##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended July 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No. 0-24015
 
 STEELCLOUD, INC.
  VIRGINIA
(State or other jurisdiction of incorporation or 
organization)
    
    54-1890464
(I.R.S. Employer Identification No.)14040 Park Center Road, Herndon, VA
    
    20171(Address of principal executive offices)
    
    (Zip code)
     þ o
  Large Accelerated filer     o                         Accelerated filer     o                         Non-
accelerated filer     þ
  o þ




---



##### 



SteelCloud, Inc.
Form 10-Q Index
For the Quarterly period ended July 31, 2007
 PART I. FINANCIAL INFORMATION
    
    
    1ITEM 1. FINANCIAL STATEMENTS
    
    
    1CONDENSED CONSOLIDATED BALANCE SHEET
    
    
    1UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
    
    
    2UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    3NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    
    
    4ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
    
    
    8ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    21ITEM 4. CONTROLS AND PROCEDURES
    
    
    21PART II. OTHER INFORMATION
    
    
    21ITEM 1. LEGAL PROCEEDINGS
    
    
    21ITEM 1A. RISK FACTORS
    
    
    21ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    22ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    22ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    22ITEM 5. OTHER INFORMATION
    
    
    22ITEM 6. EXHIBITS
    
    
    23




---



##### 



PART I. FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS
 STEELCLOUD, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
 October 31,
    
    
    July 31,2006
    
    
    2007(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    3,655,163
    
    
    $
    3,588,653Accounts receivable, net
    
    
    3,840,583
    
    
    
    3,517,364Inventory, net
    
    
    1,144,820
    
    
    
    1,418,036Prepaid expenses and other current assets
    
    
    206,287
    
    
    
    260,398Deferred contract costs
    
    
    217,494
    
    
    
    2,696,290Total current assets
    
    
    9,064,347
    
    
    
    11,480,741Property and equipment, net
    
    
    1,039,752
    
    
    
    855,037Equipment on lease, net
    
    
    441,866
    
    
    
    398,595Other assets
    
    
    57,092
    
    
    
    43,766Total assets
    
    $
    10,603,057
    
    
    $
    12,778,139LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    2,639,346
    
    
    $
    3,520,669Accrued expenses
    
    
    1,198,283
    
    
    
    1,083,581Notes payable, current
    
    
    14,629
    
    
    
    14,877Unearned revenue
    
    
    141,903
    
    
    
    3,554,442Total current liabilities
    
    
    3,994,161
    
    
    
    8,173,569Long-term liabilitiesNotes payable, long-term
    
    
    28,991
    
    
    
    17,272Other, including severance obligations
    
    
    367,741
    
    
    
    151,170Total long-term liabilities
    
    
    396,732
    
    
    
    168,442Stockholders equityPreferred stock, $.001 par value: 2,000,000 shares authorized, no
shares issued and outstanding at
October 31, 2006 and July 31, 2007
    
    
    
    
    
    
    Common stock, $.001 par value:
50,000,000 shares authorized,
14,662,176 and 14,713,648 shares
issued at October 31, 2006 and July
31, 2007, respectively
    
    
    14,662
    
    
    
    14,714Additional paid in capital
    
    
    49,834,658
    
    
    
    50,162,736Treasury stock, 400,000 shares at
October 31, 2006 and July 31, 2007
    
    
    (3,432,500
    )
    
    
    (3,432,500
    )Accumulated deficit
    
    
    (40,204,656
    )
    
    
    (42,308,822
    )Total stockholders equity
    
    
    6,212,164
    
    
    
    4,436,128Total liabilities and stockholders equity
    
    $
    10,603,057
    
    
    $
    12,778,139
 .
 1




---



##### 



STEELCLOUD, INC.  UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    
    Nine Months EndedJuly 31,
    
    
    July 31,2006
    
    
    2007
    
    
    2006
    
    
    2007RevenuesProducts
    
    $
    5,374,379
    
    
    $
    3,479,961
    
    
    $
    16,865,230
    
    
    $
    11,766,032Services
    
    
    611,839
    
    
    
    487,926
    
    
    
    1,961,063
    
    
    
    1,461,765Total revenues
    
    
    5,986,218
    
    
    
    3,967,887
    
    
    
    18,826,293
    
    
    
    13,227,797Cost of revenuesProducts
    
    
    4,265,321
    
    
    
    2,426,010
    
    
    
    13,652,289
    
    
    
    8,727,515Services
    
    
    509,672
    
    
    
    330,597
    
    
    
    1,567,320
    
    
    
    985,118Total cost of revenues
    
    
    4,774,993
    
    
    
    2,756,607
    
    
    
    15,219,609
    
    
    
    9,712,633Gross profit
    
    
    1,211,225
    
    
    
    1,211,280
    
    
    
    3,606,684
    
    
    
    3,515,164Selling and marketing
    
    
    701,856
    
    
    
    393,269
    
    
    
    1,914,008
    
    
    
    1,148,023Research and product development
    
    
    151,346
    
    
    
    183,144
    
    
    
    457,152
    
    
    
    477,741General and administrative
    
    
    1,338,523
    
    
    
    1,302,874
    
    
    
    4,546,921
    
    
    
    4,012,251Amortization of other intangible
assets
    
    
    28,778
    
    
    
    
    
    
    
    86,335
    
    
    
    Severance and restructuring costs
    
    
    839,642
    
    
    
    
    
    
    
    839,642
    
    
    
    Impairment of goodwill and other
intangible assets
    
    
    4,485,657
    
    
    
    
    
    
    
    4,485,657
    
    
    
    (Loss) from operations
    
    
    (6,334,577
    )
    
    
    (668,007
    )
    
    
    (8,723,031
    )
    
    
    (2,122,851
    )Interest income (expense), net
    
    
    12,750
    
    
    
    (7,005
    )
    
    
    42,007
    
    
    
    18,685Other expense
    
    
    (174,361
    )
    
    
    
    
    
    
    (174,361
    )
    
    
    -Total other (expense) income
    
    
    (161,611
    )
    
    
    (7,005
    )
    
    
    (132,354
    )
    
    
    18,685(Loss) before income taxes
    
    
    (6,496,188
    )
    
    
    (675,012
    )
    
    
    (8,855,385
    )
    
    
    (2,104,166
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    400,000
    
    
    
    -Net (loss)
    
    
    (6,496,188
    )
    
    
    (675,012
    )
    
    
    (9,255,385
    )
    
    
    (2,104,166
    )(Loss) per share (basic and
diluted):Basic and diluted (loss) per share
    
    $
    (0.46
    )
    
    $
    (0.05
    )
    
    $
    (0.66
    )
    
    $
    (0.15
    )Weighted-average shares
outstanding, basic and diluted
    
    
    14,209,274
    
    
    
    14,293,560
    
    
    
    14,119,089
    
    
    
    14,277,024
  2




---



##### 



STEELCLOUD,
INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months EndedJuly 31,2006
    
    2007Operating activitiesNet (loss)
    
    $
    (9,255,385
    )
    
    $
    (2,104,166
    )Adjustments to reconcile net (loss) to net cash
(used in) provided by operating activities:Depreciation and amortization
    
    
    494,909
    
    
    
    439,144Stock-based compensation
    
    
    85,811
    
    
    
    275,543Deferred tax expense
    
    
    400,000
    
    
    
    Impairment of goodwill and other intangibles
    
    
    4,485,657
    
    
    
    Warrant-based expense
    
    
    
    
    
    
    40,000Changes in operating assets and liabilities:Accounts receivable
    
    
    1,250,226
    
    
    
    323,219Inventory
    
    
    361,259
    
    
    
    (273,216
    )Prepaid expenses and other assets
    
    
    (44,650
    )
    
    
    (40,785
    )Deferred contract costs
    
    
    (131,867
    )
    
    
    (2,478,796
    )Accounts payable
    
    
    (1,340,913
    )
    
    
    881,323Unearned revenue
    
    
    16,003
    
    
    
    3,385,546Accrued expenses and other liabilities
    
    
    412,526
    
    
    
    (304,280
    )Net cash (used in) provided by operating activities
    
    
    (3,266,424
    )
    
    
    143,532Investing activitiesPurchase of property and equipment
    
    
    (47,797
    )
    
    
    (211,158
    )Net cash (used in) investing activities
    
    
    (47,797
    )
    
    
    (211,158
    )Financing activitiesProceeds from exercise of common stock options
    
    
    116,468
    
    
    
    12,587Payments on notes payable
    
    
    (53,554
    )
    
    
    (11,471
    )Net cash provided by financing activities
    
    
    62,914
    
    
    
    1,116Net (decrease) in cash and cash equivalents
    
    
    (3,251,307
    )
    
    
    (66,510
    )Cash and cash equivalents at beginning of period
    
    
    6,657,367
    
    
    
    3,655,163Cash and cash equivalents at end of period
    
    $
    3,406,060
    
    
    $
    3,588,653Supplemental cash flow informationInterest paid
    
    $
    866
    
    
    $
    19,652Income taxes paid
    
    $
    
    
    
    $
    
 .
 3




---



##### 



STEELCLOUD, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Nature of Business and Basis of Presentation
    TM
   4




---



##### 



2. Recently Issued Accounting Pronouncements
 How Sales Taxes Collected From Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement
 Fair Value
Measurements
 The Fair Value Option
for Financial Assets and Financial Liabilities
 3. Stock-based Compensation
  Stock Option Plans
  Employee Stock Purchase Plan (ESPP)
  5




---



##### 



4. Equity
 Issuance of unregistered common stock
  Warrants
  Additional paid in capital
  5. Debt
  6. Unearned Revenue and Deferred Contract Costs
  7. Inventories
  October 31,
    
    
    July 31,2006
    
    
    2007Raw materials
    
    $
    814,000
    
    
    $
    984,314Work in process
    
    
    68,247
    
    
    
    351,062Finished goods
    
    
    262,573
    
    
    
    82,660$
    1,144,820
    
    
    $
    1,418,036
 6




---



##### 



8. Earnings Per Share
  9. Significant Customers
  10. Reclassification
  11. Subsequent Event
   7




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   8




---



##### 



OVERVIEW
    TM
  Federal Integrator and ISV Business
    TM
   9




---



##### 



IT Services
  Research and Product Development
  TM TM
 Significant Customer Contracts
  Notices from Nasdaq
  10




---



##### 



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Recently Issued Accounting Pronouncements
 Fair Value
Measurements
 The Fair Value Option
for Financial Assets and Financial Liabilities
 11




---



##### 



For the three months ended July 31, 2007 compared to the three months ended July 31, 2006
 Net Revenue Discussion:
  Three Months Ended July 31,2006
    
    2007
    
    Increase (decrease)% of Net
    
    
    
    
    
    % of NetDollars
    
    Revenues
    
    Dollars
    
    Revenues
    
    Dollars
    
    PercentageProducts
    
    $
    5,374,379
    
    
    
    89.78
    %
    
    $
    3,479,961
    
    
    
    87.70
    %
    
    $
    (1,894,418
    )
    
    
    (35.25
    )%Services
    
    
    611,839
    
    
    
    10.22
    %
    
    
    487,926
    
    
    
    12.30
    %
    
    
    (123,913
    )
    
    
    (20.25
    )%Total net revenues
    
    $
    5,986,218
    
    
    
    100.00
    %
    
    $
    3,967,887
    
    
    
    100.00
    %
    
    $
    (2,018,331
    )
    
    
    (33.72
    )%
   Gross Profit Discussion:
  Three Months Ended July 31,2006
    
    2007
    
    Increase (decrease)% of Gross
    
    
    
    
    
    % of GrossDollars
    
    Profit
    
    Dollars
    
    Profit
    
    Dollars
    
    PercentageProducts
    
    $
    1,109,058
    
    
    
    91.56
    %
    
    $
    1,053,951
    
    
    
    87.01
    %
    
    $
    (55,107
    )
    
    
    (4.97
    )%Products  GM%
    
    
    20.64
    %
    
    
    
    
    
    
    30.29
    %Services
    
    $
    102,167
    
    
    
    8.44
    %
    
    
    157,329
    
    
    
    12.99
    %
    
    $
    55,162
    
    
    
    53.99
    %Services  GM%
    
    
    16.70
    %
    
    
    
    
    
    
    32.24
    %Total gross profit
    
    $
    1,211,225
    
    
    
    100.00
    %
    
    $
    1,211,280
    
    
    
    100.00
    %
    
    $
    55
    
    
    
    0.00
    %Total  GM%
    
    
    20.23
    %
    
    
    
    
    
    
    30.53
    %
 12




---



##### 



Operating Expense Discussion:
  Three Months Ended July 31,2006
    
    2007
    
    Increase (decrease)% of Net
    
    
    
    
    
    % of NetDollars
    
    Revenues
    
    Dollars
    
    Revenues
    
    Dollars
    
    PercentageSelling and marketing
    
    $
    701,856
    
    
    
    11.72
    %
    
    $
    393,269
    
    
    
    9.91
    %
    
    $
    (308,587
    )
    
    
    (43.97
    )%Research and product
development
    
    
    151,346
    
    
    
    2.53
    %
    
    
    183,144
    
    
    
    4.62
    %
    
    
    31,798
    
    
    
    21.01
    %General and
administrative
    
    
    1,338,523
    
    
    
    22.36
    %
    
    
    1,302,874
    
    
    
    32.84
    %
    
    
    (35,649
    )
    
    
    (2.66
    )%Impairment of goodwill
    
    
    4,485,657
    
    
    
    74.93
    %
    
    
    
    
    
    
    0.00
    %
    
    
    (4,485,657
    )
    
    
    (100.00
    )%Amortization of other
intangible assets
    
    
    28,778
    
    
    
    0.48
    %
    
    
    
    
    
    
    0.00
    %
    
    
    (28,778
    )
    
    
    (100.00
    )%Severance and
restructuring
    
    
    839,642
    
    
    
    14.03
    %
    
    
    
    
    
    
    0.00
    %
    
    
    (839,642
    )
    
    
    (100.00
    )%Total operating expenses
    
    $
    7,545,802
    
    
    
    126.05
    %
    
    $
    1,879,287
    
    
    
    47.37
    %
    
    $
    (5,666,515
    )
    
    
    (75.09
    )%
   13




---



##### 



Other Income (Expense) Discussion:
  Three Months Ended July 31,2006
    
    2007
    
    Increase (decrease)% of Net
    
    
    
    
    
    % of NetDollars
    
    Revenues
    
    Dollars
    
    Revenues
    
    Dollars
    
    PercentageInterest income
(expense), net
    
    $
    12,750
    
    
    
    0.21
    %
    
    $
    (7,005
    )
    
    
    (0.18
    )%
    
    $
    (19,755
    )
    
    
    (154.94
    )%Other (expense)
    
    $
    (174,361
    )
    
    
    (2.91
    )%
    
    
    
    
    
    
    0.00
    %
    
    $
    174,361
    
    
    
    100.00
    %Total other (expense)
    
    $
    (161,611
    )
    
    
    (2.70
    )%
    
    $
    (7,005
    )
    
    
    (0.18
    )%
    
    $
    154,606
    
    
    
    95.67
    %
   Net (Loss) Discussion:
  Three Months Ended July 31,2006
    
    2007
    
    Increase (decrease)% of Net
    
    
    
    
    
    % of NetDollars
    
    Revenues
    
    Dollars
    
    Revenues
    
    Dollars
    
    PercentageNet (loss)
    
    $
    (6,496,188
    )
    
    
    (108.52
    )%
    
    $
    (675,012
    )
    
    
    (17.01
    )%
    
    $
    (5,821,176
    )
    
    
    (89.61
    )%
 14




---



##### 



For the nine months ended July 31, 2007 compared to the nine months ended July 31, 2006
 Net Revenue Discussion:
  Nine Months Ended July 31,2006
    
    2007
    
    Increase (decrease)% of Net
    
    
    
    
    
    % of NetDollars
    
    Revenues
    
    Dollars
    
    Revenues
    
    Dollars
    
    PercentageProducts
    
    $
    16,865,230
    
    
    
    89.58
    %
    
    $
    11,766,032
    
    
    
    88.95
    %
    
    $
    (5,099,198
    )
    
    
    (30.23
    )%Services
    
    
    1,961,063
    
    
    
    10.42
    %
    
    
    1,461,765
    
    
    
    11.05
    %
    
    
    (499,298
    )
    
    
    (25.46
    )%Total net revenues
    
    $
    18,826,293
    
    
    
    100.00
    %
    
    $
    13,227,797
    
    
    
    100.00
    %
    
    $
    (5,598,496
    )
    
    
    (29.74
    )%
   15




---



##### 



Gross Profit Discussion:
  Nine Months Ended July 31,2006
    
    2007
    
    Increase (decrease)% of Gross
    
    
    
    
    
    % of GrossDollars
    
    Profit
    
    Dollars
    
    Profit
    
    Dollars
    
    PercentageProducts
    
    $
    3,212,941
    
    
    
    89.08
    %
    
    $
    3,038,517
    
    
    
    86.44
    %
    
    $
    (174,424
    )
    
    
    (5.43
    )%Products  GM%
    
    
    19.05
    %
    
    
    
    
    
    
    25.82
    %Services
    
    $
    393,743
    
    
    
    10.92
    %
    
    $
    476,647
    
    
    
    13.56
    %
    
    $
    82,904
    
    
    
    21.06
    %Services  GM%
    
    
    20.08
    %
    
    
    
    
    
    
    32.61
    %Total gross profit
    
    $
    3,606,684
    
    
    
    100.00
    %
    
    $
    3,515,164
    
    
    
    100.00
    %
    
    $
    (91,520
    )
    
    
    (2.54
    )%Total  GM%
    
    
    19.16
    %
    
    
    
    
    
    
    26.57
    %
   Operating Expense Discussion:
  Nine Months Ended July 31,2006
    
    2007
    
    Increase (decrease)% of Net
    
    
    
    
    
    % of NetDollars
    
    Revenues
    
    Dollars
    
    Revenues
    
    Dollars
    
    PercentageSelling and marketing
    
    $
    1,914,008
    
    
    
    10.17
    %
    
    $
    1,148,023
    
    
    
    8.68
    %
    
    $
    (765,985
    )
    
    
    (40.02
    )%Research and product
development
    
    
    457,152
    
    
    
    2.43
    %
    
    
    477,741
    
    
    
    3.61
    %
    
    
    20,589
    
    
    
    4.50
    %General and
administrative
    
    
    4,546,921
    
    
    
    24.15
    %
    
    
    4,012,251
    
    
    
    30.33
    %
    
    
    (534,670
    )
    
    
    (11.76
    )%Impairment of
goodwill
    
    
    4,485,657
    
    
    
    23.83
    %
    
    
    
    
    
    
    0.00
    %
    
    
    (4,485,657
    )
    
    
    (100.00
    )%Amortization of other
intangible assets
    
    
    86,335
    
    
    
    0.46
    %
    
    
    
    
    
    
    0.00
    %
    
    
    (86,335
    )
    
    
    (100.00
    )%Severance and
restructuring
    
    
    839,642
    
    
    
    4.46
    %
    
    
    
    
    
    
    0.00
    %
    
    
    (839,642
    )
    
    
    (100.00
    )%Total operating expenses
    
    $
    12,329,715
    
    
    
    65.50
    %
    
    $
    5,638,015
    
    
    
    42.62
    %
    
    $
    (6,691,700
    )
    
    
    (54.27
    )%
 16




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##### 



17




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##### 



Other Income (Expense) Discussion:
  Nine Months Ended July 31,2006
    
    2007
    
    Increase (decrease)% of Net
    
    
    
    
    
    % of NetDollars
    
    Revenues
    
    Dollars
    
    Revenues
    
    Dollars
    
    PercentageInterest income, net
    
    $
    42,007
    
    
    
    0.22
    %
    
    $
    18,685
    
    
    
    0.14
    %
    
    $
    (23,322
    )
    
    
    (55.52
    )%Other (expense)
    
    
    (174,361
    )
    
    
    (0.93
    )%
    
    
    
    
    
    
    0.00
    %
    
    $
    174,361
    
    
    
    100.00
    %Total other
(expense) income
    
    $
    (132,354
    )
    
    
    (0.70
    )%
    
    $
    18,685
    
    
    
    0.14
    %
    
    $
    151,039
    
    
    
    114.12
    %
   Provision for Income Tax Discussion:
  Nine Months Ended July 31,2006
    
    2007
    
    Increase (decrease)% of Net
    
    
    
    
    
    % of NetDollars
    
    Revenues
    
    Dollars
    
    Revenues
    
    Dollars
    
    PercentageTotal provision for
income taxes
    
    $
    400,000
    
    
    
    2.12
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    (400,000
    )
    
    
    (100.00
    )%
  Net (Loss) Discussion:
  Nine Months Ended July 31,2006
    
    2007
    
    Increase (decrease)% of Net
    
    
    
    
    
    % of NetDollars
    
    Revenues
    
    Dollars
    
    Revenues
    
    Dollars
    
    PercentageNet (loss)
    
    $
    (9,255,385
    )
    
    
    (49.16
    )%
    
    $
    (2,104,166
    )
    
    
    (15.91
    )%
    
    $
    (7,151,219
    )
    
    
    (77.27
    )%
 18




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##### 



19




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##### 



LIQUIDITY AND CAPITAL RESOURCES
        Contractual Obligations and Commercial Commitments:
  Contractual ObligationsPayments Due by PeriodTotal
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    After 5 yearsNotes payable
    
    $
    32,149
    
    
    $
    14,877
    
    
    $
    15,261
    
    
    $
    2,011
    
    
    
    Operating leases
    
    
    2,480,629
    
    
    
    558,915
    
    
    
    823,334
    
    
    
    537,982
    
    
    
    560,398Employment
agreements
    
    
    631,250
    
    
    
    413,542
    
    
    
    217,708
    
    
    
    
    
    
    
    Total
    
    $
    3,144,028
    
    
    $
    987,334
    
    
    $
    1,056,303
    
    
    $
    539,993
    
    
    $
    560,398
  20




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##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  ITEM 4. CONTROLS AND PROCEDURES
 Evaluation the Companys Disclosure Controls and Internal Controls
  Limitations
  Changes in Internal Controls Over Financial Reporting
  PART II. OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
   ITEM 1A. RISK FACTORS
  21




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##### 



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   FOR
    
    WITHHELDVADM E.A. Burkhalter
    
    
    12,969,609
    
    
    
    328,899James Bruno
    
    
    13,168,432
    
    
    
    130,076Jay Kaplowitz
    
    
    12,695,111
    
    
    
    603,397Benjamin Krieger
    
    
    12,922,837
    
    
    
    375,671Clifton W. Sink
    
    
    13,201,140
    
    
    
    97,368Ashok Kaveeshwar
    
    
    13,157,940
    
    
    
    140,568
   FOR
    
    AGAINST
    
    ABSTAIN3,303,201
    
    888,712
    
    22,474
  FOR
    
    AGAINST
    
    ABSTAIN3,794,194
    
    403,866
    
    11,327
  FOR
    
    AGAINST
    
    ABSTAIN13,223,366
    
    70,068
    
    5,074
 ITEM 5. OTHER INFORMATION
  22




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##### 



ITEM 6. EXHIBITS
 Exhibit 11.1
    
    Statement of computation of earnings per share.Exhibit 31.1
    
    Certification of Chief Executive Officer and President
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 31.2
    
    Certification of Chief Operating Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.Exhibit 31.3
    
    Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.Exhibit 32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes  Oxley Act of 2002.Exhibit 32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes  Oxley Act of 2002.Exhibit 32.3
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes  Oxley Act of 2002.
 23




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##### 



SIGNATURES
  September 14, 2007
    STEELCLOUD, INC.By:
    /s/ Clifton W. Sink, Jr.Name:
    Clifton W. Sink, Jr.Title:
    Chief Executive Officer and PresidentBy:
    /s/ Robert RichmondName:
    Robert RichmondTitle:
    Chief Operating OfficerBy:
    /s/ Kevin MurphyName:
    Kevin MurphyTitle:
    Chief Financial Officer 24