-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T87gv/MIK59eyr4sJkAJ/S5T6jyZ6zbHSLDVAQ5gmaEqa9CUHUoZTQ861hu5BqP1 8BdSR9QfMEk9W2K+4eQv8Q== 0001047469-08-003641.txt : 20080328 0001047469-08-003641.hdr.sgml : 20080328 20080328144242 ACCESSION NUMBER: 0001047469-08-003641 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20071230 FILED AS OF DATE: 20080328 DATE AS OF CHANGE: 20080328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHEROKEE INTERNATIONAL CORP CENTRAL INDEX KEY: 0001090069 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 954745032 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-50593 FILM NUMBER: 08718627 BUSINESS ADDRESS: STREET 1: 2841 DOW AVENUE CITY: TUSIN STATE: CA ZIP: 92780 BUSINESS PHONE: 7145446665 MAIL ADDRESS: STREET 1: 2841 DOW AVENUE CITY: TUSTIN STATE: CA ZIP: 92780 FORMER COMPANY: FORMER CONFORMED NAME: CHEROKEE INTERNATIONAL FINANCE INC DATE OF NAME CHANGE: 19990708 10-K 1 a2184187z10-k.htm 10-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
ý	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the fiscal year ended December 30, 2007
or
o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from to

Commission File No. 000-50593

Cherokee International Corporation
(Exact name of Registrant as specified in its charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)	95-4745032 (I.R.S. Employer Identification Number)
2841 Dow Avenue Tustin, California (address of the principal executive offices)	92780 (zip code)

Registrant's telephone number, including area code (714) 544-6665
Securities registered pursuant to Section 12(b) of the Act:

Title of class		Name of exchange on which registered
Common Stock, $0.001 par value		The NASDAQ Stock Market LLC (NASDAQ Global Market)

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

(1) Yes ý No o (2) Yes ý No o

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

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

Large accelerated filer o

Accelerated filer o

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

Smaller reporting company ý

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

The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant's most recently completed second fiscal quarter (June 29, 2007) was approximately $46,101,769.

As of March 1, 2008, 19,453,557 shares of the Registrant's common stock, $0.001 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of our definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A for our 2008 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.

CHEROKEE INTERNATIONAL CORPORATION
Annual Report on Form 10-K
For the Fiscal Year Ended December 30, 2007

		Page
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	19
Item 2.	Properties	19
Item 3.	Legal Proceedings	20
Item 4.	Submission of Matters to a Vote of Security Holders	20
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
Item 6.	Selected Financial Data	23
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	40
Item 8.	Financial Statements and Supplementary Data	41
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	80
Item 9A(T).	Controls and Procedures	80
Item 9B.	Other Information	82
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	83
Item 11.	Executive Compensation	83
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	83
Item 13.	Certain Relationships and Related Transactions, and Director Independence	83
Item 14.	Principal Accounting Fees and Services	83
PART IV
Item 15.	Exhibits and Financial Statement Schedules	84
	Signatures	87

Certain statements in this Annual Report on Form 10-K, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words "believes," "projects," "expects," "anticipates," "estimates," "intends," "strategy," "plan," "may," "will," "would," "will be," "will continue," "will likely result," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially from the forward-looking statements. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section entitled "Risk Factors" beginning on page 12 of this report. The information contained in this Annual Report on Form10-K should be read together with other reports and documents that we file with the Securities and Exchange Commission (the "SEC") from time to time, including Forms 10-Q and 8-K, which may supplement, modify, supersede or update those risk factors. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Unless the context indicates otherwise, all references herein to "Cherokee International Corporation," "the Company," "we," "us," and "our" refer collectively to Cherokee International Corporation and its subsidiaries.

Our fiscal years 2007, 2006, and 2005, ended on December 30, 2007, December 31, 2006, and January 1, 2006, respectively.

PART I

ITEM 1. BUSINESS

Overview

We are a designer and manufacturer of power supplies for original equipment manufacturers ("OEMs"). Our advanced power supply products are typically custom designed into mid- to high-end commercial applications in the computing and storage, wireless infrastructure, enterprise networking, telecom, medical and industrial markets. Our power supply products are differentiated from those used in lower-end electronics, such as personal computers and mobile phones, by their complexity, high level of engineering content and reliability. We strive to distinguish ourselves from our competitors by offering sophisticated engineering, design flexibility, innovative solutions, rapid prototype development and efficient, low-cost manufacturing to our customers.

Our principal executive offices are located at 2841 Dow Avenue, Tustin, California 92780, and our telephone number is (714) 544-6665. We maintain a website at www.cherokeepwr.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are available free of charge on our website or upon written request to 2841 Dow Avenue, Tustin, California 92780, Attention: Investor Relations as soon as reasonably practicable after the Company electronically files such materials with the SEC. The contents of our website are not incorporated by reference in to this Annual Report on Form 10-K and shall not be deemed "filed" under the Exchange Act.

We operate worldwide and have facilities in Orange County, California; Bombay, India; Wavre, Belgium and Shanghai, China. In March 2007, we closed our manufacturing facility in Guadalajara, Mexico. In May 2007, we sold this manufacturing facility located in Mexico and in December 2007 we sold our subsidiary, Cherokee Electronica, S.A. de C.V. Since November 1987, our main office and U.S. manufacturing facility has been located in Tustin, California. On November 26, 2002, we reorganized from a California limited liability company into a Delaware corporation by merging Cherokee International, LLC with and into Cherokee International Corporation.

We completed our initial public offering of 6,600,000 shares of our common stock on February 25, 2004. The net proceeds from the offering were $86.5 million. We used approximately $73.2 million of the net proceeds to repay certain outstanding indebtedness and accrued interest. In connection with the offering, we issued 6,283,796 shares of our common stock upon conversion of the original principal amount of our outstanding senior convertible notes, and issued 4,071,114 shares of common stock upon exercise of our outstanding warrants.

Our Industry

Background

Power supplies are an essential element in the supply, regulation and distribution of electrical power in electronic equipment. Generally, power supplies convert alternating current, or AC, from a primary power source, such as a utility company, into a precisely controlled direct current, or DC. Virtually every electronic device that plugs into an AC wall socket requires some type of AC/DC power supply. DC/DC converters modify one DC voltage level to other DC levels to meet the distinct power needs of various electronic subsystems and components. Power supplies are also used to regulate and monitor voltages to protect electronic components from surges or drops in voltage, to perform functions that prevent electronic equipment from being damaged by internal malfunction and to provide back-up power in the event that a primary power source fails.

Need for Highly Reliable Power in Critical Commercial Applications

Power supplies are normally embedded in OEMs' products and deliver power critical to the function of those products. Although the power supply typically constitutes less than 5% of the cost of the end product, it must efficiently and reliably convert power from the electric utility grid into the precise form and quality of power required by complex electronic equipment, such as mainframe computers, enterprise servers, routers and networking equipment, wireless base stations, access networks, ultrasound machines, and industrial process control and automation equipment. This equipment requires a precise and constant supply of electrical power, significantly more refined than the power provided by the electric utility grid.

On average, the electric utility grid supplies quality power, free from surges, spikes or sags, 99.9% of the time. However, this still results in the equivalent of nine hours per year of unavailable power. These nine hours of downtime often occur in many isolated interruptions of very short duration. In lower-end consumer electronics applications, a brief interruption of power only interrupts operation for the time that the power is actually unavailable. In commercial applications, however, interruption in the power supply or an inability to regulate and distribute the precise amount of power within the commercial application could cause the entire end product to fail, resulting in extensive downtime. This downtime could cause the OEM to lose revenue as a result of customer dissatisfaction and may cause financial and operational damage to the end user of the OEM's product. As a result, OEMs are very selective in their choice of a power supply vendor and place a high degree of importance on the vendor's reliability, emphasizing the quality of the products as well as the sophistication of the vendor's engineering capabilities.

Power Supply Market—Custom, Modified Standard and Standard

Power supplies are designed for an OEM based on the needs of specific customer applications. Each of these applications may require a standard, modified standard or custom designed power supply.

•: Custom power supplies are typically sold directly to a manufacturer and necessitate a strong working relationship between the OEM and the power supply vendor. OEMs purchase custom power supplies to provide maximum design flexibility to meet the exact requirements for their specific application. These custom products usually have low- to mid-production volumes and higher margins than standard or modified standard models. Custom power supplies are typically provided by a sole source supplier. Once a custom power supply is designed into an OEM's product, it is difficult, time consuming and costly for the OEM to switch vendors.
•: Modified standard power supplies are standard products or platforms with a minimal amount of modification. These products are characterized by (1) shorter lead times; (2) lower up-front engineering costs; (3) potentially quicker development times; and (4) higher production volume.
•: Standard power supplies are designed to appeal to a wide range of customers for use in a variety of different applications. These products are sold directly to manufacturers and through third-party distributors. Standard power supplies offer benefits to the OEM because they have limited up-front engineering requirements, are readily available from multiple sources and facilitate a faster time-to-market for new product development. This type of product is significantly more price competitive.

Reduction of Approved Vendors Benefits Quality Power Supply Companies

To improve operating efficiencies and shorten the cycle time required to introduce new products, OEMs are relying on a smaller number of approved vendors, including power supply vendors. We believe OEMs are choosing these select power supply vendors based on:

•: Custom design capabilities and engineering expertise;
•: Complete end-to-end solutions including a broad product offering built from high power density platforms;
•: Ability to meet rapid time-to-market requirements;
•: Product quality, reliability and competitive pricing; and
•: Superior supply chain management to resolve global supplies, sourcing and delivery issues.

Competitive Strengths

We believe that we benefit from our competitive strengths in the industry due to the following reasons:

Focused Provider of Custom Solutions

We specialize in providing AC/DC customized and modified standard power supplies. We have a highly talented team of engineers who have extensive experience in designing customized and modified standard power supplies. We believe our engineering expertise and our database of product designs provides us with an advantage over our competition.

Distinctive Combination of Local Engineering with Low-Cost Manufacturing

We provide our customers with competitive pricing and better service compared to our competition because of our strategically located design and engineering facilities, which are located closer to our customers' design and manufacturing facilities. This proximity to our customers' design and manufacturing facilitates a faster turn around of changes to the design of the product requested by our customers during the design and testing process, which improves efficiency, lowers cost, and provides our customers with better service. Therefore, the "point of consumption" is an important part of our strategy of investing in operations, which we aim to locate in close proximity to our customers. With our design centers located in the United States, Europe, and China we can provide a more efficient alternative to their design and engineering product demands.

We are able to offer competitively priced manufactured products to our customers at lower costs to them due to our manufacturing facilities located in Shanghai, China and Bombay, India. These facilities allow us the ability to provide low-cost manufacturing solutions for the more labor- intensive aspects of our production process. Most of our products can be manufactured in multiple facilities, which gives us flexibility in meeting our customers' changing production requirements.

Efficient Operations Generate Stronger Margins

We believe our efficient operations will enable us in the future to generate stronger operating margins once our shipment volumes and capacity utilization increases. We will achieve stronger margins by:

•: Focusing on designing and manufacturing mid- to high-end custom and modified standard power supplies;
•: Using common componentry in our products to achieve lower cost of materials;

•: Purchasing substantially all of our raw materials directly from manufacturers, rather than distributors;
•: Utilizing our lower-cost manufacturing facilities in China and India for higher volume and labor-intensive production requirements; and
•: Effectively managing our costs and our capacity utilizations.

Strong Partnerships with Blue Chip OEM Customers

We provide products to a number of leading OEMs. We believe our customers continue to seek long-term power-solution partners to act as an extension of their own engineering teams and support their global manufacturing product needs over long product lifecycles. We have assembled a team of engineers focused on custom/modified standard design with close relationships to our customers' engineering staffs. We believe these engineering relationships have allowed us to strengthen our overall relationships with our customers.

Sole Provider for Programs Comprising a Significant Portion of Sales

Because of the custom nature of our products, a significant portion of our sales are from sole source relationships with our customers. Our products are generally used for the entire life cycle of a customer's end product, providing a base of recurring sales from year to year during that cycle. This life cycle can range anywhere from two to five years in computing, storage and communications applications, and up to seven to fifteen years in industrial and medical applications. We have found that OEMs generally do not change vendors once a power supply has been designed into a product.

Reputation for Quality and Service in an Increasingly Demanding Environment

The Company has been recognized by a number of our customers for providing superior quality and value. For the first time Cherokee was awarded the Prestigious Sun Meritorious Performance supplier award for 2006 from Sun Microsystems. Suppliers are judged on their performance in the area of cost, quality and lead-time, along with strategic and technical development.

Prototype lead-time is a critical factor in a customer's selection of a power supply manufacturer. On average, we deliver custom product prototypes within 10 to 12 weeks of a "design win". This rapid prototyping capability along with our effort to reduce production time helps our customers meet their product development commitment dates and beat their competitors to market. We provide our customers with short prototype lead times and fast time-to-production by:

•: Employing experienced engineers who are dedicated to design and development, and communicate directly with a customer's engineers throughout the design process;
•: Setting up our manufacturing lines to run custom products efficiently; and
•: Leveraging our common componentry and extensive database of product designs.

Executive Officers of Cherokee

Jeffrey Frank, 53, joined Cherokee in September 2001 as President, Chief Executive Officer and a member of our board of directors. Prior to joining Cherokee, Mr. Frank was President of Lambda LEI from July 2000 through September 2001. From May 1996 to March 2000, Mr. Frank was President of Polestar Laboratories. Mr. Frank has over 24 years of experience in the electronics industry in which he spent twelve years with Deltec Electronics, a manufacturer of uninterruptible power supplies that are marketed to OEM accounts globally.

Linster W. Fox, 58, joined Cherokee in October 2005 as Executive Vice President, Chief Financial Officer and Secretary. Prior to joining Cherokee, Mr. Fox worked at Anacomp, Inc., an international document management and multi-vendor services company, where he served as Executive Vice President, and Chief Financial Officer, since November 2000. Prior to November 2000, Mr. Fox was Senior Vice President and Corporate Controller at Anacomp. Mr. Fox previously served in a variety of financial management roles, as Vice President in Anacomp's corporate finance, international, technical services, engineering and manufacturing organizations. Prior to Anacomp, Mr. Fox worked for DatagraphiX Inc., a designer and manufacturer of high-end computer output devices with sales and service organizations around the world. There he held several financial management positions, including a five-year assignment in the U.K., as Director of Finance, with their European operations. Prior to DatagraphiX Inc., Mr. Fox worked in public accounting in Washington D.C. with what is now PricewaterhouseCoopers. His clients included public, commercial and international companies. Mr. Fox is a Certified Public Accountant and a graduate of Georgetown University.

Bassam Marawi, 48, joined Cherokee in October 2006 as Vice President of Research and Development. Prior to joining Cherokee Mr. Marawi served as Director of Engineering at Flextronics. From August 2000 to October 2003 Mr. Marawi was senior manager at Dell Inc. From April 1994 to August 2000, Mr. Marawi served as senior manager at Lucent Technologies, Bell labs. Mr. Marawi has over 24 years experience in power supplies and engineering management.

Alex Patel, 58, has served as our Vice President of Engineering since August 2002 and served as Director of Engineering from 1988 to 1993 and from March 1996 to August 2002. Mr. Patel was the Vice President of Engineering at Bikor from 1993 through March 1996, when we acquired substantially all of the assets of Bikor. Prior to joining the Company in 1988, Mr. Patel was a Senior Development Engineer at GE and Leland Electrosystems for 11 years combined.

Mukesh Patel, 43, has served as our Executive Vice President of Global Operations since June 2005. Prior to June 2005, Mr. Patel served as Cherokee's Vice President of Information Technology since August 1996. Prior to Cherokee, Mr. Patel served as Vice President of Operations at Bikor Corporation, until Cherokee acquired substantially all of the assets of Bikor.

Howard Ribaudo, 49, has served as Vice President of Sales for Cherokee since February 2005. Mr. Ribaudo served as Vice President of Global Accounts from March 1996 to February 2005, and served in various other capacities for Cherokee from 1988 through September 1993. Mr. Ribaudo served as Vice President of Sales and Marketing for Bikor Corporation from September 1993 through March 1996, when we acquired substantially all of the assets of Bikor.

Michael Wagner, 42, has served as Vice President of Marketing for Cherokee since November 2001. Mr. Wagner served as Director of Marketing for Lambda Electronics from July 1988 to October 2001.

Business Strategy

Our objective is to grow our business profitably by being the power supply partner of choice for select industry-leading OEMs who require sophisticated power solutions. Key elements of our strategy include:

Increase Sales to Our Existing Customers, Development of New Accounts in Growth Markets and a Diversification of Customers in the Four Vertical Markets Served.

Over the past few years, we have made a significant effort to enhance the processes and systems used in our interaction with customers. These enhancements include the addition of sales administration and program management personnel who provide expanded customer service support, the implementation of a global account strategy to coordinate the sales efforts of our North American, European and Asian operations for customers that require a global purchasing solution, and systems to

improve the efficiency of our order entry process. We believe these changes have resulted in increased sales and exemplary customer service to many of our existing customers. We intend to leverage our competitive strengths, in-depth knowledge of our customers' needs and expanded product line to continue to increase sales to our existing customers. In addition, as OEMs reduce the number of power supply vendors with whom they work, we continue to focus on increasing our business with existing customers.

Expand Our Customer Base Through Increased Sales and Marketing Efforts

We continue to invest in our internal sales force and our network of independent sales representatives, their focus and efforts have been on developing new business from our existing customer relationships.

In 2007, we generated 81 design wins for all products within all regions, of which 56 were considered major design wins. In 2006, we generated 92 design wins for all products within all regions, of which 53 were considered major design wins.

Expand and Cross-Sell Product Offerings

We plan to continue to broaden our existing product line and cross-sell products on a global basis to attract new customers in order to capture a larger market share of our existing customers' business. We intend to leverage our portfolio of standard and modified standard products in order to market these products both directly and on a private label and branded basis through available sales channels. We believe we have the ability and the opportunity to market custom products developed for one customer on a custom, modified standard or standard basis, to other customers.

Expand Our International Manufacturing Presence

In 2006, we expanded our operations into the Far East where we opened a new facility in Shanghai, China; we were fully operational by the end of the second quarter in 2006. The facility contains over 120,000 square feet of space with the capacity to accommodate sales, marketing, manufacturing, engineering and the requisite support personnel and functions that will enable us to expand into Asia as well as address the manufacturing needs of our North American and European customers. By locating our manufacturing facilities closer to our customers' own facilities, we are able to offer solutions with a lower cost base, increase production flexibility and decrease the lead times of our products.

Leverage Infrastructure to Improve Margins

Operating costs of our existing manufacturing facilities and related administrative expenses are relatively fixed, and should increase at a slower rate as sales improve. In addition, we have the opportunity to leverage our engineering and sales staff for higher revenue programs without significant increases in staffing and related costs. The relatively fixed cost structure of our business model should allow us to realize higher margins on incremental revenue. We believe that our available manufacturing capacity, combined with our manufacturing facility in China, will be sufficient to accommodate significant future growth. Additionally, we intend to further drive efficiencies in manufacturing, and minimize labor, supply and manufacturing costs, through the utilization of our facilities located outside of the United States.

Competitive and Business Challenges

Relatively Lower Net Sales

The design, manufacture and sale of power supplies are highly competitive. Some of our competitors have substantially greater net sales, resources and geographic presence than we do. In addition, cancellations, reductions or delays in customers' orders or commitments or an increase in warranty product returns could have a greater effect on us than some of our competitors because of our lower level of net sales.

Fixed Operating Costs

Operating costs of our existing manufacturing facilities and related administrative expenses are relatively fixed and therefore cannot be easily reduced if sales decline.

Unpredictable End Markets

As a provider of power supplies to OEMs in the electronic equipment industries, our sales are dependent upon the success of these end markets and the underlying products in which our power supplies are components. We have no control over, and cannot always accurately predict the demand in our customers' end markets.

International Operations

A significant portion of our business is conducted internationally. Operating internationally subjects us to risks that we would not otherwise face, such as political and economic instability, terrorism and civil unrest, difficulties in staffing and managing these operations, and fluctuations in foreign exchange rates.

Product Line

Our products cover a broad range of applications in the commercial end-market, from low to high power, ranging from 10 to 27,000 watts. Our power supplies are self-contained units, range in weight from one-half of a pound to thirty pounds and are normally incorporated inside OEM's end products.

Most of our power supplies are custom made, although we also produce some modified standard and standard products. We focus on designing and manufacturing mid- to high-end custom and modified standard commercial power supplies because they typically have the highest margins. Our large database of custom and modified standard products allow us to benefit from the opportunity to incorporate our existing engineering and designs into new customer products in order to expedite design and time-to-market. We introduced a complementary line of DC/DC products in the commercial market to take advantage of the growing DC/DC market. Our DC/DC converters range from 20 to 500 watts. We will continue to focus on selling our DC/DC products to existing AC/DC customers, as we believe there is an increased demand for these products and synergy with a complete distributed power application or "DPA" solution.

Customers

Our OEM customers are in diverse markets such as servers and storage, networking, wireless infrastructure, medical, high-end mainframes, industrial process controls, and other electronic equipment industries. Most of these OEMs are Fortune 500 companies and leaders in their respective industries. Our top ten customers accounted for approximately 50% of net sales for the year ended December 30, 2007, and approximately 51% for the year ended December 31, 2006. One customer accounted for more than 10% of net sales for the year ended December 30, 2007, however no customer accounted for more than 10% of net sales for the year ended December 31, 2006. We derived

approximately 50% of our net sales during the year ended December 30, 2007 and 52% of our net sales during the year ended December 31, 2006 from customers in North America. The remainder of our net sales for such periods was to customers outside of North America, with the majority of these sales to customers in Europe and Asia. For the dollar amount of net sales attributable to customers located by geographical region, please refer to Note 13 in our consolidated financial statements included in this Annual Report on Form10-K.

Sales and Marketing

We market our products and services in North America through an integrated sales approach involving account managers and independent sales representatives with active support from design, engineering and production personnel. Our in-house account managers supervise customer relationships and oversee a nation-wide network of commission-based independent sales representatives whose main purpose is to identify new opportunities. We market our products in Europe using a combination of a local direct sales team, independent sales representatives, in-house account managers and a new developing Value Added Reseller (VAR) channel. We market our products in China using a combination of a local direct sales team and independent sales representatives.

We focus our efforts in expanding relationships with existing customers and aggressively targeting emerging OEM industry leaders with whom the opportunity exists to provide products and services across a number of product families and through successive product generations. We focus our resources on markets that are growing relatively quickly and have the potential for significant profit margins. One example of an emerging market is the deployment of Triple Play voice, video and data to the home. We see this as an opportunity to provide power to a decentralized Access Network that will support the infrastructure for the smart home. We have already had success in powering systems for Access Network in Europe and are looking to the Far East as potential markets for this technology.

Potential customers are assigned to our in-house account managers who evaluate the customer against our customer selection criteria. On an ongoing basis, our engineering personnel provide technical support to customers in the areas of product design changes, field performance and testing. Our collaborative relationships allow us to gain valuable knowledge about an existing customer and its processes, which we believe gives us an advantage in obtaining future business from that customer.

Backlog

We generally sell our products pursuant to purchase orders rather than long-term contracts, and customers may generally cancel, reduce or postpone orders or commitments. Backlog consists of purchase orders received for which we have not shipped product. A variety of conditions, both specific to the individual customer and generally affecting the customer's industry, may cause customers to cancel, reduce or delay orders or commitments that were previously made or anticipated. At any time, a significant portion of our backlog may be subject to postponement. Our backlog was approximately $55.3 million at February 29, 2008 and $46.8 million at February 28, 2007. Our backlog was approximately $45.3 million at December 30, 2007, and $45.4 million at December 31, 2006. We expect a substantial majority of our backlog to be shipped within the next 12 months. We have also entered into certain warehousing arrangements with some of our customers, whereby we have agreed to bear the risk and cost of carrying inventory. Under these arrangements, we deliver the power supplies ordered by such customers to a third-party warehouse location, permit these customers to take delivery of the power supplies within a specified time period after our delivery of the products, and invoice these customers for the products only after they have taken ultimate delivery and title has passed.

Manufacturing Process and Quality Control

A typical power supply consists primarily of one or more printed circuit boards, electronic and electromagnetic components and a sheet metal chassis. The production of our power supplies entails the assembly of structural hardware combined with a sophisticated assembly of circuit boards encompassing highly automated surface mount technology, or SMT.

In response to market demands for increased quality and reliability, design complexity, and sophisticated technology, we have automated many electronic assembly and testing processes which were traditionally performed manually and we have standardized our manufacturing processes to efficiently utilize our resources and optimize our capacities. Our manufacturing facilities are designed to quickly produce a broad range of products at a low cost. At December 30, 2007 we had eleven SMT lines located throughout our facilities. SMT permits reduction in board size by eliminating the need for holes in the printed circuit boards and by allowing components to be placed on both sides of a board. Each SMT line is capable of placing as many as 40,000 parts per hour, with each machine hour equating to approximately 50 labor hours.

In addition to increasing automation of our facilities, we have standardized our operations to include self-contained continuous flow manufacturing lines, which incorporate flow solder machines, in circuit test machines, highly advanced computer controlled burn-in equipment, automated final test machines, ongoing reliability test equipment, and standardized processes and measurements on all lines. Furthermore, manufacturing processes, quality systems, data collection and documentation are standardized across all facilities for smooth transition among locations to accommodate optimal capacity utilization.

Most of our customers require that their power supplies meet or exceed established international safety and quality standards. In response to this need, we design and manufacture power supplies in accordance with the certification requirements of many international agencies, including Underwriters Laboratories Incorporated (UL) and Telcordia/Belcore in the United States; the Canadian Standards Association (CSA) in Canada; Technischer Uberwachungs-Verein (TUV) and Verband Deutscher Electrotechniker (VDE), both in Germany; the British Approval Board for Telecommunications (BABT) in the United Kingdom; and the European Telecommunications Standard Institute (ETSI) and International Electrotechnical Committee (IEC), both European standards organizations. In 2006, we received certification from the China Compulsory Product Certification (CCC), Belgian Safety (CEBEC) and Taiwan's Bureau of Standards, Metrology and Inspection (BSMI) organizations.

Quality and reliability are emphasized in both the design and manufacture of our products. In addition to testing throughout the design and manufacturing process, we test 100% of our finished products using automated equipment and customer-approved tests. Prototypes are reviewed to ensure that they can be efficiently manufactured and an additional out-of-box test or pre-ship audit is performed on randomly selected finished units to further ensuring manufacturing quality and integrity.

All of our facilities in California, Belgium, China and India are currently ISO 9001:2000 certified. All facilities, excluding our India Facility, are also certified to the higher ISO 14000 standard. In addition, our China Facility is OHSAS 18001:1999 certified.

We are subject to federal, state and local environmental laws and regulations (in both the United States and abroad) that govern the handling, transportation and discharge of materials into the environment, including into the air, water and soil. Environmental laws could become even more stringent in the future, imposing greater compliance costs and increasing risks and penalties associated with their violation or the contamination of the environment. Should there be an environmental accident or violation related to our operations, our financial condition or results of operations may be adversely affected. We could be held liable for significant penalties and damages under environmental

laws and could also be subject to a revocation of licenses or permits, which could materially and adversely affect our financial condition or results of operations.

The following are two European Economic Community ("EEC") directives that are having an effect on the entire electronics industry, including the Company:

(1) Restriction of Hazardous Substances in Electrical and Electronic Equipment, more commonly known as RoHS. This European directive bans the use of certain elements that are commonly found in components used to manufacture electrical and electronic assemblies. This directive became effective on July 1, 2006. The Company began manufacturing compliant products in 2006 and continues to work actively with its customers to ensure compliance. The Company is focused on consuming all non-compliant material on-hand within a reasonable period. However, the Company may have to dispose of non-compliant materials in the future, which could adversely affect the financial performance of the Company. There is also a risk of fines associated with non-compliance with the RoHS directive; however, the Company is not aware of any specific potential fines, and the Company anticipates complying with all provisions of this legislation.

(2) Waste Electrical and Electronic Equipment, also known as WEEE. This directive became effective August 13, 2005 and requires manufacturers and importers to properly recycle or dispose of such equipment at the end of its useful life. The Company believes it has limited exposure to the WEEE directive because its products are usually installed into another user's system, but this directive may be interpreted and enforced differently in the future. If so, the Company may face significant risk of fines and costs associated with non-compliance with the existing laws and regulations in the European Union. The Company began manufacturing compliant products in 2005, and continues to work actively with its customers to ensure compliance.

As of December 30, 2007, the Company does not foresee any material estimated capital expenditures for environmental remediation's or related costs to our manufacturing facilities in the future.

Suppliers

Our high-quality products and ability to provide such products in a relatively short time-to-market are in part the result of a well-managed supply chain network. We typically design products using common components, thereby increasing our purchasing power and reducing inventory risk. Most of our raw materials, including electronic and other components, sheet metal, transistors, mechanical parts and electrical wires, are readily available from several sources. Although some of our raw materials are sourced from only one manufacturer, they are generally available in large quantities from a number of different suppliers.

Through centralized purchasing, we have negotiated a number of volume discount purchase agreements to realize economies of scale at each facility. We generally purchase raw materials and components directly from manufacturers and not from distributors to get the most current materials at a lower available cost, thereby further reducing our overall cost of production. We view our suppliers as long-term partners with whom we strive to develop strong relationships. In our experience, the repeat business and confidence that these relationships offer our suppliers often lead to a lower cost of materials.

Competition

The power supply manufacturing industry is highly fragmented and characterized by intense competition. According to Micro-Tech Consultants, in 2007 there were over 1,000 third-party AC/DC and DC/DC power supply manufacturers worldwide. No single company dominates the overall power supplies market and our competitors vary depending upon the particular power conversion product

category. Our competitors include Emerson Network Power, Delta Electronics, TDK (Lambda), Power One, Lineage Power, Murata, Eltek-Valere, Vicor, and many other companies.

We believe that the principal competitive factors in our targeted markets are length of time-to-market, manufacturing flexibility, technical knowledge, quality and cost. We believe that, compared to our competition, we sell products with comparable or better quality characteristics at comparable prices.

Engineering and Product Development

Our engineering and product development activities are principally directed to the improvement of existing products and the development of new power supplies to satisfy customer needs. As part of the collaborative relationships established by us with our key customers, we work closely with our customers to develop new products. Product development is performed by a group of design engineers and technicians primarily located in Tustin, California and Wavre, Belgium. We also opened a Far East design center in our China Facility during the second quarter of 2007.

Our total expenditures for engineering and product development were $10.9 million, $9.5 million and $9.0 million for the years ended December 30, 2007, December 31, 2006 and January 1, 2006, respectively.

Intellectual Property Matters

Historically, intellectual property rights have not been a significant competitive factor in the power supply industry. Accordingly, we have not expended significant efforts to obtain patents, trademark registrations or other forms of intellectual property protection covering our brands and technologies. However, there is no guarantee that intellectual property rights will not become more significant in the future, or that our competitors will not try to assert intellectual property rights to obtain a competitive advantage. Indeed, from time-to-time we have received notices of alleged infringement and/or invitations to take licenses from third parties.

On November 16, 2007, SynQor announced that it had filed a lawsuit against several of its competitors, including Cherokee International Corporation who was named in the complaint, for infringement of two patents relating to bus converters and/or non-isolated point of load converters used in intermediate bus architectures. The patents at issue are U.S. patents 7,072,190 and 7,272,021. The suit was filed in Federal Court in the Eastern District of Texas. The Company intends to vigorously defend this lawsuit. Although the ultimate aggregate amount of monetary liability or financial impact with respect to this lawsuit is subject to many uncertainties and is therefore not predictable with assurance, the final outcome of this lawsuit, if adverse, could have a material adverse effect on our financial position, results of operations or cash flows.

Employees

At December 30, 2007, we employed 1,519 full-time employees at our facilities in the following capacities:

Function	U.S.	Europe	India	China	Total
Manufacturing	260	181	432	406	1,279
Engineering (including R&D)	47	35	1	26	109
Quality Control	21	10	2	6	39
Marketing	12	13	—	5	30
General Administration	20	15	14	13	62

Total	360	254	449	456	1,519

None of our North America or China employees are represented by a labor organization. Most of the employees in Belgium and India are represented by local unions that are subject to collective bargaining agreements. Our union workers in India are currently working with an expired labor agreement. Management is currently negotiating to renew this agreement.

ITEM 1A. RISK FACTORS

The following risk factors, among others, could cause our financial performance to differ significantly from the goals, plans, objectives, intentions and expectations expressed in this Annual Report on Form 10-K. If any of the following risks and uncertainties or other risks and uncertainties not currently known to us or not currently considered to be material actually occurs, our business, financial condition or operating results could be harmed substantially.

Risks Relating to Our Company and Industry

We are substantially dependent upon sales to a relatively small group of customers. The loss of one or more major customers, or the discontinuation or modification of these customers' products, could materially and adversely affect the results of our operations.

Our top ten customers accounted for approximately 50% of our net sales for the year ended December 30, 2007 and approximately 51% of our net sales for the year ended December 31, 2006. In addition, one customer accounted for more than 10% of net sales in 2007. The loss of any of our major customers could have a material adverse effect on our financial condition or results of operations. We do not have long-term contracts with our customers, and our customers use alternative power supply providers for some or all of their products. We may not be able to maintain our customer relationships, and our customers may reduce or cancel their purchase orders, purchase power supplies elsewhere or develop relationships with additional providers of power supplies, any of which could adversely affect our financial condition or results of operations. A significant change in the liquidity or financial position of any of these customers could also have a material adverse effect on the collectibility of our accounts receivables, our liquidity and our future operating results. Prior to, or at the end of, a product's life cycle, any of our customers may decide to discontinue or modify any of its products. In that event, the customer may no longer have a need for our products or may choose to integrate a competitor's power supply into the customer's new or modified product. The resulting loss of revenues could also adversely affect our financial condition or results of our operations.

Failure by our customers or us to keep up with rapid technological change in the electronic equipment industries could result in reduced sales for us.

Many of our existing customers are in the electronic equipment industries, especially wireless infrastructure and networking, and produce products that are subject to rapid technological change, obsolescence and large fluctuations in world-wide product demand. These industries are characterized by intense competition and end-user demand for increased product performance at lower prices. We may not be able to properly assess developments in the electronic equipment industries or identify product groups or customers with the potential for continued and future growth. Factors affecting the electronic equipment industries, in general, or any of our major customers or their products, in particular, could have a material adverse effect on our financial condition or results of operations. For instance, as a provider of power supplies to OEMs in the electronic equipment industries, our sales are dependent upon the success of the underlying products of which our power supplies are a component. We have no control over the demand for or success of these products. If our customers' products are not well received by, or if demand for their products fails to develop among end-users, our customers may discontinue or modify the product or reduce the production of the product. Any of these events could lead to the cancellation or reduction of orders for our power supplies that were previously made or anticipated, which could materially adversely affect our financial condition or results of operation.

See "Cancellations, reductions or delays in customers' orders or commitments, or an increase in the number of warranty product returns could have a material adverse impact on our financial condition and results of operations" for more information. The markets for our products are characterized by rapidly changing technologies, increasing customer demands, evolving industry standards, frequent new product introductions and shortening product life cycles. Generally, our customers purchase our power supplies for the life cycle of a product, which can range anywhere from two to fifteen years. The development of new, technologically advanced products is a complex and uncertain process requiring high levels of innovation and cost, as well as the accurate anticipation of technological and market trends. As the life cycle of our customers' products shorten, we will be required to bid on contracts for replacement or next generation products to replace revenues generated from discontinued products more frequently. These bids may not be successful. Even if we are successful, we may not be able to successfully develop, introduce or manage the transition of new products. Any failure or delay in anticipating technological advances or developing and marketing new products that respond to any significant technological change or significant changes in customer demand could have a material adverse effect on our financial condition or results of operations.

We face significant competition, including from some competitors with greater resources and geographic presence than us. Our failure to adequately compete could have a material adverse effect on our business.

The design, manufacture and sale of power supplies are highly competitive and characterized by increasing customer demands for product performance, shorter manufacturing cycles and lower prices. Our competition includes numerous companies throughout the world, some of which have advantages over us in terms of labor and component costs and technology. Our principal competitors are Emerson Network Power, Delta Electronics, TDK (Lambda), Power One, Lineage Power, Murata, Eltek-Valere, and Vicor. Some of our competitors have substantially greater net sales, resources and geographic presence than we do. Competition from existing competitors or new market entrants may increase at any time. We also face competition from current and prospective customers that may design and manufacture their own power supplies. In times of an economic downturn, or when dealing with high-volume orders, price may become a more important competitive factor, forcing us to reduce prices and thereby adversely affecting our financial results. Some of our major competitors have also consolidated through merger and acquisition transactions. Consolidation among our competitors is likely to create companies with increased market share, customer bases, proprietary technology and marketing expertise, and an expanded sales force. These developments may adversely affect our ability to compete.

Cancellations, reductions or delays in customers' orders or commitments, or an increase in the number of warranty product returns could have a material adverse impact on our financial condition and results of operations.

We do not obtain long-term purchase orders or commitments from our customers, and customers may generally cancel, reduce or postpone orders or commitments. A variety of conditions, both specific to the individual customer and generally affecting the customer's industry, may cause customers to cancel, reduce or delay orders or commitments that were previously made or anticipated. At any time, a significant portion of our backlog may be subject to cancellation or postponement. For example, our entire $45.3 million backlog as of December 30, 2007 was subject to cancellation upon the payment by our customers of cancellation fees that vary depending on individual purchase orders. We also enter into certain warehousing arrangements with some of our customers, whereby we agree to bear the risk and cost of carrying inventory. Under these arrangements, we deliver the power supplies ordered by such customers to a third-party location, permit these customers to take delivery of the power supplies within a specified time period after our delivery of the products, and invoice these customers for the products only after they have taken ultimate delivery and title has passed. We may not be able to

replace cancelled, delayed or reduced orders or commitments in a timely manner or at all and in some instances may need to write-off inventory. Significant or numerous cancellations, as well as reductions or delays in orders or commitments, including as a result of delays in or the failure to take delivery of products that are subject to such arrangements, by a customer or group of customers, could materially adversely affect our financial condition or results of operations.

We also offer our customers a warranty for products that do not function properly within a limited time after delivery. We regularly monitor and track warranty product returns and record a provision for the estimated amount of future warranty returns based on historical experience and any notification we receive of pending warranty returns. We may experience greater warranty return rates than we have in the past. Any significant increase in product failure rates and the resulting warranty credit returns could have a material adverse effect on our operating results for the period or periods in which those warranty returns occur.

Our international manufacturing operations and our international sales subject us to risks associated with foreign laws, policies, economies and exchange rate fluctuations.

We have manufacturing operations located in Europe, India, and China. We may expand our operations into other foreign countries in the future. In addition, international sales have been, and are expected to continue to be, an important component of our total sales. International sales represented 50% of our net sales for the year ended December 30, 2007 and 48% of our net sales for the year ended December 31, 2006. Our manufacturing operations and international sales are subject to inherent risks, all of which could have a material adverse effect on our financial condition or results of operations. For example, our European Division (Cherokee Europe) has two restructuring plans in place. The first one (the 1999 Europe restructuring) was inherited by us in 2000 when we purchased this division from Panta Electronics, and the second (the 2003 Europe restructuring) was implemented in 2003 by us. Both of these plans were significantly impacted by local labor laws and union labor negotiations, and required termination benefits. When we acquired Cherokee Europe in 2000, we inherited a liability of approximately $2.2 million to be paid through 2010 as a result of the 1999 Europe restructuring. When we implemented the 2003 Europe restructuring, we recorded a $4.5 million expense to be paid through 2016. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations." Other risks affecting our international operations include:

•: differences or unexpected changes in regulatory requirements;
•: political and economic instability;
•: terrorism and civil unrest;
•: work stoppages or strikes;
•: interruptions in transportation;
•: restrictions on the export or import of technology;
•: difficulties in staffing and managing international operations;
•: variations in tariffs, quotas, taxes and other market barriers;
•: longer payment cycles;
•: problems in collecting accounts receivables;
•: changes in economic conditions in the international markets in which our products are sold; and
•: greater fluctuations in sales to customers in developing countries.

Although we transact business primarily in U.S. dollars, a portion of our sales and expenses, including labor costs, are denominated in the Indian rupee, the Chinese renminbi ("RMB"), the Euro and other European currencies. For the years ended December 30, 2007 and December 31, 2006, net sales in Europe accounted for 35% and 37% of our net sales, respectively. Declines in the value of the U.S. dollar relative to the Euro impacted our revenue, cost of goods sold and operating margins for these periods and resulted in foreign currency transaction gains and losses. Foreign currency translation gains or losses recorded in other comprehensive income, a component of equity, for the years ended December 30, 2007 and December 31, 2006 were a gain of $1.2 million and a gain of $1.6 million, respectively. Historically, we have not actively engaged in substantial exchange rate hedging activities and do not intend to do so in the future.

An interruption in delivery of component supplies could lead to supply shortages or a significant increase in our cost of materials.

We are dependent on our suppliers for timely shipments of components, including components manufactured by us in our India facilities. We typically use a primary source of supply for each component used in our products. Changing suppliers or establishing alternate primary sources of supply, if needed, could take a significant period of time, which in turn could result in supply shortages and increased prices. In some cases, we source components from only one manufacturer. Substantially all of our revenues are derived from the sale of products that include components that we source from only one manufacturer. In addition, many of our suppliers are located outside of the United States, and timely delivery from these suppliers may not occur due to interruptions in transportation, import-export controls, tariffs, quotas, taxes and other market barriers, and political and economic stability in the country in which the components used in our products are produced or the surrounding region. An interruption in supply could have a material adverse effect on our operations. Any shortages of particular components could increase product delivery times and costs associated with manufacturing, thereby reducing gross margins. Additionally, these shortages could cause a substantial loss of business due to shipment delays. Any significant shortages or price increases of components could have a material adverse effect on our financial condition or results of operations.

Our quarterly sales may fluctuate while our expenditures remain relatively fixed, potentially resulting in lower gross margins and volatility in our stock price.

Our quarterly results of operations have fluctuated in the past and may continue to fluctuate in the future. Fluctuations in customer needs, cancellations, reductions and delays in orders and commitments may cause our quarterly results to fluctuate. See the risk factor above entitled "Cancellations, reductions or delays in customers' orders or commitments or an increase in the number of warranty product returns could have a material adverse impact on our financial condition and results of operations." Variations in volume production orders and in the mix of products sold by us have also significantly affected sales and gross profit. Sales are generally impacted by a combination of these items and may also be affected by other factors. These factors include:

•: the receipt and shipment of large orders or reductions in these orders (including the impact of any customer warehousing arrangements);
•: raw material availability and pricing;
•: product and price competition; and
•: the length of sales cycles.

Many of these factors are outside of our control. In addition, a substantial portion of our sales in a given quarter may depend on obtaining orders for products to be manufactured and shipped in the same quarter in which those orders are received. As a result of this and other factors described above,

sales for future quarters are difficult to predict and our financial condition or results of operations in a given quarter may be below our expectations and our gross margins may decrease. Our expense levels are relatively fixed and are based, in part, on expectations of future revenues. If revenue levels are below expectations, the market price of our common stock could fall substantially, and our financial condition or results of operations could be materially adversely affected.

Our ability to successfully implement our business strategy is dependent on our ability to retain and attract key personnel.

Our ability to successfully implement our business strategy depends to a significant degree on the efforts of Jeffrey M. Frank, President, Chief Executive Officer, and Director, Linster W. Fox, Executive Vice President, Chief Financial Officer and Secretary, and Mukesh Patel, Executive Vice President, Global Operations, along with other members of our senior management team. We believe that the loss of service of any of these executives could have a material adverse effect on our business. In addition, we depend on highly skilled engineers and other personnel with technical skills that are in high demand and are difficult to replace. As a result, our ability to maintain and enhance product and manufacturing technologies and to manage any future growth also depends on our success in attracting and retaining personnel with highly technical skills. The competition for these qualified technical personnel may be intense if the relatively limited number of qualified and available power engineers continues. We may not be able to attract and retain qualified technical personnel.

Changes in government regulations or product certification could result in delays in shipment or loss of sales.

Our operations are subject to general laws, regulations and government policies in the United States and abroad. Additionally, our product standards are certified by agencies in various countries, including, among others, the United States, Canada, Asia, Germany and the United Kingdom. Changes in these laws, regulations, policies or certification standards could negatively affect the demand for our products, result in the need to modify our existing products, increase time-to-production or affect the development of new products, each of which may involve substantial costs, or loss of or delayed sales, and could have a material adverse effect on our financial condition or results of operations.

Environmental compliance could require significant expenditures and failure to so comply could result in fines or revocation of licenses or permits, any of which could materially and adversely affect our financial condition or results of operations.

The following are two European Economic Community ("EEC") directives that are having an effect on the entire electronics industry, including the Company:

actively with its customers to ensure compliance. The Company is focused on consuming all non-compliant material on-hand within a reasonable period. However, the Company may have to dispose of non-compliant materials in the future, which could adversely affect the financial performance of the Company. There is also a risk of fines associated with non-compliance with the RoHS directive; however, the Company is not aware of any specific potential fines, and the Company anticipates complying with all provisions of this legislation.

Our operations are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure and other events beyond our control.

Our operations are vulnerable to interruption by earthquakes, fires, electrical blackouts, power losses, telecommunications failures and other events beyond our control. Our executive offices and key manufacturing and engineering facilities are located in Southern California. Because Southern California is an earthquake-prone area, we are particularly susceptible to the risk of damage to, or total destruction of, our facilities in Southern California and the surrounding transportation infrastructure, which could affect our ability to make and transport our products. In addition, California continues to face periodic shortages in its power supply. If rolling blackouts or other disruptions in power were to occur, our business and operations would be disrupted and our business would be adversely affected. Our business interruption insurance may not be sufficient to compensate us for losses that may occur and would not compensate us for the loss of consumer goodwill due to disruption of service.

Third parties may sue us for alleged infringement of their proprietary rights.

We have received, from time to time, notices of alleged infringement and/or invitations to take licenses from third parties asserting that they have patents (or other intellectual property rights) that are relevant to our present or contemplated business operations. There is no guarantee that we will be able to avoid incurring litigation costs related to such assertions. Intellectual property claims could be successfully asserted against us, preventing us from using certain of our technologies, or forcing us to modify our technology or to pay license fees for use of that technology. Such additional engineering expenses or licensing costs could have an adverse effect on the results of our operations. In addition, we could incur substantial expenses in defending against these claims, whether or not we ultimately prevail against these claims.

Provisions of the agreements governing our debt will restrict our business operations.

At December 30, 2007, we had $46.6 million of 5.25% senior notes outstanding, and we had in place a $7.5 million senior revolving credit facility (with no amounts outstanding) that is subject to a borrowing base comprised of eligible accounts receivable. Our outstanding indebtedness, including our 5.25% senior notes and any debt incurred pursuant to the senior revolving credit facility, is secured by substantially all of our assets.

Cherokee Europe maintains a working capital line of credit of approximately $4.5 million with Bank Brussels Lambert, a subsidiary of ING Belgie NV, a bank in Brussels, which is denominated in Euros, collateralized by a pledge in first and second rank over a specific amount of business assets, requires Cherokee Europe to maintain a certain specific minimum solvency ratio, and is cancelable at any time. In November 2007, ING Belgie NV restricted the Company from transferring funds from Europe to the US in the form of management and dividend fees. As of December 30, 2007, Cherokee Europe had $2.1 million of outstanding borrowings under the line of credit. As of February 29, 2008, Cherokee Europe had $2.6 million outstanding borrowings under the line of credit.

Cherokee China entered into a loan contract in January 2007 with Industrial and Commercial Bank of China Ltd. ("ICBC") for a working capital line of credit. Pursuant to the contract, ICBC agreed to make advances up to the equivalent of approximately $3.4 million, expressed as RMB 25.0 million. The line of credit is collateralized by the Company's building in Shanghai, China. The first term ended January 29, 2008, and was renewed and extended for an additional year, until January 2009. The contract is renewable annually, but is cancelable at any time. Beginning with its initial borrowing under the contract, Cherokee China has agreed to deposit in the ICBC Shanghai Branch at least 90% of the operating revenue it collects. The cash from these deposits made into our bank account are not restricted from our usage of these funds. As of December 30, 2007, Cherokee China had $1.3 million of outstanding borrowings under the line of credit and was in compliance with all covenants. As of February 29, 2008, Cherokee China had $0.7 million of borrowings under the line of credit and was in compliance with all covenants.

We may need to incur additional debt to continue to grow our business in the future. The agreements governing our debt contain a number of covenants that restrict our business operations, including covenants limiting our ability to make investments, enter into mergers or acquisitions, dispose of assets, incur additional debt, grant liens, enter into transactions with affiliates, redeem or repurchase our capital stock, repay other debt and pay dividends. As of December 30, 2007 and February 29, 2008, we were in compliance with our covenants set forth in the agreements.

Our ability to comply with covenants under agreements governing our debt may be affected by events that are beyond our control, including prevailing economic, financial and industry conditions. Our failure to comply with the covenants or restrictions contained in agreements governing our debt could result in an event of default under these agreements, which could result in our debt, together with accrued and unpaid interest, being declared immediately due and payable.

Our 5.25% Senior Notes mature on November 1, 2008, and we may be unable to repay or refinance this indebtedness upon maturity.

On November 1, 2008, the $46.6 million aggregate principal amount outstanding under our 5.25% Senior Notes will become due and payable. We do not expect to have sufficient cash available at the time of maturity to repay this indebtedness and are currently working with an investment banker to extend the maturity of these notes. We also cannot be certain that we will have sufficient assets or cash flow available to support refinancing these notes at current market rates or on terms that are satisfactory to us. If we are unable to refinance on terms satisfactory to us, we may be forced to refinance on terms that are materially less favorable, seek funds through other means such as a sale of

some of our assets, or otherwise significantly alter our operating plan, any of which could have a material adverse effect on our business, financial condition and results of operation.

Credit risks could materially and adversely affect our operations and financial condition.

Negative or declining economic conditions can increase our exposure to our customers' credit risk. In particular, sales to larger customers are sometimes made through contract manufacturers that do not have the same resources as those customers. Additionally, if one of our major customers experienced financial difficulties, losses could be in excess of our current allowance. At December 30, 2007, one of our customers accounted for approximately 10.9% of our total net receivables and at December 31, 2006, another one of our customers accounted for 6.9% of our total net receivables. For the periods ended December 30, 2007, and December 31, 2006, our accounts receivable write-offs amounted to less than 1% of our net accounts receivable balance. In the event our customers or those contract manufacturers experience financial difficulties and fail to meet their financial obligations to us, or if our recorded bad debt provisions with respect to receivables obligations do not accurately reflect future customer payment levels, we could incur additional write-offs of receivables that are in excess of our provisions, which could have a material adverse effect on our operations and financial condition. In addition, we depend on the continuing willingness of our suppliers to extend credit to us to finance our inventory purchases. If suppliers become concerned about our ability to generate cash and service our debt, they may delay shipments to us or require payment in advance.

If we fail to meet the listing requirements of the Nasdaq Global Market and the Nasdaq determines to delist our common stock, the delisting would adversely affect the liquidity of our common stock and the market price of our common stock could decline.

Our Common stock is listed on the Nasdaq Global Market. In order to maintain that listing we must satisfy certain periodic reporting requirements under Marketplace Rule 4310(c)(14). If we fail to file our Quarterly Reports on Form 10-Q or Annual Reports on Form 10-K timely, Nasdaq could delist our common stock from the Nasdaq Global Market. If our common stock is delisted from the Nasdaq Global Market, the price of our common stock and the ability of our stockholders to trade in our common stock would be adversely affected. In addition, such delisting could adversely affect our ability to obtain financing and could result in the loss of confidence by our investors, suppliers and employees.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our headquarters are located in Tustin, California. We own two manufacturing facilities, both of which are outside of the United States, and lease five other manufacturing facilities and one warehouse facility. These facilities manufacture labor-intensive magnetic sub-assemblies that are distributed to our other facilities for incorporation into our final products. In addition, we lease satellite offices located in England, France, Germany and Sweden, which serve as sales offices. All of our leases have renewal options as indicated in the following table. We believe that our leased locations are adequate for our immediate needs and that additional or substitute space is available, if needed, to accommodate future growth and expansion, or relocation. Please refer to Note 13 to our consolidated financial statements

included elsewhere in this Annual Report on Form 10-K for the amount of our long-lived assets outside the United States.

Facilities	Primary Activity	Approximate Square Footage	Owned/ Leased	Lease Expiration Date	Renewal Option
Tustin, California	Manufacturing Engineering Administrative	86,000	Leased	April 30, 2009	One five-year renewal
Tustin, California	Warehousing	10,000	Leased	April 30, 2009	One three-year renewal
Tustin, California	Warehousing	10,000	Leased	April 30, 2009	One three-year renewal
Irvine, California	Manufacturing Engineering	31,000	Leased	April 30, 2009	One five-year renewal
Wavre, Belgium	Manufacturing Engineering Administrative	178,000	Owned	Not applicable	Not applicable
Bombay, India	Manufacturing	14,000	Leased	September 19, 2011 September 24, 2012	Unlimited five-year renewals
Bombay, India	Manufacturing	17,000	Leased	September 24, 2011	Unlimited five-year renewals
Shanghai, China	Manufacturing	120,000	*Owned	October 27, 2055	Not applicable

*: The land is an Industrial Park owned by the Government of the People's Republic of China (the "PRC"). Under PRC law, the government owns the land and no private parties are allowed to purchase land. However, our China subsidiary owns the building and we have invested $11.4 million into the development of this new facility and its operation.

ITEM 3. LEGAL PROCEEDINGS

In late March 2006, the Company learned that employees of its Indian subsidiary manufacturing operations had made certain unauthorized payments that may have been in violation of the Foreign Corrupt Practices Act and local laws. The facility in India is used for the sole purpose of manufacturing products for other Company locations and, as such, does not generate revenue or issue invoices to external customers. It manufactures approximately 6% (by volume) of the products offered by the Company.

The subject payments, in the aggregate, amount to approximately $40,000 in 2004 and 2005, and less than $10,000 in 2006. The Company retained outside counsel who conducted an internal investigation into these payments. In January 2007, the Company's outside counsel met with the SEC to discuss the results of the internal investigation.

During the year ended December 30, 2007, we were not a party to any other material legal proceedings. We are occasionally a party to lawsuits relating to routine matters incidental to our business. As with all litigation, we can provide no assurance as to the outcome of any particular lawsuit, and we note that litigation inherently involves significant costs.

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

None.

PART II

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

(a) Our common stock is listed on the NASDAQ Global Market and is traded under the symbol "CHRK". The following table sets forth, for the quarterly periods indicated, the range of high and low closing sale prices for our common stock.

	Years Ended
	December 30, 2007				December 31, 2006
	High		Low		High		Low
First Quarter	$	5.88	$	4.00	$	5.27	$	3.95
Second Quarter	$	5.76	$	4.58	$	6.80	$	3.49
Third Quarter	$	5.03	$	3.25	$	4.21	$	3.30
Fourth Quarter	$	3.77	$	2.15	$	4.03	$	2.90

As of February 25, 2008, there were approximately 27,764 holders of our common stock.

We have not paid any cash dividends on our common stock and do not anticipate paying dividends in the foreseeable future.

The graph below shows a comparison of cumulative total return for Cherokee International Corporation, the NASDAQ Composite index, and a peer group of four companies consisting of: Murata, Magnetek Inc., Power-One Inc. and Vicor Corp. The graph tracks the performance of a $100 investment in our common stock, in the peer group, and the NASDAQ Composite index, including the reinvestment of all dividends from February 20, 2004 (the first trading date of our common stock on NASDAQ) to December 30, 2007.

COMPARISON OF 4 YEAR CUMULATIVE TOTAL RETURN*
Among Cherokee International Corporation, The NASDAQ Composite Index
And A Peer Group

*: $100 invested on 2/20/04 in stock or on 1/31/04 in index-including reinvestment of dividends. Fiscal year ending December 31.

	2/20/04	1/2/05	1/1/06	12/31/06	12/30/07
Cherokee International Corporation	100.00	58.24	27.94	24.42	13.39
NASDAQ Composite	100.00	106.44	109.00	121.44	132.68
Peer Group	100.00	86.90	62.42	60.87	53.70

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data as of December 30, 2007 and December 31, 2006 and for the years ended December 30, 2007, December 31, 2006 and January 1, 2006 are derived from our audited consolidated financial statements that appear elsewhere in this Annual Report on Form 10-K. The selected consolidated financial data as of January 1, 2006, January 2, 2005, and December 28, 2003, and for the years ended January 2, 2005 and December 28, 2003 have been derived from our audited consolidated financial statements that are not included in this Annual Report on Form 10-K. You should read the following financial information together with the information under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K.

		December 30, 2007			December 31, 2006			January 1, 2006			January 2, 2005			December 28, 2003
		(in thousands except per share amounts)
Consolidated Statement of Operations Data:
Net sales		$	128,496		$	145,028		$	122,079		$	148,511		$	111,943
Cost of sales			102,904			114,439			97,181			104,140			79,397

Gross profit			25,592			30,589			24,898			44,371			32,546
Operating expenses			30,238			28,874			27,557			25,704			22,522
Goodwill impairment			5,197			—			—			—			—
Restructuring costs			155			697			—			—			4,474
Asset impairment			—			285			—			—			—
Long service award liability reduction			—			(1,718	)		—			—			—
Stock compensation expense			—			—			—			243			990
Gain from insurance proceeds			—			—			(2,898	)		—			—

Operating income			(9,998	)		2,451			239			18,424			4,560
Interest expense			(2,804	)		(2,786	)		(2,852	)		(5,234	)		(17,028	)
Gain from sale of Mexico Facility building			430			—			—			—			—
Gain from from sale of Mexico corporation			431			—			—			—			—
Other income (expense), net			516			335			258			47			1,187

Income (loss) before income taxes			(11,425	)		—			(2,355	)		13,237			(11,281	)
Provision (benefit) for income taxes			(2,452	)		(83	)		877			2,796			1,151

Net income (loss)		$	(8,973	)	$	83		$	(3,232	)	$	10,441		$	(12.432	)

Net income (loss) per share:
	Basic	$	(0.46	)	$	—		$	(0.17	)	$	0.62		$	(5.83	)
	Diluted	$	(0.46	)	$	—		$	(0.17	)	$	0.62		$	(5.83	)
Weighted average shares outstanding:
	Basic		19,387			19,286			19,230			16,761			2,132
	Diluted		19,387			19,298			19,230			18,639			2,132

	December 30, 2007			December 31, 2006		January 1, 2006		January 2, 2005		December 28, 2003
	(in thousands)
Other Financial Data:
Cash flow provided by (used in) operating activities	$	(3,820	)	$	1,290	$	1,314	$	3,979	$	(4,805	)
Capital expenditures	$	2,384		$	3,596	$	8,144	$	4,925	$	1,962
Depreciation and amortization	$	3,148		$	3,362	$	3,141	$	3,207	$	3,594
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	8,484		$	8,881	$	10,543	$	14,585	$	4,887
Working capital	$	(7,451	)	$	41,105	$	40,655	$	51,109	$	18,626
Total assets	$	92,860		$	96,893	$	91,318	$	99,812	$	77,215
Total debt	$	46,630		$	46,630	$	46,630	$	46,630	$	172,435
Stockholders' equity (deficit)	$	11,187		$	15,875	$	16,462	$	22,134	$	(129,968	)

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

Overview

The following Management's Discussion and Analysis (the "MD&A") is provided as a supplement to, and should be read in conjunction with our consolidated financial statements and the accompanying notes to the consolidated financial statements (the "Notes").

The following MD&A is intended to help the reader understand the consolidated results of operations and financial condition of Cherokee International Corporation.

Forward-looking statements

Certain statements in this Annual Report on Form 10-K, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based upon our current expectations about future events. When used in this Annual Report, the words "believes," "projects," "expects," "anticipates," "estimates," "intends," "strategy," "plan," "may," "will," "would," "will be," "will continue," "will likely result," and similar expressions, or the negative of such words and expressions, are intended to identify forward-looking statements, although not all forward-looking statements contain such words or expressions. These forward-looking statements generally relate to our plans, objectives and expectations for future operations. However, these statements are subject to a number of risks and uncertainties affecting our business. You should read this Annual Report completely and with the understanding that actual future results may be materially different from what we expect as a result of these risks and uncertainties and other factors, which include, but are not limited to: (1) the potential delisting of the Company's common stock from the Nasdaq Global Market, (2) changes in general economic and business conditions, domestically and internationally, (3) reductions in sales to, or the loss of, any of the Company's significant customers or in customer capacity generally, (4) changes in the Company's sales mix to lower margin products, (5) increased competition in the Company's industry, (6) disruptions of the Company's established supply channels, (7) the Company's level of debt and restrictions imposed by its debt agreements, and (8) the additional risk factors identified in Part I, Item 1 of this document. Except as required by law, the Company undertakes no obligation to update any forward-looking statements, even though the Company's situation may change in the future.

Business

We are a designer and manufacturer of power supplies for OEMs. Our advanced power supply products are typically custom designed into mid- to high-end commercial applications in the computing and storage, wireless infrastructure, enterprise networking, telecom, medical and industrial markets.

We operate worldwide and have facilities in Orange County, California; Bombay, India; Wavre, Belgium (Europe) and Shanghai, China. In March 2007 we closed our facility in Guadalajara, Mexico. In May 2007 we sold our manufacturing facility in Guadalajara, Mexico and, on December 12, 2007, we sold our subsidiary, Cherokee Electronica, S.A. de C.V. We were founded in 1978 in Orange County, California. As we expanded our business and customer base, we opened facilities in Bombay, India, Guadalajara, Mexico, and Shanghai, China. In June 2000, we acquired Cherokee Europe, which added a manufacturing facility in Wavre, Belgium to our manufacturing capacity and enabled us to better serve the European market.

We generate the majority of our sales in four market sectors, datacom, telecom, industrial and medical. For the year ended December 30, 2007, our revenues by market sector consisted of 46% datacom, 30% telecom, and 24% for the industrial and medical sectors.

Basis of Reporting

Net Sales

We recognize revenue when persuasive evidence of an arrangement exists, title transfer has occurred, the price is fixed or readily determinable, and collectibility is probable. We recognize revenue in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition. Sales are recorded net of discounts, which are estimated at the time of shipment based upon historical data. Changes in assumptions regarding the rate of sales discounts earned by our customers could impact our results.

We generally recognize revenue at the time of shipment because this is the point at which revenue is earned and realizable and the earnings process is complete. For most shipments, title to shipped goods transfers at the shipping point, so the risks and rewards of ownership transfer once the product leaves our facility or third-party hub. Revenue is only recognized when collectibility is reasonably assured. Shipping and handling fees are included in revenue, with related costs recorded to cost of sales.

Cost of Sales

The principal elements comprising cost of sales are raw materials, labor and manufacturing overhead. Raw materials account for a large majority of our costs of sales. Raw materials include magnetic sub-assemblies, sheet metal, electronic and other components, mechanical parts and electrical wires. Direct labor costs primarily include costs of hourly employees. Manufacturing overhead includes salaries, and the direct expense and allocation of costs attributable to manufacturing for lease costs, depreciation on property, plant and equipment, utilities, property taxes and repairs and maintenance.

Operating Expenses

Operating expenses include engineering costs, selling and marketing costs and general and administrative expenses. Engineering costs primarily include salaries and benefits of engineering personnel, safety approval and quality certification fees, and depreciation on equipment and consulting and professional services. Selling and marketing expenses primarily include salaries and benefits to account managers and commissions to independent sales representatives. Administrative expenses primarily include salaries and benefits for certain management and administrative personnel, professional fees and information system costs. Operating expenses also include the direct expense and allocation of costs attributable to these departments for lease costs, depreciation on property, plant and equipment, utilities, property taxes and repairs and maintenance.

Restructuring Costs

We record restructuring charges in accordance with SFAS No. 146, Accounting for Costs Associated with Disposal Activities, which requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, in contrast to the date of an entity's commitment to an exit plan. These charges include costs related to personnel severance. Calculation of the restructuring reserves includes management's judgment regarding closed facilities, which include assumptions about the length of time it will take to close the operation. Changes in these estimates may impact our operating results.

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information currently available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Any future changes to these estimates and assumptions could have a material effect on our reported amounts of revenue, expenses, assets and liabilities. The significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

Revenue Recognition

The Company has entered into arrangements with certain customers whereby products are delivered to a third-party warehouse location for interim storage until subsequently shipped and accepted by our customers. Revenues from these sales are recognized upon shipment from the third-party warehouse location to the customers, when title has passed. The Company generally offers a one-year warranty for defective products. Warranty charges have been insignificant during the periods presented.

Accounts Receivable

In our North American and European operations we perform ongoing credit evaluations of our customers, the customer's current credit worthiness and various other factors, as determined by our review of their current credit information. We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. While credit losses have historically been within our expectations and the provisions established, we might not continue to experience the same credit loss rates that we have in the past. A significant portion of our accounts receivable are concentrated in a small number of customers. A significant change in the liquidity or financial position of any one of these customers could have a material adverse effect on the collectibility of our accounts receivable, our liquidity and our future operating results. As of December 30, 2007, and December 31, 2006, our top ten customers accounted for approximately 50% and 41% of our accounts receivables, respectively.

Credit Risk

The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for estimated credit losses. The Company generally does not charge interest on customer balances.

Translation of Foreign Currencies

Foreign subsidiary assets and liabilities denominated in foreign currencies are translated at the exchange rate in effect on the balance sheet date. Revenues, costs and expenses are translated at the average exchange rate during the period. Transaction gains and losses are included in results of operations and have not been significant for the periods presented. The functional currency of Cherokee Europe is the Euro. The functional currency of Cherokee India, Powertel and Cherokee China is the U.S. dollar, as the majority of transactions are denominated in U.S. dollars. Translation adjustments related to Cherokee Europe are reflected as a component of stockholders' equity in other comprehensive income (loss).

Inventories

We value our inventory at the lower of the actual cost to purchase and/or manufacture the inventory and the current estimated market value of the inventory using the weighted average cost method. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our historical usage data and estimates of future demand. Since substantially all of our products are manufactured according to firm purchase orders and customer forecasts, we evaluate the potential of recovery from our customers when customized products approach end-of-life. Our customers are generally liable for inventory costs we incur for order cancellations that occur after we have committed resources to procure or manufacture product. We also regularly evaluate inventory that is non-compliant with the RoHS directive to determine if additional reserves are needed to cover for potential obsolescence. We have not established a separate reserve for non-RoHS compliant inventory above what our normal calculations would require.

Our industry is characterized by rapid technological change, frequent new product development, and rapid product obsolescence that could result in an increase in the amount of obsolete inventory quantities on hand. As demonstrated during the past five years, demand for our products can fluctuate significantly. A significant increase in the demand for our products could result in a short-term increase in the cost of inventory purchases while a significant decrease in demand could result in an increase in the amount of excess inventory quantities on hand. In addition, our estimates of future product demand may prove to be inaccurate, in which case we may have understated or overstated the provision required for excess and obsolete inventory. In the future, if our inventory were determined to be overvalued, we would be required to recognize additional expense in our cost of sales at the time of such determination. Likewise, if our inventory is determined to be undervalued, we may have over reported our costs of sales in previous periods and would be required to recognize additional operating income at the time such inventory is sold. Therefore, although we make every reasonable effort to ensure the accuracy of our estimates of future product demand, any significant unanticipated changes in demand or technological developments could have a material effect on the value of our inventory and our reported operating results.

Deferred Taxes

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying values and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. If our future taxable income is significantly higher than expected and/or we are able to utilize our tax attributes, we may be required to reverse all or a significant part of our valuation allowance against such deferred tax assets which could substantially reduce our effective tax rate for such period. Therefore, any significant changes in statutory tax rates or the amount of our valuation allowance could have a material effect on the value of our deferred tax assets and liabilities and our reported financial results. In fiscal year 2007, we generated $1.6 million of tax assets from pretax losses

in our European operations. The years immediately preceding 2007 were profitable and our business plans project future profitable years that will utilize these assets. We will continue to evaluate their valuation in future reporting periods. Thus, the Company has determined that a valuation allowance is not required with respect to the deferred tax assets generated from our European operations. Recovery is dependent on achieving our forecast of future operating income over a protracted period of time. The Company will review the forecast in relation to actual results and expected trends on an ongoing basis. Failure to achieve our operating income targets may change the Company's assessment regarding the recoverability of its net deferred tax assets and such change could result in a valuation allowance being recorded against some or all of the deferred tax assets. Any increase in a valuation allowance would result in additional tax expense and could have a significant impact on the Company's earnings in future periods.

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires us to make estimates and assumptions that affect the reported amount of tax-related assets and liabilities and income tax provisions. The Company's effective tax rate may be subject to fluctuations during the fiscal year as new information is obtained which may affect the assumptions management uses to estimate the annual effective tax rate including mix of pre-tax earnings in the various tax jurisdictions in which it operates.

The Company adopted FIN 48, Accounting for Uncertainty in Income Taxes on January 1, 2007. As a result of adoption, the Company recognized a cumulative effect adjustment of less than $0.1 million to the January 1, 2007 accumulated deficit balance. At January 1, 2007, we had $1.8 million of gross unrecognized tax benefits, of which $0.6 million would reduce our effective tax rate if recognized. Of the total unrecognized tax benefits at the adoption date, $1.2 million was recorded as a reduction to deferred tax assets, which caused a corresponding reduction in our valuation allowance of $1.2 million. To the extent such portion of unrecognized tax benefits is recognized at a time such valuation allowance no longer exists, the recognition would impact our effective tax rate. At December 30, 2007, we have $0.3 million of gross unrecognized tax benefits, of which $0.3 million would reduce our effective tax rate if recognized. The Company's continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 30, 2007, we have less than $0.1 million of accrued interest and penalties related to uncertain tax positions.

The tax years 1997 to 2006 remain open to examination by the major taxing jurisdictions to which we are subject. The Company is currently under examination in India for certain years between 2000 and 2005 and in the United States for the year 2005. In the fourth quarter of 2007 we sold our Mexican subsidiary and are no longer subject to examinations in Mexico. The Company is scheduled to begin an audit of 2005 and 2006 in Belgium beginning in the first quarter of 2008. Due to the potential resolution of the examinations, it is reasonably possible that the unrecognized tax benefits at December 30, 2007 may change within the next twelve months by a range of $0 to $0.3 million.

United States income taxes are not provided on undistributed earnings from certain foreign subsidiaries. Those earnings are considered to be permanently re-invested in accordance with the Accounting Principles Board (APB) Opinion 23.

Other Comprehensive Income

Belgium taxes for unrealized foreign exchange gains on an intercompany loan considered permanently re-invested are provided for as a component of other comprehensive income. Foreign exchange gains were recognized as Belgium taxable income in 2005 and 2006 from repayments of the loan. No foreign exchange gains were recognized in 2007. See further discussion in Note 3 to the accompanying consolidated financial statements included in Item 8, "Financial Statements and Supplementary Data."

Goodwill and Long Lived Assets

We review the recoverability of the carrying value of goodwill on an annual basis or more frequently when an event occurs or circumstances change to indicate that an impairment of goodwill has possibly occurred. The determination of whether any potential impairment of goodwill exists is based upon a comparison of the fair value of the reporting unit to the accounting value of its net assets.

We also review the recoverability of the carrying value of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is determined based upon the forecasted undiscounted future net cash flows from the operations to which the assets relate, utilizing our best estimates, appropriate assumptions and projections at the time.

These projected future cash flows may vary significantly over time as a result of increased competition, changes in technology, fluctuations in demand, consolidation of our customers and reductions in average selling prices. If the carrying value is determined not to be recoverable from future operating cash flows, the asset would be deemed impaired and an impairment loss would be recognized to the extent the carrying value exceeded the estimated fair market value of the asset.

Based on our annual assessment of the fair value of our Cherokee Europe subsidiary in accordance with SFAS 142, we recorded a goodwill impairment charge of $5.2 million during the year ended December 30, 2007 to properly report goodwill at its fair value. This required evaluation includes the application of discounted cash flow analysis with fair market assessments.

Stock-Based Compensation

The Company adopted SFAS 123R on January 2, 2006 using the "modified prospective" method as permitted by SFAS 123R. Under this transition method, stock compensation cost recognized beginning in the first quarter of fiscal year 2006 includes: (a) compensation cost for all share-based payments granted subsequent to February 25, 2004 and prior to January 2, 2006 but not yet vested as of January 2, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. In accordance with the modified prospective method of adoption, the Company's results of operations and financial position for prior periods have not been restated. At the date of the adoption, the unamortized expense for options issued prior to January 2, 2006 was $2.3 million, which will be amortized as stock compensation costs through December 2010. All grants are made at prices based on the fair market value of the stock on the date of grant. Outstanding options generally vest four years from the grant date, with certain limited exceptions, and expire up to ten years after the grant date.

The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option pricing formula with the assumptions included in the table under "Stock-Based Compensation" in Note 3 to the accompanying Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data." The Company uses historical data, among other factors, to estimate the expected price volatility and the expected forfeiture rate. For options granted prior to January 2, 2006, the Company used the expected option life of 5 years. For options granted following the Company's adoption of SFAS 123R, the expected life was increased to 6.25 years using the "simplified method" under SAB 107 (an expected term based on the mid-point between the vesting date and the end of the contractual term). The options have a maximum contractual term of 10 years and generally vest as to 25% of the underlying stock on each anniversary of the date of grant, subject to accelerated vesting in the event of a change in control of the Company. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option.

Results of Operations

The following table sets forth selected items from our statements of operations as a percentage of our net sales for the periods indicated:

	December 30, 2007		December 31, 2006		January 1, 2006
Net sales	100.0	%	100.0	%	100.0	%
Cost of sales	80.1		78.9		79.6

Gross profit	19.9		21.1		20.4
Operating expenses	23.6		19.4		20.2

Operating income	(3.7	)	1.7		0.2
Interest expense	(2.2	)	(1.9	)	(2.3	)
Goodwill impairment	(4.0	)	—		—
Gain on sale of Mexico Facility building	0.3		—		—
Gain on sale of Mexico Corporation	0.4		—		—
Other income, net	0.4		0.2		0.2

Income (loss) before income taxes	(8.8	)	—		(1.9	)
Provision (benefit) for income taxes	(1.9	)	(0.1	)	0.7

Net income (loss)	(6.9	)%	0.1	%	(2.6	)%

Year Ended December 30, 2007 Compared to Year Ended December 31, 2006

Net Sales

Net sales decreased by approximately 11.4%, or $16.5 million, to $128.5 million for the year ended December 30, 2007 from $145.0 million for the year ended December 31, 2006.

The $16.5 million decrease from 2006 sales was due to the decrease in the following markets, telecom decreased by $10.9 million, datacom decreased by $3.3 million and industrial and medical decreased by $2.3 million. The decrease of $10.9 million in telecom sales was related to a decline in sales from two specific customers. One customer placed a large order in 2006 and had lower production volumes in 2007. The other customer's product reached its end of life. The decrease of $3.3 million in datacom sales was due to engineering or customer rollout delays. The decrease of $2.3 million in industrial and medical sales was related to a large customer in Mexico in which the product manufactured was moved to China and converted to a consignment hub inventory. For the year ended December 30, 2007, currency fluctuations offset $3.7 million of the decrease in net sales related to our Cherokee Europe operation. Management expects the delays in the rollout of new programs during 2007 to be temporary and for these programs to be rolled out and generate sales in 2008.

Gross Profit

Gross profit decreased by approximately 16.3%, or $5.0 million, to $25.6 million for the year ended December 30, 2007 from $30.6 million for the year ended December 31, 2006. Gross margin for the year ended December 30, 2007 decreased to 19.9% of net sales from 21.1% in the prior year.

For the year ended December 30, 2007, the decrease in gross profit was primarily related to lower sales volume, which had an adverse effect on fixed absorption costs and labor rate efficiencies compared to the year ended December 31, 2006. In addition, $0.3 million was related to temporarily higher factory overhead costs caused by running dual operations in Mexico and China. For the year ended December 30, 2007, currency fluctuations offset $0.6 million of the decrease in gross profit related to our Cherokee Europe operation.

Operating Expenses

Operating expenses for the year ended December 30, 2007 increased by $7.5 million, or 26.5%, to $35.6 million from $28.1 million for the year ended December 31, 2006. The majority of the increase in 2007 from 2006 was related to a goodwill impairment charge of $5.2 million during the year ended December 30, 2007 to properly report goodwill at its fair value based on our annual assessment of the fair value of our Cherokee Europe subsidiary in accordance with SFAS 142. This required evaluation includes the application of discounted cash flow analysis with fair market assessments. It was also related to a $1.7 million increase in expenses in 2007 that was due to a favorable impact in 2006 as a result of a Belgium regulatory law change. This change in law reduced the overall cost and associated liability of Cherokee Europe's long-term employment and service award plan. The additional increase of $0.6 million in operating expenses in 2007 from 2006 are as follows:

For the year ended December 30, 2007, engineering and development costs increased by $1.4 million compared to the year ended December 31, 2006, due to the increase in headcount to support our increase in new product developments. Engineering and development expense was higher by $0.8 million in 2007 compared to the prior period in 2006 in our North America and Europe businesses due to ongoing design and development of active projects. Expenses for our China operation were higher by $0.3 million for the year ended December 30, 2007 compared to the prior year in 2006. We currently have a development team of twenty-six engineers in China compared to seven a year ago. This investment follows our strategic plan to increase the level of our engineering resources in China to enable us to increase our design activity and allow us to market our products locally, and provide engineering support to our North American and European operations. For the year ended December 30, 2007, currency fluctuations accounted for $0.3 million of the increase in engineering and development costs related to our Cherokee Europe operation.

Selling and marketing expense consists primarily of sales salaries and commissions, travel, advertising and marketing expenses. For the year ended December 30, 2007, selling and marketing expense increased by $0.3 million compared to the year ended December 31, 2006, of which $0.4 million is related to a decrease during the prior period in 2006 due to a mutual release agreement made with a former business partner over sales commissions. The agreement released both parties from obligations arising from past transactions. For the year ended December 30, 2007, currency fluctuations accounted for an additional $0.2 million of the increase in selling and marketing expense related to our Cherokee Europe operation. However, these increases were offset by a decrease of $0.3 million in sales commissions due to lower sales and lower personnel expenses.

General and administrative expense consists primarily of salaries and other expense for management, finance, human resources and information systems. For the year ended December 30, 2007, general and administrative expense decreased by $0.3 million compared to the year ended December 31, 2006. Bonuses were lower by $0.8 million in 2007 compared to 2006 due to the Company not meeting its performance goals in 2007. Professional fees were lower by $0.3 million in 2007 compared to 2006. Offsetting the decreases were increases of $0.3 million in overall salaries, $0.2 million increase in stock compensation costs related to options under SFAS 123R, and $0.1 million in redundant expenses during the transition of operations from Mexico to China. For the year ended December 30, 2007, general and administrative expense for Cherokee Europe was higher by $0.2 million due to currency fluctuations.

During the third quarter ended October 1, 2006, the Company announced the planned closure of its Mexico Facility. For the year ended December 30, 2007, severance and facility closure costs decreased by $0.8 million compared to the year ended December 31, 2006. The Company incurred $0.2 million of operating costs related to severance and facility closure costs for its Mexico Facility in 2007 compared to $1.0 million in the prior year, of which $0.3 million was related to asset impairment costs.

Operating Income

As a result of the factors discussed above, operating income decreased to a loss of $10.0 million for the year ended December 30, 2007 compared to income of $2.5 million for the year ended December 31, 2006. Operating margin decreased to a loss of 7.8% from income of 1.7% in the prior year. For the year ended December 30, 2007, currency fluctuations accounted for $0.1 million of the decrease in operating income related to our Cherokee Europe operation.

Gain on Sale of Mexico Facility

For the year ended December 30, 2007, the Company recorded a net gain of $0.4 million related to the sale of the Mexico Facility building. See Note 10 to the accompanying Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data."

Gain on Sale of Mexico Corporation

For the year ended December 30, 2007, the Company recorded a net gain of $0.4 million related to the sale of the Mexico corporation. See Note 10 to the accompanying Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data."

Income Taxes

The benefit for income taxes for the year ended December 30, 2007 increased by $2.4 million to a $2.5 million benefit, compared to a $0.1 million in benefit for the year ended December 31, 2006.

The increase in the benefit for income taxes from 2006 was due largely to a current year net operating loss in Belgium expected to be realized in the foreseeable future, and was therefore recognized as a deferred tax asset. Additionally, the Company released a FIN 48 liability in conjunction with the settlement of an audit in the Netherlands. Entities with net operating loss carry-forwards in 2006 continued to generate net operating losses in 2007. The US division continued to utilize deferred tax assets and generate a net operating loss carryforward. The valuation allowance on our deferred tax assets for the year ended December 30, 2007 decreased by $1.9 million to $52.7 million, compared to $54.6 million for the year ended December 31, 2006. In fiscal year 2007, we generated $1.6 million of tax assets from pretax losses in our European operations. The years immediately preceding 2007 were profitable and our business plans project future profitable years that will utilize these assets. We will continue to evaluate their valuation in future reporting periods. The Company has determined that a valuation allowance is not required with respect to certain foreign deferred tax assets. Recovery is dependent on achieving our forecast of future operating income over a protracted period of time. The Company will review the forecast in relation to actual results and expected trends on an ongoing basis. Failure to achieve our operating income targets may change the Company's assessment regarding the recoverability of its net deferred tax assets and such change could result in a valuation allowance being recorded against some or all of the deferred tax assets. Any increase in a valuation allowance would result in additional tax expense and could have a significant impact on the Company's earnings in future periods.

Provision for income taxes for the year ended December 30, 2007 and December 31, 2006 was calculated separately by each of the tax jurisdictions within the relevant country of operation. For the year ended December 31, 2006 one of the divisions with pre-tax income had no NOL to offset for the year, and therefore, taxes were owed. For the year ended December 30, 2007 this division generated a net operating loss which is expected to be utilized in the foreseeable future.

Our China operation is not subject to taxes for five years beginning in 2008 due to a tax holiday.

See the further discussion of the income tax provision and net operating loss carry-forwards in Note 14 to the accompanying Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data."

Net Income (Loss)

As a result of the factors discussed above, we recorded a net loss of $9.0 million for the year ended December 30, 2007, compared to net income of $0.1 million for the year ended December 31, 2006.

Year Ended December 31, 2006 Compared to Year Ended January 1, 2006

Net Sales

Net sales increased by approximately 18.8%, or $22.9 million, to $145.0 million for the year ended December 31, 2006 from $122.1 million for the year ended January 1, 2006.

The increase in net sales was primarily due to the increase in demand for products from a few of our larger customer programs in the telecom and datacom market segments. The growth in these two market sectors accounted for approximately 77.7%, or $17.8 million, of the net sales increase in 2006 from 2005, while the remaining 22.3% increase was from the industrial and medical sectors. Revenues generated from shipments to our top ten customers increased by $9.0 million over 2005, including a $3.1 million increase in sales to one of our largest customers.

Gross Profit

Gross profit increased by approximately 22.9%, or $5.7 million, to $30.6 million for the year ended December 31, 2006 from $24.9 million for the year ended January 1, 2006. Gross margin for the year ended December 31, 2006 increased to 21.1% from 20.4% in the prior year.

The increase in gross profit was due primarily to the increase in revenues and the resulting gain of contribution margin on those revenues, combined with a different product mix during 2006. The increase in gross margin was due to lower labor cost from the transitioning of production to our new China facilities, combined with a favorable change in product mix. This was offset by $0.7 million of increased transition cost in factory labor and overhead related to the transitioning of production from Mexico to our new China facilities and $0.3 million of additional surplus and obsolescence related to the Mexico move.

Operating Expenses

Operating expenses for the year ended December 31, 2006 increased by $3.5 million, or 14.1%, to $28.1 million from $24.7 million for the year ended January 1, 2006. A total of $2.9 million of the increase in expenses was due to the impact of insurance proceeds received in 2005. Cherokee Europe was compensated for the replacement value of assets destroyed in the 2004 fire.

In 2006 the Company incurred $1.0 million of operating costs related to severance and facility closure costs related to the planned closure of our Mexico facility. The Company incurred $0.7 million of stock compensation costs related to the adoption of SFAS 123R during 2006. In addition, operating expenses in 2006 for our Shanghai, China facility increased by $0.3 million compared to 2005 due to the plant becoming fully operational in 2006. There were also $0.4 million of legal and professional fees incurred to resolve the India unauthorized payment issue discussed in Note 9—India Matter. Bonuses and commissions were $1.6 million higher in 2006 compared to 2005 because we achieved our revenue and financial performance targets for 2006, but not for 2005. In 2005 we incurred $1.1 million of consulting and professional fees related to readiness efforts for compliance with Section 404 of the Sarbanes-Oxley Act, compared to no costs during 2006. There was also a reduction of $1.0 million of

sales and general administrative costs in Europe during 2006. In addition, we incurred $0.5 million of redundant selling and general administrative costs from the closure of our Mexico facility. The cumulative increase in operating expense was partially offset by a decrease of $1.7 million to our Cherokee Europe employee long service award plan liability due to a Belgium regulatory law change in the carrying amount of the reserve on the statutory balance sheet.

Operating Income

As a result of the factors discussed above, operating income increased by 925%, or $2.2 million, to $2.4 million for the year ended December 31, 2006 from $0.2 million for the year ended January 1, 2006. Operating margin increased to 1.7% from 0.2% in the prior year.

Income Taxes

The provision for income taxes for the year ended December 31, 2006 decreased by $1.0 million to a $0.1 million benefit, compared to a $0.9 million in expense for the year ended January 1, 2006.

The decrease in the provision for income taxes from 2005 was due largely to the decrease in income before income taxes for entities without net operating loss carry-forwards and the release of a tax contingency reserve related to India. Entities with net operating loss carry-forwards in 2005 continued to generate net operating losses in 2006. The valuation allowance on our deferred tax assets for the year ended December 31, 2006 decreased by $2.0 million to $54.6 million, compared to $56.6 million for the year ended January 1, 2006.

Provision for income taxes for the year ended December 31, 2006 and January 1, 2006 was calculated separately by each of the tax jurisdictions within the relevant country of operation. In spite of our overall loss for the year, some of our divisions generated taxable income for the year. For the years ended January 1, 2006 and December 31, 2006, one of the division's taxable income was offset with net operating losses (NOL's) that carried forward, while other divisions had no NOL's to offset their income for the year, and therefore, taxes were owed.

Our China operation is not subject to taxes for five years beginning in 2008 due to a tax holiday.

See the further discussion of the income tax provision and net operating loss carry-forwards in Note 14 to the accompanying consolidated financial statements included in Item 8, "Financial Statements and Supplementary Data."

Net Income (Loss)

As a result of the factors discussed above, we recorded net income of $0.1 million for the year ended December 31, 2006, compared to net loss of $3.2 million for the year ended January 1, 2006.

Liquidity and Capital Resources

Cash Flows

Year Ended December 30, 2007 Compared to Year Ended December 31, 2006

Net cash used by operating activities for the year ended December 30, 2007 was $3.8 million, compared to net cash provided by operating activities of $1.3 million for the year ended December 31, 2006.

Net cash used in operating activities for the year ended December 30, 2007 reflected a net loss of $9.0 million which was primarily a result of $16.5 million lower revenues in 2007 compared to the comparable period in 2006 and a $5.2 million impairment charge related to the write down of goodwill to its fair value under the guidance of SFAS 142, offset by a $0.9 million gain in the sale of assets held for sale related to the sale of the Mexico Facility building and the sale of the Mexico Corporation, a $2.2 million increase in deferred income taxes primarily due to the generation of a net operating loss carryforward in Belgium, a $2.7 million increase in accounts receivable, a $0.1 million increase in deposits and other assets, a $1.4 million decrease in accrued liabilities and restructuring costs, a $0.1 million decrease in accrued compensation and benefits, and a $1.2 million decrease in other long-term liabilities. This was offset by the $5.2 million goodwill impairment charge included in the net loss as mentioned above, $3.1 million in depreciation and amortization, and a $0.1 million in amortization of deferred financing costs, $0.9 million of stock-based compensation related to SFAS 123R, a $2.8 million decrease in inventories due to improved logistics from our China Facility and increased management focus on raw materials and hub levels of inventory, a $1.0 million decrease in prepaid expenses and other current assets, and an increase of $0.7 million in accounts payable.

Net cash provided by operating activities was $1.3 million for the year ended December 31, 2006. Of this amount a total of $0.1 million was related to net income, $3.4 million to depreciation and amortization, $0.3 million to an asset impairment charge related to closure of our Mexico Facility, $0.1 million to amortization of deferred financing costs, $0.7 million of stock-based compensation related to SFAS 123R, $0.6 million to deferred income taxes, and $2.1 million to accrued compensation and benefits mainly related to an increase in commission and bonus plan liabilities as of December 31, 2006. This was offset by a $1.4 million increase in accounts receivable, a $1.0 million increase in inventories, a $0.7 million increase in prepaid expenses and other assets, a $0.1 million increase in deposits and other assets, a $0.2 million decrease in accounts payable, a $1.2 million decrease in accrued liabilities and restructuring costs, and a $1.5 million decrease in other long-term obligations mainly due to the $1.7 million decrease recorded as the result of the change in Belgium law related to long term employment liabilities.

Net cash used in investing activities for the year ended December 30, 2007 was $0.8 million, in which $2.4 million was related to capital expenditures. We invested $1.9 million in our China facility. We received $1.7 million of proceeds from the sale of the Mexico Facility building and the sale of the Mexico Corporation in 2007.

Net cash used in investing activities for the year ended December 31, 2006 was $3.6 million, all of which related to capital expenditure purchases invested in our China facility.

Net cash provided by financing activities for the year ended December 30, 2007 was $3.7 million. During the third quarter ended September 30, 2007, Cherokee Europe borrowed $2.1 million from the line of credit with Bank Brussels Lambert, a subsidiary of ING Belgie NV. As of December 30, 2007, the $2.1 million outstanding balance remained due to the Bank Brussels Lambert. In January 2007, we opened a credit facility with the Industrial and Commercial Bank of China Ltd., or ICBC. Pursuant to the loan contract, ICBC will advance up to the equivalent of approximately $3.4 million, expressed as RMB 25.0 million. The line is collateralized by the Company's building in Shanghai, China. During the first quarter of 2007, Cherokee China borrowed $1.3 million under this credit facility to support working capital requirements as China built inventory and incurred value-added tax on local purchases. As of December 30, 2007, the outstanding balance of $1.3 million remained due to ICBC. During the year ended December 30, 2007, $0.3 million of proceeds were received from the employee stock purchase plan and the exercise of stock options.

Net cash provided for by financing activities was $0.2 million for the year ended December 31, 2006. The $0.2 million was related to the net proceeds from the sale of common stock through our Employee Stock Purchase Plan.

Liquidity

We expect our liquidity requirements will be primarily for working capital and capital expenditures, including repayment of our senior notes due November 1, 2008. As of December 30, 2007, we had cash and cash equivalents of $8.5 million, negative working capital of $7.5 million due to the $46.6 million of senior notes due November 1, 2008 reclassed from long-term debt to current liabilities, no outstanding borrowings under our main revolving credit facility and borrowing base availability of $7.5 million under the same facility. Our revolving line of credit with General Electric Capital Corporation matures in August 2008. The Company plans to renew this line with the existing lender or a new lender after the extension of our senior bond obligations is executed. Historically, we have financed our operations with cash from operations supplemented by borrowings from credit facilities and debt and equity issuances. Besides our credit line in the United States, Cherokee Europe also maintains a working capital line of credit of approximately $4.5 million, expressed as Euros 3.0 million, with Bank Brussels Lambert, a subsidiary of ING Belgie NV, a bank in Brussels, which is denominated in Euros, and is collateralized by a pledge in first and second rank over a specific amount of business assets. Our access to the line is limited to $4.0 million because $0.5 million is committed to minimum guarantees on specific collections and payments. The facility requires Cherokee Europe to maintain a certain solvency ratio and is cancelable at any time. The current revolving line of credit with ING Belgie NV prohibits the transfer of cash outside of Belgium to the U.S. in the form of management and dividend fees until August, 2008. During the third quarter ended September 30, 2007, Cherokee Europe borrowed $2.1 million from the line of credit which remained outstanding as of December 30, 2007.

In January 2007, we opened a credit facility with the Industrial and Commercial Bank of China Ltd., or ICBC. Pursuant to the contract, ICBC will advance up to the equivalent of approximately $3.4 million, expressed as RMB 25.0 million. The line is collateralized by the Company's building in Shanghai, China. Interest is payable monthly at a fixed rate based on the transaction date of our borrowings, the rates vary according to the specific dates and are announced by the People's Bank of China. The first term ended January 29, 2008, and was renewed and extended for an additional year, until January 2009. The contract is renewable annually, but is cancelable at any time. This facility is intended for working capital requirements in China, especially as our China subsidiary builds inventory for export to the United States and Europe and incur value-added tax on local purchases that can only be recovered through in-country sales of our product. As of December 30, 2007, Cherokee China had $1.3 million of borrowings under this line of credit since April 1, 2007.

Subject to the refinancing risk described below under Contractual Obligations and Item 1A. Risk Factors, we believe our cash flow from operations and our credit lines in the United States, Europe and China, are sufficient to meet our operating cash requirements for at least the next twelve months. However, this assumes that we are successful in extending the maturity date of our senior bonds that come due in November 2008. If this extension is not successful, the Company does not have the liquidity resources to pay this $46.6 million obligation.

The prior two years, 2006 and 2005, were unusual in that we financed the building, capital expenditures and start-up working capital requirements of our new Shanghai facility entirely from internally generated cash. Our ongoing current and future liquidity needs primarily arise from working capital requirements and capital expenditures that have now returned to comparable historical levels as we have completed the construction of our plant in China. This assumes that we are successful in extending the maturity date of our senior bonds. Our historical capital expenditures have primarily resulted from investments in equipment to increase or replace manufacturing capacity and to improve manufacturing efficiencies.

For 2007, we originally expected global capital expenditures to be approximately $2.9 million. However, we spent $2.5 million. Most of this spending was in our investments in our manufacturing equipment at our facilities, of which $1.9 million was spent on our China facility. In 2006, our China

facility required $3.0 million and in 2005, our initial investment into our China facility required $5.5 million, over two times the anticipated spending for 2007. In 2008 we expect our capital expenditures to be $1.7 to $2.1 million.

As of December 30, 2007, we had approximately $46.6 million of senior notes bearing an annual interest rate of 5.25%, payable semi-annually. These notes become due on November 1, 2008. In February 2008 the Company engaged Houlihan Lokey to work with our bondholders to extend the maturity of our $46.6 million in senior bond obligations from November 2008. At the time of filing this Annual Report on Form 10-K, unequivocal commitments with defined terms were not available from the majority of our bondholders agreeing to extend the maturity date. Current conditions in the U.S. financial markets have not helped us complete this extension. However, we, through our investment bankers, have been and continue to be in active negotiations with a majority of the bondholders and expect resolution in the near future. It is possible to receive an agreement of the majority by obtaining commitment from several combinations of two holders. An extended agreement will result in higher than existing interest rates and other terms that the Company has adequate liquidity to handle.

Our plan for 2008 through 2009 projects is that we will have adequate cash flow to support refinancing these notes at current market rates. However, if the extension of our senior bonds maturing in November 2008 is not successful, the Company does not have the liquidity resources to pay this $46.6 million obligation.

Contractual Obligations

As of December 30, 2007, our borrowings consisted of approximately $46.6 million of senior notes, and no outstanding borrowings under our revolving credit facility.

Our senior notes bear interest at 5.25% annually, and mature on November 1, 2008. We are required to make semi-annual interest payments to holders of the senior notes, payable in cash on May 1 and November 1 of each year. The senior notes are secured by a second-priority lien on substantially all of our domestic assets and by a pledge of 65% of the equity of certain of our foreign subsidiaries. The Company does not have sufficient cash available at the time of maturity to repay this indebtedness and is actively seeking to refinance this obligation. The Company acknowledges that it may not be able to refinance this obligation at comparable interest rates to the 5.25% annual interest rate in the past, and any refinancing may be on terms that are materially less favorable. In addition, if the Company is not able to obtain satisfactory financing, the Company may be forced to sell some of its assets or to otherwise significantly alter its operating plan.

On November 1, 2007, the Company and General Electric Capital Corporation amended the Credit Facility for the revolving line of credit dated February 24, 2004. As of December 30, 2007, our borrowing base was $7.5 million under the amended Credit Facility and our eligible accounts receivable was $10.3 million. The Credit Facility matures in August 2008. We plan to use funds available under the Credit Facility to finance working capital and other cash requirements as needed. The Credit Facility is our senior obligation and ranks equal in right of payment with our existing and future permitted senior debt (including our senior notes), and senior in right of payment to our future permitted subordinated debt. The Credit Facility is secured by a first-priority lien, subject to permitted encumbrances, on substantially all of our domestic assets and by a pledge of 65% of the equity of certain of our foreign subsidiaries.

The agreements governing the Credit Facility and our senior notes contain covenants that restrict our business operations, including covenants limiting our ability to make investments, enter into mergers or acquisitions, dispose of assets, incur additional debt, grant liens, enter into transactions with affiliates, redeem or repurchase our capital stock, repay other debt and pay dividends, and contain a financial ratio test based on senior leverage. The agreements also contain customary events of default, including defaults in the payment of principal or interest, defaults in the compliance with the covenants

contained in the agreements governing our debt, cross defaults to other material debt and bankruptcy or other insolvency events. In March 2008, General Electric Capital Corporation modified the amended credit agreement effective as of December 30, 2007 for a balance sheet covenant issue resulting from the capitalization of intercompany debt with our Dutch holding company during 2007.

During the quarter ended September 30, 2007, Cherokee Europe borrowed $2.1 million from the line of credit which remained outstanding as of December 30, 2007.

As of December 30, 2007, Cherokee China had $1.3 million of borrowings under this line of credit.

As of December 30, 2007, we were in compliance with all of the covenants set forth in the principal agreements governing our debt.

In July 2007, Cherokee Europe borrowed short-term funds of $0.6 million from ING Belgie NV, and repaid the amount as of December 25, 2007.

For a more detailed discussion related to the above financial instruments and obligations, see the subsection entitled "Debt" contained in Note 6 to the accompanying Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data."

We have operating lease obligations relating to our facilities in Tustin and Irvine, California and Bombay, India.

We have purchase commitments primarily with vendors and suppliers for the purchase of inventory and for other goods, services, and equipment as part of the normal course of business. These commitments are generally evidenced by purchase orders that may or may not include cancellation provisions. Based on current expectations, we do not believe that any cancellation penalties we incur under these obligations would have a material adverse effect on our consolidated financial condition or results of operations.

In 2008, we have $1.1 million of scheduled distributions to be paid to participants from the deferred compensation plan of which the funds for these payments have been transferred into the Company's deferred compensation plan.

The maturities of our long-term debt, including capital leases, and future payments relating to our operating leases and other obligations as of December 30, 2007 are as follows (in thousands):

Contractual Obligations	2008		2009		2010		2011		2012		Thereafter		Total
Debt-senior notes	$	46,630	$	—	$	—	$	—	$	—	$	—	$	46,630
Operating leases		1,611		568		43		18		6		103		2,349
Purchase order commitments		16,884		—		—		—		—		—		16,884
1999 Europe restructuring		165		342		55		—		—		—		562
2003 Europe restructuring		266		259		238		195		151		221		1,330
Long service award		53		107		204		25		20		554		963
Deferred compensation		1,119		—		—		—		—		237		1,356
Advances for research and development		79		61		61		63		64		340		668
Unrecognized tax benefits		307		—		—		—		—		—		307

Total	$	67,114	$	1,337	$	601	$	301	$	241	$	1,455	$	71,049

The long-term liability for accrued pension costs included on the consolidated balance sheet is excluded from the table above. Cherokee is unable to estimate the timing of payments for these costs. During the year ended December 30, 2007, the Company contributed approximately $0.3 million. In 2008 the Company expects to contribute $0.4 million.

Inflation

We do not believe that inflation has had a material impact on our financial position, results of operations or prices.

New Accounting Pronouncements

For a discussion of the impact of recently issued accounting pronouncements, see the subsection entitled "Recent Accounting Pronouncements" contained in Note 3 of the Notes to Consolidated Financial Statements under "Item 8. Financial Statements and Supplementary Data."

Quarterly Financial Data

Quarterly Financial Data For The
Years ended December 30, 2007 and December 31, 2006 By Quarters (unaudited)
(in thousands, except per share amounts)

	December 30, 2007, Quarter Ended,												December 31, 2006, Quarter Ended,
	Apr. 1			Jul. 1			Sep. 30			Dec. 30			Apr. 2		Jul. 2		Oct. 1			Dec. 31
Net sales	$	30,020		$	29,574		$	30,401		$	38,501		$	36,097	$	38,314	$	33,051		$	37,566
Gross profit		5,717			5,551			5,731			8,593			8,516		8,135		6,375			7,563
Operating income (loss)		(2,119	)		(2,501	)		(1,000	)		(4,378	)		1,879		1,044		(959	)		487
Net income (loss)		(2,022	)		(1,653	)		(1,309	)		(3,989	)		827		352		(1,374	)		278
Basic net income (loss) per share	$	(0.10	)	$	(0.09	)	$	(0.07	)	$	(0.21	)	$	0.04	$	0.02	$	(0.07	)	$	0.01
Diluted net income (loss) per share	$	(0.10	)	$	(0.09	)	$	(0.07	)	$	(0.21	)	$	0.04	$	0.02	$	(0.07	)	$	0.01

	December 30, 2007, Quarter Ended,								December 31, 2006, Quarter Ended,
	Apr. 1		Jul. 1		Sep. 30		Dec. 31		Apr. 2		Jul. 2		Oct. 1		Dec. 31
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Gross profit	19.0		18.8		18.9		22.3		23.6		21.2		19.3		20.1
Operating income (loss)	(7.1	)	(8.5	)	(3.3	)	(11.4	)	5.2		2.7		(2.9	)	1.3
Net income (loss)	(6.7	)	(5.6	)	(4.3	)	(10.4	)	2.3		0.9		(4.2	)	0.7

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk relating to our operations results primarily from changes in foreign currency exchange rates and short-term interest rates. We did not have any derivative financial instruments at December 30, 2007.

We had no variable rate debt outstanding at December 30, 2007. However, any debt we incur under the Credit Facility and the Cherokee Europe line of credit will bear interest at a variable rate. We cannot predict market fluctuations in interest rates and their impact on any variable rate debt we may incur in the future, nor can there be any assurance that fixed rate long-term debt will be available to us at favorable rates, if at all.

The functional currency for our European operations is the Euro. We are, therefore, subject to a certain degree of market risk associated with changes in foreign currency exchange rates. This risk is mitigated by the fact that our revenues and expenses are generally both transacted in Euros, thereby reducing the risk of foreign currency fluctuation on our European operations. The net effect on our operating income for foreign currency exchange rate fluctuations as of and for the year ended December 30, 2007, accounted for a $0.1 million decrease in our income. Historically, we have not actively engaged in exchange rate-hedging activities.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

		Page
Report of Independent Registered Public Accounting Firm		42
Report of Independent Registered Public Accounting Firm		43
Consolidated Balance Sheets as of December 30, 2007 and December 31, 2006		44
Consolidated Statements of Operations for the years ended December 30, 2007, December 31, 2006 and January 1, 2006		45
Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Operations for the years ended December 30, 2007, December 31, 2006 and January 1, 2006		46
Consolidated Statements of Cash Flows for the years ended December 30, 2007, December 31, 2006 and January 1, 2006		47
Notes to Consolidated Financial Statements		48
Schedule II: Valuation and Qualifying Accounts		79

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Cherokee International Corporation

We have audited the accompanying consolidated balance sheets of Cherokee International Corporation and subsidiaries (the Company) as of December 30, 2007 and December 31, 2006 and the related consolidated statements of operations, stockholders' equity (deficit) and comprehensive operations and cash flows for each of the two years in the period ended December 30, 2007. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cherokee International Corporation and subsidiaries as of December 30, 2007 and December 31, 2006 and the results of their operations and their cash flows for each of the two years in the period ended December 30, 2007 in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has 5.25% Senior Notes in the amount of $46.6 million that are included in current liabilities as of December 30, 2007, that mature on November 1, 2008, and become due and payable. The Company's management anticipates that there will not be sufficient cash balances available to repay the outstanding debt at its maturity. These circumstances create substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 3. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for stock-based compensation and its method of quantifying errors effective January 2, 2006.

/s/ MAYER HOFFMAN MCCANN P.C.

MAYER HOFFMAN MCCANN P.C.

Orange County, California
March 26, 2008

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of
Cherokee International Corporation
Tustin, California

We have audited the accompanying consolidated statements of operations, stockholders' equity (deficit) and comprehensive operations, and cash flows the year ended January 1, 2006 of Cherokee International Corporation and subsidiaries (the Company). Our audit also included the financial statement schedule for the year ended January 1, 2006 listed in the Index at Item 15(a)(2). These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of Cherokee International Corporation and subsidiaries for the year ended January 1, 2006, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Costa Mesa, California

April 17, 2006

CHEROKEE INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Amounts)

		December 30, 2007			December 31, 2006
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	8,484		$	8,881
Accounts receivable, net of allowance for doubtful accounts of $297 and $292 at December 30, 2007 and December 31, 2006, respectively			31,237			27,403
Inventories, net			28,021			29,991
Prepaid expenses and other current assets			1,583			2,503
Deferred income taxes			363			—

	Total current assets		69,688			68,778
Property and equipment, net			19,194			19,888
Deposits and other assets			1,515			1,376
Deferred financing costs, net of accumulated amortization of $494 and $364 at December 30, 2007 and December 31, 2006, respectively			86			216
Deferred income taxes-long-term portion			1,257			318
Goodwill			1,120			6,317

Total Assets		$	92,860		$	96,893

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable		$	15,140		$	13,944
Accrued liabilities			4,667			4,968
Accrued compensation and benefits			6,876			7,882
Accrued restructuring costs			431			879
Borrowings under revolving line of credit			3,395			—
Current debt			24,485			—
Current debt payable to affiliates			22,145			—

	Total current liabilities		77,139			27,673
Long-term debt			—			24,485
Long-term debt payable to affiliates			—			22,145

	Total long-term debt		—			46,630
Other long-term liabilities			4,534			6,715

Total Liabilities			81,673			81,018

Commitments and contingencies (Note 9)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock: $0.001 par value; 60,000,000 shares authorized; 19,453,557 and 19,337,709 shares issued and outstanding at December 30, 2007 and December 31, 2006, respectively			19			19
Paid-in capital			186,035			184,813
Accumulated deficit			(178,323	)		(169,373	)
Accumulated other comprehensive income			3,456			416

	Total stockholders' equity		11,187			15,875

Total Liabilities and Stockholders' Equity		$	92,860		$	96,893

See notes to consolidated financial statements.

CHEROKEE INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Amounts)

			Years Ended
			December 30, 2007			December 31, 2006			January 1, 2006
Net sales			$	128,496		$	145,028		$	122,079
Cost of sales (including stock compensation expense of $53, $79 and $0, respectively)				102,904			114,439			97,181

	Gross profit			25,592			30,589			24,898
Operating Expenses:
	Engineering and development (including stock compensation expense of $273, $205 and $0, respectively)			10,889			9,504			8,981
	Selling and marketing (including stock compensation expense of $156, $117 and $0, respectively)			7,172			6,887			7,280
	General and administrative (including stock compensation expense of $413, $329 and $0, respectively)			12,177			12,483			11,296
	Goodwill impairment			5,197			—			—
	Restructuring costs			155			697			—
	Asset impairment			—			285			—
	Long term employment liabilities reduction			—			(1,718	)		—
	Gain from insurance proceeds			—			—			(2,898	)

		Total operating expenses		35,590			28,138			24,659

	Operating income (loss)			(9,998	)		2,451			239
	Interest expense			(2,804	)		(2,786	)		(2,852	)
	Gain on sale of Mexico Facility building			430			—			—
	Gain on sale of Mexico corporation			431			—			—
	Other income, net			516			335			258

Loss before income taxes				(11,425	)		—			(2,355	)
	Provision (benefit) for income taxes			(2,452	)		(83	)		877

	Net income (loss)		$	(8,973	)	$	83		$	(3,232	)

Net loss per share:
	Basic		$	(0.46	)	$	—		$	(0.17	)
	Diluted		$	(0.46	)	$	—		$	(0.17	)
Weighted average shares outstanding:
	Basic			19,387			19,286			19,230
	Diluted			19,387			19,298			19,230

See notes to consolidated financial statements.

CHEROKEE INTERNATIONAL CORPORATION AND SU` BSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND

COMPREHENSIVE OPERATIONS

(In Thousands, Except Shares)

			Common Stock								Accumulated Other Comprehensive Income (Loss)
			Common Stock			Additional Paid-In Capital		Accumulated Deficit
			Shares	Amount		Additional Paid-In Capital		Accumulated Deficit						Totals
BALANCE, January 2, 2005			19,206,207	$	19	$	183,713	$	(165,666	)	$	4,068		$	22,134

Comprehensive income (loss):
	Net loss								(3,232	)					(3,232	)
	Foreign currency translation											(2,598	)		(2,598	)

		Total comprehensive income (loss):													(5,830	)
Issuance of common stock under employee stock plans			53,405				158								158

BALANCE, January 1, 2006			19,259,612	$	19	$	183,871	$	(168,898	)	$	1,470		$	16,462

Cumulative effect of adjustments from the adoption of SAB 108, net of taxes (Note 3)									(558	)		(694	)		(1,252	)
Comprehensive income (loss):
	Net income								83						83
	Foreign currency translation adjustments											1,599			1,599
	Tax effect of foreign currency translation adjustments											(197	)		(197	)
	Pension benefit adjustment to initially apply SFAS 158, net of tax benefit of $908											(1,762	)		(1,762	)

		Total comprehensive income (loss):													(277	)
Issuance of common stock under employee stock plans			78,097				212								212
Stock compensation							730								730

BALANCE, December 31, 2006			19,337,709	$	19	$	184,813	$	(169,373	)	$	416		$	15,875

Comprehensive income (loss):
	Net loss								(8,973	)					(8,973	)
	Foreign currency translation adjustments											1,203			1,203
	Tax effect of foreign currency translation adjustments											(143	)		(143	)
	Pension adjustment under SFAS 158, net of tax effect of $1,020											1,980			1,980
	FIN 48 adjustment								23						23

		Total comprehensive income (loss):													(5,910	)
Issuance of common stock under employee stock plans			115,848				327								327
Stock compensation							895								895

BALANCE, December 30, 2007			19,453,557	$	19	$	186,035	$	(178,323	)	$	3,456		$	11,187

See notes to consolidated financial statements.

CHEROKEE INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

			Years Ended
			December 30, 2007			December 31, 2006			January 1, 2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)			$	(8,973	)	$	83		$	(3,232	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
	Depreciation and amortization			3,148			3,362			3,141
	Goodwill impairment			5,197			—			—
	Asset impairment			—			285			—
	(Gain) loss on sale / disposition of fixed assets			(438	)		—			(30	)
	Gain on sale of Mexico corporation			(431	)		—			—
	Amortization of deferred financing costs			130			130			130
	Stock-based compensation			895			730			—
	Write-off of deferred financing costs			—			—			—
	Deferred income taxes			(2,236	)		590			—
Net change in operating assets and liabilities:
	Accounts receivable, net			(2,718	)		(1,363	)		1,230
	Inventories, net			2,750			(982	)		404
	Prepaid expenses and other current assets			999			(681	)		210
	Deposits			(107	)		(80	)		(331	)
	Accounts payable			686			(176	)		(429	)
	Accrued liabilities and restructuring			(1,439	)		(1,153	)		931
	Accrued compensation and benefits			(139	)		2,131			(1,036	)
	Accrued interest payable			41			(45	)		67
	Other long-term liabilities			(1,185	)		(1,541	)		259

		Net cash provided by (used in) operating activities		(3,820	)		1,290			1,314

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment				(2,384	)		(3,596	)		(8,144	)
Net sales (purchases) of short-term investments				—			—			4,177
Proceeds from sale of property and equipment (net of $0.1 million of selling costs)				1,138			—			34
Proceeds from sale of Mexico corporation				439			—			—

	Net cash used in investing activities			(807	)		(3,596	)		(3,933	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving lines of credit				3,395			—			—
Proceeds from exercise of options and employee stock purchases				327			213			158

	Net cash provided by financing activities			3,722			213			158

Effect of exchange rate changes on cash				508			431			(1,581	)

Net decrease in cash and cash equivalents				(397	)		(1,662	)		(4,042	)
Cash and cash equivalents, beginning of period				8,881			10,543			14,585

Cash and cash equivalents, end of period			$	8,484		$	8,881		$	10,543

SUPPLEMENTAL INFORMATION
Cash paid during the year for interest			$	2,623		$	2,532		$	2,523

Cash paid during the year for income taxes			$	263		$	255		$	439

NON-CASH ITEMS
Adjustment to pension liability related to SFAS 158, net of tax			$	1,980		$	(1,762	)	$	—

Adoption of SAB 108 to expense VAT related to fixed asset			$	—		$	117		$	—

See notes to consolidated financial statements.

CHEROKEE INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 30, 2007, DECEMBER 31, 2006 AND JANUARY 1, 2006

1. ORGANIZATION

Cherokee International Corporation reorganized from a California limited liability company and consummated a debt restructuring (the "Restructuring") through a series of transactions collectively referred to as the "Transactions" in November 2002. On November 26, 2002, Cherokee International, LLC, a California limited liability company (the "LLC"), merged with and into Cherokee International Corporation, a Delaware Corporation (the "Company"), with the Company as the surviving entity pursuant to the Agreement and Plan of Merger ("Merger Agreement"). References herein to "Cherokee" and the "Company" refer to Cherokee International, LLC and its consolidated subsidiaries prior to the reorganization and Cherokee International Corporation and its consolidated subsidiaries after the reorganization, and all references to common stock for periods before the reorganization mean our then-issued and outstanding membership interests. As a result of the Transactions, the former unit holders of the LLC became stockholders of the Company, with each of them receiving a number of shares based on their percentage ownership in the LLC. Prior to this exchange, the Company had no operating assets or liabilities and had not yet conducted any operations. On November 27, 2002, as part of the Transactions, the Company amended its previous credit facility, issued $41.0 million of Second Lien Notes, and completed an exchange offer with respect to $100.0 million of its 10¹/2% Senior Subordinated Notes for $53.4 million of 12% Pay-In-Kind Senior Convertible Notes, $46.6 million of 5.25% Senior Notes and warrants to purchase shares of the Company's common stock.

Initial Public Offering

The Company completed its initial public offering of 6,600,000 shares of its common stock, par value $0.001 per share ("Common Stock"), on February 25, 2004, at a price of $14.50 per share. The net proceeds to the Company from this offering after paid and accrued offering costs of $9.2 million were $86.5 million. The Company used approximately $73.2 million of the net proceeds to repay certain outstanding indebtedness and accrued interest. Immediately prior to the consummation of the offering, the Company completed a 1-for-3.9 reverse stock split of its outstanding Common Stock. All shares, per share and conversion amounts relating to common stock, warrants and stock options included in the accompanying consolidated financial statements and footnotes have been restated to reflect the reverse stock split for all periods presented. Also in connection with the offering, the Company issued 6,283,796 shares of Common Stock upon conversion of the original principal amount of its outstanding senior convertible notes of $53.4 million, and issued 4,071,114 shares of Common Stock upon the exercise of outstanding warrants.

2. LINE OF BUSINESS

The Company is a designer and manufacturer of power supplies for original equipment manufacturers ("OEMs"). Its advanced power supply products are typically custom designed into mid- to high-end commercial applications in the computing and storage, wireless infrastructure, enterprise networking, telecom, medical and industrial markets.

3. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

In February 2008, the Company engaged Houlihan Lokey to work with our bondholders to extend the maturity of our $46.6 million in senior bond obligations beyond November 2008. At the time of filing this Annual Report on Form 10-K, unequivocal commitments with defined terms were not available from the majority of our bondholders agreeing to extend the maturity date. Current conditions in the U.S. financial markets have not helped us complete this extension. However, we, through our investment bankers, have been, and continue to be in; active negotiations with a majority of the bondholders and expect resolution in the near future. It is possible to receive an agreement of the majority by obtaining commitment from several combinations of two holders. An extended agreement is expected to result in higher than existing interest rates and other terms that the Company has adequate liquidity to handle.

Principles of Consolidation

The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries, Cherokee Europe SCA and related entities ("Cherokee Europe"), Cherokee India Pvt. Ltd. ("India"), Powertel India Pvt. Ltd. ("Powertel"), and Cherokee International (China) Power Supply LLC ("Cherokee China"), and its formerly owned subsidiary Cherokee Electronica, S.A. DE C.V. ("Cherokee Mexico") included in the year ended December 30, 2007 and prior years. Inter-company accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates.

Fiscal Year

The Company's fiscal years 2007, 2006, and 2005 ended on December 30, 2007, December 31, 2006, and January 1, 2006, respectively. The fiscal year ended December 30, 2007 included 52 weeks,

the fiscal year ended December 31, 2006 included 52 weeks, and the fiscal year ended January 1, 2006 included 52 weeks.

Translation of Foreign Currencies

Foreign subsidiary assets and liabilities denominated in foreign currencies are translated at the exchange rate in effect on the balance sheet date. Revenues, costs and expenses are translated at the average exchange rate during the period. Transaction gains and losses are included in results of operations and have not been significant for the periods presented. The functional currency of Cherokee Europe is the Euro. The functional currency of Cherokee Mexico, India, Powertel and Cherokee China is the U.S. dollar, as the majority of transactions are denominated in U.S. dollars. Translation adjustments related to Cherokee Europe are reflected as a component of stockholders' equity in other comprehensive income (loss).

Cash and Cash Equivalents

All highly liquid debt instruments purchased with an original maturity date of three months or less are considered to be cash equivalents.

Inventories

Inventories are valued at the lower of weighted average cost or market. Inventory costs include the cost of material, labor and manufacturing overhead and consist of the following amounts, net of reserves for surplus and obsolescence (in thousands):

	December 30, 2007		December 31, 2006
Raw material	$	16,547	$	20,991
Work-in-process		4,696		4,034
Finished goods		6,778		4,966

	$	28,021	$	29,991

As of December 30, 2007 and December 31, 2006, the reserve for excess inventory and obsolescence was $3.1 million and $4.4 million, respectively, including management's assessment of reserves for surplus and obsolescence for non-compliant material related to the Restriction of Hazardous Substances in Electrical and Electronic Equipment directive.

During the year ended December 30, 2007, the Company wrote off $2.1 million of inventory reserved under the excess inventory and obsolescence reserve account, of which $1.4 million was related to excess and obsolete materials with no current or future usage in product demands. In addition, $0.7 million was related to the decrease in future customer demand of product as a result of the restructuring and closure of the Company's Guadalajara, Mexico facility. For the year ended December 31, 2006, the Company wrote off $1.2 million of inventory reserved under the excess inventory and obsolescence reserve account.

Property and Equipment

Depreciation and amortization of property and equipment are provided using the straight-line method over the following estimated useful lives:

Buildings and improvements		5-50 years
Machinery and equipment		5-10 years
Dies, jigs and fixtures		3 years
Computers, software, office equipment and furniture		3-5 years
Automobiles and trucks		5 years
Leasehold improvements		Lesser of 5 years or lease term

Deferred Financing Costs

The Company capitalizes costs directly related to financing agreements and certain qualified debt restructuring costs, and amortizes these costs as additional interest expense over the terms of the related debt.

Net deferred financing costs are comprised of the following as of December 30, 2007 and December 31, 2006 (in thousands):

	December 30, 2007			December 31, 2006
Deferred financing costs	$	580		$	580
Accumulated amortization		(494	)		(364	)

Deferred financing costs, net	$	86		$	216

During the years ended December 30, 2007 and December 31, 2006, the Company amortized deferred financing costs of $0.1 million and $0.1 million, respectively.

Goodwill

The Company adopted Statement of Financial Accounting Standard ("SFAS") 142, Goodwill And Other Intangible Assets, effective January 1, 2002. SFAS 142 requires that goodwill and other intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment annually, or more frequently, when events or circumstances indicate that their carrying value may be impaired. The Company performs its impairment test annually at the end of the third quarter.

In compliance with the requirements of SFAS 142, the Company has determined that its reporting units consist of two operating segments: Cherokee North America which consists of the United States, India and China operations, and Cherokee Europe, which consists of the European operations. All goodwill has been assigned to the Cherokee Europe reporting unit. Based on our annual assessment of the fair value of our Cherokee Europe subsidiary in accordance with SFAS 142, we recorded a goodwill impairment charge of $5.2 million during the year ended December 30, 2007 to properly report goodwill at its fair value. This required evaluation includes the application of discounted cash flow analysis with fair market assessments. There were no events or circumstances for the years ended December 31, 2006, and January 1, 2006 that indicated impairment.

Long-Lived Assets

The Company accounts for the impairment and disposition of long-lived assets in accordance with SFAS 144, Accounting for Impairment or Disposal of Long-Lived Assets. In accordance with SFAS 144, long-lived assets to be held and used are reviewed for events or changes in circumstances, which

indicate that their carrying value may not be recoverable. For the years ended December 30, 2007 and January 1, 2006 there were no charges. For the year ended December 31, 2006, the Company recorded $0.3 million of impairment charges on the value of such assets. In 2006, the Company identified certain long-lived assets associated with the restructuring and closure of the Mexico Facility whose carrying value would not be recoverable from future cash flows and recorded an impairment charge. These assets consisted of machinery and equipment, computer technology and equipment, and office furniture and equipment. The majority of these assets were written off because the Company considered them to have no market value. None of the impairment charges included cash components.

Fair Value of Financial Instruments

The amounts recorded for cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities approximate their fair values based on their short-term nature. The amounts recorded for long-term debt and borrowings under our revolving lines of credit approximate fair value, as interest is tied to, or approximates, current market rates.

Income Taxes

The Company accounts for income taxes in accordance with SFAS 109, Accounting for Income Taxes. In accordance with SFAS 109, deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting and their tax basis and carry-forwards to the extent they are realizable. A deferred tax provision or benefit results from the net change in deferred tax assets and liabilities during the period. A deferred tax asset valuation allowance is recorded if it is more likely than not that all or a portion of the recorded deferred tax assets will not be realized.

As of December 30, 2007, deferred tax assets include $27.8 million relating to a tax basis step up from a re-capitalization transaction in 1999 and $22.8 million of net operating loss (NOL) carry-forwards. The Company has recorded a valuation allowance against a significant portion of its deferred tax assets.

The income tax benefit of $2.5 million for the year ended December 30, 2007, reflects the following: $0.5 million benefit from the release of a FIN48 liability related to audits settled during the year and cash refunds received, $0.2 million provision for foreign withholding and income taxes incurred during the year, and $2.2 million income tax benefit from the net operating loss generated in the current year by Cherokee Europe that is expected to be realized in 2009 and 2010.

Other Comprehensive Income (Loss)

Belgium taxes for unrealized foreign exchange gains on an intercompany loan considered permanently re-invested are provided for as a component of other comprehensive income (loss).

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, title transfer has occurred, the price is fixed or readily determinable, and collectibility is probable. We recognize revenue in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition. Sales are recorded net of discounts, which are estimated at the time of shipment based upon historical data. Changes in assumptions regarding the rate of sales discounts earned by our customers could impact our results.

leaves our facility or third-party hub. Revenue is only recognized when collectibility is reasonably assured. Shipping and handling fees are included in revenue with related costs recorded to cost of sales.

Credit Risk

Stock-Based Compensation

In December 2004, SFAS 123R, Share-Based Payment, was issued. SFAS 123R is a revision of SFAS 123, Accounting for Stock Based Compensation, and supersedes APB 25. Among other items, SFAS 123R eliminates the use of APB 25 and the intrinsic value method of accounting, and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, based on the grant date fair value of those awards, in the financial statements. The Company was required to adopt SFAS 123R effective on January 2, 2006. SFAS 123R permits companies to adopt its requirements using either a "modified prospective" method, or a "modified retrospective" method. Under the "modified prospective" method, compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of SFAS 123R for all share-based payments granted after that date, and based on the requirements of SFAS 123 for all unvested awards granted prior to the effective date of SFAS 123R. Under the "modified retrospective" method, the requirements are the same as under the "modified prospective" method, but also permits entities to restate financial statements of previous periods based on proforma disclosures made in accordance with SFAS 123.

The Company currently uses the Black-Scholes standard option-pricing model to measure the fair value of stock options granted to employees and nonemployees. While SFAS 123R permits the Company to continue to use such a model, the standard also permits the use of a "lattice" model. The Company is continuing to use the Black-Scholes model to measure the fair value of employee stock options upon the adoption of SFAS 123R.

SFAS 123R also requires that the benefits associated with the tax deductions in excess of recognized compensation cost be reported as a financing cash flow, rather than as an operating cash flow as required under prior literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after the effective date. These future amounts cannot be estimated, because they depend on, among other things, when employees exercise stock options.

unamortized expense for options issued prior to January 2, 2006 was $2.3 million, which will be amortized as stock compensation costs through December 2010. Stock based compensation costs expensed during the year ended December 30, 2007 were $0.9 million, and $0.7 million was recorded during the year ended December 31, 2006. No stock compensation costs were recorded during the year ended January 1, 2006.

All grants are made at prices based on the fair market value of the stock on the date of grant. Outstanding options generally vest over periods ranging from two to four years from the grant date and generally expire up to ten years after the grant date.

The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option pricing formula with the assumptions included in the table below. The Company uses historical data, among other factors, to estimate the expected price volatility and the expected forfeiture rate. For options granted prior to January 2, 2006, the Company used the expected option life of 5 years. For options granted following the Company's adoption of SFAS 123R, the expected life was increased to 6.25 years using the "simplified method" under SAB 107 (an expected term based on the mid-point between the vesting date and the end of the contractual term). The use of the simplified method requires our option plan to be consistent with a "plain vanilla" plan and was originally permitted through December 31, 2007 under SAB 107. In December 2007, the SEC issued SAB 110, Share-Based Payment, to amend the SEC's views discussed in SAB 107 regarding the use of the simplified method in developing an estimate of expected life of share options in accordance with SFAS 123R. SAB 110 is effective for the Company beginning December 31, 2007. The Company will continue to use the simplified method until it has the historical data necessary to provide a reasonable estimate of expected life, in accordance with SAB 107, as amended by SAB 110. The options have a maximum contractual term of 10 years and generally vest pro-rata over four years. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option.

The following weighted-average assumptions were used to estimate the fair value of options granted during the years ended December 30, 2007, December 31, 2006, and January 1, 2006 using the Black-Scholes option pricing formula.

	Years Ended
	December 30, 2007		December 31, 2006		January 1, 2006
Dividend yield	0.0	%	0.0	%	0.0	%
Expected volatility	54.8	%	58.3	%	52.6	%
Risk free interest rate	4.97	%	4.78	%	3.97	%
Expected lives	6.25 years		6.25 years		5.0 years
Forfeiture rates	12.64% - 22.79	%	15.79% - 16.35	%	—

Since its inception on February 16, 2004, a total of 400,000 shares of common stock had been reserved for issuance under the 2004 Employee Stock Purchase Plan ("ESPP"). Under the terms of the ESPP, the Company's U.S. employees, nearly all of whom are eligible to participate, can choose to have up to a maximum of 15% of their eligible annual base earnings withheld, subject to an annual maximum of $25,000 or 2,100 shares per offering period, to purchase our common stock. The purchase price of the stock is 85% of the lower of the closing price at the beginning of each six-month offering period or at the end of each six-month offering period. The Company recognizes compensation cost for its ESPP under SFAS 123R.

In accordance with SFAS 148, and as required by SFAS 123R, the required pro forma disclosure, for periods prior to adoption of SFAS 123R, is shown below (in thousands except per share amounts):

			Year Ended
			December 30, 2007			December 31, 2006			January 1, 2006
Net income (loss), as reported			$	(8,973	)	$	83		$	(3,232	)
Stock-based employee compensation related to stock options included in net income (loss), as reported, net of tax				—			—			—
Total stock-based employee compensation expense determined under the fair value based method for all awards (under provisions of APB 25), net of tax		(a)		(381	)		(610	)		(1,147	)

Net loss—pro forma			$	(9,354	)	$	(527	)	$	(4,379	)

Net income (loss) per share, as reported:
	Basic		$	(0.46	)	$	—		$	(0.17	)

	Diluted		$	(0. 46	)	$	—		$	(0.17	)

Pro forma net loss per share:
	Basic		$	(0.48	)	$	(0.03	)	$	(0.23	)

	Diluted		$	(0.48	)	$	(0.03	)	$	(0.23	)

(a): During 2007 and 2006 the Company accounted for stock-based compensation for options granted prior to February 25, 2004, the date of our initial public offering, to employees and directors using the intrinsic value method prescribed in APB 25 and adopted the disclosure-only alternative of SFAS 123, as amended by SFAS 148 for these options.

Segment Information

The Company is a designer and manufacturer of power supplies for OEMs in the computing and storage, wireless infrastructure, enterprise networking, medical and industrial markets. Operating segments are defined as components of the Company's business for which separate financial information is available that is evaluated by the Company's chief operating decision maker (its Chief Executive Officer) in deciding how to allocate resources and in assessing performance. The Company's operating segments consist of its United States, India, and China operations, which constitute Cherokee North America, and Cherokee Europe. These operating segments have been aggregated into a single reporting segment based on their similar economic characteristics and common operating characteristics, including comparable gross profit margins and common products, production processes, customers, distribution channels and regulatory requirements.

Earnings Per Share

The Company presents both basic and diluted earnings (loss) per share ("EPS") amounts. Basic EPS is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS amounts are based upon the weighted average number of common and common equivalent shares outstanding during the period. The Company uses the treasury stock method to calculate the impact of stock compensation. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect. Stock options for which the exercise price exceeds the average market price over the period have an anti-dilutive effect on EPS and, accordingly, are excluded from the calculation of diluted EPS. Dilutive stock options have an

anti-dilutive effect on EPS in a period with a net loss; therefore, are excluded from the EPS computation.

Adjustment to Accumulated Deficit

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements ("SAB 108"). SAB 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements.

Historically Cherokee evaluated uncorrected differences using the "roll-over" method, which focused primarily on the impact of uncorrected differences, including the reversal of prior-year uncorrected differences, on the current-year consolidated statement of operations. As required by SAB 108, Cherokee must now evaluate misstatements under a "dual approach" method, which requires quantification under both the "roll-over" and the "iron curtain" methods. The "iron curtain" method quantifies misstatements based on the effects of correcting the period-end consolidated balance sheet.

In accordance with the transition provisions of SAB 108, Cherokee recorded adjustments totaling $0.6 million to the beginning accumulated deficit for the year ended December 31, 2006 and $0.7 million to accumulated other comprehensive income. These adjustments were considered to be immaterial to our consolidated statements of operations and our other comprehensive income (loss) in prior years, under the "roll-over" method. The components of the adjustment are detailed in the tables below:

			Year Ended (in thousands)
			January 1, 2006			January 2, 2005			December 28, 2003 and prior years			January 2, 2006 Cumulative Effect
Debit (Credit)
Mexico cost of sales		(a)	$	(284	)	$	286		$	789		$	791
U.S. cost of sales		(b)		(211	)		957			(1,034	)		(288	)
China cost of sales		(c)		117			—			—			117
India cost of sales		(d)		98			—			—			98

Cost of sales			$	(280	)	$	1,243		$	(245	)	$	718
Provision for income taxes		(g)	$	(17	)	$	(434	)	$	291		$	(160	)

	Total		$	(297	)	$	809		$	46		$	558

		Balance at January 1, 2006			SAB 108 Adjustment			Balance at January 2, 2006
		(in thousands)
Debit (Credit)
	(a)	$	—		$	(7	)	$	—
	(e)		—			1,051			—
	(b)		—			290			—

Inventories, net		$	26,851		$	1,334		$	28,185

Property and equipment, net	(c)	$	19,268		$	(117	)	$	19,151

	(a)	$	—		$	(784	)	$	—
	(d)		—			(98	)		—
	(e)		—			(1,051	)		—

Accounts payable		$	(11,658	)	$	(1,933	)	$	(13,591	)

Accrued liabilities	(g)	$	(6,028	)	$	(220	)	$	(6,248	)

	(f)	$	—		$	(476	)	$	—
	(h)		—			160			—

Other long-term obligations		$	(4,790	)	$	(316	)	$	(5,106	)

Accumulated other comprehensive income	(f)	$	(1,470	)	$	694		$	(776	)

Accumulated deficit		$	168,898		$	558		$	169,456

Notes (a) through (h) refer to one or both of the two tables above.

(a): The Company determined that accounts payable for inventory at our Mexico Facility had been inaccurately reported for fiscal years 2005 and 2004 and certain periods prior to 2004.
(b): Internationally produced finished goods were incorrectly included in U.S. inventory capitalization calculations. As a result, cost of sales in the U.S. with respect to fiscal years 2005 and 2004 and certain periods before 2004 were inaccurate.
(c): In 2005, previously used equipment was internally transferred to our newly completed China Facility. The value added tax charged by the Chinese government associated with the transfer of this equipment was capitalized in 2005 as part of the asset, whereas the tax should have been expensed to moving costs.
(d): This is an accrual misstatement related to raw materials received in 2005 from our India Facility.
(e): In-transit materials were not accrued in 2005, 2004, and prior to 2004 for all third-party suppliers of our Mexico Facility.
(f): Deferred taxes and other comprehensive income (loss) were not recorded for the tax impact of unrealized foreign exchange gains taxable in Europe and deferred under U.S. generally accepted accounting principles ("GAAP") for the loans made to our European subsidiary. This error occurred in 2000 through 2005.
(g): Income Taxes Payable were not recorded for the tax impact of realized exchange gains taxable in Europe and deferred under U.S. GAAP for the repayment of a portion of loans made to our European subsidiary. This error occurred in 2005.
(h): Deferred taxes were not recorded in the purchase accounting relating to the acquisition of our European business in 2000. The errors included the deferred tax impact of basis differences in assets acquired and timing differences of acquired pension obligations.

Recent Accounting Pronouncements

In June 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS 109, Accounting for Income Taxes, by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Under FIN 48, the financial statement effects of a tax position should initially be recognized when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold should initially, and subsequently, be measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority. FIN 48 was effective for fiscal years beginning after December 15, 2006.

In accordance with the adoption of FIN 48 on January 1, 2007, we recognized a cumulative-effect adjustment of less than $0.1 million to the opening balance of accumulated deficit. See Notes 3 and 14, "Income Taxes," for additional information.

In September 2006, the FASB issued SFAS 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies to accounting pronouncements that require or permit fair value measurements, except for share-based payments transactions under FASB Statement No. 123 (Revised) Share-Based Payment. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, except for non-financial assets and liabilities, for which this Statement will be effective for years beginning after November 15, 2008. The Company has evaluated the effect of implementing the Statement on its financial position and operations and has determined that the impact of implementing the Statement will increase (or decrease) the fair value of its derivative financial instruments by an immaterial amount. The Company will consider the application of this Statement when computing fair value for financial reporting purposes beginning in 2008.

In February 2007, the FASB issued SFAS 159 The Fair Value Option for Financial Assets and Financial Liabilities. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The Statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, although early application is allowed. The Company will not be electing the fair value option for financial assets or liabilities existing on the December 31, 2007 adoption date. The Company will consider the applicability of the fair value option for assets acquired or liabilities incurred in future transactions.

In December 2007, the FASB issued SFAS 141(R), Business Combinations, and SFAS 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. These pronouncements are required to be adopted concurrently and are effective for business combination transactions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption is prohibited, thus the provisions of these pronouncements will be effective for us in fiscal year 2009. We do not have any minority interests and do not expect the adoption of SFAS 160 to have a material effect on our financial position or consolidated financial statements.

In December 2007, the SEC published SAB 110, Share-Based Payment. The interpretations in SAB 110 express the SEC staff's views regarding the acceptability of the use of a "simplified" method, as discussed in SAB 107, in developing an estimate of expected term of share options in accordance with FASB Statement No. 123 (Revised) Share-Based Payment. The use of the simplified method

requires our option plan to be consistent with a "plain vanilla" plan and was originally permitted through December 31, 2007 under SAB 107. In December 2007, the SEC issued SAB 110, Share-Based Payment, to amend the SEC's views discussed in SAB 107 regarding the use of the simplified method in developing an estimate of expected life of share options in accordance with FAS No. 123(R). SAB 110 is effective for the Company beginning December 31, 2007. The Company will continue to use the simplified method until it has the historical data necessary to provide a reasonable estimate of expected life, in accordance with SAB 107, as amended by SAB 110.

In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of SFAS 133. This statement requires enhanced disclosures about derivative instruments and hedging activities within an entity by requiring the disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It provides more information about an entity's liquidity by requiring disclosure of derivative features that are credit risk—related, and it requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early adoption permitted. The Company is evaluating the impact of the adoption of SFAS 161 and believes there will be no material impact on our consolidated financial statements or financial operations.

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

	December 30, 2007			December 31, 2006
Land	$	1,665		$	1,891
Buildings and improvements		7,100			7,294
Machinery and equipment		26,787			26,834
Dies, jigs and fixtures		1,464			1,198
Computers, software, office equipment and furniture		3,762			3,784
Automobiles and trucks		170			181
Leasehold improvements		9,147			8,682
Construction in progress		851			602

	$	50,946		$	50,466
Less accumulated depreciation and amortization		(31,752	)		(30,578	)

	$	19,194		$	19,888

As of December 30, 2007 and December 31, 2006, none of the Company's assets were under capital lease agreements. Depreciation and amortization expense for the years ended December 30, 2007, December 31, 2006, and January 1, 2006 was $3.1 million, $3.4 million, and $3.1 million, respectively.

In May 2007, the Company completed the sale of the Mexico building and in December 2007 the Company completed the sale of the Mexico corporation. See further discussion in Note 10 to the accompanying consolidated financial statements.

5. NET INCOME (LOSS) PER SHARE

In accordance with SFAS 128, Earnings Per Share, basic income (loss) per share is based upon the weighted average number of common shares outstanding. For the year ended December 30, 2007, all 2,791,579 of outstanding stock options were excluded from the calculation of diluted income (loss) per share as their effect would have been anti-dilutive due to the net loss for the year. For the year ended December 31, 2006, 2,297,054 of outstanding stock options were excluded from the calculation of

diluted income (loss) per share as their exercise prices would render them anti-dilutive. For the year ended January 1, 2006, all 2,270,115 shares subject to outstanding stock options were excluded from the calculation of diluted income (loss) per share as their effect would have been anti-dilutive due to the net loss for the year.

The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts):

		Years Ended
		December 30, 2007			December 31, 2006		January 1 2006
Net income (loss)		$	(8,973	)	$	83	$	(3,232	)

Shares:
	Weighted-average common shares outstanding—basic		19,387			19,286		19,230
Effect of dilutive securities:
	Outstanding stock options		—			12		—

	Weighted-average common shares outstanding—diluted		19,387			19,298		19,230

Net income (loss) per share:
	Basic	$	(0.46	)	$	—	$	(0.17	)

	Diluted	$	(0.46	)	$	—	$	(0.17	)

6. DEBT

Debt consists of the following at December 30, 2007 and December 31, 2006 (in thousands):

	December 30, 2007		December 31, 2006
5.25% senior notes, current portion	$	46,630	$	—
5.25% senior notes, long-term portion		—		46,630

Total debt	$	46,630	$	46,630

Presented below is the Company's debt and debt payable to affiliates at December 30, 2007 and December 31, 2006 (in thousands):

		December 30, 2007		December 31, 2006
Debt:
	Current	$	24,485	$	—
	Long-term debt		—		24,485
Debt payable to affiliates:
	Current		22,145		—
	Long-term debt		—		22,145

Total debt		$	46,630	$	46,630

As of December 30, 2007, all of the Company's debt is scheduled to be repaid in 2008.

The debt includes the Company's senior notes, which mature on November 1, 2008. Interest on the senior notes is payable in cash on May 1 and November 1 of each year. The senior notes are secured by a second-priority lien on substantially all of the Company's domestic assets and by a pledge of 65% of the equity of certain of the Company's foreign subsidiaries. As of December 30, 2007, the Company was in compliance with all of the covenants set forth in the principal agreements governing the 5.25% senior secured notes due in 2008. The Company does not currently have sufficient funds to repay these notes and is actively seeking to refinance this obligation; however, given the current credit market conditions the Company acknowledges that it may not be able to refinance this obligation at comparable interest rates to the 5.25% annual interest rate in the past, and any refinancing may be on terms that are materially less favorable. In addition, if the Company is not able to obtain satisfactory financing, the Company may be forced to sell some of its assets or to otherwise significantly alter its operating plan.

The Company's primary line of credit is its senior revolving credit facility with General Electric Capital Corporation (the "Credit Facility"). In order to increase borrowing capacity that was in effect lowered by historical earnings before interest, taxes, depreciation and amortization expense ("EBITDA") covenant, the Company approached General Electric Capital Corporation on re-negotiating our Credit Facility. On November 1, 2007, the Company and General Electric Capital Corporation amended the credit agreement for the revolving line of credit dated February 24, 2004. The amended Credit Facility provides for borrowings of up to the lesser of $7.5 million or 85% of eligible domestic accounts receivable. As of December 30, 2007, our borrowing base was $7.5 million, our eligible accounts receivable was $10.3 million. The Credit Facility matures in August 2008. Prior to November 1, 2007, the borrowings bore interest, at the Company's option, at a rate per annum equal to LIBOR plus 2.5% or the agent bank's base rate plus 1.0%. Effective November 1, 2007, the borrowings bear interest, at the Company's option, at a rate per annum equal to LIBOR plus 3.5% or the agent bank's base rate plus 2.0%. In addition to paying interest on outstanding principal, the Company is required to pay a commitment fee to the lenders under the credit facility in respect of the average daily balance of unused loan commitments at a rate of 1.0% per annum effective November 1, 2007. Prior to November 1, 2007 the rate was 0.5% per annum. In lieu of a maximum senior leverage multiple covenant, the new amended Credit Facility effective November 1, 2007 includes a minimum EBITDA target for the fourth quarter of 2007, which the Company was in compliance with at December 30, 2007. In 2008, quarterly minimum EBITDA targets will be established. Prior to November 1, 2007, the EBITDA covenant limited our borrowing to the lower of the borrowing base or two times our EBITDA as defined by the prior credit agreement. The Credit Facility is secured by a first-priority lien, subject to permitted encumbrances, on substantially all of the Company's domestic assets and by a pledge of 65% of the equity of certain of the Company's foreign subsidiaries. The Credit Facility contains certain restrictive covenants including the minimum EBITDA target. In March 2008, General Electric Capital Corporation modified the amended credit agreement effective as of December 30, 2007 for a balance sheet covenant issue resulting from the capitalization of intercompany debt with our Dutch holding company during 2007. As of December 30, 2007, there were no borrowings outstanding under the Credit Facility, and the Company was in compliance with all of the covenants under the Credit Facility.

Cherokee Europe maintains a working capital line of credit of approximately $4.5 million, expressed as Euros 3.0 million, with Bank Brussels Lambert, a subsidiary of ING Belgie NV, a bank in Brussels, which is denominated in Euros, collateralized by a pledge in first and second rank over a specific amount of business assets, requires Cherokee Europe to maintain a certain specific minimum solvency ratio and is cancelable at any time. Our access to the line is limited to $4.0 million because $0.5 million is committed to minimum guarantees on specific collections and payments. In November 2007, ING Belgie NV restricted the Company from transferring funds from Europe to the U.S. in the form of management and dividend fees. During the quarter ended September 30, 2007, Cherokee Europe borrowed $2.1 million from the line of credit which remained outstanding as of December 30, 2007. As of December 30, 2007, Cherokee Europe was in compliance with all covenants.

In January 2007, Cherokee China entered into a loan contract with Industrial and Commercial Bank of China Ltd. ("ICBC") for a working capital line of credit. Pursuant to the contract, ICBC agreed to make advances up to the equivalent of approximately $3.4 million, expressed as RMB 25.0 million. The line of credit is collateralized by the Company's building in Shanghai, China. The first term ended January 29, 2008, and was renewed and extended for an additional year, until January 2009. The contract is renewable annually, but is cancelable at any time. Interest is payable monthly at a fixed rate based on the transaction date of our borrowings, the rates vary according to the specific dates and are announced by the People's Bank of China, which was 6.55% at January 29, 2007 and 6.04% at March 20, 2007, based on dates amounts were borrowed. Beginning with its initial borrowing under the contract, Cherokee China has agreed to deposit in the ICBC Shanghai Branch at least 90% of the operating revenue it collects. The cash from these deposits made into our bank account are not restricted from our usage of these funds. As of December 30, 2007, Cherokee China had $1.3 million of borrowings under the line of credit and was in compliance with all covenants.

In July 2007, Cherokee Europe borrowed short-term funds of $0.6 million from ING Belgie NV, and repaid the amount as of December 25, 2007. The loan arrangement was over six months, with monthly payments of $96,000 to be repaid by December 25, 2007. The loan bore a 5.3% interest rate.

7. OTHER LONG-TERM LIABILITIES

Other long-term liabilities consist of the following (in thousands):

	Years Ended
	December 30, 2007			December 31, 2006
1999 Europe restructuring liabilities	$	561		$	676
2003 Europe restructuring liabilities		1,330			1,421
Long service award liabilities		963			818
Pension liability-SFAS 158		1,748			2,671
Deferred compensation		1,356			1,105
Advances for research and development		668			597

Subtotal	$	6,626		$	7,288
Less current portion		(2,092	)		(573	)

	$	4,534		$	6,715

Estimated payments required under other long-term obligations as of December 30, 2007 are as follows (in thousands):

	1999 Europe Restructuring			2003 Europe Restructuring			Long Service Award
2008		164			266			53
2009		342			259			107
2010		55			238			204
2011		—			195			25
2012		—			151			20
Thereafter		—			221			554

Subtotal	$	561		$	1,330		$	963
Less current portion		(164	)		(266	)		(53	)

	$	397		$	1,064		$	910

The Company's long term pension liability is greatly affected by the prevailing discount rate when calculating its liability under SFAS 158. The lower prevailing rates in 2006 resulted in the increase in the liability while the higher prevailing rate in 2007 significantly decreased the liability.

As of December 30, 2007, the Company has a recorded liability of $1.4 million, for employee and non-employee director contributions and investment activity to date under the deferred compensation plan, the current portion of $1.1 million is recorded under accrued compensation and benefits and the long-term portion of $0.2 million is recorded in other long-term liabilities.

8. CHEROKEE EUROPE RESTRUCTURING

Prior to the Company's acquisition of Cherokee Europe, the facility implemented a restructuring plan (the "1999 Europe Restructuring"). The 1999 Europe Restructuring liability of $2.2 million assumed by the Company was comprised entirely of termination benefits to be paid through 2010. The Company paid $0.2 million, $0.2 million, and $0.2 million in benefits during the years ended December 30, 2007, December 31, 2006, and January 1, 2006, respectively, under the 1999 Europe Restructuring.

In June 2003, the Company received approval for a restructuring plan (the "2003 Europe Restructuring") of its operations in Europe from the Workers Union and the appropriate governmental authorities in Belgium. The 2003 Europe Restructuring involved the elimination of 61 operational and administrative positions at the Cherokee Europe facility in Belgium due to unfavorable economic conditions in that market. All of the terminations were completed in 2003. Pursuant to the 2003 Europe Restructuring, the Company recorded a termination benefits charge of $4.5 million for the year ended December 28, 2003, to be paid through 2016. The Company paid $0.4 million, $0.3 million, and $0.4 million in benefits during the years ended December 30, 2007, December 31, 2006, and January 1, 2006, respectively, under the 2003 Europe Restructuring.

A reconciliation of the 1999 Europe Restructuring and 2003 Europe Restructuring liabilities for the year ended December 30, 2007 and prior years is as follows (in thousands):

		1999 Europe Restructuring			2003 Europe Restructuring
Balance as of December 29, 2002		$	1,052		$	—
	Provision		—			4,474
	Payments		(206	)		(1,942	)
	Foreign exchange rate effect		182			282

Balance as of December 28, 2003			1,028			2,814
	Provision		165			(54	)
	Payments		(231	)		(1,122	)
	Foreign exchange rate effect		66			129

Balance as of January 2, 2005			1,028			1,767
	Provision		27			259
	Payments		(163	)		(368	)
	Foreign exchange rate effect		(122	)		(206	)

Balance as of January 1, 2006			770			1,452
	Provision		50			99
	Payments		(224	)		(285	)
	Foreign exchange rate effect		80			155

Balance as of December 31, 2006			676			1,421
	Provision		50			117
	Payments		(193	)		(362	)
	Foreign exchange rate effect		28			154

Balance as of December 30, 2007		$	561		$	1,330
Less current portion			(164	)		(266	)

Due after one year		$	397		$	1,064

The provision under the restructuring liability is updated annually to adjust for the expected future obligations.

9. COMMITMENTS AND CONTINGENCIES

The Company leases certain of its manufacturing facilities under non-cancelable operating leases through 2055. One of the manufacturing facilities is leased from an entity controlled by a former director of the Company. Rental expense for the years ended December 30, 2007, December 31, 2006 and January 1, 2006 totaled approximately $1.7 million, $1.7 million and $1.6 million (including $1.2 million, $1.2 million and $1.1 million to an entity controlled by a former director), respectively.

As of December 30, 2007, the Company has no capital lease contracts. A summary of the Company's operating lease commitments as of December 30, 2007 is as follows (in thousands):

Year ending December 30:
2008	$	1,611
2009		568
2010		43
2011		18
2012		6
Thereafter		103

Total minimum lease payments	$	2,349

As of December 30, 2007, total future minimum payments for operating leases aggregated to $2.3 million, of which $1.6 million is payable to an entity controlled by a former director of the Company.

Guarantees and Indemnities

The Company has agreed to indemnify the former owners of Cherokee Europe for product liability, environmental hazard and employment practice claims relating solely to post-acquisition business. The Company also indemnifies its directors and officers to the maximum extent permitted under the laws of the State of Delaware, and various lessors in connection with facility leases for certain claims arising from such facility or lease. The maximum amount of potential future payments under such indemnifications is not determinable.

The Company has not incurred significant amounts related to these guarantees and indemnifications, and no liability has been recorded in the consolidated financial statements for guarantees and indemnifications as of December 30, 2007, and December 31, 2006.

Cash Incentive Compensation Program and Severance Agreements

The Company adopted a cash incentive program for certain executives, which provides for cash incentive payments of up to 120% of base salary subject to attainment of corporate goals and objectives approved by the Company's board of directors. In addition, the Company has entered into severance agreements with certain executives and managers, which provide payments to the executive or manager if they are, terminated other than for cause or because of a change in control, as defined in the applicable severance agreement. Certain of the severance agreements provide additional benefits, including acceleration of stock options, in the event of termination in connection with a change of control, as defined in the applicable severance agreement.

On February 29, 2008, the Company entered into an amendment to the Company's existing severance agreements for the Company's President and Chief Executive Officer, Vice President, Chief Financial Officer and Secretary, and Executive Vice President of Global Operations. Also, on February 29, 2008, the Company entered into a new severance agreement with its Vice President of Engineering. See further discussion in Note 16 to the accompanying consolidated financial statements.

Other Matters

In the first quarter of 2006, we executed a mutual release agreement with a former business partner. The agreement released both parties from obligations arising from past transactions. As a result of this agreement, we made a one-time adjustment to reduce our selling and marketing expense by $0.4 million during the quarter ended April 2, 2006.

India Matter

The subject payments, in the aggregate, amounted to approximately $40,000 in each of the years ended January 2, 2005 and January 1, 2006, and less than $10,000 in the year ended December 31, 2006. The Company retained outside counsel who conducted an internal investigation into these payments. In January 2007, the Company's outside counsel met with the SEC to discuss the results of the internal investigation.

SynQor

10. RESTRUCTURING COSTS AND ASSET IMPAIRMENT CHARGES FOR CLOSURE OF GUADALAJARA, MEXICO FACILITY

During the quarter ended October 1, 2006, the Company announced the planned closure of its Mexican facilities and a related restructuring plan, which was accounted for in accordance with SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities. The Mexico Facility encompassed 35,000 square feet in one building and had been in operation since 1988, employing approximately 250 full-time and temporary employees in the production of power supplies.

The restructuring and closure of our Mexico Facility was completed by the end of the second quarter of 2007. The cumulative costs for the closure of the Mexico Facility were $1.5 million ($1.3 million of which were recorded in 2006). This was made up of $0.9 million restructuring, $0.3 million asset impairment and $0.3 million additional excess and obsolescence reserve. During the third quarter ended July 1, 2007, there was a reversal of $38,000 to severance costs due to the transfer and relocation of an employee from the Mexico Facility to our Tustin Facility. The remaining accrued balance for severance and stay bonuses was paid on July 1, 2007 to the remaining employees.

Assets held for sale—Mexico Facility building sold

The Company began actively searching for a buyer for the Mexico Facility building during the quarter ended October 1, 2006; however, in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the related assets were not classified as assets held for sale in the condensed consolidated balance sheets prior to April 1, 2007, because the Company did not meet the criterion that "the asset (disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets", due to our continued utilization of assets in our ongoing operations at our Mexico Facility.

The Company ceased operations in Mexico in March 2007, and reclassified the net book value of $0.7 million for the building and the related assets to assets held for sale on the condensed consolidated balance sheet as of April 1, 2007, in accordance with SFAS 144. In addition, depreciation of the assets related to this sale was suspended as of April 1, 2007. There was no impairment charge to the related assets because management determined that the measurement value, the net book value, was lower than the estimated fair value less cost to sell.

On February 22, 2007, Cherokee Electronica, S.A. de C.V. ("Cherokee Mexico"), a subsidiary of Cherokee International Corporation, a Delaware corporation (the "Company"), entered into a Purchase and Sale Agreement (the "Agreement") with Inmobiliaria Hondarribia, S.A. de C.V. (the "Buyer") for the sale of Cherokee Mexico's 35,000-foot manufacturing facility in Guadalajara, Mexico. The Agreement provided that the Buyer pay Cherokee Mexico an aggregate purchase price of approximately US $1.2 million of which a 15% deposit, approximately US $182,000, was paid on February 22, 2007. On May 24, 2007, the sale of the building was completed, and the remaining 85% of the sales price was transferred into the Company's bank account. The Company also collected the value added tax on the building in addition to the sales price and paid the taxes collected to the Mexican government in June 2007. The net gain of the sale recorded during the quarter ended July 1, 2007, was $0.4 million, net of $0.1 million related to the cost to sell the assets which was deducted from the gain.

Sale of Mexico Corporation

On December 12, 2007 Cherokee International Corporation sold Cherokee Electronica, S.A. de C.V. corporation and capital stock. The Company received the proceeds from the sale on December 13, 2007. The net gain of the sale was $0.4 million.

Asset Impairment Charges related to Other Assets

During the quarter ended October 1, 2006, the Company performed an impairment review in accordance with SFAS 144, Accounting for the Impairment and Disposal of Long-Lived Assets, to determine whether any of its long-lived assets located at the Mexico Facility were impaired. The Company identified certain long-lived assets associated with the restructuring and closure of the Mexico Facility whose carrying value would not be recoverable from future cash flows and recorded an impairment charge of $0.3 million for these assets. These assets consisted of machinery and equipment, computer technology and equipment, and office furniture and equipment. The majority of these assets were written off because the Company considered them to have no market value. None of the impairment charges included cash components.

Restructuring Costs

In accordance with SFAS 146, employee severance, contract termination and other exit costs are recorded at their estimated fair value when they are incurred. During the quarter ended July 1, 2007, there was a reversal of $38,000 to severance costs due to the transfer and relocation of an employee from the Mexico Facility to our Tustin Facility.

There were $0.2 million of employee severance and stay bonus costs during the first six months of 2007, which included a pro-rata portion from August 10, 2006, the communication date, through July 1, 2007, of an estimated amount of statutorily required severance payments and management performance stay-on bonuses incurred for employees at the Mexico Facility. The Company paid $0.6 million of severance and related expenses to the remainder of employees terminated during the quarter ended July 1, 2007. All severance charges were settled with cash as of July 1, 2007.

A summary of the restructuring costs and reserve activity for the year ended December 30, 2007 is as follows (in thousands):

		Restructuring Liabilities at December 31, 2006			Restructuring Charges			Cash Paid			Restructuring Liabilities at December 30, 2007
Severance and bonuses		$	429		$	155		$	(584	)	$	—
Total Restructuring Costs		$	429		$	155		$	(584	)	$	—

11. STOCKHOLDERS' EQUITY

2002 Stock Option Plan

In July 2003, the Company adopted the Cherokee International Corporation 2002 Stock Option Plan (the "2002 Stock Option Plan") under which up to 1,410,256 shares of the Company's common stock may be issued pursuant to the grant of non-qualified stock options to the directors, officers, employees, consultants and advisors of the Company and its subsidiaries. In connection with the adoption of the 2002 Stock Option Plan, the Company granted 1,087,327 stock options. The options typically vest over a four-year period, have a ten-year contractual life, range in exercise price from $5.85 to $10.34 per share and were granted with exercise prices at or above fair value as determined by Cherokee's Board of Directors based on income and market valuation methodologies. In February 2004, the Company granted options to purchase 328,320 shares of common stock at an exercise price of $14.50 and terminated the 2002 Stock Option Plan. As of December 30, 2007, the Company had granted a total of 1,415,647 options to purchase shares of common stock under the 2002 Stock Option Plan, which includes options to purchase shares that were cancelled and subsequently re-granted.

2004 Omnibus Stock Incentive Plan

On February 16, 2004, the Company adopted the 2004 Omnibus Stock Incentive Plan (the "2004 Plan"), which provided for the issuance of 800,000 shares of common stock. The 2004 Plan also provides for an annual increase to be added on the first day of the Company's fiscal year equal to the lesser of (i) 450,000 shares or (ii) 2% of the number of outstanding shares on the last day of the immediately preceding fiscal year. As of December 30, 2007 a total of 2,926,070 shares of the Company's common stock were reserved for issuance under the 2004 Plan. Any officer, director, employee, consultant or advisor of the Company is eligible to participate in the 2004 Plan. The 2004 Plan provides for the issuance of stock-based incentive awards, including stock options, stock appreciation rights, restricted stock, deferred stock, and performance shares. As of December 30, 2007, the Company had granted options to purchase 2,329,489 shares of common stock under the 2004 Plan, which included 308,153 options issued as partial compensation to non-employee directors. During the year ended December 30, 2007, the Company granted a total of 745,500 options to purchase shares of common stock under the 2004 Plan, which includes options to purchase shares that were cancelled and subsequently re-granted. The aggregate fair value for options granted during 2007 was $2,143,000, which will be amortized as stock compensation costs over 6.25 years.

Information with respect to stock option activity and stock options outstanding under both stock option plans is as follows:

	Number of Shares		Option Exercise Price Per Share		Weighted Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Options outstanding, January 1, 2003	—		$	—	$	—
Options granted (weighted average fair value of $0.59 per share)	1,087,327		$	5.85 - 10.34	$	6.74
Options exercised	—			—		—
Options forfeited	(6,410	)	$	5.85 - 10.34	$	6.75

Options outstanding, December 28, 2003	1,080,917		$	5.85 - 10.34	$	6.78
Options granted (weighted average fair value of $6.57 per share)	527,320		$	6.96 - 14.50	$	13.32
Options exercised	(6,056	)	$	5.85 - 10.34	$	6.42
Options forfeited	(167,417	)	$	5.85 - 14.50	$	7.72

Options outstanding, January 2, 2005	1,434,764		$	5.85 - 14.50	$	9.05
Options granted (weighted average fair value of $2.12 per share)	1,227,489		$	2.97 - 7.26	$	4.56
Options exercised	—			—		—
Options forfeited	(392,138	)	$	3.89 - 14.50	$	9.91

Options outstanding, January 1, 2006	2,270,115		$	2.97 - 14.50	$	6.47
Options granted (weighted average fair value of $2.22 per share)	157,500		$	3.18 - 6.76	$	3.69
Options exercised	—			—		—
Options forfeited	(130,561	)	$	3.19 - 14.50	$	7.27

Options outstanding at December 31, 2006	2,297,054		$	2.97 - 14.50	$	6.23
Options granted (weighted average fair value of $2.87 per share)	745,500		$	4.40 - 5.54	$	4.95
Options exercised	(30,000	)	$	2.97 - 3.75	$	3.19
Options forfeited	(220,975	)	$	3.19 - 14.50	$	5.64

Options outstanding at December 30, 2007	2,791,579		$	2.97 - 14.50	$	5.97	7.49	$	—

Options vested and expected to vest in the future at December 30, 2007	2,463,011				$	6.14	7.29	$	—

Options exercisable at December 30, 2007	1,464,005				$	6.75	6.42	$	—

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Shares	Weighted Average Remaining Contractual Life in Years	Weighted Average Exercise Price		Number of Shares	Weighted Average Exercise Price
$2.97 - 3.18	112,500	8.07	$	3.01	43,750	$	2.99
$3.19	498,900	7.94	$	3.19	271,950	$	3.19
$3.49 - 4.77	177,500	8.33	$	3.86	54,375	$	3.75
$4.94	625,500	9.50	$	4.94	—	$	—
$4.97 - 5.54	80,000	9.49	$	5.13	—	$	—
$5.85	627,930	5.58	$	5.85	627,930	$	5.85
$7.26	284,000	7.20	$	7.26	142,000	$	7.26
$8.07	30,000	6.93	$	8.07	22,500	$	8.07
$10.34	140,249	5.58	$	10.34	140,249	$	10.34
$14.50	215,000	6.13	$	14.50	161,251	$	14.50

	2,791,579	7.49	$	5.97	1,464,005	$	6.75

2004 Employee Stock Purchase Plan

On February 16, 2004, the Company adopted the 2004 Employee Stock Purchase Plan (the "ESPP"). The ESPP provides for an annual increase to be added on the first day of the Company's fiscal year equal to the lesser of (i) 250,000 shares or (ii) 1% of the number of outstanding shares on the last day of the immediately preceding fiscal year. As of December 30, 2007, a total of 742,019 shares of common stock were reserved for issuance under the plan. The ESPP, which is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, is implemented utilizing six-month offerings with purchases occurring at six-month intervals, with a new offering period commencing on the first trading day on or after May 15 and November 15 and ending on the last trading day on or before November 14 or May 14, respectively. The Compensation Committee of the Company's Board of Directors oversees administration of the ESPP. Employees are eligible to participate if they are employed for at least 20 hours per week and more than 5 months in a calendar year by the Company, subject to certain restrictions. The ESPP permits eligible employees to purchase common stock through payroll deductions, which may not exceed 15% of an employee's compensation. The price of common stock purchased under the ESPP is 85% of the lower of the fair market value of the common stock at the beginning of each six-month offering period or on the applicable purchase date. Employees may end their participation in an offering at any time during the offering period, and participation ends automatically upon termination of employment. The Compensation Committee may at any time amend or terminate the ESPP, except that no such amendment or termination may adversely affect shares previously issued under the ESPP. As of December 30, 2007, 236,016 shares of common stock had been issued under the ESPP.

Deferred Compensation Plan

On February 16, 2004, the Company adopted two executive deferred compensation plans for the benefit of certain designated employees and non-employee directors of the Company. The plans were amended on January 1, 2008 to comply with the regulations for nonqualified deferred compensation arrangements under Internal Revenue Code (IRC) Section 409A. The plans allow participating employees and non-employee directors to make pre-tax deferrals of up to 100% of their annual base salary and bonuses, and retainer fees and meeting fees, respectively. The plans allow the Company to make matching contributions and employer profit sharing credits at the sole discretion of the Company. A participant's interest in each matching contribution and employer profit sharing credit, if any, vests in full no later than after 3 years.

As of December 30, 2007, the Company has a recorded liability of $1.4 million, for employee and non-employee director contributions and investment activity to date, the current portion of $1.1 million is recorded under accrued compensation and benefits and the long-term portion of $0.2 million is recorded in other long-term liabilities. As of December 31, 2006 the Company had a recorded liability of $1.1 million which was recorded in other long-term liabilities. The Company has provided no matching contributions during the year ended December 30, 2007 and prior years.

In January 2008, we paid $0.6 million of scheduled distributions to participants from the deferred compensation plan.

12. RETIREMENT PLANS

Cherokee Europe maintains a pension plan for certain levels of staff and management that includes a defined benefit feature. The following represents the amounts related to this defined benefit plan (in thousands):

		Years Ended
		December 30, 2007			December 31, 2006			January 1, 2006
Change in Benefit Obligation:
	Benefit obligation, beginning of period	$	9,002		$	5,112		$	5,986
	Benefits paid		(682	)		(546	)		(934	)
	Effect of exchange rate changes		889			744			(744	)
	Service cost		364			238			152
	Plan participant's contributions		137			124			125
	Interest cost		417			200			247
	Actuarial loss		(2,681	)		3,130			280

	Benefit obligation, end of period	$	7,446		$	9,002		$	5,112

Change in Plan Assets:
	Fair value of plan assets, beginning of period	$	5,030		$	2,722		$	3,698
	Benefits paid		(682	)		(546	)		(934	)
	Effect of exchange rate changes		585			407			(437	)
	Actual return on plan assets		332			1,864			13
	Employer contribution		296			459			257
	Plan participants' contributions		137			124			125

	Fair value of plan assets, end of period	$	5,698		$	5,030		$	2,722

	Unfunded status	$	(1,748	)	$	(3,972	)	$	(2,390	)
	Unrecognized net actuarial gain		—			—			1,141

	Accrued pension liability	$	(1,748	)	$	(3,972	)	$	(1,249	)

Information for pension plans with accumulated benefit obligations in excess of plan assets:
	Projected benefit obligation	$	7,446		$	9,002		$	5,112
	Accumulated benefit obligation	$	5,992		$	6,921		$	3,919
	Fair value of assets	$	5,698		$	5,030		$	2,722
Components of Net Periodic Benefit Cost:
	Service cost	$	364		$	238		$	152
	Interest cost		417			200			247
	Expected return on plan assets		(236	)		(127	)		(141	)
	Amortization of net (gain)/loss		182			61			—

	Net periodic benefit cost	$	727		$	372		$	258

	Years Ended
	December 30, 2007		December 31, 2006		January 1, 2006
Weighted average assumptions used:
For determining benefit obligations at the years ended:
Discount rate	5.50	%	4.50	%	4.00	%
Salary increase	3.75	%	3.75	%	3.50	%
For determining net periodic cost for years ended:
Discount rate	4.50	%	4.00	%	4.00	%
Salary increase	3.75	%	3.50	%	3.50	%
Expected return on assets	4.50	%	4.50	%	4.50	%
Pension plan assets:
Guaranteed insurance contracts	100	%	100	%	100	%

All plan funds are invested with Fortis AG, an insurance company in Europe, which guarantees the plan a fixed rate of return based on rates in effect at the time of deposit. Returns may be higher than the fixed rates due to a profit sharing provision and are dependent on the overall investment results of Fortis AG. In general, the assets of the insurance contracts are primarily invested in Euro bonds with only a small portion in equities.

The Company expects to contribute approximately $400,000 to the pension plan in fiscal 2008.

Estimated future pension benefit payments (in thousands):
2008	$	411
2009		827
2010		1,769
2011		645
2012		347
Years 2013 - 2017	$	2,708

The Company maintains a retirement plan (the "401(k) Plan") in which substantially all domestic employees as of January 1, 2008 are eligible to participate in after completing three months of employment. Prior to January 1, 2008, employees were eligible to participate in the plan after six months of employment. The Company adopted the safe harbor method in operating the 401(k) Plan effective January 1, 2008. As of January 1, 2008, under the safe harbor method, the 401(k) Plan allows participating employees to contribute up to 50% of the employee's pretax compensation, with the Company matching up to 3.5% of the first 6% of employee contributions. Company contributions fully vest and are non-forfeitable after the participant has completed two years of service. Prior to January 1, 2008, the Company allowed participating employees to contribute up to 15% of the employee's pretax compensation, with the Company making discretionary matching contributions. Company contributions were fully vested and non-forfeitable after the participant completed five years of service. For the years ended December 30, 2007, December 31, 2006, and January 1, 2006, the Company elected to contribute approximately $361,000, $312,000, and $280,000, respectively, to the 401(k) Plan. Beginning with the year ended December 31, 2006, the Company made quarterly employer contributions to the 401(k) Plan. Prior to January 2, 2006, employer contributions were generally made after the calendar year end. Participants pay administrative costs associated with the 401(k) Plan.

13. CONCENTRATIONS

The Company recorded net sales of greater than 10% of total net sales from the following customers:

	Years Ended
Customer	December 30, 2007		December 31, 2006	January 1, 2006
A	*		*	10.4	%
B	11.6	%	*	*

*: Customer net sales were less than 10% of total net sales.

The Company has outstanding accounts receivable balances of greater than 10% of total net receivables from the following customers:

	As of
Customer	December 30, 2007		December 31, 2006
A	*		*
B	10.6	%	*

*: Customer accounts receivable balance was less than 10% of total accounts receivable, net.

Although not anticipated, a decision by a major customer to decrease the amount purchased from the Company or to cease purchasing the Company's products could have an adverse effect on the Company's future financial position and results of operations.

The Company sells its power supply products to OEMs in the computing and storage, wireless infrastructure, enterprise networking, medical and industrial markets. These activities are managed as a single business and have been aggregated into a single reportable operating segment. For the years ended December 30, 2007, December 31, 2006, and January 1, 2006, net sales by region were as follows (in thousands):

	Years Ended
	December 30, 2007		December 31, 2006		January 1, 2006
North America (primarily United States)	$	64,116	$	75,264	$	63,157
Europe		45,193		53,201		50,399
Asia		18,833		16,182		8,051
Other		354		381		472

	$	128,496	$	145,028	$	122,079

The Company's long-lived assets located outside of the United States were $17.6 million and $18.2 million as of December 30, 2007 and December 31, 2006, respectively.

14. INCOME TAXES

Income (loss) before income taxes consists of the following components (in thousands):

	Years Ended
	December 30, 2007			December 31, 2006			January 1, 2006
United States	$	3,785		$	7,218		$	4,604
Foreign		(15,210	)		(7,218	)		(6,959	)

	$	(11,425	)	$	—		$	(2,355	)

The provision for current and deferred income taxes consists of the following (in thousands):

			Years Ended
			December 30, 2007			December 31, 2006			January 1, 2006
Current:
	Federal		$	—		$	—		$	(51	)
	State			11			—			—
	Foreign			(227	)		653			403

		Total current	$	(216	)	$	653		$	352

Deferred:
	Federal		$	—		$	—		$	—
	State			—			—			—
	Foreign			(2,236	)		(736	)		525

		Total deferred	$	(2,236	)	$	(736	)	$	525

Provision (benefit) for income taxes			$	(2,452	)	$	(83	)	$	877

The Company's effective tax rate differs from the federal statutory rate of 34% as follows (in thousands):

	Years Ended
	December 30, 2007			December 31, 2006			January 1, 2006
Worldwide pre-tax income (loss) at 34%	$	(3,885	)	$	—		$	(801	)
State tax, net of federal benefit		159			168			—
Foreign income not subject to U.S. tax (benefit)		3,327			935			847
Goodwill impairment		1,767			—			—
Foreign taxes		(2,590	)		(305	)		769
Disposal of foreign subsidiary		(3,272	)		—			—
Change in valuation allowance		1,501			(782	)		248
Other		541			(99	)		(186	)

Provision (benefit) for income taxes	$	(2,452	)	$	(83	)	$	877

The Company's deferred income taxes are comprised of the following (in thousands):

	Years Ended
	December 30, 2007			December 31, 2006
Net deferred income taxes
Inventory reserves	$	813		$	1,487
Nondeductible reserves		423			607
Net operating loss carry-forwards		22,870			24,223
Fixed assets		673			418
Tax basis step up from 1999 re-capitalization		27,825			32,653
Other		21			326
Compensation and pension		1,841			2,997
Credits		579			954
Capital loss carryforward		3,892			—
Foreign exchange gain		(534	)		(4,597	)
Deferred fire gain		(653	)		(661	)
Deferred state taxes		(3,458	)		(3,537	)

		54,292			54,870
Valuation allowance		(52,672	)		(54,587	)

Net deferred tax asset	$	1,620		$	283

In the opinion of management, it is more likely than not that certain deferred tax assets will not be realized in the foreseeable future. Accordingly, management has determined that a full valuation allowance was required as of December 30, 2007 and December 31, 2006 for U.S. and certain foreign deferred tax assets. At December 30, 2007, we had $1.6 million of tax benefits from our European operations on the balance sheet. There is no reserve against this tax asset. These benefits were created in fiscal year 2007 from tax losses. The years immediately preceding 2007 were profitable and our business plans project future profitable years that will utilize this asset. Cherokee Europe operations have a history of profits and in the opinion of management, it is more likely than not that the Company will realize the deferred tax assets. Cherokee Europe has a long term deferred tax liability related to a prior year gain which is recognized over several years for Belgium tax purposes.

Federal and state NOL carry-forwards at December 30, 2007, are $50.0 million and $39.6 million, respectively. Federal NOL carry-forwards begin expiring in 2022 and state NOL carry-forwards begin expiring in 2014. Foreign NOL carry-forwards are $10.5 million at December 30, 2007, the majority of which have an infinite carryforward period.

Our China operation is not subject to taxes for five years beginning in 2008 due to a tax holiday.

U.S. deferred income taxes were not provided for on undistributed earnings from non-U.S. subsidiaries. Those earnings are considered to be permanently reinvested in accordance with Accounting Principles Board (APB) Opinion 23.

The Company adopted FIN 48, Accounting for Uncertainty in Income Taxes on January 1, 2007. As a result of adoption, the Company recognized a cumulative effect adjustment of less than $0.1 million to the January 1, 2007 accumulated deficit balance. At January 1, 2007, we had $1.8 million of gross unrecognized tax benefits, of which $0.6 million would reduce our effective tax rate if recognized. Of the total unrecognized tax benefits at the adoption date, $1.2 million was recorded as a reduction to deferred tax assets, which caused a corresponding reduction in our valuation allowance of $1.2 million. To the extent such portion of unrecognized tax benefits is recognized at a time such valuation allowance no longer exists, the recognition would impact our effective tax rate. During the second quarter of 2007 the Company effectively settled a Netherlands examination of the years 2002 through

2006. As a result of the Netherlands settlement, the Company reduced the liability for unrecognized tax benefits by $0.3 million during the second quarter of 2007. The Company received $0.2 million of refunds from the Dutch government during the third quarter of 2007. In the fourth quarter of 2007 the Company received a favorable ruling on one of three tax years in India and as a result reduced the liability for unrecognized tax benefits by approximately $0.1 million. At December 30, 2007, we have $0.3 million of gross unrecognized tax benefits, of which $0.3 million would reduce our effective tax rate if recognized. The Company's continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 30, 2007, we have less than $0.1 million of accrued interest and penalties related to uncertain tax positions.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits including accrued interest and penalties is as follows (in millions):

Gross unrecognized tax benefits at January 1, 2007	$	1.8
Gross increases for tax positions of prior years		—
Gross decreases for tax positions of prior years		(0.6	)
Current year tax positions		—
Settlements		—
Lapse of statute of limitations		—
Disposition of legal entity		(0.9	)

Gross unrecognized tax benefits at December 30, 2007	$	0.3

The tax years 1997 to 2006 remain open to examination by the major taxing jurisdictions to which we are subject. The Company is currently under examination in India for certain years between 2000 and 2005 and in the United States for the year 2005. In the fourth quarter of 2007 we sold our Mexican subsidiary and are no longer subject to examinations in Mexico. The Company is scheduled to begin an audit of 2005 and 2006 in Belgium beginning in the first quarter of fiscal 2008. Due to the potential resolution of the examinations, it is reasonably possible that the unrecognized tax benefits at December 30, 2007, may change within the next twelve months by a range of $0 to $0.3 million.

15. GAIN FROM INSURANCE PROCEEDS (CHEROKEE EUROPE FIRE)

On January 19, 2004, the Company experienced a fire in part of its facility in Belgium, which destroyed certain inventory, property and equipment. The Company was fully insured for the replacement value of the destroyed items, subject to a $5,000 deductible. As of January 2, 2005, the Company had received $3.4 million in insurance proceeds. Within operating expenses for the year ended January 2, 2005, the Company recorded a loss related to the destroyed inventory, property and equipment.

During the year ended January 1, 2006 we received additional insurance proceeds to compensate us for the replacement value of the assets destroyed. The total recoveries of $6.7 million resulted in a $2.9 million gain reported in the year ending January 1, 2006. As of December 31, 2006, the Company had been reimbursed for the values of the damaged property.

The following amounts were recorded in our consolidated financial statements for the year ended January 1, 2006 (in thousands):

Write-off of destroyed assets:
Inventory	$	2,437
Warehouse and equipment, net book value		158
Supplies and other expenses		1,203

Total destroyed assets	$	3,798

Insurance proceeds:
Proceeds received in year ended December 31, 2004	$	3,385
Proceeds received in year ended December 31, 2005		3,311

Total recoveries	$	6,696

16. SUBSEQUENT EVENTS

Senior Notes Debt

On February 1, 2008 the Company engaged an investment banker to work on securing the extension of the maturity date of the Senior Notes currently due on November 1, 2008.

Severance Agreements

On February 29, 2008, the Company entered into an amendment to the Company's existing severance agreement with each of Jeffrey M. Frank, the Company's President and Chief Executive Officer, Linster W. Fox, the Company's Executive Vice President, Chief Financial Officer and Secretary, and Mukesh Patel, the Company's Executive Vice President of Global Operations. These executives' existing severance agreements provide for certain severance payments to be made in the event that the executive's employment is terminated by the Company without cause. The amendments provide that, if severance is triggered under the executive's severance agreement, the executive's severance benefit will consist of a cash payment equal to two times the executive's current base salary at the time of termination and continued medical benefits for up to two years. In the case of Mr. Patel, the amendment further amends his severance agreement to provide that if he terminates his employment with the Company for good reason within one year following a change in control event, he will be entitled to the severance benefits described above. The amendments further amend Mr. Frank's and Mr. Fox's severance agreements to provide that each of them may terminate employment for any reason within two years following a change in control of the Company and, in such event, they will be entitled to: a cash payment equal to two times the executive's current base salary at the time of termination; a prorata cash payment equal to the executive's annual bonus at the time of termination (calculated as if the Company achieved financial performance equal to that set forth in the then-most current budget approved by the Company's Board of Directors); immediate vesting of all outstanding stock options; continued medical benefits for up to two years; a cash payment equal to the amount forfeited by the executive under the Company's 401(k) or similar plan; use of an executive outplacement service in an amount not to exceed $50,000 or a lump-sum cash payment in lieu thereof; and any additional benefits then due or earned under applicable plans or programs of the Company.

On February 29, 2008, the Company also entered into a severance agreement with Alex Patel, the Company's Vice President of Engineering. The severance agreement provides that, in the event Mr. Patel's employment is terminated either by the Company without cause or by Mr. Patel for good reason within one year following a change in control event, Mr. Patel will be entitled to receive a cash payment equal to one times his then current annual base salary and continued medical benefits for up to one year. Mr. Patel's right to receive severance benefits under the severance agreement is subject to his execution of a release of claims in favor of the Company upon the termination of his employment. The severance agreement also includes certain confidentiality, non-solicitation and inventions covenants in favor of the Company.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SCHEDULE

To the Board of Directors and Stockholders

CHEROKEE INTERNATIONAL CORPORATION:

We have audited the consolidated financial statements of Cherokee International Corporation and Subsidiaries as of December 30, 2007 and December 31, 2006, and for each of the two years in the period ended December 30, 2007, and have issued our report thereon dated March 26, 2008 which expressed substantial doubt about the Company's ability to continue as a going concern. Our audit was conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The information included in the accompanying Schedule II—Valuation and Qualifying Accounts is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic consolidated financial statements. Such information for each of the two years in the period ended December 30, 2007 has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole.

/s/ MAYER HOFFMAN MCCANN P.C.

MAYER HOFFMAN MCCANN P.C.

Orange County, California
March 26, 2008

CHEROKEE INTERNATIONAL CORPORATION
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

	Balance At Beginning of Period		Charged to Cost And Expenses		Deductions			Balance At End of Period
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended January 1, 2006	$	124	$	272	$	(36	)	$	360
Year ended December 31, 2006	$	360	$	51	$	(119	)	$	292
Year ended December 30, 2007	$	292	$	14	$	(9	)	$	297

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our President, Chief Executive Officer and Director, and our Executive Vice President, Chief Financial Officer and Secretary, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. The evaluation included certain control areas in which we have made, and are continuing to make, changes to improve and enhance controls. As described below under Management's Report on Internal Control Over Financial Reporting, we have identified material weaknesses and significant deficiencies in our internal control over financial reporting as of December 30, 2007 and as a result of these, our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Secretary have concluded that, as of December 30, 2007, our disclosure controls and procedures were not effective.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act). Our management, with the participation of our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Secretary, evaluated the effectiveness of our internal control over financial reporting. Based on such evaluation, our management concluded that our internal control over financial reporting was not effective as of the end of the period covered by this Annual Report on Form 10-K.

A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis. In conducting its assessment of the effectiveness of our internal control over financial reporting, our management concluded the following material weaknesses existed as of December 30, 2007:

Architecture of Company's IT systems does not presently support the financial reporting requirements of the Company's international operations

Our subsidiaries in India and China still maintain disparate financial accounting systems that do not completely interface with the Company's primary ERP system, resulting in duplicate accounting entries on multiple systems. This causes a protracted reporting cycle which limits the oversight from corporate headquarters of transactional details at our international sites. Site level financial statements are delivered on spreadsheets to the corporate office for consolidation.

Our European operation has its own separate ERP system that is integrated into the local accounting system; however this system does not automatically interface financially with our corporate headquarters. Therefore, financial results are also delivered to our corporate office by means of spreadsheets, and the corporate office also has insufficient visibility to transactional details.

The consolidation of all these local results delivered on spreadsheets is in turn prepared on spreadsheets at our corporate office. Consolidations performed on spreadsheets are prone to human error and are difficult to review. As such, the existing consolidation process requires additional monitoring and oversight. Oversight and monitoring are discussed in more detail below.

The Company is continuing to develop IT interface solutions for key activities in China. After these solutions are fully implemented, we will determine what IT solutions will be required for our other locations. In the interim, the Company has supplemented these technical IT solutions with additional staffing and improved internal monitoring procedures.

The methodology and support for valuing and capitalizing inventory costs, and determining inventory reserves

As remediated in the second quarter of 2007, the Company now evaluates historical and projected labor and overhead costs to determine their reasonableness. This process is subject to finance management oversight and review. The Company still does not track labor by product model at most locations.

Oversight and monitoring controls

The lack of an integrated financial reporting system creates the need for significant manual intervention and staffing to prepare spreadsheets, create eliminating entries, make tax adjustments, and U.S. GAAP adjustments. Additionally, our remote locations, other than Europe, have one local controller with little more than clerical support to maintain the local accounting system, transport information from the ERP system to their local books, report financial statements to our headquarters in the U.S. and perform routine functions such as account reconciliations. As part of our Sarbanes Oxley Act of 2002 (SOX) 404 compliance efforts, the Company is performing a detailed review of procedures and personnel at each site location. The Company is committed to resolving all deficiencies identified.

We have identified and have performed or are working on the following remediation to resolve the weakness in oversight and monitoring controls over international financial reporting:

•: The process of adding structure and uniformity of accounting standards and process among our site controllers continues through distribution of corporate policies and procedures, planned continued development and distribution of policies, reinforcement of management representations and corporate code of conduct, and regular visits by the corporate controller to various Company sites. We continue critical self-review of how accounting is performed worldwide.
•: An internal audit department charter has been developed and approved by the Audit Committee. Internal audit is currently focused on site visits for SOX compliance and is also reviewing compliance with selected key corporate policies. Specific financial audit testing is being performed in conjunction with the SOX compliance efforts.
•: The corporate controller completed various Company sites visits to reinforce Company accounting policies and financial statement closing procedures with local controllers. There is additional oversight at the corporate offices with a consolidated reporting package being provided to corporate management and significant items being reviewed with local management.

A significant deficiency is a deficiency, or combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit the attention of those responsible for oversight over the Company's financial reporting. In addition to the material weaknesses described above, in conducting its assessment of the effectiveness of our internal

control over financial reporting, our management concluded the following significant deficiencies existed as of December 30, 2007:

SOX Compliance

As a non-accelerated filer, 2007 marked the first year of SOX compliance for the Company. The Company completed an internal assessment of controls. While the vast majority of the Company's controls were operating properly, the Company did identify control deficiencies for remediation. The corporate office worked closely with the site accounting personnel to remediate these deficiencies. The vast majority of the deficiencies were remediated during 2007, but some do remain at year end. While efforts to remediate these deficiencies will continue in 2008, management assessed the remaining deficiencies to determine if any additional material weakness existed. The Company concluded that none of the open deficiencies at year end could result in a material weakness, but did believe that two could be classified as significant deficiencies. These two significant deficiencies are as follows:

1) Inadequate fixed asset management systems and procedures; and

2) Inadequate system controls over shipping cutoffs

The continued remediation of the weaknesses identified above and their associated risks is dependent on the Company's ability to address these issues effectively. The issues of IT systems, people and process are interrelated and difficult to separate. Striking the optimum balance between improved process, better trained and supervised staff and mission critical IT improvements is essential for success.

The Company is committed to remediating all material weaknesses and significant deficiencies presently identified and any additional deficiencies that may be identified in the future.

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report. In connection with the Company's filing of its financial statements for its fiscal year ending December 28, 2008, the Company's internal control over financial reporting will be subject to attestation by the Company's registered public accounting firm.

Changes in Internal Control Over Financial Reporting

Except as described above, there have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The information required under this Item 10 is incorporated by reference to the information found under the headings "Information Concerning the Nominees and Members of the Board of Directors," "Executive Officers of the Company" and "Compliance with Section 16(a) of the Securities and Exchange Act" of the Definitive Proxy Statement relating to our 2008 Annual Meeting of Stockholders, which we expect to file within 120 days after the end of our fiscal year ended December 30, 2007.

The information regarding Cherokee's Audit Committee and Audit Committee financial expert is incorporated by reference to the information found under the headings "Board Committees" and "Report of the Audit Committee" of the Definitive Proxy Statement relating to our 2008 Annual Meeting of Stockholders, which we expect to file within 120 days after the end of our fiscal year ended December 30, 2007.

The information regarding Cherokee's Code of Business Conduct and Ethics is incorporated by reference to the information found under "Code of Ethics" of the Definitive Proxy Statement relating to our 2008 Annual Meeting of Stockholders, which we expect to file within 120 days after the end of our fiscal year ended December 30, 2007.

ITEM 11. EXECUTIVE COMPENSATION

The information required under this Item 11 is incorporated by reference to the information found under the heading "Director Compensation," "Executive Compensation," "Report of the Compensation Committee" and "Compensation Committee Interlocks and Insider Participation," of the Definitive Proxy Statement relating to our 2008 Annual Meeting of Stockholders, which we expect to file within 120 days after the end of our fiscal year ended December 30, 2007.

ITEM 12. SECURITY OWNERSHIPOFCERTAIN BENEFICIAL OWNERSAND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required under this Item 12 is incorporated by reference to the information found under the heading "Security Ownership of Certain Beneficial Owners and Management" and the heading "Equity Compensation Plan Information" of the Definitive Proxy Statement relating to our 2008 Annual Meeting of Stockholders, which we expect to file within 120 days after the end of our fiscal year ended December 30, 2007.

ITEM 13. CERTAIN RELATIONSHIPSAND RELATED TRANSACTIONS

The information required under this Item 13 is incorporated by reference to the information found under the heading "Certain Relationships and Related Transactions" of the Definitive Proxy Statement relating to our 2008 Annual Meeting of Stockholders, which we expect to file within 120 days after the end of our fiscal year ended December 30, 2007.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required under this Item 14 is incorporated by reference to the information found under the heading "Principal Accounting Fees and Services" of the Definitive Proxy Statement relating to our 2008 Annual Meeting of Stockholders, which we expect to file within 120 days after the end of our fiscal year ended December 30, 2007.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Consolidated Financial Statements

The following documents are contained in Part II, Item 8 of this Annual Report on Form 10-K:

		Page
Report of Independent Registered Public Accounting Firm		42
Report of Independent Registered Public Accounting Firm		43
Consolidated Balance Sheets as of December 30, 2007, and December 31, 2006		44
Consolidated Statements of Operations for the years ended December 30, 2007, December 31, 2006, and January 1, 2006		45
Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Operations for the years ended December 30, 2007, December 31, 2006 and January 1, 2006		46
Consolidated Statements of Cash Flows for the years ended December 30, 2007, December 31, 2006 and January 1, 2006		47
Notes to Consolidated Financial Statements		48

(a)(2) Financial Statement Schedules

The following financial statement schedule is filed as a part of this Annual Report on Form 10-K and is incorporated herein by reference:

		Page
Report of Independent Registered Public Accounting Firm on Schedule		78
Schedule II: Valuation and Qualifying Accounts		79

(a)(3) Exhibits

Exhibits have heretofore been filed with the SEC and are incorporated herein by reference. Management contracts or compensatory plans or arrangements are marked with an asterisk.

Exhibit No.		Description
3.1		Restated Certificate of Incorporation of Cherokee International Corporation.(1)
3.2		Amended and Restated By-Laws of Cherokee International Corporation.(1)
4.1		Specimen certificate for shares of common stock, par value $0.001 per share.(34)
4.2		Indenture, dated as of November 27, 2002, between Cherokee International Corporation, as issuer, and U.S. Bank, N.A., as trustee, relating to the 5.25% Senior Notes due 2008.(2)
4.3		Form of 5.25% Senior Notes due 2008.(2)
10.1		Amended and Restated Credit Agreement, dated as of February 25, 2004, by and between Cherokee International Corporation and General Electric Capital Corporation, in its individual capacity and as agent (the Agent) for all of the lenders named therein.(5)
10.1.1		First Amendment to the Amended and Restated Credit Agreement, dated November 1, 2007, by and between Cherokee International Corporation and General Electric Capital Corporation.

10.1.2		Second Amendment to the Amended and Restated Credit Agreement, dated December 30, 2007, by and between Cherokee International Corporation and General Electric Capital Corporation.
10.1.3		Amended and Restated Revolving Note, dated as of February 25, 2004, issued by Cherokee International Corporation.(5)
10.1.4		Amended and Restated Security Agreement, dated as of February 25, 2004, by and between Cherokee International Corporation and the Agent.(5)
10.1.5		Registration Rights Agreement, dated as of February 25, 2004, by and among Cherokee International Corporation and the Security Holders party thereto.(6)
10.2		Security Agreement, dated as of November 27, 2002, between Cherokee International Corporation and U.S. Bank, N.A., as agent (relating to the 5.25% Senior Note Indenture).(2)
10.3		Trademark Security Agreement, dated as of November 27, 2002, between Cherokee International Corporation and U.S. Bank, N.A., as agent (relating to the 5.25% Senior Note Indenture).(2)
10.4		Pledge Agreement, dated as of November 27, 2002, between Cherokee International Corporation and U.S. Bank, N.A., as agent (relating to the 5.25% Senior Note Indenture).(2)
10.5		Pledge Agreement, dated as of November 27, 2002, between Cherokee Netherlands I B.V. and U.S. Bank, N.A., as agent (relating to the 5.25% Senior Note Indenture).(2)
10.6		China Loan Contract, dated January 18, 2007, by and between Cherokee International (China) Power Supply Ltd. and Industrial and Commercial Bank of China Limited Shanghai branch Fengxian sub-branch.(11)
10.7		China Maximum Pledge Contract, dated January 18, 2007, by and between Cherokee International (China) Power Supply Ltd. and Industrial and Commercial Bank of China Limited Shanghai branch Fengxian sub-branch.(11)
10.8		Lease Agreement, dated as of April 30, 1999, by and between Ganpat I. Patel and Manju G. Patel, Trustees of the Patel Family Trust dated July 17, 1987, as to an undivided two-thirds interest, and Kenneth O. King and Arlene King, husband and wife as joint tenants, as to an undivided one-third interest, as tenants in common, and Cherokee International Corporation.(2)
10.9		Purchase and Sale Agreement, dated as of February 22, 2007, by and between Cherokee Electronics, S.A. de C.V. and Inmobiliaria Hondarribia, S.A. de C.V.(12)
*10.10		Cherokee International Corporation 2002 Stock Option Plan(2)
*10.10.1		Form of 2002 Stock Option Agreement.(2)
*10.11		Cherokee International Corporation 2004 Omnibus Stock Incentive Plan, as amended as of July 17, 2007.(10)
*10.11.1		Form of 2004 Stock Option Agreement.(3)
*10.12		Form of Officer and Director Indemnification Agreement.(4)
*10.13		Executive Deferred Compensation Plan (and related schedule).(3)
*10.14		Amended and Restated Severance Agreement, dated as of December 5, 2006, between Cherokee International Corporation and Jeffrey M. Frank.(7)
*10.15		Amended and Restated Severance Agreement, dated as of June 16, 2005, between Cherokee International Corporation and Mukesh Patel.(9)

*10.16		Letter Agreement, dated as of December 5, 2006, between Cherokee International Corporation and Linster W. Fox.(7)
*10.17		Amended and Restated Severance Agreement, dated as of October 14, 2005, between Cherokee International Corporation and Linster W. Fox.(7)
*10.18		Letter Agreement, dated February 29, 2008, between Cherokee International Corporation and Jeffrey M. Frank.(13)
*10.19		Letter Agreement, dated February 29, 2008, between Cherokee International Corporation and Linster W. Fox.(13)
*10.20		Letter Agreement, dated February 29, 2008, between Cherokee International Corporation and Mukesh Patel.(13)
*10.21		Severance Agreement, dated February 29, 2008, between Cherokee International Corporation and Alex Patel.(13)
21.1		Subsidiaries of the Registrant.
23.1		Consent of Independent Registered Public Accounting Firm.
23.2		Consent of Independent Registered Public Accounting Firm.
31.1		Certification of President, Chief Executive Officer, and Director pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Executive Vice President of Finance, Chief Financial Officer and Secretary pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1): Incorporated by reference from the Registration Statement on Form S-8, filed by the Registrant on March 16, 2004.
(2): Incorporated by reference from the Registration Statement on Form S-1 (File No. 333-110723), filed by the Registrant on November 25, 2003.
(3): Incorporated by reference from Amendment No. 2 to the Registration Statement on Form S-1 (File No. 333-110723), filed by the Registrant on February 4, 2004.
(4): Incorporated by reference from Amendment No. 4 to the Registration Statement on Form S-1 (File No. 333-110723), filed by the Registrant on February 17, 2004.
(5): Incorporated by reference from the Quarterly Report on Form 10-Q, filed by the Registrant on May 12, 2004.
(6): Incorporated by reference from the Quarterly Report on Form 10-Q, filed by the Registrant on August 9, 2004.
(7): Incorporated by reference from the Form 8-K, filed by the Registrant on December 12, 2006.
(8): Incorporated by reference from the Form 8-K, filed by the Registrant on March 21, 2005.
(9): Incorporated by reference from the Form 8-K, filed by the Registrant on June 16, 2005.
(10): Incorporated by reference from the Form 8-K, filed by the Registrant on July 20, 2007.
(11): Incorporated by reference from the Quarterly Report on Form 10-Q, filed by the Registrant on June 8, 2007.
(12): Incorporated by reference from the Form 8-K, filed by the Registrant on February 28, 2007.
(13): Incorporated by reference from the Form 8-K, filed by the Registrant on March 6, 2008.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 28th day of March 2008.

		CHEROKEE INTERNATIONAL CORPORATION
		By:	/s/ JEFFREY M. FRANK Jeffrey M. Frank President, Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant, and in the capacities indicated, on this 28th day of March 2008.


/s/ JEFFREY M. FRANK Jeffrey M. Frank		President, Chief Executive Officer and Director (Principal Executive Officer)
/s/ LINSTER W. FOX Linster W. Fox		Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)
/s/ RAYMOND MEYER Raymond Meyer		Chairman of the Board
/s/ CLARK MICHAEL CRAWFORD Clark Michael Crawford		Director
/s/ DANIEL LUKAS Daniel Lukas		Director
/s/ EDWARD PHILIP SMOOT Edward Philip Smoot		Director
/s/ LARRY SCHWERIN Larry Schwerin		Director

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CHEROKEE INTERNATIONAL CORPORATION Annual Report on Form 10-K For the Fiscal Year Ended December 30, 2007
PART I

ITEM 1. BUSINESS

ITEM 1A. RISK FACTORS

ITEM 1B. UNRESOLVED STAFF COMMENTS

ITEM 2. PROPERTIES

ITEM 3. LEGAL PROCEEDINGS

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

PART II

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

ITEM 6. SELECTED FINANCIAL DATA

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

Quarterly Financial Data For The Years ended December 30, 2007 and December 31, 2006 By Quarters (unaudited) (in thousands, except per share amounts)

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CHEROKEE INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Amounts)
CHEROKEE INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts)
CHEROKEE INTERNATIONAL CORPORATION AND SU` BSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE OPERATIONS (In Thousands, Except Shares)
CHEROKEE INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
CHEROKEE INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 30, 2007, DECEMBER 31, 2006 AND JANUARY 1, 2006
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SCHEDULE
CHEROKEE INTERNATIONAL CORPORATION SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (in thousands)

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

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIPOFCERTAIN BENEFICIAL OWNERSAND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPSAND RELATED TRANSACTIONS

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

PART IV
SIGNATURES
EX-10.1.1 2 a2184187zex-10_11.htm EXHIBIT 10.1.1
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Exhibit 10.1.1

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

This FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment") is entered into as of November 1, 2007 by and among CHEROKEE INTERNATIONAL CORPORATION, a Delaware corporation (the "Borrower"), the financial institutions party to the Credit Agreement described below, each as a Lender, GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation as Agent, and each of the other Persons who are signatories hereto (Borrower and each such other Person is individually referred to herein as a "Credit Party" and collectively as the "Credit Parties").

W I T N E S S E T H :

WHEREAS, the Borrower, Lenders and Agent are parties to that certain Amended and Restated Credit Agreement dated as of February 25, 2004 (as the same has been and may hereafter be amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), pursuant to which the Lenders made certain loans and other financial accommodations to the Borrower.

WHEREAS, Borrower has requested that Agent and Lenders eliminate the restrictions set forth in the Maximum Senior Leverage Covenant of Section 4.7 of the Credit Agreement, reduce the aggregate Revolving Loan Commitment and otherwise and amend the Credit Agreement pursuant to the terms hereof, and Agent and Lenders are willing to grant such request upon the terms and subject to the conditions set forth herein.

NOW THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties hereto agree as follows:

1. Defined Terms. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Credit Agreement.

2. Amendments to Credit Agreement. Subject to the terms and conditions of this Amendment, the Credit Agreement is amended as set forth below.

2.1 Annex A of the Credit Agreement is hereby amended by adding the following new defined term in its appropriate alphabetic order:

" 'First Amendment Effective Date' means November 1, 2007"

2.2 Annex A of the Credit Agreement is further amended by deleting the definitions of "Borrowing Base" and of "Revolving Loan Commitment" and substituting the following new definitions in lieu thereof:

" 'Borrowing Base' means, as of any date of determination by Agent, an amount equal to 85% of the book value of Borrower's Eligible Accounts at such time."

'Revolving Loan Commitment' means (a) as to any Lender, the commitment of such Lender to make its Pro Rata Share of Revolving Credit Advances or incur its Pro Rata Share of Letter of Credit Obligations (including, in the case of the Swing Line Lender, its commitment to make Swing Line Advances as a portion of its Revolving Loan Commitment) as set forth on Annex B or in the most recent Assignment Agreement, if any, executed by such Lender and (b) as to all Lenders, the aggregate commitment of all Lenders to make the Revolving Credit Advances (including, in the case of the Swing Line Lender, Swing Line Advances) or incur Letter of Credit Obligations, which aggregate commitment shall be seven and one half million dollars ($7,500,000) on the First Amendment Effective Date, as such amount may be adjusted, if at all, from time to time in accordance with the Agreement."

2.3 Annex A of the Credit Agreement is further amended by (i) deleting Section 1.8 of the Credit Agreement in its entirety and substituting the caption "Reserved" therefor, (ii) deleting all

references to "Eligible Inventory" wherever it appears in the Credit Agreement and the other Loan Documents and revising such provisions as necessary to preserve, the grammatical integrity thereof but without otherwise changing the meaning of such provisions, and (iii) deleting the defined terms and all references in the Loan Documents to "Senior Leverage Ratio" and "Senior Debt".

2.4 Annex B of the Credit Agreement is hereby deleted in its entirety and Exhibit A of this Amendment is hereby substituted therefor as the new Annex B.

Section 1.2(a) of the Credit Agreement is hereby amended by deleting the Applicable Margins at the end thereof and substituting the following new Applicable Margins therefor:

Applicable Revolver Index Margin	2.00	%
Applicable Revolver LIBOR Margin	3.50	%
Applicable L/C Margin	3.50	%
Applicable Unused Line Fee Margin	1.00	%

2.5 Section 4.7 of the Credit Agreement ["Maximum Senior Leverage Ratio"] is hereby amended by deleting said section in its entirety and substituting the following language therefor:

"Minimum EBITDA. Borrower and its Subsidiaries shall not permit their consolidated EBITDA for the Fiscal Quarter ending December 31, 2007 to be less than $1,900,000."

3. Covenant to Supply Projections and Establish Minimum EBITDA Thresholds. The Borrower acknowledges and agrees that the willingness of the Agent and Lenders to enter into this First Amendment is based, in part, on Borrower's agreement with and covenant to Lenders to deliver to Agent financial projections reasonably acceptable to Agent and Lenders for Borrower's Fiscal Year ending December 31, 2008, and to cooperate with Agent in establishing Minimum EBITDA levels and amending Section 4.7 of the Credit Agreement to include such subsequent testing periods and EBITDA levels by no later than December 31, 2007. The failure to amend the Credit Agreement in order to add Minimum EBITDA covenant levels for Borrower's Fiscal Quarters ending after December 31, 2007 as aforesaid shall constitute an Event of Default hereunder.

4. Amendment Fee. In consideration of the entry into this Amendment by the Lenders, the Borrower hereby agrees to pay to the Agent for the benefit of the Lenders on the date hereof, a fully-earned non-refundable amendment fee in the amount of $25,000 (the "Amendment Fee").

5. Conditions. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent:

(a) the execution and delivery of this Amendment by Borrower and the Lenders and the execution and delivery of the Acknowledgements and Reaffirmations attached hereto by the parties noted therein;

(b) the receipt by the Agent, for the benefit of the Lenders, of the Amendment Fee referenced in Section 4 above;

(d) the absence of any Default or Event of Default.

6. Representations and Warranties. Borrower hereby represents and warrants to Agent and the Lenders as follows:

(a) after giving effect to this Amendment, the representations and warranties of the Borrower contained in the Credit Agreement and the other Loan Documents are true and correct as of the date hereof, except to the extent that any such representation or warranty relates to a specific date, in which case such representation and warranty shall have been true and correct as of such earlier date;

(b) the execution, delivery and performance by the Borrower of this Amendment is within its power, requires no further action by or in respect of, or filing with, any governmental body, agency or official and do not violate, conflict with or cause a breach or a default under any provision of applicable law or regulation or of the organizational documents of Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon it;

(c) this Amendment constitutes the valid and binding obligation of Borrower, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws relating to the enforcement of creditor's rights generally and by general equitable principles; and

(d) no Default or Event of Default exists.

7. No Waiver. Except as expressly amended hereby, the Credit Agreement and Other Agreements remain unmodified and in full force and effect. All references in the Credit Agreement and the other Loan Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby.

8. Fees and Expenses. The Borrower agrees to reimburse the Agent for its reasonable out of pocket fees and expenses (including reasonable attorney's fees) incurred with respect to the preparation of this Amendment and all matters directly related thereto.

9. Further Assurances Covenant. Borrower hereby covenants to do (or cause to be done), such acts and to execute and deliver such documents or instruments as the Agent reasonably requests in order to evidence or otherwise protect the Agent or Lender's interests hereunder and to perfect the security interests granted or contemplated under the Credit Agreement and the Loan Documents or to otherwise more fully effectuate the transactions contemplated hereunder.

10. Severability. In case any provision of or obligation under this Amendment shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

11. Headings. Headings and captions used in this Amendment are included for convenience of reference only and shall not be given any substantive effect.

12 GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK, STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO THE AGENT'S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AMENDMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF

PROCESS MAY BE MADE UPON BORROWER BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED AT THE ADDRESS SET FORTH IN THE CREDIT AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.

13. WAIVER OF JURY TRIAL. BORROWER AND THE AGENT HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY AND EACH AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

14. Counterparts; Integration. This Amendment may be executed and delivered via facsimile, pdf or similar electronic transmission with the same force and effect as if an original were executed and may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures hereto were upon the same instrument. This Amendment constitutes the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and supersede any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.

15. Reaffirmation. Borrower and each other Credit Party, as debtor, grantor, pledgor, guarantor, assignor or in any other similar capacity in which such Person grants liens or, security interests in its property or otherwise acts as accommodation party or guarantor, as the case may be, hereby (i) ratifies and reaffirms all of its payment and performance obligations, contingent or otherwise, under the Credit Agreement and each of the other Loan Documents to which it is a party (after giving effect hereto) and (ii) to the extent such Person granted liens on or security interests in any of its property pursuant to any such Credit Agreement or other Loan Document as security for or otherwise guaranteed the Borrower's Obligations under or with respect to the Credit Agreement and the other Loan Documents, ratifies and reaffirms such guarantee and grant of security interests and liens and confirms and agrees that such security interests and liens hereafter secure all of the Obligations as amended hereby. Borrower hereby agrees that such liens and security interests hereafter secure all of the Obligations, in each case as if each reference in such Credit Agreement or Loan Documents to the obligations secured thereby are construed to hereafter mean and refer to such Obligations under the Credit Agreement and other Loan Documents as hereby amended and that such security interests are and shall remain perfected under applicable law. The execution of this Amendment shall not operate as a novation, waiver of any right, power or remedy of the Agent or any Lender nor constitute a waiver of any provision of the Credit Agreement or any of the other Loan Documents, except as expressly set forth herein and shall be limited to the particular instance expressly set forth.

—Remainder of Page Intentionally Left Blank; Signature Page Follows—

IN WITNESS WHEREOF, the parties have executed this First Amendment to Amended and Restated Credit Agreement as of the date set forth above.

BORROWER:

CHEROKEE INTERNATIONAL CORPORATION,
a Delaware corporation

By:	/s/ LINSTER W. FOX
Name:	Linster W. Fox
Title:	EVP, CEO & Secretary
		THE AGENT AND LENDERS:
		GENERAL ELECTRIC CAPITAL CORPORATION, as Agent, an L/C Issuer and a Lender
		Name:
			Its Duly Authorized Signatory

IN WITNESS WHEREOF, the parties have executed this First Amendment to Amended and Restated Credit Agreement as of the date set forth above.

BORROWER:

CHEROKEE INTERNATIONAL CORPORATION,
a Delaware corporation

By:
Name:
Title:
	THE AGENT AND LENDERS:
	GENERAL ELECTRIC CAPITAL CORPORATION, as Agent, an L/C Issuer and a Lender
	Name:	/s/ DANIEL E. KONOPACKI
		Its Duly Authorized Signatory

Acknowledgement and Reaffirmation

The undersigned hereby acknowledges receipt of a copy of the First Amendment to Amended and Restated Credit Agreement dated as of November 1, 2007 (the "Amendment"; capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Amendment) to which this Acknowledgement and Reaffirmation is attached and affirm that, except as expressly set forth below, nothing contained therein shall modify in any respect whatsoever the provisions and terms of that certain Intercreditor Agreement dated as of February 25, 2004 (the "Intercreditor Agreement") between the undersigned and US Bank, N.A., in its capacity as 5¹/4% Trustee thereunder and hereby reaffirms that the Intercreditor Agreement is and shall continue to remain in full force and effect.

IN WITNESS WHEREOF, the undersigned has executed this Acknowledgement and Reaffirmation as of the 13th day of November, 2007.

		U.S. BANK, N.A., a Trustee
		By:	/s/ RICHARD PROKOSCH

		Name:	Richard Prokosch
		Title:	Vice President

Exhibit A

Annex B

Pro Rata Shares and Commitment Amounts

PRO RATA SHARES AND COMMITMENT AMOUNTS

		Lender(s)
Revolving Loan Commitment (including a Swing Line Commitment of $2,000,000) $7,500,000		General Electric Capital Corporation

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Exhibit 10.1.1

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
Acknowledgement and Reaffirmation
Exhibit A
Annex B
PRO RATA SHARES AND COMMITMENT AMOUNTS
EX-10.1.2 3 a2184187zex-10_12.htm EXHIBIT 10.1.2
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Exhibit 10.1.2

SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

This SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment") is entered into as of December 30, 2007 by and among CHEROKEE INTERNATIONAL CORPORATION, a Delaware corporation (the "Borrower"), the financial institutions party to the Credit Agreement described below, each as a Lender, GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation as Agent, and each of the other Persons who are signatories hereto (Borrower and each such other Person is individually referred to herein as a "Credit Party" and collectively as the "Credit Parties").

W I T N E S S E T H :

WHEREAS, the Borrower has requested that the Agent and Lenders amend the Credit Agreement in certain respects, and Agent and Lenders are willing to grant such request upon the terms and subject to the conditions set forth herein.

NOW THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties hereto agree as follows:

1. Defined Terms. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Credit Agreement.

2. Amendments to Credit Agreement. Subject to the terms and conditions of this Amendment, the Credit Agreement is amended as set forth below.

2.1 Section 3.1(b)(1)(v) of the Credit Agreement is hereby deleted in its entirety and the following is substituted in lieu thereof:

"(v) subject to and in accordance with the Tri-Party Agreement Re: Payment Procedures, by the ITS Companies and Borrower to each other and Borrower, as applicable, in an aggregate amount not to exceed $9,850,000."

2.2 Section 3.3(d) of the Credit Agreement is hereby deleted in its entirety and the following is substituted in lieu thereof:

"(d) Borrower and its Domestic Subsidiaries may make Investments in their wholly owned Domestic Subsidiaries so long as each such Subsidiary has issued a guarantee in favor of Agent for the benefit of the Lenders and granted the security interests as set forth in Section 2.8 hereof, and Borrower and its Domestic Subsidiaries may make Investments in their respective Foreign Subsidiaries in an amount not to exceed $67,650,000 in the aggregate at any time outstanding, provided that any such Investment in the form of Indebtedness does not exceed the amounts specified and is otherwise expressly permitted under Subsections 3.1(b(1)(iii), 3.1(b)(1)(v), 3.1(b)(1)(vi) and 3.1(b)(1)(vii);"

3. Conditions. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent:

(a) the execution and delivery of this Amendment by Borrower and the Lenders;

(b) the truth and accuracy of the representations and warranties contained in Section 4 hereof; and

4. Representations and Warranties. Borrower hereby represents and warrants to Agent and the Lenders as follows:

(d) no Default or Event of Default exists.

5. No Waiver. Except as expressly amended hereby, the Credit Agreement and Other Agreements remain unmodified and in full force and effect. All references in the Credit Agreement and the other Loan Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby.

6. Fees and Expenses. The Borrower agrees to reimburse the Agent for its reasonable out of pocket fees and expenses (including reasonable attorney's fees) incurred with respect to the preparation of this Amendment and all matters directly related thereto.

7. Further Assurances Covenant. Borrower hereby covenants to do (or cause to be done), such acts and to execute and deliver such documents or instruments as the Agent reasonably requests in order to evidence or otherwise protect the Agent or Lender's interests hereunder and to perfect the security interests granted or contemplated under the Credit Agreement and the Loan Documents or to otherwise more fully effectuate the transactions contemplated hereunder.

8. Severability. In case any provision of or obligation under this Amendment shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

9. Headings. Headings and captions used in this Amendment are included for convenience of reference only and shall not be given any substantive effect.

10. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK, STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO THE AGENT'S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AMENDMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF

11. WAIVER OF JURY TRIAL. BORROWER AND THE AGENT HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY AND EACH AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

12. Counterparts; Integration. This Amendment may be executed and delivered via facsimile, pdf or similar electronic transmission with the same force and effect as if an original were executed and may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures hereto were upon the same instrument. This Amendment constitutes the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and supersede any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.

13. Reaffirmation. Borrower and each other Credit Party, as debtor, grantor, pledgor, guarantor, assignor or in any other similar capacity in which such Person grants liens or security interests in its property or otherwise acts as accommodation party or guarantor, as the case may be, hereby (i) ratifies and reaffirms all of its payment and performance obligations, contingent or otherwise, under the Credit Agreement and each of the other Loan Documents to which it is a party (after giving effect hereto) and (ii) to the extent such Person granted liens on or security interests in any of its property pursuant to any such Credit Agreement or other Loan Document as security for or otherwise guaranteed the Borrower's Obligations under or with respect to the Credit Agreement and the other Loan Documents, ratifies and reaffirms such guarantee and grant of security interests and liens and confirms and agrees that such security interests and liens hereafter secure all of the Obligations as amended hereby. Borrower hereby agrees that such liens and security interests hereafter secure all of the Obligations, in each case as if each reference in such Credit Agreement or Loan Documents to the obligations secured thereby are construed to hereafter mean and refer to such Obligations under the Credit Agreement and other Loan Documents as hereby amended and that such security interests are and shall remain perfected under applicable law. The execution of this Amendment shall not operate as a novation, waiver of any right, power or remedy of the Agent or any Lender nor constitute a waiver of any provision of the Credit Agreement or any of the other Loan Documents, except as expressly set forth herein and shall be limited to the particular instance expressly set forth.

—Remainder of Page Intentionally Left Blank; Signature Page Follows—

IN WITNESS WHEREOF, the parties have executed this Second Amendment to Amended and Restated Credit Agreement as of the date set forth above.

		BORROWER:
		CHEROKEE INTERNATIONAL CORPORATION, a Delaware corporation
		By:	/s/ LINSTER W. FOX
		Name: Its:	Linster W. Fox EVP, CEO & SECRETARY
		THE AGENT AND LENDERS:
		GENERAL ELECTRIC CAPITAL CORPORATION, as Agent, an L/C Issuer and a Lender
		By:	/s/ MICHAEL J. COX
		Name: Its:	Michael J. Cox Duly Authorized Signatory

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Exhibit 10.1.2

SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
EX-21.1 4 a2184187zex-21_1.htm EXHIBIT 21.1
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Exhibit 21.1

Subsidiaries of Cherokee International Corporation

Subsidiary Name		Jurisdiction of Incorporation
Cherokee Europe SCA		Belgium
Cherokee Europe SPRL		Belgium
Cherokee Germany GmbH		Germany
Cherokee India Pvt. Ltd.		India
Cherokee International (China) Power Supply LLC		China
Cherokee Netherlands B.V.		Netherlands
Cherokee Netherlands I B.V.		Netherlands
Cherokee Netherlands II B.V.		Netherlands
Cherokee Sarl		France
Cherokee AB		Sweden
Cherokee U.K.		United Kingdom
Powertel India Pvt. Ltd.		India

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Exhibit 21.1

Subsidiaries of Cherokee International Corporation
EX-23.1 5 a2184187zex-23_1.htm EXHIBIT 23.1
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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

As independent registered public accountants, we hereby consent to the incorporation by reference in Registration Statement No. 333-113632 on Form S-8 of our reports dated March 26, 2008, with respect to the consolidated balance sheets as of December 30, 2007 and December 31, 2006 and the related consolidated statements of operations, stockholders' equity (deficit) and comprehensive operations and cash flows for each of the two years in the period ended December 30, 2007, and all related financial statement schedules, which reports are included in this Annual Report on Form 10-K of Cherokee International Corporation.

/s/ MAYER HOFFMAN MCCANN P.C. Mayer Hoffman McCann P.C.
Orange County, California March 28, 2008

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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EX-23.2 6 a2184187zex-23_2.htm EXHIBIT 23.2
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Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-113632 on Form S-8 of our report dated April 17, 2006, relating to the consolidated statements of operations, stockholders' equity (deficit) and comprehensive operations, and cash flows the year ended January 1, 2006 of Cherokee International appearing in this Annual Report on Form 10-K of Cherokee International Corporation for the year ended December 30, 2007.

/s/ DELOITTE & TOUCHE LLP Deloitte & Touche LLP
Costa Mesa, California March 28, 2008

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Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EX-31.1 7 a2184187zex-31_1.htm EXHIBIT 31.1
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Exhibit 31.1

Certification of the President, Chief Executive Officer and Director
of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

I, Jeffrey M. Frank, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Cherokee International Corporation;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a): Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b): Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c): Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d): Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a): All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b): Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 28, 2008

/s/ JEFFREY M. FRANK

Jeffrey M. Frank
President, Chief Executive Officer and Director
(Principal Executive Officer)

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Exhibit 31.1

Certification of the President, Chief Executive Officer and Director of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a)
EX-31.2 8 a2184187zex-31_2.htm EXHIBIT 31.2
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Exhibit 31.2

Certification of the Executive Vice President, Chief Financial Officer and Secretary
of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

I, Linster W. Fox, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Cherokee International Corporation;

2.

3.

4.

a): Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b): Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c): Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d): Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

a): All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b): Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 28, 2008

/s/ LINSTER W. FOX

Linster W. Fox
Executive Vice President,
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)

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Exhibit 31.2

Certification of the Executive Vice President, Chief Financial Officer and Secretary of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a)
EX-32.1 9 a2184187zex-32_1.htm EXHIBIT 32.1
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Exhibit 32.1

Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of Cherokee International Corporation (the "Company") for the fiscal year ended December 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Jeffrey M. Frank, as President, Chief Executive Officer, and Director of the Company, and Linster W. Fox, as Executive Vice President, Chief Financial Officer and Secretary of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

1.: The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Act of 1934; and
2.: The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ JEFFREY M. FRANK
Name:		Jeffrey M. Frank
Title:		President, Chief Executive Officer, and Director (Principal Executive Officer)
Date:		March 28, 2008
/s/ LINSTER W. FOX
Name:		Linster W. Fox
Title:		Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)
Date:		March 28, 2008

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Exhibit 32.1

Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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