SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑K

Commission file No. 0‑18640

CHEROKEE INC.

(Exact name of registrant as specified in charter)

Indicate by check mark whether the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐  No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐  No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange 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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes: ☒  No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not 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. ☐

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 accountant 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 Act). Yes ☐  No ☒

As of July 29, 2016, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non‑affiliates of the registrant was approximately $91.0 million (computed by reference to the price at which the registrant’s common stock was last sold on July 29, 2016, as reported by the NASDAQ Global Select Market). For purposes of this calculation, it has been assumed that shares of common stock held by each director, each officer and any person who owns 10% or more of the outstanding common stock of the registrant are held by affiliates of the registrant. The treatment of these persons as affiliates for purposes of this calculation is not conclusive as to whether such persons are affiliates of the registrant for any other purpose.

As of April 20, 2017, the registrant had 12,951,284 shares of its common stock, issued and outstanding.

Documents Incorporated by Reference:

Certain portions of the registrant’s definitive proxy statement  (the “Proxy Statement”)  for its Annual Meeting of Stockholders to be held on or about June 22, 2017 are incorporated by this reference into Part III of this annual report on Form 10K (the “Annual Report”).

CHEROKEE INC.

INDEX

As used in this Annual Report, “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, as used herein, “Fiscal 2018” refers to the fiscal year ended February 3, 2018; “Fiscal 2017” refers to the fiscal year ended January 28, 2017; “Fiscal 2016” refers to the fiscal year ended January 30, 2016; and “Fiscal 2015” refers to the fiscal year ended January 31, 2015.

We own the registered trademarks or trademark applications for Cherokee®, Hi-Tec®, Magnum®, 50 Peaks®, Interceptor®, Hawk Signature®, Tony Hawk®, Liz Lange®, Completely Me by Liz Lange®, Flip Flop Shops®, Everyday California®, Carole Little®, Saint Tropez-West®, Chorus Line®, All That Jazz®, Sideout®, Sideout Sport®, and others. All other trademarks, trade names and service marks included in this Annual Report are the property of their respective owners.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This Annual Report, our quarterly reports on Form 10‑Q, other filings we make with the Securities and Exchange Commission (the “SEC”), and press releases and other written or oral statements we may make from time to time may contain “forward‑looking statements” within the meaning of the Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  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 expressions are intended to identify forward‑looking statements.

Forward‑looking statements in this Annual Report include statements about, among other things:

Forward‑looking statements are based on our current views, expectations and assumptions and involve known and unknown risks and uncertainties that may cause actual results, performance, achievements or share prices to be materially different from any future results, performance, achievements or share prices expressed or implied by the forward‑looking statements. Such risks and uncertainties include, among others the risks descried in Item 1A, “Risk Factors” in this Annual Report. You should not place undue reliance on the forward‑looking statements we make 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 to reflect future events and developments or for any other reason.

PART I

Item 1. BUSINESS

Overview

Cherokee Global Brands is a global marketer and manager of a portfolio of fashion and lifestyle brands it owns or represents, licensing the Cherokee, Hi-Tec, Magnum, 50 Peaks, Interceptor, Hawk Signature, Tony Hawk, Liz Lange, Completely Me by Liz Lange, Flip Flop Shops, Everyday California, Carole Little, and Sideout, and related trademarks and other brands in multiple consumer product categories and sectors. 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 sourcing and marketing capabilities has made us one of the leading global licensors of style focused lifestyle brands for apparel, footwear, home products and accessories.

We have entered into license agreements with recognizable retail partners in their respective global locations to provide them the rights to design, manufacture and sell products bearing our brands and to provide them access to our proprietary 360-degree platform. We refer to this strategy as our “Direct to Retail” or “DTR” licensing model. We have also entered into wholesale arrangements for the manufacture and sale of products bearing certain of our brands. We refer to this strategy as our “Wholesale” licensing model. Further, in connection with our acquisition of the Flip Flop Shops trademark and related assets, we acquired, and became the franchisor under, franchise agreements with franchisees that operate Flip Flop Shops retail stores located worldwide.  In addition, we conduct direct and indirect product sales to select distributors and government entities for our Hi-Tec and Magnum brands.

We believe our retail responsiveness process and 360-degree unique value proposition have allowed Cherokee Global Brands to address the growing power of the consumer and the present and future needs of the wholesalers, distributors and retailers that are selling our portfolio of lifestyle brands. Based on consumer research, retail insights and brand insights that we continually measure, evaluate and incorporate into our 360-degree platform, we believe Cherokee Global Brands has become a key strategic partner to our licensees. As of January 28, 2017, we had 124 continuing license agreements in over 110 countries, 24 of which pertained to the Cherokee brand and 81 of which pertain to the Hi-Tec and Magnum brands.

We create and establish our brands with a view to global scalability by developing marketing strategies and innovative products for each brand and deploying the tools developed through our 360-degree capabilities platform.  Our key strengths are exemplified by the following three value pillars, which guide our strategies and which we believe position us to expand our business:

Vision – We deliver our licensee partners a brand vision designed to drive differentiation and a fresh point of view for engaging customers across every touch point and in multiple categories.

Agility – We offer our licensee partners access to our 360-degree platform, which is designed to provide the agility to quickly seize opportunity and swiftly introduce our branded products.

Scale – We believe the scalability of our brands enables our licensee partners to fully leverage our brands’ physical and digital spaces with multi-category relevancy and with globally recognized brands that drive a seamless customer experience.

We derive revenues primarily from licensing our trademarks to retailers and wholesalers all over the world. Our current licensee relationships cover over 110 countries and over 12,000 retail stores and Ecommerce businesses that includes relationships with Walmart, Target Corporation (“Target”), Kohl’s Illinois, Inc. (“Kohl’s”), Soriana, Comercial Mexicana, TJ Maxx, Tottus, Pick N Pay, Nishimatsuya Walmart, Big 5, Academy, JD Sports, Black’s, and REI. Our two most significant licensees in Fiscal 2017, Fiscal 2016, and Fiscal 2015 were Target and Kohl’s.

Licensing and Other Selling Models

Direct to Retail

In Direct to Retail licensing, we grant retailers a “territory” or “channel-specific” license to use our trademarks on certain categories of merchandise. We collaborate with our licensees’ product development staff and merchandisers on design direction, packaging, marketing, and other aspects pertaining to the products sold with our trademarks, and in some cases our licensees modify or expand the designs or create their own designs to suit their seasonal, regional and category needs. In several cases, the licensee is responsible for designing and manufacturing the merchandise, although many products are subject to our pre‑approved packaging, graphics and quality control standards and many of our licensees’ marketing campaigns are subject to similar oversight. We plan to continue to solicit new licensees using our Direct to Retail licensing model in new territories and additional product categories as we seek to expand our business.

We believe that the Direct to Retail licensing model generally offers each licensee, or retailer, the exclusive right to market multiple categories of products with a recognized brand within their territory, thereby offering our licensees the ability to enhance their marketing strategies and achieve a competitive advantage over competing retailers. This differentiation can also provide the retailer/licensee an opportunity to command a “premium” for our high-equity brand offering over private label price points, which can result in increased profit margins, even after royalties have been paid to the licensor. The licensees generally directly source their own inventory, thereby eliminating the licensor’s exposure to inventory and manufacturing risk while allowing the licensees to benefit from large economies of scale.

Many of the world’s largest retailers have successfully introduced, and continue to introduce, new brands based on the DTR licensing model. Examples of retailers actively participating in the DTR licensing model include Walmart, Target, Carrefour, Kohl’s and C&A, among others.

Our Direct to Retail licensing strategy is premised on the proposition that, for many retailers worldwide, most aspects of the moderately priced apparel, accessory, footwear and home categories, including product development, design, merchandising, sourcing and distribution, can be executed most effectively by these retailers themselves, who typically command significant economies of scale, but also interact daily with their end consumers. We believe that many of these retailers may be able to obtain higher gross margins on sales and increase store traffic by sourcing, stocking and selling licensed products bearing widely recognized brand names (such as our brands) than by carrying only private label goods or by carrying only branded products obtained from third‑party vendors. We also believe that many retailers may be able to achieve enhanced profitability with our Direct to Retail licensing model because it allows them to avoid the substantial marketing costs associated with establishing and maintaining an in‑store brand.

Wholesale

We also license our brands to manufacturers and distributors based on wholesale arrangements.  Wholesale licensing arrangements generally involve licensing to manufacturers that produce and import various categories of apparel, accessory, footwear, and home products under our trademarks and trademarks owned by third parties and sell the licensed products to retailers, which then resell the products to consumers.

Although our strategy has historically been focused primarily on the DTR licensing model, we have some historical wholesale licensees with respect to some of our brands and we have recently entered into several new wholesale arrangements for the Cherokee, Hi-Tec, Magnum 50 Peaks and Interceptor brands. We believe these arrangements signal an expansion to our strategy to increase the sales of products bearing our brands in the United States, including our namesake Cherokee brand, which has been governed by one license agreement using our DTR licensing model.  We believe these wholesale licensing arrangements will help to diversify our sources of revenue, increase our royalty rates through our licensee or other partner relationships and will provide additional avenues to obtain brand recognition and grow our Company, including the opportunity to further expand the reach of our brands into markets where a DTR licensing model may not be the most effective approach. Recently, through our acquisition of the Hi-Tec and Magnum brands in December 2016, we have signed up wholesalers in the U.S., Pan-European and South Africa territories for our Hi-Tec and Magnum brands.

Indirect Product Sales

Since our acquisition of the Hi-Tec and Magnum brands, we have been indirectly selling footwear bearing these brands to certain select wholesalers and government entities that are customers of these brands. In these arrangements, the purchasers of the products place their product orders directly with us, which we then forward to a manufacturer for the manufacture and delivery of the products directly to the original purchaser. As a result, the product purchasers in these arrangements receive products directly from the manufacturer, which is similar to our wholesale licensing relationships and eliminates most inventory and manufacturing risk. We maintain these indirect product sale relationships with a minimal portion of the customers of the Hi-Tec family of footwear brands. This indirect product sales system pre-existed our acquisition of the Hi-Tec and Magnum brands and we do not intend to expand this model to other customers of these brands or to our other brands.  See Item 7, “Management’s Discussion & Analysis—Recent Developments” for further information regarding the Hi-Tec acquisition.

Franchise

Our franchise business involves licensing our Flip Flop Shops brand to third-party franchisees that operate retail stores under this brand name. In our franchising operations, we typically specify the products and services that will be offered by the franchisees and also provide them with an operating system and other operational support. The Flip Flop Shops franchise structure aligns with our strategic plan and business model.  As part of our growth plan for Flip Flop Shops, we intend to expand store inventory to include more Company-owned brands and expand the retail concept through a combination of new retail store locations, shop-in-shops and mobile commerce.  During January 2017 we launched an e-commerce platform for Flip Flop Shops.

Brand Portfolio

Cherokee Global Brands markets brands it owns and brands it represents. Generally, when representing brands, we perform a range of services including product design, product sourcing through third party manufacturers, the creation of marketing assets, solicitation of licensees, contract negotiations and administration and maintenance of license or distribution agreements, among other things. In exchange for our services, we typically receive a certain percentage of the net royalties generated by the brands we represent. Summaries of some of our brands are provided below.

Cherokee

Cherokee is an iconic, American family‑lifestyle brand, offering classic, casual and comfortable products at affordable prices. Cherokee, which was initially launched as a footwear line in 1973, seeks to produce timeless classics, inspired by vintage Americana while continually being updated to account for modern trends. After four decades, the Cherokee brand stands for confident, effortless and relaxed American style. We believe this heritage positions the Cherokee brand for future growth and further international expansion. Additional categories of Cherokee branded products are sold internationally, including adult apparel, home décor, textiles, outdoor furnishings and camping gear.

Key Licensee—Target

Historically, the Cherokee brand’s most significant licensee was Target, which launched the Cherokee brand almost two decades ago as a multi‑category product offering that encompassed kid’s apparel, accessories, footwear and school uniforms (the rights to which we acquired in January 2013). Our relationship with Target covering Cherokee branded products ended in January 2017.

Our former license agreement with Target granted Target exclusive rights to the Cherokee brand in various specified categories of merchandise in the United States. Under this license arrangement, for all of Target’s sales of Cherokee branded products, except for sales of Cherokee branded products in Canada (which ceased as a result of Target Canada bankruptcy), sales of Cherokee branded adult products sold on Target’s website and sales of Cherokee branded products in the school uniforms category, Target paid us royalties based on rates that reduced after Target achieved specified cumulative sales volume thresholds during each fiscal year. These royalty rate reductions did not apply

retroactively to Target’s retail sales since the beginning of the applicable fiscal year, but rather applied only to sales made during the applicable fiscal year subsequent to the achievement of the specified sales volume threshold. Our license arrangement with Target governing sales of Cherokee branded adult products sold on Target’s website and Cherokee branded products sold in the school uniforms category provided for a fixed royalty rate based on Target’s net sales of products during each fiscal quarter.

Our license agreement with Target covering sales of most Cherokee branded products in the United States expired on January 31, 2017. Our license agreement with Target covering sales of Cherokee branded products in the school uniforms category will expire at the end of its current term on January 31, 2018, and will continue to generate revenues to Cherokee Global Brands until its expiration.

Royalty revenues from Target’s sales of products bearing the Cherokee brand, in the Unites States, excluding sales of Cherokee branded products in Canada and sales of Cherokee branded products in the school uniforms category, were $10.5 million during Fiscal 2017, $14.9 million during Fiscal 2016 and $15.0 million during Fiscal 2015, which accounted for 31%, 43%, and 43% of our total royalty revenues during the respective periods. Replacing the royalty revenues received from Target for Cherokee branded products is a significant challenge, and the expiration of this license agreement may have a material adverse effect on our business. See Item 1A, “Risk Factors” for additional information.

Hi-Tec and Magnum

Founded in 1974 and based in the Netherlands, the Hi-Tec footwear brand seeks to produce quality shoes for a fair price.  The Hi-Tec family of footwear brands includes Hi-Tec, known for its comfortable and lightweight hiking and walking shoes, Magnum, which produces work boot footwear, and several other footwear brands that produce specific-purpose tactical boots, uniform footwear, technical outdoor footwear and various other types of shoes.  These footwear brands are sold in over 110 countries, predominately in the United Kingdom, continental Europe, the United States, Canada, South Africa, South and Central America and Asia through major retailers, independent distributors, licensees and directly to consumers.  Today, the Hi-Tec brand is one of the world’s leaders in sports and outdoor footwear.

We acquired the Hi-Tec, Magnum, and other associated footwear brands in December 2016.  Before our acquisition, the Hi-Tec brands were operated under a full spectrum distribution model, meaning that one group of affiliated companies owned the brands and manufactured the products.  In connection with our acquisition of these brands, we sold the associated operating assets to certain operating partners and/or distributors and entered into new wholesale licensing arrangements with these operating partners and/or distributors.  Through these transactions and our post-acquisition integration efforts, we are converting the Hi-Tec brands to a branded licensing model.  Going forward, we primarily intend to pursue a wholesale licensing model for these brands.

50 Peaks and Interceptor

50 Peaks is a high spec, technical outdoor footwear brand that was born out of the accomplishments of adventurer Adrian Crane, who climbed the 50 highest peaks in each of the 50 states in the USA in a record time of 101 days.  Interceptor is a tactical footwear brand sold throughout the world.  The Interceptor brand is currently sold at Walmart U.S.  We acquired the 50 Peaks and Interceptor brands in December 2016 in connection with the Hi-Tec acquisition.  50 Peaks has been a Hi-Tec brand since 1990 and has substantial name brand recognition amongst its customers.

Hawk and Tony Hawk

Tony Hawk, among the most well‑known athletes in skateboarding history, is the founder of the Tony Hawk Signature apparel line. Designed for comfort, flexibility and durability, the Tony Hawk brand is designed to embody the “skate culture” lifestyle, combining style with performance. We acquired the Tony Hawk Signature and Tony Hawk brands in January 2014, which has expanded our presence in department store and specialty channels of distribution. The brand is exclusively licensed in the United States to Kohl’s, with Tony Hawk clothing and accessories sold in Kohl’s department stores and online. Separate wholesale license agreements are in place to supply Hawk and Tony Hawk

signature apparel in Canada with Walmart Canada and throughout Europe and we intend to secure additional licensees to expand these brands globally.

Licensing revenues for our Hawk Signature and Tony Hawk brands totaled $5.0 million and $5.0 million in Fiscal 2017 and Fiscal 2016, respectively, which represented 15% and 14%, of our total royalty revenues for the respective periods.

Key Licensee—Kohl’s

In connection with our acquisition of the Hawk Signature and Tony Hawk brands in January 2014, Cherokee Global Brands entered into a retail license agreement with Kohl’s. This license agreement, as amended, grants Kohl’s exclusive rights, through July 2017 at which point, the contract converts to a non-exclusive right to sell the Tony Hawk and Tony Hawk Signature apparel brands in various specified categories of merchandise in the United States. The current term of the license agreement, as amended, with Kohl’s continues through January 31, 2018, and obligated Kohl’s to pay Cherokee Global Brands an annual minimum royalty of $4.8 million prior to January 28, 2017 and $4.6 million for the remainder of the term.

Liz Lange and Completely Me by Liz Lange

Liz Lange has gained wide acceptance as a modern “maternity and beyond” designer brand that brings women versatile, comfortable, affordable and flattering style for every stage of pregnancy. Liz Lange maternity apparel debuted in over 1,500 Target stores in the United States in 2002 and continues to be sold exclusively in Target stores in the United States. During 2010, Completely Me by Liz Lange was launched exclusively on the Home Shopping Network in the United States and The Shopping Channel in Canada. The Completely Me brand consists of sophisticated and comfortable casual clothing and sportswear for women. We acquired the Liz Lange brands in September 2012.

Key Licensee—Target

During September 2012, we assumed a license agreement with Target covering sales of Liz Lange branded maternity products in the United States. Pursuant to this agreement, Target pays Cherokee Global Brands a fixed royalty rate based on Target’s net sales of products bearing this brand.  Target has informed us that it has elected to not renew the Liz Lange license agreement, which expires on January 31, 2018 at the end of the current term, Target will continue to pay royalties to Cherokee Global Brands until the expiration of the agreement.  Cherokee Global Brands has entered into a master license agreement with a third party for Liz Lange branded maternity products beginning in Fiscal 2019.

Flip Flop Shops

Flip Flop Shops is an authentic market-leading retail franchise chain devoted to the hottest brands and latest styles of flip flops, casual footwear and accessories.  Flip Flop Shops currently has approximately 72 retail franchise shops in the U.S., Canada, the Caribbean, the Middle East and South Africa. Its locations carry definitive assortments of recognized brands including OluKai, SANUK, Cobian, Havaianas, Quiksilver, ROXY, Reef, and many more.  We acquired the Flip Flop Shop brands in October 2015.

Everyday California

Crafted in Southern California, Everyday California is designed to embody the California spirit and celebrate living life to the fullest. From California’s snowcapped mountains to the sandy shores, Everyday California apparel and accessories for men and women are the perfect match for any journey. Everyday California was born out of a desire to share the California state of mind and the notion that adventure is just around the corner.  We acquired the Everyday California brand in May 2015.

Point Cove

Point Cove was created in-house by Cherokee Global Brands' design team in close collaboration with Reliance Trends, a chain of retail stores in India. The brand was launched in September 2015 and brings a combination of playfulness and sophistication to Reliance Trends stores in key categories including apparel, accessories, and footwear, for kids ages 2-14. The collection features bold colors that bring the California spirit to India.

Carole Little

Carole Little was founded in 1975 by designer Carole Little through her love for contemporary clothing. The Carole Little brand became recognized for colorful and unusual prints, soft two‑piece outfits and dresses. The Carole Little brand has an ageless, independent attitude for the self‑confident woman.

Sideout

Conceived in 1983 by a California volleyball player, the Sideout brand took root at the beach, harnessing the easy spirit of a casual California lifestyle. Ideal for a game of beach volleyball or a breezy vacation, Sideout products perform in quality, functionality and originality by offering casual, hip and cool clothing, footwear and accessories at affordable prices.

Value Pillars

We are guided by three value pillars that speak to our diverse global partners:

We create and establish our brands on a global basis (scale) via superb marketing (vision), strong execution (agility), innovative products & exceptional leadership.

Our Strategies

Our key business strategies include the following:

360-Degree Platform

As part of our strategy, we provide our licensees with access to our proprietary 360‑degree platform which seamlessly integrates with our licensing model and which we believe is part of the attraction of our brands to our retailers and other licensees. Our 360‑degree platform includes the following:

Organic Growth of Our Business

Organic growth involves introducing new product categories with existing partners and expanding existing brands into new stores and new territories. We are focused on the following organic growth drivers: a larger online presence with our partners in order to capitalize on the growth of digital commerce; enhanced in-store experiences, such as shop-in-shop floor presentations; product category expansion such as new apparel categories, home, sportswear, beauty, athletic, designer, denim, performance and accessories; and growth of our partners’ businesses, including opening new stores or otherwise expanding their operations.

Expand Our Brand Portfolio

We regularly evaluate other brands and trademarks for acquisition into our portfolio. We target style-focused lifestyle brands, such as our recently acquired Hi-Tec, Magnum, 50 Peaks, Interceptor, Everyday California and Flip Flop Shops brands. We evaluate new brand candidates based on their global market potential and product category expansion opportunities, in categories such as home, sportswear, beauty, athletic, designer, denim, performance, footwear, and accessories.

Build New Partner Relationships

As part of our strategy, we evaluate and pursue relationships with new retailers, wholesalers and other licensees 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. This strategy also involves diversifying our types of partner relationships to include additional DTR licensees, wholesale licensees and, with our acquisition of the Flip Flop Shops trademark and brand

name, franchisees of this brand. In our efforts to expand our portfolio of licensee partners, we acquired a number of new licensees for our existing brands in a variety of territories in Fiscal 2017, some of which are described below.

During Fiscal 2017, we entered into license agreements with nine wholesale distributors to distribute a variety of categories of products bearing the Cherokee brand within the U.S. to various retailers beginning in Fiscal 2018.  The categories cover a wide range of Cherokee products including men’s and boy’s casual sportswear, sweaters and outerwear; newborn, infant and toddler boys and girls clothing and layette; girl’s active wear, sportswear, dresses, denim, and sweaters; and swimwear and sleepwear.

We entered into three additional license agreements (two during Fiscal 2017 and one during Fiscal 2018) for our Hawk Signature and Tony Hawk brands.  The license agreements are for broad distribution of the brands in the United States for all retail, including specialty, mid-tier, regional, mass market, off-price and club retail.

Royalties and Other Revenues

License Royalties

Our rights to receive royalties for sales of products bearing our brands are set forth in the terms of our license agreements with various retailers and wholesalers. The royalty rates we receive from our licensees vary depending on the terms of each licensing agreement. Generally, our DTR license agreements include royalty rates based on a percentage of the retailer’s net sales of licensed products. Some of our DTR license agreements provide for royalty rates calculated based on a fixed percentage of retail product sale, and other DTR license agreements provide for royalty rates that may decrease or otherwise fluctuate depending on the retailer’s achievement of certain annual sales volume thresholds.  For wholesale license agreements, royalty rates are generally calculated based on a fixed percentage of wholesale sales from the wholesaler to the retailer.

In many cases, particularly in our DTR licensing arrangements, we require the licensee to guarantee a minimum annual royalty payment to us each year.  Our largest guaranteed minimum annual royalty payment for Fiscal 2017, Fiscal 2016 and Fiscal 2015 was from Target for $10.5 million for each period. As of January 28, 2017, we had contractual rights to receive over $108.8 million forward‑facing minimum royalty revenues over the next six years, excluding any revenues that may be guaranteed in connection with contract renewals.

Royalties are generally paid within 30 days after a quarterly selling period that has been defined in the applicable license agreement. In order to ensure our licensees are reporting and calculating the appropriate royalties, all of our license agreements grant us the right to audit our licensees’ retail sales data for our brands to validate the amount of sales reported and royalties paid.

Franchise Fees and Royalties

Franchisees who wish to operate Flip Flop Shops retail locations in the United States enter into a franchise agreement with us that generally provides franchise rights for each location for an initial term of 10 years and typically includes a 10-year renewal provision, subject to certain conditions as specified in the franchise agreement. The agreements provide the franchisee the rights to use the Flip Flop Shops brand name, trademarks and know-how in the operation of a Flip Flop Shops retail store. Franchisees typically pay us an initial franchise fee and royalty fees based on a percentage of gross sales at each retail store.

In certain non-U.S. markets, we may grant a master franchisee exclusivity to develop or sub-franchise a territory for a specified number of new Flip Slop Shops locations in the territory based on a negotiated schedule. In these instances, the master franchisee pays an initial master franchise fee, a per-location opening fee and a royalty fee based on a percentage of gross sales at the retail stores.

Indirect Product Sale Revenues

As described under “Licensing and Other Selling Models” above, we maintain indirect product sale relationships with certain select wholesalers, distributors and government entity customers of the Hi-Tec family of footwear brands, until such time that we convert the arrangements to traditional wholesale licensing arrangements. We began recording revenues from these relationships in December 2016 when we acquired these brands. In these arrangements, the retailers and government entities that purchase products submit payments directly to us for their product orders, the pricing of which is typically a preset percentage markup to our cost, and we then remit the cost of these payments to the manufacturer of the purchased products. As a result, a significant portion of our revenues from these indirect product sales is paid out to manufacturers as a cost of the product sales. In Fiscal 2017, we recorded a total of $6.6 million in revenues from these indirect product sales, of which a total of $5.1 million was paid to manufacturers or distributors as a cost of the product sales.

Trademarks

We hold various trademarks, including Cherokee®, Hi-Tec®, Magnum®, 50 Peaks®, Interceptor®,  Hawk Signature®, Tony Hawk®, Liz Lange®, Completely Me by Liz Lange®, Flip Flop Shops®, Everyday California®, Carole Little®, Saint Tropez-West®, Chorus Line®, All That Jazz®, Sideout®, Sideout Sport®, and other, in connection with numerous categories of apparel and other goods. These trademarks are registered with the United States Patent and Trademark Office and corresponding government agencies in a number of other countries. We also hold trademark applications for each of these brand names and others in numerous countries. Our business is dependent upon our trademarks and other intellectual property rights. We monitor on an ongoing basis unauthorized uses of our trademarks, and we rely primarily upon a combination of trademarks, know‑how, trade secrets, and contractual restrictions to protect our intellectual property rights domestically and internationally. See Item 1A, “Risk Factors” for additional information.

Competition

Royalties paid to us under our licensing agreements are generally based on a percentage of our licensees’ net sales of licensed products. Additionally, franchisees of our Flip Flop Shops brand pay us a percentage of their net sales. Merchandise bearing our Cherokee, Hi-Tec, Magnum, 50 Peaks, Interceptor, Hawk Signature, Tony Hawk, Liz Lange, Completely Me by Liz Lange, Flip Flop Shops, Everyday California, Carole Little, and Sideout brands, all of which are manufactured and sold by both domestic and international wholesalers and retail licensees, as well as merchandise sold by Flip Flop Shops retail shops, are subject to extensive competition by numerous domestic and foreign companies. Such competitors with respect to the Cherokee brand include Polo Ralph Lauren, Tommy Hilfiger, Liz Claiborne, and private label brands (developed by retailers) such as Faded Glory, Arizona, and Route 66. Factors that shape the competitive environment include quality of garment construction and design, brand name, style and color selection, price, fashion and other trends, avenue of purchase (including in stores and online), and the manufacturer’s ability to respond quickly to the retailer on a national basis.

Our business plan in the United States focuses on creating strategic alliances with major retailers and wholesalers for their sale of products bearing our brands through the licensing of our trademarks directly to retailers, engaging wholesalers to manufacture products bearing our brands and sell these products to retailers, and entering into franchise relationships with Flip Flop Shops retail store owners. Therefore, our degree of success is dependent on the strength of our brands, consumer acceptance of and desire for our brands, our licensees’ ability to design, manufacture and sell products bearing our brands and our franchisees’ ability to sell products bearing our or third-party brands, and the ability of our licensees and franchisees to respond to ever-changing consumer demands. In addition, we compete with other companies owning established trademarks, which have entered into, and could continue to enter into, similar arrangements with retailers and wholesale manufacturers in the United States and internationally, including with our existing retail and wholesale partners, thereby competing with us for consumer attention, limited floor and rack space in the same stores in which our branded products are sold and time and resources of wholesale licensees that manufacture our products.

Seasonality

Our business and performance may be subject to certain seasonality trends.  See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for additional information.

Government Regulations

The Federal Trade Commission and various state laws regulate our Flip Flop Shops franchising activities. For instance, the Federal Trade Commission requires that franchisors make extensive disclosure to prospective franchisees before the execution of a franchise agreement, and several states require registration and disclosure in connection with franchise offerings and sales. In addition, our business practices in international markets are subject to the requirements of the Foreign Corrupt Practices Act and any applicable foreign anti-bribery laws. We are also subject to various laws that are generally applicable to businesses in our industry, such as work safety and labor laws that govern certain of our operations and our employee relations. Our violation of any of these laws could subject us to significant fines, criminal sanctions and other penalties, which could have a material adverse effect on our business and results of operations.

Employees

As of January 28, 2017, we employed 123 persons; however, of these employees, 40 are providing transition services for us in connection with our recent acquisition of Hi-Tec and therefore are not expected to remain our employees for the longer term. None of our employees are represented by labor unions, and we believe that our employee relations are satisfactory.

Code of Ethics

We have adopted a Code of Business Conduct and Ethics that applies to the Company’s directors, officers, employees and manufacturers that produce products on behalf of our licensees. A copy of our Code of Business Conduct and Ethics is filed as an exhibit to this Annual Report.

Segment Information

As a result of the Hi-Tec acquisition, our reportable segments beginning Fiscal 2017 consist of Cherokee Global Brands and Hi-Tec, for which our chief-operating decision maker internally evaluates operating performance and financial results. For the year ended January 30, 2016 we considered our business activities to constitute a single segment.  See Note 12 to our consolidated financial statements included in this Annual Report for information about Cherokee Global Brands and Hi-Tec revenues, long lived assets and other financial information as well as a summary of our revenues and long-lived assets by geographic area.

Also see our consolidated financial statements included in this Annual Report for information about revenues from external customers, a measure of profit and loss and our total assets for our one reportable segment. We face risks attendant to our foreign operations. During Fiscal 2017, approximately 47% of our revenues were derived from our international licensees and franchisees.  We face risks attendant to our foreign operations.  See Item 1A, “Risk Factors”.

Corporate Information and SEC Filings

Cherokee Global Brands was incorporated in Delaware in 1988. Our principal executive offices are located at 5990 Sepulveda Boulevard, Sherman Oaks, California 91411, telephone (818) 908‑9868. We maintain a website with the address www.cherokeeglobalbrands.com. We are not including the information contained on our website as part of, or incorporating it by reference into, this Annual Report on Form 10‑K.

We make our annual reports on Form 10‑K, quarterly reports on Form 10‑Q, current reports on Form 8‑K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, available free of charge on our website at www.cherokeeglobalbrands.com as soon as reasonably practicable after we file these materials with, or furnish them to, the SEC.

All reference to our website are inactive textual references and the contents of our website are not incorporated into or otherwise considered part of this Annual Report.

Executive Officers of the Registrant

The table below sets forth certain information with respect to each of our executive officers. We have entered into employment agreements or offers with each of our executive officers, which are included as exhibits to this Annual Report, that establish, among other things, each executive’s term of office. There are no arrangements or understandings between any of our executive officers and any other person pursuant to which such individual was or is selected as an officer of our Company.

Item 1A. RISK FACTORS

The occurrence of any of the risks and uncertainties and other factors described below and elsewhere in this 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 also 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 Annual Report and the other documents we file with the SEC before making any investment decision with respect to our common stock. The risks described below and elsewhere in this Annual 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.

Risks Related to Our Business

Our business is subject to intense competition.

Royalties paid to us under our licensing agreements are generally based on a percentage of our licensees’ net sales of licensed products. Additionally, franchisees of our Flip Flop Shops brand pay us a percentage of their net sales. Merchandise bearing our Cherokee, Hi-Tec, Magnum, 50 Peaks, Interceptor, Hawk Signature, Tony Hawk, Liz Lange, Completely Me by Liz Lange, Flip Flop Shops, Everyday California, Carole Little, and Sideout brands, all of which are manufactured and sold by both domestic and international wholesalers and retail licensees, as well as merchandise sold by Flip Flop Shops retail shops, are subject to extensive competition by numerous domestic and foreign companies. Such competitors with respect to the Cherokee brand include Polo Ralph Lauren, Tommy Hilfiger, Liz Claiborne, and private label brands (developed by retailers) such as Faded Glory, Arizona, Merona, and Route 66. Factors that shape the competitive environment include quality of garment construction and design, brand name, style and color selection, price, fashion and other trends, avenue of purchase (including in stores and online), and the manufacturer’s ability to respond quickly to the retailer on a national basis.

Our business plan in the United States focuses on creating strategic alliances with major retailers for their sale of products bearing our brands through the licensing of our trademarks directly to retailers, engaging wholesalers to manufacture products bearing our brands and sell these products to retailers, and entering into franchise relationships with Flip Flop Shops retail store owners. Therefore, our degree of success is dependent on the strength of our brands, consumer acceptance of and desire for our brands, our licensees’ ability to design, manufacture and sell products bearing our brands and our franchisees’ ability to sell products bearing our or third-party brands, and the ability of our licensees and franchisees to respond to ever-changing consumer demands. Failures with respect to any of these factors could have a material adverse effect on our business prospects, financial condition, results of operations and liquidity. We cannot control the level of consumer acceptance of our brands and changing preferences and trends may lead customers to purchase other products. Further, we cannot control the level of resources that our licensees or franchisees commit to supporting our brands, and our licensees may choose to support products bearing other brands to the detriment of our brands because our agreements generally do not prevent our licensees from licensing or selling products of third parties, including our competitors. In addition, we compete with other companies owning established trademarks, which have entered into, and could continue to enter into, similar arrangements with retailers and wholesale manufacturers in the United States and internationally, including with our existing retail and wholesale partners, thereby competing with us for consumer attention, limited floor and rack space in the same stores in which our branded products are sold and time and resources of wholesale licensees that manufacture our products.

We are subject to risks related to the retail business that are applicable to our licensees and franchisees.

There are numerous risks and other factors applicable to the businesses of retailers (including our licensees and franchisees) that can impact the sale of products that bear our brands and, with respect to our franchisees, the sale of products bearing other brands from which we generate revenues. Any decline in sales by one or more of our licensees or franchisees could adversely affect our revenues.

Factors that may adversely affect our licensees and franchisees and their sales of products include the following, among others: (i) weather, environmental or other conditions that may impact consumer shopping activity in retail stores; (ii) consumer preferences regarding fashion trends and styles, which can be region-dependent and subject to rapid and significant fluctuations; (iii) consumer preferences regarding where to shop; (iv) the growth of online shopping and the ability of our licensees and franchisees to market and sell products through these avenues; (v) changes in the availability or cost of capital in light of the financial condition and capital requirements of our licensees and franchisees; (vi) shifts in the seasonality of shopping patterns; (vii) fluctuating retail prices; (viii) the reputation of or general consumer perceptions about the retailers that sell our brands; (ix) labor strikes or other interruptions that impact supply chains and transport vendors; (x) the impact of excess retail capacity; (xi) changes in the cost of accepting various payment methods and changes in the rate of utilization of these payment methods; (xii) material acquisitions or dispositions; (xiii) investments in new business strategies; (xiv) the success or failure of significant new business ventures or technologies; (xv) actions taken or omitted to be taken by legislative, regulatory, judicial and other government authorities and officials; (xvi) security breaches; (xvii) natural disasters, the outbreak of war, acts of terrorism or other significant national or international events; and (xviii) the other risks discussed in this Item 1A.

We rely on the accuracy of our licensees’ and franchisees’ retail sales reports for reporting and collecting our revenues, and if these reports are untimely or incorrect, our revenues could be delayed or inaccurately reported or collected.

Most of our revenues are generated from retailers who license our brands to manufacture and sell products bearing our brands in their stores and on their websites. In addition, we have a number of franchise agreements with franchisees of the Flip Flop Shops brand and we have arrangements with several wholesalers who license our brands to manufacture products bearing our brands and sell these products to retailers. Under our existing agreements, these licensees and franchisees pay us fees based in part on the value of products sold. We rely on our licensees and franchisees to accurately report the retail sales in collecting our license and franchise fees, preparing our financial reports, projections and budgets, and directing our sales and marketing efforts. All of our license and franchise agreements permit us to audit our licensees and franchisees. If any of our licensee or franchisee reports understate the retail sales of products they sell, we may not collect and recognize revenues to which we are entitled on a timely basis or at all, or may endure significant expense to obtain compliance.

We utilize various licensing and selling models in our operations, and our success is dependent on our ability to manage these different models.

In addition to our historical focus on our Direct to Retail licensing model,  we recently commenced franchise operations with our acquisition of the Flip Flop Shops brand and we intend to grow this business in the future, and we also recently entered into several new licensing arrangements with wholesalers and may seek to enter into additional wholesale arrangements in the future. Even though our pursuits of these wholesale and franchise models may diversify our sources of revenue, these models could themselves be unsuccessful and could divert management’s attention and other resources, including time and capital, from our historical focus on our Direct to Retail licensing strategy. As a result, our future success depends in part on our ability to successfully manage these multiple licensing and selling models.

If we are unable to manage our wholesale and franchise arrangements together with our Direct to Retail licensing model, then our financial condition and prospects would be harmed.

Our business is dependent on the success of our Direct to Retail licensing model.

Although we have recently commenced franchise operations and have pursued additional wholesale licensing arrangements, we have historically been focused on our Direct to Retail licensing model and it continues to be an important part of our operations. In Direct to Retail licensing, we grant retailers a license to use our trademarks on certain categories of merchandise. We believe the Direct to Retail licensing model has become more widely accepted by many retailers worldwide, and our business plan is based on the continued success of this model with our current licensees and with new retailers we may solicit to license our brands in new territories and additional product categories as we seek to expand this part of our business. However, our expectations regarding the Direct to Retail licensing model

may turn out to be wrong, and it may not grow as we anticipate. If our current or potential future retail licensees do not perceive our Direct to Retail licensing model to be advantageous to them, then they may move away from this model and instead embrace alternatives, such as purchasing from wholesalers or manufacturing private label products. Such a change in perception could occur for a variety of reasons, including reasons based on retailers’ beliefs or expectations that may not turn out to be accurate.

If our Direct to Retail licensing model ceases to be attractive to retailers, then we would be unable to continue to pursue this aspect of our business plan and our financial condition and performance could suffer material adverse effects.

Our business has historically been largely dependent on royalties from Target, which no longer sells Cherokee branded products.

Until January 31, 2017, Target had exclusive rights to Cherokee branded products for all product categories in the United States. Royalty revenues from Target’s sales of Cherokee branded products accounted for greater than 35% of our total revenues during each of Fiscal 2017, Fiscal 2016 and Fiscal 2015. However, our license agreement with Target covering sales of most Cherokee branded products in the United States expired on January 31, 2017. Our license agreement with Target covering sales of Cherokee branded products in the school uniforms category will expire at the end of its current term on January 31, 2018, and will continue to generate revenues to us until its expiration.

Replacing the royalty revenues received from Target for Cherokee branded products is a significant challenge, and we might not be successful in doing so. Even though we have entered into arrangements with wholesale licensees for sales of Cherokee branded products in the United States, which became operational at the beginning of Fiscal 2018, any increased revenues we may receive from these new wholesale licensees or any other licensees or franchisees may not be sufficient to offset the lost royalty revenues from Target. If we are not successful in replacing the Target’s royalty revenues with equal or greater royalties from other partners the termination of this license agreement could have a material adverse effect upon our revenues and cash flows.

We acquired the Liz Lange brand in part based upon our expectation that revenues from Target for this brand would grow in future periods, although such revenue growth may never occur. Target has informed us that it has elected to not renew the Liz Lange license agreement, which expires on January 31, 2018 at the end of the current term, Target will continue to pay royalties to Cherokee Global Brands until the expiration of the agreement.  Cherokee Global Brands has entered into a master license agreement with a third party for Liz Lange branded maternity products beginning in Fiscal 2019.

Our wholesale licensing arrangements subject us to a number of risks.

In our wholesale licensing relationships, we license our brands to manufacturers that produce and import various categories of apparel, footwear, home products and accessories under our trademarks and sell the licensed products to retailers. We have some historical wholesale licensees with respect to some of our brands and we have recently entered into several new wholesale arrangements, primarily covering our newly acquired Hi-Tec and Magnum brands and sales of products bearing our Cherokee brand in the United States. We believe these arrangements signal a significant shift in our strategy for sales of products bearing the Cherokee brand in the United States, which in the past have been governed by a DTR license agreement. Although we believe these new wholesale licensing arrangements will help to diversify our sources of revenue and licensee or other partner relationships and will provide additional avenues to obtain brand recognition and grow our Company, these expectations could turn out to be wrong. If we do not achieve the intended or expected benefits of these wholesale arrangements, our results of operations, liquidity and financial condition could be materially adversely affected. Moreover, we have less experience with the wholesale licensing model than the DTR licensing model and we may find it difficult to develop reliable forecasts and expectations regarding revenues from these arrangements, either of which could harm our business and our operating results.

The minimum annual royalty obligations under our wholesale license arrangements are significantly smaller than the minimum annual royalty obligations in some of our Direct to Retail licensing arrangements, including our former license agreement with Target and our license agreement with Kohl’s. Also, our new wholesale license

agreements for the Cherokee, Hi-Tec and Magnum brands are not subject to reducing royalty rates based on cumulative sales levels, as was our former license agreement with Target for the Cherokee brand. As we begin to recognize revenues from these new wholesale licensees and to the extent we pursue similar wholesale arrangements in the future, their lower minimum royalty obligations and consistent royalty rates could cause our performance and cash flows to be more strongly influenced by the seasonality of the retail business and thus subject to more material fluctuations between periods, and could also cause our aggregate annual royalty revenues to decline if retail sales volume for our brands decreases and we become dependent upon minimum royalty obligations.

Additionally, in wholesale arrangements, we have limited ability to control various aspects of the manufacturing process, including access to raw materials, the timing of delivery of finished products, the quality of finished products and manufacturing costs. Our wholesale licensees may not be able to produce finished products of the quality or in the quantities that are sufficient to meet retailer demand, in a timely manner or at all, which could result in an inability to generate revenue from any such products and loss of retailer confidence in our brands. On the other hand, wholesale licensees may produce inventory in excess of retailer and consumer demand, in which case over-supply may cause retail prices of products bearing our brands to decline. Additionally, there may be delays in the manufacturing process over which we may have no control, including shortages of raw materials, labor disputes, backlogs or insufficient devotion of resources to the manufacture of products bearing our brands. Further, we compete with other brand owners for the time and resources of our wholesale distributors, which could curtail or limit our ability to engage new or maintain relationships with existing wholesale licensee partners on acceptable terms or at all. Interruptions in the supply of products bearing our brands to retailers or lapses in quality could adversely impact our reputation and financial condition. Further, the unplanned loss of any of our wholesale licensees could lead to inadequate market coverage for retail sales of products bearing our brands, create negative impressions of us and our brands with retailers and consumers and add downward pressure on prices of products bearing our brands as a result of liquidating a former wholesaler’s inventory of such products.

Revenues from our Hawk Signature and Tony Hawk brands largely depend on Kohl’s for Fiscal 2018.

In January 2014, we acquired the Hawk Signature and Tony Hawk brands. Concurrently with this acquisition, we entered into a retail license agreement with Kohl’s, pursuant to which Kohl’s is granted the exclusive right to sell Tony Hawk and Hawk-branded apparel and related products in the United States. We agreed to this exclusive license in part based upon our expectation that revenues from Kohl’s for these brands will grow in future periods, although this expectation may turn out to be wrong and such revenue growth may never occur beyond the $4.6 million minimum annual royalty payment required under the license agreement, as amended.

The failure of our licensees or franchisees to sell products bearing our brands or that otherwise generate royalties to us, to pay us royalties for such products or to renew their license or franchise agreements with us could result in a decline in our results of operations.

Our revenues are dependent on royalty payments made to us under our license and franchise agreements. Although the license agreements for our brands in many cases provide for guaranteed minimum royalty payments to us, the failure of our licensees or franchisees to satisfy their obligations under their agreements with us, their decision to not renew their agreements with us or their inability to grow or maintain their businesses could cause our revenues to suffer. Further, while we historically have been dependent on our relationships with Target and Kohl’s, the concurrent failure by several of our other material licensees or franchisees to meet their financial obligations to us or to renew their respective license or franchise agreements could materially and adversely impact our results of operations and our financial condition.

Our acquisition of the Hi-Tec and Magnum brands and conversion of these brands to a new business model is subject to significant risks.

We acquired the Hi-Tec, Magnum and other associated footwear brands in December 2016. Before our acquisition, the Hi-Tec brands were operated under a full spectrum distribution model, meaning that one group of affiliated companies owned the brands and manufactured the products. In connection with our acquisition of these brands, we sold the associated operating assets to certain operating partners and/or distributors and entered into new

wholesale licensing arrangements with these operating partners and/or distributors. Through these transactions and our post-acquisition integration efforts, we are converting the Hi-Tec brands to a branded licensing model. Going forward, we primarily intend to pursue a wholesale licensing model for these brands.

The acquisition of these brands and our conversion of their distribution model to align with our brand licensing model are subject to significant risks, as these brands have not historically been marketed, distributed and sold in this manner and it is uncertain whether this model will be effective for these brands. As a result, we are not able to reliably forecast or predict the impact of these brands on our revenues or other aspects of our results of operations. Further, the roles and responsibilities of the parties in the distribution chain for these products, including our Company, as the licensor of the brands and overseer of high-level marketing strategies, the wholesalers we engage to manufacture and distribute products bearing these brands, and the retailers to which the wholesalers sell these products for ultimate resale to consumers, will be different following our conversion of these brands to our brand licensing model. The wholesalers we have engaged for these brands to date, which consist of former operating partners and/or distributors of these brands, may not be familiar with or accustomed to our brand licensing model and may not be successful in converting their distribution efforts to align with this model. Further, as we make efforts to expand these brands to new geographic and consumer markets, we expect to pursue new arrangements with additional wholesale licensees for these brands. However, as with any effort to expand into new markets, any new wholesalers we may engage in the future for these brands, as well as the retailers and consumers they reach, may not be familiar with the brands and may not accept them. Any such outcome could result in failures to sell products bearing these brands in volumes and at prices that generate expected levels of revenue to us.

Additional risks associated with our acquisition of these brands include, among others, the following: (i) we expect our strategy for these brands to focus on wholesale licensing, and as a result, our efforts to build this brand will be subject to all of the risks associated with wholesale arrangements, including our dependence on third parties that we do not control, our lack of significant experience with wholesale arrangements and the other risks of wholesale licensing discussed elsewhere in these risk factors; (ii) the geographic scope of these brands is more significant than many of our other brands, and as a result, these operations will amplify the risks related to the international scope of our business, including less effective and less predictable protection and enforcement of our intellectual property in some jurisdictions and the other risks associated with our international operations discussed elsewhere in these risk factors; (iii) our conversion of the business model for these brands will require significant efforts, costs and other resources, which will divert attention from our other brands and could cause the performance of our other brands to suffer; and (iv) the acquisition of these brands has already involved significant time and costs, including the cash purchase price for the assets and our other expenses associated with the transaction, which has forced us to increase our debt levels and use significant amounts of cash on-hand and which puts significant pressure on our liquidity, particularly in light of the risks associated with our ability to manage and grow these brands under a new licensing model.

In light of the significance of the risks related to our acquisition of the Hi-Tec, Magnum and associated footwear brands and our efforts to convert their distribution model, we may fail to achieve the intended benefits of our acquisition of these brands and we may never generate sufficient royalty revenues from these brands to recoup their costs. If any of these outcomes were to occur, our performance, financial condition and liquidity could be materially adversely affected.

Our indirect product sales of products bearing the Hi-Tec and Magnum brands involve risks, including certain collection and credit risks and decreased comparability of our operating results.

Since our acquisition of the Hi-Tec and Magnum brands in December 2016, we have been indirectly selling footwear bearing these brands to certain select wholesalers and government entities that are customers of these brands. In these relationships, the purchasers of the products place their product orders directly with us, which we then forward to a manufacturer for the manufacture and delivery of the products directly to the original purchaser. The wholesalers and government entities that purchase products under these arrangements submit payments directly to us for their product orders, the amount of which is typically determined based on a pre-established percentage mark-up to our cost, and we then pay the manufacturer of the purchased products for the cost of the order. As a result, we retain a percentage of the payments made to us by wholesalers and government entities.  In Fiscal 2017, we recorded a total of $6.6 million in

revenues from these indirect product sales, of which a total of $5.1 million was paid to manufacturers or distributors as a cost of the product sales.

Due to the payment structure for these arrangements, a significant portion of our revenues from indirect product sales is paid out to manufacturers as a cost of the product sales. Since the cost portion of these revenues, representing the product cost, are not retained by us, they are recorded as costs of goods sold in our consolidated financial statements and do not significantly increase our operating net income (loss). As a result, for as long as we maintain these indirect product sale arrangements, we may record increased revenues that do not materially increase our operating income (loss). The addition of indirect product sales to our business model, which has historically been exclusively focused on licensing and franchising relationships, could substantially reduce the comparability of our results of operations across periods and render such comparisons less meaningful.

In addition, although the product purchasers in these arrangements receive products directly from the manufacturer, which is similar to our wholesale licensing relationships, our indirect role in these product sales does not completely remove us from certain risks related to the manufacture and delivery of the products. For instance, since we are between the purchaser and the manufacturer in the product payment cycle, the wholesalers and government entities that purchase products under these arrangements may hold us financially responsible for product delivery failures or other similar events. Additionally, since these arrangements place us in direct contact, either through product order placement or receipt or payment of funds, with both the customer and the manufacturer of the products, we may be subject to increased credit risks based on these relationships. Moreover, serving as an intermediary between product customers and product manufacturers with respect to order placement and payment, and our role as such may expose us to additional risks of which we are not presently aware or we may not be able to effectively serve in this role. Further, although we intend to convert these indirect product sale arrangements to traditional direct or wholesale licensing relationships as the existing arrangements expire, the wholesalers and government entities with which we maintain these arrangements may not be amenable to a such a licensing relationship, in which case we could lose these customers or be required to maintain business relationships that would change our present business model. The occurrence of any of these risks could adversely affect our customer relationships and our performance.

Our franchise business exposes us to numerous risks.

In connection with our acquisition of the Flip Flop Shops brand in October 2015, we acquired, and became the franchisor under, a number of franchise agreements with franchisees of this brand. Many of these franchisees maintain one or more Flip Flop Shops retail stores located across the globe, including in the United States, Canada, the Caribbean, the Middle East and South Africa. This new Flip Flop Shops franchise business exposes us to a variety of risks, including, among others, that: (i) we may not be able to find capable and experienced franchisees who can implement the Flip Flop Shops brand concept and strategies we believe are necessary for the future growth of this brand or sell merchandise and operate stores in a manner consistent with our standards and requirements; (ii) even if we are able to attract capable franchise owners, these franchisees may not be able to open new Flip Flop Shops retail stores in a timely manner or manage and maintain them once opened, secure desirable site locations, obtain adequate financing, construct and develop new store locations without delays and attract qualified operating personnel; (iii) the third party brands that are sold at Flip Flop Shops stores could decline in popularity or decide to stop selling their merchandise at some or all of the Flip Flop Shops store locations; (iv) neighborhood or economic conditions or other demographic patterns where existing or new Flip Flop Shops stores are located could decline or otherwise change in a negative way; and (v) our franchise business is subject to complex and varying franchise laws and regulations imposed by the U.S. federal, state and foreign jurisdictions in which we operate, and we may need to devote significant costs and resources in order to learn and comply with these laws and regulations and we may be subject to various penalties, including monetary fines or other sanctions if we fail to comply with these laws and regulations. If any of these risks were to materialize, the reputation of the Flip Flop Shops brand or our other brands could be damaged, sales volume at one or more Flip Flop Shops store locations could decline, existing store locations may close or new may store locations may fail to open at expected rates or at all, the Flip Flop Shops brand name may not grow as we anticipate, or our franchise revenues relating to this brand could be limited, curtailed or reduced, any of which could harm our performance and prospects.

Our business may be negatively impacted by general economic conditions.

Our performance is subject to worldwide economic conditions and the corresponding impact on levels of consumer spending, which may affect our licensees’ and franchisees’ retail sales. It is difficult to predict future levels of consumer spending and any such predictions are inherently uncertain. Many factors affect the level of consumer spending in the apparel industries, including, among others, prevailing economic conditions, levels of employment, salaries and wage rates, energy costs, interest rates, the availability of consumer credit, taxation and consumer confidence in future economic conditions. Further, the worldwide apparel industry is heavily influenced by general economic cycles. Purchases of apparel, footwear and accessories tend to decline in periods of recession or uncertainty regarding future economic prospects, as disposable income typically declines. As a result, during periods of economic uncertainty, slowdown or recession, the risks associated with our business are generally more acute. For instance, general uncertainty in U.S. economic, political, regulatory, and market conditions has increased following the results of the 2016 U.S. presidential election due to the unpredictability of the policies and direction of the new administration, and these uncertainties may result in decreased confidence in the U.S. or global economy and decreased levels of consumer spending. In addition to decreased consumer spending generally, these periods of uncertainty, slowdown or recession may be accompanied by decreased demand for, or additional downward pricing pressure on, the products carrying our brands. Accordingly, any prolonged economic slowdown, a lengthy or severe recession or any other negative trend in either the U.S. or the global economy is likely to have a material adverse effect on our results of operations, financial condition and business prospects.

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

Many of our licensees and franchisees are located outside the United States, as we franchise our Flip Flop Shops brand and market and license our other brands outside the United States. As a key component of our business strategy, we intend to expand our international sales as well as the support we provide our international licensees and franchisees. During Fiscal 2017, approximately 37% of our revenues were derived from our international licensees and franchisees. In addition, our business associated with our newly acquired Hi-Tec family of footwear brands is managed and operated by our Dutch subsidiary that we formed for the purpose of the acquisition.

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 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 new administration, including withdrawal from the Trans-Pacific Partnership and proposed revision to the North American Free Trade Agreement; (vi) difficulties in 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 in collecting accounts receivable; (x) less effective and less predictable protection and enforcement of our intellectual property 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 such factors could cause our future international sales 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 Foreign Corrupt Practices Act and applicable foreign anti-bribery laws, any violation of which could subject us to significant fines, criminal sanctions and other penalties.

Additionally, and because the majority of our international revenue is denominated in U.S. dollars, fluctuations in the value of the U.S. dollar relative to the foreign currencies of our international licensees’ or franchisees’ operations may negatively impact our royalty revenues. The main foreign currencies we encounter in our operations are the

Mexican Peso, the EURO, the Great British Pound, the South African Rand, the Japanese Yen, the Chinese Yuan, and the Canadian Dollar. We do not currently engage in currency hedging activities to limit the risk of exchange rate fluctuations.

We have contracts with government entities that are subject to unique risks.

We have, and expect to maintain, long-term contracts with various foreign government entities, which primarily relate to our Hi-Tec family of footwear brands. In addition to normal business risks, including the other risks discussed in these risk factors, our contracts with government entities are often subject to unique risks, some of which are beyond our control. For instance, long-term government contracts and related orders are subject to cancellation if adequate appropriations for subsequent performance periods are not made. As a result, the termination of funding for a government program supporting any of our government contracts could result in a loss of anticipated future revenue attributable to that contract, which could have a negative impact on our operations. In periods of global or local political tension or unrest or decreased spending, these risks could be amplified. In addition, government entities with which we contract are often able to modify, curtail or terminate contracts with us at their convenience and without prior notice and would only be required to pay for work completed and commitments made at the time of termination. Any such modification, curtailment or termination of significant government contracts could have a material adverse effect on our results of operations and financial condition.

Our business and the success of our products could be harmed if we are unable to maintain the strength of our brands.

Our success to date has been due in large part to the strength of our brands. If we are unable to timely and appropriately respond to changing consumer demand, the strength of our brands may be impaired. Even if we react appropriately to changes in consumer preferences, consumers may consider one or more of our brands to be outdated or associate one or more of our brands with styles that are no longer popular. In the past, many apparel companies have experienced periods of rapid growth in sales and earnings followed by periods of declining sales and losses. Our business may be similarly affected in the future.

We have identified material weaknesses in our internal control over financial reporting, which could adversely affect our business and reputation and could, if not remediated, result in material misstatements in our financial results.

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. As disclosed in Item 9A of this Annual Report, management has identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis. As a result of these material weaknesses, our management concluded that our internal control over financial reporting was not effective as of January 28, 2017. This conclusion could cause investors to lose confidence in the reliability of our reported financial information, which could result in a significant decline in the market price of our common stock. Additionally, our reputation with lenders, retailers, investors, securities analysts and others may be adversely affected. Moreover, these effects could continue even after we have determined that the identified material weaknesses are remediated.

Although we have developed and initiated a remediation plan designed to address the material weaknesses we have identified, this plan may not be fully implemented in a timely or effective manner, the remedial measures included in the plan will involve significant time and costs and will distract management from our core business operations, and these remedial measures could be insufficient to address the material weaknesses. In addition, even if we are successful in strengthening our controls and procedures, these controls and procedures may not be adequate in future periods and additional material weaknesses or significant deficiencies in our internal control could occur or be discovered. If any of these risks were to occur, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results. Any such restatement could lead to substantial additional costs for accounting and legal fees and litigation, significant reputational harm and material declines in our stock price.

Compliance with changing securities laws, regulations and financial reporting standards could increase our costs and pose challenges for our management team, and any compliance failures could materially harm our business.

Existing laws, regulations, listing requirements and other standards relating to corporate governance and public disclosure significantly increase the costs and risks associated with operating as a publicly traded company in the United States. Our management team devotes significant time and financial resources to try to comply with existing and evolving standards for public companies. However, notwithstanding our efforts, we have failed to comply with the SEC’s reporting deadlines applicable to this Annual Report, and it is possible that additional financial and other public reports we are obligated to file in the future also may not be considered timely, accurate or complete. In order to re-establish compliance with our public reporting requirements, we intend to hire additional personnel, engage consultants or other third-party advisors and change our internal practices, standards and policies, which could significantly increase our costs and divert management’s time and attention from revenue-generating activities. In addition, noncompliance with these reporting requirements could subject us to sanctions or investigation by regulatory authorities, such as the SEC, which could involve fines or other penalties, and could also adversely affect our financial results, result in a loss of investor confidence in the reliability of our financial information and other public disclosures and jeopardize the listing of our common stock on the NASDAQ Global Select Market, as described below. If any of these risks were to occur, our business and reputation could be materially adversely affected and the market price of our common stock could materially decline.

Further, the SEC has passed, promulgated or proposed new rules on a variety of subjects, including, for example, with respect to the preparation and filing of financial statements, establishment or disclosure of clawback and hedging policies and disclosure of executive compensation information. The existence of new and proposed laws and regulations relating to financial reporting or other disclosure obligations or that impose additional or more stringent compliance requirements could create uncertainties for public companies, make it more difficult to attract and retain qualified executive officers and members of our Board of Directors, particularly to serve on our audit and compensation committees, and generate significantly increased costs if we are required to add additional accounting or other staff, engage consultants or change our internal practices in order to comply with the new requirements. The occurrence of any of these outcomes could significantly harm our business, financial condition and performance.

We are dependent on our intellectual property, and we may not be able to successfully protect our rights or we may become involved in costly legal proceedings regarding our intellectual property rights or the intellectual property rights of third parties.

We hold various trademarks for our brands, including Cherokee, Hi-Tec, Magnum, 50 Peaks, Interceptor, Hawk Signature, Tony Hawk, Liz Lange, Completely Me by Liz Lange, Flip Flop Shops, Everyday California, Carole Little, Sideout and others in connection with apparel, footwear, home and accessories. These trademarks are vital to the success and future growth of our business. These trademarks are registered with the United States Patent and Trademark Office and corresponding government agencies in numerous other countries and we also hold trademark applications for these brands in a number of other countries, although the laws of many countries may not protect our intellectual property rights to the same extent as the laws of the United States and, as a result, adequate protection in these jurisdictions may be unavailable or limited. These actions taken by us to establish and protect our trademarks and other proprietary rights might not prevent imitation of our products, infringement of our intellectual property rights by unauthorized parties or other challenges to our intellectual property ownership, or prevent the loss of licensing or franchise revenue or other damages caused thereby, including a reduction in value of our licenses that could make it easier for competitors of our licensees to capture increased market share. If any of these events occurs, our business prospects, financial condition, results of operations and liquidity could be materially harmed. In the future, we may be required to assert infringement claims against third parties, and one or more parties may assert infringement claims against us. Any resulting litigation could result in significant expense and divert the efforts of our management personnel whether or not such litigation is determined in our favor. Further, if any adverse ruling in any such matter occurs, any resulting limitations in our ability to market or license our brands could reduce the value of our licenses and our intellectual property assets and otherwise have a material adverse effect on our business, financial condition and results of operations.

We may become involved in other litigation or government or administrative proceedings that may materially affect us.

From time to time, we may become involved in various legal proceedings relating to matters incidental to the ordinary course of our business, including commercial, employment, class action and other litigation and claims. We may also be the subject of government and other regulatory investigations, audits and proceedings, including in connection with any claim of our violation of the laws, rules and regulations applicable to our business, such as federal, state and foreign franchise laws, anti-bribery laws and work safety and labor laws, among others. Such matters can be time-consuming, divert management’s attention and resources and cause us to incur significant legal and other expenses. Furthermore, because litigation and administrative or government proceedings are inherently unpredictable, any of these proceedings could result in unfavorable outcomes, which could include monetary damages or fines and other sanctions. Any such result could have a material adverse effect on our business, results of operations or financial condition.

We are dependent on our key management personnel.

Our success is highly dependent upon the continued services of our key executives, consisting of Henry Stupp, our Chief Executive Officer and a member of our board of directors (“Board of Directors”), Howard Siegel, our President and Chief Operating Officer, and Jason Boling, our Chief Financial Officer, as well as certain of our other key employees, including Ed van Wezel, the Chief Executive Officer of our subsidiary that manages our Hi-Tec family of footwear brands, Martin Binnendijk, the President and Chief Operating Officer of our subsidiary that manages our Hi-Tec family of footwear brands, and Brian Curin, the President of our subsidiary that manages our Flip Flop Shops franchise operations. We have a limited number of employees, and Mr. Stupp’s and our other executives’ leadership and experience in the apparel licensing industry, Mr. Curin’s expertise in the franchising industry, and Messrs. van Wezel’s and Binnendijk’s experience with our newly acquired Hi-Tec family of footwear brands are important to the successful implementation of our business and marketing strategy. We do not carry key person life insurance covering any of our executives or other employees. The loss of the services of Mr. Stupp or our other executives or key employees could have a material adverse effect on our business prospects, financial condition, results of operations and liquidity.

We may encounter difficulties in connection with acquisitions or other strategic transactions and we may not realize the expected benefits from these transactions.

We regularly evaluate opportunities to acquire or represent new brands. During our three most recently completed fiscal years, we have completed three such acquisitions: our acquisition of the Everyday California Lifestyle brand in May 2015; our acquisition of the Flip Flop Shops brand in October 2015; and our acquisition of the Hi-Tec and Magnum brands in December 2016. We expect to continue to consider opportunities to acquire or make investments in other brands or to engage in other strategic transactions that could enhance our portfolio of products and services or expand the breadth of our markets. Our experience integrating acquired assets and businesses is limited, and we may not be successful in realizing the expected benefits from an acquisition. Our future success depends, in part, upon our ability to manage an expanded portfolio of brands, which could involve significantly increased costs and pose substantial challenges for management.

Acquisitions and other strategic transactions can involve numerous risks and potential difficulties, including, among others: (i) problems assimilating new brands or other assets; (ii) problems maintaining and enforcing standards, procedures, controls, policies and information systems; (iii) difficulties and costs in combining the operations and personnel of any acquired businesses with our operations and personnel, including any failure to retain key employees, customers, vendors, manufacturers or other service providers or partners of any acquired businesses, any failure to convert and integrate acquired assets into our branded licensing business model, and challenges forecasting revenues and expenses for newly acquired brands; (iv) significant or unanticipated costs associated with an acquisition, including incurrence of contingent liabilities, amortization charges associated with acquired assets, wirte-offs of goodwill or trademarks, capital expenditures and accounting, legal and other transaction expenses; (v) any inability to realize the intended synergies and other benefits of an acquisition or transaction, particularly if our assumptions about sales, revenues, operating expenses and costs of acquired assets or businesses turn out to be wrong; (vi) diversion of management’s attention from our core business or our existing brand portfolio; (vii) adverse effects on existing business relationships with our partners; (viii) risks associated with foreign acquisitions or otherwise entering new geographic or

customer markets, such as our acquisition of the Hi-Tec and Magnum brands in December 2016, including regional differences in consumer preferences, branding standards and the general conduct of business, less effective and less predictable protection and enforcement of intellectual property in some foreign jurisdictions and other risks related to doing business outside the United States; and (ix) risks associated with new types of business arrangements in which we have no or limited prior experience, such as our acquisition of franchise agreements and entry into the franchising business upon our acquisition of the Flip Flop Shops brand in October 2015. Accordingly, our recent acquisitions as well as any future transactions that we pursue may not result in the anticipated benefits and could have a material adverse effect on our business, results of operations, financial condition and prospects.

In addition, future acquisitions may require us to obtain additional equity or debt financing, which may not be available when needed, on favorable terms or at all. If we seek to finance future acquisitions or other strategic transactions by issuing equity or convertible debt securities or by incurring other types of indebtedness, we may experience the risks associated with these transactions that are described in these risk factors below. Further, we may seek such financing from sources that expose us to additional risks, such as our receivables funding loan agreement entered into with one of our directors, Mr. Jess Ravich, in December 2016 in connection with our acquisition of the Hi-Tec and Magnum brands, which creates a conflict of interest between us and Mr. Ravich that could have negative effects. Any of these effects could harm our operating results or financial condition.

We have incurred a significant amount of indebtedness to pay the cash consideration for our recent acquisitions. Our level of indebtedness, and restrictions under such indebtedness, could adversely affect our operations and liquidity.

We entered into a credit facility with Cerberus Business Finance, LLC (“Cerberus”) in December 2016. As of the date of this report, approximately $45.0 million in principal amount is outstanding under our term loan facility with Cerberus. As of the date of this report, we also have $5.0 million outstanding on our revolving credit facility with Cerberus. Our outstanding indebtedness under the Cerberus credit facility is due in December 2021.

The Cerberus credit facility imposes various restrictions and covenants regarding the operation of our business, including covenants that require us to obtain Cerberus’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 Cerberus credit facility also imposes financial covenants that set financial standards we will be required to maintain. Further, as collateral for the Cerberus credit facility, we have granted a first priority security interest in favor of Cerberus in substantially all of our assets (including trademarks), and our indebtedness is guaranteed by our subsidiaries. If an event of default occurs under the credit facility, that is not forborne, or cured or waived in accordance with the terms of the credit facility, Cerberus 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. We obtained a waiver to this credit facility on April 28, 2017, due the late filing of the Company’s Fiscal 2017 Form 10-K. Our failure to comply with the terms of our indebtedness could have a material adverse effect to our business, financial condition and liquidity.

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

In addition, our level of indebtedness generally could adversely affect our operations and liquidity, 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 and 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 working capital, product development, capital expenditures, brand acquisitions and other general corporate purposes as and when needed, which could force us to suspend, delay or curtail business prospects, strategies or operations.

Our future capital needs may be uncertain and we may need to raise additional funds in the future, and such funds may not be available when needed,  on acceptable terms or at all.

Our capital requirements in future periods may be uncertain and could depend upon many factors, including, among others: acceptance of, and demand for, our brands; the costs of developing new brands; the extent to which we invest in new brands; the number and timing of our acquisitions and other strategic transactions; the costs associated with our expansion, if any; and the costs of litigation and enforcement activities to defend our trademarks. In the future, we may need to raise additional funds, and such funds may not be available when needed, on favorable terms, or at all. If we issue equity or convertible debt securities to raise additional funds, as we did with our public offering of our common stock in December 2016, our existing stockholders would experience dilution and the new equity or debt securities may have rights, preferences, and privileges senior to those of our existing stockholders, and if we incur additional debt to raise funds, as we did with our new credit facility with Cerberus entered into in December 2016, we may become over-leveraged and our ability to operate our business may be restricted by the agreements governing the debt. Further, we may incur substantial costs in pursuing future capital transactions, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs.

Moreover, our late filing of this Annual Report renders us ineligible to register the offer and sale of our securities using a registration statement on Form S-3, and we will not regain such eligibility until we have timely filed our periodic reports with the SEC for 12 consecutive calendar months. We do not know when we will meet this requirement, which depends upon our ability to file our periodic reports on a timely basis in the future. If we seek to raise capital through an offering of our securities while we remain ineligible to use Form S-3, our inability to use this form could limit our financing alternatives, reduce our ability to access capital in a timely manner and increase our transaction costs, any of which could make it more difficult to execute any such transaction successfully and could have an adverse effect on our financial condition.

If we cannot raise funds when needed, on acceptable terms or at all, we may not be able to develop or enhance our products and services, execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements. This may materially harm our business, results of operations and financial condition.

Our strategic and marketing initiatives may not be successful.

In recent periods, we have invested significant funds and management time in furtherance of our global strategic and marketing initiatives, which are designed to strengthen our brands, assist our licensees in generating increased sales of products bearing our brands and build value for our stockholders over the long term. We expect to continue and, in some cases, expand such initiatives in future periods. While we are hopeful that our efforts in executing on these initiatives will expand our business and build stockholder value over the long-term, we may not be successful in doing so and such initiatives may not result in the intended benefits. Any failure by us to execute on our strategic initiatives, or the failure of such initiatives to cause our revenues to grow, could have a materially adverse impact on our operating results and financial performance.

We must successfully maintain and/or upgrade our information technology systems.

We rely on various information technology systems, including our Enterprise Resource Planning system, to manage our operations, which subjects us to inherent costs and risks associated with maintaining, upgrading, replacing and changing these systems, including impairment of our information technology, potential disruption of our internal control systems, substantial capital expenditures, demands on management time and delays or difficulties in upgrading existing systems, transitioning to new systems or integrating new systems into our current systems. If any of these risks were to materialize, our operations could be disrupted and our performance could be harmed.

Our business and operations would suffer in the event of cybersecurity and other system failures.

Despite the implementation of security measures, our internal computer systems and those of our licensees and franchisees are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Although we have not experienced any such cybersecurity or system failure, accident or breach to date, some of our licensees, including Target, have experienced such events in the past. If such an event were to occur to our internal systems, it could result in a material disruption of our operations, substantial costs to rectify or correct the failure, if possible, loss of or damage to our data or applications, inappropriate disclosure of confidential or proprietary information or the incurrence of other material liabilities. If such events were to occur to our licensees’ or franchisees’ systems, our royalty revenues could be reduced or disrupted due to decreased sales of our branded products as a result of reputational damage, diversion of costs and other resources from selling products bearing our brands or inability of our licensees or franchisees to calculate royalties or generate royalty reports. Any of these events could severely harm our business, results of operations and prospects.

Changes in our effective tax rates or tax provisions or adverse outcomes resulting from examination of our income tax returns could adversely affect our net income.

We are subject to income tax in the United States, California and certain other state jurisdictions. In addition, following our acquisition of the Hi-Tec family of footwear brands, we are also subject to taxation in several foreign jurisdictions, which may have unusual, unfamiliar or particularly burdensome tax laws. Our new global tax structure could be negatively impacted by various factors, including changes in the tax rates in jurisdictions in which we earn income or changes in tax laws or interpretations of tax laws in the jurisdictions in which we operate, all of which could impact our future effective income tax rates. Our effective tax rates could also be adversely affected in the future by changes in the valuation of our deferred tax assets and liabilities. Any increase in our effective tax rate could adversely affect our future reported financial results or the way in which we conduct our business.

Significant judgment is required in determining our provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Further, we may be audited by tax authorities, which could evaluate and disagree with our judgments regarding our tax provisions. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be expensive to defend and materially different from our historical income tax provisions and accruals. The results of an audit or litigation could materially affect our income tax provision, net income or cash flows in the period or periods for which that determination is made.

Risks Related to Our Common Stock

The trading price of our stock may be volatile and shares of our common stock are relatively illiquid.

The trading price of our common stock is likely to be subject to fluctuations as a result of various factors impacting our business, including, among others: (i) our financial results; (ii) the successful completion of any acquisition or strategic transaction, including the integration of the acquired assets or businesses into our existing business and realization of synergies and other benefits of the acquisition or transaction; (iii) announcements by us, our retail partners or our competitors, as applicable, regarding or affecting the retail environment either domestically or internationally, the reputation of our brands, our existing or new license agreements and brand representations or acquisitions, strategic alliances or other transactions; (iv) recruitment or departure of key personnel; (v) changes in the estimates of our financial results or changes in the recommendations of any securities analysts that elect to follow our common stock; (vi) any material weaknesses in our internal control over financial reporting, including the material weaknesses we identified as of January 28, 2017 that are described elsewhere in these risk factors, or any failures to comply with applicable public reporting requirements, as has occurred with this Annual Report and as is described elsewhere in these risk factors; (vii) market conditions in the retail industry and the economy as a whole; and (viii) the other risks described in these risk factors.

Further, as a result of our relatively small public float, our common stock may be less liquid than the common stock of companies with broader public ownership. Among other things, trading of a relatively small volume of our

common shares may have a greater impact on the trading price for our common stock than would be the case if our public float was larger.

We are not in compliance with NASDAQ’s requirements for continued listing, and if NASDAQ does not concur that we have adequately remedied our non-compliance with applicable listing rules, our common stock may be delisted from trading on the NASDAQ Global Select Market, which could have a material adverse effect on us and our stockholders.

On May 3, 2017, we received a deficiency letter from The NASDAQ Stock Market (“NASDAQ”) indicating that, as a result of not filing this Annual Report in a timely manner, we were not in compliance with NASDAQ Listing Rule 5250(c)(1) for continued listing on the NASDAQ Global Select Market. The deficiency letter indicated that we have until July 3, 2017 to submit a plan to regain compliance with NASDAQ’s continued listing standards; however, we believe our filing of this Annual Report has resulted in our regained compliance with NASDAQ’s continued listing standards and has eliminated the need to submit such a compliance plan. Although we believe that, as of our filing of this Annual Report, we are currently in compliance with NASDAQ’s continued listing requirements, we could fail to comply with these requirements again in the future. In that case, we would receive additional deficiency letters from NASDAQ and our common stock could be delisted from trading on the NASDAQ Global Select Market, which could severely limit the liquidity of our common stock and materially adversely affect the price of our common stock.

We may not pay dividends regularly or at all in the future.

The determination regarding the payment of dividends is subject to the discretion of our Board of Directors, and therefore we may not pay any dividends in future periods, whether or not we generate sufficient cash to do so. In addition, pursuant to our credit facility with Cerberus, subject to limited exceptions, we are prohibited from paying dividends or making other distributions to our stockholders without Cerberus’s consent. As a result, any return on an investment in our common stock may be limited to an appreciation in the value of our common stock.

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

The sale by our stockholders of substantial amounts of our common stock in the public market or the perception that such sales could occur upon the expiration of any statutory holding period, such as under Rule 144 under the Securities Act, or upon expiration of any lock-up periods applicable to outstanding shares, including under the lock-up agreements entered into in connection with our public offering of our common stock in December 2016, or upon our issuance of shares upon the exercise of outstanding options or warrants or the vesting of restricted stock units, could cause the market price of our common stock to fall. The availability for sale of a substantial number of shares of our common stock, whether or not sales have occurred or are occurring, also could make it more difficult for us to raise additional financing through the sale of equity or equity-related securities in the future when needed, on acceptable terms or at all.

Our Certificate of Incorporation allows our Board of Directors to issue up to 1,000,000 shares of “blank check” preferred stock.

Our Certificate of Incorporation allows our Board of Directors to issue up to 1,000,000 shares of “blank check” preferred stock, without action by our stockholders. Subject to the restrictions under our new credit facility with Cerberus, such shares of preferred stock may be issued on terms determined by our Board of Directors in its discretion, and may have rights, privileges and preferences superior to those of our common stock. For instance, such shares of preferred stock could have liquidation rights that are senior to the liquidation preference applicable to our common stock, could have superior voting or conversion rights, which could adversely affect the voting power of the holders of our common stock, or could have other terms that negatively impact the voting control or other rights of our common stockholders. Additionally, the ownership interest of holders of our common stock would be diluted following the issuance of any shares of our preferred stock. Further, the preferred stock could be utilized, under certain circumstances, as a method for discouraging, delaying or preventing a change in control of our Company.

We may fail to meet publicly announced financial guidance or other expectations about our business, which would cause our common stock to decline in value.

From time to time, we provide forward-looking financial guidance to our investors. Such statements are based on our current views, expectations and assumptions and involve known and unknown risks and uncertainties that may cause actual results, performance, achievements or share prices to be materially different from any future results, performance, achievements or share prices expressed or implied by such statements. Such risks and uncertainties include, among others: changes to the assumptions used to forecast or calculate such guidance; risks related to acquisitions or strategic transactions we may pursue in the future, including the risk that we do not realize the anticipated benefits of any such transaction; and risks related to our performance and our branded licensing business model.

Item 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

Item 2. PROPERTIES

We lease an 11,399 square foot office facility in Sherman Oaks, California, which serves as our corporate headquarters. In February 2016, we exercised our right to renew this lease for an additional five-year term, which began on November 1, 2016 and will end on October 31, 2021, subject to our option to renew the lease for an additional five years thereafter. Our monthly base rent under this lease is currently $30,663. We also lease a 3,850 square foot office facility in Minneapolis, Minnesota. The current term of this lease ends on June 30, 2018, subject to our option to renew for an additional three-year term, and our monthly base rent under this lease is currently $4,013. Beginning in March 2016, we are no longer occupying our Minnesota office facilities and we entered into an agreement to sublease a portion of such facilities to a third party, pursuant to which we receive $1,886 in monthly rent. We also lease a 2,032 square foot office facility in Huntington Beach, California. The lease for our Huntington Beach office facilities was early terminated and is set to expire in August 2017.  Our monthly base rent under this lease is currently $2,736. These lease agreements include provisions allowing for early termination under certain conditions.

Our Hi-Tec subsidiary, acquired in December 2016, leases a 24,251 square foot office facility in Amsterdam, Netherlands, which serves as Hi-Tec’s corporate headquarters. Our monthly base rent under this lease is currently $36,621 and the lease expires on December 31, 2026. This subsidiary also has a lease in Modesto, California for a 111,992 square foot warehouse, which was used by our licensee, Carolina Footwear, during the transition period. Upon their departure we expect to sublease this location. The current term of this lease ends on September 30, 2024 and the monthly base rent under this lease is currently $43,688.  We also have one office in Tigard, Oregon for 8,123 square feet with a monthly base rent of $13,218 which expires on July 31, 2020.  The Tigard office was used by our licensee, Carolina Footwear, during the transition period.  Upon their departure we expect to sublease this location.

Item 3. LEGAL PROCEEDINGS

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.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information, Dividends and Holders

Our common stock trades on the NASDAQ Global Select Market under the trading symbol “CHKE”. The table below sets forth, for each of the fiscal quarters during our two most recently completed fiscal years, the range of the high and low sales prices for our common stock and the cash dividends declared and paid per share, if any.

As of April 20, 2017, the approximate number of stockholders of record of our common stock was 65. This figure does not include an indeterminable number of beneficial holders whose shares may be held of record by brokerage firms and clearing agencies.

In the future, from time to time, our Board of Directors may declare cash dividends depending upon Cherokee Global Brands’ financial condition, results of operations, cash flow, capital requirements, compliance with our credit facility with Cerberus and other factors deemed relevant by our Board of Directors. See Note 10 to our consolidated financial statements included in this Annual Report for more information about the restrictions on dividends contained in our credit facility with Cerberus.

Common Stock Performance

The following performance graph shall not be deemed to be “soliciting material” or "filed" for purposes of Section 18 of the Exchange Act, or incorporated by reference into any filing under the Securities Act or the Exchange Act, unless it is specifically incorporated by reference into any such filing. The graph is required by applicable SEC rules and is not intended to forecast or be indicative of possible future performance of our common stock.

Due to the nature of our business, we do not believe that a comparable peer group of publicly‑traded licensing companies exists. As a result, we have compared the return on investment in our common stock to the NASDAQ Composite Index and the S&P 100 Stock Index.

The table and the graph below compare the cumulative total stockholder return on our common stock with the cumulative total return of the NASDAQ Composite Index and the S&P 100 Stock Index for the period commencing January 28, 2012 and ending on January 28, 2017. The data set forth below assumes a $100 investment in our common stock and each index on January 28, 2012 and the reinvestment of all dividends.

Item 6. SELECTED FINANCIAL DATA

The following selected consolidated financial information has been taken or derived from our audited consolidated financial statements included in this Annual Report. This information may be subject to factors that affect the comparability of the information and these historical results are not necessarily indicative of results to be expected in the current period or in future periods. This information should be read together with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included in Item 8, “Consolidated Financial Statements and Supplementary Data” in this Annual Report.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read together with the consolidated financial statements and the related notes included in this annual report on Form 10‑K (the “Annual Report”). In addition to historical information, the following discussion and analysis contains forward‑looking statements. Forward-looking statements are statements other than historical facts that relate to future events or circumstances or our future performance. Forward-looking statements are based on our current views, expectations and assumptions that may cause actual results, performance, achievements or share prices to be materially different from any future results, performance, achievements or share prices expressed or implied by the forward‑looking statements. Such risks and uncertainties include, among others, the risks described in Item 1A, “Risk Factors” in this Annual Report. You should not place undue reliance on the forward‑looking statements we make because some or all of them may turn out to be wrong.

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, as used herein, “Fiscal 2018” refers to the fiscal year ending February 3, 2018; “Fiscal 2017” refers to the fiscal year ended January 28, 2017; “Fiscal 2016” refers to the fiscal year ended January 30, 2016; and “Fiscal 2015” refers to the fiscal year ended January 31, 2015.

We have a 52‑ or 53‑week fiscal year ending on the Saturday nearest to January 31, which aligns with our retail licensees who generally also operate and plan using such a fiscal year. This results in a 53‑week fiscal year approximately every four or five years. Each of Fiscal 2017, Fiscal 2016 and Fiscal 2015 was a 52‑week fiscal year, and Fiscal 2018 will be a 53-week fiscal year. Certain of our international licensees report royalties to us for quarterly and annual periods that may differ from ours.  We do not believe that the varying quarterly or annual period ending dates from our international licensees have a material impact upon our reported financial results, as these international licensees maintain comparable annual periods in which they report retail sales and royalties to us on a year‑to‑year basis.

Overview

Cherokee Global Brands is a global marketer and manager of a portfolio of fashion and lifestyle brands it owns or represents, licensing the Cherokee, Hi-Tec, Magnum, 50 Peaks, Interceptor, Hawk Signature, Tony Hawk, Liz Lange, Completely Me by Liz Lange, Flip Flop Shops, Everyday California, Carole Little, and Sideout brands and related trademarks and other brands in multiple consumer product categories and sectors. 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 has made us one of the leading global licensors of style-focused lifestyle brands for apparel, footwear, home products and accessories.

We have entered into license agreements with recognizable retail partners in their respective global locations to provide them the rights to design, manufacture and sell products bearing our brands and to provide them access to our proprietary 360-degree platform. We refer to this strategy as our “Direct to Retail” or “DTR” licensing model. We have also entered into wholesale arrangements for the manufacture and sale of products bearing certain of our brands, including nine new wholesale arrangements with distributors that started to sell products bearing our Cherokee brand at retail in the United States at the beginning of Fiscal 2018 and wholesale arrangements for our newly acquired Hi-Tec and Magnum brands and we conduct indirect product sales to select wholesalers and government entities for our Hi-Tec and Magnum brands. In addition, we have franchise relationships for the Flip Flop Shops brand with franchisees that operate Flip Flop Shops retail stores located worldwide.

We believe that the Direct to Retail licensing model generally offers each licensee, or retailer, the exclusive right to market multiple categories of products with a recognized brand within their territory, thereby offering licensees the ability to enhance their marketing strategies and achieve a competitive advantage over competing retailers. This differentiation can also provide the retailer/licensee an opportunity to command a “premium” over private label price points, which can result in increased profit margins, even after royalties have been paid to the licensor. The licensees generally directly source their own inventory, thereby eliminating the licensor’s exposure to inventory and

manufacturing risk while allowing the licensees to benefit from large economies of scale. In addition, we believe that our wholesale licensing and franchise relationships will help to diversify our sources of revenue and licensee or other partner relationships and will provide additional avenues to obtain brand recognition and grow our Company, including the opportunity to further expand the reach of our brands into markets where a DTR licensing model may not be the most effective approach.

We believe our retail responsiveness process and 360-degree value proposition have allowed Cherokee Global Brands to address the growing power of the consumer and the present and future needs of the retailers that are selling our portfolio of lifestyle brands. Based on consumer research, retail insights and brand insights that we continually measure, evaluate and incorporate into our 360-degree platform, we believe Cherokee Global Brands has become a key strategic partner to our licensees. As of January 28, 2017, we had 124 continuing license agreements in over 110 countries, 24 of which pertained to the Cherokee brand and 81 of which pertain to the Hi-Tec and Magnum brands.

We are guided by three value pillars that speak to our diverse global partners, Vision, Agility, Scale:

Vision—Brand vision that will drive differentiation and a fresh point of view to engage customers across every touch point and in multiple categories.

Agility—The agility of our unique 360-degree platform to quickly seize opportunity and swiftly introduce our branded products.

Scale—The ability to fully leverage our brands’ physical and digital spaces with multi-category relevancy and with globally recognized brands that drive a seamless customer experience.

We derive revenues primarily from licensing our trademarks to retailers and wholesalers all over the world. Our current licensee relationships cover over 110 countries and over 12,000 retail stores and online businesses and include relationships with Walmart, Target Corporation (“Target”), Kohl’s Illinois, Inc. (“Kohl’s”), Soriana, Comercial Mexicana, TJ Maxx, Tottus, Pick N Pay, Nishimatsuya Walmart, Big 5, Academy, JD Sports, Black’s, and REI. Our two most significant licensees in Fiscal 2017, Fiscal 2016, and Fiscal 2015 were Target and Kohl’s.

Major Factors Affecting Our Performance

Terms of Royalty Arrangements

Generally, royalty rates for our Direct to Retail license agreements vary as a percentage of the retailer’s net retail sales of licensed products. In some cases, royalty rates are calculated based upon a fixed percentage of product sales. In other cases we have license agreements that provide for reduced royalty rates based on volume thresholds once specified cumulative levels of retail sales of merchandise in certain product categories are achieved during each fiscal year. The royalty rate reductions do not apply retroactively to the applicable licensee’s retail sales since the beginning of the year, but rather apply only to sales made during the applicable fiscal year subsequent to the achievement of the specified sales volume. For example, the amount of royalty revenue earned by us from Target in any quarter was dependent not only on Target’s retail sales of Cherokee branded products in the U.S. in that quarter, but also on the royalty rate then in effect after considering their cumulative level of retail sales for certain Cherokee branded products in the U.S. for the fiscal year. As a result, for such license agreements, our royalty revenues as a percentage of our licensees’ retail sales were typically highest at the beginning of each fiscal year and decreased if and when certain retail sales thresholds were met. Historically, this has caused our first quarter to be our highest revenue and profitability quarter and our fourth quarter to be our lowest revenue and profitability quarter. However, such historical patterns and seasonal trends may vary significantly in future periods, depending upon retail sales volumes achieved in each quarter by Target, the revenues we receive from Target and our other licensees that are not subject to reduced royalty rates based upon cumulative sales, and the terms of any new license agreements.

The terms of our royalty arrangements vary for each of our licensees. In most cases we require the licensee to guarantee a minimum royalty. These minimum royalty guarantees require our licensees to pay us a minimum royalty each year. In the case of Target, its minimum annual guaranteed royalty was $10.5 million for Fiscal 2016 and Fiscal

2017, and in the case of Kohl’s, its minimum annual guaranteed royalty was $4.8 million for Fiscal 2016 and Fiscal 2017 and $4.6 million for Fiscal 2018.

As of January 28, 2017, we had contractual rights to receive over $108.8 million forward‑facing minimum royalty revenues over the next six years, excluding any revenues that may be guaranteed in connection with contract renewals.

Performance of Our Licensees and Franchisees

Pursuant to our typical arrangements with our licensees, we receive quarterly royalty statements and periodic retail sales information for Cherokee branded products and other product brands that we own or represent. Additionally, pursuant to our typical franchise agreements, franchisees pay us a royalty fee based on a percentage of gross sales at each franchise retail location. However, our licensees and franchisees 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 retail sales. As a result, and except as noted elsewhere in the comparisons of our three most recently completed fiscal years, we do not have sufficient information to determine the effects on our operations of changes in price, volume or mix of products sold by our licensees and franchisees. See Item 1A, “Risk Factors”.

Foreign Currency Exchange Translation

Because the majority of our international revenue is denominated in U.S. dollars, fluctuations in the value of the U.S. dollar relative to the foreign currencies of our international licensees’ operations may impact our royalty revenues. The main foreign currencies we encounter in our operations are the Mexican Peso, the EURO, the Great British Pound, 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.

Additionally, we generally record the sales of our international licensees and franchisees in U.S. dollars, and our disclosure related to the sales of such licensees and franchisees throughout this Annual Report is denominated in U.S. dollars unless otherwise noted. In arriving at such denominations, we receive a schedule of retail sales on a monthly and/or quarterly basis from each of our licensees and franchisees that is denominated in the applicable foreign currency. These amounts are then converted to U.S. dollars using the appropriate exchange rate for the purpose of disclosing all retail sales in U.S. dollars. For all periods presented in this Annual Report, we do not consider the period‑to‑period fluctuations in foreign currency exchange rates to have had a significant effect on the accuracy of the U.S. dollar‑denominated figures presented in this Annual Report.

Recent Developments

Expiration of Target License Agreement for the Cherokee Brand in the United States

Until January 31, 2017, Target had exclusive rights to Cherokee branded products for all product categories in the United States. Royalty revenues from Target’s sales of Cherokee branded products accounted for greater than 35% of our total revenues during each of Fiscal 2017, Fiscal 2016 and Fiscal 2015. However, our license agreement with Target covering sales of most Cherokee branded products in the United States expired on January 31, 2017. We have entered into new wholesale licensing agreements, discussed below under “New Licensee Partners,” which are intended to replace our former relationship with Target for sales of Cherokee branded products in the United States. However, replacing the royalty revenues received from Target for Cherokee branded products is a significant challenge, and the expiration of this license agreement may have a material adverse effect on our business. See Item 1A, “Risk Factors,” for additional information.

Acquisition of Hi-Tec and Magnum Brands

On December 7, 2016, we closed a Share Purchase Agreement (“Hi-Tec Acquisition” or “SPA”) with Hi-Tec International Holdings BV (“Hi-Tec”) and simultaneous Asset Purchase Agreements (“APAs”) with various third parties, pursuant to which Cherokee Global Brands acquired all of the issued and outstanding equity interests of Hi-Tec

for $87.2 million in cash, excluding non-interest bearing liabilities assumed and capitalized transaction costs. Cherokee Global Brands created a legal entity entitled Irene Acquisition Company B.V. (the “buyer”) to execute the transaction.

We completed the Hi-Tec Acquisition with the objective of converting Hi-Tec into a licensing business that would align with our core business. Thus, concurrently with the SPA, we entered into APAs with new operating partners of Hi-Tec, including Carolina Footwear Group, LLC (“CFG or Carolina”), Batra Limited (“BL or Batra”) and Sunningdale (“South Africa”). These agreements provided for the sale of certain manufacturing-related operating assets of Hi-Tec and its subsidiaries to these operating partners.  Post-acquisition, consistent with our planned conversion of the Hi-Tec business, we continue to own the intellectual property assets of Hi-Tec, and have entered into license agreements with three main licensees Batra (UK and Europe), Carolina (US and Canada) and Sunningdale (South Africa). The Company does not have any ownership interests in the CFG, BL or South Africa entities.

Hi-Tec and its subsidiaries were a Dutch footwear business that design, market and sell footwear globally, primarily under the Hi-Tec and Magnum brands. Hi-Tec sold its products through major retailers, independent distributors, licensees, government contracts and directly to consumers via e-commerce. Prior to the Hi-Tec Acquisition, Hi-Tec operated under a full spectrum distribution model, meaning that one group of affiliated companies owned the brands and manufactured the products. Through the Sale Transactions and our post-acquisition integration efforts, we are converting the Hi-Tec business to a branded licensing model.  Until this conversion is complete, we conduct indirect product sales of footwear bearing these brands to certain select wholesalers and government entities, which represent a minor portion of the customers of these brands.  Going forward, we primarily intend to pursue a wholesale licensing model for these brands. Our acquisition of the Hi-Tec and Magnum brands and conversion of these brands to a new business model is subject to significant risks. See Item 1A, “Risk Factors,” for additional information.

In connection with the closing of the Hi-Tec Acquisition, substantially all of the then-existing indebtedness of Hi-Tec has been repaid. The SPA contains customary warranties and indemnities for a Dutch transaction. Subject to certain carve-outs and qualifications as set forth in the SPA and subject to certain limited exceptions, our recourse for breaches of warranties under the SPA will be to a warranty and indemnity insurance policy.

We funded the purchase price of the Hi-Tec Acquisition through cash on hand, proceeds from the Sale Transactions, the prepayment of the first year of guaranteed minimum royalties under license agreements with certain operating partners and/or distributors of Hi-Tec, net proceeds of a public offering of our common stock, proceeds from a new credit facility and proceeds from a receivables funding loan extended by one of our directors, each of which is described below.

Sale Transactions

On November 29, 2016, we entered into sales agreements with operating partners and/or distributors of Hi-Tec, including Carolina Footwear Group, LLC and Batra Limited. These sales agreements provide for the sale of certain of the operating assets of Hi-Tec and its subsidiaries to these operating partners and/or distributors. The aggregate cash purchase price of the Sale Transactions was approximately $11.3 million, based on expected working capital and subject to certain post-closing adjustments. The Sales Transactions closed substantially concurrently with the closing of the Hi-Tec Acquisition on December 7, 2016.  We used the proceeds from the Sale Transaction to fund a portion of the purchase price for the Hi-Tec Acquisition.

Wholesale License Agreements

Consistent with our planned conversion of the Hi-Tec business to our business model, we continue to own the intellectual property assets of Hi-Tec following the Sale Transactions, and certain of the operating partners and/or distributors have entered into wholesale license agreements with us to license certain of these trademarks from, and pay royalties to, us. Under these wholesale license agreements, certain of Hi-Tec’s operating partners and/or distributors have licensed certain Hi-Tec trademarks in the United States, Canada, the United Kingdom, continental Europe, South Africa and other jurisdictions in Africa. We used the $7.0 million prepayment of the first few years of guaranteed minimum royalties under these license agreements to pay a portion of the purchase price for the Hi-Tec Acquisition.

Public Offering

On December 2, 2016, we closed an underwritten public offering of 4,237,750 shares of our common stock at a public offering price of $9.50 per share, for net proceeds to us of approximately $38.0 million, after deducting the underwriting discount and offering expenses paid by us. We used the net proceeds of the offering to fund a portion of the purchase price for the Hi-Tec Acquisition.

Cerberus Credit Facility

On December 7, 2016, we entered into a senior secured credit facility with Cerberus Business Finance, LLC (“Cerberus”), as administrative agent and collateral agent for the lenders from time to time party thereto, pursuant to which we are permitted to borrow (i) up to $5.0 million under a revolving credit facility, and (ii) up to $45.0 million under a term loan facility. Also on December 7, 2016, we drew down $45.0 million under the Cerberus term loan facility and used a portion of these borrowings to fund the Hi-Tec Acquisition, including the repayment of the outstanding indebtedness of Hi-Tec, and to repay all amounts owed under our former credit facility with JPMorgan Chase Bank, N.A. (“JPMorgan”).  During March 2017, the Company drew $5.0 million under its available revolving credit facility with Cerberus.

The Cerberus credit facility is secured by a first priority lien on, and security interest in, substantially all of our assets and those of our subsidiaries, is guaranteed by our subsidiaries and has a five-year term. The Cerberus credit facility bears interest at a rate per annum equal to either the rate of interest publicly announced from time to time by JPMorgan in New York, New York as its reference rate, base rate or prime rate or LIBOR plus, in each case, the applicable margin and subject to the applicable rate floor. Borrowings under the Cerberus credit facility are subject to certain maintenance and other fees. The terms of the Cerberus credit facility include financial covenants that set financial standards we will be required to maintain and operating covenants that impose various restrictions and obligations regarding the operation of the Company’s business, including covenants that require us to obtain Cerberus’s consent before we can take certain specified actions.

Receivables Funding Loan

On December 7, 2016, we entered into an unsecured receivables funding loan agreement for $5.0 million with Jess Ravich, the Chairman of our board of directors (“Board of Directors”). The receivables funding loan bears interest at a rate of 9.5% per annum and is subject to a fee equal to 2.5% of the principal amount of the loan, or $0.1 million, which was paid at the funding of the loan. The outstanding principal and accrued interest under the receivables funding loan will be due and payable on June 5, 2017. The proceeds of the receivables funding loan were used to fund a portion of the purchase price for the Hi-Tec Acquisition. We expect that certain accounts receivable assets that are expected to be collected in the ordinary course of business will be used to repay the receivables funding loan. As of the date of this report, the outstanding principal balance of the receivables funding loan is $1.5 million.

Stock Repurchases

Pursuant to the approval of our Board of Directors, in June 2016 we repurchased and retired 60,082 shares of our common stock in open market transactions at a weighted average purchase price of $12.24 and for an aggregate purchase price of approximately $735,000.

New Licensee Partners

As part of our strategy, we pursue relationships with new retailers, wholesalers and other licensees 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. This strategy also involves diversifying our types of partner relationships to include additional DTR licensees, wholesale licensees and, with our acquisition of the Flip Flop Shops trademark and brand name, franchisees of this brand. In our efforts to expand our portfolio of licensee partners, we acquired a number of new licensees for our existing brands in a variety of territories in Fiscal 2017, some of which are described below.

During Fiscal 2017, we entered into license agreements with nine wholesale distributors to distribute a variety of categories of products bearing the Cherokee brand to various retailers in the United States, which became operational at the beginning of Fiscal 2018.  The categories cover a wide range of Cherokee products including men’s and boy’s casual sportswear, sweaters and outerwear; newborn, infant and toddler boys and girls clothing and layette; girl’s active wear, sportswear, dresses, denim, and sweaters; and swimwear and sleepwear. These wholesale arrangements are intended to replace our former relationship with Target covering Cherokee branded products in the United States.

We entered into three additional license agreements (two during Fiscal 2017 and one during Fiscal 2018) for our Hawk Signature and Tony Hawk brands.  The license agreements are for broad distribution of the brands in the United States for all retail, including specialty, mid-tier, regional, mass market, off-price and club retail.

Critical Accounting Policies and Estimates

This discussion and analysis is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated 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. On an ongoing basis, management evaluates its estimates and assumptions, including those related to allowance for doubtful accounts, revenue recognition, deferred revenue, income taxes, impairment of long‑lived assets, contingencies and litigation and stock‑based compensation. Management bases its estimates on historical and anticipated results, trends and various other assumptions that it believes are reasonable under the circumstances, including assumptions about future events. These estimates form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results could differ materially from these estimates.

Management applies the following critical accounting policies in the preparation of our consolidated financial statements:

Allowance for Doubtful Accounts

We record an allowance for doubtful accounts based upon our assessment of various factors, such as historical experience, age of accounts receivable balances, credit quality of our licensees or franchisees, current economic conditions, bankruptcy, and other factors that may affect the licensees’ or franchisees’ ability to pay.

Revenue Recognition and Deferred Revenue

We recognize revenue when persuasive evidence of a sale arrangement exists, delivery has occurred or services have been rendered, the buyer’s price is fixed or determinable and collection is reasonably assured. Revenues from royalty and brand representation agreements are recognized when earned by applying contractual royalty rates to quarterly point of sale data received from our licensees. Our royalty revenue recognition policy provides for recognition of royalties in the quarter earned, although a large portion of such royalty payments are actually received during the month following the end of a quarter.

Our former license agreement with Target, which accounted for a large portion of our historical revenues, was structured to provide royalty rate reductions for sales of most products covered by the agreement after Target achieved certain cumulative sales volume thresholds, such that revenue was recognized by applying the reduced royalty rates prospectively to point of sale data for these products after the defined sales thresholds were exceeded for the remainder of applicable fiscal year. These royalty rate reductions did not apply retroactively to sales since the beginning of the applicable fiscal year, and as a consequence these royalty rate reductions did not impact previously recognized royalty revenue.

Revenues from arrangements involving license fees, up-front payments and milestone payments, which are received or billable by us in connection with other rights and services that represent our continuing obligations, are

deferred and recognized in accordance with the license agreement. Deferred revenues also represent minimum licensee revenue royalties paid in advance of the culmination of the earnings process, the majority of which are non‑refundable to the licensee. Deferred revenues will be recognized as revenue in future periods in accordance with the license agreement.

Franchise revenues include royalties and franchise fees. Royalties from franchisees are based on a percentage of net sales of the franchisee and are recognized as earned. Initial franchise fees are recorded as deferred revenue when received and are recognized as revenue when a franchised location commences operations, as all material services and conditions related to the franchise fee have been substantially performed upon the location opening. Renewal franchise fees are recognized as revenue when the franchise agreements are signed and the fee is paid, since there are no material services and conditions related to these franchise renewal fees.

In order to ensure that our licensees and franchisees are appropriately reporting and calculating royalties owed to us, all of our license and franchise agreements include audit rights to allow us to validate the amount of the royalties paid. Differences between amounts initially recognized and amounts subsequently audited or reported as an adjustment to the amounts due from licensees or franchisees is recognized in the reporting period in which the differences become known and are determined to be collectible.

We are responsible for the enforcement of our intellectual property and for pursuing third parties that are utilizing our assets without a license. As a result of these activities, from time to time, we may recognize royalty revenues that relate to infringements that occurred in prior periods. These royalty recoveries may cause revenues to be higher than expected during a particular reporting period and may not occur in subsequent periods.

We consider revenue recognition to be a critical accounting policy because if the recognition policy or criteria were to change in the future, it could have a material impact on our results of operations.

Income Taxes

We use the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. In assessing the need for a valuation allowance, management considers estimates of future taxable income and ongoing prudent and feasible tax planning strategies. We consider this to be a critical accounting policy because when we establish or reduce the valuation allowance against deferred tax assets, our provision for income taxes will increase or decrease, which could have a material impact on our results of operations.

We account for uncertainty in income taxes recognized in our consolidated financial statements in accordance with authoritative guidance, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. A tax position is to be initially recognized in the consolidated financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are to be initially and subsequently measured as the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority, assuming full knowledge of the position and all relevant facts.

Impairment of Long‑Lived Assets

We evaluate the recoverability of our identifiable intangible assets and other long‑lived assets in accordance with authoritative guidance, which generally requires management to evaluate these assets for recoverability when events or circumstances indicate a potential impairment. This evaluation is based on various analyses, including cash flow and profitability projections. These analyses involve management judgment based on various estimates and assumptions. We consider this to be a critical accounting policy because if these estimates or related assumptions change

in the future, we may be required to record impairment charges for the related assets, which could have a material impact on our results of operations. To date, there has been no impairment of intangible assets or other long‑lived assets.

Goodwill and Indefinite-Lived Assets

We test goodwill and indefinite-lived assets annually for impairment 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. This determination is made at the reporting unit level which may be either an operating segment or one level below an operating segment if discrete financial information is available. Two or more reporting units within an operating segment may be aggregated for impairment testing if they have similar economic characteristics. In accordance with authoritative guidance, the Company may first assess qualitative factors relevant in determining whether it is more likely than not that the fair value of its reporting units are less than their carrying amounts. Based on this analysis, the Company may determine whether it is necessary to perform a quantitative impairment test. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the amount of any impairment loss to be recognized for that reporting unit is determined using two steps. First, the Company determines the fair value of the reporting unit using a discounted cash flow analysis, which requires unobservable inputs (Level 3) within the fair value hierarchy. These inputs include selection of an appropriate discount rate and the amount and timing of expected future cash flows. Second, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill and other intangibles over the implied fair value. The implied fair value is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with authoritative guidance.  These analyses involve management judgment based on various estimates and assumptions. We consider this to be a critical accounting policy because if these estimates or related assumptions change in the future, we may be required to record impairment charges for the related assets, which could have a material impact on our results of operations. To date, there has been no impairment of goodwill or indefinite-lived intangible assets.

Valuation of Assets and Liabilities in Connection with Business Combinations

We have acquired material intangible assets in connection with business combinations. These intangible assets consist primarily of brands and distributor relationships.  Discounted cash flow models are typically used to determine the fair values of these intangible assets for purposes of allocating consideration paid to the net assets acquired in a business combination. These models require the use of significant estimates and assumptions, including, but not limited to, estimating the timing of and future net cash flows from intangible asset groupings and developing appropriate discount rates to calculate the present value of cash flows.

Significant estimates and assumptions are also required to determine the acquisition date fair values of certain tangible assets such as inventory.  We believe the fair values used to record intangible assets acquired and other tangible assets acquired in connection with business combinations are based upon reasonable estimates and assumptions given the facts and circumstances as of the related valuation dates.

Contingencies and Litigation

We evaluate contingent liabilities, including threatened or pending litigation, in accordance with authoritative guidance and record estimated reserves when the outcome of these matters is deemed probable and the liability is reasonably estimable. Management makes these assessments based on estimates about the facts and circumstances as they evolve, and in some instances based in part on the advice of outside legal counsel.

Stock‑Based Compensation

We account for equity awards in accordance with authoritative guidance, which requires the measurement and recognition of compensation expense for all stock‑based awards made to employees and directors based on estimated fair values.

The fair value of stock options and other stock‑based awards is estimated using option valuation models. These models require the input of subjective assumptions, including expected stock price volatility, risk-free interest rate, dividend rate, estimated life and estimated forfeitures of each award. The fair value of stock‑based awards is amortized over the vesting period of the award, and we have elected to use the graded amortization method. We make quarterly assessments of the adequacy of the tax credit pool to determine if there are any deficiencies that require recognition in the consolidated statements of operations. We consider this to be a critical accounting policy because if any of the estimates described above require significant changes, these changes could result in fluctuating expenses that could have a material impact on our results of operations.

Recent Accounting Pronouncement

See Note 2 to our consolidated financial statements included in this Annual Report for a description of recent accounting pronouncements.

Results of Operations

The table below sets forth certain of our consolidated statements of operations for the periods indicated. Historical results are not necessarily indicative of results to be expected in the current period or in future periods.  Our results of operations include the transactions for Hi-Tec from December 7, 2016 through January 28, 2017.

Revenues

Our royalty revenues totaled $34.0 million, $34.7 million and $35.0 million in Fiscal 2017, Fiscal 2016 and Fiscal 2015, respectively. Royalty revenues for all periods were primarily generated from licensing our trademarks to retailers and, to a lesser extent, to wholesalers, our share of licensing revenues from brand representation licensing agreements with other brand owners and, beginning in the third quarters of Fiscal 2016, franchise fees and royalty revenues received from franchisees of our Flip Flop Shops brand and, beginning in the fourth quarter of Fiscal 2017, revenues from royalties on wholesale sales of products bearing our Hi-Tec family of footwear brands throughout the world.

The change in royalty revenues between Fiscal 2016 and Fiscal 2017 was principally due to a decrease in North American royalties as we transition from Target to our new wholesale licensing partners for sales of Cherokee branded products in the United States. This decrease was partially offset by an increase in royalties from our licensees in South America, India, the Middle East, South Africa and Asia as the demand for Cherokee-branded and other products grew in these regions, as well as increased Flip Flop Shops franchise revenues due to our receipt of a full year of these revenues in Fiscal 2017 as compared to a partial quarter of these revenues in Fiscal 2016 (as we acquired the Flip Flop Shops

brand in October 2015).  Additionally, we had $1.2 million additional royalty revenues from wholesale sales of Hi-Tec, Magnum and Interceptor branded products as a result of the Hi-Tec acquisition during December 2016.

As of January 28, 2017, we had contractual rights to receive over $108.8 million forward‑facing minimum royalty revenues over the next six years, excluding any revenues that may be guaranteed in connection with contract renewals.

Pursuant to our typical arrangements with our licensees and franchisees, we receive quarterly royalty statements and periodic retail information about sales of products that generate royalties to us, including, for our licensees, products bearing the brands we own or represent, and for our franchisees, products sold at each franchise location. However, our licensees and franchisees 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 retail sales. Because we do not have direct oversight over our licensees and franchisees, we may not have all the information necessary to assess the impact on our operations of changes in price, volume or amount of products sold or the introduction of new products, or to otherwise determine or predict the specific reasons why revenue may increase or decrease in any given period.

In connection with the Hi-Tec acquisition, we began selling footwear directly to wholesalers throughout varies European countries as well as directly to various government entities around the world. The results of these operations are included as indirect product sales in the table above.

Royalty Revenues By Brand

The following table sets forth our royalty revenues by brand for Fiscal 2017 and Fiscal 2016:

Cherokee Brand Royalty Revenues

Our Cherokee brand accounted for approximately 68%, 74% and 76% of our aggregate royalty revenues in Fiscal 2017, Fiscal 2016 and Fiscal 2015, respectively. Total worldwide retail sales of merchandise bearing the Cherokee brand totaled $88.0 million, $368.0 million and $381.0 million in the fourth quarters of Fiscal 2017, Fiscal 2016 and Fiscal 2015, respectively. For Fiscal 2017, total worldwide retail sales of merchandise bearing the Cherokee brand totaled approximately $766 million, compared to $1.3 billion in total retail sales for Fiscal 2016 and $1.4 billion in total retail sales for Fiscal 2015.

During Fiscal 2017, we entered into nine new wholesale licensing arrangements covering sales of products bearing our Cherokee brand in the United States, which became operational at the beginning of Fiscal 2018. We believe these arrangements signal a significant shift in our strategy for sales of products bearing the Cherokee brand in the United States, which in the past have been governed by our DTR license agreement with Target. These new wholesale arrangements consist of multiple license agreements with nine different distributors that include higher royalty rates but lower minimum annual royalty obligations, as compared to one license agreement with one retailer, Target, that included a lower and declining, tiered royalty rate but a higher minimum annual royalty obligation. This shift to a wholesale licensing model for sales of Cherokee branded products in the United States exposes us to a number of risks. See Item 1A, “Risk Factors,” for additional information.

Under our former license agreement with Target for sales of Cherokee branded products in the United States, we agreed to certain royalty rate reductions for sales of most products covered by the agreement, which applied to future sales during a fiscal year after Target achieved certain sales volume thresholds. Historically, this has caused the Company to record its highest revenues and profits in its first quarter and its lowest revenues and profits in its fourth quarter. However, we do not anticipate this trend to continue in Fiscal 2018 and in future fiscal years due to the expiration of the Target license agreement at the end of Fiscal 2017. As a result, as of the beginning of Fiscal 2018, we are no longer subject to royalty rate reductions over the course of the year for sales of our Cherokee branded products in the United States, as our new wholesale license agreements covering these products include a fixed royalty rate that is consistent throughout the year. Because U.S. wholesalers and retailers typically record their highest sales in the fourth quarter for the holiday season, we anticipate that our performance in future periods could be more strongly influenced by this seasonality of the retail business and potentially subject to more material fluctuations between periods. However, because we have less experience with the wholesale licensing model than the DTR licensing model, our forecasts and expectations regarding revenues from these arrangements may not be reliable. Any continuation of the Company’s historical revenue and profit patterns or development of any new revenue or profit patterns will depend on, among other things, the terms of the Company’s existing license and franchise agreements, excluding the Target license agreement, the terms of any new license or franchise agreements, and retail sales volumes achieved by the Company’s licensees and franchisees.

Hi-Tec and Magnum Brands Royalty Revenue

In December 2016, we completed the Hi-Tec Acquisition, in which we acquired the intellectual property assets of Hi-Tec, including the Hi-Tec, Magnum and Interceptor brands and related trademarks. In connection with the Hi-Tec Acquisition, we also entered into wholesale license agreements with certain of Hi-Tec’s operating partners and/or distributors. Under the license agreements, the operating partners and/or distributors have licensed certain Hi-Tec trademarks in the United States, Canada, the United Kingdom, continental Europe, South Africa and other jurisdictions in Africa.These arrangements are structured similarly to our other wholesale licensing arrangements.

In light of the recent date of this acquisition, we are not able to reliably forecast or predict the impact of these brands on our revenues or other aspects of our results of operations. Our integration of these assets into our business, including transitioning them from a full spectrum distribution model to our brand licensing model, amplifies this uncertainty.

Flip Flop Shops

Franchisees of Flip Flop Shops retail stores in the United States enter into franchise agreements with us that typically have a 10-year initial term and require payment to us of an initial franchise fee and a royalty fee. Franchisees of Flip Flop Shops retail stores outside the United States may enter into master franchise agreements with us for multiple store locations within a specified territory. In these instances, the master franchisee typically pays us an initial master franchisee fee, a per-location opening fee (the amount of which varies for each master franchise) and a royalty fee.

We anticipate that our Flip Flop Shops brand contribution as a percentage of total revenues will increase in future periods as additional stores open. We anticipate revenues will fluctuate depending upon the number of new stores opened in any given period, as well as royalty fluctuations based on seasonal demand, brand offerings, promotions and the number of existing stores open.

Geographic Revenues

The following table sets forth our geographic licensing revenues for Fiscal 2017 and Fiscal 2016:

United States and Canada

Our largest licensees in the United States in all periods presented were Target and Kohl’s, which together contributed 47% and 57% of our total revenues for Fiscal 2017 and Fiscal 2016, respectively, and 28% and 46% of our total revenues for the fourth quarters of Fiscal 2017 and Fiscal 2016, respectively.

Target.    For all periods presented, Target had the exclusive rights to sell Cherokee branded products for all product categories in the United States. Retail sales of Cherokee branded products at Target in the United States were lower during Fiscal 2017 at approximately $509.0 million, down from approximately $1.1 billion in each of Fiscal 2016 and Fiscal 2015. Under our former license agreement with Target, Target paid us royalties based on a percentage of its sales of Cherokee branded products and a royalty rate that, for most product categories, reduced after Target achieved specified cumulative sales volume thresholds during each fiscal year. Target also paid fixed royalty rates for Target’s sales of Cherokee branded products in the adult merchandise category that were made by Target through its website (target.com) and sales of Cherokee branded products in the school uniforms category. In addition, under a separate license agreement with us, Target pays a fixed percentage of net sales of products bearing the Liz Lange brand in the United States.

Under the terms of our former license agreement with Target for the Cherokee brand, Target was obligated to pay us a minimum annual royalty of $10.5 million, which applied to all sales of Cherokee branded products made by Target in the United States other than sales of Cherokee branded products in the school uniforms category (which products were subject to a separate minimum annual royalty payment of $0.8 million).

Our license agreement with Target for most Cherokee branded products expired on January 31, 2017. Our license agreement with Target covering sales of Cherokee branded products in the school uniforms category will expire at the end of its current term on January 31, 2018, and will continue to generate revenues to Cherokee Global Brands until its expiration. Target has informed us that it has elected to not renew the Liz Lange license agreement, which expires on January 31, 2018 at the end of the current term, Target will continue to pay royalties to Cherokee Global Brands until the expiration of the agreement.  Cherokee Global Brands has entered into a master license agreement with a third party for Liz Lange branded maternity products beginning in Fiscal 2019. Our ability to generate royalty revenues from other licensees and franchisees sufficient to replace Target’s historical royalty payments to us is yet to be determined and we may experience decreased revenue levels as a result of the expiration of this relationship, particularly in the near term as our wholesale arrangements intended to replace our license agreement with Target for the Cherokee brand begin to gain traction with new retailers and their consumer bases.

Royalty revenues from our Cherokee brand at Target, excluding sales of Cherokee branded products in Canada (through Target’s discontinuation of operations in Canada) and Cherokee branded products sold in the school uniforms category, were $10.5 million and $14.9 million in Fiscal 2017 and Fiscal 2016, respectively, which accounted for 31% and 43% of our total revenues for the respective periods.  The decrease in royalties between Fiscal 2016 and Fiscal 2017 and between the fourth quarters of each such fiscal year was due to a decline in retail sales of Cherokee branded products

as a result of the expiration of the Target license agreement at the end of Fiscal 2017, as Target began to transition away from sales of these products as the expiration of this license agreement approached.

Kohl’s.  As of the end of Fiscal 2017, Kohl’s had approximately 1,100 stores in the United States. Retail sales of Hawk Signature or Tony Hawk branded products at Kohl’s totaled $64.6 million in Fiscal 2017, compared to $90.6 million in Fiscal 2016. Under our license agreement with Kohl’s, Kohl’s pays royalty revenues to us based on a percentage of its sales of Hawk Signature and Tony Hawk branded products. The minimum annual royalty payment applicable to our license agreement, as amended, with Kohl’s for the Hawk Signature and Tony Hawk brands was $4.8 million prior to January 28, 2017 and $4.6 million for the remainder of the term, which applies to all sales of Hawk Signature and Tony Hawk branded products in the United States.

We entered into three additional license agreements (two during Fiscal 2017 and one during Fiscal 2018) for our Hawk Signature and Tony Hawk brands.  The license agreements are for broad distribution of the brands in the United States for all retail, including specialty, mid-tier, regional, mass market, off-price and club retail.

Because retail sales did not exceed the contractual minimum guarantees in any of the periods presented, royalty revenues from our Hawk Signature brand at Kohl’s remained flat at $4.8 million for all periods, which accounted for 14% of our total revenues for each of the respective periods.

International Licensees

Most of our international licensees are required to pay the royalty revenues owed to us in U.S. dollars. As a consequence, any weakening of the U.S. dollar benefits us in that the total royalty revenues reported from our international licensees increases when the dollar weakens against applicable foreign currencies. Conversely, any strengthening of the U.S. dollar against an international licensee’s foreign currency results in lower royalty revenues from such licensee. The main foreign currencies we encounter in our operations are the Mexican Peso, the EURO, the Great British Pound, the South African Rand, the Japanese Yen, the Chinese Yuan, and the Canadian Dollar. We do not currently engage in currency hedging activities to limit the risk of exchange rate fluctuations.

As the U.S. dollar remained relatively stable between Fiscal 2016 and Fiscal 2017, the estimated cumulative effect on our revenues of changes to applicable foreign currency exchange rates during Fiscal 2017 as compared to Fiscal 2016 was immaterial.

Additionally, we generally record the sales of our international licensees and franchisees in U.S. dollars. We typically receive a schedule of retail sales on a monthly and/or quarterly basis from each of our foreign licensees and franchisees that is denominated in their applicable foreign currency, and then we convert these amounts to U.S. dollars using the appropriate exchange rate for the purpose of disclosing all retail sales in U.S. dollars. For all periods, we do not consider the period‑to‑period fluctuations in foreign currency exchange rates to have had a significant effect on the accuracy of the U.S. dollar‑denominated figures presented in this Annual Report.

Asia and Latin America. Our royalty revenues from Asia and Latin America are generated from licensees in Japan, China, Mexico, Peru, Chile, India, and other territories. Royalty revenues from licensees in Asia and Latin America increased to $7.3 million in Fiscal 2017 from $6.4 million in Fiscal 2016, representing a 13.1% increase. This increase was principally due to increased revenues from Japanese licensees in Fiscal 2017. In local currencies, most of our licensees in Asia and Latin America experienced growth in retail sales across all periods presented.

United Kingdom, Europe and Others.  Our other international royalty revenues are generated from licensees in the United Kingdom, other countries in Europe and other territories. One of our more significant European licensees is Argos, a subsidiary of Home Retail Group plc, which launched a broad assortment of Cherokee lifestyle products online, in catalogs and in more than 750 Argos stores across the United Kingdom and Ireland in late July 2015 and began generating royalties to us during the third quarter of Fiscal 2016. Royalty revenues from licensees in Europe and other territories were relatively consistent at $2.7 million in Fiscal 2017 compared to $2.6 million in Fiscal 2016.

Indirect Product Sales Revenues

In addition, since the Hi-Tec Acquisition, we have been indirectly selling products bearing the Hi-Tec family of footwear brands to certain select wholesalers and government entities. In these arrangements, the purchasers of the products place their product orders directly with us, which we then forward to a manufacturer or distributor for the manufacture and delivery of the products directly to the original purchaser. The wholesalers and government entities that purchase products under these arrangements submit payments directly to us for their product orders, and we then remit a portion of these payments representing the product cost to the manufacturer or distributor of the purchased products. We began recording revenues from these relationships in December 2016 when we acquired these brands, and in Fiscal 2017, we recorded a total of $6.6 million in revenues from these indirect product sales. We maintain these indirect product sale relationships with a minimal portion of the customers of the Hi-Tec family of footwear brands. The indirect product sale arrangements subject us to certain risks, see item 1A, “Risk Factors,” for additional information.

Cost of Goods Sold

Cost of goods sold during Fiscal 2017 relates to payments remitted to manufacturers or distributors of purchased products that are sold to wholesalers and government entities as described earlier.

Selling, General and Administrative

The following table sets forth additional detail regarding the components for selling, general and administrative expenses for Fiscal 2017 and Fiscal 2016.

Selling, general and administrative expenses, including amortization of intangible assets, were $35.2 million for Fiscal 2017, compared to $21.3 million for Fiscal 2016, representing an increase of $13.8 million. The increase in SG&A was primarily due to the $11.5 million of additional legal, due diligence costs, integration and other costs related to the Hi-Tec acquisition and increased business development costs related to the identification and establishment of new brand licensees in the U.S. Selling, general and administrative expenses also included operating costs for Hi-Tec during the period from December 2016 through January 2017.

Restructure Charges

We also incurred restructuring charges of $3.8 million related to the Hi-Tec Acquisition. Restructuring charges consisted of severance, contract termination and other restructuring-related costs. Contract termination costs consist primarily of costs that will continue to be incurred under operating leases for their remaining terms without economic benefit to the Company, offset by any sublease income to be received thereafter.

Interest and Other Income or Expense

Our interest income and other income for Fiscal 2017 was $0.4 million, compared to $0.2 million for Fiscal 2016. Our interest expense for Fiscal 2017 was $1.7 million, compared to $0.7 million for Fiscal 2016.

Tax Provision

For Fiscal 2017, we recorded a tax provision of $3.3 million, compared to $4.4 million for Fiscal 2016. Our effective tax rate was −69.8% for Fiscal 2017 and 34.1% for Fiscal 2016. The difference in the effective tax rate for Fiscal 2017 in comparison to Fiscal 2016 was primarily due to nondeductible transaction costs related to the Hi-Tec Acquisition.  Since the transaction costs exceeded the Fiscal 2017 pretax book loss, the result was a significant fluctuation in the Fiscal 2017 effective tax rate.  In addition, the Fiscal 2016 effective tax rate included a benefit for recognition of previously unrecognized tax benefits upon the conclusion of certain income tax examinations.

Net (Loss) Income

Our net loss for Fiscal 2017 was $7.9 million, or $0.84 per diluted share, compared to a net income of $8.4 million, or $0.95 per diluted share, for Fiscal 2016.  Our loss was primarily driven by acquisition costs and restructure charges incurred in connection with the Hi-Tec acquisition.

Fiscal 2016 Compared to Fiscal 2015

Revenues

In Fiscal 2016, our revenues totaled $34.7 million, compared to $35.0 million in Fiscal 2015. Revenues for Fiscal 2016 and Fiscal 2015 were primarily generated from licensing our trademarks to retailers and, to a lesser extent, to wholesalers, our share of licensing revenues from brand representation licensing agreements with other brand owners and, in the third and fourth quarters of Fiscal 2016, franchise fees and royalty revenues received from franchisees of our Flip Flop Shops brand. The decrease in revenues was primarily related to the closing of Target Canada and the transition from Tesco to Argos, in addition to the effect of foreign exchange rates on international royalties.  This decrease was partially offset by revenues from the October 2015 acquisition of Flip Flop Shops.

Our Cherokee brand accounted for approximately 74% and 76% of our aggregate royalty revenues in Fiscal 2016 and Fiscal 2015, respectively. Total worldwide retail sales of merchandise bearing the Cherokee brand totaled $368.0 million and $381.0 million in the fourth quarters of Fiscal 2016 and Fiscal 2015, respectively. For Fiscal 2016, total worldwide retail sales of merchandise bearing the Cherokee brand totaled approximately $1.3 billion, versus $1.4 billion in total retail sales reported for Fiscal 2015.

Revenues By Brand

The following table sets forth our revenues by brand for Fiscal 2016 and Fiscal 2015:

Geographic Revenues

The following table sets forth our geographic licensing revenues for Fiscal 2015 and Fiscal 2014:

U.S. and Canada

Our largest licensees in the U.S. generally are Target and Kohl’s, which together contributed 46% and 57% of our consolidated revenues for the fourth quarter of Fiscal 2016 and for Fiscal 2016, respectively. In Canada, we are transitioning from Target Canada to Sears Canada for our Cherokee and Liz Lange brands.

Target. As of the end of Fiscal 2016 Target had approximately 1,790 stores in the United States. Retail sales of Cherokee branded products at Target in the U.S. were flat in Fiscal 2016 and Fiscal 2015, at approximately $1.1 billion. In Fiscal 2016, Target reached the minimum annual royalty payment of $10.5 million during the third quarter of Fiscal 2016.

Royalty revenues from our Cherokee brand at Target U.S., excluding sales of Cherokee branded products in Canada and Cherokee branded products sold in the school uniforms category, were $14.9 million in Fiscal 2016 and $15.0 million in Fiscal 2015, which accounted for 43%, and 43%, respectively, of our consolidated revenues during such periods.

Target’s U.S. retail sales of Cherokee branded products during the fourth quarter of Fiscal 2016 totaled $296.8 million, compared to $314.1 million for the fourth quarter of Fiscal 2015, decreasing by approximately 5.5%. Royalty revenues from our Cherokee brand at Target U.S. were $2.4 million for the fourth quarter of Fiscal 2016 and $2.5 million for the fourth quarter of Fiscal 2015, decreasing by approximately 2%. The revenues decreased slightly between periods due to a decline in retail sales for the quarter.

Kohl’s.  As of the end of Fiscal 2016 Kohl’s had approximately 1,200 stores in the United States. Retail sales of Hawk Signature or Tony Hawk branded products at Kohl’s totaled $90.6 million in the Fiscal 2016 compared to $119.6 million in Fiscal 2015, decreasing approximately 24.2%.  Because retail sales did not exceed the contractual minimum guarantees, royalty revenues from our Hawk Signature and Tony Hawk brands at Kohl’s remained flat between periods at $1.2 million and $4.8 million in the fourth quarter of Fiscal 2016 and Fiscal 2016 respectively, which accounted for 15% and 14% of our consolidated revenues for such periods, respectively.

Latin America, Asia and Others

Other international royalty revenues in Fiscal 2016 increased to $9.4 million from $8.9 million in Fiscal 2015, representing a 4.8% increase. This total includes licensees in Japan, China, Mexico, South Africa, Peru, Israel, Chile, India and other territories. The increase was principally due to strength in Japan, China, India and South Africa, offset by the strengthening of the U.S. dollar. In local currencies, the majority of our international licensees had growth in retail sales for Fiscal 2016. As the U.S. dollar strengthened between periods, the estimated cumulative effect on our revenues of changes to applicable foreign currency exchange rates during Fiscal 2016 in comparison to Fiscal 2015 was an approximate $0.8 million decrease.

Selling, General and Administrative

The following table sets forth additional detail regarding the components for selling, general and administrative expenses for Fiscal 2016 and Fiscal 2015.

Selling, general and administrative expenses, including amortization of intangible assets, were $21.3 million for Fiscal 2016, compared to $19.6 million for Fiscal 2015, representing an increase of $1.7 million. The increase in SG&A was primarily due to additional legal and due diligence costs related to potential and completed acquisitions, an increase in stock-based compensation, increased business development costs related to the identification and establishment of new brand licensees in the U.S. and the costs associated with Flip Flop Shops.

Interest and Other Income or Expense

Our interest income for Fiscal 2016 was $0 million, compared to $0 million for Fiscal 2015. Our interest expense for Fiscal 2016 was $0.7 million, compared to $0.8 million for Fiscal 2015.

Tax Provision

For Fiscal 2016, we recorded a tax provision of $4.4 million, compared to $4.7 million for Fiscal 2015. Our effective tax rate was 34.1% for Fiscal 2016 and 32.4% for Fiscal 2015. The difference in the effective tax rate for Fiscal 2016 in comparison to Fiscal 2015 was primarily due to the recognition of previously unrecognized tax benefits upon the conclusion during Fiscal 2016 of certain income tax examinations.

Net Income

Our net income for Fiscal 2016 was $8.4 million, or $0.95 per diluted share, compared to a net income of $9.8 million, or $1.15 per diluted share, for Fiscal 2015.

Liquidity and Capital Resources

Cash Flows

On January 28, 2017, we had cash and cash equivalents of $8.4 million. On January 30, 2016, we had cash and cash equivalents of $6.5 million. On January 31, 2015, we had cash and cash equivalents of $7.6 million. During Fiscal 2017, cash provided by operations was $12.1 million, compared to $11.9 million in Fiscal 2016.

During Fiscal 2017, cash used in investing activities was $73.8 million, compared to $13.4 million in Fiscal 2016. In Fiscal 2017, cash used by investing activities consisted of capital expenditures of property and equipment and trademark registration and renewal costs, as well as acquisitions of intangible assets relating to Hi-Tec. In Fiscal 2016, cash used by investing activities consisted of capital expenditures of property and equipment and trademark registration and renewal costs, as well as acquisitions of intangible assets relating to Everyday California and Flip Flop Shops.

During Fiscal 2016, cash used by investing activities was $13.4 million, compared to $0.6 million in Fiscal 2015. In Fiscal 2016, cash used by investing activities consisted of capital expenditures of property and equipment and trademark registration and renewal costs, as well as acquisitions of intangible assets relating to Everyday California and Flip Flop Shops. In Fiscal 2015, cash used by investing activities consisted of capital expenditures on property and equipment and trademark registration and renewal costs.

During Fiscal 2017, cash received from financing activities was $63.5 million, compared to cash received in financing activities of $0.5 million in Fiscal 2016. We had borrowings of $45 million, from a new credit facility with Cerebrus and $5 million from an unsecured receivables funding loan from Jess Ravich, the Chairman of the Company’s Board of Directors incurred in connection with the Hi-Tec acquisition, and loan payments of $25 million in Fiscal 2017, compared to loan payments of $7.6 million in Fiscal 2016. Also in connection with the Hi-Tec acquisition, in Fiscal 2017, we had net proceeds of $37 million from a public offering.

During Fiscal 2016, cash received from financing activities was $0.5 million, compared to cash used in financing activities of $5.8 million in Fiscal 2015. We had borrowings of $6.0 million, from a new term loan under our amended JP Morgan credit agreement for the Flip Flop Shops acquisition, and loan payments of $7.6 million in Fiscal 2016, compared to loan payments of $7.0 million in Fiscal 2015. Proceeds from exercises of stock options were $1.9 million in both Fiscal 2016 and Fiscal 2015. During Fiscal 2016, we paid a total of $0 million in dividends, compared to $0.8 million in dividends paid in Fiscal 2015.

Credit Facilities

In September 2012, we entered into a credit facility with JPMorgan. The terms of the JPMorgan credit facility included various restrictions and covenants regarding the operation of our business and financial covenants that set financial standards we must maintain. As collateral for the JPMorgan credit facility, we granted a security interest in favor of JPMorgan in all of our assets (including trademarks), and our indebtedness was guaranteed by our wholly owned subsidiaries. See Note 10 to our condensed consolidated financial statements included in this report for additional information about our JPMorgan credit facility. As described below, as of the date of this report, all amounts owed under the JPMorgan credit facility have been repaid and the credit agreement, together with all term notes and the revolving line of credit thereunder, have been terminated and cancelled.

On December 7, 2016, we entered into a senior secured credit facility with Cerberus, pursuant to which we are permitted to borrow (i) up to $5.0 million under a revolving credit facility, and (ii) up to $45.0 million under a term loan facility. Also on December 7, 2016, we drew down $45.0 million under the Cerberus term loan facility and have used a portion of such borrowings to fund the Hi-Tec Acquisition, including the repayment of the outstanding indebtedness of Hi-Tec, and to repay all amounts owed under our JPMorgan credit facility. We expect to use the remaining amount of borrowings under the Cerberus credit facility for general working capital. Our borrowings under the Cerberus credit facility are subject to certain maintenance and other fees. The terms of the Cerberus credit facility include financial covenants that set financial standards we will be required to maintain and operating covenants that impose various restrictions and obligations regarding the operation of our business, including covenants that require us to obtain Cerberus’s consent before we can take certain specified actions. As collateral for the Cerberus credit facility, we granted a first priority security interest in favor of Cerberus in substantially all of our assets (including trademarks), and our indebtedness is guaranteed by our subsidiaries.

Sources of Liquidity

We expect our primary sources of liquidity to be cash flow generated from operations, cash and cash equivalents currently on hand, and up to $5.0 million of funds available to us pursuant to the revolving credit facility with Cerberus. We believe our cash flow from operations, together with our cash and cash equivalents currently on hand and access to funds pursuant to the revolving line of credit, will be sufficient to meet our working capital, capital expenditure and other commitments and otherwise support our operations for the next twelve months.

Our license agreement with Target for most Cherokee branded products expired on January 31, 2017. The license agreement with Target, including the existing royalty obligations, remained in effect and continued to generate

revenues through the end of Fiscal 2017 until its expiration. Our license agreement with Target covering sales of Cherokee branded products in the school uniforms category will expire at the end of its current term on January 31, 2018, and will continue to generate revenues until its expiration. Our ability to generate cash from our other licensees and franchisees in replacement of Target’s royalty payments on a long-term basis is yet to be determined.

During Fiscal 2017, we entered into nine new wholesale licensing arrangements covering sales of products bearing our Cherokee brand in the United States. We anticipate that these wholesale licensing arrangements may generate different trends in our liquidity after they become effective. For example, these wholesale arrangements do not have minimum annual royalty obligations to the magnitude of our license agreement with Target and are not subject to reducing royalty rates throughout the year based upon cumulative sales levels. Thus, as we begin to receive royalty payments from these wholesale licensees and to the extent we pursue similar wholesale arrangements in the future, their lower minimum royalty obligations and consistent royalty rates could cause our cash flows from operating activities to be more strongly influenced by the seasonality of the retail business and thus subject to more material fluctuations between periods and, if retail sales volume for the Cherokee brand decreases and we were to become dependent upon minimum royalty obligations, could also cause our cash flows from operating activities to decline.

We cannot predict our revenues and cash flows that will be generated from operations in future periods, and our revenues and cash flows could be materially lower than we expect. If our revenues and cash flows are lower than we anticipate, or if our expenses are higher than we anticipate, then we may not have sufficient cash available to fund our planned operations and we could fail to comply with the terms of our credit facility with Cerberus or our other contractual commitments. In that case, we may need to take steps to reduce expenditures by scaling back operations and reducing staff related to these activities or seek funds from other sources, which may not be available when needed, on acceptable terms or at all. See Item 1A, “Risk Factors”, for additional information.

As of January 28, 2017, we were not the guarantor of any material third‑party obligations and we did not have any irrevocable repurchase obligations.

Uses of Liquidity

Our cash requirements over the next twelve months are primarily to fund our operations and working capital, to make payments of principal and interest under our credit facility with Cerberus, at our discretion and subject to the terms of the credit facility, to repurchase shares of our common stock or pay dividends as determined by our board of directors (“Board of Directors”), and, to a lesser extent, to fund capital expenditures.

As of January 28, 2017, we had approximately $44.6 million in principal amount of outstanding indebtedness owed under our credit facility with Cerberus, all of which is due in December 2021. We may seek to refinance all or a portion of this indebtedness before its maturity date. Any such refinancing would depend on the capital markets and our financial condition at the time, which could affect our ability to obtain attractive refinance terms when desired, or at all.

Pursuant to the approval of our Board of Directors, in June 2016 we repurchased and retired 60,082 shares of our common stock in open market transactions at a weighted average purchase price of $12.24 and for an aggregate purchase price of approximately $735,000. Further repurchases of our common stock or the declaration and payment of any future dividends or repurchases of our common stock are subject to limited exceptions, subject to negative covenants contained in our credit facility and, assuming the satisfaction or waiver by Cerberus of such covenants, would be made solely at the discretion of our Board of Directors and would be dependent upon our financial condition, results of operations, cash flows, capital expenditures, and other factors that may be deemed relevant by our Board of Directors. Additionally, should an established and marketable brand or similar equity property become available on favorable terms, we would consider using our liquidity to fund such an acquisition opportunity, subject to obtaining any consent required under our credit facility with Cerberus.

The following table provides information related to our contractual cash obligations under various financial and commercial agreements as of January 28, 2017: