<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) APRIL 11, 1997
GARGOYLES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 0-21355 91-1247269
(STATE OF INCORPORATION) (COMMISSION (IRS EMPLOYER
FILE NUMBER) IDENTIFICATION NO.)
5866 SOUTH 194TH STREET
KENT, WASHINGTON 98032
(206) 872-6100
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS (AS PREVIOUSLY STATED IN FORM 8-K
FILED ON APRIL 28, 1997).
(a) On April 11, 1997, Gargoyles Acquisition Corporation, a newly formed
Washington corporation ("Purchaser") and wholly-owned subsidiary of
Gargoyles, Inc. ("Registrant") acquired substantially all the assets, and
assumed certain liabilities, of Sungold Enterprises, LTD., a New York
corporation ("Sungold"), pursuant to the terms of an Asset Purchase and
Sale Agreement dated April 10, 1997, by and between Sungold and its
shareholders and Purchaser (the "Agreement").
The purchased assets include tangible assets, contracts, warranties, books
and records, drawings and designs, leasehold interests, license agreements
and other intellectual properties including rights to the Sungold name.
Certain members of Sungold's management, including its president, were
hired by Purchaser and will continue to operate the Sungold sunglass
business from Sungold's facilities in Farmingdale, New York.
As consideration for the purchased assets, Purchaser paid $10,970,000 cash
at the closing and agreed to pay, subject to certain conditions,
additional amounts equal to 7.5% of Purchaser's net sales in excess of $7
million in each of the calendar years ending December 31, 1997, 1998 and
1999.
The purchase price was paid with funds borrowed from U. S. Bank of
Washington, National Association under Registrant's long-term credit
facility. The purchase price will be allocated among the purchased assets
based on the fair value of the assets acquired and the obligations
assumed.
(b)Sungold was a sunglass design and distribution company with its principal
executive office in Farmingdale, New York. Sungold's plant and equipment
were used for designing and manufacturing sunglasses. Registrant intends
to continue using these assets in a similar manner.
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
INDEX
(A) FINANCIAL STATEMENTS OF SUNGOLD ENTERPRISES, LTD.
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors............................ 3
Balance Sheets............................................................... 4
Statements of Operations and Retained Earnings............................... 5
Statements of Cash Flows..................................................... 6
Notes to Financial Statements................................................ 7
(B) PRO FORMA FINANCIAL INFORMATION (UNAUDITED).
Pro Forma Financial Information Basis of Presentation....................... 12
Pro Forma Consolidated Balance Sheets....................................... 13
Pro Forma Consolidated Statements of Operations............................. 14
(C) EXHIBITS
23.1 Consent of Ernst & Young LLP, Independent Auditors.......................18
</TABLE>
<PAGE> 4
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Gargoyles, Inc.
We have audited the accompanying balance sheets of Sungold Enterprises,
Ltd. as of December 31, 1996 and 1995, and the related statements of operations
and retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 consolidated financial position of Sungold
Enterprises, Ltd. at December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Seattle, Washington
May 22, 1997
3
<PAGE> 5
SUNGOLD ENTERPRISES, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------- March 31,
1995 1996 1997
---------- ---------- ----------
ASSETS (Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 346,990 $ 618,611 $ 103,430
Trade receivables, less allowances
for doubtful accounts of $28,394,
$40,000 and $40,000 1,416,023 819,146 2,574,321
Inventories 1,901,405 1,797,683 1,441,898
Other current assets and
prepaid expenses 48,862 82,424 68,936
---------- ---------- ----------
Total current assets 3,713,280 3,317,864 4,188,585
Property and equipment, net 83,964 92,796 119,632
Other assets 6,747 16,747 16,694
========== ========== ==========
Total assets $3,803,991 $3,427,407 $4,324,911
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 194,103 $ 93,049 $ 401,497
Accounts payable 371,096 731,017 978,029
Accrued bonuses 1,670,000 656,000 624,500
Accrued expenses and other
current liabilities 293,004 517,970 332,901
---------- ---------- ----------
Total current liabilities 2,528,203 1,998,036 2,336,927
---------- ---------- ----------
Notes payable to shareholder 275,200 275,200 275,200
---------- ---------- ----------
Commitments and contingencies
Shareholders' equity:
Common stock, no par value, authorized
shares--100, issued and outstanding--8.1 8,100 8,100 8,100
Additional paid-in capital 227,700 227,700 227,700
Retained earnings 764,788 918,371 1,476,984
---------- ---------- ----------
Total shareholders' equity 1,000,588 1,154,171 1,712,784
---------- ---------- ----------
Total liabilities and shareholders' equity $3,803,991 $3,427,407 $4,324,911
========== ========== ==========
</TABLE>
See accompanying notes.
4
<PAGE> 6
SUNGOLD ENTERPRISES, LTD.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Period from
Year Ended December 31, January 1 to
---------------------------- March 31,
1995 1996 1997
----------- ----------- ----------
(Unaudited)
<S> <C> <C> <C>
Net sales $11,525,181 $13,404,588 $4,261,187
Cost of sales 4,445,217 5,417,067 1,894,249
----------- ----------- ----------
Gross profit 7,079,964 7,987,521 2,366,938
----------- ----------- ----------
Operating expenses:
Sales and marketing 3,738,961 4,413,145 1,077,186
General and administrative 2,611,690 2,840,315 501,921
Shipping and warehousing 434,793 524,631 168,397
Research and development 27,713 45,785 27,368
----------- ----------- ----------
Total operating expenses 6,813,157 7,823,876 1,774,872
----------- ----------- ----------
Income from operations 266,807 163,645 592,066
Interest, net 47,970 10,062 19,907
----------- ----------- ----------
Income before income taxes 218,837 153,583 572,159
State income tax provision 26,000 - 13,546
----------- ----------- ----------
Net income 192,837 153,583 558,613
Retained earnings, beginning of period 571,951 764,788 918,371
----------- ----------- ----------
Retained earnings, end of period $ 764,788 $ 918,371 $1,476,984
=========== =========== ==========
</TABLE>
See accompanying notes.
5
<PAGE> 7
SUNGOLD ENTERPRISES, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Year Ended December 31, January 1 to
--------------------------- March 31,
1995 1996 1997
----------- --------- -----------
(Unaudited)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 192,837 $ 153,583 $ 558,613
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 29,668 36,408 10,233
Changes in assets and liabilities:
Accounts receivable (507,361) 596,877 (1,755,175)
Inventories (700,766) 103,722 355,785
Other current assets and other assets (18,640) (33,562) 13,541
Accounts payable, accrued expenses
and other current liabilities 1,399,148 (429,113) 30,443
----------- --------- -----------
Net cash provided by (used in) operating
activities 394,886 427,915 (786,560)
----------- --------- -----------
INVESTING ACTIVITIES
Acquisition of property and equipment (36,703) (55,240) (37,069)
----------- --------- -----------
FINANCING ACTIVITIES
Net proceeds (repayment) under notes
payable to bank (85,999) (101,054) 308,448
----------- --------- -----------
Net increase (decrease) in cash and
cash equivalents 272,184 271,621 (515,181)
Cash and cash equivalents, beginning
of period 74,806 346,990 618,611
----------- --------- -----------
Cash and cash equivalents, end of period $ 346,990 $ 618,611 $ 103,430
=========== ========= ===========
</TABLE>
See accompanying notes.
6
<PAGE> 8
SUNGOLD ENTERPRISES, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE PERIOD FROM
JANUARY 1, 1997 TO MARCH 31, 1997 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Principal Industry and Sale of Company to Gargoyles
Sungold Enterprises, Ltd. ("Sungold" or "the Company") a New York
corporation formed in 1955, is primarily involved in the manufacture and
wholesale distribution of eyewear products. The Company manufactures two
principal lines of premium sunglasses; Stussy EyeGear, a young men's fashion
brand licensed to Sungold by Stussy, Inc., and Anarchy Eyewear, a cutting-edge
brand popular with alternative sports enthusiasts age 15 to 25.
On April 11, 1997, the Company sold substantially all of its assets and
certain liabilities to Gargoyles, Inc., another manufacturer of sunglasses. As
consideration for the purchased assets, Gargoyles paid $10,970,000 cash at the
closing and agreed to pay, subject to certain conditions, additional amounts
equal to 7.5% of Sungold's net sales in excess of $7 million in each of the
calendar years ending December 31, 1997, 1998 and 1999.
Interim Financial Information
The financial information at March 31, 1997 and for the period from
January 1 to March 31, 1997 is unaudited, but includes all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of the financial position at such date and the
operating results and cash flows for such period. The Company's net sales are
subject to seasonal variations. Accordingly, operating results for the January 1
to March 31, 1997 period are not necessarily indicative of the results that may
be expected for the entire year.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Revenue Recognition
Revenue is recognized when merchandise is shipped to a customer.
Warranties
The Company's sunglasses are covered by a warranty against defects in
material and workmanship.
7
<PAGE> 9
SUNGOLD ENTERPRISES, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE PERIOD FROM
JANUARY 1, 1997 TO MARCH 31, 1997 IS UNAUDITED)
Inventories
Inventories are stated at the lower of weighted average cost or market and
consist of finished goods.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Significant additions and improvements are capitalized.
Maintenance and repairs are expensed as incurred. The Company provides for
depreciation and amortization using the straight-line method which recognizes
the cost over the estimated useful lives of the respective assets or, as to
leasehold improvements, the term of the related lease if less than the estimated
useful life.
Advertising Expense
The cost of advertising is expensed as incurred. The Company incurred
$141,775 and $259,596 in advertising costs for the years ended December 31, 1995
and 1996, respectively.
Income Taxes
The Company is not liable for federal and substantially all state income
tax, as the shareholders have elected to treat the Company as an "S
Corporation." As such, the individual shareholders are liable for the federal
and substantially all state taxes on corporate income.
The Company made state income tax payments totaling $14,725 and $30,172
during the years ended December 31, 1995 and 1996, respectively.
Concentration of Credit Risk and Financial Instruments
The Company sells its products to local and national companies throughout
the United States. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains an
allowance for doubtful accounts at a level which management believes is
sufficient to cover potential credit losses.
8
<PAGE> 10
SUNGOLD ENTERPRISES, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE PERIOD FROM
JANUARY 1, 1997 TO MARCH 31, 1997 IS UNAUDITED)
For the years ended December 31, 1995 and 1996, the Company had sales to
one major customer of approximately $5,547,000 and $5,457,000, respectively due
from this customer. Accounts receivable include approximately $972,000 due
from this customer at December 31, 1995. No amounts were due from this customer
at December 31, 1996.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------- March 31,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Machinery and equipment ......... $ 163,661 $ 200,250 $ 203,029
Furniture and fixtures .......... 122,796 125,062 159,352
Leasehold Improvements .......... 4,090 10,475 10,475
--------- --------- ---------
290,547 335,787 372,856
Less accumulated depreciation and
amortization .................. (206,583) (242,991) (253,224)
--------- --------- ---------
Property and equipment, net ..... $ 83,964 $ 92,796 $ 119,632
========= ========= =========
</TABLE>
9
<PAGE> 11
SUNGOLD ENTERPRISES, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE PERIOD FROM
JANUARY 1, 1997 TO MARCH 31, 1997 IS UNAUDITED)
3. NOTES PAYABLE
Under line of credit arrangements with a bank, the Company may borrow up
to $1,750,000. These arrangements expire December 31, 1997. At December 31,
1996, the unused portion of the credit line was $907,000. Borrowings under the
arrangements bear interest at the bank's reference rate plus 1.5% (8.5% at
December 31, 1996), payable monthly. Amounts borrowed under the arrangements are
secured by the Company's accounts receivable and inventories, and personally
guaranteed by the Company's shareholders.
The note payable to shareholder represents long-term advances from the
majority shareholder. These advances are subordinate to the bank debt.
Borrowings under the advances bear interest at 10%, payable monthly.
The Company made interest payments totaling $84,773 and $73,595 during the
years ended December 31, 1995 and 1996, respectively.
4. PROFIT SHARING PLAN
The Company has a profit sharing plan which covers substantially all
employees who have a minimum of one year of service and meet other requirements.
The profit sharing plan contribution, which is determined by the Company's Board
of Directors, was $100,000 for each of the years ended December 31, 1995 and
1996.
5. COMMITMENTS AND CONTINGENCIES
License Agreement
In October 1992, the Company entered into a License Agreement ("the
Agreement") with Stussy, Inc. to design, develop, manufacture and distribute the
Stussy EyeGear sunglass line. The Agreement's initial term expired April 30,
1997, with options to renew for two additional five-year terms. License fees,
which are based on a percentage of sales, were approximately $724,000 and
$720,000 for the years ended December 31, 1995 and 1996, respectively.
Letters of Credit
In connection with certain inventory purchases, the Company enters into
letter of credit agreements with a bank. At December 31, 1995 and 1996, the
Company had open letters of credit of approximately $259,000 and $407,000,
respectively.
10
<PAGE> 12
SUNGOLD ENTERPRISES, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE PERIOD FROM
JANUARY 1, 1997 TO MARCH 31, 1997 IS UNAUDITED)
Office and Warehouse Lease
The Company rents its office and warehouse space under a lease which
expires November 30, 2001. The lease provides for the Company to pay certain
utility and maintenance expenses in addition to the monthly rent.
Future minimum lease payments, exclusive of these additional expenses, are
as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1997........................................$183,000
1998.........................................189,000
1999.........................................194,000
2000.........................................200,000
2001.........................................206,000
--------
$972,000
========
</TABLE>
Rent expense for the years ended December 31, 1995 and 1996 was
approximately $98,000 and $104,000, respectively.
11
<PAGE> 13
GARGOYLES, INC.
PRO FORMA FINANCIAL INFORMATION BASIS OF PRESENTATION
The following Pro Forma Consolidated Balance Sheets as of March 31, 1997
are unaudited and were prepared as if the Sungold Acquisition, which was
consummated in April 1997, was effective as of March 31, 1997. The following Pro
Forma Consolidated Statements of Operations for the year ended December 31, 1996
and the three months ended March 31, 1997 are unaudited and were prepared as if
the Sungold Acquisition was effective as of January 1, 1996 and January 1, 1997,
respectively. The Pro Forma Consolidated Statements of Operations do not purport
to represent what the Company's results of operations would actually have been
if the Sungold Acquisition had in fact occurred on such dates or to project the
Company's results of operations for any future period. The Pro Forma
Consolidated Statements of Operations are based on the historical financial
statements of the Company and Sungold and give effect to the Sungold Acquisition
under the purchase method of accounting.
12
<PAGE> 14
GARGOYLES, INC.
Pro Forma Consolidated Balance Sheets
March 31, 1997
(unaudited)
<TABLE>
<CAPTION>
PRO FORMA
GARGOYLES SUNGOLD ADJUSTMENTS PRO FORMA
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,100 $ 103,430 $ - $ 104,530
Trade receivables, net 12,516,578 2,574,321 $15,090,899
Inventories 9,238,919 1,441,898 10,680,817
Trade credits 217,253 - 217,253
Other current assets and
prepaid expenses 5,216,148 68,936 5,285,084
----------- ---------- ----------- -----------
Total current assets 27,189,998 4,188,585 - 31,378,583
Property and equipment, net 3,382,454 119,632 3,502,086
Intangibles, net 2,902,721 - 9,697,016(1) 12,599,737
Other assets 276,979 16,694 - 293,673
----------- ---------- ----------- -----------
Total assets $33,752,152 $4,324,911 $ 9,697,016 $47,774,079
=========== ========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ - $ 401,497 $ (401,497)(2) $ -
Accounts payable 4,351,668 978,029 - 5,329,697
Accrued expenses and other
current liabilities 3,041,697 957,401 315,000(3) 4,314,098
----------- ---------- ----------- -----------
Total current liabilities 7,393,365 2,336,927 (86,497) 9,643,795
----------- ---------- ----------- -----------
Notes payable to bank 4,482,118 - 11,771,497(2) 16,253,615
----------- ---------- ----------- -----------
Deferred license income 270,000 - - 270,000
----------- ---------- ----------- -----------
Minority interest 271,923 - - 271,923
----------- ---------- ----------- -----------
Notes payable to shareholder - 275,200 (275,200)(4) -
----------- ---------- ----------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock - - - -
Common stock 25,649,405 8,100 (8,100)(4) 25,649,405
Additional paid-in capital - 227,700 (227,700)(4) -
Retained earnings (deficit) (4,314,659) 1,476,984 (1,476,984)(4) (4,314,659)
----------- ---------- ----------- -----------
Total shareholders' equity 21,334,746 1,712,784 (1,712,784) 21,334,746
----------- ---------- ----------- -----------
Total liabilities and shareholders' equity $33,752,152 $4,324,911 $ 9,697,016 $47,774,079
=========== ========== =========== ===========
</TABLE>
13
<PAGE> 15
GARGOYLES, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
GARGOYLES SUNGOLD ADJUSTMENTS PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $33,094,398 $13,404,588 $ -- $46,498,986
Cost of sales 13,743,496 5,417,067 -- 19,160,563
----------- ----------- ----------- -----------
Gross profit 19,350,902 7,987,521 -- 27,338,423
License income 479,609 -- -- 479,609
----------- ----------- ----------- -----------
19,830,511 7,987,521 -- 27,818,032
----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing 9,480,986 4,413,145 -- 13,894,131
General and administrative 4,399,286 2,840,315 353,000(5) 7,592,601
Shipping and warehousing 1,976,303 524,631 -- 2,500,934
Research and development 946,992 45,785 -- 992,777
Stock compensation and IPO bonus 3,833,140 -- -- 3,833,140
----------- ----------- ----------- -----------
Total operating expenses 20,636,707 7,823,876 353,000 28,813,583
----------- ----------- ----------- -----------
Income (loss) from operations (806,196) 163,645 (353,000) (995,551)
Interest, net (1,987,812) (10,062) (932,000)(6) (2,929,874)
----------- ----------- ----------- -----------
Income (loss) before income taxes (2,794,008) 153,583 (1,285,000) (3,925,425)
Income tax provision (benefit) -- -- -- --
----------- ----------- ----------- -----------
Net income (loss) $(2,794,008) $ 153,583 $(1,285,000) $(3,925,425)
=========== =========== =========== ===========
Net income (loss) per share $ (0.45) $ (0.63)
=========== ===========
Weighted average common shares 6,217,738 6,217,738
=========== ===========
</TABLE>
14
<PAGE> 16
GARGOYLES, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
PRO FORMA
GARGOYLES SUNGOLD ADJUSTMENTS PRO FORMA
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $8,198,266 $4,261,187 $ -- $12,459,453
Cost of sales 3,081,997 1,894,249 4,976,246
---------- ---------- ----------- -----------
Gross profit 5,116,269 2,366,938 7,483,207
License income 110,000 -- 110,000
---------- ---------- ----------- -----------
5,226,269 2,366,938 -- 7,593,207
Operating expenses:
Sales and marketing 2,789,205 1,077,186 3,866,391
General and administrative 1,157,001 501,921 88,250(5) 1,747,172
Shipping and warehousing 409,030 168,397 577,427
Research and development 365,291 27,368 392,659
---------- ---------- ----------- -----------
Total operating expenses 4,720,527 1,774,872 88,250 6,583,649
---------- ---------- ----------- -----------
Income (loss) from operations 505,742 592,066 (88,250) 1,009,558
---------- ---------- ----------- -----------
Interest, net 26,791 (19,907) (233,000)(6) (226,116)
---------- ---------- ----------- -----------
Income (loss) before income taxes 532,533 572,159 (321,250) 783,442
Income tax provision 107,000 13,546 93,000(7) 213,546
---------- ---------- ----------- -----------
Net income (loss) $ 425,533 $ 558,613 $ (414,250) $ 569,896
========== ========== =========== ===========
Net income (loss) per share $ 0.06 $ 0.07
========== ===========
Weighted average common shares 7,682,882 7,682,882
========== ===========
</TABLE>
15
<PAGE> 17
(1) To record intangible assets for the excess of the purchase price over
net assets acquired associated with the Sungold Acquisition. For
purposes of calculating intangibles and related amortization, the
allocation of the purchase price using the purchase method of accounting
is based on the fair value of the assets and liabilities of Sungold that
were acquired. The most significant component of intangibles is related
to a license agreement with Stussy and is being amortized over the
remaining 15-year license term.
(2) To record debt activity associated with the acquisition of Sungold.
(3) To accrue costs associated with the acquisition of Sungold.
(4) To eliminate certain liabilities that were not assumed by Gargoyles in
addition to the equity associated with the acquisition of Sungold.
(5) To record the amortization of intangibles associated with the Sungold
Acquisition.
(6) To record interest expense for the debt incurred in the Sungold
Acquisition.
(7) Reflects adjustments for income taxes as if Sungold had been taxed as a
C corporation rather than an S corporation and adjustments for income
taxes to a consolidated provision.
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GARGOYLES, INC.
Date: June 26, 1997
By: /s/ Steven R. Kingma
---------------------------------
Steven R. Kingma
Vice President, Chief Financial
Officer, Secretary and Treasurer
17
<PAGE> 19
EXHIBIT INDEX
EX-23.1 Consent of Ernst & Young LLP
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8) pertaining to the Gargoyles, Inc. 1995 Stock Incentive Compensation Plan of
our report dated May 22, 1997, with respect to the financial statements of
Sungold Enterprises, Ltd., for the years ended December 31, 1996 and 1995 in
this Current Report on Form 8-K/A of Gargoyles, Inc.
ERNST & YOUNG LLP
Seattle, Washington
June 23, 1997
18
