chke-10q_20190504.htm

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of June 14, 2019, there were approximately 15,945,953 million shares of the Registrant’s Common Stock outstanding.

	May 4, 2019			February 2, 2019
Assets
Current assets:
Cash and cash equivalents	$	1,656		$	4,284
Accounts receivable, net		4,121			4,363
Other receivables		293			339
Prepaid expenses and other current assets (Note 2)		568			857
Total current assets		6,638			9,843
Property and equipment, net		539			620
Intangible assets, net		64,614			64,751
Goodwill		16,252			16,252
Accrued revenue and other assets (Note 2)		6,281			1,645
Total assets	$	94,324		$	93,111
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,197		$	3,120
Other current liabilities (Note 2)		4,312			4,714
Current portion of long-term debt		1,400			1,300
Deferred revenue—current		1,687			1,626
Total current liabilities		9,596			10,760
Long-term liabilities:
Long-term debt		53,350			53,154
Deferred income taxes		12,442			12,055
Other liabilities (Note 2)		6,000			2,807
Total liabilities		81,388			78,776
Commitments and Contingencies (Note 7)
Stockholders’ Equity:
Preferred stock, $.02 par value, 1,000,000 shares authorized, none issued		—			—
Common stock, $.02 par value, 20,000,000 shares authorized, shares issued 15,945,953 (May 4, 2019) and 14,700,953 (February 2, 2019)		319			294
Additional paid-in capital		77,467			76,633
Accumulated deficit		(64,850	)		(62,592	)
Total stockholders’ equity		12,936			14,335
Total liabilities and stockholders’ equity	$	94,324		$	93,111

	Three Months Ended
	May 4, 2019			May 5, 2018
Revenues	$	5,052		$	5,402
Operating expenses:
Selling, general and administrative expenses		3,855			4,356
Stock-based compensation and stock warrant charges		208			300
Business acquisition and integration costs		66			307
Restructuring charges		42			—
Depreciation and amortization		257			601
Total operating expenses		4,428			5,564
Operating income (loss)		624			(162	)
Other income (expense):
Interest expense		(2,245	)		(1,737	)
Other income (expense), net		1			(4	)
Total other expense, net		(2,244	)		(1,741	)
Loss before income taxes		(1,620	)		(1,903	)
Provision for income taxes		638			838
Net loss	$	(2,258	)	$	(2,741	)
Net loss per share:
Basic loss per share	$	(0.15	)	$	(0.20	)
Diluted loss per share	$	(0.15	)	$	(0.20	)
Weighted average common shares outstanding:
Basic		15,385			13,997
Diluted		15,385			13,997

	Common Stock
	Shares		Par Value		Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)			Total
Balance, Febuary 2, 2019		14,701	$	294	$	76,633	$	(62,592	)	$	14,335
Stock-based compensation		—		—		208		—			208
Equity issuances, net of tax		1,245		25		598		—			623
Stock Warrants		—		—		28		—			28
Net Loss		—		—		—		(2,258	)		(2,258	)
Balance, May 4, 2019		15,946	$	319	$	77,467	$	(64,850	)	$	12,936

	Common Stock
	Shares		Par Value		Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)			Total
Balance, February 3, 2018		13,997	$	280	$	74,377	$	(50,542	)	$	24,115
Adoption of ASC 606		—		—		—		275			275
Stock-based compensation		—		—		295		—			295
Stock Warrants		—		—		28		—			28
Net Loss		—		—		—		(2,741	)		(2,741	)
Balance, May 5, 2018		13,997	$	280	$	74,700	$	(53,008	)	$	21,972

	Three Months Ended
	May 4, 2019			May 5, 2018
Cash flows from operating activities:
Net loss	$	(2,258	)	$	(2,741	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		257			601
Restructuring charges		42			—
Amortization of deferred financing costs		575			220
Deferred income taxes and noncurrent provisions		387			620
Stock-based compensation and stock warrant charges		236			323
Changes in operating assets and liabilities, net of effects from business combinations:
Accounts receivable		242			4,173
Other receivables		46			(28	)
Prepaid expenses and other current assets		212			(14	)
Other assets		(233	)		(188	)
Accounts payable		(907	)		(913	)
Other current liabilities		(1,050	)		(2,308	)
Deferred revenue		(484	)		(987	)
Net cash used in operating activities		(2,935	)		(1,242	)
Net cash used in operating activities from discontinued operations		(—	)		(828	)
Cash flows from investing activities:
Capital investments		(38	)		(41	)
Proceeds from business disposition and sale of assets		—			1,868
Net cash provided by (used in) investing activities		(38	)		1,827
Cash flows from financing activities:
Payments on term loan and line of credit		(250	)		(400	)
Debt issuance costs		(28	)		—
Issuance of common stock		623			—
Net cash (used in) provided by financing activities		345			(400	)
Decrease in cash and cash equivalents		(2,628	)		(643	)
Cash and cash equivalents, beginning of period		4,284			3,174
Cash and cash equivalents, end of period	$	1,656		$	2,531
Cash paid for:
Income taxes	$	276		$	243
Interest	$	1,646		$	1,384

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 2, 2019 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.

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. Under the Company’s senior secured credit facility, the Company is required to maintain specified levels of Adjusted EBITDA as defined (approximately $9.5 million for the trailing twelve months as of February 1, 2020) and maintain a minimum cash balance of $1.0 million. The Company’s financial projections currently indicate that the Company will remain in compliance with these covenants for a period of at least one year from the issuance date of these condensed consolidated financial statements.

There is an inherent risk that the Company may not achieve such projections and that the Company’s licensees may report lower than expected royalties, or the timing of cash receipts may not be in line with management’s projections. Should any of these scenarios occur, there is a risk that the Company may violate the Adjusted EBITDA covenant or the minimum cash balance covenant.

Should actual revenues during the upcoming year be lower than the projections by an amount that may potentially result in a violation of the Adjusted EBITDA covenant or the minimum cash balance covenant, or if timing of cash receipts is materially different than management’s expectations, management believes that there are various cash saving measures that could be quickly implemented during this time period, including reductions in discretionary expenses related to marketing programs, product development, and general and administrative expenses, including reducing personnel and personnel -related costs if necessary. Such actions could potentially harm the business if large reductions in spending become necessary. Management believes that the cash savings from actions already enacted and additional savings from further measures that could be taken, if necessary, would allow the Company to maintain compliance with the Adjusted EBITDA covenant and the minimum cash balance covenant.

In March 2016, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance which modified existing guidance for off-balance sheet treatment of a lessee’s operating leases (“Topic 842”). The standard requires a lessee to recognize assets and liabilities related to long-term leases that were classified as operating leases under previous guidance. An asset is recognized related to the right to use the underlying asset, and a liability is recognized related to the obligation to make lease payments over the term of the lease. These amounts are determined based on the present value of the lease payments over the lease term. The standard also requires expanded disclosures about leases. The Company adopted this standard as of the beginning of its fiscal year ending February 1, 2020, electing the transition option that allowed it not to restate the comparative periods in its financial statements in the year of

adoption and to carry forward its historical assessment of whether contracts are, or contain, leases, along with its historical assessment of lease classifications and initial direct costs.

The Company’s leases obligations comprise primarily individual leases for office space without multiple components. The Company determines if an arrangement is or contains a lease at inception by evaluating various factors, including whether a vendor’s right to substitute an identified asset is substantive. Lease classification is determined at the lease commencement date when the leased assets are made available for use. For the Company’s long-term leases, operating leases obligations are included in other current liabilities and other liabilities, and right-of-use assets are included in accrued revenue and other assets. The Company does not have any material finance leases. The operating lease obligations and right-of-use assets recognized on adoption of Topic 842 were $4.7 million and $4.6 million, respectively. The difference between the total right-of-use assets and total lease liabilities recorded on adoption is primarily due to the derecognition of prepaid rent expenses.

The Company uses estimates of its incremental borrowing rate (IBR) based on the information available at the lease commencement date in determining the present value of lease payments. In determining the appropriate IBR, the Company considers information including, but not limited to, its credit rating, the lease term, and the currency in which the arrangement is denominated. For leases which commenced prior to our adoption of Topic 842, we used the estimated IBR on the date of adoption. When the Company has the sole option to either renew or terminate a lease, the present value of the right-of-use asset and lease obligation includes the extension period when it is reasonably certain that the Company will exercise the option. Lease expense is recognized on a straight-line basis over the lease term.

	May 4, 2019							February 2, 2019
(In thousands)	Gross Amount		Accumulated Amortization			Net Book Value		Gross Amount		Accumulated Amortization			Net Book Value
Amortizable trademarks	$	27,937		(20,010	)	$	7,927	$	27,899		(19,834	)	$	8,064
Indefinite lived trademarks		56,687		—			56,687		56,687		—			56,687
	$	84,624	$	(20,010	)	$	64,614	$	84,586	$	(19,834	)	$	64,751

The Hi-Tec Acquisition during Fiscal 2017 resulted in trademarks valued at $52.4 million that are classified as indefinite lived and not subjected to amortization. Other indefinite lived trademarks include certain Cherokee brand trademarks in the school uniforms category that were acquired in historical transactions. The Company has acquired other trademarks that are being amortized over their estimated useful lives, which average 10.0 years with no residual values. Amortization of intangible assets was $0.2 million and $0.4 million for the three months ended May 4, 2019 and May 5, 2018, respectively.

The Company incurred restructuring charges in Fiscal 2018 and Fiscal 2017 related to the Hi-Tec Acquisition and its integration into the Company’s ongoing operations (the “Hi-Tec Plan”). Restructuring charges were also incurred in the fourth quarter of Fiscal 2018 as the Company’s staff was realigned to appropriately support its then current business (the “FY18 Plan”). Furthermore, during Fiscal 2019, the Company took additional steps designed to improve its organizational efficiencies by eliminating redundant positions and unneeded facilities, and by terminating various consulting and marketing contracts (the “FY19 Plan”).

Charges and payments against the restructuring plan obligations were as follows:

(In thousands)	FY19 Plan			FY18 Plan			Hi-Tec Plan			Total
Balance, February 2, 2019		2,760			44			199			3,003
Restructuring charges		42			—			—			42
Payments during the period		(526	)		(44	)		(117	)		(687	)
Balance, May 4, 2019	$	2,276		$	—		$	82		$	2,358

On August 3, 2018, the Company entered into a senior secured credit facility, which provided a $40.0 term loan, and $13.5 million of subordinated promissory notes (the “Junior Notes”). The credit facility was amended on January 30, 2019 to provide an additional term loan of $5.3 million. The term loans mature in August 2021 and require quarterly principal payments and monthly interest payments based on LIBOR plus a margin. The additional $5.3 million term loan also requires interest of 3.0% payable in kind with such interest being added to the principal balance of the loan. The term loans are secured by substantially all the assets of the Company and are guaranteed by the Company’s subsidiaries. The Junior Notes mature in November 2021, and they are secured by a second priority lien on substantially all of the assets of Company and guaranteed by the Company’s subsidiaries. Interest is payable monthly on the Junior Notes, but no periodic amortization payments are required. The Junior Notes are subordinated in rights of payment and priority to the term loans but otherwise have economic terms substantially similar to the term loans. Excluding the interest payable in kind, the weighted-average interest rate on both the term loans and Junior Notes at May 4, 2019 was 11.3%.

The term loans are subject to a borrowing base and include financial covenants and obligations regarding the operation of the Company’s business that are customary in facilities of this type, including limitations on the payment of dividends. Financial covenants include the requirement to maintain specified levels of EBITDA, as defined in the agreement, and maintain a specified level of cash on hand. (See Note 1, Liquidity and Going Concern.) The Company is required to maintain a borrowing base comprising the value of the Company’s trademarks that exceeds the outstanding balance of the term loans. If the borrowing base is less than the outstanding term loans at any measurement period, then the Company would be required to repay a portion of the term loans to eliminate such shortfall. Events of default include, among other things, the occurrence of a change of control of the Company, and a default under the term loans agreement would also trigger a default under the Junior Notes agreements.

Outstanding borrowings under the term loans were $44.8 million at May 4, 2019 with associated unamortized debt issuance costs of $3.1 million. Outstanding Junior Notes were $13.5 million at May 4, 2019 with associated unamortized debt issuance costs of $0.5 million.

The Company indemnifies certain customers against liability arising from third‑party claims of intellectual property rights infringement related to the Company’s trademarks. These indemnities appear in the licensing agreements with the Company’s customers, are not limited in amount or duration and generally survive the expiration of the contracts. The Company is unable to determine a range of estimated losses that it could incur related to such indemnities since the amount of any potential liabilities cannot be determined until an infringement claim has been made.

The Company is involved from time to time in various claims and other matters incidental to the Company’s business, the resolution of which is not presently expected to have a material adverse effect on the Company’s financial position, results of operations or liquidity. Estimated reserves for contingent liabilities, including threatened or pending litigation, are recorded as liabilities in the financial statements when the outcome of these matters is deemed probable and the liability is reasonably estimable.

The Company has non-cancelable operating lease agreements with various expiration dates through December 31, 2026 for office space and equipment. Certain lease agreements include options to renew, which are not reasonably certain to be exercised and therefore are not factored into our determination of the present value of lease obligations.

Operating lease costs are included as a component of selling, general and administrative expense and were $0.2 million, excluding variable lease costs and sublease income, for the three months ended May 4, 2019. Cash paid for operating lease obligations is consistent with operating lease costs for the period. Total lease expense recognized prior to our adoption of Topic 842 was $0.2 million for the three months ended May 5, 2018.

As of May 4, 2019, the weighted-average remaining lease term is 6.7 years, and the weighted-average IBR is 8.8%. The right-of-use assets as of May 4, 2019 was $4.4 million. Future minimum commitments under non-cancelable operating leases as of May 4, 2019 are as follows:

Future minimum lease payments prior to the Company’s adoption of Topic 842 as of February 2, 2019 were as follows:

Revenues by geographic area based upon the licensees’ country of domicile comprise the following:

	Three Months Ended
(In thousands)	May 4, 2019		May 5, 2018
U.S. and Canada	$	1,342	$	1,823
Europe		845		852
Middle East, India and Africa		793		1,043
Asia/Pacific		1,393		888
Latin America		679		796
Total	$	5,052	$	5,402

Long‑lived assets located in the United States and outside the United States amount to $0.1 million and $0.4 million, respectively, at May 4, 2019 and $0.2 million and $0.4 million, respectively, at February 2, 2019.

Deferred revenue totaled $1.7 million and $2.2 million at May 4, 2019 and February 2, 2019, respectively. Revenue recognized in three months ended May 4, 2019 that was previously included in deferred revenue was $0.7 million. Revenue recognized in the three months ended May 5, 2018 that was previously included in deferred revenue was $0.9 million.

Three licensees accounted for approximately 37% of accounts receivable at May 4, 2019, and two licensees accounted for approximately 28% of revenues for three months ended May 4, 2019. Two licensees accounted for approximately 29% of accounts receivable at February 2, 2019, and two licensee accounted for approximately 23% of revenues for three months ended May 5, 2018.

Basic earnings (loss) per share (“EPS”) is computed by dividing the net (loss) income attributable to common stockholders by the weighted-average number of common shares outstanding during the period, while diluted EPS additionally includes the dilutive effect of outstanding stock options and warrants as if such securities had been exercised at the beginning of the period. The computation of diluted common shares outstanding excludes outstanding stock options and warrants that are anti‑dilutive.

Each reporting period, the Company evaluates the realizability of its deferred tax assets. As of May 4, 2019, the Company continued to maintain a full valuation allowance against its deferred tax assets in the United States and the foreign subsidiaries acquired in the Hi-Tec Acquisition. These valuation allowances will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that these deferred tax assets will be realized.

As of May 4, 2019, the reserve for uncertain tax positions resulting from unrecognized tax benefits related to the Company’s Hi-Tec subsidiaries was $3.3 million. During the three months ended May 4, 2019, the Company decreased its liability for uncertain tax positions by $0.1 million.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used in this discussion and analysis, “Cherokee Global Brands”, the “Company”, “we”, “us” and “our” refer to Cherokee Inc. and its consolidated subsidiaries, unless the context indicates or requires otherwise. Additionally, “Fiscal 2020” refers to our fiscal year ending February 1, 2020 and “Fiscal 2019” refers to our fiscal year ended February 2, 2019. The following discussion and analysis should be read together with the unaudited condensed consolidated financial statements and the related notes included in this report. The information contained in this quarterly report on Form 10‑Q is not a complete description of our business or the risks associated with an investment in our securities. For additional context with which to understand our financial condition and results of operations, refer to management’s discussion and analysis of financial condition and results of operations (“MD&A”) contained in our Annual Report on Form 10‑K, for the fiscal year ended February 2, 2019, which was filed with the Securities and Exchange Commission (“SEC”) on April 23, 2019, as well as the consolidated financial statements and notes contained therein (collectively, our “Annual Report”). In preparing this MD&A, we presume that readers have access to and have read the MD&A in our Annual Report pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S‑K. The section entitled “Risk Factors” set forth in Item 1A of our Annual Report and similar disclosures in our other SEC filings discuss some of the important risk factors that may affect our business, results of operations and financial condition.

In addition to historical information, this discussion and analysis contains “forward‑looking statements” within the meaning of the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements other than historical facts that relate to future events or circumstances or our future performance. The words “anticipates”, “believes”, “estimates”, “plans”, “expects”, “objectives”, “goals”, “aims”, “hopes”, “may”, “might”, “will”, “likely”, “should” and similar words or expressions are intended to identify forward‑looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward‑looking statements in this discussion and analysis include statements about, among other things, our future financial and operating performance, our future liquidity and capital resources, our business and growth strategies and anticipated trends in our business and our industry. Forward-looking statements are based on our current views, expectations and assumptions and involve known and unknown risks, uncertainties and other factors that may cause actual results, performance, achievements or stock prices to be materially different from any future results, performance, achievements or stock prices expressed or implied by the forward‑looking statements. Such risks, uncertainties and other factors include, among others, those described in Item 1A, “Risk Factors” in this report and in our Annual Report. In addition, we operate in a competitive and rapidly evolving industry in which new risks emerge from time to time, and it is not possible for us to predict all of the risks we may face, nor can we assess the impact of all factors on our business or the extent to which any factor or combination of factors could cause actual results to differ from our expectations. As a result of these and other potential risks and uncertainties, forward-looking statements should not be relied on or viewed as predictions of future events because some or all of them may turn out to be wrong. Forward-looking statements speak only as of the date they are made and, except as required by law, we undertake no obligation to update any of the forward‑looking statements we make in this discussion and analysis to reflect future events or developments or changes in our expectations or for any other reason.

Cherokee Global Brands is a global marketer and manager of a portfolio of fashion and lifestyle brands that we own, brands that we create, and brands that we elevate for others. Company-owned brands, which are licensed in multiple consumer product categories and retail channels around the world, include Cherokee, Hi-Tec, Magnum, 50 Peaks, Interceptor, Hawk Signature, Tony Hawk, Liz Lange, Completely Me by Liz Lange, Everyday California, Carole Little, Sideout and others. As part of our business strategy, we also regularly evaluate other brands and trademarks for acquisition into our portfolio. We believe the strength of our brand portfolio and platform of design, product development and marketing capabilities has made us one of the leading global licensors of style-focused lifestyle brands for apparel, footwear, accessories and home products.

We have licensing relationships with recognizable retail partners in their global locations to provide them with the rights to design, manufacture and sell products bearing our brands. We refer to this strategy as our “Direct to Retail” or “DTR” licensing model. We also have license agreements with manufacturers and distributors for the manufacture and sale of products bearing our brands, which we refer to as “wholesale” licensing. In addition, we have relationships with other retailers that sell products we have developed and designed. As a brand marketer and manager, we do not directly

sell product ourselves. Rather, we earn royalties when our licensees sell licensed products bearing the trademarks that we own or that we have designed and developed.

For certain of our key legacy brands, including Cherokee, Hawk Signature and Tony Hawk and Liz Lange, we are shifting our strategy for U.S. sales from DTR licensing to wholesale licensing. In addition, we are primarily pursuing a wholesale licensing strategy for global sales of our recently acquired Hi-Tec, Magnum, Interceptor and 50 Peaks brands. We believe these arrangements signal a significant shift in our business strategy, from our historical focus on DTR licensing for all of our brands to a substantially greater focus on wholesale licensing for many of our key brands. Although we believe these new wholesale licensing arrangements may help to diversify our sources of revenue and licensee or other partner relationships, and may provide additional avenues to obtain brand recognition and grow our Company, this shift in our strategy also exposes us to a number of risks, and it has had a negative effect on our results of operations as we transition to our new licensees.

We derive revenues primarily from licensing our trademarks to retailers, manufacturers and distributors all over the world, and we are continually pursuing relationships with new retailers, manufacturers and distributors in order to expand the reach of our existing brands into new geographic and customer markets and new types of stores and other selling mediums. As of May 4, 2019, we had 43 continuing license agreements in approximately 80 countries. These arrangements include relationships with Walmart, Soriana, Comercial Mexicana, TJ Maxx, Tottus, Pick N Pay, Nishimatsuya, Big 5, Academy, JD Sports, Black’s and Lidl. As of May 4, 2019, we had contractual rights to receive over $56.4 million of minimum royalty revenues over the next nine years, excluding any revenues that may be guaranteed in connection with contract renewals.

The terms of our royalty arrangements vary for each of our licensees. We receive quarterly royalty statements and periodic sales and purchasing information from our licensees. However, our licensees are generally not required to provide, and typically do not provide, information that would enable us to determine the specific reasons for period‑to‑period fluctuations in sales or purchases. As a result, we do not typically have sufficient information to determine the effects on our operations of changes in price, volume or mix of products sold.

We typically enter into license agreements with retailers, manufacturers and distributors for a certain brand in specific product categories over explicit territories, which can include one country or groups of countries and territories. Our revenues by geographic territory are as follows:

	Three Months Ended
(In thousands, except percentages)	May 4, 2019					May 5, 2018
United States and Canada	$	1,342	27	%	$	1,823	34	%
Europe		845	17	%		852	16	%
Middle East, India and Africa		793	16	%		1,043	19	%
Asia/Pacific		1,393	27	%		888	16	%
Latin America		679	13	%		796	15	%
Revenues	$	5,052	100	%	$	5,402	100	%

Revenues in United States and Canada no longer include revenues from our Flip Flop Shops franchise business, which we sold in June 2018. Flip Flop Shops royalties contributed 5% of total revenue for the three months ended May 5, 2018. Our revenues in the Middle East, India and Africa include revenues from our Cherokee licensee in South Africa that expired at the end of Fiscal 2019 and has yet to be replaced. Our royalty revenues in Asia grew as a result of our new product development and design services agreement with a major retailer in the People’s Republic of China. We are providing our product design and development expertise for a brand that they own, which we believe will efficiently enhance their retail operations.

Sales of products by certain of our licensees that operate in Europe are being negatively affected by the economic uncertainty surrounding Brexit. We believe this had a negative effect on these licensees’ businesses during the three months ended May 4, 2019 and a corresponding negative impact on our royalty revenues for that same period. This

trend may continue into future quarters. Furthermore, the United States has indicated its intent to increase tariff rates on apparel and footwear. We believe our licensees who use manufacturing facilities in countries subject to increasing tariffs are taking proactive steps to offset the potential impact of higher tariffs, including moving production to countries not subject to higher tariffs and negotiating lower costs with existing suppliers. Nonetheless, if enacted, these higher tariffs may result in higher prices and a corresponding slow-down in retail sales of products bearing our trademarks, which in turn could result in lower royalty revenues.

The table below contains certain information about our continuing operations from our condensed consolidated statements of operations along with other data and percentages. Historical results are not necessarily indicative of results to be expected in future periods.

		Three Months Ended
(In thousands, except percentages)	May 4, 2019					May 5, 2018
Revenues:
Cherokee	$	1,534	30	%	$	2,122	39	%
Hi-Tec, Magnum, Interceptor and 50 Peaks		2,526	50	%		2,585	48	%
Hawk		103	2	%		181	3	%
Other brands		889	18	%		514	10	%
Total revenues		5,052	100	%		5,402	100	%
Operating expenses:
Selling, general and, administrative expenses		3,855	76	%		4,356	81	%
Stock-based compensation		208	4	%		300	6	%
Business acquisition and integration costs		66	1	%		307	6	%
Restructuring charges		42	1	%		—	—	%
Depreciation and amortization		257	5	%		601	11	%
Total operating expenses		4,428	87	%		5,564	103	%
Operating income (loss)		624	12	%		(162)	-3	%
Interest expense and other income, net		(2,244)	-44	%		(1,741)	-32	%
Loss before income taxes		(1,620)	-32	%		(1,903)	-35	%
Provision for income taxes		638	13	%		838	16	%
Net loss	$	(2,258)	100	%	$	(2,741)	100	%
Non-GAAP data:
Adjusted EBITDA⁽¹⁾	$	1,197			$	1,046

	Three Months Ended
(In thousands)	May 4, 2019			May 5, 2018
Net loss	$	(2,258	)	$	(2,741	)
Provision for income taxes		638			838
Interest expense		2,245			1,737
Other (income) expense, net		(1	)		4
Depreciation and amortization		257			601
Restructuring charges		42			—
Business acquisition and integration costs		66			307
Stock-based compensation		208			300
Adjusted EBITDA	$	1,197		$	1,046

The decrease in royalty revenues in the three months ended May 4, 2019 compared to the three months ended May 5, 2018 was primarily due to the expiration of our Cherokee license in South Africa at the end of Fiscal 2019 and the sale of our Flip Flop Shops franchise business in June 2018. These decreases were partially offset by revenues from our new design services agreement with a retailer in China.

Selling, general and administrative expenses decreased 12% to $3.9 million in the three months ended May 4, 2019 from $4.4 million in the three months ended May 5, 2018. These expenses include payroll, employee benefits, marketing, sales, legal, rent, information systems and other administrative costs that are part of our ongoing operations. The decrease in selling, general and administrative expenses for the three-month period was primarily due to reduced spending for payroll that resulted from our restructuring plan that we implemented during the three months ended August 4, 2018 to improve our organizational efficiencies.

Stock-based compensation in the three months ended May 4, 2019 was $0.2 million compared to $0.3 million in the three months ended May 5, 2018, and comprises charges related to stock options and restricted stock grants. We incurred $0.1 million of costs during the three months ended May 4, 2019 for legal and other costs related to business acquisitions and restructuring.

We own various trademarks that are considered to have indefinite lives, while others are being amortized over their estimated useful lives. We also have furniture, fixtures and other equipment that is being amortized over their useful lives. Depreciation and amortization decreased in the three months ended May 4, 2019 compared to the three ended May 5, 2018 primarily due to the disposition of our Flip Flop Shops franchise business.

Interest expense was $2.2 million in the three months ended May 4, 2019 compared to $1.7 million in the three months ended May 5, 2018. This increase was primarily due to our increased debt level, along with higher non-cash interest charges related to our new term loans.

The provision for income taxes was $0.6 million in the three months ended May 4, 2019 compared to a $0.8 million in the three months ended May 5, 2018. Even though we generated an operating loss in both of these periods, we

reported tax expense because no tax benefits were recognized for tax losses in the United States and certain foreign jurisdictions due to previously established valuation allowances.

Our net loss was $2.3 million in the three months ended May 4, 2019 compared to a net loss of $2.7 million in the three months ended May 5, 2018. Our Adjusted EBITDA increased 14% to $1.2 million in the three months ended May 4, 2019 from $1.0 million in the three months ended May 5, 2018.

We generally finance our working capital needs and capital investments with operating cash flows, term loans, subordinated promissory notes and lines of credit. In December 2016, we entered into a $50.0 million credit facility that was used to partially fund the Hi-Tec Acquisition. On August 3, 2018, we replaced that credit facility with a $40.0 million term loan and $13.5 million of subordinated promissory notes, and on January 30, 2019, we entered into an incremental $5.3 million term loan.

We used $2.9 million of cash in our operating activities in the three months ended May 4, 2019, compared to $1.2 million used in the three months ended May 5, 2018. This $1.7 million increase in cash used in operations resulted primarily from collecting less cash from our licensees during the three months ended May 4, 2019 compared to the three months ended May 5, 2018 when we collected cash from our sales and distribution business that was sold to International Brands Group during the fourth quarter of Fiscal 2018. This decrease in cash collections was partially offset by using less cash to fund our restructuring obligations.

Our investing activities were minimal in the three months ended May 4, 2019. We generated $1.8 million of cash from investing activities in the three months ended May 5, 2018 primarily as a result of selling our sales and distribution operations of Hi-Tec to International Brands Group in the fourth quarter of Fiscal 2018.

Our financing activities provided $0.3 million of cash in the three months ended May 4, 2019 compared to using $0.4 million of cash in the three months ended May 5, 2018. We made principal payments of $0.3 million in the three months ended May 4, 2019, but this was more than offset by $0.6 million of cash received from the exercise of stock warrants.

On August 3, 2018, we replaced our previous credit facility with a combination of a senior secured credit facility, which provided a $40.0 million term loan, and $13.5 million of subordinated promissory notes. On January 30, 2019, the credit facility was amended to provide an additional $5.3 million term loan. The term loans mature in August 2021 and require quarterly principal payments and monthly interest payments based on LIBOR plus a margin. The additional $5.3 million term loan also requires interest of 3.0% payable in kind with such interest being added to the principal balance of the loan. The term loans are secured by substantially all of our assets and are guaranteed by our subsidiaries. The $13.5 million of subordinated promissory notes mature in November 2021, and they are secured by a second priority lien on substantially all of our assets and guaranteed by our subsidiaries. Interest is payable monthly on the subordinated promissory notes, but no periodic amortization payments are required. The subordinated promissory notes are subordinated in rights of payment and priority to the term loan but otherwise have economic terms substantially similar to the term loan. Excluding the interest payable in kind, the weighted-average interest rate on both the term loans and subordinated promissory notes at May 4, 2019 was 11.3%. Outstanding borrowings under the senior secured credit facility were $44.8 million at May 4, 2019, and outstanding subordinated promissory notes were $13.5 million.

The term loans are subject to a borrowing base and include financial covenants and obligations regarding the operation of our business that are customary in facilities of this type, including limitations on the payment of dividends. Financial covenants include the requirement to maintain specified levels of Adjusted EBITDA, as defined in the credit agreement (approximately $9.5 million for the trailing twelve months as of February 1, 2020), and maintain a minimum cash balance of $1.0 million. We are required to maintain a borrowing base comprising the value of our trademarks that

exceeds the outstanding balance of the term loan. If the borrowing base is less than the outstanding term loan at any measurement period, then we would be required to repay a portion of the term loan to eliminate such shortfall.

Our financial projections currently indicate that we will remain in compliance with the Adjusted EBITDA and minimum cash balance covenants for a period of at least one year from the date of this report. However, there is an inherent risk that we may not achieve our projections and that our licensees may report lower than expected royalties, or the timing of cash receipts may not be in line with our projections. Should any of these scenarios occur, there is a risk that we may violate the Adjusted EBITDA covenant or the minimum cash balance covenant.

If actual revenues during the upcoming year are lower than our projections by an amount that may potentially result in a violation of the Adjusted EBITDA covenant or the minimum cash balance covenant, or if timing of cash receipts is materially different than our expectations, we believe that there are various cash saving measures that could be quickly implemented during this time period, including reductions in discretionary expenses related to marketing programs, product development, and general and administrative expenses, including reducing personnel and personnel related costs if necessary. Such actions could potentially harm the business if large reductions in spending become necessary. We believe that the cash savings from actions already enacted and additional savings from further measures that could be taken, if necessary would allow us to maintain compliance with the Adjusted EBITDA covenant and the minimum cash balance covenant. If we do not comply with the terms of the credit agreement in the future, including if we experience a change of control, it would be an event of default, and, subject to certain cure periods, the lender would have the right to require immediate repayment of the term loan, and/or exercise any other rights or remedies it may have, including foreclosing on our assets that serve as collateral. Furthermore, a default under our term loan agreement would also trigger a default under our subordinated promissory note agreements.

In connection with the refinancing on August 3, 2018, we issued warrants to purchase shares of our common stock to our term loan lenders and to certain holders of our subordinated promissory notes. In the three months ended May 4, 2019, 1,245,000 stock warrant shares were exercised and converted into our common stock for a cash exercise price of $0.6 million.

This MD&A is based upon our condensed consolidated financial statements, which are included in this report. The preparation of these condensed financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Refer to our Annual Report on Form 10-K for a discussion of our critical accounting policies and recent accounting pronouncements.

Our market risk generally represents the risk that losses may occur in the values of financial instruments as a result of movements in interest rates and foreign currency exchange rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

From time to time we invest our excess cash in interest bearing temporary investments of high-quality issuers. Due to the short time the investments are outstanding and their general liquidity, these instruments are classified as cash equivalents in our consolidated balance sheets and do not represent a material interest rate risk to us. In relation to our term loan and subordinated promissory notes, a 100-basis point increase in the interest rate would have increased our interest expense in the three months ended May 4, 2019 by approximately $0.1 million.

Although we conduct business in various parts of the world, our international royalty revenues are typically denominated in U.S. dollars. However, because our international licensees operate in other currencies, fluctuations in the value of the U.S. dollar relative to these foreign currencies have an impact on our royalty revenues, which could materially affect our results of operations and cash flows. The primary foreign currencies that our licensees operate in are the Euro, the Great British Pound, the Mexican Peso, the South African Rand, the Japanese Yen, the Chinese Yuan, the Indian Rupee and the Canadian Dollar. Our revenues from international licensing activities comprised 73% of total revenues during the three months ended May 4, 2019. A hypothetical 10% strengthening of the U.S. dollar relative to the foreign currencies of countries where our licensees operate would have theoretically reduced our revenues in the three months ended May 4, 2019 by approximately $0.4 million.

We maintain disclosure controls and procedures, as defined under Rules 13a‑15(e) and 15d‑15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management carried out an evaluation of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of May 4, 2019.

During the most recently completed fiscal quarter, no changes in our internal control over financial reporting materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations of Disclosure Controls and Procedures and Internal Control Over Financial Reporting

In designing our disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of our controls and procedures must reflect that resource constraints exist, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of these inherent limitations, our disclosure and internal controls may not prevent or detect all instances of fraud, misstatements or other control issues. In addition, projections of any evaluation of the effectiveness of disclosure or internal controls to future periods are subject to risks, including, among others, that controls may become inadequate because of changes in conditions or that compliance with policies or procedures may deteriorate.

From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of our business. The impact and outcome of litigation, if any, is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that could harm our business. We are not currently aware of any such legal proceedings or claims to which we are a party or to which our property is subject that we believe will have, individually or in the aggregate, a material effect on our business, financial condition or results of operations.

The occurrence of any of the risks, uncertainties and other factors described in this report, our Annual Report and the other documents we file with the SEC could have a material adverse effect on our business, financial condition, results of operations and stock price, and could cause our future business, financial condition, results of operations and stock price to differ materially from our historical results and the results contemplated by any forward-looking statements we may make herein, in any other document we file with the SEC or in any press release or other written or oral statement we may make. You should carefully consider all of these risks and the other information in this report and the other documents we file with the SEC before making any investment decision with respect to our securities. The risks described are not the only ones we face. The risks described below and elsewhere in this report are not the only ones we face. Additional risks we are not presently aware of or that we currently believe are immaterial may also impair our business, financial condition and results of operations or cause our stock price to decline. The following disclosure only describes our material risks that have undergone material changes since the date on which our Annual Report was filed with the SEC. As a result, you should carefully review Item 1A. “Risk Factors” in our Annual Report for descriptions of additional material risks and uncertainties to which our business and our common stock are subject.

We are not currently in compliance with certain Nasdaq listing requirements. If we are not able to regain compliance with these requirements, our common stock may be delisted from trading on the Nasdaq Stock Market, which could have a material adverse effect on us and our stockholders.

On June 5, 2018, we received a deficiency letter from the Nasdaq Stock Market (“Nasdaq”) notifying us that, because the bid price of our common stock closed below $1.00 per share for 30 consecutive business days, we are no longer in compliance with Nasdaq’s minimum bid price rule, which is a requirement for continued listing on the Nasdaq Global Market. Nasdaq’s rules require that we regain compliance with this rule by December 3, 2018. On December 4, 2018, however, we received a letter from Nasdaq notifying us that our transfer to the Nasdaq Capital Market was approved and that we had been granted an additional 180-day extension period to regain compliance with the minimum bid price rule. This 180-day period expired on June 3, 2019. We received another letter from Nasdaq on June 4, 2019 indicating their intent to delist our securities from the Nasdaq Capital Market on June 13, 2019 because we had not achieved the required minimum bid price unless we request an appeal of this determination. We filed our appeal on June 6, 2019 and our securities will continue to trade on the Nasdaq Capital Market subject to a further decision by Nasdaq’s Hearings Panel. If the Nasdaq Hearings Panel does not accept our plan to regain compliance, or if we regain compliance but we again fail to comply with this rule or with any other Nasdaq requirement in the future, then we would receive additional deficiency letters from Nasdaq and our common stock could be delisted from trading on Nasdaq. Such an event could cause our common stock to be classified as a “penny stock,” among other potentially detrimental consequences, and could severely limit the liquidity of our common stock and materially adversely affect the price of our common stock, any of which could significantly impact our stockholders’ ability to sell their shares of our common stock or to sell these shares at a price that a stockholder may deem acceptable.

We have incurred a significant amount of indebtedness, and our level of indebtedness and restrictions under our indebtedness could adversely affect our operations and liquidity.

On August 3, 2018, we entered into a senior secured credit facility that provided a term loan and issued subordinated promissory notes, which was subsequently amended on January 30,2019 to provide an additional term loan. As of May 4, 2019, $58.3 million in principal was outstanding under these financing arrangements. Principal

repayments are required quarterly on the term loan, and any remaining outstanding indebtedness is due in August 2021. The subordinated promissory notes mature in November 2021.

The senior secured credit facility imposes various restrictions and covenants regarding the operation of our business, including covenants that require us to obtain the lender’s consent before we can, among other things and subject to certain limited exceptions: (i) incur additional indebtedness or additional liens on our property; (ii) consummate acquisitions, dispositions, mergers or consolidations; (iii) make any change in the nature of our business; (iv) enter into transactions with our affiliates; or (v) repurchase or redeem any outstanding shares of our common stock or pay dividends or other distributions, other than stock dividends, to our stockholders. The senior secured credit facility also imposes financial covenants that set financial standards we are required to maintain, including the requirement to maintain specified levels of Adjusted EBITDA, as defined in the credit agreement (approximately $9.5 million for the trailing twelve months as of February 1, 2020), and maintain a minimum cash balance of $1.0 million. We are also required to maintain a borrowing base comprising the value of our trademarks that exceeds the outstanding balance of the term loan. If the borrowing base is less than the outstanding term loan at any measurement period, then we would be required to repay a portion of the term loan to eliminate such shortfall. Further, as collateral for the credit facility, we have granted a first priority security interest in favor of the lender in substantially all of our assets (including trademarks), and our indebtedness is guaranteed by our subsidiaries. If we do not comply with these requirements or if there is a change of control of the Company, it would be an event of default. If an event of default occurs under the credit facility that is not forborne, cured or waived in accordance with the terms of the credit facility, the lender has the right to terminate its obligations under the credit facility, accelerate the payment on any unpaid balance of the credit facility and exercise any other rights it may have, including foreclosing on our assets that serve as collateral for the loan. Furthermore, a default under our term loan agreement would also trigger a default under our subordinated promissory note agreements, which would give those lenders the right to terminate their obligations under the subordinated promissory note agreements and accelerate the payment of those promissory notes.

We may seek to refinance all or a portion of our outstanding indebtedness in the future. Any such refinancing would depend on the capital markets and the state of our industry, business and financial condition at the time, which could affect our ability to obtain attractive refinance terms if or when desired or at all.

The amount of our outstanding indebtedness, which is substantial, could have an adverse effect on our operations and liquidity, including by, among other things: (i) making it more difficult for us to pay or refinance our debts as they become due during adverse economic and industry conditions, because we may not have sufficient cash flows to make our scheduled debt payments; (ii) causing us to use a larger portion of our cash flows to fund interest and principal payments, thereby reducing the availability of cash to fund working capital, product development, capital expenditures and other business activities; (iii) making it more difficult for us to take advantage of significant business opportunities, such as acquisition opportunities or other strategic transactions, and to react to changes in market or industry conditions; and (iv) limiting our ability to borrow additional monies in the future to fund the activities and expenditures described above and for other general corporate purposes as and when needed, which could force us to suspend, delay or curtail business prospects, strategies or operations.

We are subject to additional risks associated with the international scope of our operations.

Many of our licensees are located outside the United States, and we aim to expand our international revenues. In addition, we have subsidiaries and employees in Amsterdam and other countries outside the United States.

We face numerous risks in doing business outside the United States, including, among others: (i) our general lack of experience operating foreign subsidiaries; (ii) unusual, unfamiliar or burdensome foreign laws or regulatory requirements, including tax, labor, contract, intellectual property protection and other laws, and unexpected changes to these laws or requirements; (iii) difficulties complying with the laws of multiple jurisdictions; (iv) uncertainties in some jurisdictions related to developing legal and regulatory systems and standards for economic and business activities, property ownership and the application of contract rights; (v) tariffs, trade protection measures, import or export licensing requirements, trade embargos, and other trade barriers, about which there is increased uncertainty following the results of the 2016 U.S. presidential election and the trade policies of the current administration, including withdrawal from the Trans-Pacific Partnership and proposed revision to the North American Free Trade Agreement; (vi) difficulties attracting and retaining qualified personnel to conduct our foreign operations or manage our foreign licensees and

franchisees; (vii) challenges relating to labor and employment matters, including differing employment practices and requirements regarding health, safety and other working conditions in foreign jurisdictions; (viii) competition from foreign companies; (ix) longer accounts receivable collection cycles and difficulties collecting accounts receivable from international licensees and franchisees; (x) less effective and less predictable protection and enforcement of our intellectual property rights in some jurisdictions; (xi) changes in the political or economic condition of a specific country or region, particularly in emerging markets; (xii) potentially adverse tax consequences from the several U.S. and foreign jurisdictions in which we are subject to taxation; and (xiii) cultural differences in the conduct of business. Any one or more of these factors could cause our international revenues to decline or could cause us to fail to execute on our business strategy involving international expansion. In addition, our business practices in international markets are subject to the requirements of the FCPA and applicable foreign anti-bribery laws, any violation of which could subject us to significant fines, criminal sanctions and other penalties.

Several of our branded products are manufactured in countries such as China that are subject to increasing tariffs. Our licensees who use manufacturing facilities in countries subject to increasing tariffs may be forced to increase consumer prices and, as a result, experience depressed sales. Such increased prices and depressed sales may have a material negative effect on the businesses of our licensees, and may corresponding negatively impact our royalty revenues. In addition, the United Kingdom’s referendum to withdraw from the European Union, commonly known as “Brexit,” has created political and economic uncertainty, particularly in the United Kingdom and the European Union. Brexit may cause significant disruptions in the free movement of goods, services and people, increased legal and regulatory burdens, fluctuations in currency exchange rates, and higher potential costs of conducting business in Europe and globally. To the extent that any of the foregoing occur, they could negatively affect the sales of our branded products, which would adversely impact our royalty revenues.

Our international royalty revenues are typically denominated in U.S. dollars. However, because our international licensees and franchisees operate in other currencies, fluctuations in the value of the U.S. dollar relative to these foreign currencies have an impact on our royalty revenues, which could materially affect our results of operations and cash flows. The primary foreign currencies in which our licensees operate are the Euro, the Great British Pound, the Mexican Peso, the South African Rand, the Japanese Yen, the Chinese Yuan, the Indian Rupee and the Canadian Dollar. We do not currently engage in currency hedging activities to limit the risk of exchange rate fluctuations.

In connection with our refinancing on August 3, 2018, we issued warrants (the “Warrants”) to purchase shares of our common stock to our term loan lenders and to certain holders of our subordinated promissory notes. During the three months ended May 4, 2019, we issued 1,245,000 shares of our common stock upon the exercise of certain of the Warrants for a cash exercise price of $0.6 million. The shares of our common stock so issued were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Regulation D thereunder. The cash proceeds were utilized for working capital.

The information required by this Item 6 is set forth on the Exhibit Index that immediately precedes the signature page to this report and is incorporated herein by reference.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Delaware		95-4182437
(State or other jurisdiction of Incorporation or organization)		(IRS employer identification number)

5990 Sepulveda Boulevard, Sherman Oaks, CA		91411
(Address of principal executive offices)		Zip Code

Large accelerated filer ☐		Accelerated filer ☐

Non-accelerated filer ☒		Smaller reporting company ☒
		Emerging growth company ☐

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements (unaudited):

Condensed Consolidated Balance Sheets May 4, 2019 and February 2, 2019		3

Condensed Consolidated Statements of Operations Three months ended May 4, 2019 and May 5, 2018		4

Condensed Consolidated Statements of Stockholders’ Equity Three months ended May 4, 2019 and May 5, 2018		5

Condensed Consolidated Statements of Cash Flows Three months ended May 4, 2019 and May 5, 2018		6

Notes to Condensed Consolidated Financial Statements		7

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk		17

ITEM 4. Controls and Procedures		18

PART II. OTHER INFORMATION		19

ITEM 1. Legal Proceedings		19

ITEM 1A. Risk Factors		19

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		21

ITEM 6. Exhibits		21

SIGNATURES		23

(In thousands)	May 4, 2019		February 2, 2019
Accrued employee compensation and benefits	$	308	$	376
Restructuring plan liabilities		2,358		3,003
Income taxes payable		464		473
Current lease obligations and other liabilities		1,182		862
	$	4,312	$	4,714

(In thousands)	Operating Leases
Remainder of Fiscal 2020	$	604
Fiscal 2021		890
Fiscal 2022		903
Fiscal 2023		886
Fiscal 2024		895
Thereafter		1,595
Total future minimum lease payments		5,773
Less imputed interest		(1,314	)
Present value of operating lease liabilities	$	4,459

(In thousands)	Operating Leases
Fiscal 2020	$	854
Fiscal 2021		865
Fiscal 2022		876
Fiscal 2023		857
Fiscal 2024		863
Thereafter		1,673
Total future minimum lease payments	$	5,988

Exhibit Number		Description of Exhibit

31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended May 4, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at May 4, 2019 and February 2, 2019; (ii) Condensed Consolidated Statements of Operations for the three months ended May 4, 2019 and May 5, 2018; (iii) Condensed Consolidated Statement of Stockholders ‘Equity for the three months ended May 4, 2019 and May 5, 2018; (iv) Condensed Consolidated Statements of Cash Flows for the three months ended May 4, 2019 and May 5, 2018; and (v) Notes to Condensed Consolidated Financial Statements.

		CHEROKEE INC.


		By:	/s/ Henry Stupp

			Henry Stupp
			Chief Executive Officer
			(Principal Executive Officer)


		By:	/s/ Steven L. Brink

			Steven L. Brink
			Chief Financial Officer
			(Principal Financial Officer and Principal Accounting Officer)