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 June 29, 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 June 29, 1997 there were 7,366,596 shares of the Registrant's Common Stock
outstanding.

This report, including all attachments, contains 13 pages.

                                       1
<PAGE>


                           SOUTHWALL TECHNOLOGIES INC.

                                      INDEX



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

                          PART 1 FINANCIAL INFORMATION

Item 1   Financial Statements:

         Consolidated Balance Sheet - June 29, 1997
         and December 31, 1996..........................................  3

         Consolidated Statement of Operations -
         three month and six month periods ended
         June 29, 1997 and June 30, 1996................................  4

         Consolidated Statement of Cash Flows -
         six months ended June 29, 1997
         and June 30, 1996 .............................................  5

         Consolidated Statement of Stockholders' Equity -
         six months ended June 29, 1997.................................  6

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

Item 2   Management's Discussion and Analysis
         of Financial Condition and Results of Operations ..............  9


                            PART II OTHER INFORMATION

Item 1   Legal Proceedings.............................................. 13

Item 2   Changes in Securities.......................................... 13

Item 3   Defaults Upon Senior Securities................................ 13

Item 4   Submission of Matters to a Vote of Stockholders................ 13

Item 5   Other Information.............................................. 13

Item 6   Exhibits and Reports on Form 8-K............................... 13

         Signatures .................................................... 14



                                       2
<PAGE>


                          PART 1 FINANCIAL INFORMATION

Item 1  Financial Statements

                           CONSOLIDATED BALANCE SHEET
                      (in thousands, except per share data)

                                                June 29, 1997  December 31, 1996
                                                -------------  -----------------
                                                 (Unaudited)
ASSETS

Current assets:
     Cash and cash equivalents                    $ 10,057         $  7,419
     Short-term investments                              7                7
     Accounts receivable, net of allowance                        
      for doubtful accounts of $819 and $682         9,706            7,097
     Inventories                                     9,364            8,406
     Other current assets                              960              828
                                                  --------         --------
            Total current assets                    30,094           23,757
                                                                  
Property and equipment, net                         21,954           17,223
Other assets                                         1,488            1,529
                                                  --------         --------
                                                                  
     Total assets                                 $ 53,536         $ 42,509
                                                  ========         ========
                                                                  
LIABILITIES AND STOCKHOLDERS' EQUITY                              
                                                                  
Current liabilities:                                              
     Accounts payable                             $  3,458         $  2,635
   Accrued compensation                              1,617            2,141
     Other accrued liabilities                       1,537            1,954
     Current portion of long-term debt               1,191            1,181
                                                  --------         --------
                                                                  
            Total current liabilities                7,803            7,911
                                                                  
Long-term debt                                      10,986            6,591
Deferred income taxes                                  410              410
                                                  --------         --------
             Total liabilities                      19,199           14,912
                                                  --------         --------
                                                                  
Commitments                                                       
                                                                  
Stockholders' equity:                                             
     Common stock, $.001 par value,                               
      20,000 shares authorized:                                   
      Issued and outstanding: 7,636 and 6,917            8                7
     Capital in excess of par value                 51,767           46,673
     Notes receivable                                 (436)            (596)
     Accumulated deficit                           (15,544)         (16,912)
     Less treasury stock of 330 and 390             (1,458)          (1,575)
                                                  --------         --------
                                                                  
           Total stockholders' equity               34,337           27,597
                                                  --------         --------
     Total liabilities and                                        
            stockholders' equity                  $ 53,536         $ 42,509
                                                  ========         ========
                                                                  
                                                                  
See accompanying notes to consolidated financial statements. 

                                       3
<PAGE>


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


                                      Three Months Ended     Six Months Ended
                                      ------------------     ----------------
                                      June 29,   June 30,    June 29,  June 30,
                                       1997       1996        1997      1996
                                       ----       ----        ----      ----

Net revenues                         $ 11,684   $ 10,990    $ 22,539   $ 21,627
                                     --------   --------    --------   --------

Costs and expenses:
   Cost of sales                        7,609      7,548      14,589     14,957
   Tempe start up costs                   370       --           548       --
   Research & development                 727        575       1,434      1,151
   Selling, general and
    administrative                      2,384      2,107       4,545      4,207
                                     --------   --------    --------   --------

    Total costs and expenses           11,090     10,230      21,116     20,315
                                     --------   --------    --------   --------

Income from operations                    594        760       1,423      1,312

Interest income (expense) net              48        (10)         15        (32)
                                     --------   --------    --------   --------

Income before income taxes                642        750       1,438      1,280

Provision for income taxes                 40         46          70         65
                                     --------   --------    --------   --------

Net income                           $    602   $    704    $  1,368   $  1,215
                                     ========   ========    ========   ========

Net income per share                 $   0.08   $    .10    $    .18   $    .18
                                     ========   ========    ========   ========

Weighted average shares of common
 stock and common stock equivalents     7,766      7,107       7,485      6,934
                                     ========   ========    ========   ========



See accompanying notes to consolidated financial statements.

                                       4
<PAGE>


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


                                                           Six Months Ended
                                                           ----------------
                                                    June 29, 1997  June 30, 1996
                                                    -------------  -------------

Cash flows from operating activities:
     Net income                                          $  1,368    $  1,215
     Adjustments to reconcile net income to
      net cash provided by (used in) operating
      activities:
     Depreciation and amortization                          1,256       1,144
     Decrease (increase) in accounts receivable            (2,609)     (2,221)
     Decrease (increase) in inventories                      (958)       (130)
     Decrease (increase) in other current assets             (132)        445
     (Decrease) increase in accounts payable
      and accrued liabilities                                 (25)        654
                                                         --------    --------

Cash provided by (used in) operating
 activities                                                (1,100)      1,107
                                                         --------    --------

Cash flows from investing activities:
     Decrease (increase) in short-term investments           --         1,127
     Expenditures for property and equipment
      and other assets                                     (5,946)     (1,482)
                                                         --------    --------

Net cash (used in) provided by investing
 activities                                                (5,946)       (355)
                                                         --------    --------

Cash flows from financing activities:
     Increase in (reduction of) long-term debt              4,405         (71)
     Collection of stock option loans                         160        --
     Sale of common stock, net                              4,931        --
     Issuance of treasury stock, net                          188         672
                                                         --------    --------

Net cash (used in) provided by financing activities         9,684         601
                                                         --------    --------

Net increase (decrease) in cash and cash
 equivalents                                                2,638       1,353

Cash and cash equivalents, beginning of year                7,419       1,434
                                                         --------    --------

Cash and cash equivalents, end of period                 $ 10,057    $  2,787
                                                         ========    ========

Supplemental schedule of non-cash investing
 and financing activities:

     Treasury stock used for payment of interest         $     93    $     93



See accompanying notes to consolidated financial statements.

                                       5
<PAGE>


                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>

                         Six Months Ended June 29, 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

Interest paid with stock                                    31                                            62              93

Exercise of options               52                       124                                             1             125
 
Stock option loans                                                      160                                              160

Sale of stock, net               667          1          4,930                                                         4,931

Sales to employees under                                     9                                            54              63
  Stock Purchase Plan

Net income                                                                              1,368                          1,368
                               -----         --        -------       ------         ---------       --------         -------
Balance; June 29, 1997         7,636         $8        $51,767        $(436)         $(15,544)       $(1,458)        $34,337
                               =====         ==        =======       ======         =========       ========         =======

<FN>

See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
                                       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 June 29, 1997 and
         December 31, 1996, consisted of the following:

                                           June 29, 1997    December 31, 1996
                                           -------------    -----------------

                       Raw materials           $3,862            $2,869
                       Work-in-process          2,406             1,848
                       Finished goods           3,096             3,689
                                               ------            ------
                           Total               $9,364            $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 has agreed to increase its
         minimum  order  of  anti-reflective  film  beginning  July 1,  1997 and
         extending  through  December  31,  2000,  and  Southwall  has agreed to
         install any necessary additional  manufacturing  capacity to supply the
         minimum quantities required by this agreement.

         The Company  began  occupying a new leased  facility  located in Tempe,
         Arizona,  on June 27, 1997,  and is currently  installing the equipment
         required 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.  On December  16, 1996,  the Company  borrowed $5 million
         from an institutional  lender.  On April 9, 1997, the Company signed an
         agreement with Teijin Limited of Japan  

                                       7
<PAGE>

         (Teijin), a major raw material supplier of the Company,  which included
         arrangements  for  additional   financing  for  the  new  manufacturing
         facility  and for related  potential  working  capital  growth.  Teijin
         purchased  667,000  shares of the Company's  common stock at a price of
         $7.50 per  share,  and  guaranteed  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  stock
         purchase transaction of approximately $5 million was completed on April
         28, 1997. In addition,  a 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 seven and one half
         (7.5) years,  with a four (4) year interest only grace period,  payable
         semi  annually at an interest rate of BBA Libor,  fixed semi  annually,
         plus seven  sixteenths  percent.  In addition,  a loan guarantee fee of
         nine sixteenths  percent (.5625%) per annum is payable to Teijin on the
         same payment schedule as the loan interest payments.


                                       8
<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(TM)
         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.

         Six Months Ended June 29, 1997 and June 30, 1996

         Net  revenue  increased  to $22.5  million  for the first six months of
         1997,  compared to $21.6  million for the similar  period of 1996.  The
         increase  was due  primarily  to a $1.5  million  increase  in sales of
         anti-reflective  film  compared  to the similar  period last year.  Net
         sales of energy conservation products decreased by $.6 million compared
         to the same period last year,  primarily due to  discontinued  products
         which were sold during the first quarter of 1996.

         Cost of sales,  including  Tempe start up costs,  for the first half of
         1997 was 67% of net revenue,  compared to 69% for the similar period of
         1996.  Cost for 1997  includes  approximately  $.5 million or 2% of net
         revenues for start up costs of a new  manufacturing  facility in Tempe,
         Arizona.   The  percentage  decrease  was  primarily   attributable  to
         production  efficiency  improvements  which have  resulted in increased
         throughputs and improved yields from major production equipment on most
         products. Most of these improvements have taken place cumulatively over
         the nine month period  beginning in October 1996

                                       9
<PAGE>

         through June 30, 1997. There were also some  operational  problems that
         occurred  during the first quarter of 1996,  and higher cost of certain
         metals used in the coating  process for most of the Company's  products
         during the first half of 1996.

         Research and development expenses, as a percent of net revenue, were 6%
         for the first six months of 1997, compared to 5% for the similar period
         in 1996.  The absolute  dollars  increased to $1.4 million in 1997 from
         $1.2 million in 1996. The increase was primarily attributable to higher
         new  product  development,   primarily  in  film  for  laminated  glass
         products,  including  film for the  automotive  and  California  Series
         commercial and residential markets.

         Selling,  general  and  administrative  expense,  as a  percent  of net
         revenue, increased to 20% in the first six months of 1997, from 19% for
         the similar  period in 1996.  The  absolute  dollars  increased to $4.5
         million in 1997 from $4.2 million in 1996.  The increase was  primarily
         attributable to increased  headcount to broaden selling coverage and to
         handle   increased  order  processing   requirements,   accompanied  by
         increased advertising and promotions expense.

         Net  interest  income  increased  in 1997  compared  to 1996  due to an
         increased  amount of money invested and to  capitalization  of interest
         expense   related  to  the   construction   in   progress  of  the  new
         manufacturing facility in Tempe.

         As a result  of the  factors  discussed  above,  the  Company  reported
         pre-tax  income  of $1.4  million  for the  first  six  months of 1997,
         compared to pre-tax  income of $1.3  million for the similar  period in
         1996.


         Three Months Ended June 29, 1997 and June 30, 1996

         Net product sales  increased to $11.7 million for the second quarter of
         1997,  compared to $11.0  million for the similar  period of 1996.  The
         increase  was due  primarily  to a $.5  million  increase  in  sales of
         anti-reflective  film and small increases in several other  electronics
         products totaling $.2 million.  Sales of energy  conservation  products
         was essentially flat with the same period last year.

         Cost of sales for the second  quarter  of 1997 was 68% of net  revenue,
         compared to 69% for the similar period of 1996.  Cost for 1997 includes
         approximately $.4 million or 3% of net revenues for start up costs of a
         new  manufacturing  facility  in  Tempe,  Arizona.  Start up costs  are
         expected to increase in the third quarter 1997, and initial  production
         inefficiencies  are also  anticipated  through the end of the year. The
         percentage  decrease  in cost of sales  from 1996,  excluding  start up
         costs, was primarily attributable to production efficiency improvements
         which have  resulted in increased  throughputs  and higher  yields from
         major production equipment on most products. Most of these improvements
         have taken place  cumulatively  over the nine month period beginning in
         October 1996 through June 30, 1997. During the second quarter 1997, the
         Company  absorbed  some  higher  costs  from  inefficiencies  and waste
         resulting  from the scale up for  production  of new  variations of its
         Heat Mirror XIR(TM) product being sold into the automotive window films
         market, which partially offset the improvements  mentioned above. These
         scale up  inefficiencies  are anticipated to continue to some extent at
         least into the third and fourth quarters of 1997.

         Research and development expenses, as a percent of net revenue, were 6%
         for the second  quarter of 1997,  compared to 5% for the similar period
         in 1996. The absolute dollars increased to $.7 million in 1997 from $.6
         million in 1996. The increased  expense was primarily  attributable  to
         higher new product 

                                       10
<PAGE>

         development,  primarily in film for laminated glass products, including
         film  for  the  automotive  and   California   Series   commercial  and
         residential markets.

         Selling,  general  and  administrative  expense,  as a  percent  of net
         revenue,  increased to 20% in the second quarter of 1997,  from 19% for
         the similar  period in 1996.  The absolute  dollar  increase  from $2.1
         million in 1996 to $2.4 million in 1997, is primarily  attributable  to
         increased headcount to broaden selling coverage and to handle increased
         order processing requirements, accompanied by increased advertising and
         promotions expense.

         Net  interest  income  increased  in 1997  compared  to 1996  due to an
         increased  amount of money invested and to  capitalization  of interest
         expense   related  to  the   construction   in   progress  of  the  new
         manufacturing facility.

         As a result  of the  factors  discussed  above,  the  Company  reported
         pre-tax income of $.6 million for the second quarter of 1997,  compared
         to pre-tax income of $.8 million for the similar period in 1996.


         Liquidity and Capital Resources

         At June 29, 1997,  the Company's net working  capital was $22.3 million
         compared with $15.8 million at December 31, 1996. On December 16, 1996,
         the  Company  borrowed  $5  million  from an  institutional  lender for
         partial financing of the new manufacturing  facility in Tempe, Arizona.
         On April 9, 1997,  the Company  signed an agreement with Teijin Limited
         of Japan (Teijin), a major raw material supplier of the Company,  which
         included   arrangements   for   additional   financing   for   the  new
         manufacturing  facility  and  for  related  potential  working  capital
         growth.  Teijin purchased  667,000 shares of the Company's common stock
         at a price of $7.50 per share, and guaranteed 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 stock
         purchase transaction of approximately $5 million was completed on April
         28, 1997. In addition,  a 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 new  manufacturing  facility is currently in
         process  and is on  schedule  for  startup in late  September  or early
         October  1997,  and will be dedicated  initially to the  production  of
         anti-reflective  film product to fulfill the supply requirements of the
         supply agreement with Sony. Prior to the borrowing  required to finance
         the new  facility,  the Company had financed  itself  through cash flow
         from operations and its existing cash balances.

         From  December  31,  1996,  to  June  29,  1997,  cash  and  short-term
         investments  increased by $2.6 million.  Major  increases  were derived
         primarily from  financing  activities,  as stated above,  totaling $9.7
         million, net of debt repayments,  and net income of $1.4 million. Major
         uses of cash were capital  expenditures  of $5.9 million and  increased
         accounts   receivable  by  $2.6  million.   The  increase  in  accounts
         receivable  is  primarily  attributable  to the  increase in  shipments
         billed in June 1997 by $2.0 million compared to December 1996.

         Additions to property and  equipment  were  approximately  $4.6 million
         during the second  quarter of 1997,  including  $4.1 million on capital
         plant and equipment for the new manufacturing facility mentioned above.
         This  brings  the  total   capital   investment  to  date  on  the  new
         manufacturing  facility to $7.5 million,  and the Company currently has
         additional  commitments for  expenditures of  approximately  $4 million
         during 1997 on this project, which when completed is expected to cost a
         total of approximately  $14.5 million.  The Company 

                                       11
<PAGE>

         anticipates  total capital  expenditures of approximately  $2.5 million
         during 1997 for general replacements and discretionary  improvements of
         current facilities.

         At June 29, 1997,  the Company had $10.1 million of cash and short-term
         investments and a $6 million revolving line of credit, which is subject
         to certain financial  covenants,  which at June 29, 1997 restricted the
         amount available to the Company to $3.7 million.  The revolving line of
         credit  expires June 5, 1998,  but may be extended for  additional  one
         year terms with the bank's approval. As of June 29, 1997, there were no
         borrowings under this line of credit. Existing working capital and cash
         generated  from  operations  are expected to be adequate to satisfy the
         Company's capital and operating  requirements of existing facilities at
         least through 1997.

         Debt and equity  financing  concluded in December 1996 and during April
         and May 1997,  mentioned  above, are expected to be adequate to satisfy
         capital and operating requirements of the new manufacturing facility at
         least through 1997.


                                       12
<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 June 29, 1997.


         Item 5   Other Information
                  Not applicable


         Item 6   Exhibits and Reports on Form 8-K

                    (a)   Exhibits -
                    
                           10.88   Basic  Agreement dated April 9, 1997, for the
                                   sale of 667,000 shares of the Company's stock
                                   to Teijin  Limited,  a Japanese  corporation,
                                   and for mutually  beneficial  cooperation and
                                   collaboration  between  Teijin and  Southwall
                                   Technologies Inc.

                           10.89   Credit  Agreement dated May 6, 1997,  between
                                   Sanwa    Bank,    Limited    and    Southwall
                                   Technologies Inc.

                           10.90   Reimbursement  and Security  Agreement  dated
                                   May  6,  1997,   between  Teijin  Limited,  a
                                   Japanese    corporation,     and    Southwall
                                   Technologies Inc.

                           10.91   Promissory  Note dated May 6, 1997 obligating
                                   Southwall  Technologies  Inc.  to Sanwa Bank,
                                   Limited in the amount of $10 million.


                    b)     Reports of Form 8-K - None


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<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:  August 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



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