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 December 31, 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 31, 2008


<PAGE>




                                TABLE OF CONTENTS

                                                                        Page No.
                                                                        --------
PART I.      FINANCIAL INFORMATION

      ITEM 1. Consolidated Financial Statements (1)

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

             Consolidated Statements of Operations (Unaudited) For the three
                      and nine months ended December 31, 2007 and
                      December 31, 2006........................................4

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

             Consolidated Statements of Cash Flows (Unaudited) For the three
                      and nine months ended December 31, 2007 and
                      December 31, 2006........................................6

             Consolidated Statement of Investments
                      December 31, 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....................................21

PART II.     OTHER INFORMATION

         ITEM 1      Legal Proceedings........................................22

         ITEM 1A.  Risk Factors...............................................22

         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.

<PAGE>
<TABLE>
<CAPTION>

PART I.  FINANCIAL INFORMATION

Item 1.    Consolidated Financial Statements

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

Assets                                                   December 31, 2007    March 31, 2007
                                                          -------------        -------------
                                                           (Unaudited)          as restated
<S>                                                       <C>                  <C>

Investments at market or fair value
      Companies more than 25% owned
        (Cost: December 31, 2007 - $28,758,246
         March 31, 2007  - $28,632,356)                   $ 362,231,558        $ 526,993,983
      Companies 5% to 25% owned
        (Cost: December 31, 2007 - $20,412,243,
        March 31, 2007 - $18,798,896)                        48,765,256           76,398,002
      Companies less than 5% owned
        (Cost: December 31, 2007 - $31,190,721,
        March 31, 2007 - $24,211,045)                        93,097,989           77,763,048
                                                          -------------        -------------
      Total investments
        (Cost: December 31, 2007- $80,361,210,
        March 31, 2007 - $71,642,297)                       504,094,803          681,155,033
Cash and cash equivalents                                    31,949,168           38,844,203
Receivables                                                     258,171              337,892
Other assets                                                  9,477,698            9,170,185
                                                          -------------        -------------
      Totals                                              $ 545,779,840        $ 729,507,313
                                                          =============        =============

Liabilities and Shareholders' Equity

Other liabilities                                         $   1,452,545        $   1,457,847
Deferred income taxes                                         2,403,277            2,317,777
                                                          -------------        -------------
      Total liabilities                                       3,855,822            3,775,624
                                                          -------------        -------------

Shareholders' equity
      Common stock, $1 par value: authorized,
        5,000,000 shares; issued, 4,326,516 shares
        at December 31, 2007 and 4,323,416 shares
        at March 31, 2007                                     4,326,516            4,323,416
      Additional capital                                    116,777,926          116,373,960
      Undistributed net investment income                     6,979,403            5,655,020
      Undistributed net realized loss on investments         (2,860,118)          (3,100,142)
      Unrealized appreciation of investments                423,733,593          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 $139.34 per share at December 31, 2007
        on the 3,889,151 shares outstanding and $186.75
        per share at March 31, 2007 on the 3,886,051
        shares outstanding                                  541,924,018          725,731,689
                                                          -------------        -------------
Totals                                                    $ 545,779,840        $ 729,507,313
                                                          =============        =============

</TABLE>


                (See Notes to Consolidated Financial Statements)



                                       3
<PAGE>
<TABLE>
<CAPTION>


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

                                                 Three Months Ended                 Nine Months Ended
                                                     December 31                        December 31
                                            ------------------------------    ------------------------------
                                                 2007            2006             2007              2006
                                            -------------    -------------    -------------    -------------
                                                              as restated                       as restated
<S>                                         <C>              <C>              <C>              <C>

Investment income:
     Interest                              $     552,950    $     484,888    $   1,797,079    $   1,624,418
     Dividends                                 1,838,757        1,626,702        3,003,651        3,167,203
     Management and directors' fees              222,449          163,750          673,849          542,150
                                           -------------    -------------    -------------    -------------
                                               2,614,156        2,275,340        5,474,579        5,333,771
                                           -------------    -------------    -------------    -------------
Operating expenses:
     Salaries                                    380,247          310,127          945,468          973,926
     Net pension benefit                         (81,837)         (36,237)        (245,508)        (108,708)
     Other operating expenses                    481,128          238,504        1,034,286          690,469
                                           -------------    -------------    -------------    -------------
                                                 779,538          512,394        1,734,246        1,555,687
                                           -------------    -------------    -------------    -------------
Income before interest expense and
  income taxes                                 1,834,618        1,762,946        3,740,333        3,778,084
Interest expense                                    --            133,749             --            458,953
                                           -------------    -------------    -------------    -------------
Income before income taxes                     1,834,618        1,629,197        3,740,333        3,319,131
Income tax expense                                28,500           12,700           82,660           40,724
                                           -------------    -------------    -------------    -------------

Net investment income                      $   1,806,118    $   1,616,497    $   3,657,673    $   3,278,407
                                           =============    =============    =============    =============

Proceeds from disposition of investments   $     670,339    $  31,578,052    $   1,398,891    $  42,020,132
Cost of investments sold                       1,158,868       12,046,678        1,158,868       12,872,995
                                           -------------    -------------    -------------    -------------
Net realized gain (loss) on investments
  before taxes                                  (488,528)      19,531,374          240,024       29,147,137
Income tax expense                                  --         11,080,699             --         11,080,699
                                           -------------    -------------    -------------    -------------
Net realized gain (loss) on investments         (488,528)       8,450,675          240,024       18,066,438

Net increase (decrease) in unrealized
   appreciation of investments               (64,798,599)     132,210,244     (185,779,143)     124,061,543
                                           -------------    -------------    -------------    -------------

Net realized and unrealized gain (loss)
   on investments                          $ (65,287,127)   $ 140,660,919    $(185,539,119)   $ 142,127,981
                                           =============    =============    =============    =============

Increase (decrease) in net assets
 from operations                           $ (63,481,009)   $ 142,277,416    $(181,881,446)   $ 145,406,388
                                           =============    =============    =============    =============


</TABLE>


                (See Notes to Consolidated Financial Statements)




                                       4
<PAGE>
<TABLE>
<CAPTION>

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


                                                            Nine Months Ended    Year Ended
                                                            December 31, 2007  March 31, 2007
                                                              -------------    -------------
                                                               (Unaudited)      as restated
<S>                                                           <C>              <C>

Operations
      Net investment income                                   $   3,657,673    $   4,233,340
      Net realized gain on investments                              240,024       14,966,296
      Net increase (decrease) in unrealized
        appreciation of investments                            (185,779,143)     147,681,609
                                                              -------------    -------------
      Increase (decrease) in net assets from operations        (181,881,446)     166,881,245

Distributions from:
      Undistributed net investment income                        (2,333,291)      (2,323,150)
      Net realized gains deemed distributed to shareholders            --        (11,417,283)

Capital share transactions
      Allocated increase in share value for deemed
        distribution                                                   --         11,417,283
      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                                          175,676          169,003
                                                              -------------    -------------
      Increase (decrease) in net assets                        (183,807,671)     167,695,699

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

Net assets, end of period                                     $ 541,924,018    $ 725,731,689
                                                              =============    =============



</TABLE>













                (See Notes to Consolidated Financial Statements)





                                        5


<PAGE>
<TABLE>
<CAPTION>
                          CAPITAL SOUTHWEST CORPORATION
                                AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                      -------------------------------------
                                   (Unaudited)


                                                          Three Months Ended                  Nine Months Ended
                                                             December 31                        December 31
                                                             -----------                        -----------
                                                        2007              2006             2007             2006
                                                    -------------    -------------    -------------    -------------
                                                                      as restated                       as restated
<S>                                                 <C>              <C>              <C>              <C>

Cash flows from operating activities
Increase (decrease) in net assets from
  operations                                        $ (63,481,009)   $ 142,277,416    $(181,881,446)   $ 145,406,388
Adjustments to reconcile increase in net
  assets from operations to net cash
  provided by (used in ) operating activities:
  Proceeds from disposition of investments                670,339       31,578,052        1,398,891       42,020,132
  Purchases of securities                                (817,186)          (4,500)     (10,032,280)        (374,730)
  Maturities of securities                                   --               --            154,500          884,936
  Depreciation and amortization                             8,089            4,426           18,770           12,313
  Net pension benefit                                     (81,837)         (36,237)        (245,508)        (108,708)
  Realized (gain) loss on investments after
    income taxes                                          488,528       (8,450,675)        (240,024)     (18,066,438)
  Net (increase) decrease in unrealized
    appreciation of investments                        64,798,599     (132,210,244)     185,779,143     (124,061,543)
  Stock option expense                                     87,989           43,586          175,676          125,417
  (Increase) decrease in receivables                     (155,215)        (105,087)          79,720         (152,372)
  (Increase) decrease in other assets                     (11,451)           3,391          (41,859)         (14,597)
  Increase (decrease) in other liabilities                132,468           38,330           57,084          (46,526)
  Decrease in accrued pension cost                        (34,467)         (36,567)        (101,301)        (107,602)
  Increase in deferred income taxes                        28,500           12,700           85,500           38,100
                                                    -------------    -------------    -------------    -------------
Net cash provided by (used in) operating
  activities                                            1,633,347       33,114,591       (4,793,134)      45,554,770
                                                    -------------    -------------    -------------    -------------

Cash flows from financing activities
Decrease in notes payable to bank                            --               --               --               --
Distributions from undistributed net
  investment income                                    (1,555,661)      (1,551,100)      (2,333,291)      (2,323,150)
Proceeds from exercise of employee
  stock options                                              --            697,350          231,390        1,794,850
                                                    -------------    -------------    -------------    -------------
Net cash used in financing activities                  (1,555,661)        (853,750)      (2,101,901)        (528,300)
                                                    -------------    -------------    -------------    -------------

Net increase (decrease) in cash and cash
  equivalents                                              77,686       32,260,841       (6,895,035)      45,026,470
Cash and cash equivalents at beginning
  of period                                            31,871,482       24,269,495       38,844,203       11,503,866
                                                    -------------    -------------    -------------    -------------
Cash and cash equivalents at end of period          $  31,949,168    $  56,530,336    $  31,949,168    $  56,530,336
                                                    =============    =============    =============    =============

Supplemental disclosure of cash flow information:
Cash paid during the period for:
  Interest                                          $        --      $     133,749    $        --      $     458,953
  Income taxes                                      $        --      $        --      $        --      $      20,000

</TABLE>

                (See Notes to Consolidated Financial Statements)

                                        6


<PAGE>
<TABLE>
<CAPTION>


                          CAPITAL SOUTHWEST CORPORATION
                                AND SUBSIDIARIES
                      Consolidated Statement of Investments
                      -------------------------------------
                                December 31, 2007


      Company                              Investment (a)                                                    Cost          Value (b)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                                                         <C>              <C>

+AT&T INC.                                ++20,770 shares common stock (acquired 3-9-99)               $        12      $    863,201
  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        38,209,050
  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
   Austin, 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.

+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)   2,363,347         1,000,000
   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
   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)                                     -                 -
                                                                                                         ---------         ---------
                                                                                                         6,363,347         1,000,002





                                       7
<PAGE>

                          CAPITAL SOUTHWEST CORPORATION
                                AND SUBSIDIARIES
                      Consolidated Statement of Investments
                      -------------------------------------
                                December 31, 2007
                                   (continued)

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

+COMCAST CORPORATION                      ++64,656 shares common stock (acquired 11-18-02)             $        21      $  1,180,619
   Philadelphia, Pennsylvania
   Leading provider of cable,
   entertainment and communi-
   cations products and
   services.

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

+DISCOVERY HOLDING COMPANY                ++70,501 shares Series A common stock (acquired 7-21-05)          20,262         1,770,280
   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           222,885
   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        44,954,250
   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 $29.00 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                  $29.00 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 $29.00 per share, expiring 2008 (acquired 8-11-98
   videos.                                   thru 9-30-03)                                                       -           375,000
                                                                                                         ---------         ---------
                                                                                                         3,000,000         9,566,000

+FMC CORPORATION                          ++12,860 shares common stock (acquired 6-6-86 and 9-13-07)        66,726           701,513
   Philadelphia, Pennsylvania
   Chemicals for agricultural,
   industrial and consumer
   markets.

+FMC TECHNOLOGIES, INC.                   ++22,114 shares common stock (acquired 1-2-02 and 8-31-07)        57,051         1,253,864
   Houston, Texas
   Equipment and systems for
   the energy, food processing
   and air transportation
   industries.

                                       8

<PAGE>

                          CAPITAL SOUTHWEST CORPORATION
                                AND SUBSIDIARIES
                     Consolidated Statement of Investments
                     -------------------------------------
                                December 31, 2007
                                   (continued)

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

+HEELYS, INC.                             9,317,310 shares common stock (acquired 5-26-00)                 102,490        37,269,240
   Carrollton, Texas
   Heelys stealth skate shoes,
   equipment and apparel sold
   through sporting goods
   chains, department stores
   and footwear retailers.

+HOLOGIC, INC.                            ++316,410 shares common stock (acquired 8-27-99)                 220,000        21,712,054
   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         5,351,661
   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         1,664,125
 Englewood, Colorado                      ++42,463 shares Series C common stock (acquired 9-6-05)          100,870         1,552,023
 Owns interests in broadband,                                                                            ---------         ---------
 distribution and content                                                                                  207,423         3,216,148
 companies.


+LIBERTY MEDIA CORPORATION                ++35,250 shares of Liberty Capital Series A common stock
   Englewood, Colorado                       (acquired 5-9-06)                                              51,829         4,106,273
   Holding company owning                 ++176,252 shares of Liberty Interactive Series A common stock
   interests in electronic                   (acquired 5-9-06)                                              66,424         3,362,888
   retailing, media, communi-                                                                            ---------         ---------
   cations and entertainment                                                                               118,253         7,469,161
   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,
   Dallas, 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        51,058,287
   Dallas, Texas
   Integrated manufacturing,
   retailing, financing and
   insuring of manufactured
   housing and modular homes.



                                       9
<PAGE>

                          CAPITAL SOUTHWEST CORPORATION
                                AND SUBSIDIARIES
                     Consolidated Statement of Investments
                     -------------------------------------
                                December 31, 2007
                                   (continued)

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

+PETSMART, INC.                           ++300,000 shares common stock (acquired 6-1-95)              $ 1,318,771      $  7,056,000
   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       120,000,000
   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         1,181,700
   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         8,906,843
   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                         1,118 shares Series C preferred stock (acquired 11-01-07)        281,523           281,523
   Designer, manufacturer and                                                                            ---------           -------
   distributor of high-quality                                                                           4,840,523           281,525
   office seating.

WELLOGIX, INC.                            4,664,627 shares Series A-1 convertible participating
   Houston, Texas                            preferred stock, convertible into 4,664,627 shares
   Developer and supporter of                of common stock at $1.1011 per share (acquired
   software used by the oil and              8-19-05 thru 12-15-07)                                      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        28,000,000
   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           119,537
   Little Rock, Arkansas
   Provider of voice, broadband
   and entertainment
   services.


                                       10
<PAGE>

                          CAPITAL SOUTHWEST CORPORATION
                                AND SUBSIDIARIES
                     Consolidated Statement of Investments
                     -------------------------------------
                                December 31, 2007
                                   (continued)

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

MISCELLANEOUS                             - BankCap Partners Fund I, L.P. - 6.0% limited
                                             partnership interest (acquired 7-14-06 thru 12-21-07)   $   2,457,140      $  2,457,140
                                          - 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)                                     -           195,000
                                          - 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                                                                                     $ 80,361,210      $504,094,803
                                                                                                     =============      ============
------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                   ++ Unrestricted securities as defined in Note (a)

</TABLE>


                        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 December 31,  2007,  restricted  securities  represented
approximately 87.9% 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
<PAGE>

                          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")  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 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 realized
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 conditions as of March 31, 2007; the
consolidated  statement of operations and  consolidated  statement of cash flows
for the three months and nine months ended December 31, 2006;  the  consolidated
statement of changes in net assets for the nine months  ended  December 31, 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  than 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



                                       12
<PAGE>
<TABLE>
<CAPTION>

Notes to Consolidated Financial Statements
(continued)

     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  contributuions  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  "undistsributed  net
     realized gains on investment."

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;  reclassify  return of
capital contributions to "additional capital."

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

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        116,343,960  (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
                                                        ===========       ============

                                                       Nine Months Ended December 31, 2006
                                                       -----------------------------------
                                                          Previously
Consolidated Statement of Operations                     Reported (1)      As Restated (2)
------------------------------------                     -----------       -----------
Net investment income                                      3,278,407         3,278,407
Net realized gain on investments                          29,147,137        29,147,137  (B)
Income tax expense                                        10,098,046        11,080,699
                                                         -----------       -----------
Net realized gain on investments                          19,049,091        18,066,438
Increase in unrealized appreciation of investments       124,061,543       124,061,543  (A)
Increase in deferred income taxes on appreciation
   of investments                                         43,017,000              --
                                                         -----------       -----------
Net increase in unrealized appreciation of investments    81,044,543       124,061,543
Net realized and unrealized gain on investments          100,093,634       142,127,981
                                                         -----------       -----------
Increase in net assets from operations                   103,372,041       145,406,388
                                                         ===========       ===========

                                                      Three Months Ended December 31, 2006
                                                      ------------------------------------
                                                          Previously
Consolidated Statement of Operations                     Reported (1)     As Restated (2)
------------------------------------                     -----------       -----------
Net investment income                                      1,616,497         1,616,497
Net realized gain on investments                          12,805,347         8,450,675  (B)
Net decrease in unrealized appreciation of investments    86,187,244       132,210,244  (A)
                                                         -----------       -----------
Net realized and unrealized gain on investments           98,992,591       140,660,919
                                                         -----------       -----------
Increase in net assets from operations                   100,609,088       142,277,416
                                                         ===========       ===========

</TABLE>


                                       13
<PAGE>
<TABLE>
<CAPTION>

Notes to Consolidated Financial Statements
(continued)


                                                               Year Ended March 31, 2007
                                                               -------------------------
                                                             Previously
Consolidated Statement of Changes in Net Assets             Reported (3)    As Restated (2)
-----------------------------------------------             ------------    ------------
<S>                                                         <C>             <C>

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
                                                            ============    ============

                                                          Nine Months Ended December 31, 2006
                                                          -----------------------------------
                                                             Previously
Consolidated Statement of Changes in Net Assets             Reported (1)    As Restated (2)
-----------------------------------------------             ------------    ------------
Net investment income                                          3,278,407       3,278,407
Net realized gain on investments                              19,049,091      18,066,438  (B)
Net increase in unrealized appreciation of investments        81,044,543     124,061,543  (A)
                                                            ------------    ------------
Increase in net assets from operations                       103,372,041     145,406,388
Distributions from undistributed net investment income        (2,323,150)     (2,323,150)
Capital share transactions
Exercise of employee stock options                             1,794,850       1,794,850
Adjustment to initially apply FASB No. 158, net of tax              --              --
Stock option expense                                             125,417         125,417
                                                            ------------    ------------
Increase in net assets                                       102,969,158     145,003,505

Net assets, beginning of year                                396,618,109     558,035,990
                                                            ------------    ------------
Net assets, end of year                                      499,587,267     703,039,495
                                                            ============    ============
Net asset value, per share                                  $     128.56    $     180.91
                                                            ============    ============

                                                          Nine Months Ended December 31, 2006
                                                          -----------------------------------
                                                             Previously
Consolidated Statement of Cash Flow                         Reported (1)    As Restated (2)
-----------------------------------                         ------------    ------------
Net cash provided by operating activities                    45,554,770      45,554,770
                                                            -----------     -----------
Net cash used in financing activities                          (528,300)       (528,300)
                                                            -----------     -----------
Net increase in cash and cash equivalents                    45,026,470      45,026,470
                                                            ===========     ===========


                                       14
<PAGE>

Notes to Consolidated Financial Statements
(continued)
                                                          Three Months Ended December 31, 2006
                                                             Previously
Consolidated Statement of Cash Flow                         Reported (1)   As Restated (2)
-----------------------------------                         -----------     -----------
Net cash provided by operating activities                    33,114,591      33,114,591
Net cash used in financing activities                          (853,750)       (853,750)
                                                            -----------     -----------
Net decrease in cash and cash equivalents                    32,260,841     32,260,841
                                                            ===========     ===========
</TABLE>

------------------
(1)  As  presented in the  Company's  original  Form 10-Q for the quarter  ended
     December 31, 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.   Income Taxes

     For the tax years  ended  December  31,  2007 and 2006,  Capital  Southwest
Corporation ("CSC") and Capital Southwest Venture Corporation ("CSVC") qualified
to be taxed as RICs. We intend to meet the applicable qualifications to be taxed
as a RIC in future years;  management feels it is probable that we will maintain
our RIC status for a period  longer  than one year.  However,  either  company's
ability to meet certain portfolio diversification requirements of RICs in future
years may not be controllable by such company.

     As permitted by the Internal  Revenue Code, a RIC can  designate  dividends
paid in the  subsequent  tax year as  dividends  of the  current  year  ordinary
taxable income and long-term  capital gains if those dividends are both declared
by the  extended  due date of the RIC's  federal  income  tax return and paid to
shareholders by the last day of the subsequent tax year. For the tax years ended
December  31, 2007 and 2006 we  declared  and paid  dividends  in the amounts of
$2,333,291 and $2,323,150, respectively.

     Additionally,  we are also subject to a nondeductible federal excise tax of
4% if we do not  distribute  at least  98% of our  investment  company  ordinary
taxable  income during our tax year.  For the tax years ended  December 31, 2007
and 2006 we distributed 100% of our investment  company ordinary taxable income.
As a result we have made no  provision  for  income  taxes on  ordinary  taxable
income for the tax years ended December 31, 2007 and 2006.

     For the tax  year  ended  December  31,  2007,  we  have an  estimated  net
long-term  capital  loss of $961,655  for tax  purposes  and  $860,118  for book
purposes,  which will be  carried  forward  and  offset by future net  long-term
capital  gains.  For the tax year ended  December 31, 2006, we had net long-term
capital gains of $31,659,140 for tax purposes and $31,932,775 for book purposes,
which  we  elected  to  retain  and  treat  as  a  deemed  distribution  to  our
shareholders. In order to make the election to retain capital gains, we incurred
and paid a federal tax on behalf of our  shareholders of $11,080,699 for the tax
year ended December 31, 2006.

     CSMC, a wholly owned subsidiary of CSC, is not a RIC and is required to pay
taxes at the current  corporate rate. The Company  sponsors a qualified  defined
benefit  pension plan which covers its employees and employees of certain of its
wholly  owned  portfolio  companies.  Deferred  taxes  related to the  qualified
defined pension plan are recorded as incurred.




                                       15
<PAGE>

Notes to Consolidated Financial Statements
(continued)


4.   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
nine months ended  December  31, 2007,  we  recognized  compensation  expense of
$87,988 and $175,676, respectively.

     As of December 31, 2007, the total remaining unrecognized compensation cost
related to non-vested stock options was $1,883,824, which will be amortized over
the weighted-average service period of approximately 6.2 years.

5.   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 December 31, 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 $31.28 per option using the Black-Scholes pricing model with
the following  assumptions:  expected dividend yield of .64%, risk-free interest
rate of 5.08%,  expected  volatility of 21.1%, and expected life of 7 years. The
per share  weighted-average  fair value of the stock options granted on July 17,
2006 was  $33.05  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 $41.78 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          $ 86.18
   Granted                                         25,000           152.98
   Exercised                                       (3,100)           74.64
   Canceled                                        (4,000)           93.49
                                                  -------          -------
Balance at December 31, 2007                       70,400          $109.99
                                                  =======          =======


                                       16
<PAGE>
<TABLE>
<CAPTION>

Notes to Consolidated Financial Statements
(continued)

     At December 31,  2007,  the range of exercise  prices and  weighted-average
remaining contractual life of outstanding options was $65.00 to $152.98 and 6.16
years,  respectively.  The total intrinsic value of options exercised during the
nine months ended December 31, 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 nine months ended December
31, 2007.

     At December 31, 2007, the number of options  exercisable  was 9,930 and the
weighted-average exercise price of those options was $79.01.

6.   Summary of Per Share Information

                                                Three Months Ended        Nine Months Ended
                                                   December 31              December 31
                                                   -----------              -----------
                                                2007         2006         2007         2006
                                              ---------    ---------    ---------    ---------
                                                          as restated               as restated
<S>                                           <C>          <C>          <C>          <C>


Investment income                               $   .67     $    .59     $   1.41     $   1.37
Operating expenses                                 (.20)        (.13)        (.46)        (.40)
Interest expense                                     --         (.04)          --         (.12)
Income taxes                                       (.01)          --         (.01)        (.01)
                                              ---------    ---------    ---------    ---------
Net investment income                               .46          .42          .94          .84
Distributions from undistributed
  net investment income                            (.40)        (.40)        (.60)        (.60)
Net realized gains deemed distributed to
  shareholders                                       --        (2.94)          --        (2.94)
Net realized gain on investments                   (.12)        2.17          .06         4.66
Net increase (decrease) in unrealized
  appreciation of investments                    (16.66)       34.02       (47.77)       31.92
Allocated increase in share value for
  deemed distributions                               --         2.94           --         2.94
Exercise of employee stock options *                 --         (.20)        (.09)        (.50)
Stock option expense                                .02          .01          .05          .03
                                              ---------    ---------    ---------    ---------
Increase (decrease) in net asset value           (16.70)       36.02       (47.41)       36.35

Net asset value:
      Beginning of period                        156.04       144.89       186.75       144.56
                                              ---------    ---------    ---------    ---------
      End of period                             $139.34      $180.91      $139.34      $180.91
                                              =========    =========    =========    =========

Shares outstanding at end of period
  (000s omitted)                                  3,889        3,886        3,889        3,886
</TABLE>


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

7.   Subsequent Events

     On January 9, 2008,  the Company  filed its Form 10-Q for the quarter ended
September  30, 2007 with the  Securities  and  Exchange  Commission  and NASDAQ.
Additionally,  the  Company  filed its  restated  Form 10-K/A for the year ended
March 31,  2007 and Form  10-Q/A for the  quarter  ended June 30,  2007 with the
Securities and Exchange Commission as explained in Note 2 "Restatement."

     On January  10,  2008,  the  Company  received a "moot"  letter from NASDAQ
informing  it that its  filing  delinquency  had been  cured.  Accordingly,  the
Company is in compliance with Rule 4310(c) (14).



                                       17
<PAGE>

Notes to Consolidated Financial Statements
(continued)

8.   Recent Accounting Pronouncements

     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. We are  evaluating  the impact of SFAS 159. The
impact, if any, from the adoption of SFAS 159 has not been determined.

     Net asset  value at  December  31,  2007 was  $541,924,018,  equivalent  to
$139.34 per share.  Assuming  reinvestment  of all  dividends and tax credits on
retained long-term capital gains, the December 31, 2007 net asset value reflects
a decrease of 22.63% during the past twelve months.

                                                 December 31,     December 31,
                                                    2007             2006
                                                    ----             ----
                                                                 as restated
             Net assets                       $541,924,018     $703,039,495
             Shares outstanding                  3,889,151        3,886,051
             Net assets per share                  $139.34          $180.91


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 (loss) 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 (loss)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  "unrealized" to
"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 $1,797,079  for the nine months ended December 31, 2007
increased  from  $1,624,418  for nine months ended  December 31, 2006, due to an
increase  in excess  cash and  interest  rates.  During  the nine  months  ended
December  31, 2007 and 2006,  we  recorded  dividend  income from the  following
sources:



                                       18
<PAGE>
<TABLE>
<CAPTION>

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

                                                            Nine Months Ended
                                                               December 31
                                                               -----------
                                                           2007           2006
                                                           ----           ----
                  Alamo Group Inc.                   $   508,914     $   507,834
                  Balco, Inc.                            224,400            --
                  Dennis Tool Company                     49,999          62,499
                  Encore Wire Corporation                245,205            --
                  Kimberly-Clark Corporation             122,716         113,455
                  Lifemark Group                         571,333         450,000
                  PalletOne, Inc.                           --            89,842
                  PETsMart, Inc.                          27,000          27,000
                  The RectorSeal Corporation             914,133       1,629,947
                  TCI Holdings, Inc.                      60,953          60,953
                  The Whitmore Manufacturing Company     228,533         180,000
                  Other                                   50,465          45,673
                                                     -----------     -----------
                                                     $ 3,003,651     $ 3,167,203
                                                     ===========     ===========

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                 Nine Months Ended
                                        December 31                       December 31
                                        -----------                       -----------
                                   2007              2006            2007              2006
                                   ----              ----            ----              ----
<S>                                <C>               <C>             <C>               <C>

Alamo Group, Inc.            $  (9,905,950)   $        --      $  (9,878,840)   $        --
Encore Wire Corporation        (30,650,750)     (28,608,000)     (24,520,750)     (20,434,000)
Heelys, Inc.                   (18,634,760)     135,681,510     (158,394,760)     165,681,510
Palm Harbor Homes, Inc.        (11,782,713)      (3,928,000)     (19,637,713)     (27,493,000)
The RectorSeal Corporation      11,150,000       10,500,000       22,000,000       10,500,000

</TABLE>

     During the nine months ended December 31, 2007, the value of our investment
in The  RectorSeal  Corporation  was increased by  $22,000,000  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 gain at  RectorSeal  during the nine months  ended  December 31,
2007, was a $158,394,760 decline in the value of Heelys, Inc., which experienced
significantly  slower  growth and an extreme  decline in market price during the
past quarter; a $24,520,750  decline in the value of Encore Wire Corporation due
to reduced demand attributable to the residential slowdown and declining margins
needed to be  competitive;  a  $19,637,713  decline in the value of Palm  Harbor
Homes, Inc. due to the deterioration of the manufactured  housing market;  and a
$9,878,840 decline in the value of Alamo Group, Inc. due to inventory  shortages
that are back logged and excessive startup expenses for the manufacturing of its
sweeper line.

Portfolio Investments

     During the quarter ended December 31, 2007, we made additional  investments
of $817,186 in an existing portfolio company.

     We have agreed,  subject to certain conditions,  to invest up to $6,029,760
in three portfolio companies.


                                       19
<PAGE>


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


Financial Liquidity and Capital Resources

     At December 31, 2007,  we had cash and cash  equivalents  of  approximately
$31.9 million. Pursuant to Small Business Administration (SBA) regulations, cash
and  cash  equivalents  of  $4.6  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 $61.0 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.

     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  $9,000,000 at December 31, 2007,  equivalent to 1.8% 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.



                                       20
<PAGE>

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

     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:

     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 December 31, 2007.



                                       21
<PAGE>

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.

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

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








                                       22


<PAGE>


                                   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


                                                  /s/ Gary L. Martin
Date:    February 8, 2008                    By:
       --------------------------                 ------------------------------
                                                  Gary L. Martin, President
                                                  (chief executive officer)


                                                  /s/ Tracy L. Morris
Date:    February 8, 2008                    By:
       --------------------------                 ------------------------------
                                                  Tracy L. Morris, Controller
                                                  (chief financial/accounting)












                                       23

<PAGE>