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. Yesþ Noo.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in
Rule 12b-2 of the Exchange Act).

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ.

The number of shares of the registrant’s Common Stock, $0.001 par value, outstanding as of OctoberApril 27, 20062007 was 7,911,340.8,565,264.

Gladstone Commercial Corporation (the “Company”) is a Maryland corporation that qualifiesoperates in a manner so as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes and was incorporated on February 14, 2003 under the General Corporation Law of Maryland for the purpose of engaging in the business of investing in real estate properties net leased to creditworthy entities and making mortgage loans to creditworthy entities. Subject to certain restrictions and limitations, the business of the Company is managed by Gladstone Management Corporation, a Delaware corporation (the “Adviser”).

The Company conducts substantially all of its operations through a subsidiary, Gladstone Commercial Limited Partnership, a Delaware limited partnership, (the “Operating Partnership”). As the Company currently owns all of the general and limited partnership interests of the Operating Partnership through GCLP Business Trust I and II as disclosed below, the financial position and results of operations of the Operating Partnership are consolidated with those of the Company.

Gladstone Commercial Partners, LLC, a Delaware limited liability company (“Commercial Partners”) and a subsidiary of the Company, was organized to engage in any lawful act or activity for which a limited liability company may be organized in Delaware. Commercial Partners has the power to make and perform all contracts and to engage in all activities to carry out the purposes of the Company, and all other powers available to it as a limited liability company. As the Company currently owns all of the membership interests of Commercial Partners, the financial position and results of operations of Commercial Partners are consolidated with those of the Company.

Gladstone Lending, LLC, a Delaware limited liability company (“Gladstone Lending”), and a subsidiary of the Company, was created to conduct all operations related to real estate mortgage loans of the Company. As the Operating Partnership currently owns all of the membership interests of Gladstone Lending, the financial position and results of operations of Gladstone Lending are consolidated with those of the Company.

Gladstone Commercial Advisers, Inc., a Delaware corporation (“Commercial Advisers”) and a subsidiary of the Company, is a taxable REIT subsidiary (“TRS”), which was created to collect all non-qualifying income related to the Company’s real estate portfolio. It is currently anticipated that this income will predominately consist of fees received by the Company related to the leasing of real estate. There have been no such fees earned to date. Since the Company owns 100% of the voting securities of Commercial Advisers, the financial position and results of operations of Commercial Advisers are consolidated with those of the Company.

On December 28, 2005, GCLP Business Trust I and GCLP Business Trust II each aare business trusttrusts formed under the laws of the Commonwealth of Massachusetts were established by the Company. Onon December 31, 2005, the28, 2005. The Company transferred its 99% limited partnership interest in the Operating Partnership to GCLP Business Trust I in exchange for 100 trust shares. Also on December 31, 2005, Gladstone Commercial Partners, LLC transferred its 1% general partnership interest in the Operating Partnership to GCLP Business Trust II in exchange for 100 trust shares.

Interim financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim period have been included.

The Company records investments in real estate at cost and capitalizes improvements and replacements when they extend the useful life or improve the efficiency of the asset. The Company expenses costs of repairs and maintenance as incurred. The Company computes depreciation using the straight-line method over the estimated useful life of 39 years for buildings and improvements, five to seven years for equipment and fixtures and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.

The Company accounts for its acquisitions of real estate in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”,Combinations,” which requires the purchase price of real estate to be allocated to the acquired tangible assets and liabilities, consisting of land, building, tenant improvements, long-term debt and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, the value of in-place leases, the value of unamortized lease origination costs and the value of tenant relationships, based in each case on their fair values.

Management’s estimates of value are made using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis). Factors considered by management in its analysis include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases. The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets and liabilities acquired. In estimating carrying costs, management also includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, which primarily range from nine to 18eighteen months, depending on specific local market conditions. Management also estimates costs to execute similar leases including leasing commissions, legal and other related expenses to the extent that such costs are not already incurred in connection with a new lease origination as part of the transaction.

The Company allocates purchase price to the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant. The “as-if-vacant” value is allocated to land, building, and tenant improvements based on management’s determination of the relative fair values of these assets. Real estate depreciation expense on these tangible assets, including discontinued operations, was $1,383,279$1,593,790 and $3,862,257$1,154,114 for the three and nine months ended September 30,March 31, 2007 and 2006, respectively, and $770,467 and $1,742,094 for the three and nine months ended September 30, 2005, respectively.

Above-market and below-market in-place lease values for owned properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease values, included in the accompanying balance sheet as part of deferred rent receivable, are amortized as a reduction of rental income over the remaining non-cancelable terms of the respective leases. The value of these above-market leases as of September 30, 2006 was $1,626,650. Total amortization related to above-market lease values was $63,375 and $190,123$63,374 for both the three and nine months ended September 30,March 31, 2007 and 2006, respectively, and $21,315 and $114,700 for the three and nine months ended September 30, 2005, respectively. The capitalized below-market lease values, included in the accompanying balance sheet as deferred rent liability, are amortized as an increase to rental income over the initial term and any fixed-rate renewal periods in the respective leases. The value of these below-market leases as of September 30, 2006 was $4,914,989 and totalTotal amortization related to below-market lease values was $196,391 and $499,870$80,290 for the three and nine months ended September 30,March 31, 2007 and 2006, respectively. There were no below-market lease values for the three and nine months ended September 30, 2005.

The total amount of the remaining intangible assets acquired, which consist of in-place lease values, unamortized lease origination costs, and customer relationship intangible values, are allocated based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with that respective tenant. Characteristics to be considered by management in allocating these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.

The value of in-place leases and unamortized lease origination costs are amortized to expense over the remaining term of the respective leases, which generally range from 5five to 20twenty years. The value of customer relationship intangibles, which is the benefit to the Company resulting from the likelihood of an existing tenant renewing its lease, are amortized to expense over the remaining term and any renewal periods in the respective leases, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building. Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles will be charged to expense. Total amortization expense related to these intangible assets, including discontinued operations, was $779,361$824,017 and $2,216,193$680,626 for the three and nine months ended September 30,March 31, 2007 and 2006, respectively, and $369,714 and $632,818 for the three and nine months ended September 30, 2005, respectively.

The following table summarizes the net value of other intangible assets and the accumulated amortization for each intangible asset class:

The Company’s accounting policies require that it reflect in its financial statements an allowance for estimated credit losses with respect to mortgage loans it has made based upon its evaluation of known and inherent risks associated with its private lending assets. Management reflects provisions for loan losses based upon its assessment of general market conditions, its internal risk management policies and credit risk rating system, industry loss experience, its assessment of the likelihood of delinquencies or defaults, and the value of the collateral underlying its investments. Actual losses, if any, could ultimately differ from these estimates. There have been no provisions for loan losses at March 31, 2007.

The Company considers all short-term, highly liquid investments that are both readily convertible to cash and have a maturity of three months or less at the time of purchase to be cash equivalents; except that any such investments purchased with funds held in escrow or similar accounts are classified as restricted cash. Items classified as cash equivalents include commercial paper and money-market funds. All of the Company’s cash and cash equivalents at September 30, 2006March 31, 2007 were held in the custody of two financial institutions, and the Company’s balance at times may exceed federally insurable limits. The Company mitigates this risk by depositing funds with major financial institutions.

Restricted cash consists of security deposits and funds held in escrow for certain tenants. The funds held in escrow are for capital improvements, taxes, insurance and other replacement reserves for certain of our tenants. These funds will be released to the tenants upon completion of agreed upon tasks as specified in the lease agreements, mainly consisting of maintenance and repairs on the buildings, and when evidence of insurance and tax payments has been submitted to the Company.

revenue as recorded on a straight line basis and rents received from the tenants in accordance with the lease terms, along with the capitalized above-market lease values of certain acquired properties. Accordingly, the Company determines, in its judgment, to what extent the deferred rent receivable applicable to each specific tenant is collectible. The Company reviews deferred rent receivable, as it relates to straight line rents, on a quarterly basis and takes into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectibility of deferred rent with respect to any given tenant is in doubt, the Company records an increase in the allowance for uncollectible accounts or records a direct write-off of the specific rent receivable, which would have an adverse effect on the net income for the year in which the reserve is increased or the direct write-off is recorded and would decrease total assets and stockholders’ equity. No such reserves have been recorded as of September 30, 2006.

Management considers its loans and other lending investments to be held-for-investment. The Company reflects held-for-investment investments at amortized cost less allowance for loan losses, acquisition premiums or discounts, deferred loan fees and undisbursed loan funds. On occasion, the Company may acquire loans at small premiums or discounts based on the credit characteristics of such loans. These premiums or discounts are recognized as yield adjustments over the lives of the related loans. Loan origination or exit fees, as well as direct loan origination costs, are also deferred and recognized over the lives of the related loans as yield adjustments. If loans with premiums, discounts, loan origination or exit fees are prepaid, the Company immediately recognizes the unamortized portion as a decrease or increase in the prepayment gain or loss. Interest income is recognized using the effective interest method applied on a loan-by-loan basis. Prepayment penalties or yield maintenance payments from borrowers are recognized as additional income when received.

SFAS No. 131, “Disclosures“Disclosures about Segments of an Enterprise and Related Information”Information” provides standards for public companies relating to the reporting of financial and descriptive information about their operating segments in financial statements. Operating segments are defined as components of an enterprise for which separate financial information is available and is evaluated regularly by the chief operating decision maker or decision making group in determining how to allocate resources and in assessing performance. Company management is the chief decision making group. As discussed in Note 10, the Company’s operations are derived from two operating segments, one segment purchases real estate (land, buildings and other improvements), which is simultaneously leased to existing users and the other segment originates mortgage loans and collects principal and interest payments.

The Company purchased two properties in Canada in October of 2004. These properties were classified as held for sale as of June 30, 2006, and were sold in July of 2006. All gains and losses from foreign currency transactions are reflected in discontinued operations in the Company’s Consolidated Financial Statements. Rental payments from these properties were received in Canadian dollars. In accordance with SFAS No. 52 “Foreign“Foreign Currency Translation,,” the rental revenue received was recorded using the exchange rate as of the transaction date, which is the first day of each month. If the rental payment was received on a date other than the transaction date, then a realized foreign currency gain or loss would be recorded on the financial statements. Straight line rent and any deferred rent asset or liability recorded in connection with monthly rental payments were also recorded using the exchange rate as of the transaction date. The Company was also required to remit quarterly tax payments to Canada from amounts withheld from the tenants in the Canadian properties. Since these payments were received from the tenants on dates different then the remittance date to Canada, the tax payments also resulted in realized foreign currency gains and losses on the income statement. In addition to rental payments that arewere denominated in Canadian dollars, the Company also has a bank account in Canada and the long-term financings on the two Canadian properties were also issued in Canadian dollars. All cash, deferred rent assets and mortgage notes payable related to the Canadian properties arewere re-valued at each balance sheet date to reflect the current exchange rate. The gains or losses from the valuation of the cash arewere recorded on the income statement as a realized gain or loss, and the valuation of the deferred rent assets and mortgage notes payable iswas recorded on the income statement as unrealized gains or losses on the translation of assets and liabilities, these unrealized losses became realized when the Canadian properties were sold in July 2006.liabilities. A realized foreign currency gain of $1,422,026 related to the sale of the Canadian properties was recognized for the three$7 and nine months ended September 30, 2006. Realizeda realized foreign currency lossesloss of $1,044 and $201,017$816 were recorded for the three and nine months ended September 30,March 31, 2007 and 2006, respectively, from the valuation of cash, tax payments made to the Canadian government, and the previously unrealized foreign currency losses associated with the valuation of the deferred rent assets and mortgage notes payable that became a realized foreign currency loss as of the date of sale. RealizedAn unrealized foreign currency lossesgain of $340 and $3,277 were$12,615 was recorded for the three and nine months ended September 30, 2005, respectively. There were no unrealized foreign currency losses recorded for the three and nine months ended September 30,March 31, 2006. Unrealized foreign currency losses of $224,229 and $224,094 were recorded for the three and nine months ended September 30, 2005, respectively.

SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” requires that the results of operations of any properties which have been sold, or are held for sale, be presented as discontinued operations in the Company’s Consolidated Financial Statements in both current and prior periods presented. Income items related to held for sale properties are listed separately on the Company’s Consolidated Income Statement. Real estate assets held for sale are measured at the lower of the carrying amount or the fair value less the cost to sell, and are listed separately on the Company’s Consolidated Balance Sheet for the current period. Once properties are listed as held for sale, no further depreciation is recorded.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Certain amounts from prior years’ financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported net income or stockholders’ equity.

The Company has no employees, andbeen externally managed pursuant to a contractual investment advisory arrangement with its Adviser, under which its Adviser has directly employed all of the Company’s operations are managed by the Company’s Adviser pursuant to an advisory agreement. Pursuant to the advisory agreement, the Adviser is responsible for managing the Company on a day-to-day basispersonnel and for identifying, evaluating, negotiating and consummating investment transactions consistent with the Company’s criteria. In exchange for such services, the Company pays the Adviser a management advisory fee, which consists of the reimbursement of certain expenses of the Adviser. The Company reimburses the Adviser forpaid its pro-rata share of the payroll and related benefit expenses on an employee-by-employee basis, based on the percentage of each employee’s time devoted to Company matters. The Company also reimburses the Adviser for general overhead expenses multiplied by the ratio of hours worked by the Adviser’s employees on Company matters to the total hours worked by the Adviser’s employees.

Under the Administration Agreement, the Company will paypays separately for its allocable portion of the Administrator’s overhead expenses in performing its obligations, including but not limited to, rent for employees of the Administrator, and the Company’sits allocable portion of the salaries and benefits expenses of its chief financial officer, chief compliance officer, controller, treasurer and their respective staffs. The Company recorded an administration fee of $207,018 for the three months ended March 31, 2007.

The Amended Advisory Agreement and Administration Agreement willCompany was also required to reimburse its Adviser for its pro rata portion of all other expenses of its Adviser not become effective as long asreimbursed under the 2003 Equity Incentive Plan (the “2003 Plan”arrangements described above (“overhead expenses”) is in effect or as long as there are any outstanding stock options. In connection with the approval of the Amended Advisory and Administration Agreements, and pursuant, equal to the approvaltotal overhead expenses of its Adviser, multiplied by the ratio of hours worked by its Adviser’s employees on the Company’s projects to the total hours worked by its Adviser’s employees. However, the Company was only required to reimburse its Adviser for its portion of its overhead expenses if the amount of payroll and benefits the Company reimbursed to its Adviser was less than 2.0% of the Company’s Boardaverage invested assets for the year. Additionally, the Company was only required to reimburse its Adviser for overhead expenses up to the point that reimbursed overhead expenses and payroll and benefits expenses, on a combined basis, equaled 2.0% of Directorsthe Company’s average invested assets for the year. The Adviser billed the Company on July 11, 2006, on July 12, 2006,a monthly basis for these amounts. The Adviser was required to reimburse the

The following table is a summary of all notes issued to employees of the Adviser for the exercise of stock options:

These notes were recorded as loans to employees and are included in the equity section of the accompanying consolidated balance sheets. As of September 30, 2006, approximately $2,259,000 of indebtedness was owed by current employees to the Company, and no current or former directors or executive officers had any loans outstanding.

The following tables set forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2006March 31, 2007 and 2005:2006:

A summary of the 3842 properties held by the Company as of September 30, 2006March 31, 2007 is as follows:

On May 10, 2006,February 16, 2007, the Company acquired a 114,100an 115,500 square foot officeindustrial building in Burnsville, MinnesotaRaleigh, North Carolina for approximately $14.1$7.80 million, including transaction costs, which was funded using borrowings from the Company’s line of credit.costs. At closing, the Company was assigned the previously existing triple net lease with the sole tenant, which had a remaining term of approximately four years, and concurrently with the closing the tenant exercised its first renewal option for an additional five years to the original lease term.three years. The tenant also has two remaining optionsone option to extend the lease for an additional period of five years each.years. The lease provides for annualprescribed rent escalations over the life of the lease, with annualized straight line rents of approximately $1.2 million in 2007, with prescribed escalations thereafter.$0.66 million.

On June 30, 2006,March 1, 2007, the Company acquired the leasehold interest in a 125,692238,310 square foot office building in Menomonee Falls, WisconsinTulsa, Oklahoma for approximately $8.0$15.80 million, including transaction costs, which was funded using borrowings fromcosts. Under the Company’s lineterms of credit. At closing,the leasehold interest, the Company extendedhas a ten year triple netground lease withon which the sole tenant, and the tenantproperty is located that has threea remaining term, including renewal options, to extend the lease for additional periods of ten years each. The lease provides for annual rents of approximately $0.7 million34.5 years. Upon acquisition of the leasehold interest in 2007, with prescribed escalations thereafter.

On September 22, 2006, the Company conducted a foreclosure sale and was the successful bidder at such sale on a 532,869 square foot office and industrial building in Sterling Heights, Michigan. When the Company was determined to be the highest bidder, the mortgage loan was deemed to be satisfied to the extent of such bid. The Company obtained an independent appraisal on the security which indicated a fair value in excess of the outstanding principal balance and accrued, non-default interest due under the mortgage loan at the time of default. As a result of the fair value indicated in the appraisal, the Company determined that the loan was not impaired and a writedown was not necessary. The Company accounted for the asset received as if the assets had been acquired for cash and recorded the real estate asset at approximately $11.3 million, which equaled the outstanding principal balance and accrued, non-default interest due under the mortgage loan to the Company at that time. Under Michigan law, the borrower had six months from the date of foreclosure to redeem ownership of the property in exchange for payment of the bid amount plus certain other expenditures. As part of the resolution of the Company’s claims against the borrower and tenant, the borrower formally waived its right of redemption and permitted the Company to take immediate control of the property so that it could be re-rented.