Southwall Announces Earnings in Q2 2006

Selected Second Quarter Financial Highlights

-- Second quarter revenues of $11.3 million decreased 25% from $15.2 million in the second quarter of 2005 and increased 13% from $10.0 million in the first quarter of 2006.

-- Second quarter 2006 gross margin was 36%, an increase of 1% from the second quarter 2005 margin of 35% and a decrease of 2% over first quarter of 2006 gross margin of 37%.

-- Second quarter 2006 net loss was $1.4 million, as compared to second quarter 2005 net income of $1.4 million and a first quarter 2006 net loss of $1.3 million.

-- Second quarter 2006 net loss per fully diluted share was $0.06, as compared to second quarter 2005 net income per fully diluted share of $0.04 and first quarter 2006 net loss per fully diluted share of $0.05.

"We continued to reduce our cost of operations in the second quarter of 2006 by completing the closure of our Palo Alto manufacturing operations in April. Furthermore, in July we completed the relocation of our headquarters to a new location in Palo Alto," commented Thomas G. Hood, President and CEO. "We expect these initiatives to reduce our fixed costs, while we continue to invest in our research and development activities aimed at reducing product costs and developing new products."

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.