SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


(MARK ONE)

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

         For the quarterly period ended March 30, 1997

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

         For the transition period from ______ to ________


                         Commission File Number: 0-15930


                           SOUTHWALL TECHNOLOGIES INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


                 DELAWARE                                  94-2551470
      -------------------------------                 ----------------------
      (State or other jurisdiction of                   (I.R.S. Employer
       incorporation or organization)                 Identification Number)


   1029 Corporation Way, Palo Alto, California                94303
   -------------------------------------------              ----------
    (Address of principal executive offices)                (Zip Code)


Registrant's telephone number, including area code: (415) 962-9111
                                                    -------------- 

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

                         Yes    X          No
                            ------           ------

As of March 30,  1997 there were  6,541,621  shares of the  Registrant's  Common
Stock outstanding.

This report, including all attachments, contains 12 pages.

                                       1
<PAGE>


                           SOUTHWALL TECHNOLOGIES INC.

                                      INDEX



                                                                     Page Number
                                                                     -----------

                          PART 1 FINANCIAL INFORMATION

Item 1   Financial Statements:

                  Consolidated Balance Sheet - March 30, 1997
                  and December 31, 1996......................................3

                  Consolidated Statement of Operations -
                  three months ended March 30, 1997
                  and March 31, 1996 ........................................4

                  Consolidated Statement of Cash Flows -
                  three months ended March 30, 1997
                  and March 31, 1996 ........................................5

                  Consolidated Statement of Stockholders' Equity -
                  three months ended March 30, 1997..........................6

                  Notes to Consolidated Financial Statements.................7

Item 2   Management's Discussion and Analysis
                  of Financial Condition and Results of Operations...........8


                            PART II OTHER INFORMATION

Item 1   Legal Proceedings..................................................11

Item 2   Changes in Securities..............................................11

Item 3   Defaults Upon Senior Securities....................................11

Item 4   Submission of Matters to a Vote of Stockholders....................11

Item 5   Other Information..................................................11

Item 6   Exhibits and Reports on Form 8-K...................................11

         Signatures.........................................................12

                                       2

<PAGE>






                          PART 1 FINANCIAL INFORMATION

Item 1  Financial Statements
----------------------------
                                                 CONSOLIDATED BALANCE SHEET
                                           (in thousands, except per share data)

                                            March 30, 1997     December 31, 1996
                                            --------------     -----------------
                                                audited)
ASSETS

Current assets:
     Cash and cash equivalents                    $ 4,903            $ 7,419
     Short-term investments                             7                  7
     Accounts receivable, net of allowance
      for doubtful accounts of $728 and $682        8,793              7,097
     Inventories                                    8,633              8,406
     Other current assets                             876                828
                                                  -------            -------
            Total current assets                   23,212             23,757

Property and equipment, net                        17,989             17,223
Other assets                                        1,503              1,529
                                                  -------            -------

     Total assets                                 $42,704            $42,509
                                                  =======            =======

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                               $ 3,464            $ 2,635
   Accrued compensation                             1,153              2,141
   Other accrued liabilities                        1,668              1,954
   Current portion of long-term debt                1,163              1,181
                                                  -------            -------

            Total current liabilities               7,448              7,911

Long-term debt                                      6,292              6,591
Deferred income taxes                                 410                410
                                                  -------            -------
            Total liabilities                      14,150             14,912
                                                  =======            =======

Commitments

Stockholders' equity:
     Common stock, $.001 par value,
      20,000 shares authorized:
      Issued and outstanding: 6,917 and 6,917           7                  7
     Capital in excess of par value                46,659             46,673
     Notes Receivable                                (440)              (596)
     Accumulated deficit                          (16,146)           (16,912)
     Less treasury stock of 378
      and 390                                      (1,526)            (1,575)
                                                   ------            -------

           Total stockholders' equity              28,554             27,597
                                                  -------            -------
     Total liabilities and
            stockholders' equity                  $42,704            $42,509
                                                  =======            =======


See accompanying notes to financial statements.
 
                                        3

<PAGE>


                           SOUTHWALL TECHNOLOGIES INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                      (in thousands, except per share data)
                                   (Unaudited)


            Three Months Ended 
                                                   March 30,           March 31,
                                                     1997                1996
                                                   --------            --------

Net revenues                                       $10,855             $10,637
                                                   -------             -------
Costs and expenses:
   Cost of sales                                     7,158               7,409
   Research & development                              707                 576
   Selling, general and
    administrative                                   2,161               2,100
                                                    ------              ------

    Total costs and expenses                        10,026              10,085
                                                    ------              ------

Income from operations                                 829                 552

Interest income/(expense), net                         (33)                (22)
                                                    ------              ------

Income before income taxes                             796                 530

Provision for income taxes                              30                  19
                                                    ------              ------

Net income                                          $  766              $  511
                                                    ======              ======

Net income per share                                $  .11              $  .08
                                                    ======              ======

Weighted average shares of common
 stock and common stock equivalents                  7,202               6,690
                                                    ======              ======

See accompanying notes to financial statements.

                                       4
<PAGE>
<TABLE>



                           SOUTHWALL TECHNOLOGIES INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in thousands)
                                   (Unaudited)

<CAPTION>

                                                            Three Months Ended
                                                    -----------------------------------
                                                    March 30, 1997       March 31, 1996
                                                     -------------       --------------
Cash flows from operating activities:
<S>                                                     <C>                 <C>   
     Net income                                         $  766              $  511
     Adjustments to reconcile net income to
      net cash provided by (used in) operating
      activities:
     Depreciation and amortization                         627                 568
     Decrease (increase) in accounts receivable         (1,696)             (1,947)
     Decrease (increase) in inventories                   (227)               (147)
     Decrease (increase) in other current assets           (48)                163
     (Decrease) increase in accounts payable
      and accrued liabilities                             (445)                740
                                                        ------               -----

Cash provided by (used in) operating
   activities                                           (1,023)               (112)
                                                        ------              ------

Cash flows from investing activities:
     Decrease (increase) in short-term investments          --                 453
     Expenditures for property and equipment
      and other assets                                  (1,367)               (415)
                                                        ------              ------

Net cash (used in) provided by investing
 activities                                             (1,367                  38
                                                        ------              ------
                                                                        
Cash flows from financing activities:                                   
     Proceeds from issuance of stock, net of                            
     related costs                                          --                  --
   Increase in(reduction of) long-term debt               (317)                (60)
   (Purchase) issuance of treasury stock, net              191                  90
                                                        ------              ------
                                                                        
Net cash (used in) provided by financing activities       (126)                (30)
                                                        ------               -----
                                                                        
Net increase (decrease) in cash and cash                                
 equivalents                                            (2,516)                (44)
                                                                        
Cash and cash equivalents, beginning of year             7,419               1,434
                                                        ------              ------
                                                                        
Cash and cash equivalents, end of period                $4,903              $1,390
                                                        ======              ======
                                                                      
Supplemental schedule of non-cash investing and 
  financing activities:

     Treasury stock used for payment of interest        $   --              $   93

</TABLE>

See accompanying notes to financial statements.

                                       5
<PAGE>

<TABLE>

                                             CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                                   Three Months Ended March 30, 1997
                                                             (in thousands)
                                                              (Unaudited)



<CAPTION>

                                                                                           
                               Common Stock    Capital in                                              Total
                               ------------     excess of     Notes     Accumulated   Treasury    Stockholders'
                              Shares  Amount    par value   Receivable     Deficit       Stock        Equity
                              ------  ------    ---------   ----------     -------       -----        ------
                           
<S>                          <C>        <C>    <C>             <C>        <C>           <C>           <C>    
Balance; December 31, 1996   6,917      $7     $46,673         (596)      $(16,912)     $(1,575)      $27,597
                           
Exercise of Options                                (14)                                      49            35
                           
Stock Option Loans                                              156                                       156
                           
Net income                                                                    766                         766
                           -------     ----    -------       -------     ----------     --------      -------
                           
Balance; March 30, 1997      6,917      $7     $46,659         (440)      $(16,146)     $(1,526)      $28,554
                           =======     ====    =======       =======     ==========     ========      =======
</TABLE>

See accompanying notes to financial statements.


                                       6
<PAGE>


                           SOUTHWALL TECHNOLOGIES INC.


         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (in thousands)
         (Unaudited)

         Note 1 - Interim Period Reporting:

         While  the  information  presented  in  the  accompanying  consolidated
         financial   statements  is  unaudited,   it  includes  all  adjustments
         (consisting only of normal recurring adjustments) which, in the opinion
         of management,  are necessary to present fairly the Company's financial
         position and results of operations,  and changes in financial  position
         as of the dates and for the periods indicated.

         Certain  information  and footnote  disclosures  normally  contained in
         financial  statements  prepared in accordance  with generally  accepted
         accounting  principles have been condensed or omitted.  It is suggested
         that these  consolidated  financial  statements be read in  conjunction
         with the financial  statements contained in the Company's Form 10-K for
         the year ended  December 31, 1996.  The results of  operations  for the
         interim  periods  presented  are  not  necessarily  indicative  of  the
         operating results of the full year.

         Note 2 - Inventories:

         Inventories  are  stated  at  the  lower  of  cost  (determined  by the
         first-in,  first-out  method) or market.  Inventories at March 30, 1997
         and December 31, 1996, consisted of the following:

                                           March 30, 1997      December 31, 1996
                                           --------------      -----------------
               Raw materials                    $3,178               $2,869
               Work-in-process                   1,877                1,848
               Finished goods                    3,578                3,689
                                                 -----                -----
                   Total                        $8,633               $8,406
                                                 =====                =====

         Note 3 - Commitments:

         During the first  quarter of 1996,  the  Company  and Sony  Corporation
         signed  an  Addendum  #1 to  Supply  Agreement.  Under the terms of the
         amended  agreement,  among other  things,  Sony agreed to increase  its
         minimum  order  of  anti-reflective  film  beginning  July 1,  1997 and
         extending through December 31, 2000 and Southwall agreed to install any
         necessary additional manufacturing capacity.

         The Company is  currently  constructing  and  equipping a new  facility
         located in Tempe,  Arizona,  for the  manufacturing of  anti-reflective
         film.  The  Company  estimates  that it will cost  approximately  $14.5
         million to equip this facility.

         The Company has also secured  financing from a combination of borrowing
         from  lending  institutions  and an equity sale to a major  investor to
         finance  this  expansion  and   anticipated   related  working  capital
         requirements.

                                       7

<PAGE>

         Item 2 - Management's  Discussion  and Analysis of Financial  Condition
         and Results of Operations

         Except for the historical  information  contained  herein,  the matters
         discussed in this Form 10-Q Report are forward-looking  statements that
         involve risks and uncertainties, including those discussed below and in
         the  Company's  Annual Report on Form 10-K.  Actual  results may differ
         materially  from  those  projected.  These  forward-looking  statements
         represent the  Company's  judgment as of the date of the filing of this
         From  10-Q  Report.  The  Company  disclaims,  however,  any  intent or
         obligation to update these forward-looking statements.

         General

         The Company  has  experienced  significant  fluctuations  in  quarterly
         results of operations. Revenues have varied from quarter to quarter due
         to the seasonal buying patterns for the Company's Heat Mirror products,
         which  typically have been strongest in the second and third  quarters.
         Sales of the Company's energy  conservation  products are significantly
         influenced by the residential and commercial  construction  industries,
         and reduction in construction has generally  resulted in a reduction in
         the sales of the Company's Heat Mirror products. In addition, operating
         results have historically  varied from quarter to quarter as a function
         of the utilization of the Company's production machines.  Manufacturing
         inefficiencies  have resulted from the development and  introduction of
         new products and the changing mix of products  manufactured.  Primarily
         as a result of these factors and in view of the  Company's  strategy of
         developing additional  applications for its thin-film  technology,  and
         its ongoing  practice of upgrading  its  manufacturing  processes,  the
         Company  may  continue  to  experience  quarterly  fluctuations  in its
         results of operations.

         The Company  believes  that it must  continue  to increase  revenues to
         remain profitable.  Although the Company is in the process of expanding
         it's  capacity  and is  seeking  to expand  existing  applications,  to
         develop  new  applications  and to  continue  to  expand  international
         marketing and sales efforts, there can be no assurance that the Company
         will be able to continue to increase revenues.  Additionally,  there is
         significant risk inherent in the expansion project currently in process
         and there can be no  assurances  that the Company will be successful in
         completing  this project  when  scheduled  or that  start-up  costs and
         initial  production  will be completed in accordance with the Company's
         current plans.

         Effective March 31, 1996, the Company terminated its lease of equipment
         and facilities in Southern California to laminate glass and closed it's
         wholly owned subsidiary,  Southwall  Worldwide Glass, Inc. (SWGI).  The
         Company has continued to market its California  Series(TM)  clear solar
         shading  laminated glass products,  which are currently being laminated
         by a sub-contractor, but no longer markets other laminated products.

                                       8

<PAGE>

         Three Months Ended March 30, 1997 and March 31, 1996

         Net revenue  increased  to $10.9  million for the first three months of
         1997,  compared to $10.6  million for the similar  period of 1996.  The
         increase was due to a $1.1 million increase in sales of anti-reflective
         film which more than offset a $.3 million  decrease in other electronic
         product sales.  Net sales of energy  conservation  products was down by
         $.5 million  compared to the same  period last year,  primarily  due to
         discontinued  products which were sold during the first quarter of 1996
         from SWGI.

         Cost of sales for the  first  quarter  of 1997 was 66% of net  revenue,
         compared to 70% for the similar period of 1996. First quarter 1997 cost
         of sales included $.2 million of costs  associated with the start up of
         the Company's new facility under construction in Tempe,  Arizona.  This
         net  percentage  decrease in cost rate was due to a combination  of one
         time operational problems which adversely impacted the first quarter of
         1996 and to ongoing  operational  improvements that have occurred since
         that time. The improvements were made both through capital improvements
         to  production  equipment  and through  process  improvements  and have
         resulted in yield improvements in essentially every product line.

         Research and development  expenses,  as a percent of net sales, were 7%
         for the first  three  months of 1997,  compared  to 5% for the  similar
         period in 1996.  The  increase  in 1997 is  attributable  to higher new
         product development costs,  primarily in development of product for the
         automotive film market.

         Selling, general and administrative expense, as a percent of net sales,
         stayed approximately the same at 20% in the first three months of 1997,
         compared to the similar period in 1996.

         Net interest expense increased in 1997 compared to 1996 due to interest
         payments on long term debt taken in December 1996 for partial financing
         of an expansion project.

         As a result of the factors  discussed  above,  the  Company  reported a
         pre-tax  profit  of $.8  million  for the first  three  months of 1997,
         compared to a pre-tax  profit of $.5 million for the similar  period in
         1996.

         Liquidity and Capital Resources

         At March 30, 1997, the Company's net working capital was $15.8 million,
         remaining  essentially  the same as the  December  31, 1996 net working
         capital level.  On December 16, 1996,  the Company  borrowed $5 million
         from an  institutional  lender for partial  financing  of an  expansion
         project.  The project,  currently in process for a new facility located
         in  Tempe,   Arizona,   is  to  be  dedicated  to  the   production  of
         anti-reflective  film product and to fulfill the supply requirements of
         a supply agreement.  Prior to that date the Company had financed itself
         through cash flow from operations and its existing cash balances.

         From  December  31,  1996,  to March  30,  1997,  cash  and  short-term
         investments decreased by $2.5 million. Accounts receivable increased by
         $1.7  million  primarily  due to higher  sales by $1.5 million in March
         1997 compared to December 1996.

         Additions to property and  equipment  were  approximately  $1.4 million
         during  the  first  quarter  of  1997.  These   expenditures   included
         approximately $1 million on capital equipment for the expansion project
         mentioned  above.  This brings the total capital  investment to date on
         the  project  to $3.4  million,  and  the  Company  anticipates  making
         additional  expenditures of approximately $8 million


                                       9
<PAGE>


         during 1997 on the project,  which when completed is expected to cost a
         total of approximately  $14.5 million.  The Company  anticipates  total
         capital  expenditures  of  approximately  $2.5 million  during 1997 for
         general   replacements  and   discretionary   improvements  of  current
         facilities.

         At March 30, 1997,  the Company had $4.9 million of cash and short-term
         investments and a $6 million revolving line of credit, which is subject
         to certain financial covenants,  which at March 30, 1997 restricted the
         amount available to the Company to $4.7 million.  The revolving line of
         credit  expires in June 1997,  but may be extended for  additional  one
         year terms with the bank's  approval.  As of March 30, 1997, there were
         no borrowings under this line of credit.

         During April and early May 1997, the Company concluded arrangements for
         additional  financing for the planned new facility  mentioned above and
         for related  potential  working  capital  growth.  A major raw material
         supplier of the Company,  Teijin  Limited of Japan,  agreed to purchase
         667,000  shares of the  Company's  common stock at a price of $7.50 per
         share, and to guarantee a loan through Sanwa Bank for an additional $10
         million.  Teijin also received  warrants to purchase  158,000 shares of
         common  stock at a price of $9.00  per share at any time  within  three
         years  of the  date  of the  agreement.  The  purchase  transaction  of
         approximately  $5 million for 667,000 shares was completed on April 28,
         1997. The loan agreement with Sanwa Bank was signed on May 2, 1997, and
         the  Company  received  the first $5 million of funding on May 6, 1997.
         The  remaining $5 million of loan funding is scheduled  for November 6,
         1997. The loan is for a period of eight (8) years, with a four (4) year
         interest only grace period,  at an interest rate of BBA Libor, plus one
         percent (1%).

         The above  mentioned  financing plus existing  working capital and cash
         generated  from  operations  are expected to be adequate to satisfy the
         Company's capital and operating requirements at least through 1997.

                                       10

<PAGE>
                            PART II OTHER INFORMATION


         Item 1   Legal Proceedings and Other Matters

         The Company has been named a defendant  in a lawsuit  filed on April 5,
         1996 by one of its  customers in the United States  District  Court for
         the Eastern  District of New York. The lawsuit in federal court alleges
         certain  contractual  violations  by the Company and seeks relief in an
         aggregate  amount in excess of $35 million.  The Company  believes that
         this  lawsuit  is  without  merit  and  intends  to defend  against  it
         vigorously.

         In  addition,  the Company is involved in certain  other legal  actions
         arising in the  ordinary  course of  business.  The  Company  believes,
         however,  that none of these  actions,  either  individually  or in the
         aggregate,  will  have a  material  adverse  effect  on  the  Company's
         business  or  its  consolidated   financial   position  or  results  of
         operations.

         Item 2   Changes in Securities
                  Not applicable


         Item 3   Defaults upon Senior Securities
                  Not applicable


         Item 4   Submission of Matters to a Vote of stockholders
                  No  matters  were  submitted  to a vote  of  security
                  holders during the quarter ended March 30, 1997.


         Item 5   Other Information
                  Not applicable


         Item 6   Exhibits and Reports on Form 8-K

                  (a)    Exhibits - None


                  (b)    Reports of Form 8-K - None


                                       11

<PAGE>

                                   SIGNATURES


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
         the  registrant  has duly caused this report to be signed on its behalf
         by the undersigned thereunto duly authorized.


         Dated:  May 13, 1997
         Southwall Technologies Inc.






                            By:/s/Martin M. Schwartz
                               --------------------------
                                  Martin M. Schwartz
                                  President and
                                  Chief Executive Officer






                            By:/s/L. Ray Christie
                               --------------------------
                                  L. Ray Christie
                                  Vice President and
                                  Chief Financial Officer


                                       12