UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-Q/A

(Mark One)

     [X]  QUARTERLY  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE  SECURITIES
          EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

                                       OR

     [ ]  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: 814-61

                          CAPITAL SOUTHWEST CORPORATION
             (Exact name of registrant as specified in its charter)

                    Texas                                     75-1072796
(State or other jurisdiction of  incorporation             (I.R.S. Employer
              or organization)                            Identification No.)

12900 Preston Road, Suite 700, Dallas, Texas                   75230
(Address of principal executive offices)                      (Zip Code)


       Registrant's telephone number, including area code: (972) 233-8242

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

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the Exchange  Act.  (Check
One):

Large accelerated filer ____   Accelerated filer  X   Non-accelerated filer ____


Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes     No X


Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

      3,889,151 shares of Common Stock, $1 Par Value as of January 9, 2008




                                TABLE OF CONTENTS

 PART I. FINANCIAL INFORMATION                                          Page No.

     ITEM 1. Consolidated Financial Statements (1)

             Consolidated Statements of Financial Condition
                      June 30, 2007 (Unaudited) and March 31, 2007.............3

             Consolidated Statements of Operations (Unaudited)
                      For the three months ended June 30, 2007
                      and June 30, 2006........................................4

             Consolidated Statements of Changes in Net Assets
                      For the three months ended June 30, 2007 (Unaudited)
                      and year ended March 31, 2007............................5

             Consolidated Statements of Cash Flows (Unaudited)
                      For the three months ended June 30, 2007 and
                      June 30, 2006............................................6

             Portfolio of Investments
                      June 30, 2007............................................7

             Notes to Consolidated Financial Statements.......................12

         ITEM 2.      Management's Discussion and Analysis of Financial
                          Condition and Results of Operations.................19

         ITEM 3.      Quantitative and Qualitative Disclosure About
                          Market Risk.........................................21

         ITEM 4.      Controls and Procedures.................................22

PART II.     OTHER INFORMATION

         ITEM 1A.  Risk Factors...............................................23

         ITEM 6.      Exhibits and Reports on Form 8-K........................23

Signatures ...................................................................24


(1) As described in Note 2, the financial  statements  for fiscal years 2007 and
2008 have been restated.





                                       2




PART I.  FINANCIAL INFORMATION

Item 1.    Consolidated Financial Statements

                 CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
                 Consolidated Statements of Financial Condition

Assets                                                 June 30, 2007    March 31, 2007
                                                       -------------    -------------
                                                        as restated      as restated
                                                        (Unaudited)
                                                                  

Investments at market or fair value
      Companies more than 25% owned
        (Cost: June 30, 2007 - $28,758,246
         March 31, 2007 - $28,632,356)                 $ 537,279,981    $ 526,993,983
      Companies 5% to 25% owned
        (Cost: June 30, 2007 - $18,948,896
        March 31, 2007 - $18,798,896)                     81,892,002       76,398,002
      Companies less than 5% owned
        (Cost: June 30, 2007 - $31,982,402
        March 31, 2007 - $24,211,045)                     87,178,742       77,763,048
                                                       -------------    -------------
      Total investments
        (Cost: June 30, 2007 - $79,689,544
        March 31, 2007 - $71,642,297)                    706,350,725      681,155,033
Cash and cash equivalents                                 31,264,000       38,844,203
Receivables                                                  152,972          337,892
Other assets                                               9,227,147        9,170,185
                                                       -------------    -------------
      Totals                                           $ 746,994,844    $ 729,507,313
                                                       =============    =============

Liabilities and Shareholders' Equity

Other liabilities                                      $   1,320,521    $   1,457,847
Deferred income taxes                                      2,330,377        2,317,777
                                                       -------------    -------------
      Total liabilities                                    3,650,898        3,775,624
                                                       -------------    -------------

Shareholders' equity
      Common stock, $1 par value: authorized,
        5,000,000 shares; issued, 4,326,516 shares
        at June 30, 2007 and 4,323,416 shares
        at March 31, 2007                                  4,326,516        4,323,416
      Additional capital                                 116,645,836      116,373,960
      Undistributed net investment income                  5,518,081        5,655,020
      Undistributed net realized loss
        on investments                                    (2,774,367)      (3,100,142)
      Unrealized appreciation of investments             626,661,182      609,512,737
      Treasury stock - at cost (437,365 shares)           (7,033,302)      (7,033,302)
                                                       -------------    -------------
      Net assets at market or fair value, equivalent
        to $191.13 per share at June 30, 2007 on the
        3,889,151 sharesoutstanding and $186.75 per
        share at March 31, 2007 on the 3,886,051
        shares outstanding                               743,343,946      725,731,689
                                                       -------------    -------------
Totals                                                 $ 746,994,844    $ 729,507,313
                                                       =============    =============



                (See Notes to Consolidated Financial Statements)



                                       3




                          CAPITAL SOUTHWEST CORPORATION
                                AND SUBSIDIARIES
                      Consolidated Statements of Operations
                                   (Unaudited)

                                                               Three Months Ended
                                                                    June 30
                                                         ----------------------------
                                                             2007            2006
                                                         ------------    ------------
                                                          as restated     as restated
                                                                   
Investment income:
     Interest                                            $    564,687    $    205,852
     Dividends                                                363,427         782,566
     Management and directors' fees                           225,200         198,450
                                                         ------------    ------------
                                                            1,153,314       1,186,868
                                                         ------------    ------------

Operating expenses:
     Salaries                                                 274,136         343,465
     Net pension benefit                                      (36,237)        (29,187)
     Other operating expenses                                 264,964         221,228
                                                         ------------    ------------
                                                              502,863         535,506
                                                         ------------    ------------

Income before interest expense and income taxes               650,451         651,362
Interest expense                                                 --           146,982
                                                         ------------    ------------
Income before income taxes                                    650,451         504,380
Income tax expense                                              9,760          12,824
                                                         ------------    ------------

Net investment income                                    $    640,691    $    491,556
                                                         ============    ============

Proceeds from disposition of investments                 $    325,775    $    397,016
Cost of investments sold                                         --              --
                                                         ------------    ------------
Net realized gain on investments                              325,775         397,016


Net increase (decrease) in unrealized appreciation
   of investments                                          17,148,445      (5,217,480)
                                                         ------------    ------------

Net realized and unrealized gain (loss) on investments   $ 17,474,220    $ (4,820,464)
                                                         ============    ============

Increase (decrease) in net assets from operations        $ 18,114,911    $ (4,328,908)
                                                         ============    ============





                (See Notes to Consolidated Financial Statements)



                                       4




                          CAPITAL SOUTHWEST CORPORATION
                                AND SUBSIDIARIES
                Consolidated Statements of Changes in Net Assets


                                                  Three Months Ended    Year Ended
                                                     June 30, 2007     March 31, 2007
                                                    -------------      -------------
                                                      as restated       as restated
                                                      (Unaudited)
                                                                 
Operations:
      Net investment income                         $     640,691      $   4,233,340
      Net realized gain on investments                    325,775         14,966,296
      Net increase in unrealized appreciation
        of investments                                 17,148,445        147,681,609
                                                    -------------      -------------
      Increase in net assets from operations           18,114,911        166,881,245

Distributions from:
      Undistributed net investment income                (777,630)        (2,323,150)

Capital share transactions:
      Exercise of employee stock options                  231,390          1,794,850
      Adjustment to initially apply FASB No. 158,
       net of tax                                            --            1,173,751
      Stock option expense                                 43,586            169,003
                                                    -------------      -------------

      Increase in net assets                           17,612,257        167,695,699

Net assets, beginning of period                       725,731,689        558,035,990
                                                    -------------      -------------

Net assets, end of period                           $ 743,343,946      $ 725,731,689
                                                    =============      =============








                (See Notes to Consolidated Financial Statements)



                                       5




                          CAPITAL SOUTHWEST CORPORATION
                                AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                   (Unaudited)

                                                             Three Months Ended
                                                                  June 30
                                                                  -------
                                                           2007              2006
                                                       -------------    -------------
                                                        as restated      as restated
                                                                  
Cash flows from operating activities
Increase (decrease) in net assets from operations      $  18,114,911    $  (4,328,908)
Adjustments to reconcile increase in net
  assets from operations to net cash
  provided by operating activities:
Proceeds from disposition of investments                     325,775          397,016
Purchases of securities                                   (8,051,747)            --
Maturities of securities                                       4,500          402,445
Depreciation and amortization                                  4,409            3,865
Net pension benefit                                          (36,237)         (29,187)
Realized gain on investments                                (325,775)        (397,016)
Net (increase) decrease in unrealized appreciation
  of investments                                         (17,148,445)       5,217,480
Stock option expense                                          43,586            4,120
(Increase) decrease in receivables                           184,920          (15,871)
Increase in other assets                                      (6,729)         (19,943)
Decrease in other liabilities                               (119,163)        (106,582)
Decrease in accrued pension cost                             (36,568)         (34,467)
Increase in deferred income taxes                             12,600           10,200
                                                       -------------    -------------
Net cash provided by (used in) operating activities       (7,033,963)       1,103,152
                                                       -------------    -------------


Cash flows from financing activities
Increase in notes payable to bank                               --        150,000,000
Distributions from undistributed net
  investment income                                         (777,630)        (772,050)
Proceeds from exercise of employee stock options             231,390        1,097,500
                                                       -------------    -------------
Net cash provided by (used in) financing activities         (546,240)     150,325,450
                                                       -------------    -------------

Net increase (decrease) in cash and cash
  equivalents                                             (7,580,203)     151,428,602
Cash and cash equivalents at beginning
  of period                                               38,844,203       11,503,866
                                                       -------------    -------------
Cash and cash equivalents at end of period             $  31,264,000    $ 162,932,468
                                                       =============    =============

Supplemental disclosure of cash flow information:
Cash paid during the period for:
  Interest                                             $        --      $     123,763
  Income taxes                                         $        --      $      20,000




                (See Notes to Consolidated Financial Statements)


                                       6





                    Portfolio of Investments - June 30, 2007
                    ----------------------------------------

      Company                              Investment (a)                                                    Cost          Value (b)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               

+AT&T INC.                                ++20,770 shares common stock (acquired 3-9-99)               $        12      $    861,955
  San Antonio, Texas
  Global leader in local, long
  distance, Internet and
  transaction-based  voice
  and data services.

+ALAMO GROUP INC.                         2,830,300 shares common stock                                  2,190,937        48,115,000
  Sequin, Texas                             (acquired 4-1-73 thru 5-25-07)
  Tractor-mounted mowing and
  mobile excavation equipment
  for governmental, industrial
  and agricultural markets;
  street-sweeping equipment
  for municipalities.

ALL COMPONENTS, INC.                      8.25% subordinated note due 2012 (acquired  6-27-07)           6,000,000         6,000,000
   Addison, Texas                         150,000 shares Series A convertible preferred stock,
   Electronics contract manu-                convertible into 600,000 shares of common stock
   facturing; distribution                   at $0.25 per share (acquired 9-16-94)                         150,000         1,000,000
   and production of memory               Warrant to purchase 350,000 shares of common stock
   and other components for                  at $11.00 per share, expiring 2017 (acquired 6-27-07)               -                 -
   computer manufacturers,                                                                               ---------         ---------
   retailers and value-added                                                                             6,150,000         7,000,000
   resellers.

+ALLTEL CORPORATION                       ++8,880 shares common stock (acquired 7-1-98)                     88,699           599,844
   Little Rock, Arkansas
   Owner and operator of the
   nation's largest wireless
   network.

+ATLANTIC CAPITAL BANCSHARES, INC.        300,000 shares common stock (acquired 4-10-07)                 3,000,000         3,000,000
   Atlanta, Georgia
   Holding company of Atlantic
   Capital Bank a full service
   commercial bank.

BALCO, INC.                                445,000 shares common stock and 60,920 shares
   Wichita, Kansas                           Class B non-voting common stock                               624,920         4,500,000
   Specialty architectural                   (acquired 10-25-83 and 5-30-02)
   products used in the
   construction and remodeling
   of commercial and insti-
   tutional buildings.

BOXX TECHNOLOGIES, INC.                   3,125,354 shares Series B convertible preferred
   Austin, Texas                             stock, convertible into 3,125,354 shares of
   Workstations for computer                 common stock at $0.50 per share
   graphics imaging and design.              (acquired 8-20-99 thru 8-8-01)                              1,500,000           300,000

CMI HOLDING COMPANY, INC.                 10% demand note (acquired 6-7-07)                                150,000           150,000
   Richardson, Texas                      10% convertible subordinated notes, convertible
   Owns Chase Medical, which              into 720,350 shares of common stock at $1.32
   develops and sells devices              per share, due 2007 (acquired 4-16-04
   used in cardiac surgery to              thru 12-17-04)                                                  750,000           750,000
   relieve congestive heart               2,327,658 shares Series A convertible preferred stock,
   failure; develops and                     convertible into 2,327,658 shares of common stock
   supports cardiac imaging                  at $1.72 per share (acquired 8-21-02 and 6-4-03)            4,000,000         2,000,000
   systems.                               Warrants to purchase 109,012 shares of common stock
                                             at $1.72 per share, expiring 2012 (acquired 4-16-04)                -                 -
                                                                                                         ---------         ---------
                                                                                                         4,900,000         2,900,000




                                       7



      Company                              Investment (a)                                                    Cost          Value (b)
------------------------------------------------------------------------------------------------------------------------------------

+COMCAST CORPORATION                      ++64,656 shares common stock (acquired 11-18-02)             $        21      $  1,816,187
   Philadelphia, Pennsylvania
   Leading provider of cable,
   entertainment and communi-
   cations products and
   services.

DENNIS TOOL COMPANY                       20,725 shares 5% convertible preferred stock,
   Houston, Texas                            convertible into 20,725 shares of common stock
   Polycrystalline diamond                   at $48.25 per share  (acquired 8-10-98)                       999,981           999,981
   compacts (PDCs) used in oil            140,137 shares common stock (acquired 3-7-94 and 8-10-98)      2,329,963         2,000,000
   field drill bits and in                                                                               ---------         ---------
   mining and industrial                                                                                 3,329,944         2,999,981
   applications.

+DISCOVERY HOLDING COMPANY                ++70,501 shares Series A common stock (acquired 7-21-05)          20,262         1,618,703
   Englewood, Colorado
   Provider of creative
   content, media management
   and network services
   worldwide.

+EMBARQ CORPORATION                       ++4,500  shares common stock (acquired 5-17-06)                   46,532           285,165
   Overland Park, Kansas
   Local exchange carrier that
   provides voice and data
   services, including
   high-speed Internet.

+ENCORE WIRE CORPORATION                  4,086,750 shares common stock (acquired 7-16-92 thru 10-7-98)  5,800,000        75,605,000
   McKinney, Texas
   Electric wire and cable for
   residential and commercial
   use.

EXTREME INTERNATIONAL, INC.               39,359.18 shares Series C convertible preferred
   Sugar Land,  Texas                       stock, convertible into  157,436.72 shares of common
   Owns Bill Young Productions,             stock at $25.00 per share (acquired  9-30-03)                2,625,000         6,449,000
   Texas Video and Post, and              3,750 shares 8%  Series A convertible preferred stock,
   Extreme Communications,                  convertible into   15,000 shares of common stock at
   which produce radio and                  $25.00 per share (acquired 9-30-03)                            375,000           614,000
   television commercials and             Warrants to purchase 13,035 shares of common stock
   corporate communications                  at $25.00 per share, expiring 2008 (acquired 8-11-98
   videos.                                   thru 9-30-03)                                                       -           210,000
                                                                                                         ---------         ---------
                                                                                                         3,000,000         7,273,000

+FMC CORPORATION                          ++6,430 shares common stock (acquired 6-6-86)                     66,726           574,778
   Philadelphia, Pennsylvania
   Chemicals for agricultural,
   industrial and consumer
   markets.

+FMC TECHNOLOGIES, INC.                   ++11,057 shares common stock (acquired 1-2-02)                    57,051           875,936
   Houston, Texas
   Equipment and systems for
   the energy, food processing
   and air transportation
   industries.

+HEELYS, INC.                             9,317,310 shares common stock (acquired 5-26-00)                 102,490       186,346,000
   Carrollton, Texas
   Heelys stealth skate shoes,
   equipment and apparel sold
   through sporting goods
   chains, department stores
   and footwear retailers.



                                       8



      Company                              Investment (a)                                                    Cost          Value (b)
------------------------------------------------------------------------------------------------------------------------------------

HIC-STAR CORPORATION                      10% subordinated note due 2007 (acquired 10-19-04 and
  Dallas, Texas                              1-13-05)                                                  $   352,646      $          -
  Holding company previously              12% subordinated notes due 2008 (acquired 3-25-05 thru
  engaged in mortgage banking                2-27-06)                                                      717,523           100,000
  operations, which have now              Warrants to purchase 463,162 shares of Series A common
  been sold.                                 stock at $1.00 per share, expiring 2014 (acquired
                                             3-31-04 thru 1-13-05)                                               -                 -
                                                                                                         ---------         ---------
                                                                                                         1,070,169           100,000


+HOLOGIC, INC.                            ++316,410 shares common stock (acquired 8-27-99)                 220,000        17,500,637
   Bedford, Massachusetts
   Medical instruments
   including bone densi-
   tometers, mammography
   devices and digital
   radiography systems.

+KIMBERLY-CLARK CORPORATION               ++77,180 shares common stock (acquired 12-18-97)               2,358,518         5,162,570
   Dallas, Texas
   Manufacturer of tissue,
   personal care and health
   care products.

+LIBERTY GLOBAL, INC.                     ++42,463 shares Series A common stock (acquired 6-15-05)         106,553         1,742,682
 Englewood, Colorado                      ++42,463 shares Series C common stock (acquired 9-6-05)          100,870         1,667,097
 Owns interests in broadband,                                                                            ---------         ---------
 distribution and content                                                                                  207,423         3,409,779
 companies.


+LIBERTY MEDIA CORPORATION                ++35,250 shares of Liberty Capital Series A common stock
   Englewood, Colorado                       (acquired 5-9-06)                                              51,829         4,144,343
   Holding company owning                 ++176,252 shares of Liberty Interactive Series A common stock
   interests in electronic                   (acquired 5-9-06)                                              66,424         3,932,182
   retailing, media, communi-                                                                            ---------         ---------
   cations and entertainment                                                                               118,253         8,076,525
   businesses.


LIFEMARK GROUP                             1,449,026 shares common stock (acquired 7-16-69)              4,510,400        44,000,000
   Hayward, California
   Cemeteries, mausoleums and
   mortuaries located in
   northern California.

MEDIA RECOVERY, INC.                      800,000 shares Series A convertible preferred stock,
   Graham, Texas                             convertible into 800,000 shares of common stock at
   Computer datacenter and                   $1.00 per share (acquired 11-4-97)                            800,000         7,500,000
   office automation supplies             4,000,000 shares common stock (acquired 11-4-97)               4,615,000        37,500,000
   and accessories; impact,                                                                              ---------         ---------
   tilt monitoring and                                                                                   5,415,000        45,000,000
   temperature sensing devices
   to detect mishandled
   shipments; dunnage for
   protecting shipments.

PALLETONE, INC.                           12.3% senior subordinated notes due 2012 (acquired  9-25-06)   1,553,150         2,000,000
   Bartow, Florida                        150,000 shares common stock (acquired 10-18-01)                  150,000         1,000,000
   Manufacturer of wooden                 Warrant to purchase 15,294 shares of common stock at
   pallets and pressure-treated             $1.00 per share, expiring 2011 (acquired 2-17-06)               45,746            87,000
   lumber.                                                                                               ---------         ---------
                                                                                                         1,748,896         3,087,000

+PALM HARBOR HOMES, INC.                  7,855,121 shares common stock (acquired 1-3-85 thru 7-31-95)  10,931,955        70,696,000
   Dallas, Texas
   Integrated manufacturing,
   retailing, financing and
   insuring of manufactured
   housing and modular homes.



                                       9



      Company                              Investment (a)                                                    Cost          Value (b)
------------------------------------------------------------------------------------------------------------------------------------

+PETSMART, INC.                           ++300,000 shares common stock (acquired 6-1-95)              $ 1,318,771      $  9,726,000
   Phoenix, Arizona
   Retail chain of more than
   928 stores selling pet
   foods, supplies and
   services.

THE RECTORSEAL CORPORATION                27,907 shares common stock (acquired 1-5-73 and 3-31-73)          52,600       108,850,000
   Houston, Texas
   Specialty chemicals for
   plumbing, HVAC, electrical,
   construction, industrial,
   oil field and automotive
   applications; smoke contain-
   ment systems for building
   fires; also owns 20% of The
   Whitmore Manufacturing
   Company.

+SPRINT NEXTEL CORPORATION                ++90,000  shares common stock (acquired 6-20-84)                 457,113         1,863,900
   Reston, Virginia
   Diversified telecom-
   munications company.

TCI  HOLDINGS, INC.                       21 shares 12% Series C cumulative compounding preferred
   Denver, Colorado                          stock (acquired 1-30-90)                                            -           677,250
   Cable television systems and
   microwave relay systems.

+TEXAS CAPITAL BANCSHARES, INC.           ++489,656 shares common stock (acquired 5-1-00)                3,550,006        10,938,915
   Dallas, Texas
   Regional bank holding
   company with banking
   operations in six Texas
   cities.

VIA HOLDINGS, INC.                        9,118 shares Series B preferred stock (acquired 9-19-05)       4,559,000                 2
   Sparks, Nevada
   Designer, manufacturer and
   distributor of high-quality
   office seating.

WELLOGIX, INC.                            4,540,883 shares Series A-1 convertible participating
   Houston, Texas                            preferred stock, convertible into 4,540,883 shares
   Developer and supporter of                of common stock at $1.1011 per share (acquired
   software used by the oil and              8-19-05 thru 6-15-07)                                       5,000,000                 2
   gas industry to control
   drilling and maintenance
   expenses.




THE WHITMORE MANUFACTURING
COMPANY                                   80 shares common stock (acquired 8-31-79)                      1,600,000        26,600,000
   Rockwall, Texas
   Specialized mining, railroad
   and industrial lubricants;
   coatings for automobiles and
   primary metals; fluid
   contamination control
   devices.

+WINDSTREAM CORPORATION                   ++9,181 shares common stock (acquired 7-17-06)                    19,656           135,512
   Little Rock, Arkansas
   Provider of voice, broadband
   and entertainment
   services.





                                       10




      Company                              Investment (a)                                                    Cost          Value (b)
------------------------------------------------------------------------------------------------------------------------------------

MISCELLANEOUS                             - BankCap Partners Fund I, L.P. - 6.0% limited
                                             partnership interest (acquired 7-14-06 thru 4-3-07)     $   2,371,476      $  2,371,476
                                          - Diamond State Ventures, L.P. - 1.9% limited
                                             partnership interest (acquired 10-12-99 thru 8-26-05)         146,000           146,000
                                          - First Capital Group of Texas III, L.P. - 3.3%
                                             limited partnership interest (acquired 12-26-00
                                             thru 8-12-05)                                                 964,604           964,604
                                          - Humac Company - 1,041,000 shares common stock
                                             (acquired 1-31-75 and 12-31-75)                                     -           173,000
                                          - PharmaFab, Inc. - contingent payment agreement
                                             (acquired 2-15-07)                                                  2                 2
                                          - STARTech Seed Fund I - 12.1% limited partnership
                                             interest (acquired 4-17-98 thru 1-5-00)                       178,066                 1
                                          - STARTech Seed Fund II - 3.2% limited partnership
                                             interest (acquired 4-28-00 thru 2-23-05)                      950,000                 1
                                          - Sterling Group Partners I, L.P. - 1.7% limited
                                             partnership interest (acquired 4-20-01 thru 1-24-05)        1,064,042         2,200,000
------------------------------------------------------------------------------------------------------------------------------------

TOTAL INVESTMENTS                                                                                     $ 79,689,544      $706,350,725
                                                                                                     =============      ============
------------------------------------------------------------------------------------------------------------------------------------


+Publicly-owned company                   ++Unrestricted securities as defined
                                             in Note (a)


                        Notes to Portfolio of Investments


(a) Unrestricted  securities  (indicated by ++) are freely marketable securities
having readily available market quotations.  All other securities are restricted
securities  which are subject to one or more  restrictions on resale and are not
freely  marketable.   At  June  30,  2007,  restricted  securities   represented
approximately 91.0% of the value of the consolidated investment portfolio.

(b) Under the  valuation  policy of the  Company,  unrestricted  securities  are
valued at the closing sale price for listed  securities  and at the lower of the
closing bid price or the last sale price for Nasdaq  securities on the valuation
date. Restricted  securities,  including securities of publicly-owned  companies
which are  subject  to  restrictions  on  resale,  are  valued at fair  value as
determined by the Board of Directors.  Fair value is considered to be the amount
which the Company may reasonably  expect to receive for portfolio  securities if
such securities were sold on the valuation date. Valuations as of any particular
date, however, are not necessarily indicative of amounts which may ultimately be
realized as a result of future sales or other dispositions of securities.

Among the factors  considered by the Board of Directors in determining  the fair
value of restricted securities are the financial condition and operating results
of the issuer, the long-term potential of the business of the issuer, the market
for and recent sales prices of the  issuer's  securities,  the values of similar
securities  issued by companies in similar  businesses,  the  proportion  of the
issuer's  securities  owned by the  Company,  the nature and  duration of resale
restrictions  and the nature of any rights  enabling  the Company to require the
issuer to register  restricted  securities under applicable  securities laws. In
determining  the fair value of  restricted  securities,  the Board of  Directors
considers  the  inherent  value  of  such  securities   without  regard  to  the
restrictive  feature and  adjusts for any  diminution  in value  resulting  from
restrictions on resale.









                                       11


                          CAPITAL SOUTHWEST CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                   ------------------------------------------
                                   (Unaudited)
                                   -----------

Explanatory Note Regarding Restatements

     Capital  Southwest  Corporation (the "Company") is filing this amendment to
its Form 10-Q for the  quarter  ended June 30,  2007,  to amend and  restate its
consolidated  financial  statements for each of the quarters ended June 30, 2007
and 2006.

     After  reviewing the accounting  treatment for deferred taxes on unrealized
appreciation of investments, the Company has determined its long-standing policy
of recording deferred taxes on unrealized appreciation of investments was not in
conformity  with  generally  accepted  accounting  principles and its previously
issued financial  statements  required  restatement.  Specifically,  a Regulated
Investment  Company  (RIC) is  required  to  record  deferred  taxes  when it is
probable the RIC will not qualify  under  Subchapter  M of the Internal  Revenue
Code for a period longer that one year. Historically, management believed it was
probable the Company would not maintain its qualifying status as a RIC in future
years and recorded a deferred tax liability on the  unrealized  appreciation  of
investments.  However, upon further analysis, the Company determined it was only
reasonably  possible,  but not  probable,  the Company  would not  maintain  its
qualifying  status  as a RIC.  Thus  the  deferred  tax  liability  consistently
recorded  and  disclosed  should  not have been  recognized.  Additionally,  the
Company historically has accrued income taxes payable on its investment gains as
they have been  incurred,  as it has been the  Company's  practice to retain its
investment gains.  However,  RICs are required to accrue federal income taxes on
investment  gains that are  retained  only on the last day of the tax year.  The
Company  incorrectly  recorded the tax impact of its investment gains in periods
other  than the last day of its tax year,  December  31.  Therefore,  the income
taxes payable recorded at times other than the tax year end should not have been
recognized.  Furthermore,  the  Company  incorrectly  classified  its' return of
capital  contributions  cumulatively  as  "undistributed  net realized  gains on
investments."  RICs are required to classify return of capital  contributions as
"additional  capital" in the period in which tax basis amounts become permanent;
and reflect  undistributed  amounts  remaining  since its' previous tax year end
adjusted for  temporary tax basis  differences  as  "undistributed  net realized
gains on  investments."  The restatement will eliminate the accrual for deferred
taxes on unrealized  appreciation of  investments,  and income taxes payable and
related tax carryforwards on realized gains,  increasing the net asset value per
share and net assets from  operations for the periods  restated;  and reclassify
return of capital contributions to "additional capital."

     The summary of the effects of this change on our consolidated statements of
financial  condition  as of June 30, 2007 and March 31, 2007,  our  consolidated
statements of operations and  consolidated  statements of cashflow for the three
months ended June 30, 2007 and 2006, and our consolidated  statements of changes
in net assets for the three  months ended June 30, 2007 and year ended March 31,
2007 is included in Note 2, "Restatement of Consolidated  Financial Statements,"
located in the notes to our consolidated financial statements.

     The  following  information  has been  updated  to give the  effect  to the
restatement.  In accordance with Rule 12b-15, under the Security Exchange Act of
1934,  as amended,  the complete  text of each amended item is set forth in this
report,  even  though  much of the  disclosure  in the  restated  items  has not
changed.  The  disclosure in this  quarterly  report  amendment  supersedes  and
replaces corresponding  disclosures in our quarterly report on Form 10-Q for the
three months ended June 30, 2007 and 2006.

1.   Basis of Presentation

     Principles of  Consolidation.  The consolidated  financial  statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America for investment  companies.  Under rules and regulations
applicable to investment  companies,  we are precluded  from  consolidating  any
entity  other than  another  investment  company.  An  exception to this general
principle  occurs if the  investment  company has an  investment in an operating
company that  provides  services to the  investment  company.  Our  consolidated
financial statements include our management company.



                                       12


Notes to Consolidated Financial Statements
(continued)

     The financial  statements  included herein have been prepared in accordance
with accounting  principles  generally accepted in the United States for interim
financial  information  and the  instructions  to Form  10-Q  and  Article  6 of
Regulation S-X. The financial  statements should be read in conjunction with the
consolidated  financial statements and notes thereto included in our Form 10-K/A
for the year ended March 31, 2007.  Certain  information and footnotes  normally
included  in  financial   statements  prepared  in  accordance  with  accounting
principles  generally  accepted  in the United  States  have been  condensed  or
omitted,  although  we believe  that the  disclosures  are  adequate  for a fair
presentation.  The information  reflects all  adjustments  (consisting of normal
recurring adjustments) which are, in the opinion of management,  necessary for a
fair presentation of the results of operations for the interim periods.

2.   Restatement of Consolidated Financial Statements

     Capital Southwest Corporation (the "Company") has filed an amendment to its
Annual  Report on Form 10-K for the year  ended  March  31,  2007,  to amend and
restate its  consolidated  financial  statements and selected per share data and
ratios for each of the fiscals years ended March 31, 2007, 2006 and 2005 and our
selected  per share data and ratios for the years ended March 31, 2004 and 2003.
In addition,  we are filing this amendment to our Quarterly  Report on Form 10-Q
for the quarter ended June 30, 2007.

     After  reviewing the accounting  treatment for deferred taxes on unrealized
appreciation of investments, the Company has determined its long-standing policy
of recording deferred taxes on unrealized appreciation of investments was not in
conformity  with  generally  accepted  accounting  principles and its previously
issued financial statements required restatement.  The effect of the restatement
on our  consolidated  statements of financial  condition as of June 30, 2007 and
March 31, 2007,  our  consolidated  statements  of operations  and  consolidated
statements of cash flows for the three months ended June 30, 2007 and 2006,  our
consolidated statements of changes in net assets for the three months ended June
30,  2007 and year ended  March 31,  2007 is as follows  and shown in the tables
below:
          (A) A  Regulated  Investment  Company  (RIC)  is  required  to  record
     deferred  taxes  when  it is  probable  the  RIC  will  not  qualify  under
     Subchapter  M of the  Internal  Revenue  Code for a period  longer that one
     year.  Historically,  management believed it was probable the Company would
     not maintain its qualifying  status as a RIC in future years and recorded a
     deferred  tax  liability on the  unrealized  appreciation  of  investments.
     However,  upon  further  analysis,  the  Company  determined  it  was  only
     reasonably possible,  but not probable,  the Company would not maintain its
     qualifying  status as a RIC. Thus the deferred tax  liability  consistently
     recorded and disclosed should not have been recognized.

          (B) The Company  historically  has accrued income taxes payable on its
     investment  gains as they have been incurred,  as it has been the Company's
     practice to retain its  investment  gains.  However,  RICs are  required to
     accrue federal  income taxes on investment  gains that are retained only on
     the last day of the tax year.  The  Company  incorrectly  recorded  the tax
     impact of its  investment  gains in periods  other than the last day of its
     tax year,  December 31.  Therefore,  the income taxes  payable  recorded at
     times other than the tax year end should not have been recognized.

          (C)  The  Company  incorrectly   classified  its'  return  of  capital
     contributions   cumulatively  as  "undistributed   net  realized  gains  on
     investments." RICs are required to classify return of capital contributions
     as  "additional  capital" in the period in which tax basis  amounts  become
     permanent;  and reflect undistributed amounts remaining since its' previous
     tax year end adjusted for temporary tax basis differences as "undistributed
     net realized gains on investments."

The  restatement  will  eliminate  the accrual for deferred  taxes on unrealized
appreciation  of   investments,   and  income  taxes  payable  and  related  tax
carryforwards  on realized  gains,  increasing the net asset value per share and
net assets from operations for the periods  restated;  and reclassify  return of
capital contributions to "additional capital."


                                       13




Notes to Consolidated Financial Statements
(continued)
                                                                          As of June 30, 2007
                                                                    ----------------------------
                                                                     Previously
Consolidated Statement of Financial Condition                       Reported (1)   As Restated (2)
--------------------------------------------------------------      ------------    ------------
                                                                              
Total assets                                                         746,994,844     746,994,844
                                                                    ============    ============


Income taxes payable                                                     231,274            --    (B)

Deferred income tax                                                  219,604,301       2,330,377  (A)(B)
                                                                    ------------    ------------

Total liabilities                                                    221,156,096       3,650,898
                                                                    ------------    ------------
Additional Capital                                                    11,493,477     116,645,836  (C)

Undistributed net realized gains (losses)                            102,977,794      (2,774,367) (B)(C)
Net unrealized appreciation                                          408,556,182     626,661,182  (A)

Net assets at market or fair value                                   525,838,748     743,373,946
                                                                    ------------    ------------

Total liabilities and shareholders equity                            746,994,844     746,994,844
                                                                    ============    ============


Consolidated Statement of Financial Condition                           As of March 31, 2007
--------------------------------------------------------------      ----------------------------
                                                                     Previously
                                                                    Reported (3)   As Restated (2)
Total assets                                                        ------------    ------------
                                                                     729,507,313     729,507,313
                                                                    ============    ============

Income taxes payable                                                     231,274            --    (B)

Deferred income tax                                                  213,474,680       2,317,777  (A)(B)
                                                                    ------------    ------------

Total liabilities                                                    215,163,801       3,775,624
                                                                    ------------    ------------
Additional Capital                                                    11,221,601     116,373,960  (C)

Undistributed net realized gains (losses)                            102,766,040      (3,100,142) (B)(C)

Net unrealized appreciation                                          397,410,737     609,512,737  (A)

Net assets at market or fair value                                   514,343,512     725,731,689
                                                                    ------------    ------------

Total liabilities and shareholders equity                            729,507,313     729,507,313
                                                                    ============    ============


Consolidated Statement of Operations                               Three Months Ended June 30, 2007
--------------------------------------------------------------      ----------------------------
                                                                     Previously
                                                                    Reported (1)   As Restated (2)
                                                                    ------------    ------------
Net investment income                                                    640,691         640,691
                                                                    ============    ============
Net realized gain on investments                                         211,754         325,775  (B)
Net increase in unrealized appreciation of investments                11,145,445      17,148,445  (A)
                                                                    ------------    ------------
Net realized and unrealized gain on investments                       11,357,199      17,474,220
                                                                    ------------    ------------
Increase in net assets from operations                                11,997,890      18,114,911
                                                                    ============    ============



                                       14


Notes to Consolidated Financial Statements
(continued)


Consolidated Statement of Operations                               Three Months Ended June 30, 2006
--------------------------------------------------------------      ----------------------------
                                                                     Previously
                                                                    Reported (1)   As Restated (2)
                                                                    ------------    ------------

Net investment income                                                    491,556        491,556
                                                                    ============    ============

Net realized gain on investments                                         258,060         397,016  (B)
Net decrease in unrealized appreciation of investments                (3,022,480)     (5,217,480) (A)
                                                                    ------------    ------------
Net realized and unrealized loss on investments                       (2,764,420)     (4,820,464)
Decrease in net assets from operations                                (2,272,864)     (4,328,908)
                                                                    ============    ============


Consolidated Statement of Changes in Net Assets                    Three Months Ended June 30, 2007
--------------------------------------------------------------      ----------------------------
                                                                     Previously
                                                                    Reported (1)   As Restated (2)
                                                                    ------------    ------------
Net investment income                                                    640,691         640,691
Net realized gain on investments                                         211,754         325,775  (B)
Net increase on unrealized appreciation before
distributions                                                         11,145,445      17,148,445  (A)
                                                                    ------------    ------------
Increase in net assets from operations before
distributions                                                         11,997,890      18,114,911


Undistributed net investment income                                     (777,630)       (777,630)
Employee stock options exercised                                         231,390         231,390
Stock option expense                                                        --              --
Adjustment to initially apply FASB Statement No. 158, net of tax          43,586          43,586
                                                                    ------------    ------------
Increase in net assets                                                11,495,236      17,612,257

Net assets, beginning of year                                        514,343,512     725,731,689
                                                                    ------------    ------------

Net assets, end of year                                              525,838,748     743,343,946
                                                                    ============    ============
Net asset value, per share                                          $     135.21    $     191.13
                                                                    ============    ============



Consolidated Statement of Changes in Net Assets
--------------------------------------------------------------        Year Ended March 31, 2007
                                                                    -----------------------------
                                                                     Previously
                                                                    Reported (3)    As Restated (2)
                                                                    ------------     ------------
Net investment income                                                  4,233,340       4,233,340
Net realized gain on investments                                      16,334,000      14,966,296  (B)
Net increase on unrealized appreciation before
distributions                                                         96,343,609     147,681,609  (A)
                                                                    ------------     ------------
Increase in net assets from operations before
distributions                                                        116,910,949     166,881,245

Undistributed net investment income                                   (2,323,150)     (2,323,150)
Net realized gains deemed
distributed to shareholders                                                --        (11,417,283) (C)
Allocated increase in share value
for deemed distribution                                                    --         11,417,283  (C)
Employee stock options exercised                                       1,794,850       1,794,850
Stock option expense                                                   1,173,751       1,173,751
Adjustment to initially apply FASB Statement No. 158, net of tax         169,003         169,003
                                                                    ------------    ------------
Increase in net assets                                               117,725,403     167,695,699

Net assets, beginning of year                                        396,618,109     558,035,990
                                                                    ------------    ------------

Net assets, end of year                                              514,343,512     725,731,689
                                                                    ============    ============
Net asset value, per share                                          $     132.36    $     186.75
                                                                    ============    ============




                                       15


Notes to Consolidated Financial Statements
(continued)
                                                                   Three Months Ended June 30, 2007
                                                                    ----------------------------
Consolidated Statement of Cash Flow                                  Previously
--------------------------------------------------------------      Reported (1)   As Restated (2)
                                                                    ------------    ------------

Net cash used by operating activities
                                                                      (7,033,963)     (7,033,963)
                                                                    ------------    ------------
Net cash used in financing activities

                                                                        (546,240)       (546,240)
                                                                    ------------    ------------

Net decrease in cash and cash equivalents                             (7,580,203)     (7,580,203)
                                                                    ------------    ------------


                                                                   Three Months Ended June 30, 2006
Consolidated Statement of Cash Flow                                ---------------------------------
--------------------------------------------------------------       Previously             As
                                                                    Reported (1)       Restated (2)
                                                                    ------------    ------------
Net cash provided by operating activities
                                                                       1,103,152       1,103,152
                                                                    ------------    ------------
Net cash provided by financing activities
                                                                     150,325,450     150,325,450
                                                                    ------------    ------------
Net increase in cash and cash equivalents                            151,428,602     151,428,602
                                                                    ------------    ------------


----------
(1) As presented in the Company's  original Form 10-Q for the quarter ended June
30,  2007
(2)  Adjusted  to reflect  the  restatement  described  above.
(3) As presented in the  Company's  original Form 10-K for the fiscal year ended
March 31, 2007
(A), (B) and (C) are described in detail above.

3.   Stock-Based Compensation

     In December 2004, the Financial  Accounting  Standards  Board (FASB) issued
SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R), which revised SFAS
123. SFAS 123R also supersedes APB 25 and amends SFAS No. 95,  Statement of Cash
Flows.  SFAS 123R  eliminates  the  alternative  to account for  employee  stock
options under APB 25 and requires the fair value of all share-based  payments to
employees,  including  the fair value of grants of employee  stock  options,  be
recognized in the income statement, generally over the vesting period.

     In  March  2005,  the  Securities  and  Exchange  Commission  issued  Staff
Accounting  Bulletin ("SAB") No. 107, which provides  additional  implementation
guidance  for SFAS 123R.  Among  other  things,  SAB 107  provides  guidance  on
share-based   payment   valuations,    income   statement   classification   and
presentation, capitalization of costs and related income tax accounting.

     Effective   April  1,  2006,  we  adopted  SFAS  123R  using  the  modified
prospective   transition  method.  We  recognize   compensation  cost  over  the
straight-line  method for all share-based payments granted on or after that date
and for all  awards  granted  to  employees  prior to April 1, 2006 that  remain
unvested on that date.  The fair value of stock  options are  determined  on the
date of grant using the  Black-Scholes  pricing  model and are expensed over the
vesting period of the related stock options.  Accordingly, for the quarter ended
June 30, 2007, we recognized compensation expense of $43,586.

     As of June 30, 2007, the total  remaining  unrecognized  compensation  cost
related to non-vested stock options was $1,127,866, which will be amortized over
the weighted-average service period of approximately 7.34 years.



                                       16




Notes to Consolidated Financial Statements
(continued)

4.   Employee Stock Option Plan

     On July 19, 1999,  shareholders  approved  the 1999 Stock Option  ("Plan"),
which  provided for the granting of stock  options to employees and officers and
authorized  the issuance of common stock upon exercise of such options for up to
140,000  shares.  All options are granted at or above  market  price,  generally
expire  ten years  from the date of grant and are  generally  exercisable  on or
after  the  first  anniversary  of the  date of  grant  in  five  to ten  annual
installments.

     At June 30, 2007,  there were 58,500  shares  available for grant under the
Plan. The per share  weighted-average fair value of the stock options granted on
May 15, 2006 was $31.276 per option using the  Black-Scholes  pricing model with
the following  assumptions:  expected dividend yield of .64%, risk-free interest
rate of 5.08%,  expected  volatility of 21.1%, and expected life of 7 years. The
per share  weighted-average  fair value of the stock options granted on July 17,
2006 was  $33.045  per option  using the  Black-Scholes  pricing  model with the
following assumptions:  expected dividend yield of .61%, risk-free interest rate
of 5.04%, expected volatility of 21.2%, and expected life of 7 years.

     The following  summarizes activity in the stock option plan since March 31,
2007:

                                            Number          Weighted-Average
                                           of shares         Exercise Price

Balance at March 31, 2007                    52,500                $86.184
   Granted                                     --                      --
   Exercised                                 (3,100)                74.642
   Canceled                                    --                      --
                                          ---------               --------
Balance at June 30, 2007                     49,400                 86.908
                                          =========               ========

     At June  30,  2007,  the  range of  exercise  prices  and  weighted-average
remaining  contractual life of outstanding options was $65.00 to $98.44 and 7.66
years,  respectively.  The total intrinsic value of options exercised during the
three months ended June 30, 2007 was $37,529  with the exercise  prices  ranging
from $65.00 to $93.49 per share.  New shares were issued for the  $231,390  cash
received from option exercises for the three months ended June 30, 2007.

     At June 30,  2007,  the  number of  options  exercisable  was 8,915 and the
weighted-average exercise price of those options was $76.80.

     On July 16, 2007, a stock option to purchase  25,000 shares of common stock
was issued to our new president, Gary L. Martin.



                                       17



Notes to Consolidated Financial Statements
(continued)

5.      Summary of Per Share Information
                                                         Three Months Ended
                                                             June 30
                                                             -------
                                                         2007        2006
                                                     ----------   ----------
                                                    (as restated) (as restated)
Investment income                                    $      .30   $      .31
Operating expenses                                         (.13)        (.14)
Interest expense                                             --         (.04)
Income taxes                                                 --           --
                                                     ----------   ----------
Net investment income                                       .17          .13
Distributions from undistributed
  net investment income                                    (.20)        (.20)
Net realized gain on investments                            .08          .10
Net increase (decrease) in unrealized appreciation
  of investments                                           4.41        (1.35)
Exercise of employee stock options*                        (.09)        (.29)
Stock option expense                                        .01           --
                                                     ----------   ----------
Increase (decrease) in net asset value                     4.38        (1.61)
Net asset value:
      Beginning of period                                186.75       144.56
                                                     ----------   ----------
      End of period                                  $   191.13   $   142.95
                                                     ==========   ==========

Shares outstanding at end of period
  (000s omitted)                                          3,889        3,875

* Net decrease is due to the exercise of employee  stock  options at prices less
than beginning of period net asset value.

6.   Subsequent Events

     In July 2007,  William R. Thomas,  retired from role as President and Chief
Executive Officer,  but has continued in capacity as Chairman of the Board. Gary
L Martin was named President and Chief Executive Officer.

     In  August  2007,   Susan  K.  Hodgson   resigned   from  her  position  as
Secretary-Treasurer  and Chief Financial  Officer.  Tracy L. Morris was hired in
September 2007, as Controller and Chief Financial Officer.

     On August 27, 2007,  Capital  Southwest  Corporation and Capital  Southwest
Venture Corporation, were named in a lawsuit filed in the United States District
Court of the Northern District of Texas,  Dallas Division,  against Heelys,  Inc
and its Chief Executive  Officer,  Chief Financial Officer and the directors who
signed its registration statement with the Securities and Exchange Commission in
connection  with its December 7, 2006 initial public offering  ("IPO"),  and its
underwriters for the IPO. The complaint alleges violations of Sections 11 and 15
of the  Securities  Act of 1933  and the  plaintiffs  are  seeking  compensatory
damages in an  unspecified  amount,  as well as  reasonable  costs and  expenses
incurred in the action,  including counsel fees and expert fees. We believe that
the  plaintiffs'  claims  are  without  merit,  we deny the  allegations  in the
complaints, and we intend to vigorously defend the lawsuits.



                                       18





Notes to Consolidated Financial Statements
(continued)

     In September  and October  2007 four  similar  suits were also filed in the
United  States  District  Court  of  the  Northern   District  of  Texas  making
substantially similar allegations under Sections 11, 12 and 15 of the Securities
Act of 1933, and seeking substantially similar damages. These lawsuits have been
transferred  to a  single  judge,  and we  expect  that  all the  cases  will be
consolidated into a single action,  with a consolidated  complaint filed shortly
thereafter.  We believe that the  plaintiffs'  claims are without merit, we deny
the  allegations  in the  complaints,  and we intend to  vigorously  defend  the
lawsuits.

     On November 15, 2007,  the Company  received a Staff  Determination  Letter
from NASDAQ,  stating that we were delinquent in our SEC filings for the quarter
ended September 30, 2007 and in violation of NASDAQ rules. The letter instructed
us to file for an appeal for the determination or trading of the Company's stock
would be  suspended.  On November  20,  2007,  the  Company  requested a written
hearing with NASDAQ. The hearing date was set for January 10, 2008.

7.   Recent Accounting Pronouncements

     The State of Texas  recently  passed House Bill 3 (HB3),  which revises the
existing  franchise  tax  system  to  create a new tax on  virtually  all  Texas
businesses.  Starting in the fiscal year 2007,  HB3  changes the  franchise  tax
base,  lowers the tax rate and extends coverage to active  businesses  receiving
state law liability protection.  We have been subject to an immaterial amount of
Texas franchise taxes and expect the future effect of HB3 to also be immaterial.

     In  September  2006,  the FASB issued  Statement  of  Financial  Accounting
Standard No. 157, "Fair Value  Measurements"  (SFAS 157).  The standard  defines
fair  value,  outlines a framework  for  measuring  fair value,  and details the
required  disclosures about fair value  measurements.  The standard is effective
for years  beginning  after November 15, 2007,  therefore we will adopt SFAS 157
effective April 1, 2008. We are evaluating the impact of SFAS 157.

     In February  2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial  Assets  and  Financial  Liabilities"  (SFAS  159).  SFAS 159  permits
entities to choose to measure many financial instruments and certain other items
at fair value and establishes  presentation and disclosure requirements designed
to facilitate  comparisons  between entities that choose  different  measurement
attributes  for similar types of assets and  liabilities.  SFAS 159 is effective
for us beginning  April 1, 2008.  The impact,  if any, from the adoption of SFAS
159 has not been determined.

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

     Net asset value at June 30, 2007 was $743,343,946 equivalent to $191.13 per
share.  Assuming  reinvestment  of all  dividends  and tax  credits on  retained
long-term  capital gains, the June 30, 2007 net asset value reflects an increase
of 37.3% during the past twelve months.

                                            June 30,           June 30,
                                             2007               2006
                                             ----               ----
              Net assets                 $743,343,946       $554,036,652
              Shares outstanding            3,889,151          3,875,751
              Net assets per share            $191.13            $142.95



                                       19


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations (continued)

Results of Operations

     The composite  measure of our  financial  performance  in the  Consolidated
Statements of Operations  is captioned  "Increase  (decrease) in net assets from
operations"  and  consists  of three  elements.  The  first  is "Net  investment
income", which is the difference between our income from interest, dividends and
fees and our combined operating and interest expenses,  net of applicable income
taxes.  The second element is "Net realized gain on  investments",  which is the
difference   between  the  proceeds   received  from  disposition  of  portfolio
securities  and their  stated  cost.  The  third  element  is the "Net  increase
(decrease) in unrealized  appreciation of investments",  which is the net change
in the market or fair value of our  investment  portfolio,  compared with stated
cost. It should be noted that the "Net realized  gain on  investments"  and "Net
increase  (decrease) in unrealized  appreciation  of  investments"  are directly
related  in that when an  appreciated  portfolio  security  is sold to realize a
gain,  a  corresponding  decrease  in  net  unrealized  appreciation  occurs  by
transferring the gain associated with the transaction from being "unrealized" to
being "realized". Conversely, when a loss is realized on a depreciated portfolio
security, an increase in net unrealized appreciation occurs.

Net Investment Income

     Interest  income  of  $564,687  in the three  months  ended  June 30,  2007
increased from $205,852 in the year-ago period due to an increase in excess cash
and interest  rates.  During the three  months ended June 30, 2007 and 2006,  we
recorded dividend income from the following sources:

                                                   Three Months Ended
                                                        June 30
                                                        -------
                                                    2007        2006
                                                    ----        ----
             Alamo Group Inc.                    $169,278    $169,278
             Dennis Tool Company                   25,000      37,499
             Encore Wire Corporation               81,735        -
             Kimberly-Clark Corporation            40,905      37,818
             Lifemark Group                          -        150,000
             PalletOne, Inc.                         -         44,921
             The RectorSeal Corporation              -        240,000
             TCI Holdings, Inc                     20,318      20,318
             The Whitmore Manufacturing Company      -         60,000
             Other                                 26,191      22,732
                                                ----------  ----------
                                                 $363,427    $782,566

Net Increase (Decrease)  in Unrealized Appreciation of Investments

     Set  forth  in the  following  table  are  the  significant  increases  and
decreases in unrealized appreciation by portfolio company:

                                                        Three Months Ended
                                                              June 30

                                              2007                  2006
                                              ----                  ----
  Encore Wire Corporation                 $ 6,130,000           $8,174,000
  Heelys, Inc.                             (9,318,000)                -
  Palm Harbor Homes, Inc.                        -              (7,855,000)
  The RectorSeal Corporation               10,850,000                 -



                                       20





Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations (continued)

     During the three months ended June 30, 2007, the value of our investment in
Encore  Wire  Corporation  was  increased  $6,130,000  due to an increase in the
company's stock price. The value of our investment in The RectorSeal Corporation
was increased $10,850,000 due to increased sales and earnings at the company.

     Offsetting  the gains at RectorSeal and Encore Wire during the three months
ended June 30, 2007, was a $9,318,000 decline in the value of Heelys,  which has
experienced a market price decline in each of the past two quarters.

Portfolio Investments

     During the quarter ended June 30, 2007, we made an investment of $3,000,000
in a new portfolio company and additional  investments of $5,051,747 in existing
portfolio companies.

     We have agreed,  subject to certain conditions,  to invest up to $4,115,423
in two portfolio companies.

Financial Liquidity and Capital Resources

     At June 30, 2007, we had cash and cash equivalents of  approximately  $31.3
million.  Pursuant to Small Business Administration (SBA) regulations,  cash and
cash equivalents of $3.2 million held by Capital Southwest  Venture  Corporation
(CSVC) may not be  transferred or advanced to us without the consent of the SBA.
Under  current  SBA  regulations  and  subject to SBA's  approval  of its credit
application,  CSVC would be entitled to borrow up to $16.4 million. We also have
an unsecured $25.0 million  revolving line of credit from a commercial  bank, of
which $25.0  million was  available  at June 30, 2007.  With the  exception of a
capital gain  distribution  made in the form of a distribution of the stock of a
portfolio  company in the fiscal year ended March 31,  1996,  we have elected to
retain all gains realized during the past 39 years. Retention of future gains is
viewed as an  important  source of funds to  sustain  our  investment  activity.
Approximately  $63.4  million of our  investment  portfolio  is  represented  by
unrestricted publicly-traded securities which represent a source of liquidity.


     Funds  to be  used  by us  for  operating  or  investment  purposes  may be
transferred  in the form of  dividends,  management  fees or loans from Lifemark
Group,  The  RectorSeal  Corporation  and The  Whitmore  Manufacturing  Company,
wholly-owned portfolio companies, to the extent of their available cash reserves
and borrowing capacities.

     Management  believes that our cash and cash  equivalents and cash available
from  other  sources   described   above  are  adequate  to  meet  our  expected
requirements.  Consistent  with  our  long-term  strategy,  the  disposition  of
investments  from  time to time may also be an  important  source  of funds  for
future investment activities.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     We are subject to financial market risks,  including  changes in marketable
equity  security  prices.  We do not use  derivative  financial  instruments  to
mitigate any of these risks.

     Our  investment  performance  is a  function  of our  portfolio  companies'
profitability,  which may be affected by economic  cycles,  competitive  forces,
foreign  currency  fluctuations  and production costs including labor rates, raw
material  prices and certain  commodity  prices.  Most of the  companies  in our
investment  portfolio do not hedge their  exposure to raw material and commodity
price fluctuations. However, the portfolio company with the greatest exposure to
foreign currency fluctuations generally



                                       21



Item 3. Quantitative and Qualitative Disclosures About Market Risk
       (continued)

hedges their  exposure.  All of these factors may have an adverse  effect on the
value of our investments and on our net asset value.

     Our investment in portfolio  securities includes fixed rate debt securities
which totaled  $9,000,000  at June 30, 2007,  equivalent to 1.3% of the value of
our total  investments.  Generally  these debt  securities are below  investment
grade and have relatively high fixed rates of interest; therefore, minor changes
in market yields of publicly-traded  debt securities have little or no effect on
the values of debt securities in our portfolio and no effect on interest income.
Our investments in debt securities are generally held to maturity and their fair
values are  determined  on the basis of the terms of the debt  security  and the
financial condition of the issuer.

     A  portion  of  our  investment  portfolio  consists  of  debt  and  equity
securities of private companies. We anticipate little or no effect on the values
of these  investments  from modest  changes in public market equity  valuations.
Should  significant  changes in market  valuations of comparable  publicly-owned
companies  occur,  there may be a corresponding  effect on valuations of private
companies,  which  would  affect the value and the amount and timing of proceeds
eventually  realized  from  these  investments.  A  portion  of  our  investment
portfolio also consists of restricted common stocks of publicly-owned companies.
The fair values of these  restricted  securities are influenced by the nature of
applicable resale restrictions,  the underlying earnings and financial condition
of the  issuers  of such  restricted  securities  and the market  valuations  of
comparable  publicly-owned companies. A portion of our investment portfolio also
consists of  unrestricted,  freely  marketable  common stocks of  publicly-owned
companies.  These freely marketable investments,  which are valued at the public
market price, are directly exposed to equity price risks, in that a change in an
issuer's  public market equity price would result in an identical  change in the
value of our investment in such security.

Item 4. Controls and Procedures

     An  evaluation   was  performed   under  the   supervision   and  with  the
participation of our Management,  including the President and Controller, of the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act
of 1934). Based on that evaluation,  the President and Controller concluded that
our  disclosure  controls and  procedures  were not  effective due to a material
weakness  in  the   Company's   internal   control  over   financial   reporting
("ICFR")disclosed  in "Item 9A. Controls and Procedures" of the Company's Annual
Report on Form 10-K/A,  for the fiscal year ended March 31, 2007.  The following
material weakness is the basis for our conclusion:

o    We did not  maintain  an  adequate  process  to assess  and  determine  the
     probability  of the  Company  maintaining  its  qualifying  status as a RIC
     subject to subchapter M of the IRC over the next twelve months at any given
     quarter.

     To address this material weakness,  Management will add a formal evaluation
to consider whether it is probable the company will not qualify as a RIC subject
to  Subchapter  M of the IRC over  the  next 12  months  at any  given  quarter.
Additionally,  the  Company  will  review its  investment  gains  quarterly  and
calculate the tax impact on those gains it will retain,  however, they will only
record the tax liability at the last day of the tax year.  Management  will also
determine,  based on materiality,  any footnote  disclosure that may be required
during the  interim  periods.  Furthermore,  Management  will  review and assess
temporary and permanent differences for reclassification to "additional capital"
at each tax year end. When  considered  necessary by Management,  an independent
attorney or accountant with requisite  knowledge of investment  company taxation
will  be  consulted  in  order  to  provide  necessary  guidance.   Accordingly,
management believes that the financial statements included in this report fairly
represent in all material respects the Company's financial position,  results of
operations  and cash flows for the periods  presented.  There were no changes in
the Company's  internal  control over financial  reporting that have  materially
affected  or are  reasonably  likely to  materially  affect our ICFR  during the
quarter ended June 30, 2007.



                                       22


PART II.  OTHER INFORMATION
---------------------------

Item 1A. Risk Factors

     There have been no material  changes to our risk  factors as  disclosed  in
     Item 1A, "Risk Factors", in our Annual Report on Form 10-K/A for the fiscal
     year ended March 31, 2007.

Item 6. Exhibits and Reports on Form 8-K

(a)      Exhibits
               Exhibit  31.1-   Certification  of  President  required  by  Rule
               13a-14(a)  or Rule  15d-14(a) of the  Securities  Exchange Act of
               1934, as amended (the "Exchange Act"), filed herewith.

               Exhibit 31.2-  Certification of  Secretary-Treasurer  required by
               Rule  13a-14(a)  or Rule  15d-14(a) of the  Exchange  Act,  filed
               herewith.

               Exhibit  32.1-   Certification  of  President  required  by  Rule
               13a-14(b) or Rule  15d-14(b) of the Exchange Act and Section 1350
               of Chapter 63 of Title 18 of the United  States  Code,  furnished
               herewith.

               Exhibit 32.2-  Certification of  Secretary-Treasurer  required by
               Rule  13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section
               1350  of  Chapter  63 of  Title  18 of the  United  States  Code,
               furnished herewith.

(b)  Reports on Form 8-K
               No  reports on Form 8-K have been filed  during the  quarter  for
               which this report is filed.



                                       23



                                   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.

                                         CAPITAL SOUTHWEST CORPORATION



Date:    January 9, 2008                 By:  /s/ Gary L. Martin
       ----------------------                 ----------------------------------
                                              Gary L. Martin, President
                                              (chief executive officer)



Date:    January 9, 2008                 By:  /s/ Tracy L. Morris
       ----------------------                 ----------------------------------
                                              Tracy L. Morris, Controller
                                              (chief financial/accounting)