<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-Q

                                  (Mark one)

    [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                             EXCHANGE ACT OF 1934

                 For the quarterly period ended March 31, 2000

                                      OR

    [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                    EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

             For the transition period from _________ to _________

                        Commission file number 0-21335

                                GARGOYLES, INC.
            (Exact name of registrant as specified in its charter)

          Washington                               91-1247269
   (State of Incorporation)          (I.R.S. Employer Identification Number)

                            5866 SOUTH 194TH STREET
                             KENT, WASHINGTON 98032
                                 (253) 796-2752
   (Address and telephone number of registrant's principal executive offices)

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

                               Yes [X]    No [ ]

As of March 31, 2000, there were 7,822,191 outstanding shares of the
registrant's common stock, no par value, which is the only class of common or
voting stock of the registrant, and 10,000,000 outstanding shares of the
registrant's Series A preferred stock, which is the only series of preferred
stock of the registrant.  Each share of preferred stock is convertible into
3.1600342 shares of common stock, and each share of preferred stock is entitled
to 3.1600342 votes.
<PAGE>

                                GARGOYLES, INC.
                              INDEX TO FORM 10-Q


                                                                         PAGE(S)
                                                                         -------
            PART 1 - FINANCIAL INFORMATION

Item 1:  Financial Statements (Unaudited)

           Consolidated Balance Sheets .....................................   1

           Consolidated Statements of Operations ...........................   2

           Consolidated Statements of Cash Flows ...........................   3

           Notes to Consolidated Financial Statements ......................   4

Item 2:  Management's Discussion and Analysis of Financial
         Condition and Results of Operations ...............................   5

Item 3:  Quantitative and Qualitative Disclosure about Market Risk..........   *

                          PART II - OTHER INFORMATION

Item 1:  Legal Proceedings..................................................   7

Item 2:  Changes in Securities and Use of Proceeds..........................   *

Item 3:  Defaults upon Senior Securities....................................   *

Item 4:  Submission of Matters to a Vote of Security Holders................   *

Item 5:  Other Information..................................................   *

Item 6:  Exhibits and Reports on Form 8-K ..................................   7

* Omitted as not applicable
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                GARGOYLES, INC.
                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                        MARCH 31,    DECEMBER 31,
                                                          2000           1999
                                                      ------------   ------------
                                                      (UNAUDITED)
<S>                                                   <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents........................   $    477,477   $    161,472
  Trade receivables, net...........................      6,936,843      3,761,517
  Inventories, net.................................      6,476,374      8,342,717
Other current assets and prepaid expenses..........      2,027,987      1,539,609
                                                      ------------   ------------
Total current assets...............................     15,918,681     13,805,315
Property and equipment, net........................      1,052,904      1,084,051
Intangibles, net...................................     12,902,840     13,049,942
Other assets.......................................        263,811        273,257
                                                      ------------   ------------
Total assets.......................................   $ 30,138,236   $ 28,212,565
                                                      ============   ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
  Accounts payable.................................   $  3,387,999   $  3,963,182
  Accrued expenses and other current liabilities...      3,416,962      2,735,658
  Current portion of long-term debt................      7,471,186        900,000
                                                      ------------   ------------
Total current liabilities..........................     14,276,147      7,598,840

Long-term debt, net of current portion.............     18,300,000     24,533,104

Deferred license income and other..................      1,109,168        904,841

Shareholders' deficit:
  Preferred stock, no par value, authorized
    issued and outstanding -- 10,000,000 shares....      9,810,000      9,810,000
  Common stock, no par value, authorized shares --
    40,000,000, issued and outstanding --
    7,822,191 shares...............................     26,529,282     26,529,282
  Accumulated deficit..............................    (39,886,361)   (41,163,502)
                                                      ------------   ------------
Total shareholders' deficit........................     (3,547,079)    (4,824,220)
                                                      ------------   ------------
Total liabilities and shareholders' deficit........   $ 30,138,236   $ 28,212,565
                                                      ============   ============
</TABLE>

    See accompanying notes to the Consolidated Financial Statements
<PAGE>

                                GARGOYLES, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED MARCH 31,
                                            ----------------------------
                                                2000             1999
                                            -----------       ----------
<S>                                        <C>               <C>
Net sales...............................    $12,103,400       $9,348,011
Cost of sales...........................      4,993,892        4,117,786
                                            -----------       ----------
Gross profit............................      7,109,508        5,230,225
License income..........................         50,262          182,233
                                            -----------       ----------
                                              7,159,770        5,412,458
                                            -----------       ----------
Operating expenses:
  Sales and marketing...................      2,774,940        2,536,000
  General and administrative............      1,783,763        1,436,875
  Shipping and warehousing..............        355,879          332,004
  Provision for doubtful accounts.......         69,958           88,272
                                            -----------       ----------
Total operating expenses................      4,984,540        4,393,151
                                            -----------       ----------
Income from operations..................      2,175,231        1,019,307
Interest and other (expense)............       (643,763)        (787,648)
                                            -----------       ----------
Income before income taxes..............      1,531,467          231,659
Income tax provision....................              -                -
                                            -----------       ----------
Net income..............................      1,531,467          231,659

 Preferred stock dividends accrued......       (254,325)               -
                                            -----------       ----------
Net income available for
 common shareholders....................    $ 1,277,142       $  231,659
                                            ===========       ==========
Basic net income per share..............           $.16             $.03
                                            ===========       ==========
Diluted net income per share............           $.04             $.03
                                            ===========       ==========
</TABLE>

    See accompanying notes to the Consolidated Financial Statements
<PAGE>

                                GARGOYLES, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED MARCH 31,
                                                            ----------------------------
                                                                2000            1999
                                                            -----------      -----------
<S>                                                         <C>              <C>
OPERATING ACTIVITIES
Net income..............................................    $ 1,531,467      $   231,659
 Adjustments to reconcile net income to net cash
  used in operating activities:
  Depreciation..........................................        151,776          177,088
  Amortization..........................................        152,134          292,317
  Deferred license income...............................        (50,000)         (50,000)
     Provision for doubtful accounts....................         69,958           88,272

  Changes in assets and liabilities:
   Accounts receivable..................................     (3,245,284)      (4,133,628)
   Inventories..........................................      1,866,343          885,964
   Other current assets and other assets................       (483,962)         154,303
   Accounts payable, accrued expenses and other
    current liabilities.................................        106,120         (598,315)
                                                            -----------      -----------
Net cash provided by (used in) operating activities.....         98,552       (2,952,340)
                                                            -----------      -----------
INVESTING ACTIVITIES
Acquisition of property and equipment...................       (120,629)         (12,622)

FINANCING ACTIVITIES
Principal payments of long-term debt....................        (50,000)
Net proceeds under revolving credit line................        388,082        3,088,910

                                                            -----------      -----------
Net cash provided by financing activities...............        338,082        3,088,910
                                                            -----------      -----------

Effect of foreign currency translation on cash..........              -           (9,046)
                                                            -----------      -----------
Net increase (decrease) in cash.........................        316,005          114,902
Cash and cash equivalents, beginning of period..........        161,472          194,314
                                                            -----------      -----------
Cash and cash equivalents, end of period................    $   477,477      $   309,216
                                                           ============      ===========
</TABLE>

    See accompanying notes to the Consolidated Financial Statements
<PAGE>

                                GARGOYLES, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                MARCH 31, 1999
                                  (UNAUDITED)

1.   INTERIM FINANCIAL STATEMENTS

     The accompanying consolidated financial statements of Gargoyles, Inc. and
its subsidiaries ("Gargoyles" or the "Company") are unaudited and include, in
the opinion of management, all normal recurring adjustments necessary to present
fairly the consolidated financial position at March 31, 2000 and the related
consolidated results of operations and cash flows for the periods presented.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. These condensed consolidated financial
statements should be read in conjunction with the Company's audited consolidated
financial statements and the related notes thereto included in the Company's
1999 Annual Report on Form 10-K/A, as filed with the Securities and Exchange
Commission.

     The Company's net sales are subject to seasonal variations. Accordingly,
the results of operations for the period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the entire year.

2.  INVENTORIES

    Inventories consist of the following:

<TABLE>
<CAPTION>
                                          March 31,     December 31,
                                             2000           1999
                                          ----------    ------------
<S>                                      <C>           <C>
Materials..............................   $2,956,962     $3,199,221
Finished goods.........................    4,136,601      6,010,315
 Reserves for excess, slow-moving and
  obsolete inventories.................     (617,189)      (866,819)
                                          ----------     ----------
   Inventories, net....................   $6,476,374     $8,342,717
                                          ==========     ==========
</TABLE>

3.   INCOME TAXES

     The Company recorded no income tax provision or benefit relating to the net
income or loss for the three-month periods ended March 31, 2000 and 1999. The
Company utilized its net operating losses to eliminate any provision for income
taxes.

4.   EARNINGS PER SHARE

     The calculation of earnings per share is based on net income less dividend
requirements divided by weighted average common shares and common share
equivalents.  The weighted-average number of common shares used in the
calculation of basic earnings per share is 7,822,191 for both of the three-month
periods ended March 31, 2000 and 1999.  The calculation of diluted income per
common share assumes the dilutive issuance of convertible Series A Preferred
Stock resulting in an increase in weighted average common shares and an
adjustment in income available for common shareholders due to reduced dividend
requirements.  For purposes of calculating diluted earnings per share, stock
options have been included to the extent their effect would be dilutive.  The
weighted-average number of common shares used in the calculation of diluted
earnings per share for the three month periods ended March 31, 2000 and 1999 is
39,519,127 and 7,822,191 respectively.

5.   RECLASSIFICATIONS

     Certain reclassifications have been made to the prior years' financial
statements to conform to the current year's presentation.

6.   LITIGATION

     On May 1, 2000, the Company reached agreement with the Washington State
Department of Revenue regarding sales, use
<PAGE>

and business and occupation taxes assessed against the Company resulting from an
audit of periods from January 1, 1993 through June 30, 1997. In the Agreement,
Gargoyles agreed to pay a $338,941 assessment plus $108,058 of interest accrued
on the assessment. The Company will pay the total assessment of $446,999 in
three equal installments in May, June and July, 2000.

     On May 11, 1998, Morris Rosenbloom & Co., Inc. filed an action against the
Company in the Supreme Court of the State of New York for Wayne County, under
Index No. 44010.  In the lawsuit, plaintiff alleges breach of contract due to
the Company's failure to accept a return of sunglasses under the terms of a
Repurchase Agreement between Morris Rosenbloom and the Company.  Plaintiff
claims damages from the Company in excess of $500,000.  The Company has retained
counsel to represent it in this matter and intends to defend vigorously the
plaintiff's claims.  The Company believes that the ultimate resolution of this
matter will not have a material adverse effect on its results of operations or
financial position.

     On December 28, 1999, Hobie Designs, Inc. filed an action against
Gargoyles, Inc. and it subsidiary H.S.C. in the Superior Court of California,
County of Orange under Case No. 818816. Upon motion of Gargoyles and, H.S.C., on
February 4, 2000, the case was removed to Federal Court and is now pending in
the United States District Court for the Central District of California under
Case No. SA-CV00-100 DOC. In the lawsuit, Hobie Desings alleges breach of the
license agreement under which H.S.C. has the right to use the Hobie trademark in
connection with the marketing and sale of eyewear and related products. Hobie
Designs claims damages in an unspecified amount and seeks termination of the
license agreement. Gargoyles and H.S.C. have retained counsel to represent them
in this matter and intend to defend vigorously the plaintiff's claims. It is the
Company's position that no material breach of the Hobie license agreement has
occurred. There can be no assurance, however, that this case will be resolved
successfully and that the Company's position will ultimately prevail. Failure to
resolve this matter successfully could require the Company to modify the license
agreement to the Company's disadvantage or could result in the loss of H.S.C.'s
right to market eyewear under the Hobie brand.

     The Company also is a party to various other claims, complaints and legal
actions that have arisen in the ordinary course of business from time to time.
The Company believes that the outcome of all such pending legal proceedings, in
the aggregate, will not have a material adverse effect on its results of
operations or financial position.

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

FORWARD-LOOKING STATEMENTS

     Certain statements within this report constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or industry results, to differ materially from
the anticipated results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, without limitation, the
factors discussed in the Company's Annual Report, as amended, on Form 10-K under
factors discussed in connection with the forward-looking statements. Forward-
looking statements reflect management's views, estimates and opinions at the
date on which the statements are made. The Company undertakes no obligation to
update forward-looking statements to reflect changes in circumstances or changes
in the views, estimates or opinions of management that occur after the
statements are made. Because of the inherent uncertainty of forward-looking
statements and because circumstances or management's views, estimates and
opinions may change, investors are cautioned not to place undue reliance on
forward-looking statements. Certain forward-looking statements are identified
with a cross-reference to this paragraph.

GENERAL

     Gargoyles designs, assembles, markets and distributes a broad range of
sunglasses and eyewear products. The Company competes primarily in the premium
sunglass markets by offering a diverse line of products marketed under a number
of brands owned by the Company or licensed from third parties. The Company's
principal brands include Gargoyles Performance Eyewear, Gargoyles Protective
Eyewear, Wrangler Eyewear, Hobie Polarized Sunglasses, Stussy EyeGear, Anarchy
Eyewear, Angel Eyewear, Fusion Eyewear, Tomichi Studio and Private Eyes.

     The Company operates both directly and through three wholly owned
subsidiaries: H.S.C., Inc., a Washington corporation, Sungold Eyewear, Inc., a
Washington corporation, and Private Eyes Sunglass Corporation, also a Washington
corporation.
<PAGE>

RESULTS OF OPERATIONS

     The following table sets forth results of operations, as a percentage of
net sales, for the periods indicated:

<TABLE>
<CAPTION>
                                                    Three Months
                                                        Ended
                                                      March 31,
                                                    -------------
<S>                                                <C>      <C>
                                                     2000    1999
                                                    -----   -----
     Net sales...................................   100.0%  100.0%
     Cost of sales...............................    41.3    44.0
                                                    -----   -----
     Gross profit................................    58.7    56.0
     License income..............................     0.4     1.9
     Operating expenses:
       Sales and marketing.......................    22.9    27.1
       General and administrative................    14.7    15.4
       Shipping and warehousing..................     2.9     3.6
          Provision for doubtful accounts........      .6      .9
                                                    -----   -----
     Total operating expenses....................    41.2    47.0
                                                    -----   -----
     Income from operations......................    18.0%   10.9%
                                                    =====   =====
</TABLE>

THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999

     Net sales. Net sales increased 29.5% to $12.1 million for the quarter ended
March 31, 2000 from $9.3 million for the quarter ended March 31, 1999. This
increase was primarily due to improved sales and distribution and continuing
acceptance of the Company's product offerings.

     Gross profit. Gross profit increased to $7.1 million for the quarter ended
March 31, 2000 from $5.2 million for the quarter ended March 31, 1999. As a
percentage of net sales, gross margin increased to 58.7% in the 2000 quarter
from 56% in the 1999 quarter. The increase in gross margin in 2000 as compared
to 1999 was due primarily to improved margins on sales of the Company's
Gargoyles brand products and the increased percentage of total sales of this
brand and the sales of the Company's Sungold division.

     License income. License income decreased to $50,000 for the quarter ended
March 31, 2000 compared to $182,000 for the quarter ended March 31, 1999.
License income in first quarter 1999 included sales of product by a licensee
which did not reoccur in 2000.

     Operating expenses. Operating expenses increased 13.5% to $5 million for
the quarter ended March 31, 2000 from $4.4 million for the quarter ended March
31, 1999. As a percentage of net sales, operating expenses decreased to 41.2% in
the 2000 quarter from 47% in the 1999 quarter. Sales and marketing expenses
increased $239,000 in the 2000 quarter, primarily as a result of increased
marketing efforts, especially for the Gargoyles brand. As a percentage of net
sales, sales and marketing expenses decreased to 22.9% in the 2000 quarter from
27.1% in the 1999 quarter. General and administrative expenses increased
$347,000 in the 2000 quarter, primarily as a result of severance payments. As a
percentage of net sales, general and administrative decreased to 14.7% in the
2000 quarter from 15.4% in the 1999 quarter. Shipping and warehousing expenses
increased $24,000 in the 2000 quarter, primarily as a result of increased sales.
As a percentage of net sales, shipping and warehousing expenses decreased to
2.9% in the 2000 quarter from 3.6% in the 1999 quarter. Provision for doubtful
accounts decreased $18,000 in the 2000 quarter. As a percentage of net sales,
provision for doubtful accounts decreased to .6% in the 2000 quarter from .9% in
the 1999 quarter. The increase in total operating expenses of $591,000 is
primarily the result of the increased sales, increased marketing expenditures,
and severance payments.

     Income from operations. Income from operations increased 113.4%. to $2.2
million for the quarter ended March 31, 2000 compared to income from operations
of $1 million for the quarter ended March 31, 1999.

     Interest (expense). Interest expense decreased 18.3% to $643,000 for the
quarter ended March 31, 2000 compared with interest expense of $787,000 for the
quarter ended March 31, 1999. The decrease was primarily due to reduced
borrowings. The
<PAGE>

Company's outstanding borrowings were $25.7 million at March 31, 2000 compared
to $31.6 million at March 31, 1999.

     Income tax provision (benefit). The Company's income tax provision was zero
for both quarters ended March 31, 2000 and March 31, 1999.  The Company utilized
its net operating losses to eliminate any provision for income taxes in both
quarters.

     Net income. As a result of the items discussed above, the Company's net
income was $1.5 million or $.04 per diluted common share for the quarter ended
March 31, 2000 compared to a net income of $232,000 or $.03 per diluted common
share for the quarter ended March 31, 1999.

LIQUIDITY AND CAPITAL RESOURCES

     Historically, the Company has relied primarily on cash from operations,
borrowings and its initial public offering of common stock to finance its
operations. Cash provided by the Company's operating activities totaled $99,000
for the three months ended March 31, 2000 compared to cash used in operating
activities of $3 million for the three months ended March 31, 1999. The
Company's cash provided by operating activities increased in the first quarter
of 2000 by $3 million compared to the first quarter of 1999 due primarily to (i)
a $1.3 million increase in net income, (ii) a decrease in net inventories of
approximately $1.0 million, and (iii) a decrease in the build-up of accounts
receivable of approximately $888,000. Cash used in the Company's investing
activities, to fund acquisitions of property and equipment, totaled $121,000 and
$13,000 for the three months ended March 31, 2000 and 1999, respectively. Cash
provided by the Company's financing activities, primarily proceeds from bank
debt, totaled $338,000 and $3 million for the three months ended March 31, 2000
and 1999, respectively. As of March 31, 2000, the Company had unused sources of
liquidity of $2.6 million, consisting of cash and cash equivalents of $477,000
and borrowings available under its revolving loan of $2.2 million.

SEASONALITY

     The Company's quarterly results of operations have fluctuated in the past
and may continue to fluctuate as a result of a number of factors, including
seasonal cycles, the timing of new product introductions, the timing of orders
by the Company's customers, the mix of product sales and the effects of weather
conditions on consumer purchases.

                          PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     On May 1, 2000, the Company reached agreement with the Washington State
Department of Revenue regarding sales, use and business and occupation taxes
assessed against the Company resulting from an audit of periods from January 1,
1993 through June 30, 1997. In the Agreement, Gargoyles agreed to pay a $338,941
assessment plus $108,058 of interest accrued on the assessment. The Company will
pay the total assessment of $446,999 in three equal installments in May, June
and July, 2000.

     There have been no material changes in any other legal proceedings reported
in the Company's 1999 Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 30, 2000.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

     Exhibit 11.1  Statement Regarding Computation of Per Share Earnings
     Exhibit 27.1  Financial Data Schedule

(b) REPORTS ON FORM 8-K

None
<PAGE>

                                  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.

May 12, 2000                         Gargoyles, Inc.
                                     (Registrant)

                                     /s/ Leo Rosenberger

                                     -----------------------------------------
                                     Leo Rosenberger, Chief Executive Officer,
                                     Chief Financial Officer and Treasurer


                                 EXHIBIT INDEX

EXHIBIT
NUMBER        EXHIBIT DESCRIPTION

Exhibit 11.1  Statement Regarding Computation of Per Share Earnings
Exhibit 27.1  Financial Data Schedule