----

----

----

| (MARK ONE) |                                                                                    |
|------------|-----------------------------------------------------------------------------------------|
| x          | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |

| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|------------------------------------------------------------------------------------------|

----

|   | Delaware                                                       |   | 94-2551470                              |   |
|--------|----------------------------------------------------------------|--------|-----------------------------------------|--------|
|   | (State or other jurisdiction of incorporation or organization) |   | (I.R.S. Employer Identification Number) |   |
|   |                                                           |   |                                    |   |
|   | 3788 Fabian Way, Palo Alto, California                         |   | 94303                                   |   |
|   | (Address of principal executive offices)                       |   | (Zip Code)                              |   |

----

| Large accelerated filer ̈ | Accelerated filer ̈ | Non-accelerated filer ̈ | Smaller reporting companyx |
|-------------------------------|-------------------------|-----------------------------|----------------------------|

----

----

----

Index

INDEX

| PART I – FINANCIAL INFORMATION |   | Page                                                                                                                                    |
|--------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|
|                                 |   |                                                                                                                                    |   |   |
| Item 1                               |   | Financial Statements                                                                                                                    |   |   |
|                                 |   | Unaudited Condensed Consolidated Balance Sheets -September 30, 2010 and December 31, 2009                                               |   | 3 |
|                                 |   | Unaudited Condensed Consolidated Statements of Operations -Three and nine month periods ended September 30, 2010 and September 30, 2009 |   | 4 |
|                                 |   | Unaudited Condensed Consolidated Statements of Cash Flows -Nine month periods ended September 30, 2010 and September 30, 2009           |   | 5 |
|                                 |   | Notes to the Unaudited Condensed Consolidated Financial Statements                                                                      |   | 6 |
| Item 2                               |   | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                             |   | 17 |
| Item 3                               |   | Quantitative and Qualitative Disclosures about Market Risk                                                                              |   | 27 |
| Item 4                               |   | Controls and Procedures                                                                                                                 |   | 27 |
|                                 |   |                                                                                                                                    |   |   |

| PART II – OTHER INFORMATION |   |                                                        |
|-----------------------------------|--------|-------------------------------------------------------------|
|                              |   |                                                        |   |   |
| Item 1                            |   | Legal Proceedings                                           |   | 28 |
| Item 1A                           |   | Risk Factors                                                |   | 28 |
| Item 2                            |   | Unregistered Sales of Equity Securities and Use of Proceeds |   | 28 |
| Item 3                            |   | Defaults upon Senior Securities                             |   | 28 |
| Item 5                            |   | Other Information                                           |   | 28 |
| Item 6                            |   | Exhibits                                                    |   | 29 |
|    Signatures      |   |                                                        |   |   |
|                              |   | 30                                                          |

----

Index

PART I. FINANCIAL INFORMATION

Item 1--Financial Statements:

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                                                                                                                                        |   | September 30, 2010 |    |   | December 31, 2009 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|--------|------------------------|--------|
| ASSETS                                                                                                                                                                                                                                                                                                      |
| Current assets:                                                                                                                                                                                                                                                                                             |   |                    |    |   |                   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                                                                                                                                   |   | $                       | 15,573  |   |                   | $      | 12,454 |   |
| Accounts receivable, net of allowance for doubtful accounts of $208 at September 30, 2010 and $115 at December 31, 2009                                                                                                                                                                                     |   |                    | 7,367   |   |                   |   | 5,907 |   |
| Inventories                                                                                                                                                                                                                                                                                                 |   |                    | 4,691   |   |                   |   | 4,522 |   |
| Other current assets                                                                                                                                                                                                                                                                                        |   |                    | 1,401   |   |                   |   | 1,479 |   |
| Total current assets                                                                                                                                                                                                                                                                                        |   |                    | 29,032  |   |                   |   | 24,362 |   |
|                                                                                                                                                                                                                                                                                                        |   |                    |    |   |                   |   |   |   |
| Property, plant and equipment, net                                                                                                                                                                                                                                                                          |   |                    | 15,309  |   |                   |   | 14,393 |   |
| Goodwill                                                                                                                                                                                                                                                                                                    |   |                    | 1,839   |   |                   |   | - |   |
| Intangibles assets                                                                                                                                                                                                                                                                                          |   |                    | 1,037   |   |                   |   | - |   |
| Deferred tax and other assets                                                                                                                                                                                                                                                                               |   |                    | 1,132   |   |                   |   | 156 |   |
| Total assets                                                                                                                                                                                                                                                                                                |   | $                       | 48,349  |   |                   | $      | 38,911 |   |
|                                                                                                                                                                                                                                                                                                        |   |                    |    |   |                   |   |   |   |
| LIABILITIES, PREFERRED STOCK AND EQUITY                                                                                                                                                                                                                                                                |   |
|                                                                                                                                                                                                                                                                                                        |   |                    |    |   |                   |   |   |   |
| Current liabilities:                                                                                                                                                                                                                                                                                        |   |                    |    |   |                   |   |   |   |
| Current portion of long term debt  and capital lease obligations                                                                                                                                                                                                                                  |   | $                       | 960     |   |                   | $      | 808 |   |
| Accounts payable                                                                                                                                                                                                                                                                                            |   |                    | 2,295   |   |                   |   | 1,258 |   |
| Accrued compensation                                                                                                                                                                                                                                                                                        |   |                    | 1,399   |   |                   |   | 1,395 |   |
| Income taxes payable                                                                                                                                                                                                                                                                                        |   |                    | 2,229   |   |                   |   | 130 |   |
| Other accrued liabilities                                                                                                                                                                                                                                                                                   |   |                    | 5,446   |   |                   |   | 4,751 |   |
| Total current liabilities                                                                                                                                                                                                                                                                                   |   |                    | 12,329  |   |                   |   | 8,342 |   |
|                                                                                                                                                                                                                                                                                                        |   |                    |    |   |                   |   |   |   |
| Term debt and capital lease obligations                                                                                                                                                                                                                                                                     |   |                    | 3,708   |   |                   |   | 3,358 |   |
| Other long term liabilities                                                                                                                                                                                                                                                                                 |   |                    | -       |   |                   |   | 58 |   |
| Total liabilities                                                                                                                                                                                                                                                                                           |   |                    | 16,037  |   |                   |   | 11,758 |   |
|                                                                                                                                                                                                                                                                                                        |   |                    |    |   |                   |   |   |   |
| Commitments and contingencies (Note 6)                                                                                                                                                                                                                                                                      |   |                    |    |   |                   |   |   |   |
|                                                                                                                                                                                                                                                                                                        |   |                    |    |   |                   |   |   |   |
| Series A 10% cumulative convertible preferred stock, $0.001 par value; $1.00 stated value; 5,000 shares authorized, 4,893 shares outstanding at September 30, 2010 and December 31, 2009 respectively (Liquidation preference: $7,623 and $7,255 at September 30, 2010 and December 31, 2009, respectively) |   |                    | 4,810   |   |                   |   | 4,810 |   |
|                                                                                                                                                                                                                                                                                                        |   |                    |    |   |                   |   |   |   |
| Southwall stockholders’ equity:                                                                                                                                                                                                                                                                       |   |                    |    |   |                   |   |   |   |
| Common stock, $0.001 par value per share; 50,000 shares authorized, 28,874 shares outstanding at September 30, 2010 and 28,791 shares outstanding at  December 31, 2009                                                                                                                           |   |                    | 29      |   |                   |   | 29 |   |
| Capital in excess of par value                                                                                                                                                                                                                                                                              |   |                    | 78,403  |   |                   |   | 78,291 |   |
| Accumulated other comprehensive income                                                                                                                                                                                                                                                                      |   |                    | 3,773   |   |                   |   | 4,382 |   |
| Accumulated deficit                                                                                                                                                                                                                                                                                         |   |                    | (54,915 | )      |                   |   | (60,359 | ) |
| Total Southwall stockholders’ equity                                                                                                                                                                                                                                                                  |   |                    | 27,290  |   |                   |   | 22,343 |   |
| Noncontrolling interest                                                                                                                                                                                                                                                                                     |   |                    | 212     |   |                   |   | - |   |
| Total equity                                                                                                                                                                                                                                                                                                |   |                    | 27,502  |   |                   |   | 22,343 |   |
|                                                                                                                                                                                                                                                                                                        |   |                    |    |   |                   |   |   |   |
| Total liabilities, preferred stock and equity                                                                                                                                                                                                                                                               |   | $                       | 48,349  |   |                   | $      | 38,911 |   |

----

Index

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                   |   | Three months ended |   |   | Nine months ended  |   |
|------------------------------------------------------------------------|--------|--------------------|--------|--------|--------------------|--------|
|                                                                   |   | September 30, 2010 |   |   | September 30, 2009 |   |   | September 30, 2010 |   |   | September 30, 2009 |   |
|                                                                   |   |               |   |   |               |   |   |   |   |   |   |   |
| Net revenues                                                           |   | $                  | 12,198 |   |               | $      | 8,600 |   |   | $ | 34,469 |   |   | $ | 23,430 |   |
| Cost of revenues                                                       |   |               | 6,890  |   |               |   | 4,867 |   |   |   | 18,549 |   |   |   | 13,554 |   |
|                                                                   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit                                                           |   |               | 5,308  |   |               |   | 3,733 |   |   |   | 15,920 |   |   |   | 9,876 |   |
|                                                                   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses:                                                    |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Research and development                                               |   |               | 1,024  |   |               |   | 771 |   |   |   | 2,608 |   |   |   | 2,118 |   |
| Selling, general and administrative                                    |   |               | 2,772  |   |               |   | 1,960 |   |   |   | 7,038 |   |   |   | 5,810 |   |
|                                                                   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Total operating expenses                                               |   |               | 3,796  |   |               |   | 2,731 |   |   |   | 9,646 |   |   |   | 7,928 |   |
|                                                                   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Income from operations                                                 |   |               | 1,512  |   |               |   | 1,002 |   |   |   | 6,274 |   |   |   | 1,948 |   |
|                                                                   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense, net                                                  |   |               | (67    | )      |               |   | (321 | ) |   |   | (225 | ) |   |   | (492 | ) |
| Other income (expense), net                                            |   |               | 560    |   |               |   | 12 |   |   |   | 202 |   |   |   | 3,211 |   |
|                                                                   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Income before provision for income taxes                               |   |               | 2,005  |   |               |   | 693 |   |   |   | 6,251 |   |   |   | 4,667 |   |
|                                                                   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Provision for (benefit from) income taxes                              |   |               | 1,057  |   |               |   | (17 | ) |   |   | 959 |   |   |   | 174 |   |
|                                                                   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                                             |   |               | 948    |   |               |   | 710 |   |   |   | 5,292 |   |   |   | 4,493 |   |
|                                                                   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Net loss attributable to noncontrolling interest                       |   |               | (122   | )      |               |   | - |   |   |   | (152 | ) |   |   | - |   |
|                                                                   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Net income attributable to Southwall                                   |   |               | 1,070  |   |               |   | 710 |   |   |   | 5,444 |   |   |   | 4,493 |   |
|                                                                   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Deemed dividend on preferred stock                                     |   |               | 122    |   |               |   | 122 |   |   |   | 366 |   |   |   | 366 |   |
|                                                                   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Net income attributable to common stockholders                         |   | $                  | 948    |   |               | $      | 588 |   |   | $ | 5,078 |   |   | $ | 4,127 |   |
|                                                                   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Net income per common share:                                           |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
|                                                                   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                  |   | $                  | 0.03   |   |               | $      | 0.02 |   |   | $ | 0.18 |   |   | $ | 0.14 |   |
| Diluted                                                                |   | $                  | 0.03   |   |               | $      | 0.02 |   |   | $ | 0.15 |   |   | $ | 0.13 |   |
|                                                                   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
|                                                                   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average shares used in computing net income per common share: |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                  |   |               | 28,840 |   |               |   | 28,728 |   |   |   | 28,820 |   |   |   | 28,715 |   |
| Diluted                                                                |   |               | 36,334 |   |               |   | 34,685 |   |   |   | 36,105 |   |   |   | 34,085 |   |

----

Index

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                                 |   | Nine months ended       |       |
|----------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|
|                                                                                                                 |   | September 30, 2010 |       |   | September 30, 2009 |   |
| Cash flows from operating activities:                                                                                |   |                    |       |   |   |   |
| Net income                                                                                                           |   | $                       | 5,292      |   |   | $ | 4,493 |   |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities:                          |   |                    |       |   |   |   |   |   |
| Gain on acquisition of controlling interest in SIG                                                                   |   |                    | (706       | ) |   |   | - |   |
| Gain on settlement of liability                                                                                      |   |                    | -          |   |   |   | (2,359 | ) |
| Deferred income tax                                                                                                  |   |                    | (1,334     | ) |   |   | (77 | ) |
| Loss on disposal of property, plant and equipment                                                                    |   |                    | 10         |   |   |   | (24 | ) |
| Inventory reserves                                                                                                   |   |                    | (201       | ) |   |   | 43 |   |
| Depreciation and amortization                                                                                        |   |                    | 1,989      |   |   |   | 1,911 |   |
| Stock-based compensation                                                                                             |   |                    | 433        |   |   |   | 294 |   |
| Non-cash effect of acquisition of controlling interest in SIG                                                        |   |                    | (232       | ) |   |   | - |   |
| Changes in operating assets and liabilities (net of assets acquired and liabilities assumed in purchase acquisition: |   |                    |       |   |   |   |   |   |
| Accounts receivable, net                                                                                             |   |                    | (75        | ) |   |   | (1,072 | ) |
| Inventories                                                                                                          |   |                    | 207        |   |   |   | 1,293 |   |
| Other current and non-current assets                                                                                 |   |                    | (240       | ) |   |   | (65 | ) |
| Accounts payable and accrued liabilities                                                                             |   |                    | 1,532      |   |   |   | (258 | ) |
| Net cash provided by operating activities                                                                            |   |                    | 6,675      |   |   |   | 4,179 |   |
|                                                                                                                 |   |                    |       |   |   |   |   |   |
| Cash flows from investing activities:                                                                                |   |                    |       |   |   |   |   |   |
| Acquisition of assets of Crown Operations International                                                              |   |                    | (3,302     | ) |   |   | - |   |
| Acquisition of controlling interest in SIG, net of cash acquired                                                     |   |                    | (195       | ) |   |   | - |   |
| Restricted cash                                                                                                      |   |                    | -          |   |   |   | 261 |   |
| Proceeds from sale of property, plant and equipment                                                                  |   |                    | -          |   |   |   | 34 |   |
| Expenditures for property, plant and equipment                                                                       |   |                    | (1,160     | ) |   |   | (975 | ) |
| Net cash used in investing activities                                                                                |   |                    | (4,657     | ) |   |   | (680 | ) |
|                                                                                                                 |   |                    |       |   |   |   |   |   |
| Cash flows from financing activities:                                                                                |   |                    |       |   |   |   |   |   |
| Repayments of term debt and capital lease obligations                                                                |   |                    | (599       | ) |   |   | (1,719 | ) |
| Proceeds from stock option exercises                                                                                 |   |                    | 63         |   |   |   | 42 |   |
| Borrowings from term loan                                                                                            |   |                    | 1,250      |   |   |   | - |   |
| Borrowings from equipment financing                                                                                  |   |                    | -          |   |   |   | 26 |   |
| Investment credit in Germany                                                                                         |   |                    | 376        |   |   |   | 221 |   |
| Net cash provided by (used in) financing activities                                                                  |   |                    | 1,090      |   |   |   | (1,430 | ) |
|                                                                                                                 |   |                    |       |   |   |   |   |   |
| Effect of foreign exchange rate changes on cash and cash equivalents                                                 |   |                    | 11         |   |   |   | 8 |   |
|                                                                                                                 |   |                    |       |   |   |   |   |   |
| Net increase in cash and cash equivalents                                                                            |   |                    | 3,119      |   |   |   | 2,077 |   |
| Cash and cash equivalents, beginning of period                                                                       |   |                    | 12,454     |   |   |   | 10,768 |   |
|                                                                                                                 |   |                    |       |   |   |   |   |   |
| Cash and cash equivalents, end of period                                                                             |   | $                       | 15,573     |   |   | $ | 12,845 |   |
| Supplemental cash flow disclosure:                                                                                   |   |                    |       |   |   |   |   |   |
| Interest paid                                                                                                        |   | $                       |   180 |   |   | $ |   310 |   |
| Income taxes paid                                                                                                    |   | $                       |   359 |   |   | $ |   700 |   |
|                                                                                                                 |   |                    |       |   |   |   |   |   |
| Supplemental schedules of non-cash flow investing and financing activities:                                          |   |                    |       |   |   |   |   |   |
| Dividends accrued                                                                                                    |   | $                       | 366        |   |   | $ | 366 |   |
| Acquisition of interest in SIG (Note 12)                                                                             |   | $                       |   250 |   |   | $ | - |   |
| Abandonment of leased asset and cancellation of lease                                                                |   | $                       | 411        |   |   | $ | - |   |
| Deposits applied to acquisition of property, plant and equipment                                                     |   | $                       | -          |   |   | $ | 210 |   |
| Property, plant and equipment acquired through capital leases                                                        |   | $                       | -          |   |   | $ | 88 |   |

----

Index

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

----

Index

|                             |   | September 30, 2010 |   |
|----------------------------------|--------|-------------------------|--------|
|                             |   | Fair Value              |   |   | Book Value |   |
| Money Market Funds, Level I      |   | $                       | 10,347 |   |   | $ | 10,347 |   |
| Certificates of Deposit, Level I |   |                    | 1,500  |   |   |   | 1,500 |   |
| Total cash equivalents           |   |                    | 11,847 |   |   |   | 11,847 |   |
| Cash                             |   |                    | 3,726  |   |   |   | 3,726 |   |
| Total cash and cash equivalents  |   | $                       | 15,573 |   |   | $ | 15,573 |   |

|                             |   | December 31, 2009 |   |
|----------------------------------|--------|------------------------|--------|
|                             |   | Fair Value             |   |   | Book Value |   |
| Money Market Funds, Level I      |   | $                      | 8,027  |   |   | $ | 8,027 |   |
| Certificates of Deposit, Level I |   |                   | 1,750  |   |   |   | 1,750 |   |
| Total cash equivalents           |   |                   | 9,777  |   |   |   | 9,777 |   |
| Cash                             |   |                   | 2,677  |   |   |   | 2,677 |   |
| Total cash and cash equivalents  |   | $                      | 12,454 |   |   | $ | 12,454 |   |

|            |   | September 30 |   |   | December 31 |   |
|-----------------|--------|-------------------|--------|--------|------------------|--------|
|            |   | 2010              |   |   | 2009             |   |
| Raw materials   |   | $                 | 2,723  |   |             | $      | 2,010 |   |
| Work-in-process |   |              | 391    |   |             |   | 1,176 |   |
| Finished goods  |   |              | 1,577  |   |             |   | 1,336 |   |
|            |   | $                 | 4,691  |   |             | $      | 4,522 |   |

----

Index

|                                                   |   | September 30 |    |   | December 31 |   |
|--------------------------------------------------------|--------|-------------------|---------|--------|------------------|--------|
|                                                   |   | 2010              |    |   | 2009             |   |
| Land, buildings and leasehold improvements             |   | $                 | 9,329   |   |             | $      | 8,015 |   |
| Machinery and equipment                                |   |              | 35,026  |   |             |   | 31,539 |   |
| Furniture and fixtures                                 |   |              | 908     |   |             |   | 3,986 |   |
|                                                   |   |              | 45,263  |   |             |   | 43,540 |   |
| Less – accumulated depreciation and amortization |   |              | (29,954 | )      |             |   | (29,147 | ) |
|                                                   |   | $                 | 15,309  |   |             | $      | 14,393 |   |

|                                                   |   | Three months ended      |   |   | Nine months ended       |   |
|--------------------------------------------------------|--------|-------------------------|--------|--------|-------------------------|--------|
|                                                   |   | September 30, 2010 |   |   | September 30, 2009 |   |   | September 30, 2010 |   |   | September 30, 2009 |   |
| Net income attributable to common stockholders-basic   |   | $                       | 948    |   |                    | $      | 588 |   |   | $ | 5,078 |   |   | $ | 4,127 |   |
| Add:  Deemed dividend on preferred stock     |   |                    | 122    |   |                    |   | 122 |   |   |   | 366 |   |   |   | 366 |   |
| Net income attributable to common stockholders-diluted |   | $                       | 1,070  |   |                    | $      | 710 |   |   | $ | 5,444 |   |   | $ | 4,493 |   |
|                                                   |   |                    |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average common shares outstanding-basic       |   |                    | 28,840 |   |                    |   | 28,728 |   |   |   | 28,820 |   |   |   | 28,715 |   |
| Dilutive effect of Series A preferred shares           |   |                    | 4,893  |   |                    |   | 4,893 |   |   |   | 4,893 |   |   |   | 4,893 |   |
| Dilutive effect of stock options                       |   |                    | 2,601  |   |                    |   | 1,064 |   |   |   | 2,392 |   |   |   | 477 |   |
| Weighted average common shares outstanding - diluted   |   |                    | 36,334 |   |                    |   | 34,685 |   |   |   | 36,105 |   |   |   | 34,085 |   |
|                                                   |   |                    |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Basic net income per common share                      |   | $                       | 0.03   |   |                    | $      | 0.02 |   |   | $ | 0.18 |   |   | $ | 0.14 |   |
| Diluted net income per common share                    |   | $                       | 0.03   |   |                    | $      | 0.02 |   |   | $ | 0.15 |   |   | $ | 0.13 |   |

----

Index

|                         |   | Three months ended      |   |   | Nine months ended       |   |
|------------------------------|--------|-------------------------|--------|--------|-------------------------|--------|
|                         |   | September 30, 2010 |   |   | September 30, 2009 |   |   | September 30, 2010 |   |   | September 30, 2009 |   |
| Automotive glass             |   | $                       | 4,849  |   |                    | $      | 4,096 |   |   | $ | 14,736 |   |   | $ | 10,872 |   |
| Window film                  |   |                    | 4,981  |   |                    |   | 2,175 |   |   |   | 14,291 |   |   |   | 7,265 |   |
| Architectural                |   |                    | 2,246  |   |                    |   | 2,243 |   |   |   | 5,249 |   |   |   | 5,043 |   |
| Electronic display and other |   |                    | 122    |   |                    |   | 86 |   |   |   | 193 |   |   |   | 250 |   |
| Total net revenues           |   | $                       | 12,198 |   |                    | $      | 8,600 |   |   | $ | 34,469 |   |   | $ | 23,430 |   |

|               |   | Three months ended      |   |   | Nine months ended       |   |
|--------------------|--------|-------------------------|--------|--------|-------------------------|--------|
|               |   | September 30, 2010 |   |   | September 30, 2009 |   |   | September 30, 2010 |   |   | September 30, 2009 |   |
| Europe             |   | $                       | 4,596  |   |                    | $      | 3,521 |   |   | $ | 14,206 |   |   | $ | 10,015 |   |
| Asia Pacific       |   |                    | 4,423  |   |                    |   | 3,210 |   |   |   | 13,313 |   |   |   | 6,670 |   |
| United States      |   |                    | 2,327  |   |                    |   | 1,040 |   |   |   | 5,050 |   |   |   | 4,632 |   |
| Rest of the world  |   |                    | 852    |   |                    |   | 829 |   |   |   | 1,900 |   |   |   | 2,113 |   |
| Total net revenues |   | $                       | 12,198 |   |                    | $      | 8,600 |   |   | $ | 34,469 |   |   | $ | 23,430 |   |

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Index

| Description                                                |   | Rate   |   |   | Term Debt Balance at September 30, 2010 |   |   | Capital Lease Balance at September 30, 2010 |   |   | Total Debt Balance at September 30, 2010 |   |   | Due Over Next 12 Months |   |   | Balance at December 31, 2009 |   |
|------------------------------------------------------------|--------|--------|--------|--------|----------------------------------------------|--------|--------|--------------------------------------------------|--------|--------|-----------------------------------------------|--------|--------|-------------------------|--------|--------|-----------------------------------|--------|
| German bank loan dated May 12, 1999 (10 year)              |   |   | 6.13   | %      |                                         | $      | -      |                                             |   | $      | -                                             |   |   | $                       | -      |   |                              | $      | - |   |   | $ | 6 |   |
| German bank loan dated May 28, 1999 (20 year)              |   |   | 5.73   | %(1)   |                                         |   | 3,062  |                                             |   |   | -                                             |   |   |                    | 3,062  |   |                              |   | 340 |   |   |   | 3,403 |   |
| German bank loan dated May 28, 2000 (10 year)              |   |   | 7.15   | %      |                                         |   | -      |                                             |   |   | -                                             |   |   |                    | -      |   |                              |   | - |   |   |   | 254 |   |
| Wells Fargo Bank dated September 2, 2010 (3 year)          |   |   | 4.05   | %(2)   |                                         |   | 1,250  |                                             |   |   | -                                             |   |   |                    | 1,250  |   |                              |   | 417 |   |   |   | - |   |
| Total term debt                                            |   |   |   |   |                                         |   | 4,312  |                                             |   |   | -                                             |   |   |                    | 4,312  |   |                              |   | 757 |   |   |   | 3,663 |   |
|                                                       |   |   |   |   |                                         |   |   |                                             |   |   |                                          |   |   |                    |   |   |                              |   |   |   |   |   |   |   |
| German bank financed lease dated June 1, 2008         |   |   | 7.518  | %(3)   |                                         |   | -      |                                             |   |   | 141                                           |   |   |                    | 141    |   |                              |   | 86 |   |   |   | 220 |   |
| US financing agreement dated May 20, 2008                  |   |   | 19.80  | %(4)   |                                         |   | -      |                                             |   |   | 265                                           |   |   |                    | 265    |   |                              |   | 157 |   |   |   | 382 |   |
| Total capital leases                                       |   |   |   |   |                                         |   | -      |                                             |   |   | 406                                           |   |   |                    | 406    |   |                              |   | 243 |   |   |   | 602 |   |
|                                                       |   |   |   |   |                                         |   |   |                                             |   |   |                                          |   |   |                    |   |   |                              |   |   |   |   |   |   |   |
| Less interest on capital leases                            |   |   |   |   |                                         |   | -      |                                             |   |   | 50                                            |   |   |                    | 50     |   |                              |   | 40 |   |   |   | 99 |   |
|                                                       |   |   |   |   |                                         |   |   |                                             |   |   |                                          |   |   |                    |   |   |                              |   |   |   |   |   |   |   |
| Total term debt and capital lease obligations              |   |   |   |   |                                         |   | 4,312  |                                             |   |   | 356                                           |   |   |                    | 4,668  |   |                              | $      | 960 |   |   |   | 4,166 |   |
|                                                       |   |   |   |   |                                         |   |   |                                             |   |   |                                          |   |   |                    |   |   |                              |   |   |   |   |   |   |   |
| Less current portion                                       |   |   |   |   |                                         |   | 757    |                                             |   |   | 203                                           |   |   |                    | 960    |   |                              |   |   |   |   |   | 808 |   |
|                                                       |   |   |   |   |                                         |   |   |                                             |   |   |                                          |   |   |                    |   |   |                              |   |   |   |   |   |   |   |
| Total term debt and capital lease obligations, non-current |   |   |   |   |                                         | $      | 3,555  |                                             |   | $      | 153                                           |   |   | $                       | 3,708  |   |                              |   |   |   |   | $ | 3,358 |   |

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Index

|                                                 |   | Three months ended      |   |   | Nine months ended       |   |
|------------------------------------------------------|--------|-------------------------|--------|--------|-------------------------|--------|
|                                                 |   | September 30, 2010 |   |   | September 30, 2009 |   |   | September 30, 2010 |   |   | September 30, 2009 |   |
|                                                 |   |                    |   |   |                    |   |   |   |   |   |   |   |
| Cost of sales                                        |   | $                       | 4      |   |                    | $      | 2 |   |   | $ | 10 |   |   | $ | 7 |   |
| Research and development                             |   |                    | 29     |   |                    |   | 17 |   |   |   | 74 |   |   |   | 49 |   |
| Selling, general and administrative                  |   |                    | 135    |   |                    |   | 85 |   |   |   | 349 |   |   |   | 238 |   |
| Stock-based compensation expense before income taxes |   |                    | 168    |   |                    |   | 104 |   |   |   | 433 |   |   |   | 294 |   |
| Provision for income taxes                           |   |                    | -      |   |                    |   | - |   |   |   | - |   |   |   | - |   |
| Net stock-based compensation expense                 |   | $                       | 168    |   |                    | $      | 104 |   |   | $ | 433 |   |   | $ | 294 |   |

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Index

|                                                |   | Three months ended      |   |   | Nine months ended       |   |
|-----------------------------------------------------|--------|-------------------------|--------|--------|-------------------------|--------|
|                                                |   | September 30, 2010 |   |   | September 30, 2009 |   |   | September 30, 2010 |   |   | September 30, 2009 |   |
| Expected life (in years)                            |   |                    | 5.0    |   |                    |   | 5.0 |   |   |   | 5.0 |   |   |   | 5.17 |   |
| Risk-free interest rate                             |   |                    | 1.39   | %      |                    |   | 2.39 | % |   |   | 2.39 | % |   |   | 2.00 | % |
| Volatility                                          |   |                    | 103    | %      |                    |   | 107 | % |   |   | 103 | % |   |   | 108 | % |
| Dividend                                            |   |                    | -      |   |                    |   | - |   |   |   | - |   |   |   | - |   |
| Per share weighted-average fair value at grant date |   | $                       | 1.34   |   |                    | $      | 0.78 |   |   | $ | 1.24 |   |   | $ | 0.51 |   |

|                                              |   | Weighted-Average Shares |   |   | Contractual Term Exercise Price |   |   | Weighted-Average Remaining Aggregate (in years) |   |   | Intrinsic Value |   |
|---------------------------------------------------|--------|-------------------------|--------|--------|---------------------------------|--------|--------|-------------------------------------------------|--------|--------|-----------------|--------|
|                                              |   |                    |   |   |                            |   |   |                                            |   |   |            |   |
| Outstanding at December 31, 2009                  |   |                    | 5,654  |   |                            | $      | 0.78   |                                            |   |   |            |   |   |   |
| Grants                                            |   |                    | 1,119  |   |                            | $      | 1.62   |                                            |   |   |            |   |   |   |
| Exercises                                         |   |                    | (83    | )      |                            | $      | 0.77   |                                            |   |   |            |   |   |   |
| Forfeitures or expirations                        |   |                    | (167   | )      |                            | $      | 1.40   |                                            |   |   |            |   |   |   |
| Outstanding at September 30, 2010                 |   |                    | 6,523  |   |                            | $      | 0.91   |                                            |   |   | 6.79            |   |   | $ | 6,483 |   |
| Vested and expected to vest at September 30, 2010 |   |                    | 5,792  |   |                            | $      | 0.88   |                                            |   |   | 6.54            |   |   | $ | 5,907 |   |
| Exercisable at September 30, 2010                 |   |                    | 3,728  |   |                            | $      | 0.79   |                                            |   |   | 5.50            |   |   | $ | 4,158 |   |

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Index

|                                   |   | Balance at December 31, 2008 |   |   | Provision |   |   | Utilized |   |   | Balance at September 30, 2009 |   |
|----------------------------------------|--------|-----------------------------------|--------|--------|-----------|--------|--------|----------|--------|--------|-------------------------------|--------|
| Reserve for sales returns and warranty |   | $                                 | 1,321  |   |      | $      | (215   | )        |   | $      | (372                          | )      |   | $ | 734 |   |

|                                   |   | Balance at December 31, 2009 |   |   | Provision |   |   | Utilized |   |   | Balance at September 30, 2010 |   |
|----------------------------------------|--------|-----------------------------------|--------|--------|-----------|--------|--------|----------|--------|--------|-------------------------------|--------|
| Reserve for sales returns and warranty |   | $                                 | 607    |   |      | $      | 866    |     |   | $      | (393                          | )      |   | $ | 1,080 |   |

|                                    |   | Three months ended |   |   | Nine months ended  |   |
|-----------------------------------------|--------|--------------------|--------|--------|--------------------|--------|
|                                    |   | September 30, 2010 |   |   | September 30, 2009 |   |   | September 30, 2010 |   |   | September 30, 2009 |   |
|                                    |   |               |   |   |               |   |   |   |   |   |   |   |
| Net income                              |   | $                  | 948    |   |               | $      | 710 |   |   | $ | 5,292 |   |   | $ | 4,493 |   |
| Interest Rate Swap Instrument           |   |               | (9     | )      |               |   | - |   |   |   | (9 | ) |   |   | - |   |
| Foreign currency translation adjustment |   |               | 1,116  |   |               |   | 501 |   |   |   | (601 | ) |   |   | 295 |   |
| Comprehensive income                    |   | $                  | 2,055  |   |               | $      | 1,211 |   |   | $ | 4,682 |   |   | $ | 4,788 |   |

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Index

| Goodwill                |   | $      | 1,488 |   |
|-------------------------|--------|--------|-------|--------|
| Trade name              |   |   | 300   |   |
| Customer relationships  |   |   | 250   |   |
| Other intangibles       |   |   | 180   |   |
| Net liabilities assumed |   |   | (693  | )      |
| Total                   |   | $      | 1,525 |   |

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Index

|                                 |   | Three months ended |   |   | Nine months ended  |   |
|--------------------------------------|--------|--------------------|--------|--------|--------------------|--------|
|                                 |   | September 30, 2010 |   |   | September 30, 2009 |   |   | September 30, 2010 |   |   | September 30, 2009 |   |
| Net revenues                    |   | $                  | 12,198 |   |               | $      | 9,442 |   |   | $ | 35,486 |   |   | $ | 25,797 |   |
| Net income attributable to Southwall |   | $                  | 589    |   |               | $      | 491 |   |   |   | 4,044 |   |   | $ | 3,996 |   |

| Land and building                              |   | $      | 1,650 |   |
|------------------------------------------------|--------|--------|-------|--------|
| Equipment and other tangible personal property |   |   | 726   |   |
| Customer relationships                         |   |   | 170   |   |
| Unpatented technology / trade secrets          |   |   | 190   |   |
| Other intangible assets                        |   |   | 30    |   |
| Goodwill                                       |   |   | 350   |   |
| Net Working Capital                            |   |   | 186   |   |
| Total                                          |   | $      | 3,302 |   |

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Index

|              |   | Three months ended |   |   | Nine months ended  |   |
|-------------------|--------|--------------------|--------|--------|--------------------|--------|
|              |   | September 30, 2010 |   |   | September 30, 2009 |   |   | September 30, 2010 |   |   | September 30, 2009 |   |
| Net revenues |   | $                  | 12,322 |   |               | $      | 8,787 |   |   | $ | 35,005 |   |   | $ | 24,034 |   |
| Net Income        |   | $                  | 1,095  |   |               | $      | 1,052 |   |   |   | 5,930 |   |   | $ | 5,184 |   |

|                                         |   | Nine Months Ended September 30, |   |
|----------------------------------------------|--------|--------------------------------------|--------|
|                                         |   | 2010                                 |   |   | 2009 |   |
|                                         |   | Southwall Stockholders’ Equity |   |   | Noncontrolling Interest |   |   | Total Equity |   |   | Southwall Stockholders’ Equity |   |   | Noncontrolling Interest |   |   | Total Equity |   |
| Equity, beginning of period                  |   | $                                    | 22,343 |   |   | $ | - |   |   | $ | 22,343 |   |   | $ | 16,598 |   |   | $ | - |   |   | $ | 16,598 |   |
| Fair market value of NCI of acquired entity  |   |                                 | -      |   |   |   | 346 |   |   |   | 346 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Acquire NCI                                  |   |                                 | (18    | ) |   |   | 18 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Stock-based compensation                     |   |                                 | 433    |   |   |   | - |   |   |   | 433 |   |   |   | 294 |   |   |   | - |   |   |   | 294 |   |
| Stock option exercise                        |   |                                 | 64     |   |   |   | - |   |   |   | 64 |   |   |   | 42 |   |   |   | - |   |   |   | 42 |   |
| Dividend accrual on Series A Preferred Stock |   |                                 | (366   | ) |   |   | - |   |   |   | (366 | ) |   |   | (366 | ) |   |   | - |   |   |   | (366 | ) |
| Total comprehensive income                   |   |                                 | 4,834  |   |   |   | (152 | ) |   |   | 4,682 |   |   |   | 4,788 |   |   |   | - |   |   |   | 4,788 |   |
| Equity, end of period                        |   | $                                    | 27,290 |   |   | $ | 212 |   |   | $ | 27,502 |   |   | $ | 21,356 |   |   | $ | - |   |   | $ | 21,356 |   |

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Index

Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations (in thousands):

|   | • | our strategy, expected future operations and financial plans; |
|--------|---------|---------------------------------------------------------------|

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Index

|   | • | our revenue expectations and potential financial results; |
|--------|---------|-----------------------------------------------------------|

|   | • | the revenue expectations and potential financial results of Southwall Insulating Glass, LLC; |
|--------|---------|----------------------------------------------------------------------------------------------|

|   | • | impact of current economic conditions on our business; |
|--------|---------|--------------------------------------------------------|

|   | • | the continued trading of our common stock on the Over-the-Counter Bulletin Board Market; |
|--------|---------|------------------------------------------------------------------------------------------|

|   | • | future applications of thin film coating technologies; |
|--------|---------|--------------------------------------------------------|

|   | • | our development of new technologies and products and integration; |
|--------|---------|-------------------------------------------------------------------|

|   | • | the properties and functionality of our products; |
|--------|---------|---------------------------------------------------|

|   | • | our projected need for additional borrowings and future liquidity; |
|--------|---------|--------------------------------------------------------------------|

|   | • | our ability to implement and maintain effective internal controls and procedures; |
|--------|---------|-----------------------------------------------------------------------------------|

|   | • | the size of and the markets into which we sell or intend to sell our products; |
|--------|---------|--------------------------------------------------------------------------------|

|   | • | our intentions to pursue strategic alliances, acquisitions and business transactions; |
|--------|---------|---------------------------------------------------------------------------------------|

|   | • | the possibility of patent and other intellectual property infringement; |
|--------|---------|-------------------------------------------------------------------------|

|   | • | our opinions regarding energy consumption and the loss of energy through inefficient glass; |
|--------|---------|---------------------------------------------------------------------------------------------|

|   | • | pending and threatened litigation and its outcome; |
|--------|---------|----------------------------------------------------|

|   | • | our competition and our ability to compete in the markets we serve; and |
|--------|---------|-------------------------------------------------------------------------|

|   | • | our projected capital expenditures. |
|--------|---------|-------------------------------------|

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Index

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Index

|                                                 |   | Total  |   |   | Less Than 1 Year |   |   | 1-3 Years |   |   | 3-5 Years |   |   | Greater Than 5 Years |   |
|------------------------------------------------------|--------|--------|--------|--------|------------------|--------|--------|-----------|--------|--------|-----------|--------|--------|----------------------|--------|
| Contractual Obligations:                             |   |   |   |   |             |   |   |      |   |   |      |   |   |                 |   |
| Term debt (1)                                        |   | $      | 4,312  |   |             | $      | 757    |      |   | $      | 1,514     |   |   | $                    | 680    |   |   | $ | 1,361 |   |
| Capital lease obligations (1)                        |   |   | 356    |   |             |   | 203    |      |   |   | 153       |   |   |                 | -      |   |   |   | - |   |
| Term debt and capital lease obligation interest ( 1) |   |   | 902    |   |             |   | 241    |      |   |   | 310       |   |   |                 | 195    |   |   |   | 156 |   |
| Other obligations (2)                                |   |   | 2,813  |   |             |   | -      |      |   |   | -         |   |   |                 | -      |   |   |   | 2,813 |   |
| Operating leases (3)                                 |   |   | 1,295  |   |             |   | 656    |      |   |   | 639       |   |   |                 | -      |   |   |   | - |   |
| Total Contractual Cash Obligations                   |   | $      | 9,678  |   |             | $      | 1,857  |      |   | $      | 2,616     |   |   | $                    | 875    |   |   | $ | 4,330 |   |

| (1) | Represents the principal and interest allocations of loan and capital lease agreements with Varilease Finance Inc. and several German Banks and Wells Fargo Bank. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Represents accumulated dividends on Series A Preferred Stock (greater than five years). |
|-----|-----------------------------------------------------------------------------------------|

| (3) | Represents the remaining rents owed on buildings we rent in Palo Alto, California, and Chicago, Illinois. |
|-----|-----------------------------------------------------------------------------------------------------------|

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Index

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

Item 4 – Controls and Procedures

|   | (a) | Evaluation of Disclosure Controls and Procedures.  Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended.  Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded as of the end of the period covered by this report, that our disclosure controls and procedures were effective, such that the information relating to our company, including our consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Changes in Internal Controls.  There were no changes during the three month period ended September 30, 2010 in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Index

PART II – OTHER INFORMATION

Item 1--Legal Proceedings

Item 1A – Risk Factors

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

Item 3 – Defaults upon Senior Securities

Item 5 – Other Information

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Index

Item 6 – Exhibits

| Exhibit Number |   | Item                                                                                          |
|----------------|--------|-----------------------------------------------------------------------------------------------|
| 31.1           |   | Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14 and 15d-14 |
|           |   |                                                                                          |
| 31.2           |   | Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14 and 15d-14 |
|           |   |                                                                                          |
| 32.1           |   | Certification of Principal Executive Officer pursuant to 18 U.S.C Section 1350                |
|           |   |                                                                                          |
| 32.2           |   | Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350                |

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Index

SIGNATURES

| Dated:    | November 12, 2010 |            |                                        |
|--------------------------|-------------------|-----------------|---------------------------------------------|
|                     |              |            | Southwall Technologies Inc.                 |
|                     |              |            |                                        |
|                     |              | By:        | /s/ Dennis F. Capovilla                     |   |
|                     |              |            | Dennis F. Capovilla                         |
|                     |              |            | Chief Executive Officer                     |
|                     |              |            |                                        |
|                     |              | By:   | /s/ Mallorie Burak                          |   |
|                     |              |            | Mallorie Burak                              |
|                     |              |            | Vice President and Chief Accounting Officer |

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