depreciation and amortization


1,978,000


1,747,000


1,584,000Lease abandonment


742,000





Impairment of goodwill


148,000





Litigation accrual (reversal)





1,049,000


(1,049,000
)Other


10,952,000


11,727,000


10,359,000Total general and administrative expenses


43,276,000


44,339,000


41,029,000(Loss) income from operations


(2,800,000
)

2,522,000


7,044,000Other (expense) income:Interest income


313,000


693,000


135,000Interest expense


(33,000
)

499,000


(773,000
)Other, net


(15,000
)

(27,000
)

2,335,000Total other income, net


265,000


1,165,000


1,697,000(Loss) income before income tax expense


(2,535,000
)

3,687,000


8,741,000Income tax (benefit) expense


(930,000
)

1,543,000


2,021,000Net (loss) income

$
(1,605,000
)
$
2,144,000

$
6,720,000(Loss) earnings per share:Basic and diluted

$
(0.22
)
$
0.30

$
1.37Weighted-average shares outstanding:Basic


7,159,000


7,149,000


4,900,000Diluted


7,160,000


7,150,000


4,900,000Pro Forma Data (unaudited):Pro forma provision for income taxes







$
2,596,000Pro forma net income (loss)







$
6,145,000Pro forma earnings per common share, basic and diluted







$
1.25


See
accompanying notes to consolidated financial statements.

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF REDEEMABLE COMMON STOCK  AND STOCKHOLDERS' EQUITY

Common StockAdditional
Paid-in
Capital

Receivable
from
Stockholders

Retained
EarningsShares

Amount

TotalBalances for redeemable common stock at December 30, 2005


4,708,000


11,141,000





(38,000
)

3,557,000


14,660,000Shares of redeemable common issued in connection with buy/sell stock plan


5,000


18,000











18,000Receipt of stockholder receivable











38,000





38,000Reclassification from common stock to additional paid-in capital





(11,112,000
)

11,112,000








Decrease in the difference between the aggregate redemption amount and the carrying amount for redeemable common stock








(264,000
)




264,000


Distributions to holders of redeemable common stock














(8,634,000
)

(8,634,000
)Reclassification of remaining undistributed retained earnings upon conversion from S Corporation to C Corporation








1,266,000





(1,266,000
)

Shares of common stock issued in connection with initial public offering, net of offering costs


2,435,000


24,000


20,400,000








20,424,000Stock-based compensation








38,000








38,000Net income














6,720,000


6,720,000Balances for stockholders' equity at December 29, 2006


7,148,000


71,000


32,552,000





641,000


33,264,000Shares of common stock issued in connection with employee stock purchase plan


2,000





25,000








25,000Reduction of offering costs in connection with initial public offering








10,000








10,000Stock-based compensation








209,000








209,000Net income














2,144,000


2,144,000Balances for stockholders' equity at December 28, 2007


7,150,000


71,000


32,796,000





2,785,000


35,652,000Shares of common stock issued in connection with employee stock purchase plan


14,000


1,000


74,000








75,000Stock-based compensation








214,000








214,000Net loss














(1,605,000
)

(1,605,000
)Balances for stockholders' equity at January 2, 2009


7,164,000

$
72,000

$
33,084,000

$


$
1,180,000

$
34,336,000


See accompanying notes to consolidated financial statements.

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS

Fiscal Year2008

2007

2006Cash flows from operating activities:Net (loss) income

$
(1,605,000
)
$
2,144,000

$
6,720,000Adjustments to reconcile net income to net cash provided by (used in) operating activities:Depreciation and amortization


1,978,000


1,755,000


1,584,000Goodwill impairment


148,000





Lease abandonment expense


742,000





Loss (gain) on sale of equipment


17,000


28,000


(13,000
)Allowance for doubtful accounts


585,000


212,000


481,000Stock-based compensation


214,000


209,000


38,000Changes in operating assets and liabilities:Accounts receivable


3,266,000


(1,032,000
)

(3,071,000
)Costs and estimated earnings in excess of billings on uncompleted contracts


187,000


624,000


(731,000
)Income tax receivable


(956,000
)




Other receivables


53,000


4,348,000


(1,090,000
)Prepaid expenses and other current assets


292,000


(209,000
)

(535,000
)Other assets


50,000


69,000


(8,000
)Accounts payable


(186,000
)

(134,000
)

226,000Accrued liabilities


(831,000
)

(8,792,000
)

1,026,000Billings in excess of costs and estimated earnings on uncompleted contracts


(236,000
)

(281,000
)

(134,000
)Deferred income taxes


(112,000
)

737,000


1,602,000Deferred lease obligations


(60,000
)

59,000


178,000Net cash provided by (used in) operating activities


3,546,000


(263,000
)

6,273,000Cash flows from investing activities:Purchase of equipment and leasehold improvements


(552,000
)

(654,000
)

(2,822,000
)Proceeds from sale of equipment


49,000


35,000


5,000Purchase of other assets


(75,000
)




(100,000
)Payments for business acquisitions, net of cash acquired


(10,236,000
)




Purchase of liquid investments


(7,100,000
)

(22,800,000
)

Proceeds from sale of liquid investments


8,400,000


21,500,000


Net cash used in investing activities


(9,514,000
)

(1,919,000
)

(2,917,000
)Cash flows from financing activities:Changes in excess of outstanding checks over bank balance


(185,000
)

376,000


(115,000
)Payments on notes payable


(1,119,000
)

(1,210,000
)

(1,482,000
)Proceeds from notes payable





1,184,000


973,000Borrowings under line of credit





418,000


11,700,000Repayments of line of credit





(418,000
)

(11,700,000
)Principal payments on capital leases


(170,000
)

(175,000
)

(158,000
)Payments on liabilities to stockholders








(3,000
)Proceeds from stockholder receivables








38,000Proceeds from issuance of redeemable common stock








18,000Proceeds from issuance of common stock in the initial public offering








22,646,000Proceeds from sales of common stock under employee stock purchase plan


75,000


25,000


Distributions to holders of redeemable common stock





(3,150,000
)

(5,484,000
)Refund (payment) of offering costs





10,000


(2,222,000
)Net cash (used in) provided by financing activities


(1,399,000
)

(2,940,000
)

14,211,000Net (decrease) increase in cash and cash equivalents


(7,367,000
)

(5,122,000
)

17,567,000Cash and cash equivalents at beginning of the year


15,511,000


20,633,000


3,066,000Cash and cash equivalents at end of the year

$
8,144,000

$
15,511,000

$
20,633,000Supplemental disclosures of cash flow information:Cash paid during the period for:Interest

$
34,000

$
84,000

$
143,000Income taxes


853,000


902,000


72,000Supplemental disclosures of noncash investing and financing activities:Equipment acquired under capital leases

$
42,000

$
147,000

$
386,000Note payable issued in connection with acquisition of assets


100,000





150,000Purchase price payable


1,000,000





Accrued final distributions to holders of redeemable common stock








3,150,000


See accompanying notes to consolidated financial statements

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        Fiscal Years 2008, 2007 and 2006

1. ORGANIZATION AND OPERATIONS OF THE COMPANY



Willdan Group, Inc. and subsidiaries ("Willdan Group" or the "Company") is a provider of outsourced services to small and
mid-sized public agencies in California and other western states. Outsourcing enables these agencies to provide a wide range of specialized services without having to incur and maintain
the overhead necessary to develop staffing in-house. The Company provides a broad range of services to public agencies and, to a lesser extent, private industry, including civil
engineering, building and safety services, geotechnical engineering, environmental engineering and environmental services, financial and economic consulting, energy efficiency, sustainability, water
conservation, renewable energy, disaster preparedness, public safety consulting, management consulting and homeland security. Clients primarily consist of cities, counties, redevelopment agencies,
water districts, school districts and universities, state agencies, federal agencies, a variety of other special districts and agencies, private industry and tribal governments.

Willdan
Group, Inc., a Delaware corporation, is the successor to The Willdan Group of Companies, a California corporation. Willdan Group, Inc. was formed during fiscal year
2006, as a subsidiary of The Willdan Group of Companies, and on June 30, 2006, the assets and liabilities of The Willdan Group of Companies were transferred to Willdan Group, Inc.
Willdan Group, Inc. had no operations prior to this transfer of assets and liabilities. Since the transaction occurred between entities under common control, the transfer was recorded at
historical carrying values in a manner similar to the pooling of interests method of accounting. This resulted in a reclassification of $11.1 million from common stock to additional
paid-in capital since the Willdan Group, Inc. common stock has a par value of $0.01 per share and The Willdan Group of Companies common stock had no par value. Hereinafter, Willdan
Group refers to both Willdan Group, Inc. and its predecessor, The Willdan Group of Companies.

On
November 27, 2006, Willdan Group completed its initial public offering (IPO). The IPO resulted in the sale by Willdan Group of 2,000,000 shares of common stock at an initial
offering price per share of $10.00, generating gross proceeds to Willdan Group of $20.0 million. A selling shareholder also sold 900,000 shares of common stock in the IPO. The aggregate
proceeds to Willdan Group, net of underwriter's discounts and other offering costs, were approximately $16.4 million. On December 20, 2006, Willdan Group sold an additional 435,000
shares of common stock at $10.00 per share as a result of the underwriter exercising its over-allotment option. This resulted in additional net proceeds of approximately
$4.0 million to Willdan Group. Willdan Group issued stock warrants in connection with the IPO to the underwriter for the right to purchase 290,000 common shares at 120% of the IPO share price,
or $12.00 per share. The warrants became exercisable on November 20, 2007 and expire on November 20, 2011.

Effective
as of the completion of the IPO, the Company's book value stock purchase plan for Willdan Group's redeemable common stock was terminated and all of the outstanding shares of
Willdan Group's common stock previously subject to the terms of this plan were no longer redeemable by Willdan Group. This resulted in a reclassification of the Company's equity to permanent equity as
of the completion of the IPO.

Prior
to completion of the IPO, Willdan Group was owned by its employees, board members and a service provider. With the consent of its stockholders, Willdan Group had elected to be
treated as an

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

1. ORGANIZATION AND OPERATIONS OF THE COMPANY (Continued)

S Corporation
for purposes of federal and state income taxes. Effective as of the first day of trading of Willdan Group's common stock, November 21, 2006, the S Corporation status
terminated and thereafter the Company has been subject to federal and state income taxes as a C Corporation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



The consolidated financial statements include the accounts of Willdan Group Inc. and its wholly owned subsidiaries, Willdan
Engineering, Willdan Financial Services, Willdan Geotechnical, Willdan Homeland Solutions, Willdan Energy Solutions, Willdan Resource Solutions and Public Agency Resources. Willdan Energy Solutions is
included as of June 9, 2008, the date of its acquisition. All significant intercompany balances and transactions have been eliminated in consolidation.



The Company operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to
December 31. Fiscal year 2008 contained 53 weeks. Fiscal years 2007 and 2006 contained 52 weeks. All references to years in the notes to consolidated financial statements
represent fiscal years.



All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents. Cash
and cash equivalents include money market funds and various deposit accounts. Outstanding checks in excess of cash on deposit have been classified as current liabilities.

As
of January 2, 2009, the Company had cash and cash equivalents of $8.1 million. Of this amount, $0.4 million was invested in the Wells Fargo Stage Coach Sweep
Investment Account, $6.0 million was invested in the Wells Fargo Money Market Mutual Fund and $0.6 million was invested in the Wells Fargo Advantage Heritage Fund. The balance of
$1.1 million represents cash on hand in business checking accounts.

As
of December 28, 2007, cash equivalents included $0.5 million invested in the Orange County Business Bank Money Market Fund and $14.2 million invested in Lehman
Brothers National Muni Money Fund Reserve Class. The $1.3 million in liquid investments was invested in various auction rate securities.

The
Company from time to time may be exposed to credit risk with its bank deposits in excess of the FDIC insurance limits and with uninsured money market investments. The Company has not
experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.



As of January 2, 2009 and December 28, 2007, the carrying amounts of the Company's cash, cash equivalents, liquid
investments, accounts receivable, costs and estimated earnings in excess of billings on

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

uncompleted
contracts, income tax receivable, other receivables, prepaid expenses and other current assets, excess of outstanding checks over bank balance, accounts payable, purchase price payable,
accrued liabilities, billings in excess of costs and estimated earnings on uncompleted contracts, approximate their fair values because of the relatively short period of time between the origination
of these instruments and their expected realization. The carrying amounts of notes payable approximate
their fair values since the terms are comparable to terms currently offered by local lending institutions for loans of similar terms to companies with comparable credit risk.



Willdan Group, Inc. (WGI) is a holding company with seven wholly-owned subsidiaries. The Company presents segment information
externally consistent with the manner in which the Company's chief operating decision maker reviews information to assess performance and allocate resources. WGI performs all administrative functions
on behalf of its subsidiaries, such as treasury, legal, accounting, information systems and human resources, and earns revenue that is only incidental to the activities of the enterprise. As a result,
WGI does not meet the definition of an operating segment. Five of the seven WGI subsidiaries are aggregated into one reportable segment as they have similar economic characteristics including the
nature of services, the methods used to provide services and the type of customers. The remaining two subsidiaries each comprise separate reporting segments.



Other than lease commitments, legal contingencies incurred in the normal course of business, and employment contracts, the Company does
not have any off-balance sheet financing arrangements or 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, any special-purpose entities that are not included in the consolidated financial statements.



The Company enters into contracts with its clients that contain three principal types of pricing provisions: fixed price,
time-and-materials, and unit-based. Revenue on fixed price contracts is recognized on the percentage-of-completion method based generally on
the ratio of direct costs (exclusive of depreciation and amortization costs) incurred to date to estimated total direct costs at completion. Revenue on time-and-materials and
unit-based contracts is recognized as the work is performed in accordance with the specific terms of the contract. Revenue for amounts that have been billed but not earned is deferred
and such deferred revenue is referred to as billings in excess of costs and estimated earnings on uncompleted contracts in the accompanying consolidated balance sheets.

Adjustments
to contract cost estimates are made in the periods in which the facts requiring such revisions become known. When the revised estimate indicates a loss, such loss is provided
for currently in its entirety. Claims revenue is recognized only upon resolution of the claim. Change orders in dispute are evaluated as claims. Costs related to unpriced change orders are expensed
when incurred and recognition of the related contract revenue is based on an evaluation of the probability of recovery

F-8

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

of
the costs. Estimated profit is recognized for unpriced change orders if realization of the expected price of the change order is assured beyond a reasonable doubt.

Applying
the percentage-of-completion method of recognizing revenue requires the Company to estimate the indicated outcome of its long-term contracts.
The Company forecasts such outcomes to the best of its knowledge and belief of current and expected conditions and its expected course of action. Differences between the Company's estimates and actual
results often occur resulting in changes to reported revenue and earnings. Such changes could have a material effect on future consolidated financial statements.

Direct
costs of contract revenue consist primarily of that portion of technical and nontechnical salaries and wages that has been incurred in connection with revenue producing projects.
Direct costs of contract revenue also include production expenses, subconsultant services and other expenses that are incurred in connection with revenue producing projects.

Direct
costs of contract revenue exclude that portion of technical and nontechnical salaries and wages related to marketing efforts, vacations, holidays and other time not spent directly
generating revenue under existing contracts. Such costs are included in general and administrative expenses. Additionally, payroll taxes, bonuses and employee benefit costs for all Company personnel
are included in general and administrative expenses in the accompanying consolidated statements of operations since no allocation of these costs is made to direct costs of contract revenue. No
allocation of facilities costs is made to direct costs of contract revenue nor is depreciation and amortization allocated to direct costs. Other companies may classify as direct costs of contract
revenue some of the costs that the Company classifies as general and administrative costs. The Company expenses direct costs of contract revenue when incurred.

Accounts
receivable are carried at original invoice amount less an estimate made for doubtful accounts based upon a review of all outstanding amounts on a monthly basis. Management
determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Credit risk is minimal with governmental entities.
Accounts receivables
are written off when deemed uncollectible. Recoveries of accounts receivables previously written off are recorded when received.

The
value of retainage is included in accounts receivable in the accompanying consolidated financial statements. Retainage represents the billed amount that is retained by the customer,
in accordance with the terms of the contract, generally until performance is substantially complete.



All of the Company's office leases are classified as operating leases and rent expense is included in facilities expense in the
accompanying consolidated statements of operations. Some of the lease terms include rent concessions and rent escalation clauses, all of which are taken into account in computing minimum lease
payments. Minimum lease payments are recognized on a straight-line basis over the minimum lease term. The excess of rents recognized over the amounts contractually due pursuant to the
underlying leases is reflected as a liability in the accompanying consolidated balance sheets. The cost of improvements that the Company makes to the leased office space is capitalized as leasehold
improvements.

F-9

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Equipment 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. Depreciation and amortization on equipment are calculated using the straight-line method over estimated useful lives of two to
five years. Leasehold improvements and assets under capital leases are amortized using the straight-line method over the 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 LifeFurniture and fixtures

5 yearsComputer hardware

2 yearsComputer software

3 yearsAutomobiles and trucks

3 yearsField equipment

5 years


Equipment
and leasehold improvements are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.



Goodwill represents the excess of costs over fair value of the assets acquired. The goodwill, which has an indefinite useful life, is
not amortized, but instead tested for impairment at least annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the
extent that the carrying amount exceeds the asset's fair value.



The Company records liabilities to claimants for probable and estimable claims on its consolidated balance sheet, which is included in
accrued liabilities, and records a corresponding receivable from the insurance company for the portion of the claim that is probable of being covered by insurance, which is included in other
receivables. The estimated claim amount net of the amount estimated to be recoverable from the insurance company is included in general and administrative expense.



The Company accounts for compensation related to stock options using the fair value method of accounting. The estimated fair value of
the fully vested stock options granted upon completion of the IPO was expensed and the fair value of the unvested stock options granted is being amortized over the vesting period of these stock
options.

F-10

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Prior to November 21, 2006, for federal income tax purposes, the Company filed as an S Corporation wherein the Company
elected and the stockholders consented to be taxed in a manner similar to partners in a general partnership. Since federal income taxes on S Corporation income are the responsibility of the
individual stockholders, no federal tax provision is included in the accompanying consolidated financial statements for periods prior to November 21, 2006. Effective January 1, 2002, the
Company elected to be treated as an S Corporation for state tax purposes and has provided for state income taxes at the applicable S Corporation statutory rate from January 1,
2002 through November 21, 2006.

Effective
upon the first day of trading of the Company's common stock as a result of the IPO, the S Corporation status was terminated and thereafter the Company has been subject
to federal and state income taxes as a C Corporation. The effect of recognizing the Company's deferred tax liability using C Corporation federal and state tax rates instead of
S Corporation state tax rates is included in the fiscal year 2006 tax provision in the accompanying consolidated statement of operations.

Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between
the financial reporting basis and tax basis of the Company's assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.



In accordance with industry practice, amounts realizable and payable under contracts, which may extend beyond one year, are included in
current assets and liabilities.



The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the
U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements. Estimates also affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.



In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS)
No. 157,"Fair Value Measurements"(SFAS 157) which defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. The Company adopted SFAS 157 on the first day of fiscal year 2008 and the adoption did not have a material effect on its financial statements and
disclosures.

F-11

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In
February 2007, the FASB issued SFAS No. 159,"The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of
FASB Statement No. 115"(SFAS 159). SFAS 159 provides companies with an option to measure, at specified election dates, many financial instruments and
certain other items at fair value that are not currently measured at fair value. A company that adopts SFAS 159 will report unrealized gains and losses on items for which the fair value option
has been elected in earnings at each subsequent reporting date. SFAS 159 also establishes
presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159
is effective for fiscal years beginning after November 15, 2007. The provisions of SFAS 159 are elective, and through January 2, 2009, the Company had not elected to adopt
SFAS 159 for any of its financial assets or liabilities.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007),"Business Combinations"(SFAS 141R). SFAS 141R
establishes the principles and requirements for how an acquirer: (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what
information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R makes significant changes to existing
accounting practices for acquisitions. Under SFAS 141R, adjustments to the acquired entity's deferred tax assets and uncertain tax position balances occurring outside the measurement period are
recorded as a component of the income tax expense, rather than goodwill, which nullifies EITF 93-7,Uncertainties Related to Income Taxes in a Purchase
Business Combination,(EITF 93-7). This requirement applies to all business combinations regardless of consummation date. SFAS 141R applies
prospectively to business combinations, for which the acquisition date is on or after the beginning of the first annual reporting period on or after December 15, 2008, except for the transition
provisions of EITF 93-7. The Company adopted SFAS 141R on January 3, 2009 and this had no effect on the Company's financial statements. The Company will evaluate the
impact, if any, that SFAS 141R will have on future business combinations.

In
April 2008, the FASB issued FSP 142-3,"Determination of the Useful Life of Intangible Assets"(FSP 142-3). FSP
142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS
No. 142,Goodwill and Other Intangible Assets. FSP 142-3 will be effective for fiscal years beginning after December 15, 2008.
The Company is currently assessing the effect of FSP 142-3 on its consolidated financial statements.

In
May 2008, the FASB issued SFAS No. 162,"The Hierarchy of Generally Accepted Accounting Principles"(SFAS 162), which
identifies the sources of accounting principles and provides a framework, or hierarchy, for selecting the principles to be used in preparing U.S. GAAP financial statements for nongovernmental
entities. SFAS 162, effective November 15, 2008, makes the hierarchy explicitly and directly applicable to preparers of financial statements. This recognizes the preparers'
responsibilities for selecting the accounting principles for their financial statements. The Company does not believe that the adoption of SFAS 162 will have a material effect on its
consolidated financial statements.

F-12

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

3. BUSINESS COMBINATION

On June 9, 2008, the Company acquired all of the outstanding stock of Willdan Energy Solutions, formerly known as Intergy Corporation, a Californiabased consulting
company that assists companies, institutions and agencies with planning and implementing their energy efficiency, water conservation and renewable energy strategies. The acquisition cost recorded by
the Company as of January 2, 2009 was $11.7 million, consisting of $9.9 million in cash paid at closing, a $0.2 million net asset value adjustment, a guaranteed payment of
$1.0 million in cash due on or before June 24, 2009, and $0.6 million of transaction costs. The acquisition cost may increase by up to $6.2 million if Willdan Energy
Solutions achieves certain financial targets in the first three years following the acquisition. The acquisition cost was allocated as follows:

Current assets

$
3,242,000Equipment


49,000Backlog


1,264,000Customer relationships


272,000Other assets


8,000Current liabilities


(1,502,000
)Goodwill


8,382,000Total

$
11,715,000


The
Company has preliminarily estimated the fair values of the assets acquired and the liabilities assumed. The Company will finalize the fair value estimates within twelve months of the
acquisition date.

Unaudited
pro forma consolidated statements of operations for the fiscal years ended January 2, 2009 and December 28, 2007 as though Willdan Energy Solutions had been
acquired as of the first day of each of the respective periods presented is as follows:

Year EndedJanuary 2,
2009

December 28,
2007Contract revenue

$
77,831,000

$
86,121,000(Loss) income from operations


(1,254,000
)

4,125,000Net (loss) income


(1,231,000
)

2,770,000Basic and diluted (loss) earnings per share

$
(0.17
)
$
0.39


F-13

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

4. GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying value of goodwill by reporting unit for the fiscal year ended January 2, 2009 were as follows:

Fiscal Year 2008Balance at
Beginning of Year

Goodwill
Additions

Impairment

Balance at
End of YearReporting Unit:Energy Solutions

$


$
8,382,000

$


$
8,382,000Financial Services


2,763,000








2,763,000Homeland Security Services


148,000





(148,000
)

$
2,911,000

$
8,382,000

$
(148,000
)
$
11,145,000


There
were no changes on the carrying value of goodwill for the fiscal year ended December 28, 2007.

Willdan
Homeland Solutions, formerly known as American Homeland Solutions, was formed in 2004. Since its inception, certain intangible assets and business enterprises were acquired. In
the three years ended January 2, 2009, Willdan Homeland Solutions' expenses have exceeded its revenue. The projected discounted future cash flows do not exceed the carrying value of the
goodwill and therefore an impairment charge of $148,000 was taken in the year ended January 2, 2009.

The
gross amounts and accumulated amortization of the Company's acquired identifiable intangible assets with finite useful lives as of January 2, 2009 and December 28,
2007, included in Intangible assets, net in the accompanying Consolidated Balance Sheets, were as follows:

January 2, 2009

December 28, 2007Gross
Amount

Accumulated
Amortization

Gross
Amount

Accumulated
Amortization

Amortization
Period (yrs)Backlog

$
1,264,000

$
355,000

$


$



2Customer relationships


272,000


22,000








7Training materials/courses


282,000


80,000


109,000


38,000


5Non-compete agreements


30,000


24,000


28,000


14,000


3$
1,848,000

$
481,000

$
137,000

$
52,000


At
the time of acquisition, the Company estimates the fair value of the acquired identifiable intangible assets based upon the facts and circumstances related to the particular
intangible asset. Inherent in such estimates are judgments and estimates of future revenue, profitability, cash flows and appropriate discount rates for any present value calculations. The Company
preliminarily estimates the value of the acquired identifiable intangible assets and then finalizes the estimated fair values during the purchase allocation period, which does not extend beyond
12 months from the date of acquisition. As of
January 2, 2009, the final purchase allocation for Willdan Energy Solutions, formerly known as Intergy Corporation, was not yet finalized.

For
the years ended January 2, 2009, December 28, 2007 and December 29, 2006, the Company's amortization expense for acquired identifiable intangible assets with
finite useful lives was $429,000,

F-14

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

4. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)

$31,000,
and $17,000, respectively. Estimated future amortization expense for acquired identifiable intangible assets is as follows:

Fiscal year:2009

$
729,0002010


370,0002011


85,0002012


76,0002013


51,000Thereafter


56,000$
1,367,000


5. ACCOUNTS RECEIVABLENET

Net accounts receivable consisted of the following:

January 2,
2009

December 28,
2007Billed

$
13,507,000

$
15,416,000Unbilled


8,281,000


7,336,000Contract retentions


17,000


46,00021,805,000


22,798,000Allowance for doubtful accounts


662,000


372,000$
21,143,000

$
22,426,000


Billed
accounts receivable represent amounts billed to clients that have yet to be collected. Unbilled accounts receivable represent revenue recognized but not yet billed pursuant to
contract terms or accounts billed after the period end. Substantially all unbilled receivables as of January 2, 2009 and December 27, 2007 are expected to be billed and collected within
twelve months of such date. Contract retentions represent amounts invoiced to clients where payments have been withheld pending the completion of certain milestones, other contractual conditions or
upon the completion of the project. These retention agreements vary from project to project and could be outstanding for several months or years.

Allowances
for doubtful accounts have been determined through specific identification of amounts considered to be uncollectible and potential write-offs, plus a
non-specific allowance for other amounts for which some potential loss has been determined to be probable based on current and past experience.

No
client accounted for more than 10% of the Company's outstanding receivables as of January 2, 2009 or December 28, 2007.

F-15

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

6. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements consist of the following:

January 2,
2009

December 28,
2007Furniture and fixtures

$
4,680,000

$
4,917,000Computer hardware and software


4,921,000


4,518,000Leasehold improvements


772,000


900,000Equipment under capital leases


790,000


787,000Automobiles, trucks, and field equipment


419,000


412,00011,582,000


11,534,000Accumulated depreciation and amortization


(9,205,000
)

(8,180,000
)Equipment and leasehold improvements, net

$
2,377,000

$
3,354,000


Included
in accumulated depreciation and amortization is $176,000 and $189,000 of amortization related to equipment held under capital leases in fiscal years 2008 and 2007, respectively.

7. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

January 2,
2009

December 28,
2007Accrued bonuses

$
155,000

$
202,000Paid leave bank


1,449,000


1,746,000Compensation and payroll taxes


719,000


1,495,000Accrued legal


54,000


92,000Accrued workers' compensation insurance


18,000


19,000Litigation accrual


110,000


235,000Accrued interest


4,000


52,000Accrued rent


562,000


113,000Income taxes payable





425,000Employee withholdings


265,000


225,000Client deposits


790,000


92,000Other


1,127,000


618,000Total accrued liabilities

$
5,253,000

$
5,314,000


8. STOCK OPTIONS

As of January 2, 2009, the Company has two share-based compensation plans, which are described below. The Company may no longer grant awards under the 2006 Stock Incentive Plan.
The compensation cost that has been charged against income for stock options issued under these plans was $214,000, $209,000 and $38,000 for fiscal years 2008, 2007 and 2006, respectively.

F-16

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

8. STOCK OPTIONS (Continued)

2006 STOCK INCENTIVE PLAN

In June 2006, the Company's board of directors adopted the 2006 Stock Incentive Plan ("2006 Plan") and it received stockholder
approval. The Company re-submitted the 2006 Plan to its stockholders for post-IPO approval at the 2007 annual meeting of the stockholders and it was approved. The 2006 Plan
will terminate ten years after the board of directors approved it and no additional awards were or will be granted under the 2006 Plan after the Company's shareholders approved the 2008 Plan (as
defined below) in June 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. As of
June 9, 2008, approximately 36,167 shares were available for award grant purposes under the 2006 Plan. These shares became 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 ten years from the date of grant or "incentive stock options" as
defined in Section 422 of the Internal Revenue Code of 1986, as amended. Upon exercise of non-statutory stock options, the Company is generally entitled to a tax deduction on the
exercise of the option for an amount equal to the excess over the exercise price of the fair market value of the shares at the date of exercise. The Company is generally not entitled to any tax
deduction on the exercise of an incentive stock option. Option awards provide for accelerated vesting if there is a change in control (as defined
in the 2006 Plan). Through January 2, 2009, options granted, net of forfeitures and expirations, under the 2006 Plan consist of 214,500 shares and 19,000 shares for incentive stock options and
non-statutory stock options, respectively.

2008 PERFORMANCE INCENTIVE PLAN

In March 2008, the Company's board of directors adopted the 2008 Performance Incentive Plan, ("2008 Plan") and it received stockholder
approval at the 2008 annual meeting of the stockholders in June 2008. The 2008 Plan will terminate ten years after the board of directors approved it. The 2008 Plan has 486,167 shares of common stock
reserved for issuance to the company's directors, executives, officers, employees, consultants and advisors. The maximum number of shares of the Company's common stock that may be issued or
transferred pursuant to awards under the 2008 Plan can also be increased by any shares subject to stock options granted under the 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. Awards authorized 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 100,000 shares in any fiscal year. Options generally may not
be granted with exercise prices less than fair market value at the date of grant, with vesting provisions and contractual terms determined by the compensation committee of the board of directors on a
grant-by-grant basis. Options granted under the 2008 Plan may be "nonqualified stock options" or "incentive stock options" as defined in Section 422 of the Internal
Revenue Code of 1986, as amended. The maximum term of each option shall be 10 years. Upon exercise of nonqualified stock options, the Company is generally entitled to a tax deduction on the
exercise of the option for an amount equal to the excess over the exercise price of the fair market value of the shares at the date of exercise. The Company is generally not entitled to any tax
deduction on the exercise of an incentive stock option. Option awards provide for accelerated vesting if there is a change in control (as defined

F-17

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

8. STOCK OPTIONS (Continued)

in
the 2008 Plan). Through January 2, 2009, options granted under the 2008 Plan consist of 57,500 shares and 12,000 shares for incentive stock options and non-statutory stock
options, respectively.

The
fair value of each option is calculated using the Black-Scholes option valuation model that uses the assumptions 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 shorter than the expected or contractual term of the options. The expected
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 "shortcut" approach. Under this approach, 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 the time of grant. The assumptions are as follows:

2008

2007

2006Expected volatility


35% - 39%


31% - 34%


31% - 36%Expected dividends


0%


0%


0%Expected term (in years)


5.00 - 6.00


5.00 - 6.00


1.00 - 5.25Risk-free rate


1.50% - 3.61%


4.34% - 5.26%


4.54% - 4.71%


A
summary of option activity under the 2006 Plan and 2008 Plan as of January 2, 2009 and changes during the fiscal years ended January 2, 2009, December 28, 2007 and
December 29, 2006 is presented below. The intrinsic value of the options is $0, based on the Company's closing stock price of $2.03 on January 2, 2009.

Options

Weighted-
Average
Exercise
Price

Weighted-
Average
Remaining
Contractual
Term (Years)Outstanding at December 28, 2007


233,000

$
9.50


8.6Granted


119,000


3.81


9.6Exercised








Forfeited or expired


49,000


9.72


Outstanding at January 2, 2009


303,000

$
7.23


8.8Vested at January 2, 2009


85,000

$
8.85


8.5Exercisable at January 2, 2009


85,000

$
8.85


8.5


F-18

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

8. STOCK OPTIONS (Continued)



Options

Weighted-
Average
Exercise
Price

Weighted-
Average
Remaining
Contractual
Term (Years)Outstanding at December 29, 2006


28,000

$
10.19


4.2Granted


205,000


9.40


9.4Exercised








Forfeited or expired








Outstanding at December 28, 2007


233,000

$
9.50


8.6Vested at December 28, 2007


33,000

$
10.22


4.2Exercisable at December 28, 2007


33,000

$
10.22


4.2




Options

Weighted-
Average
Exercise
Price

Weighted-
Average
Remaining
Contractual
Term (Years)Outstanding at December 30, 2005




$



Granted


28,000


10.19


4.2Exercised








Forfeited or expired








Outstanding at December 29, 2006


28,000

$
10.19


4.2Vested at December 29, 2006


20,000

$
10.00


1.9Exercisable at December 29, 2006


20,000

$
10.00


1.9


A
summary of the status of the Company's nonvested options and changes in nonvested options during the fiscal year ended January 2, 2009, December 28, 2007 and
December 29, 2006, is presented below:

Options

Weighted-
Average
Grant-Date
Fair ValueNonvested at December 28, 2007


200,000

$
3.76Granted


119,000


1.47Vested


(74,000
)

3.39Forfeited


(27,000
)

3.76Nonvested at January 2, 2009


218,000


2.64


F-19

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

8. STOCK OPTIONS (Continued)



Options

Weighted-
Average
Grant-Date
Fair ValueNonvested at December 29, 2006


8,000

$
3.91Granted


205,000


3.76Vested


(13,000
)

3.95Forfeited





Nonvested at December 28, 2007


200,000


3.76




Options

Weighted-
Average
Grant-Date
Fair ValueNonvested at December 30, 2005




$
Granted


28,000


2.29Vested


(20,000
)

1.64Forfeited





Nonvested at December 29, 2006


8,000


3.91


As
of January 2, 2009, there was $408,000 of total unrecognized compensation cost related to nonvested stock options. That cost is expected to be recognized over a
weighted-average period of 1.7 years. The total fair value of vested options granted during the fiscal years ended January 2, 2009, December 28, 2007 and December 29, 2006
was $29,000, $20,000 and $33,000 respectively.

AMENDED AND RESTATED 2006 EMPLOYEE STOCK PURCHASE PLAN

The Company adopted its Amended and Restated 2006 Employee Stock Purchase Plan to allow eligible employees the right to purchase shares
of common stock, at semi-annual intervals, with their accumulated payroll deductions. The plan received stockholder approval in June 2006. The Company re-submitted the plan to
its stockholders for post-IPO approval at the 2007 annual stockholders' meeting and obtained approval. A total of 300,000 shares of the Company's common stock have been reserved for
issuance under the plan, with no more than 100,000 shares being issuable in any one calendar year.

The
plan has semi-annual periods beginning on each January 1 and ending on each June 30 and beginning on each July 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 accumulated contributions are applied to the purchase of shares. Shares are
purchased under the plan on or as soon as practicable after, the last day of the offering period. The purchase price per share equals 95% of the fair market value of a share on the last day of such
offering period.

F-20

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

8. STOCK OPTIONS (Continued)

The
Company's Amended and Restated 2006 Employee Stock Purchase Plan is a non-compensatory plan. As a result, stock-based compensation expense is not recognized in relation
to this plan.

9. NOTES PAYABLE AND LINE OF CREDIT

Notes payable consist of the following:

2008

2007Unsecured notes payable to insurance companies to finance insurance premiums, interest at 5.63%

$


$
1,088,000Other


69,000


$
69,000

$
1,088,000Less current portion


52,000


1,088,000Notes payable, less current portion

$
17,000

$



The
Company has a credit agreement and a related revolving line of credit note and security agreement (collectively with the credit agreement and the note, the "agreements") with Wells
Fargo Bank, National Association. There were no outstanding borrowings under this credit agreement as of January 2, 2009 or December 28, 2007.

As
of January 2, 2009, under the terms of the credit agreement, the Company could borrow up to $5.0 million from time to time up to and until January 1, 2010.
Advances made under the revolving line of credit bore interest at either (i) the floating rate of 0.50% below the Prime Rate in effect from time to time or (ii) the fixed rate of 1.25%
above LIBOR, at the election of the Company. The interest rate was subject to adjustment based on changes in the Company's ratio of total funded debt to EBITDA (as defined in the credit agreement).
Upon a default, the interest rate would be increased by a default rate margin of 4.00%. Upon the occurrence of an event of default under the credit agreement, Wells Fargo has the option to make all
indebtedness then owed by the Company under the agreements immediately due and payable.

The
Company was in violation of its financial covenants at January 2, 2009 and on March 30 2009, the credit agreement was amended. The amendment included a waiver of the
financial covenant violation, the elimination or modification of the financial covenants under the credit agreement, an increase in pricing and a requirement that the $5.0 million commitment be
collateralized by cash, cash equivalents and securities with a collateral value of at least $5.0 million held at Wells Fargo.

Borrowings
under the credit agreement are secured by all accounts receivable and other rights to payment, general intangibles, inventory and equipment of the Company and its
subsidiaries. As of March 30, 2009, borrowings are also secured by the cash, cash equivalents, and securities held in the Wells Fargo securities account. Each subsidiary of the Company (except
Public Agency Resources and Willdan Resources Solutions) has signed an unconditional guaranty of the Company's obligations under the agreements. The credit agreement also contains customary
representations and affirmative covenants, including a covenant to maintain a minimum tangible net worth of at least $18.0 million at all times. The credit agreement also includes customary
negative covenants, including a covenant that

F-21

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

9. NOTES PAYABLE AND LINE OF CREDIT (Continued)

prohibits
the incurrence of additional indebtedness by the Company or its subsidiaries other than purchase money indebtedness not to exceed $2.0 million and indebtedness existing on the date of
the credit agreement, and a covenant that prohibits payment of dividends on the Company's stock and
redemptions, repurchases or other acquisitions of the Company's stock; provided that the Company can repurchase stock with an aggregate fair market value up to $5.0 million in any calendar
year. In addition, the credit agreement includes customary defaults for a credit facility.

10. COMMITMENTS



The Company is obligated under capital leases for certain furniture and office equipment that expire at various dates through the year
2012.

The
Company also leases certain office facilities under noncancelable operating leases that expire at various dates through the year 2014 and is committed under noncancelable operating
leases for the lease of computer equipment and automobiles through the year 2011.

Future
minimum rental payments under capital and noncancelable operating leases are summarized as follows:

Capital

OperatingFiscal year:2009

$
240,000

$
4,043,0002010


136,000


3,432,0002011


61,000


3,148,0002012


7,000


2,128,0002013





1,118,000Thereafter





727,000Total future minimum lease payments


444,000

$
14,596,000Amount representing maintenance


(91,000
)Amount representing interest (at rates ranging from 4.75% to 11.0%)


(28,000
)Present value of net minimum lease payments under capital leases


325,000Less current portion


168,000$
157,000


Rent
expense and related charges for common area maintenance for all facility operating leases for 2008, 2007 and 2006 was approximately $3,544,000, $3,337,000 and $2,957,000,
respectively.

During
the fiscal year ended January 2, 2009, the Company closed certain of its offices or portions of offices. Additionally, a tenant that was subleasing an office from the
company defaulted on its lease. As a result of the office closures and the sublease default, the Company recorded lease abandonment expense of $742,000, which is included in the accompanying
consolidated statement of operations for

F-22

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

10. COMMITMENTS (Continued)

the
fiscal year ended January 2, 2009. This expense includes future rental obligations and other costs associated with the leased space.



The Company has a qualified profit sharing plan (the Plan) pursuant to Code Section 401(a) and qualified cash or deferred
arrangement pursuant to Code Section 401(k) covering substantially all employees. Employees may elect to contribute up to 50% of compensation limited to the amount allowed by tax laws. Company
contributions are made solely at the discretion of the Company's board of directors. The Company made matching contributions of approximately $260,000, $237,000 and $277,000 during fiscal years 2008,
2007 and 2006 respectively.

The
Company has a discretionary bonus plan for regional managers, division managers and others as determined by the Company president. Bonuses are awarded if certain financial goals are
achieved. The financial goals are not stated in the plan; rather they are judgmentally determined each year. In addition, the board of directors may declare discretionary bonuses to key employees and
all employees are eligible for what the Company refers to as the "hot hand" bonus program, which pays awards for outstanding performance. Bonus expense for fiscal years 2008, 2007 and 2006 totaled
approximately $316,000, $202,000, and $2,687,000 respectively, of which approximately $155,000 and $202,000 is included in accrued liabilities at January 2, 2009 and December 28, 2007,
respectively.



In May 2006, the Company's board of directors approved providing lifetime health insurance coverage for Win Westfall, the Company's
former chief executive officer and current chairman of the board of directors, and his spouse and for Linda Heil, the widow of the Company's former chief executive officer, Dan Heil. Mrs. Heil
is also a member of the Company's board of directors. Additionally, the board approved health insurance coverage for Mrs. Heil's two dependents until they reach the maximum age for dependent
coverage under the Company's health insurance policy.

During
fiscal year 2006, the Company recorded general and administrative expense equal to the present value of the expected payments for health insurance coverage for Mrs. Heil
and her dependents. As of January 2, 2009, $119,000 is included in accrued liabilities in the accompanying consolidated balance sheet related to this obligation. The Company also began to
amortize, to general and administrative expense, the present value of the expected payments for post-employment health coverage for Mr. Westfall and his spouse over the period from
approval of the benefit to his estimated date of retirement. During fiscal year 2007, Mr. Westfall communicated his intent to retire as chief executive officer and the Company prospectively
adjusted the amortization. As of December 28, 2007 and January 2, 2009, the entire amount related to Mr. Westfall had been amortized.

F-23

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

11. INCOME TAXES

The (benefit) provision for income taxes is comprised of:

Fiscal Year2008

2007

2006Current federal (benefit) taxes

$
(827,000
)
$
650,000

$
200,000Current state taxes


9,000


156,000


219,000Deferred federal taxes


77,000


570,000


1,282,000Deferred state (benefit) taxes


(189,000
)

167,000


320,000$
(930,000
)
$
1,543,000

$
2,021,000


The
(benefit) provision for income taxes reconciles to the amounts computed by applying the statutory federal tax rate to our (loss) income before income taxes. The sources and tax
effects of the differences for fiscal years 2008, 2007 and 2006 are as follows:

2008

2007

2006Computed "expected" federal income tax (benefit) expense

$
(862,000
)
$
1,253,000

$
2,972,000Permanent differencefederal income tax effect of non-taxable life insurance proceeds








(765,000
)Other permanent differences


74,000


81,000


87,000Current and deferred state income tax (benefit) expense, net of federal benefit


(119,000
)

217,000


145,000Tax effect of earnings not subject to federal income tax due to S Corporation election








(1,931,000
)Federal and state tax effect of S to C Corporation conversion








1,543,000Other


(23,000
)

(8,000
)

(30,000
)$
(930,000
)
$
1,543,000

$
2,021,000


F-24

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

11. INCOME TAXES (Continued)

The
tax effects of temporary differences that give rise to significant portions of the net deferred tax assets and liabilities are as follows:

January 2,
2009

December 28,
2007

December 29,
2006Current deferred tax assets:Accrued litigation judgment

$
65,000

$
127,000

$
2,517,000Accounts receivable allowance


250,000


206,000


268,000Other accrued liabilities


520,000


643,000


882,000835,000


976,000


3,667,000Current deferred tax liabilities:Deferred revenue


(3,306,000
)

(2,978,000
)

(3,242,000
)Other


(48,000
)




Litigation receivable








(1,687,000
)(3,354,000
)

(2,978,000
)

(4,929,000
)Net current deferred tax liability

$
(2,519,000
)
$
(2,002,000
)
$
(1,262,000
)Deferred tax assets, net of current portion:Federal and state net operating losses

$
628,000

$


$
Equipment and leasehold improvement depreciation


165,000


162,000


94,000Stock options


27,000


23,000


820,000


185,000


94,000Deferred tax liabilities, net of current portion:Goodwill amortization


(587,000
)

(580,000
)

(492,000
)Net deferred tax assets (liability), net of current portion

$
233,000

$
(395,000
)
$
(398,000
)


Management
believes it is more likely than not that the Company will realize the benefit of the deferred tax assets existing at January 2, 2009. Further, management believes the
existing net deductible temporary differences will reverse during periods in which the Company generates net taxable income. There can be no assurance, however, that the Company will generate taxable
earnings or any specific level of continuing earnings in the future.

Management
also believes that there are no material uncertain tax positions with respect to FIN 48 that would impact the 2008 financial statements.

At
January 2, 2009, the Company had federal and state net operating loss carryovers of $1.0 million and $3.2 million, respectively. These carryovers expire in 2029
and 2030 for federal and state income taxes, respectively.

12. SEGMENT INFORMATION

The Company has three segments: Engineering Services, Public Finance Services and Homeland Security Services. The Engineering Services segment includes Willdan Engineering, Willdan
Geotechnical, Public Agency Resources, Willdan Resource Solutions and Willdan Energy Solutions. The

F-25

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

12. SEGMENT INFORMATION (Continued)

Engineering
Services segment performs services for a broad range of public agency clients and, to a lesser extent, private industry, and offers a full complement of civil and geotechnical engineering,
building and safety services, energy efficiency, sustainability, water conservation, construction management, and municipal planning services to clients throughout the western United States. The
Public Finance Services segment, which consists of Willdan Financial Services, provides expertise and support for the various financing techniques employed by public agencies to finance their
operations and infrastructure along with the mandated reporting and other requirements associated with these financings. The Homeland Security Services segment, which consists of Willdan Homeland
Solutions, provides homeland security, management consulting and public safety consulting services to cities, counties and related municipal service agencies.

The
accounting policies applied to determine the segment information are the same as those described in the summary of significant accounting policies. There were no intersegment sales
for any of the fiscal years in the three-year period ended January 2, 2009. Management evaluates the performance of each segment based upon income or loss from operations before
year-end performance bonuses and income taxes. Certain segment asset information including expenditures for long-lived assets has not been presented as it is not reported to or
reviewed by the chief operating decision maker. In addition, enterprise-wide service line contract revenue is not included as it is impracticable to report this information for each group
of similar services.

F-26

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

12. SEGMENT INFORMATION (Continued)

Financial
information with respect to the reportable segments and reconciliation to the amounts reported in the Company's consolidated financial statements follows:

Engineering
Services

Public
Finance
Services

Homeland
Security
Services

Unallocated
Corporate

Intersegment

Consolidated
TotalFiscal Year 2008:Contract revenue

$
57,324,000

$
13,660,000

$
2,206,000

$


$


$
73,190,000Depreciation and amortization


1,639,000


252,000


87,000








1,978,000Interest expense (income)


18,000


(8,000
)

23,000








33,000Segment (loss) profit before bonuses and income tax expense


(3,555,000
)

2,126,000


(955,000
)

(101,000
)




(2,485,000
)Income tax (benefit) expense


(1,377,000
)

863,000


(376,000
)

(40,000
)




(930,000
)Net (loss) income


(2,203,000
)

1,238,000


(579,000
)

(61,000
)(1)




(1,605,000
)Segment assets


82,062,000


14,396,000


2,657,000


74,470,000
(2)

(126,015,000
)

47,570,000Fiscal Year 2007:Contract revenue


64,372,000


12,684,000


1,742,000








78,798,000Depreciation and amortization


1,352,000


336,000


59,000








1,747,000Interest (income) expense


(494,000
)

(26,000
)

21,000








(499,000
)Segment profit (loss) before bonuses and income tax expense


2,076,000


1,765,000


(68,000
)

(86,000
)




3,687,000Income tax expense (benefit)


875,000


727,000


(25,000
)

(34,000
)




1,543,000Net income (loss)


1,200,000


1,038,000


(42,000
)

(52,000
)(1)




2,144,000Segment assets


26,852,000


10,658,000


1,048,000


29,040,000
(2)

(19,372,000
)

48,226,000Fiscal Year 2006:Contract revenue


65,887,000


11,495,000


957,000








78,339,000Depreciation and amortization


1,215,000


333,000


36,000








1,584,000Interest expense


732,000


12,000


29,000








773,000Segment profit (loss) before bonuses and income tax expense


8,213,000


1,554,000


(322,000
)

1,446,000





10,891,000Income tax expense (benefit)


2,093,000


460,000


(134,000
)

(398,000
)




2,021,000Net income (loss)


4,589,000


757,000


(222,000
)

1,596,000
(1)




6,720,000Segment assets


36,926,000


10,158,000


480,000


29,639,000
(2)

(20,095,000
)

57,108,000


---

2008

2007

2006Unallocated net income (loss):Annual bonuses

$


$


$
(248,000
)Special bonuses








(104,000
)Salaries and wages, payroll taxes and employee benefits








(366,000
)Life insurance proceeds








2,250,000Post employment health benefits








(162,000
)Stock-based compensation








(38,000
)Income tax benefit


40,000


34,000


398,000Other


(101,000
)

(86,000
)

(134,000
)$
(61,000
)
$
(52,000
)
$
1,596,000


Most types of overhead costs incurred by Willdan Group, Inc. are allocated to the Company's segments.
However, because management makes operating decisions and assesses performance of the Company's segments based on financial information before bonuses, the bonuses for Willdan Group, Inc.
employees were not allocated to the segments. The income from life insurance proceeds received during fiscal year 2006 were not allocated for a similar reason.

F-27

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

12. SEGMENT INFORMATION (Continued)

2008

2007

2006Assets:Cash and cash equivalents

$
7,049,000

$
15,299,000

$
20,331,000Liquid investments





1,300,000


Prepaid expenses


1,498,000


1,524,000


1,406,000Intercompany receivables


46,910,000


4,352,000


955,000Income tax receivable


956,000





Other receivables


44,000


69,000


130,000Equipment and leasehold improvements, net


669,000


952,000


1,227,000Investments in subsidiaries


16,919,000


5,354,000


5,354,000Other assets


425,000


190,000


236,000$
74,470,000

$
29,040,000

$
29,639,000


13. OTHER RELATED PARTY TRANSACTIONS

Included in subconsultant services expenses in the accompanying consolidated statements of operations are expenses for services provided to the Company by an affiliate of a member of the
Company's board of directors totaling $23,000 for the period during fiscal year 2006 in which this individual served as a board member.

Included
in other general and administrative expenses in the accompanying consolidated statements of operations are expenses for services provided to the Company by an affiliate of a
former member of the Company's board of directors totaling $32,000 for the period during 2006 in which this individual served as a board member.

14. PRO FORMA INCOME TAXES (UNAUDITED)

Upon completion of the IPO (as more fully described in Note 1), the Company ceased to qualify as an S corporation. Thus, the Company is taxed at regular corporate rates. For
informational purposes, the Company's consolidated statements of operations include pro forma adjustments for income taxes at a 40% rate that would have been recorded if the Company were a C
Corporation for fiscal year 2006. The pro forma tax provision for fiscal year 2006 reflects the nontaxability of life insurance proceeds.

15. LIFE INSURANCE PROCEEDS

On May 15, 2006, the Company's co-founder and chief executive officer, Dan W. Heil, passed away. The Company carried two life insurance policies on Mr. Heil
totaling $2.3 million in coverage. The $2.3 million was received in fiscal year 2007 and is included in other, net under other
(expense) income in the accompanying consolidated statement of operations for the fiscal year ended December 29, 2006.

F-28

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

16. CONTINGENCIES



The Company is subject from time to time to various claims and lawsuits, including those alleging professional errors or omissions that
arise in the ordinary course of business against firms that operate in the engineering and consulting professions. The Company carries professional liability insurance, subject to certain deductibles
and policy limits, for such claims as they arise and may from time to time establish reserves for litigation that is considered probable of loss.



A
complaint was filed against the Company on February 28, 2008 relating to a project for the reconstruction of a portion of Valley Center Road located
in an unincorporated area of San Diego County. The Company completed the design and a contract was awarded to a construction contractor for construction of the improvements. The construction was
originally scheduled for completion in December 2008; however completion has been delayed until fall 2009. The lawsuit alleges that the delays in construction were caused by errors and omissions in
the Company's preparation of reports and design and engineering of the project, resulting in additional design and construction costs, in an amount to be determined but believed to be in excess of
$5.0 million. The Company denies the allegations asserted in the lawsuit and will vigorously defend against the claims. At January 2, 2009, the Company did not have a liability recorded
on its balance sheet related to this complaint.



This
suit concerns a project by the City of Laguna Beach to reconstruct a retaining wall supporting a city road. The Company served as the construction
observer for this project and designed the retaining wall. Subsequent to completion of the project, a slope below the retaining wall failed damaging the plaintiffs' residence. The retaining wall did
not fail. The construction work was performed from February to March 2005 and the slope failure occurred in June 2005. The plaintiffs were not injured in the incident. The plaintiffs allege that the
City of Laguna Beach violated its own ordinances by not obtaining appropriate geotechnical data during the design stage and by allowing the work to be constructed during the rainy season. The lawsuit
names Merit Engineering, the project designer, Peterson-Chase Engineering, the general contractor and the Company, the construction observer, as defendants. The Company was named as a defendant in the
first amended complaint filed on October 17, 2007. The plaintiffs filed a mediation brief on April 25, 2008 indicating damages to real and personal property in the amount of
$0.8 million and general damages between $1.6 million and $4.7 million. A cross-complaint has been filed in the action by Peterson-Chase Engineering against the Company seeking
equitable apportionment. The Company denies the allegations asserted in the lawsuit and cross-complaint and will vigorously defend against the claims. At January 2, 2009, the Company did not
have a liability recorded on its balance sheet related to this complaint.

F-29

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The tables below reflect selected quarterly information for the fiscal years ended January 2, 2009, December 28, 2007 and December 29, 2006.

Fiscal Three Months EndedMarch 28,
2008

June 27,
2008

September 26,
2008

January 2,
2009(in thousands except per share amounts)Contract revenue

$
17,776

$
17,807

$
18,651

$
18,956Income (loss) from operations


43


(130
)

(704
)

(2,009
)Income tax expense (benefit)


95


16


(250
)

(791
)Net income (loss)


116


(55
)

(437
)

(1,229
)Earnings (loss) per share:basic and diluted

$
0.02

$
(0.01
)
$
(0.06
)
$
(0.17
)Weighted-average shares outstanding:Basic


7,155


7,156


7,160


7,164Diluted


7,155


7,157


7,160


7,170




Fiscal Three Months EndedMarch 30,
2007

June 29,
2007

September 28,
2007

December 28,
2007(in thousands except per share amounts)Contract revenue

$
19,268

$
21,180

$
19,687

$
18,663(Loss) income from operations


(1,107
)

1,688


1,657
(3)

284
(1)Income tax (benefit) expense


(103
)

754


778


114Net (loss) income


(250
)

1,058


1,053


283(Loss) earnings per share:basic and diluted

$
(0.03
)
$
0.15

$
0.15

$
0.04Weighted-average shares outstanding:Basic


7,148


7,148


7,150


7,150Diluted


7,148


7,151


7,161


7,151


F-30

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (Continued)



Fiscal Three Months EndedMarch 31,
2006

June 30,
2006

September 29,
2006

December 29,
2006(in thousands except per share amounts)Contract revenue

$
17,821

$
20,272

$
20,954

$
19,292Income from operations


1,013


1,846


2,912
(3)

1,273
(4)Income tax expense


13


25


41


1,942Net income (loss)


886


3,879
(2)

2,699


(744
)Earnings (loss) per share:basic and diluted

$
0.19

$
0.82

$
0.57

$
(0.14
)Weighted-average shares outstanding:Basic and diluted


4,711


4,713


4,713


5,464Pro forma dataPro forma provision for income taxes


360


662


1,096


478Pro forma net income


539


3,242


1,644


720Pro forma earnings per common share,
basic and diluted

$
0.11

$
0.69

$
0.35

$
0.13


---

18. SUBSEQUENT EVENTS

The Company's revolving line of credit with Wells Fargo Bank, National Association ("Wells Fargo") was amended on March 30, 2009 following the Company's breach of its maximum net
loss

F-31

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Table of Contents

WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Years 2008, 2007 and 2006

18. SUBSEQUENT EVENTS (Continued)

covenant
for the year ended January 2, 2009. Wells Fargo waived this breach and eliminated or modified certain financial covenants in the credit agreement in exchange for increased pricing and
the Company providing additional collateral. The new collateral provided is investment property the Company holds in a securities account at Wells Fargo that must at all times have a collateral value
of at least $5.0 million.

Loans
made under the $5.0 million revolving line of credit currently accrue interest at either (i) the floating rate equal to the prime rate in effect from time to time or
(ii) the fixed rate of 1.75% above LIBOR, at the Company's election. For prime rate loans, the interest rate will be adjusted when each prime rate change by the bank is announced and becomes
effective. The minimum tangible net worth the Company is required to maintain was reduced from $20.0 million to $18.0 million, and all of the other financial covenants in the credit
agreement were eliminated.

F-32

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Table of Contents

EXHIBIT INDEX

Exhibit
Number

Exhibit Description2.1

Stock Purchase Agreement, dated as of June 9, 2008, by and among Willdan Group, Inc., Intergy Corporation and the Stockholders of Intergy Corporation(1)3.1

Articles of Incorporation of Willdan Group, Inc., including amendments thereto(2)3.2

Bylaws of Willdan Group, Inc.(2)4.1

Specimen Stock Certificate for shares of the Registrant's Common Stock(2)4.2

The Company agrees to furnish to the Securities and Exchange Commission upon request a copy of each instrument with respect to issues of long-term debt of Willdan Group, Inc. and its subsidiaries, the authorized
principal amount of which does not exceed 10% of the consolidated assets of Willdan Group, Inc. and its subsidiaries.10.1

Credit Agreement, dated December 28, 2007, between Willdan Group, Inc. and Wells Fargo Bank, National Association, relating to the Revolving Line of Credit Note in 10.6(3)10.2

First Amendment to Credit Agreement, dated May 8, 2008, between Willdan Group, Inc. and Wells Fargo Bank, National Association(4)10.3

Second Amendment to Credit Agreement, dated June 9, 2008, between Willdan Group, Inc. and Wells Fargo Bank, National Association(4)10.4

Third Amendment to Credit Agreement, entered into on December 19, 2008, between Willdan Group, Inc. and Wells Fargo Bank, National Association(5)10.5

Fourth Amendment to Credit Agreement, entered into on March 30, 2009, between Willdan Group, Inc. and Wells Fargo Bank, National Association*10.6

Revolving Line of Credit Note for $5,000,000, dated March 30, 2009, by Willdan Group, Inc. in favor of Wells Fargo Bank, National Association*10.7

Security Agreement: Equipment, dated December 28, 2007, between Willdan Group, Inc. and Wells Fargo Bank, National Association, relating to the Revolving Line of Credit Note in 10.6(3)10.8

Continuing Security Agreement: Rights to Payment and Inventory, dated December 28, 2007, between Willdan Group, Inc. and Wells Fargo Bank, National Association, relating to the Revolving Line of Credit Note
in 10.6(3)10.9

Security Agreement: Securities Account, dated March 30, 2009, between Willdan Group, Inc. and Wells Fargo Bank, National Association, relating to the Revolving Line of Credit Note in 10.6*10.10

Willdan Group, Inc. 2006 Stock Incentive Plan(2)10.11

Form of Incentive Stock Option Agreement(2)10.12

Form of Non-Qualified Stock Option Agreement(2)10.13

Amended and Restated Willdan Group, Inc. 2006 Employee Stock Purchase Plan(6)10.14

Willdan Group, Inc. 2008 Performance Incentive Plan(7)10.15

Form of Indemnification Agreement between Willdan Group, Inc. and its Directors and Officers(2)


---



Table of Contents

Exhibit
Number

Exhibit Description10.16

Office Lease by and between Spectrum Waples Street, LLC, a California limited liability company, Spectrum Lambert Plaza, LLC, a California limited liability company and The Willdan Group of Companies dated
October 15, 2004 for the principal office located at 2401 East Katella Avenue, Anaheim, California(2)10.17

First Amendment to Lease by and between 2401 Katella, LLC and The Willdan Group of Companies, dated February 27, 2006 for the principal office located at 2401 Katella Avenue, Anaheim,
California(2)10.18

Second Amendment to Lease by and between 2401 Katella, LLC and The Willdan Group of Companies dated March 6, 2006 for the principal office located at 2401 Katella Avenue, Anaheim, California(2)10.19

Warrant Agreement between Willdan Group, Inc. and Wedbush Morgan Securities Inc.(2)10.20

Indemnification Agreement between Willdan Group, Inc. and Linda Heil(2)10.21

Employment Agreement between Willdan Group, Inc. and Thomas D. Brisbin dated April 2, 2007(8)10.22

Employment Agreement between Willdan Group, Inc. and Kimberly D. Gant dated July 23, 2007(9)10.23

Offer Letter from Willdan Group, Inc. to Daniel Chow dated October 29, 2008 and accepted November 9, 2008(10)14.1

Code of Ethical Conduct of Willdan Group, Inc.(6)21.1

Subsidiaries of Willdan Group, Inc.*23.1

Consent of Independent Registered Public Accounting Firm*24.1

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 Securities Exchange Act of 1934, as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002*31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002*32.1

Certifications 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 2002*


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