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Southwall Announces Second-Quarter Fiscal 2004 Results
[August 06, 2004]

Southwall Announces Second-Quarter Fiscal 2004 Results

PALO ALTO, Calif. --(Business Wire)-- Aug. 6, 2004 -- Southwall Technologies Inc. (OTCBB:SWTX) released its financial results for the second quarter Fiscal 2004 following the close of market on August 6th.

Selected Second Quarter 2004 Sequential Operational Highlights (Q2 versus Q1)

-- Revenues increase from $11.1 to $14.5 million

-- Gross Margins improve from 24% to 39%

-- Net Income improves to $1.2 million versus a Net Loss of $6.7 million

Net revenues for the second quarter 2004 were $14.5 million, compared with $11.1 million for the first quarter of 2004 and $15.3 million for the same quarter in 2003.

Southwall's second quarter 2004 net income was $1.2 million, or a gain of $0.04 per fully diluted share, compared with a net loss of $6.7 million, or a loss of $0.53 per share, for the first quarter of 2004 and with a net loss of $1.7 million, or $0.14 per share, for the same quarter a year ago. During the second quarter 2004 Southwall incurred a non-cash charge of $1.4 million associated with warrants issued in conjunction with the financing completed during the previous quarter. Also included in the second quarter operating expenses was a one-time gain on an asset sale of $1.4 million.



"Southwall had a very good second quarter 2004. Our revenues continued to grow for the second consecutive quarter, and our orders during the quarter also increased over first quarter levels. Our more efficient manufacturing operations delivered excellent gross margins and we achieved profitability one to two quarters ahead of schedule," said Thomas G. Hood, Southwall's president and chief executive officer. "The demand for our products remains strong and I believe that Southwall will continue to build market share in the electronic display market as our plasma display filter products continue to gain customer acceptance."

The company will hold a teleconference at 2:00 p.m. PT / 5:00 p.m. ET today to discuss the results in more detail.


This call will be open to all investors via a webcast accessible at www.southwall.com and by phone. Both phone and webcast replays will be available for approximately one week after the teleconference, beginning approximately two hours after the call ends.

How to Access the Webcast

Go to the Investor Relations page of the Southwall website at www.southwall.com and click on the CCBN webcast icon. From here, you can listen to the teleconference, assuming that your computer system is configured properly.

How to Access the Call

Using access code # 8768993, domestic U.S. callers can dial 877-481-7179, while international callers can dial 706-634-0663. The phone replay will be accessible at 800-642-1687 or 706-645-9291, access code # 8768993.

About Southwall Technologies Inc.

Southwall Technologies Inc. designs and produces thin film coatings that selectively absorb, reflect or transmit light. Southwall products are used in a number of automotive, electronic display and architectural glass products to enhance optical and thermal performance characteristics, improve user comfort and reduce energy costs. Southwall is an ISO 9001:2000-certified manufacturer and sells advanced thin film coatings to over 25 countries around the world. Southwall's customers include Audi, BMW, DaimlerChrysler, Hewlett-Packard, Mitsubishi Electric, Mitsui Chemicals, Peugeot-Citroen, Philips, Pilkington, Renault, Saint-Gobain Sekurit, and Volvo.

This press release may contain forward-looking statements, including, without limitation, statements regarding the Company's expectations, beliefs, intentions, or strategies regarding the future. All forward-looking statements in this press release are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those presented. These risks include the possibility that our recent financings will not be sufficient to permit Southwall to continue as a going concern, that the Company may not build or may lose market share in the Electronic Display (or other) markets, that the Company's Class B products may not gain customer acceptance, that the Company's expected future results will be materially worse than estimated, that the Company will not receive stockholder approval of an amendment of its charter (which would result in acceleration of $4.5 million of convertible notes and result in the Company having insufficient shares available to cover all of its obligations to issue equity), that the Company's restructuring efforts will not be sufficient to allow the Company to be profitable in future quarters or continue as a going concern, that there will be decline in one or more portions of our business in 2004 or thereafter, that our margins will decrease from those in the second quarter, that our expenses will increase, and that the Company will not be able to secure additional financing, as well as risks associated with its failure to meet covenants under the Needham investment agreement or credit facilities, and strains on the Company's liquidity. Further risks are detailed in the Company's filings with the Securities and Exchange Commission, including those set forth in the Company's most recent Annual Report on Form 10-K for the year ended December 31, 2003, filed on April 14, 2004, as amended by Form 10-K/A filed on May 7, 2004, and the Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 2004, filed on May 17, 2004. -0- *T SOUTHWALL TECHNOLOGIES INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Three months ended Six months ended June 27 June 29 June 27 June 29 2004 2003 2004 2003 ---- ---- ---- ---- Net revenues $14,548 $15,328 $25,615 $30,549 Cost of sales 8,936 12,405 17,402 24,588 ------ ------ ------ ------ Gross profit 5,612 2,923 8,213 5,961 Operating expenses: Research and development 771 1,517 1,581 3,185 Selling, general and administrative 2,520 3,000 5,583 5,876 Restructuring expenses - - - (65) Impairment recoveries for long-lived assets (1,428) - (1,428) - ------ ------ ------ ------ Total operating expenses 1,863 4,517 5,736 8,996 ------ ------ ------ ------ Income (loss) from operations 3,749 (1,594) 2,477 (3,035) Interest expense (635) (217) (1,240) (509) Cost of warrants issued (1,473) - (6,291) - Other (112) 274 248 363 ------ ------ ------ ------ Income (loss) before provision for income taxes 1,529 (1,537) (4,806) (3,181) Provision for income taxes 343 176 698 191 ------ ------ ------ ------ Net income (loss) $1,186 $(1,713) $(5,504) $(3,372) ====== ====== ====== ====== Net income (loss) per share: Basic $0.09 $(0.14) $(0.44) $(0.27) Diluted $0.04 $(0.14) $(0.44) $(0.27) Weighted average shares of common stock and dilutive potential common stock: Shares used in computation, basic and diluted Basic 12,548 12,532 12,548 12,530 Diluted 31,416 12,532 12,548 12,530 *T -0- *T SOUTHWALL TECHNOLOGIES INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) June 27, December 31, 2004 2003 ---- ---- ASSETS ------ Current assets: Cash and cash equivalents $1,424 $1,152 Restricted cash 557 739 Accounts receivable, net of allowance for bad debt of $511 at June 27, 2004 and $778 at December 31, 2003 5,715 7,096 Inventories, net 6,671 6,830 Other current assets 3,420 2,617 ------ ------ Total current assets 17,787 18,434 Property, plant & equipment 19,988 21,787 Restricted cash loans 1,024 1,066 Other assets 1,240 434 ------ ------ Total assets $40,039 $41,721 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Current portion of long term debt and capital leases $1,235 $2,042 Line of credit 4,549 6,844 Accounts payable 3,509 6,315 Accrued compensation 1,007 1,392 Other accrued liabilities 6,902 6,051 ------ ------ Total current liabilities 17,202 22,644 Term debt and capital leases 11,625 13,658 Convertible promissory notes 3,303 -- Government grants advanced 558 614 Other long term liabilities 12,729 3,084 ------ ------ Total liabilities 45,417 40,000 Stockholders' equity (deficit): Common stock, $0.001 par value; 20,000 shares authorized, and 12,550 and 12,548 shares outstanding at June 27, 2004 and December 31, 2003, respectively 13 13 Capital in excess of par value 69,795 70,861 Accumulated other comprehensive income: Translation gain on subsidiary 2,711 3,240 Accumulated deficit (77,897) (72,393) ------ ------ Total stockholders' equity (deficit) (5,378) 1,721 ------ ------ Total liabilities and stockholders' equity $40,039 $41,721 ====== ====== *T

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