8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 2, 2007

Southwall Technologies Inc.

(Exact name of registrant as specified in its charter)

Delaware	0-15930	94-2551470
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

3788 Fabian Way

Palo Alto, California 94303

(Address of principal executive offices)

(650) 962-9111

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition

On March 2, 2007, Southwall Technologies Inc. (the “Registrant”) issued a press release announcing its financial results for the year and quarter ended December 31, 2007. A copy of such press release of the Registrant is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference in its entirety.

The information in this Current Report on Form 8-K and the exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as otherwise expressly stated in such filing.

Item 9.01. Financial Statements and Exhibits

(c) Exhibits.

Exhibit No.:	Description:
Exhibit 99.1	Press Release, dated March 2, 2007, issued by Southwall Technologies Inc.

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.

SOUTHWALL TECHNOLOGIES INC.
By:	/s/ R. Eugene Goodson
	R. Eugene Goodson
	President and Chief Executive Officer

Date: March 2, 2007

EX-99.1

Exhibit 99.1

Contact:

Roween Nacionales

Southwall Technologies

Phone: (650) 798-1200

For Immediate Release

Southwall Announces Q4 2006 Results

Palo Alto, California - March 02, 2007 - Southwall Technologies Inc. (OTC BB: SWTX.OB) announced fourth quarter 2006 revenue of $9.2 million, down 4% from the third quarter of 2006 and down 23% from the fourth quarter of 2005. The revenue decline was primarily due to constrains on machine capacity needed to meet customer demand and supplier quality issues.

Fourth quarter 2006 net loss was $75,000, or a loss of $0.01 per fully diluted share, as compared with net income of $211,000, or $0.01 per fully diluted share, in the fourth quarter of 2005. Fourth quarter 2006 gross margin was 41%, up 10 percentage points from the fourth quarter 2005, primarily due to improving yields and the successful transfer of manufacturing from Palo Alto, California, to its state-of-the-art facility in Germany.

“We are excited about our 2006 gross margin results,” said Dr. R. Eugene Goodson, President and CEO. “They are a direct result of our well-executed manufacturing plan, yield improvement programs, and the focus on improved efficiency throughout the organization. We plan to capitalize on this momentum and drive for even greater operational efficiency as we face a challenge of softening demand on the display market. Our other markets are growing or stable”

The Company will hold a teleconference at 2:00 p.m. PT / 5:00 p.m. ET today to discuss the results in more detail.

This call will be open to all investors via a webcast accessible at www.southwall.com and by phone. Both phone and webcast replays will be available for approximately one week after the teleconference, beginning approximately two hours after the call ends.

How to Access the Webcast

Go to the Investor Relations page of the Southwall website at www.southwall.com and click on the CCBN webcast icon. From here, you can listen to the teleconference, assuming that your computer system is configured properly.

How to Access the Call

Using access code # 7196089, domestic U.S. callers can dial (877) 481-7179, while international callers can dial (706) 634-7186. The phone replay will be accessible at (800) 642-1687 or (706) 645-9291, access code # 7196089.

About Southwall Technologies Inc.

Southwall Technologies Inc. designs and produces thin film coatings that selectively absorb, reflect or transmit light. Southwall products are used in a number of automotive, electronic display and architectural glass products to enhance optical and thermal performance characteristics, improve user comfort and reduce energy costs. Southwall is an ISO 9001:2000-certified manufacturer and sells advanced thin film coatings to over 25 countries around the world. Southwall’s customers include Audi, BMW, DaimlerChrysler, DuPont, Mitsui Chemicals, Peugeot-Citroën, Philips, Pilkington, Renault, Saint-Gobain Sekurit, and Volvo.

This press release may contain forward-looking statements, including, without limitation, statements regarding the Company's expectations, beliefs, intentions, or strategies regarding the future. All forward-looking statements in this press release are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those presented. These risks include the possibility that the Company’s expected future results will be materially worse than estimated, that the Company may not continue to be profitable in future quarters or may not be able to achieve future long-term growth, that there will be a decline in one or more portions of our business in 2007 or thereafter, that the Company will not be successful in improving operations performance or controlling costs, that the Company will suffer a decline in manufacturing or financial effectiveness, that the Company’s new product development will not be successful, that there may be decreasing demand in markets in addition to the electronic display market, and that the Company will not be able to secure additional financing if required, as well as risks associated with its failure to meet potential covenant requirements under future credit facilities. Further risks are detailed in the Company's filings with the Securities and Exchange Commission, including those set forth in the Company's most recent Annual Report on Form 10-K for the year ended December 31, 2005, filed on March 29, 2006, and the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,, 2006, filed on November 13, 2006.

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SOUTHWALL TECHNOLOGIES INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Three months ended						Twelve months ended
	December 31,			December 31,			December 31,			December 31,
	2006			2005			2006			2005
Net revenues	$	9,241		$	11,910		$	40,209		$	54,754
Cost of revenues		5,445			8,262			24,746			37,241
Gross profit		3,796			3,648			15,463			17,513
Operating expenses:
Research and development		1,406			2,057			6,782			5,104
Selling, general and administrative		2,244			1,871			12,005			8,332
Impairment recoveries for long-lived assets		(97	)		-			(214	)		(170	)
Restructuring charges (recoveries)		(59	)		-			915			-
Total operating expenses		3,494			3,928			19,488			13,266
Income (loss) from operations		302			(280	)		(4,025	)		4,247
Interest expense, net		(187	)		(195	)		(737	)		(973	)
Other income (loss), net		49			(67	)		210			75
Income (loss) before provision (benefit) for income taxes		164			(542	)		(4,552	)		3,349
Provision (benefit) for income taxes		239			(753	)		958			29
Net income (loss)		(75	)		211			(5,510	)		3,320
Deemed dividend on preferred stock		122			127			489			490
Net income (loss) attributable to common stockholders	$	(197	)	$	84		$	(5,999	)	$	2,830
Net income (loss) per share:
Basic	$	(0.01	)	$	0.00		$	(0.22	)	$	0.11
Diluted	$	(0.01	)	$	0.01		$	(0.22	)	$	0.10
Weighted average shares used in computing net income (loss) per share:
Basic		27,073			26,790			26,949			26,743
Diluted		27,073			32,375			26,949			32,895

SOUTHWALL TECHNOLOGIES INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

	December 31,			December 31,
	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	5,524		$	6,600
Restricted cash		209			402
Accounts receivable, net		3,608			6,780
Inventories, net		5,598			5,879
Other current assets		1,064			982
Total current assets		16,003			20,643
Property, plant and equipment, net		17,232			16,857
Restricted cash loans		1,111			995
Other assets		1,155			1,146
Total assets	$	35,501		$	39,641
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long term debt and capital leases	$	1,059		$	1,317
Short term obligations		2,996			2,996
Accounts payable		955			1,402
Accrued compensation		859			1,161
Other accrued liabilities		6,449			5,076
Total current liabilities		12,318			11,952
Term debt and capital leases		8,568			8,790
Government grants advanced		220			396
Other long term liabilities		2,550			2,564
Total liabilities		23,656			23,702
Series A, convertible preferred stock		4,810			4,810
Stockholders’ equity:
Common stock		27			27
Capital in excess of par value		78,081			77,828
Accumulated other comprehensive income:
Translation gain on subsidiary		3,696			2,532
Accumulated deficit		(74,769	)		(69,258	)
Total stockholders’ equity		7,035			11,129
Total liabilities, preferred stock and stockholders’ equity	$	35,501		$	39,641