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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
 
For the quarterly period ended April 3, 2005
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from to
 

Commission File Number: 0-15930
___________________

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

 
Delaware
(State or other jurisdiction of incorporation or organization)
  
94-2551470
(I.R.S. Employer Identification Number)
  
 
 
  
 
  
 
3975 East Bayshore Road, Palo Alto, California
(Address of principal executive offices)
  
94303
(Zip Code)
  


Registrant's telephone number, including area code: (650) 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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o    No x

As of May 2, 2005, there were 26,778,482 shares of the Registrant's Common Stock outstanding.
 
1

SOUTHWALL TECHNOLOGIES INC.

INDEX

   
Page
PART I - FINANCIAL INFORMATION
     
Item 1
  
 
3
 
4
 
5
 
6
Item 2
13
Item 3
19
Item 4
30
     
PART II - OTHER INFORMATION
     
Item 1
31
Item 2
31
Item 3
31
Item 4
31
Item 5
31
Item 6
31
 
32
 
2

PART I. FINANCIAL INFORMATION

Item 1—Financial Statements:
SOUTHWALL TECHNOLOGIES INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

   
April 3,
  
December 31,
  
ASSETS
  
  2005
  
2004
  
Current assets:
          
Cash and cash equivalents
  
$
4,519
  
$
4,547
  
Restricted cash
    
475
    
686
  
Accounts receivable, net of allowance for doubtful accounts of
              
$284 at April 3, 2005 and $292 at December 31, 2004
    
6,401
    
6,186
  
Inventories, net
    
8,363
    
8,355
  
Other current assets
    
2,354
    
1,757
  
Total current assets
    
22,112
   
21,531
  
Property, plant and equipment, net
    
19,596
    
21,110
  
Restricted cash loans
    
1,093
    
1,149
  
Other assets
    
1,130
    
1,157
  
Total assets
  
$
43,931
  
$
44,947
  
               
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
              
               
Current liabilities:
              
Current portion of long term debt and capital leases
  
$
1,306
  
$
1,463
  
Line of credit
    
2,975
    
2,975
  
Accounts payable
    
2,536
    
2,544
  
Accrued compensation
    
1,001
    
1,378
  
Other accrued liabilities
    
6,164
    
6,643
  
Total current liabilities
    
13,982
    
15,003
  
Term debt and capital leases
    
10,468
    
11,644
  
Government grants advanced
    
475
    
505
  
Other long term liabilities
    
3,134
    
3,222
  
Total liabilities
    
28,059
    
30,374
  
               
Commitments and contingencies (Note 5)
              
               
Series A 10% cumulative preferred stock, $0.001 par value; $1.00
              
stated value; 5,000 shares authorized, 4,893 shares outstanding
              
(Liquidation preference $4,893)
    
4,810
    
4,810
  
               
Stockholders’ equity:
              
Common stock, $0.001 par value; 50,000 authorized, 26,778
              
and 26,488 shares outstanding at April 3, 2005 and
             
December 31, 2004, respectively
    
26
    
26
  
Capital in excess of par value
    
78,360
    
77,957
  
Accumulated other comprehensive income:
              
Cumulative translation adjustment
    
3,687
    
4,358
  
Deferred compensation
    
(132
)
  
-
  
Accumulated deficit
    
(70,879
)
  
(72,578
)
Total stockholders’ equity
    
11,062
    
9,763
  
               
Total liabilities, redeemable preferred stock and stockholders’ equity
  
$
43,931
  
$
44,947
  
 
See accompanying notes to unaudited condensed consolidated financial statements.

3
 
SOUTHWALL TECHNOLOGIES INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
   
Three months ended
  
   
April 3,
  
March 28,
  
 
  
2005
  
2004
  
           
Net revenues
  
$
15,647
  
$
11,067
  
Cost of revenues
    
11,270
    
8,466
  
               
Gross profit
    
4,377
   
2,601
  
               
Operating expenses:
              
Research and development
    
696
    
810
  
Selling, general and administrative
    
2,026
    
3,063
  
Impairment recoveries for long-lived assets
    
(170
)
  
--
  
               
Total operating expense
    
2,552
   
3,873
  
               
Income (loss) from operations
    
1,825
    
(1,272
)
               
Interest expense, net
    
(271
)
  
(675
)
Cost of warrants issued
    
--
    
(4,818
)
Other income, net
    
292
    
430
  
Income (loss) before provision for income taxes
    
1,846
    
(6,335
)
               
Provision for income taxes
    
147
    
355
  
               
Net income (loss)
    
1,699