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

(Mark One)

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

For the quarterly period ended September 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
                      September 30, 2007 (Unaudited) and March 31, 2007........3

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

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

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

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

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

         ITEM 2.      Management's Discussion and Analysis of Financial
                          Condition and Results of Operations.................18

         ITEM 3.      Quantitative and Qualitative Disclosure About
                          Market Risk.........................................20

         ITEM 4.      Controls and Procedures.................................20

PART II.     OTHER INFORMATION

         ITEM 1      Legal Proceedings........................................21

         ITEM 1A.  Risk Factors...............................................21

         ITEM 4.      Submission of Matters to a Vote of Security Holders.....21

         ITEM 6.      Exhibits and Reports on Form 8-K........................22

Signatures ...................................................................23

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





PART I.  FINANCIAL INFORMATION

Item 1.    Consolidated Financial Statements

                 CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
                 Consolidated Statements of Financial Condition
                 ----------------------------------------------

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

Investments at market or fair value
      Companies more than 25% owned
        (Cost: September 30, 2007 - $28,758,246
         March 31, 2007  - $28,632,356)                                                $ 389,987,981        $ 526,993,983
      Companies 5% to 25% owned
        (Cost: September 30, 2007 - $19,962,243,
        March 31, 2007 - $18,798,896)                                                     82,329,351           76,398,002
      Companies less than 5% owned
        (Cost: September 30, 2007 - $31,982,402,
        March 31, 2007 - $24,211,045)                                                     96,917,751           77,763,048
                                                                                       -------------        -------------
      Total investments
        (Cost: September 30, 2007- $80,702,891,
        March 31, 2007 - $71,642,297)                                                    569,235,083          681,155,033
Cash and cash equivalents                                                                 31,871,482           38,844,203
Receivables                                                                                  102,956              337,892
Other assets                                                                               9,379,527            9,170,185
                                                                                       -------------        -------------
      Totals                                                                           $ 610,589,048        $ 729,507,313
                                                                                       =============        =============

Liabilities and Shareholders' Equity

Other liabilities                                                                      $   1,341,573        $   1,457,847
Deferred income taxes                                                                      2,374,777            2,317,777
                                                                                       -------------        -------------
      Total liabilities                                                                    3,716,350            3,775,624
                                                                                       -------------        -------------

Shareholders' equity
      Common stock, $1 par value: authorized,
        5,000,000 shares; issued, 4,326,516 shares
        at September 30, 2007 and 4,323,416 shares
        at March 31, 2007                                                                  4,326,516            4,323,416
      Additional capital                                                                 116,689,936          116,373,960
      Undistributed net investment income                                                  6,728,945            5,655,020
      Undistributed net realized loss on investments                                      (2,371,590)          (3,100,142)
      Unrealized appreciation of investments                                             488,532,193          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 $156.04 per share at September 30, 2007 on the 3,889,151 shares
        outstanding and $186.75 per share at March 31, 2007 on the 3,886,051
        shares outstanding                                                               606,872,698          725,731,689
                                                                                       -------------        -------------
Totals                                                                                 $ 610,589,048        $ 729,507,313
                                                                                       =============        =============


                (See Notes to Consolidated Financial Statements)





                                       3



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

                                                 Three Months Ended                Six Months Ended
                                                     September 30                     September 30
                                           ------------------------------    ------------------------------
                                                2007             2006            2007              2006
                                           -------------    -------------    -------------    -------------
                                                             as restated                       as restated
                                                                                  

Investment income:
     Interest                              $     679,442    $     933,678    $   1,244,129    $   1,139,530
     Dividends                                   801,467          757,935        1,164,894        1,540,501
     Management and directors' fees              226,200          179,950          451,400          378,400
                                           -------------    -------------    -------------    -------------
                                               1,707,109        1,871,563        2,860,423        3,058,431
                                           -------------    -------------    -------------    -------------
Operating expenses:
     Salaries                                    291,085          320,334          565,221          663,799
     Net pension benefit                        (127,434)         (43,284)        (163,671)         (72,471)
     Other operating expenses                    288,194          230,737          553,158          451,965
                                           -------------    -------------    -------------    -------------
                                                 451,845          507,787          954,708        1,043,293
                                           -------------    -------------    -------------    -------------
Income before interest expense and
  income taxes                                 1,255,264        1,363,776        1,905,715        2,015,138
Interest expense                                    --            178,222             --            325,204
                                           -------------    -------------    -------------    -------------
Income before income taxes                     1,255,264        1,185,554        1,905,715        1,689,934
Income tax expense                                44,400           15,200           54,160           28,024
                                           -------------    -------------    -------------    -------------

Net investment income                      $   1,210,864    $   1,170,354    $   1,851,555    $   1,661,910
                                           =============    =============    =============    =============

Proceeds from disposition of investments   $     402,777    $  10,045,064    $     728,552    $  10,442,080
Cost of investments sold                            --            826,317             --            826,317
                                           -------------    -------------    -------------    -------------
Net realized gain on investments                 402,777        9,218,747          728,552        9,615,763
                                           -------------    -------------    -------------    -------------


Net decrease in unrealized
   appreciation of investments              (138,128,989)      (2,931,221)    (120,980,544)      (8,148,701)
                                           -------------    -------------    -------------    -------------

Net realized and unrealized gain (loss)
   on investments                          $(137,726,212)   $   6,287,526    $(120,251,992)   $   1,467,062
                                           =============    =============    =============    =============

Increase (decrease) in net assets
 from operations                           $(136,515,348)   $   7,457,880    $(118,400,437)   $   3,128,972
                                           =============    =============    =============    =============





                (See Notes to Consolidated Financial Statements)










                                       4




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


                                                         Six Months Ended          Year Ended
                                                        September 30, 2007       March 31, 2007
                                                           -------------         -------------
                                                            (Unaudited)           as restated
                                                                           

Operations
      Net investment income                               $   1,851,555         $   4,233,340
      Net realized gain on investments                          728,552            14,966,296
      Net increase (decrease) in unrealized
        appreciation of investments                        (120,980,544)          147,681,609
                                                          -------------         -------------
      Increase (decrease) in net assets from operations    (118,400,437)          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                                       87,686               169,003
                                                          -------------         -------------

      Increase (decrease) in net assets                    (118,858,991)          167,695,699

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

Net assets, end of period                                 $ 606,872,698         $ 725,731,689
                                                          =============         =============

















                (See Notes to Consolidated Financial Statements)




                                       5




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


                                                     Three Months Ended               Six Months Ended
                                                       September 30                     September 30
                                                       ------------                     ------------
                                                  2007             2006            2007             2006
                                             -------------    -------------    -------------    -------------
                                                               as restated                       as restated
                                                                                    

Cash flows from operating activities
Increase (decrease) in net assets from
  operations                                 $(136,515,348)   $   7,457,880    $(118,400,437)   $   3,128,972
Adjustments to reconcile increase in net
  assets from operations to net cash
  provided  by operating activities:
  Proceeds from disposition of investments         402,777       10,045,064          728,552       10,442,080
  Purchases of securities                       (1,163,347)        (370,230)      (9,215,094)        (370,230)
  Maturities of securities                         150,000          482,491          154,500          884,936
  Depreciation and amortization                      6,272            4,022           10,681            7,887
  Net pension benefit                             (127,434)         (43,284)        (163,671)         (72,471)
  Realized gain on investments                    (402,777)      (9,218,747)        (728,552)      (9,615,763)
  Net decrease in unrealized appreciation
    of investments                             138,128,989        2,931,221      120,980,544        8,148,701
  Stock option expense                              44,100           77,711           87,686           81,831
  Increase (decrease) in receivables                50,016          (31,415)         234,936          (47,285)
  (Increase) decrease in other assets              (23,679)           1,955          (30,408)         (17,988)
  Increase (decrease) in other liabilities          43,779           21,727          (75,384)         (84,856)
  Decrease in accrued pension cost                 (30,266)         (36,568)         (66,834)         (71,035)
  Increase in deferred income taxes                 44,400           15,200           57,000           25,400
                                             -------------    -------------    -------------    -------------
Net cash provided by (used in) operating
  activities                                       607,482       11,337,027       (6,426,481)      12,440,179
                                             -------------    -------------    -------------    -------------

Cash flows from financing activities
Decrease 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                                          --       (150,000,000)        (546,240)         325,450
                                             -------------    -------------    -------------    -------------

Net increase (decrease) in cash and cash
  equivalents                                      607,482     (138,662,973)      (6,972,721)      12,765,629
Cash and cash equivalents at beginning
  of period                                     31,264,000      162,932,468       38,844,203       11,503,866
                                             -------------    -------------    -------------    -------------
Cash and cash equivalents at end of period   $  31,871,482    $  24,269,495    $  31,871,482    $  24,269,495
                                             =============    =============    =============    =============


Supplemental disclosure of cash flow information:
Cash paid during the period for:
  Interest                                   $        --      $     201,441    $        --      $     325,204
  Income taxes                               $        --      $        --      $        --      $      20,000




                (See Notes to Consolidated Financial Statements)



                                       6




Portfolio of Investments - September 30, 2007

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

+AT&T INC.                                ++20,770 shares common stock (acquired 3-9-99)               $        12      $    878,779
  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         6,600,000
   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        12,600,000
   resellers.

+ALLTEL CORPORATION                       ++8,880 shares common stock (acquired 7-1-98)                     88,699           618,758
   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                 2

CMI HOLDING COMPANY, INC.                 10% convertible subordinate note, due 2009 (acquired 7-2-07)   1,913,347         1,913,347
   Richardson, Texas                      2,327,658 shares Series A convertible preferred stock,
   Owns Chase Medical, which                 convertible into 2,327,658 shares of common stock
   develops and sells devices                at $1.72 per share (acquired 8-21-02 and 6-4-03)            4,000,000         2,000,000
   used in cardiac surgery to             Warrants to purchase 109,012 shares of common stock
   relieve congestive heart                  at $1.72 per share, expiring 2012 (acquired 4-16-04)                -                 -
   failure; develops and                  Warrants to purchase 431,982 shares of Series A-1
   supports cardiac imaging                  convertible preferred stock at $1.72 per share
   systems.                                  expiring 2012 (acquired 7-2-07)                                     -                 -
                                                                                                         ---------         ---------
                                                                                                         5,913,347         3,913,347





                                       7



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

+COMCAST CORPORATION                      ++64,656 shares common stock (acquired 11-18-02)             $        21      $  1,562,089
   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         2,031,134
   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           250,200
   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         8,391,000
   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           800,000
   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)                                                       -           375,000
                                                                                                         ---------         ---------
                                                                                                         3,000,000         9,566,000

+FMC CORPORATION                          ++6,430 shares common stock (acquired 6-6-86)                     66,726           668,977
   Philadelphia, Pennsylvania
   Chemicals for agricultural,
   industrial and consumer
   markets.

+FMC TECHNOLOGIES, INC.                   ++11,057 shares common stock (acquired 1-2-02)                    57,051         1,275,093
   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        55,904,000
   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                 1
  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                 1


+HOLOGIC, INC.                            ++316,410 shares common stock (acquired 8-27-99)                 220,000        19,282,025
   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         5,422,667
   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         1,741,832
 Englewood, Colorado                      ++42,463 shares Series C common stock (acquired 9-6-05)          100,870         1,639,496
 Owns interests in broadband,                                                                            ---------         ---------
 distribution and content                                                                                  207,423         3,381,328
 companies.


+LIBERTY MEDIA CORPORATION                ++35,250 shares of Liberty Capital Series A common stock
   Englewood, Colorado                       (acquired 5-9-06)                                              51,829         4,400,258
   Holding company owning                 ++176,252 shares of Liberty Interactive Series A common stock
   interests in electronic                   (acquired 5-9-06)                                              66,424         3,384,038
   retailing, media, communi-                                                                            ---------         ---------
   cations and entertainment                                                                               118,253         7,784,296
   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         6,000,000
   office automation supplies             4,000,000 shares common stock (acquired 11-4-97)               4,615,000        30,000,000
   and accessories; impact,                                                                              ---------         ---------
   tilt monitoring and                                                                                   5,415,000        36,000,000
   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           750,000
   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            61,000
   lumber.                                                                                               ---------         ---------
                                                                                                         1,748,896         2,811,000

+PALM HARBOR HOMES, INC.                  7,855,121 shares common stock (acquired 1-3-85 thru 7-31-95)  10,931,955        62,841,000
   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      $  9,567,000
   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         1,710,000
   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        10,630,432
   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           129,636
   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)                                     -           178,000
                                          - 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         2,400,000
------------------------------------------------------------------------------------------------------------------------------------

TOTAL INVESTMENTS                                                                                     $ 80,702,891      $569,235,083
                                                                                                     =============      ============
------------------------------------------------------------------------------------------------------------------------------------
+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 September 30, 2007,  restricted  securities  represented
approximately 88.5% 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)

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.

     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 have filed an 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 the consolidated  statement of financial  condition as of March 31, 2007; the
consolidated  statement of operations and  consolidated  statement of cash flows
for the three months and six months ended  September 30, 2006; the  consolidated
statement of changes in net assets for the six months ended  September  30, 2006
and year ended March 31, 2007 is as follows and shown in 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."


                                       12




Notes to Consolidated Financial Statements
(continued)

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."


                                                                                As of March 31, 2007
                                                                          ----------------------------
                                                                           Previously
                                                                          Reported (3)   As Restated (2)
Consolidated Statement of Financial Condition                             ------------    ------------
------------------------------------------------------
                                                                                    

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 of investments                                 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
                                                                          ============    ============

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

Net investment income                                                        1,661,910       1,661,910
                                                                          ============    ============
Net realized gain on investments                                             6,243,744       9,615,763  (B)


Net decrease in unrealized appreciation of investments                      (5,142,701)     (8,148,701) (A)
                                                                          ------------    ------------

Net realized and unrealized gain on investments                              1,101,043       1,467,062
                                                                          ------------    ------------
Increase in net assets from operations                                       2,762,953       3,128,972
                                                                          ============    ============


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

Net investment income
                                                                             1,170,354       1,170,354
                                                                          ============    ============
Net realized gain on investments
                                                                             5,985,684       9,218,747  (B)

Net decrease in unrealized appreciation of investments                      (2,120,220)     (2,931,221) (A)
                                                                          ------------    ------------

Net realized and unrealized gain on investments                              3,865,463       6,287,526
                                                                          ------------    ------------
Increase in net assets from operations
                                                                             5,035,817       7,457,880
                                                                          ============    ============



                                       13


Notes to Consolidated Financial Statements
(continued)

                                                                            Year Ended March 31, 2007
                                                                          ----------------------------
                                                                           Previously
Consolidated Statement of Changes in Net Assets                           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
                                                                          ============    ============



                                                                                 Six Months Ended
                                                                                September 30, 2006
                                                                          ----------------------------
                                                                           Previously
Consolidated Statement of Changes in Net Assets                           Reported (1)   As Restated (2)
------------------------------------------------------                    ------------    ------------

Net investment income                                                        1,661,910       1,661,910

Net realized gain on investments                                             6,243,744       9,615,763  (B)

Net decrease on unrealized appreciation before distributions                (5,142,701)     (8,148,701) (A)
                                                                          ------------    ------------
Increase in net assets from operations before distributions                  2,762,953       3,128,972


Undistributed net investment income                                           (772,050)       (772,050)

Employee stock options exercised                                             1,097,500       1,097,500

Stock option expense                                                            81,831          81,831
                                                                          ------------    ------------

Increase in net assets                                                       3,170,234       3,536,253

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

Net assets, end of year                                                    399,788,343     561,572,243
                                                                          ============    ============
Net asset value, per share                                                $     103.15    $     144.89
                                                                          ============    ============



                                       14



Notes to Consolidated Financial Statements
(continued)
                                                                                 Six Months Ended
                                                                                September 30, 2006
                                                                          ----------------------------
                                                                           Previously
Consolidated Statement of CashFlow                                        Reported (1)   As Restated (2)
------------------------------------------------------                    ------------    ------------

Net cash provided by operating activities                                   12,440,179      12,440,179

Net cash provided by financing activities                                      325,450         325,450
                                                                          ------------    ------------
Net increase in cash and cash equivalents
                                                                            12,765,629      12,765,629
                                                                          ============    ============


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

Net cash provided by operating activities                                   11,337,027      11,337,027
Net cash used in financing activities                                     (150,000,000)   (150,000,000)
                                                                          ------------    ------------
Net decrease in cash and cash equivalents                                 (138,662,973)   (138,662,973)
                                                                          ============    ============




(1) As  presented  in the  Company's  original  Form 10-Q for the quarter  ended
September 30, 2006
(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 and
six months ended  September  30, 2007,  we  recognized  compensation  expense of
$44,100 and $87,686, respectively.

     As of September 30, 2007,  the total  remaining  unrecognized  compensation
cost related to non-vested stock options was $1,971,812, which will be amortized
over the weighted-average service period of approximately 6.4 years.

4.   Employee Stock Option Plan

     On July 19, 1999,  shareholders  approved  the 1999 Stock Option  ("Plan"),
which  provides for the granting of stock  options to employees and officers and
authorizes  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 September 30, 2007,  there were 37,500 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 15


                                       15



Notes to Consolidated Financial Statements
(continued)

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 per share  weighted-average  fair value of the
stock  options  granted  on July 16,  2007 was  $41.777  per  option  using  the
Black-Scholes  pricing model with the following  assuptions:  expected  dividend
yield of .39%,  risk-free interest rate of 4.95%,  expected volatility of 19.9%,
and expected life of 5 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                                       25,000                152.980
   Exercised                                     (3,100)                74.642
   Canceled                                      (4,000)                93.490
                                              ---------              ---------
Balance at September 30, 2007                    70,400                109.998
                                              =========               ========

     At September 30, 2007,  the range of exercise  prices and  weighted-average
remaining contractual life of outstanding options was $65.00 to $152.98 and 6.41
years,  respectively.  The total intrinsic value of options exercised during the
six months ended September 30, 2007 was $75,129 with the exercise prices ranging
from $65.00 to $93.49 per share. A total of 3,100 new shares were issued for the
$231,390 cash received from option  exercises for the six months ended September
30, 2007.

     At September 30, 2007, the number of options  exercisable was 9,930 and the
weighted-average exercise price of those options was $79.01.

5.   Summary of Per Share Information

                                            Three Months Ended      Six Months Ended
                                                September 30          September 30
                                           --------------------- ---------------------
                                              2007       2006      2007        2006
                                           ---------- ---------- ---------- ----------
                                                      as restated          as restated
                                                                

Investment income                         $      .44 $      .48 $      .74 $      .79
Operating expenses                              (.12)      (.13)      (.25)      (.27)
Interest expense                                  --       (.04)        --       (.08)
Income taxes                                    (.01)      (.01)      (.01)      (.01)
                                          ---------- ---------- ---------- ----------
Net investment income                            .31        .30        .48        .43
Distributions from undistributed
  net investment income                           --         --       (.20)      (.20)
Net realized gain on investments                 .10       2.38        .19       2.48
Net decrease in unrealized appreciation
  of investments after                        (35.52)      (.76)    (31.11)     (2.10)
Exercise of employee stock options *              --         --       (.09)      (.29)
Stock option expense                             .01        .02        .02        .02
                                          ---------- ---------- ---------- ----------
Increase (decrease) in net asset value        (35.10)      1.94     (30.71)       .33

Net asset value:
      Beginning of period                     191.13     142.95     186.75     144.56
                                          ---------- ---------- ---------- ----------
      End of period                       $   156.04 $   144.89 $   156.04 $   144.89
                                          ========== ========== ========== ==========
Shares outstanding at end of period
  (000s omitted)                               3,889      3,875      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.


                                       16


Notes to Consolidated Financial Statements
(continued)

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.

     As  described in Part II. Item 1. Legal  Proceedings;  on August 27, 2007 a
lawsuit was filed against,  Capital  Southwest  Corporation,  Capital  Southwest
Venture  Corporation,  Heelys,  Inc.,  and its Chief  Executive  Officer,  Chief
Financial  Officer and directors who signed its registration  statement with the
SEC in connection with its December 7, 2006 initial public offering  ("IPO") and
its  underwriters  for the IPO.  Four similar  suits were filed in September and
October 2007.

     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 is 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 HB3 to have some  affect,  but have not
determined the extent of this impact.

     In May 2005, the FASB issued  Statement of Financial  Accounting  Standards
No. 154, "Accounting Changes and Error Corrections--a replacement of APB Opinion
No. 20 and FASB  Statement  No. 3" ("SFAS  154").  This  Statement  replaces APB
Opinion No. 20,  "Accounting  Changes,"  and FASB  Statement  No. 3,  "Reporting
Accounting   Changes  in  Interim  Financial   Statements."  SFAS  154  requires
retrospective  application to prior periods' financial statements for changes in
accounting  principle,  unless  it is  impracticable  to  determine  either  the
period-specific  effects or the cumulative  effect of the change.  SFAS 154 also
requires that a change in  depreciation,  amortization,  or depletion method for
long-lived,  non-financial  assets be  accounted  for as a change in  accounting
estimate effected by a change in accounting principle. SFAS 154 is effective for
accounting  changes and  corrections  of errors made in fiscal  years  beginning
after December 15, 2005.  The impact of this standard,  if any, will depend upon
accounting  changes  or errors  that may occur in future  periods.  The  Company
adopted  SFAS 154  effective  December  31,  2005.  Prior to the  quarter  ended
September 30, 2007, SFAS 154 did not have any impact on the company's  financial
statements.

     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.



                                       17


Notes to Consolidated Financial Statements
(continued)

     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.

     Net asset value at  September  30,  2007 was  $606,872,698,  equivalent  to
$156.04 per share.  Assuming  reinvestment  of all  dividends and tax credits on
retained long-term capital gains, less deferred taxes on unrealized appreciation
on investments in prior periods, the September 30, 2007 net asset value reflects
an increase of 10.6% during the past twelve months.

                                                September 30,    September 30,
                                                   2007              2006
                                                   ----              ----
                  Net assets                   $606,872,698     $561,572,243
                  Shares outstanding              3,889,151        3,875,751
                  Net assets per share              $156.04          $144.89

Item 2. Managements  Discussion and Analysis of Financial  Condition and Results
        of Operations

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 $1,244,129  in the six months ended  September 30, 2007
increased  from  $1,139,530 in the year-ago  period due to an increase in excess
cash and  interest  rates.  During the six months ended  September  30, 2007 and
2006, we recorded dividend income from the following sources:

                                                         Six Months Ended
                                                           September 30
                                                           ------------
                                                      2007               2006
                                                      ----               ----
          Alamo Group Inc.                      $   339,096        $   338,556
          Dennis Tool Company                        37,499             49,999
          Encore Wire Corporation                   163,470
          Kimberly-Clark Corporation                 81,811             75,636
          Lifemark Group                            150,000            300,000
          PalletOne, Inc.                                 0             89,842
          PETsMart, Inc.                             18,000             18,000
          The RectorSeal Corporation                240,000            480,000
          TCI Holdings, Inc.                         40,635             40,635
          The Whitmore Manufacturing Company         60,000            120,000
          Other                                      34,383             27,833
                                                -------------      -------------
                                                 $1,164,894         $1,540,501
                                                =============      =============


                                       18




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

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                 Six Months Ended
                                       September 30                       September 30
                                       ------------                       ------------
                                   2007             2006              2007            2006
                                   ----             ----              ----            ----
                                                                          

Encore Wire Corporation      $        --      $        --      $   6,130,000    $   8,174,000
Heelys, Inc.                  (130,442,000)      30,000,000     (139,760,000)      30,000,000
Media Recovery, Inc.            (9,000,000)            --         (9,000,000)            --
Palm Harbor Homes, Inc.         (7,855,000)     (15,710,000)      (7,855,000)     (23,565,000)
The RectorSeal Corporation            --               --         10,850,000             --



     During the six months ended September 30, 2007, the value of our investment
in Encore Wire  Corporation  was  increased by  $6,130,000  due to the company's
ability to cope with an increasingly  volatile wire and cable market.  The value
of our investment in The RectorSeal Corporation was increased by $10,850,000 due
to  increased  sales and  earnings at the company  derived  largely from growing
demand  for the  smoke  containment  systems  manufactured  by its  Smoke  Guard
subsidiary.

     Offsetting the gains at Encore and  RectorSeal  during the six months ended
September 30, 2007,  was a  $139,760,000  decline in the value of Heelys,  Inc.,
which experienced  significantly  slower growth and an extreme decline in market
price during the past quarter;  a $7,855,000 decline in the value of Palm Harbor
Homes, Inc. due to the deterioration of the manufactured  housing market;  and a
$9,000,000 decline in the value of Media Recovery, Inc. due to reduced sales and
earnings at the company.

Portfolio Investments

     During the quarter ended September 30, 2007, we made additional investments
of $1,050,000 in an existing portfolio company.

     We have agreed,  subject to certain conditions,  to invest up to $4,846,947
in four portfolio companies.

Financial Liquidity and Capital Resources

     At September 30, 2007, we had cash and cash  equivalents  of  approximately
$31.9 million. Pursuant to Small Business Administration (SBA) regulations, cash
and  cash  equivalents  of  $3.8  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.  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 $65.2 million of our investment portfolio is represented
by unrestricted publicly-traded securities, and 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.


                                       19


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

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

     Our investment in portfolio  securities includes fixed-rate debt securities
which totaled $9,913,348 at September 30, 2007,  equivalent to 1.7% 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
fair 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:



                                       20


Item 4. Controls and Procedures
        (continued)

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
fiscal quarter ended September 30, 2007.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     We are  currently the subject of certain  legal  actions.  In our judgment,
none of the lawsuits currently pending against us, either individually or in the
aggregate, is likely to have a material adverse effect on our business,  results
of operations, or financial position.

     We,  Capital   Southwest   Corporation   and  Capital   Southwest   Venture
Corporation, have been named in a lawsuit filed on August 27, 2007 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.

     Four  similar  suits were also filed in  September  and October 2007 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.

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.


                                       21




Item 4.    Submission of Matters to a Vote of Security Holders

Our Annual Meeting of Stockholders was held on July 16, 2007, with the following
results of elections and approval:

                                                                   Votes Cast
                                                       -----------------------------------------
                                                                     Against/      Abstentions/
                                                          For        Withheld       Non-Votes
                                                          ---        --------       ---------
                                                                           

a.   The following Directors were elected to serve
     until the next Annual Meeting of Stockholders:

           Donald W. Burton                          3,390,519         25,241       473,391
           Graeme W. Henderson                       3,388,577         27,183       473,391
           Samuel B. Ligon                           3,390,069         25,691       473,391
           Gary L. Martin                            3,386,898         28,862       473,391
           William R. Thomas                         3,384,051         31,709       473,391
           John H. Wilson                            3,335,121         80,639       473,391


                                                                   Votes Cast
                                                       -----------------------------------------
                                                                     Against/      Abstentions/
                                                          For        Withheld       Non-Votes
                                                          ---        --------       ---------
b.   Grant Thornton LLP was approved as our
     independent registered accounting firm
     for the 2008 fiscal year.                       3,412,395           516         476,240



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  Controller  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  Controller  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 We filed the  following  Current  Reports on Forms 8-K
     with the SEC during the quarter ended September 30, 2007:

               Current  report on Form 8-K filed  with the SEC on July 18,  2007
               relating   to  the   resignation   of   Susan   K.   Hodgson   as
               Secretary-Treasurer  (Chief Financial Officer),  effective August
               6, 2007;  and naming  Jeffrey G.  Peterson  as  Secretary  of the
               Corporation.

               Current  report on Form 8-K filed with the SEC on  September  24,
               2007  relating  to the  arrival  of Tracy  Morris  as  Controller
               serving as the Chief Financial Officer of the Corporation.



                                       22







                                   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)