----

----

----

| (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

| PART I – FINANCIAL INFORMATION | Page   |
|--------------------------------------|--------|
|                                 |   |   |   |
| Item 1                               |   | Financial Statements |   |
|                                 |   | Unaudited Condensed Consolidated Balance Sheets - March 31, 2011 and December 31, 2010 | 3 |
|                                 |   | Unaudited Condensed Consolidated Statements of Operations -Three months ended March 31, 2011 and 2010 | 4 |
|                                 |   | Unaudited Condensed Consolidated Statements of Cash Flows -Three months ended March 31, 2011 and 2010 | 5 |
|                                 |   | Notes to the Unaudited Condensed Consolidated Financial Statements | 6 |
| Item 2                               |   | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 |
| Item 3                               |   | Quantitative and Qualitative Disclosures about Market Risk | 21 |
| Item 4                               |   | Controls and Procedures | 22 |
|                                 |   |   |   |

| PART II – OTHER INFORMATION |   |
|-----------------------------------|--------|
|                              |   |   |   |
| Item 1                            |   | Legal Proceedings | 22 |
| Item 1A                           |   | Risk Factors | 22 |
| Item 2                            |   | Unregistered Sales of Equity Securities and Use of Proceeds | 23 |
| Item 3                            |   | Defaults upon Senior Securities | 23 |
| Item 5                            |   | Other Information | 23 |
| Item 6                            |   | Exhibits | 23 |
| Signatures                        |   |   | 24 |

----

Index

PART 

Item 

SOUTHWALL 

|                                                                                                                                                                                                                                                                                   |   | March 31,2011 |                    |   | December 31,2010 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|-------------------------|--------|------------------|--------|
| ASSETS                                                                                                                                                                                                                                                                                 |   |
| Current assets:                                                                                                                                                                                                                                                                        |   |          |                    |   |             |   |
| Cash and cash equivalents                                                                                                                                                                                                                                                              |   | $             | 11,981                  |   |             | $      | 13,776 |   |
| Accounts receivable, net of allowances for sales returns and doubtful accounts of $1,400 at March 31, 2011 and $1,316 at December 31, 2010                                                                                                                                             |   |          |  8,057             |   |             |   |  5,902 |   |
| Inventories                                                                                                                                                                                                                                                                            |   |          | 6,239                   |   |             |   | 5,536 |   |
| Prepaid income taxes                                                                                                                                                                                                                                                                   |   |          | 1,083                   |   |             |   | 2,017 |   |
| Other current assets                                                                                                                                                                                                                                                                   |   |          | 2,720                   |   |             |   | 1,901 |   |
| Total current assets                                                                                                                                                                                                                                                                   |   |          | 30,080                  |   |             |   | 29,132 |   |
|                                                                                                                                                                                                                                                                                   |   |          |                    |   |             |   |   |   |
| Property, plant and equipment, net                                                                                                                                                                                                                                                     |   |          | 15,560                  |   |             |   | 15,235 |   |
| Goodwill                                                                                                                                                                                                                                                                               |   |          | 1,854                   |   |             |   | 1,854 |   |
| Intangibles assets                                                                                                                                                                                                                                                                     |   |          | 840                     |   |             |   | 901 |   |
| Deferred tax and other assets                                                                                                                                                                                                                                                          |   |          | 3,493                   |   |             |   | 3,468 |   |
| Total assets                                                                                                                                                                                                                                                                           |   | $             | 51,827                  |   |             | $      | 50,590 |   |
|                                                                                                                                                                                                                                                                                   |   |          |                    |   |             |   |   |   |
| LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY                                                                                                                                                                                                                             |   |
|                                                                                                                                                                                                                                                                                   |   |          |                    |   |             |   |   |   |
| Current liabilities:                                                                                                                                                                                                                                                                   |   |          |                    |   |             |   |   |   |
| Current portion of long-term debt  and capital lease obligations                                                                                                                                                                                                             |   | $             | 1,092                   |   |             | $      | 1,024 |   |
| Accounts payable                                                                                                                                                                                                                                                                       |   |          | 1,973                   |   |             |   | 2,628 |   |
| Accrued compensation                                                                                                                                                                                                                                                                   |   |          | 1,422                   |   |             |   | 1,742 |   |
| Other accrued liabilities                                                                                                                                                                                                                                                              |   |          | 4,687                   |   |             |   | 4,764 |   |
| Total current liabilities                                                                                                                                                                                                                                                              |   |          | 9,174                   |   |             |   | 10,158 |   |
|                                                                                                                                                                                                                                                                                   |   |          |                    |   |             |   |   |   |
| Term debt and capital lease obligations                                                                                                                                                                                                                                                |   |          | 3,459                   |   |             |   | 3,511 |   |
| Other long-term liabilities                                                                                                                                                                                                                                                            |   |          | 116                     |   |             |   | 112 |   |
| Total liabilities                                                                                                                                                                                                                                                                      |   |          | 12,749                  |   |             |   | 13,781 |   |
|                                                                                                                                                                                                                                                                                   |   |          |                    |   |             |   |   |   |
| Commitments and contingencies (Note 7)                                                                                                                                                                                                                                                 |   |          |                    |   |             |   |   |   |
|                                                                                                                                                                                                                                                                                   |   |          |                    |   |             |   |   |   |
| Series A 10% cumulative convertible preferred stock, $0.001 par value; $1.00 stated value; 5,000 shares authorized, 4,893 shares outstanding at March 31, 2011 and December 31, 2010 (liquidation preference: $7,867 and $7,745 at March 31, 2011 and December 31, 2010, respectively) |   |          |    4,810 |   |             |   |    4,810 |   |
|                                                                                                                                                                                                                                                                                   |   |          |                    |   |             |   |   |   |
| Southwall stockholders’ equity:                                                                                                                                                                                                                                                  |   |          |                    |   |             |   |   |   |
| Common stock, $0.001 par value per share; 10,000 shares authorized, 5,811 shares outstanding at March 31, 2011 and 5,799 shares outstanding at December 31, 2010                                                                                                                       |   |          |  29                |   |             |   |  29 |   |
| Capital in excess of par value                                                                                                                                                                                                                                                         |   |          | 78,847                  |   |             |   | 78,759 |   |
| Accumulated other comprehensive income                                                                                                                                                                                                                                                 |   |          | 4,176                   |   |             |   | 3,466 |   |
| Accumulated deficit                                                                                                                                                                                                                                                                    |   |          | (48,657                 | )      |             |   | (50,228 | ) |
| Total Southwall stockholders’ equity                                                                                                                                                                                                                                             |   |          | 34,395                  |   |             |   | 32,026 |   |
| Noncontrolling interest                                                                                                                                                                                                                                                                |   |          | (127                    | )      |             |   | (27 | ) |
| Total stockholders' equity                                                                                                                                                                                                                                                             |   |          | 34,268                  |   |             |   | 31,999 |   |
| Total liabilities, preferred stock and stockholders' equity                                                                                                                                                                                                                            |   | $             | 51,827                  |   |             | $      | 50,590 |   |

----

Index

SOUTHWALL 

|                                                             |   | Three Months Ended |   |
|------------------------------------------------------------------|--------|--------------------|--------|
|                                                             |   | March 31, 2011     |   |   | March 31, 2010 |   |
| Net revenues                                                     |   | $                  | 14,531 |   |   | $ | 10,481 |   |
| Cost of revenues                                                 |   |               | 8,404  |   |   |   | 5,768 |   |
|                                                             |   |               |   |   |   |   |   |   |
| Gross profit                                                     |   |               | 6,127  |   |   |   | 4,713 |   |
|                                                             |   |               |   |   |   |   |   |   |
| Operating expenses:                                              |   |               |   |   |   |   |   |   |
| Research and development                                         |   |               | 1,034  |   |   |   | 792 |   |
| Selling, general and administrative                              |   |               | 2,939  |   |   |   | 2,000 |   |
|                                                             |   |               |   |   |   |   |   |   |
| Total operating expenses                                         |   |               | 3,973  |   |   |   | 2,792 |   |
|                                                             |   |               |   |   |   |   |   |   |
| Income from operations                                           |   |               | 2,154  |   |   |   | 1,921 |   |
|                                                             |   |               |   |   |   |   |   |   |
| Interest expense, net                                            |   |               | (67    | ) |   |   | (94 | ) |
| Other income (expense), net                                      |   |               | 273    |   |   |   | (481 | ) |
|                                                             |   |               |   |   |   |   |   |   |
| Income before provision for income taxes                         |   |               | 2,360  |   |   |   | 1,346 |   |
|                                                             |   |               |   |   |   |   |   |   |
| Provision for income taxes                                       |   |               | 950    |   |   |   | 9 |   |
|                                                             |   |               |   |   |   |   |   |   |
| Net income                                                       |   |               | 1,410  |   |   |   | 1,337 |   |
|                                                             |   |               |   |   |   |   |   |   |
| Net loss attributable to noncontrolling interest                 |   |               | 160    |   |   |   | - |   |
|                                                             |   |               |   |   |   |   |   |   |
| Net income attributable to Southwall                             |   |               | 1,570  |   |   |   | 1,337 |   |
|                                                             |   |               |   |   |   |   |   |   |
| Deemed dividend on preferred stock                               |   |               | 122    |   |   |   | 122 |   |
|                                                             |   |               |   |   |   |   |   |   |
| Net income attributable to common stockholders                   |   | $                  | 1,448  |   |   | $ | 1,215 |   |
|                                                             |   |               |   |   |   |   |   |   |
| Net income per common share (1):                                 |   |               |   |   |   |   |   |   |
| Basic                                                            |   | $                  | 0.25   |   |   | $ | 0.21 |   |
| Diluted                                                          |   | $                  | 0.23   |   |   | $ | 0.19 |   |
|                                                             |   |               |   |   |   |   |   |   |
| Weighted average shares used in computing per share amounts (1): |   |               |   |   |   |   |   |   |
| Basic                                                            |   |               | 5,806  |   |   |   | 5,758 |   |
| Diluted                                                          |   |               | 6,916  |   |   |   | 7,181 |   |

| (1)  | All share and per share amounts have been retroactively restated for the three months ended March 31, 2010 to reflect the Company’s 1-for-5 reverse stock split described in Note 1 to these condensed consolidated financial statements. |
|-----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Index

SOUTHWALL 

|                                                                                       |   | Three Months Ended |   |
|--------------------------------------------------------------------------------------------|--------|--------------------|--------|
|                                                                                       |   | March 31, 2011     |   |   | March 31, 2010 |   |
| Cash flows from operating activities:                                                      |   |               |   |   |   |   |
| Net income                                                                                 |   | $                  | 1,410  |   |   | $ | 1,337 |   |
| Adjustments to reconcile net income to net cash (used in) provided by operatingactivities: |   |               |   |   |   |   |   |   |
| Deferred income tax                                                                        |   |               | -      |   |   |   | (36 | ) |
| Loss on disposal of property, plant and equipment                                          |   |               | -      |   |   |   | 4 |   |
| Depreciation and amortization                                                              |   |               | 845    |   |   |   | 601 |   |
| Stock-based compensation                                                                   |   |               | 201    |   |   |   | 112 |   |
| (Provision for) recovery of inventory reserves                                             |   |               | (21    | ) |   |   | 29 |   |
| (Provision for) recovery of returns and allowance resesrve                                 |   |               | 84     |   |   |   | (183 | ) |
| Changes in operating assets and liabilities:                                               |   |               |   |   |   |   |   |   |
| Accounts receivable, net                                                                   |   |               | (2,120 | ) |   |   | (679 | ) |
| Inventories                                                                                |   |               | (458   | ) |   |   | 508 |   |
| Other current and non-current assets                                                       |   |               | 139    |   |   |   | (34 | ) |
| Accounts payable and accrued liabilities                                                   |   |               | (1,253 | ) |   |   | (370 | ) |
| Net cash (used in) provided by operating activities                                        |   |               | (1,173 | ) |   |   | 1,289 |   |
|                                                                                       |   |               |   |   |   |   |   |   |
| Cash flows from investing activities:                                                      |   |               |   |   |   |   |   |   |
| Expenditures for property, plant and equipment                                             |   |               | (455   | ) |   |   | (194 | ) |
| Net cash used in investing activities                                                      |   |               | (455   | ) |   |   | (194 | ) |
|                                                                                       |   |               |   |   |   |   |   |   |
| Cash flows from financing activities:                                                      |   |               |   |   |   |   |   |   |
| Proceeds from stock option exercises                                                       |   |               | 71     |   |   |   | 20 |   |
| Repayments of term debt and capital lease obligations                                      |   |               | (171   | ) |   |   | (133 | ) |
| Net cash used in financing activities                                                      |   |               | (100   | ) |   |   | (113 | ) |
|                                                                                       |   |               |   |   |   |   |   |   |
| Effect of foreign exchange rate changes on cash and cash equivalents                       |   |               | (67    | ) |   |   | (127 | ) |
|                                                                                       |   |               |   |   |   |   |   |   |
| Net increase (decrease) in cash and cash equivalents                                       |   |               | (1,795 | ) |   |   | 855 |   |
| Cash and cash equivalents, beginning of period                                             |   |               | 13,776 |   |   |   | 12,454 |   |
|                                                                                       |   |               |   |   |   |   |   |   |
| Cash and cash equivalents, end of period                                                   |   | $                  | 11,981 |   |   | $ | 13,309 |   |
|                                                                                       |   |               |   |   |   |   |   |   |
| Supplemental cash flow disclosures:                                                        |   |               |   |   |   |   |   |   |
| Interest paid                                                                              |   | $                  | 28     |   |   | $ | 46 |   |
| Income taxes paid                                                                          |   | $                  | 78     |   |   | $ | 157 |   |
|                                                                                       |   |               |   |   |   |   |   |   |
| Supplemental schedule of non-cash investing and financing activities:                      |   |               |   |   |   |   |   |   |
| Deemed dividend on preferred stock                                                         |   | $                  | 122    |   |   | $ | 122 |   |
| Deposits applied to acquisition of property, plant and equipment                           |   | $                  | 71     |   |   | $ | - |   |
| Acquisition of interest in SIG (Note 12)                                                   |   | $                  | 60     |   |   | $ | - |   |

----

Index

SOUTHWALL 

----

Index

|                            |   | March 31, 2011    |   |
|---------------------------------|--------|-------------------|--------|
|                            |   |   Fair Value |   |   |   Book Value |   |   | UnrealizedGain, net |   |
| Money market funds, Level I     |   | $                 | 9,612  |   |   | $ | 9,612 |   |   | $ | - |   |
| Certificates of deposit         |   |              | 500    |   |   |   | 500 |   |   |   | - |   |
| Total cash equivalents          |   |              | 10,112 |   |   |   | 10,112 |   |   |   | - |   |
| Cash                            |   |              | 1,869  |   |   |   | 1,869 |   |   |   | - |   |
| Total cash and cash equivalents |   | $                 | 11,981 |   |   | $ | 11,981 |   |   | $ | - |   |

|                            |   | December 31, 2010 |   |
|---------------------------------|--------|-------------------|--------|
|                            |   |   Fair Value |   |   |   Book Value |   |   | UnrealizedGain, net |   |
| Money Market Funds, Level I     |   | $                 | 8,990  |   |   | $ | 8,990 |   |   | $ | - |   |
| Certificates of deposit         |   |              | 2,000  |   |   |   | 2,000 |   |   |   | - |   |
| Total cash equivalents          |   |              | 10,990 |   |   |   | 10,990 |   |   |   | - |   |
| Cash                            |   |              | 2,786  |   |   |   | 2,786 |   |   |   | - |   |
| Total cash and cash equivalents |   | $                 | 13,776 |   |   | $ | 13,776 |   |   | $ | - |   |

|  Inventories, net: |   | March 31,2011 |   |   | December 31,2010 |   |
|-------------------------|--------|---------------|--------|--------|------------------|--------|
| Raw materials           |   | $             | 3,685  |   |             | $      | 3,072 |   |
| Work-in-process         |   |          | 1,003  |   |             |   | 817 |   |
| Finished goods          |   |          | 1,551  |   |             |   | 1,647 |   |
|                    |   | $             | 6,239  |   |             | $      | 5,536 |   |

|  Property, plant and equipment:            |   | March 31,2011 |    |   | December 31,2010 |   |
|-------------------------------------------------|--------|---------------|---------|--------|------------------|--------|
| Land, buildings and leasehold improvements      |   | $             | 9,967   |   |             | $      | 9,453 |   |
| Machinery and equipment                         |   |          | 34,979  |   |             |   | 33,099 |   |
| Furniture and fixtures                          |   |          | 2,939   |   |             |   | 2,769 |   |
|                                            |   |          | 47,885  |   |             |   | 45,321 |   |
| Less: accumulated depreciation and amortization |   |          | (32,325 | )      |             |   | (30,086 | ) |
|                                            |   | $             | 15,560  |   |             | $      | 15,235 |   |

----

Index

|                                                     |   | Three Months Ended |   |
|----------------------------------------------------------|--------|--------------------|--------|
|                                                     |   | March 31, 2011     |   |   | March 31, 2010 |   |
| Net income attributable to common stockholders - basic   |   | $                  | 1,448  |   |   | $ | 1,215 |   |
| Add:  Deemed dividend on preferred stock       |   |               | 122    |   |   |   | 122 |   |
| Net income attributable to common stockholders - diluted |   | $                  | 1,570  |   |   | $ | 1,337 |   |
|                                                     |   |               |   |   |   |   |   |   |
| Weighted average common shares outstanding - basic (1)   |   |               | 5,806  |   |   |   | 5,758 |   |
| Dilutive effect of Series A preferred shares             |   |               | 979    |   |   |   | 979 |   |
| Dilutive effect of stock options                         |   |               | 131    |   |   |   | 444 |   |
| Weighted average common shares outstanding - diluted (1) |   |               | 6,916  |   |   |   | 7,181 |   |
|                                                     |   |               |   |   |   |   |   |   |
| Basic net income per common share                        |   | $                  | 0.25   |   |   | $ | 0.21 |   |
| Diluted net income per common share                      |   | $                  | 0.23   |   |   | $ | 0.19 |   |

| (1)   | All share and per share amounts have been retroactively restated for the three months ended March 31, 2010 to reflect the Company’s 1-for-5 reverse stock split described in Note 1 to these condensed consolidated financial statements. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Index

|                                        |   | Three Months Ended |   |
|---------------------------------------------|--------|--------------------|--------|
|                                        |   | March 31,2011      |   |   | March 31, 2010 |   |
| Net revenues:                               |   |               |   |   |   |   |
| Film:                                       |   |               |   |   |   |   |
| Automotive                                  |   | $                  | 6,154  |   |   | $ | 4,460 |   |
| Window                                      |   |               | 6,170  |   |   |   | 4,696 |   |
| Architectual                                |   |               | 1,851  |   |   |   | 1,298 |   |
| Other                                       |   |               | 173    |   |   |   | 27 |   |
| Subtotal                                    |   |               | 14,348 |   |   |   | 10,481 |   |
| Glass                                       |   |               | 183    |   |   |   | - |   |
| Total net revenues                          |   | $                  | 14,531 |   |   | $ | 10,481 |   |
|                                        |   |               |   |   |   |   |   |   |
| Segment income (loss) from operations:      |   |               |   |   |   |   |   |   |
| Film                                        |   | $                  | 3,403  |   |   | $ | 1,921 |   |
| Glass                                       |   |               | (1,249 | ) |   |   | - |   |
| Total segment income (loss) from operations |   | $                  | 2,154  |   |   | $ | 1,921 |   |
|                                        |   |               |   |   |   |   |   |   |
| Depreciation and amortization:              |   |               |   |   |   |   |   |   |
| Film                                        |   | $                  | 675    |   |   | $ | 601 |   |
| Glass                                       |   |               | 170    |   |   |   | - |   |
| Total depreciation and amortization         |   | $                  | 845    |   |   | $ | 601 |   |

|                    |   | March 31,2011 |   |   | December 31,2010 |   |
|-------------------------|--------|---------------|--------|--------|------------------|--------|
| Long-lived assets:      |   |          |   |   |             |   |
| Film                    |   | $             | 13,909 |   |             | $      | 13,896 |   |
| Glass                   |   |          | 1,651  |   |             |   | 1,339 |   |
| Total long-lived assets |   | $             | 15,560 |   |             | $      | 15,235 |   |

|                             |   | Three Months Ended |   |
|----------------------------------|--------|--------------------|--------|
|                             |   | March 31, 2011     |   |   | March 31, 2010 |   |
| United States                    |   | $                  | 1,846  |   |   | $ | 893 |   |
| Europe: France, Germany          |   |               | 6,222  |   |   |   | 4,358 |   |
| Asia Pacific: Japan, Pacific Rim |   |               | 6,028  |   |   |   | 4,592 |   |
| Rest of the world                |   |               | 435    |   |   |   | 638 |   |
| Total net revenues               |   | $                  | 14,531 |   |   | $ | 10,481 |   |

|          |   | March 31,2011 |   |   | December 31,2010 |   |
|---------------|--------|---------------|--------|--------|------------------|--------|
| United States |   | $             | 4,858  |   |             | $      | 4,724 |   |
| Germany       |   |          | 10,702 |   |             |   | 10,511 |   |
| Consolidated  |   | $             | 15,560 |   |             | $      | 15,235 |   |

----

Index

----

Index

|    Description                                |   |      Rate |       |   | Term DebtBalance atMarch 31,2011 |   |          | Capital LeaseBalance atMarch 31,2011 |   |   | Total DebtBalance atMarch 31,2011 |   |   |   Due InNext 12Months |            |   |   Balance atDecember 31,2010 |   |
|--------------------------------------------------------------|--------|--------------------------|------------|--------|----------------------------------|--------|---------------|--------------------------------------|--------|--------|-----------------------------------|--------|--------|----------------------------|-----------------|--------|-----------------------------------|--------|
|                                                         |   |                     |       |   |                             |   |          |                                 |   |   |                              |   |   |                       |            |   |                              |   |
| German bank loan dated May 28, 1999 (20 year)                |   |                     | 5.73       | %(1)   |                             | $      | 2,995         |                                 |   | $      | -                                 |   |   | $                          | 2,995           |   |                              | $      | 352 |   |   | $ | 2,816 |   |
| Wells Fargo Bank dated September 2, 2010 (3 year)            |   |                     | 4.05       | %(2)   |                             |   |  1,041   |                                 |   |   |  -                           |   |   |                       |  1,041     |   |                              |   |  418 |   |   |   |  1,146 |   |
| Total term debt                                              |   |                     |       |   |                             |   | 4,036         |                                 |   |   | -                                 |   |   |                       | 4,036           |   |                              |   | 770 |   |   |   | 3,962 |   |
|                                                         |   |                     |       |   |                             |   |          |                                 |   |   |                              |   |   |                       |            |   |                              |   |   |   |   |   |   |   |
| German bank financed lease dated June 1, 2008                |   |                     | 7.518      | %(3)   |                             |   |  -       |                                 |   |   |  98                          |   |   |                       |  98        |   |                              |   |  99 |   |   |   |  115 |   |
| U.S. financing agreement dated May 20, 2008                  |   |                     | 19.80      | %(4)   |                             |   |  -       |                                 |   |   |  186                         |   |   |                       |  186       |   |                              |   |  184 |   |   |   |  224 |   |
| Wells Fargo Bank financing agreement dated December 27, 2010 |   |                     |  4.47 | %(4)   |                             |   |   - |                                 |   |   |   278                   |   |   |                       |   278 |   |                              |   |   73 |   |   |   |   296 |   |
| Total capital leases                                         |   |                     |       |   |                             |   | -             |                                 |   |   | 562                               |   |   |                       | 562             |   |                              |   | 356 |   |   |   | 635 |   |
|                                                         |   |                     |       |   |                             |   |          |                                 |   |   |                              |   |   |                       |            |   |                              |   |   |   |   |   |   |   |
| Less interest on capital leases                              |   |                     |       |   |                             |   | -             |                                 |   |   | 47                                |   |   |                       | 47              |   |                              |   | 34 |   |   |   | 62 |   |
|                                                         |   |                     |       |   |                             |   |          |                                 |   |   |                              |   |   |                       |            |   |                              |   |   |   |   |   |   |   |
| Total term debt and capital lease obligations                |   |                     |       |   |                             |   |  4,036   |                                 |   |   |  515                         |   |   |                       |  4,551     |   |                              |   |  1,092 |   |   |   |  4,535 |   |
|                                                         |   |                     |       |   |                             |   |          |                                 |   |   |                              |   |   |                       |            |   |                              |   |   |   |   |   |   |   |
| Less current portion                                         |   |                     |       |   |                             |   | 770           |                                 |   |   | 322                               |   |   |                       | 1,092           |   |                              |   | - |   |   |   | 1,024 |   |
|                                                         |   |                     |       |   |                             |   |          |                                 |   |   |                              |   |   |                       |            |   |                              |   |   |   |   |   |   |   |
| Total term debt and capital lease obligations, non-current   |   |                     |       |   |                             | $      | 3,266         |                                 |   | $      | 193                               |   |   | $                          | 3,459           |   |                              | $      | 1,092 |   |   | $ | 3,511 |   |

----

Index

|                                                 |   | Three Months Ended |   |
|------------------------------------------------------|--------|--------------------|--------|
|                                                 |   | March 31, 2011     |   |   | March 31, 2010 |   |
| Cost of revenues                                     |   | $                  | 4      |   |   | $ | 2 |   |
| Research and development                             |   |               | 33     |   |   |   | 19 |   |
| Selling, general and administrative                  |   |               | 164    |   |   |   | 91 |   |
| Stock-based compensation expense before income taxes |   |               | 201    |   |   |   | 112 |   |
| Income tax benefit                                   |   |               | -      |   |   |   | - |   |
| Total                                                |   | $                  | 201    |   |   | $ | 112 |   |

|                                                    |   | Three Months Ended |   |
|---------------------------------------------------------|--------|--------------------|--------|
|                                                    |   | March 31, 2011     |   |   | March 31, 2010 |   |
| Expected life (in years)                                |   |               | 5.0    |   |   |   | 5.0 |   |
| Risk-free interest rate                                 |   |               | 2.20   | % |   |   | 2.62 | % |
| Volatility                                              |   |               | 122    | % |   |   | 104 | % |
| Dividend                                                |   |               | -      |   |   |   | - |   |
| Per share weighted-average fair value at grant date (1) |   | $                  | 9.20   |   |   | $ | 6.11 |   |

| (1)   | The amount for the three months ended March 31, 2010 has been restated to reflect the Company’s 1-for-5 reverse stock split described in Note 1 to these condensed consolidated financial statements. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                          |   |     Number ofOptions |   |   |    WeightedAverageExercise Price |   |   | RemainingContractualWeightedAverageTerm (in years) |   |   |    AggregateIntrinsicValue |   |
|-----------------------------------------------|--------|-------------------------------------|--------|--------|--------------------------------------------|--------|--------|----------------------------------------------------|--------|--------|--------------------------------------|--------|
| Outstanding at December 31, 2010              |   |                                | 1,287  |   |                                       | $      | 4.49   |                                               |   |   |                                 |   |   |   |
| Granted                                       |   |                                | 232    |   |                                       | $      | 11.01  |                                               |   |   |                                 |   |   |   |
| Exercised                                     |   |                                | (13    | )      |                                       | $      | 5.24   |                                               |   |   |                                 |   |   |   |
| Cancelled or expired                          |   |                                | (4     | )      |                                       | $      | 9.05   |                                               |   |   |                                 |   |   |   |
| Outstanding at March 31, 2011                 |   |                                | 1,502  |   |                                       | $      | 5.48   |                                               |   |   | 7.02                                 |   |   | $ | 8,980 |   |
|                                          |   |                                |   |   |                                       |   |   |                                               |   |   |                                 |   |   |   |   |   |
| Vested and expected to vest at March 31, 2011 |   |                                | 1,322  |   |                                       | $      | 5.11   |                                               |   |   | 6.73                                 |   |   | $ | 8,381 |   |
| Exercisable at March 31, 2011                 |   |                                | 862    |   |                                       | $      | 3.88   |                                               |   |   | 5.59                                 |   |   | $ | 6,528 |   |

----

Index

|                               |   | Balance atDecember 31, 2010 |   |   |   Provision |   |   |   Utilized |   |   | Balance atMarch 31, 2011 |   |
|------------------------------------|--------|-----------------------------|--------|--------|------------------|--------|--------|-----------------|--------|--------|--------------------------|--------|
| Accrued sales returns and warranty |   | $                           | 1,187  |   |             | $      | 150    |            |   | $      | (132                     | )      |   | $ | 1,205 |   |

|                               |   | Balance atDecember 31, 2009 |   |   |   Provision |   |   |   Utilized |   |   | Balance atMarch 31, 2010 |   |
|------------------------------------|--------|-----------------------------|--------|--------|------------------|--------|--------|-----------------|--------|--------|--------------------------|--------|
| Accrued sales returns and warranty |   | $                           | 607    |   |             | $      | 419    |            |   | $      | (266                     | )      |   | $ | 760 |   |

|                                    |   | Three Months Ended |   |
|-----------------------------------------|--------|--------------------|--------|
|                                    |   | March 31, 2011     |   |   | March 31, 2010 |   |
| Net income                              |   | $                  | 1,570  |   |   | $ | 1,337 |   |
| Foreign currency translation adjustment |   |               | 709    |   |   |   | (726 | ) |
| Other comprehensive income              |   | $                  | 2,279  |   |   | $ | 611 |   |

----

Index

|                   |   |        |   |   | March 31, 2011 |   |
|------------------------|--------|-------------|--------|--------|----------------|--------|
|                   |   |   Life |   |   | GrossAssets    |   |   | AccumulatedAmortization |   |   | NetAmount |   |
| Trade name             |   |        | 5      |   |           | $      | 315 |   |   | $ | (54 | ) |   | $ | 261 |   |
| Customer relationships |   |        | 2 - 10 |   |           |   | 420 |   |   |   | (118 | ) |   |   | 302 |   |
| Trade secrets          |   |        | 15     |   |           |   | 190 |   |   |   | (7 | ) |   |   | 183 |   |
| Non-compete agreement  |   |        | 2      |   |           |   | 15 |   |   |   | (4 | ) |   |   | 11 |   |
| Other                  |   |        | 2 - 5  |   |           |   | 100 |   |   |   | (17 | ) |   |   | 83 |   |
|                   |   |        |   |   |           | $      | 1,040 |   |   | $ | (200 | ) |   | $ | 840 |   |

|                   |   |        |   |   | December 31, 2010 |   |
|------------------------|--------|-------------|--------|--------|-------------------|--------|
|                   |   |   Life |   |   | GrossAssets       |   |   | AccumulatedAmortization |   |   | NetAmount |   |
| Trade name             |   |        | 5      |   |              | $      | 315 |   |   | $ | (38 | ) |   | $ | 277 |   |
| Customer relationships |   |        | 2 - 10 |   |              |   | 420 |   |   |   | (82 | ) |   |   | 338 |   |
| Trade secrets          |   |        | 15     |   |              |   | 190 |   |   |   | (4 | ) |   |   | 186 |   |
| Non-compete agreement  |   |        | 2      |   |              |   | 15 |   |   |   | (3 | ) |   |   | 12 |   |
| Other                  |   |        | 2 - 5  |   |              |   | 100 |   |   |   | (12 | ) |   |   | 88 |   |
|                   |   |        |   |   |              | $      | 1,040 |   |   | $ | (139 | ) |   | $ | 901 |   |

----

Index

| Fiscal year               |   | Amount |   |
|---------------------------|--------|--------|--------|
| 2011 (9 months remaining) |   | $      | 184    |   |
| 2012                      |   |   | 166    |   |
| 2013                      |   |   | 113    |   |
| 2014                      |   |   | 113    |   |
| 2015                      |   |   | 63     |   |
| Thereafter                |   |   | 201    |   |
| Total                     |   | $      | 840    |   |

|                                         |   | Three Months Ended March 31, 2011 |   |
|----------------------------------------------|--------|-----------------------------------|--------|
|                                         |   | SouthwallStockholders'Equity      |   |   |   NoncontrollingInterest |   |   |   TotalEquity |   |
| Equity, beginning of period                  |   | $                                 | 32,026 |   |   | $ | (27 | ) |   | $ | 31,999 |   |
| Acquired NCI                                 |   |                              | (60    | ) |   |   | 60 |   |   |   | - |   |
| Stock-based compensation expense             |   |                              | 201    |   |   |   | - |   |   |   | 201 |   |
| Stock option exercises                       |   |                              | 71     |   |   |   | - |   |   |   | 71 |   |
| Dividend accrual on Series A preferred stock |   |                              | (122   | ) |   |   | - |   |   |   | (122 | ) |
| Total comprehensive income (loss)            |   |                              | 2,279  |   |   |   | (160 | ) |   |   | 2,119 |   |
| Equity, end of period                        |   | $                                 | 34,395 |   |   | $ | (127 | ) |   | $ | 34,268 |   |

----

Index

Item 

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

|   | · | 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 listing of our common stock on the NASDAQ Capital 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. |
|--------|--------|-------------------------------------|

----

Index

----

Index

|               |   | Three Months EndedMarch 31, |   |   | Variance in |   |   | Variance in |   |
|--------------------|--------|-----------------------------|--------|--------|-------------|--------|--------|-------------|--------|
|               |   | 2011                        |   |   | 2010        |   |   | Dollars     |   |   | Percent |   |
| Net revenues:      |   |                        |   |   |        |   |   |        |   |   |   |   |
| Film:              |   |                        |   |   |        |   |   |        |   |   |   |   |
| Automotive film    |   | $                           | 6,154  |   |        | $      | 4,460  |        |   | $ | 1,694 |   |   |   | 38 | % |
| Window film        |   |                        | 6,170  |   |        |   | 4,696  |        |   |   | 1,474 |   |   |   | 31 | % |
| Architectural      |   |                        | 1,851  |   |        |   | 1,298  |        |   |   | 553 |   |   |   | 43 | % |
| Other              |   |                        | 173    |   |        |   | 27     |        |   |   | 146 |   |   |   | 541 | % |
| Total film         |   |                        | 14,348 |   |        |   | 10,481 |        |   |   | 3,867 |   |   |   | 37 | % |
| Glass              |   |                        | 183    |   |        |   | -      |        |   |   | 183 |   |   | nm |   |
| Total net revenues |   | $                           | 14,531 |   |        | $      | 10,481 |        |   | $ | 4,050 |   |   |   | 39 | % |

|                       |   | Three Months EndedMarch 31, |   |   | Variance in |   |   | Variance in |   |
|----------------------------|--------|-----------------------------|--------|--------|-------------|--------|--------|-------------|--------|
|                       |   | 2011                        |   |   | 2010        |   |   | Dollars     |   |   | Percent |   |
| Gross profit               |   | $                           | 6,127  |   |        | $      | 4,713  |        |   | $ | 1,414 |   |   |   | 30 | % |
| Percentage of net revenues |   |                        | 42     | %      |        |   | 45     | %           |   |   |   |   |   |   |   |   |

----

Index

|                                |   | Three Months EndedMarch 31, |   |   | Variance in |   |   | Variance in |   |
|-------------------------------------|--------|-----------------------------|--------|--------|-------------|--------|--------|-------------|--------|
|                                |   | 2011                        |   |   | 2010        |   |   | Dollars     |   |   | Percent |   |
| Research and development            |   | $                           | 1,034  |   |        | $      | 792    |        |   | $ | 242 |   |   |   | 31 | % |
| Percentage of net revenues          |   |                        | 7      | %      |        |   | 8      | %           |   |   |   |   |   |   |   |   |
|                                |   |                        |   |   |        |   |   |        |   |   |   |   |   |   |   |   |
| Selling, general and administrative |   | $                           | 2,939  |   |        | $      | 2,000  |        |   | $ | 939 |   |   |   | 47 | % |
| Percentage of net revenues          |   |                        | 20     | %      |        |   | 19     | %           |   |   |   |   |   |   |   |   |
|                                |   |                        |   |   |        |   |   |        |   |   |   |   |   |   |   |   |
| Total                               |   | $                           | 3,973  |   |        | $      | 2,792  |        |   | $ | 1,181 |   |   |   | 42 | % |
| Percentage of net revenues          |   |                        | 27     | %      |        |   | 27     | %           |   |   |   |   |   |   |   |   |

----

Index

----

Index

|                                                |   |   Total |   |   | Less Than1 Year |   |   |   1-3 Years |   |   |   3-5 Years |   |   | Greater Than5 Years |   |
|-----------------------------------------------------|--------|--------------|--------|--------|-----------------|--------|--------|------------------|--------|--------|------------------|--------|--------|---------------------|--------|
| Term debt (1)                                       |   | $            | 4,036  |   |            | $      | 770    |             |   | $      | 1,330            |   |   | $                   | 705    |   |   | $ | 1,231 |   |
| Capital lease obligations (1)                       |   |         | 515    |   |            |   | 322    |             |   |   | 136              |   |   |                | 57     |   |   |   | - |   |
| Term debt and capital lease obligation interest (1) |   |         | 649    |   |            |   | 187    |             |   |   | 247              |   |   |                | 144    |   |   |   | 71 |   |
| Other obligations (2)                               |   |         | 4,852  |   |            |   | 1,794  |             |   |   | -                |   |   |                | -      |   |   |   | 3,058 |   |
| Operating leases (3)                                |   |         | 954    |   |            |   | 472    |             |   |   | 482              |   |   |                | -      |   |   |   | - |   |
| Total                                               |   | $            | 11,006 |   |            | $      | 3,545  |             |   | $      | 2,195            |   |   | $                   | 906    |   |   | $ | 4,360 |   |

| (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 commitments to purchase manufacturing material (less than one year) and 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. |
|-----------|-----------------------------------------------------------------------------------------------------------|

Item 

----

Index

Item 

|   | (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 March 31, 2011 in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

PART 

Item 

Item 

----

Index

Item 

Item 

Item 

Item 

| 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                |

----

Index

SIGNATURES

| Dated:    | May 12, 2011 |            |                                        |
|--------------------------|--------------|-----------------|---------------------------------------------|
|                     |         |            | 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 |

----