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) August 12, 2008

SOUTHWALL TECHNOLOGIES INC.

(Exact Name Of Registrant As Specified In Its Charter)

DELAWARE

(State or Other Jurisdiction of Incorporation)

0-15930	94-2551470
(Commission File Number)	(I.R.S. Employer Identification No.)
3788 Fabian Way, Palo Alto, CA	94303
(Address of Principal Executive Offices)	(Zip Code)

(650) 962-9111

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name or Former Address, if Changed Since Last Report)

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 the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Conditions

On August 12, 2008, Southwall Technologies Inc. (the “Registrant”) issued a press release announcing its financial results for the three and six month periods ended June 30, 2008.  A copy of such press release of the Registrant is attached as Exhibit 99.1 to this Current Report of 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 the 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, or 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 August 12, 2008, issued by Southwall Technologies Inc.

SIGNATURE

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, thereunto duly authorized.

Dated: August 12, 2008	SOUTHWALL TECHNOLOGIES INC.
	By:	/s/  Dennis F. Capovilla
		Dennis F. Capovilla
		Chief Executive Officer

EX-99.1

Exhibit 99.1

Contact:

Mallorie Burak

Southwall Technologies Inc.

Phone:  (650) 798-1200

For Immediate Release

Southwall Announces Q2 2008 Results

INCREASED GLOBAL DEMAND FOR ENERGY EFFICIENT PRODUCTS

DRIVES CONTINUED GROWTH IN SECOND QUARTER

PALO ALTO, Calif.--(BUSINESS WIRE)—August 12, 2008--Southwall Technologies Inc. (OTCBB: SWTX) announced second quarter 2008 revenue of $13.7 million, up 29.5% from $10.6 million in the first quarter of 2008 and up approximately 48% from 2007 second quarter revenues of $9.3 million. The year over year increase was primarily due to higher sales of Automotive and Window Film products, which offset the decline in Plasma Display revenues.  In 2007, the Company made a strategic decision to exit the low margin display business and focus on its core energy efficiency products. For the first six months of 2008, revenues were $24.3 million, a 23% increase over 2007 revenues of $19.8 million.

Second quarter net income increased to $2.2 million, or $.07 per diluted share, compared to net income of $0.3 million, or $.01 per diluted share, in the second quarter of 2007. The second quarter of 2007 included $1 million of other income from sale of a technology and services in 2007.  Year to date 2008 net income was $4.1 million, or $.13 per diluted share, compared to 2007 year to date net income of $0.5 million, or $.02 per diluted share.

Second quarter 2008 gross profit was $5.7 million, or 42% of sales compared to $2.7 million, or 30% of sales in last year’s second quarter. Operating profit was $2.8 million, or 20% of sales, compared to negative $0.4 million in the second quarter of last year.  A shift in product mix to higher margin, energy conservation products, improved operating efficiencies and continued cost management efforts were the significant factors contributing to the profit improvement.

“We are well positioned for growth in our core energy markets, where our products enable a new level of energy efficiency for green building and automotive design”, said Dennis Capovilla, Southwall’s CEO. “Demand for improved energy efficiency in the automotive and window film markets is reflected in our second quarter results. Due to the seasonality of our business, the second quarter is an important quarter and a significant contributor to our annual revenue and net income.”

“Southwall is committed to continued product innovation and channel expansion to meet an increasing global demand for energy efficiency in buildings and cars”, continued Capovilla. “The recent growth in sales highlights a growing consumer awareness of energy efficiency as a cost-effective and readily-available green technology choice that can have an immediate impact on saving energy and reducing carbon emissions.”

About Southwall Technologies Inc.

Southwall Technologies Inc. is recognized as an innovator in the development and manufacture of high performance, energy-saving films and glass products that dramatically improve the energy efficiency of architectural and automotive glass. Southwall is an ISO 9001:2000-certified manufacturer with customers in over 25 countries around the world, including Audi, BMW, DaimlerChrysler, Guardian, Peugeot-Citroen, 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 2008 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 and joint venture 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, 2007, filed with the Securities and Exchange Commission on March 31, 2008.

###

SOUTHWALL TECHNOLOGIES INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Three months ended						Six months ended
	June 30,			June 30,			June 30,			June 30,
	2008			2007			2008			2007
Net Revenues	$	13,685		$	9,250		$	24,255		$	19,756
Cost of revenues		7,960			6,507			13,679			12,603
Gross profit		5,725			2,743			10,576			7,153
Operating expenses:
Research & Development		688			870			1,397			2,239
Selling, general and administrative		2,280			2,282			4,318			4,810
Impairment charge (recoveries) for long-lived assets		-			-			-			(8	)
Total operating expenses		2,968			3,152			5,715			7,041
Income (loss) from operations		2,757			(409	)		4,861			112
Interest expense, net		(123	)		(167	)		(262	)		(280	)
Other income (expenses), net		(79	)		1,043			114			1,048
Income before provision for income taxes		2,555			467			4,713			880
Provision for income taxes		207			5			320			186
Net income		2,348			462			4,393			694
Deemed dividend on preferred stock		122			122			244			244
Net income attributable to common stockholders	$	2,226		$	340		$	4,149		$	450
Net income per share:
Basic	$	0.08		$	0.01		$	0.15		$	0.02
Diluted	$	0.07		$	0.01		$	0.13		$	0.02
Weighted average shares used in computing net income per share :
Basic		28,065			27,513			27,943			27,327
Diluted		34,555			28,498			34,037			28,033

SOUTHWALL TECHNOLOGIES INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

	June 30,			December 31,
	2008			2007
ASSETS
Current assets:
Cash and cash equivalents	$	7,524		$	6,492
Restricted cash		315			294
Accounts receivable, net		8,077			4,346
Inventories, net		6,527			5,640
Restricted cash loans		1,330			-
Other current assets		854			837
Total current assets		24,627			17,609
Property, plant and equipment, net		17,623			17,071
Restricted cash loans		-			1,242
Other assets		700			1,345
Total assets	$	42,950		$	37,267
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt	$	4,040		$	1,149
Accrued payable		2,293			964
Accrued compensation		1,239			1,267
Other accrued liabilities		4,989			6,350
Total current liabilities		12,561			9,730
Term debt		5,831			8,277
Other long term liabilities		2,587			2,567
Total liabilities		20,979			20,574
Series A, convertible preferred stock		4,810			4,810
Stockholders' equity:
Common stock		28			28
Capital in excess of par value		78,301			78,290
Accumulated other comprehensive income:
Translation gain on subsidiary		5,651			4,776
Accumulated deficit		(66,819	)		(71,211	)
Total stockholders' equity		17,161			11,883
Total liabilities, preferred stock and stockholders' equity	$	42,950		$	37,267

SOUTHWALL TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Six months ended
	June 30,			June 30,
	2008			2007
Cash flows from operating activities:
Net income	$	4,393		$	694
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Deferred income tax		(16	)		(66	)
Impairment (recoveries) from long-lived assets		0			(8	)
Depreciation and amortization		1,515			1,370
Stock-based compensation		77			185
Changes in operating assets and liabilities:
Accounts receivable, net		(3,908	)		(2,874	)
Inventories, net		(887	)		(509	)
Accrued restructuring		0			(60	)
Other current and non-current assets		616			142
Accounts payable and accrued liabilities		(291	)		(254	)
Net cash provided by (used in) operating activities		1,499			(1,380	)
Cash flows from investing activities:
Restricted cash		0			(406	)
Proceeds from sale of property, plant and equipment		0			8
Expenditures for property, plant and equipment		(898	)		(438	)
Net cash used in investing activities		(898	)		(836	)
Cash flows from financing activities:
Proceeds from exercise of stock options		179			357
Borrowings from equipment financing		473			0
Borrowings on line of credit		0			3,000
Investment credit in Germany		0			(3	)
Repayments on line of credit		0			(2,996	)
Repayments of notes payable		(596	)		(539	)
Net cash provided by (used in) financing activities		56			(181	)
Effect of foreign exchange rate changes on cash		375			(190	)
Net increase(decrease) in cash and cash equivalents		1,032			(2,587	)
Cash and cash equivalents, beginning of period		6,492			5,524
Cash and cash equivalents, end of period	$	7,524		$	2,937
Supplemental cash flows disclosures:
Interest paid	$	426		$	375
Income taxes paid	$	223		$	186
Supplemental schedule of non-cash investing and financing activities:
Dividends accrued	$	244		$	244