1.	Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statement presentation. These financial statements include the accounts of Cherokee Inc. and its consolidated subsidiaries (the “Company”) and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition and the results of operations for the periods presented. The condensed consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the year ended February 3, 2018 included in the Company’s Annual Report on Form 10-K. Interim results are not necessarily indicative of results to be expected for the full year.

Liquidity and Going Concern

The accompanying condensed consolidated financial statements have been prepared on the going concern basis of accounting, which assumes the Company will continue to operate as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The report of the Company’s independent registered public accounting firm included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2018 included an explanatory paragraph describing the uncertainty about the Company’s ability to continue as a going concern at that time. The uncertainty about the Company’s ability to continue as a going concern previously arose due to forecasted noncompliance with the Company’s previous credit facility that was repaid on August 3, 2018 and replaced with a new term loan and subordinated promissory notes. (See Note 8.) Under the new term loan agreement, the Company is required to raise $2.0 million of additional liquidity before May 4, 2019; however, this will not be required if the Company’s average working capital exceeds an agreed upon level at the close of the Company’s fiscal year ending February 2, 2019.

The Company’s current forecast indicates that it will need to raise this additional $2.0 million of capital, and because raising additional capital is not certain, there is substantial doubt about the Company’s ability to continue as a going concern. The new term loan agreement provides various ways in which the Company can raise additional capital, including the issuance of additional subordinated debt, the issuance of convertible subordinated debt instruments or the issuance of additional equity, from which 100% of the net proceeds would be retained by the Company. The new term loan agreement also provides that the Company can increase its working capital by the disposition of non-core intangible assets, from which 50% of the net proceeds would be retained by the Company and 50% would be used to repay a portion of the term loan. The Company’s management is planning to increase its working capital through the disposition of non-core assets, or through improved operations to achieve the required working capital threshold at the close of the Company’s fiscal year ending February 2, 2019, which would eliminate the requirement to raise the additional $2.0 million of capital.