10-Q/A

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

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

For the Quarterly period ended   June 30, 2012

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-22405

Information Analysis Incorporated

(Exact name of registrant as specified in its charter)

Virginia	54-1167364
(State or other jurisdiction	(IRS Employer File Number)
of incorporation)

11240 Waples Mill Road

Suite 201

Fairfax, Virginia 22030

(703) 383-3000

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 þ  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(Section 232.405 of this chapter) during the preceding 12 months(or such shorter period that the registrant was required to submit and post such files. Yes þ  No o

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “small reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer      o                                                                                                            Accelerated filer                   o

Non-accelerated filer        o (Do not check if a smaller reporting company)                           Smaller reporting company  þ

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

As of August 4, 2012, 11,201,760 shares of common stock, par value $0.01 per share, of the registrant were outstanding.

Explanatory Note

The purpose of this Amendment No. 1 to Information Analysis IncorporatedQuarterly Report on Form 10-Q for the quarterly period ended June 30, 2012, filed with the Securities and Exchange Commission on August 14, 2012  (the “Form 10-Q”), is solely to furnish Exhibit 101 to the Form 10-Q in accordance with Rule 405 of Regulation S-T. Exhibit 101 to this report provides the consolidated financial statements and related notes from the Form 10-Q formatted in XBRL (eXtensible Business Reporting Language).

No other changes have been made to the Form 10-Q. This Amendment No. 1 to the Form 10-Q speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-Q.

Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

Item 6.	Exhibits
31.1*	Certification of CEO/CFO pursuant to Sec. 302
32.1*	Certification of CEO/CFO pursuant to Sec. 906

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.INS	XBRL Instance Document
101SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

_________

*           These exhibits were previously included or incorporated by reference in Information Analysis Incorporated Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012, filed with the Securities and Exchange Commission on August 14, 2012.

SIGNATURES

In accordance with the requirements of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		Information Analysis Incorporated
		(Registrant)
Date: September 5, 2012	By:	/s/ Sandor Rosenberg
		Sandor Rosenberg, Chairman of the
		Board, Chief Executive Officer,
		and President
Date: September 5, 2012	By:	/s/ Richard S. DeRose
		Richard S. DeRose, Executive Vice
		President, Treasurer, and Chief Financial Officer

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4. Earnings Per Share

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

4. Earnings Per Share

Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, except for periods when the Company reports a net loss because the inclusion of such items would be antidilutive.

The following is a reconciliation of the amounts used in calculating basic and diluted net loss per common share.

	Net Income		Shares		Per Share Amount
Basic net income per common share for the three months ended June 30, 2012:
Income available to common stockholders	$	51,444		11,199,782	$	0.00
Effect of dilutive stock options		-		11,800		-
Diluted net income per common share for the three months ended June 30, 2012:	$	51,444		11,211,582	$	0.00
Basic net income per common share for the six months ended June 30, 2012:
Income available to common stockholders	$	28,894		11,198,271	$	0.00
Effect of dilutive stock options		-		16,846		-
Diluted net income per common share for the six months ended June 30, 2012:	$	28,894		11,215,117	$	0.00
Basic net income per common share for the three months ended June 30, 2011:
Income available to common stockholders	$	47,282		11,196,760	$	0.00
Effect of dilutive stock options		-		16,706		-
Diluted net income per common share for the three months ended June 30, 2011:	$	47,282		11,213,466	$	0.00
Basic net income per common share for the six months ended June 30, 2011:
Income available to common stockholders	$	78,445		11,196,760	$	0.00
Effect of dilutive stock options		-		26,103		-
Diluted net income per common share for the six months ended June 30, 2011:

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3. Stock Options

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

3. Stock Options

There were 42,500 option awards granted to employees and no option awards granted to non-employees in the three months ended June 30, 2012 and there were 35,500 option awards granted to employees and no option awards granted to non-employees in the three months ended June 30, 2011.  There were 102,500 option awards granted to employees and 5,000 option awards granted to non-employees in the six months ended June 30, 2012 and there were 10,000 option awards granted to employees and no option awards granted to non-employees in the six months ended June 30, 2011.  The fair values of option awards granted in the six months ended June 30, 2012 and 2011, were estimated using a Black-Scholes option pricing model using the following assumptions:

	Three Months ended June 30,				Six Months ended June 30,
	2012		2011		2012		2011
Risk free interest rate	0.75 – 1.10	%	1.65 – 1.72	%	0.75 – 2.31	%	1.65 - 2.30	%
Dividend yield	0	%	0	%	0	%	0	%
Expected term	5 years		5 years		5-10 years		5 years
Expected volatility	62.8	%	61.7	%	62.8 - 67.9	%	61.7 – 61.9	%

 The status of the options issued as of June 30, 2012, and changes during the six months ended June 30, 2012 and 2011, were as follows:

	Options outstanding
	Number of shares		Weighted average price per share
Balance at December 31, 2011		1,003,000	$	0.31
Options granted		65,000		0.15
Options exercised, expired or forfeited		28,000		0.36
Balance at March 31, 2012		1,040,000	$	0.30
Options granted		42,500		0.15
Options exercised		5,000		0.07
Options expired or forfeited		20,000		0.20
Balance at June 30, 2012		1,057,500	$	0.29

	Options outstanding
	Number of shares		Weighted average price per share
Balance at December 31, 2010		1,119,000	$	0.30
Options granted		10,000		0.16
Options exercised, expired or forfeited		4,500		0.27
Balance at March 31, 2011		1,124,500	$	0.30
Options granted		35,500		0.17
Options exercised, expired or forfeited		--		--
Balance at June 30, 2011		1,160,000	$	0.29

The following table summarizes information about options at June 30, 2012:

Options outstanding								Options exercisable
Total shares		Weighted average exercise price		Weighted average remaining contractual life in years		Aggregate intrinsic value		Total shares		Weighted average exercise price		Weighted average remaining contractual life in years		Aggregate intrinsic value
	1,057,500	$	0.29		4.69	$	1,770		947,250	$	0.31		4.12	$	1,770

Nonvested stock awards as of June 30, 2012 and changes during the six months ended June 30, 2012, were as follows:

	Nonvested
	Number of shares		Weighted average grant date fair value
Balance at December 31, 2011		60,000	$	0.09
Granted		65,000		0.08
Vested		18,500		0.11
Expired before vesting		6,000		0.09
Balance at March 31, 2012		100,500	$	0.08
Granted		42,500		0.08
Vested		22,750		0.09
Expired before vesting		10,000		0.08
Balance at June 30, 2012		110,250	$	0.08

As of June 30, 2012 and 2011, unrecognized compensation cost associated with non-vested share-based employee and non-employee compensation totaled $6,598 and $4,085, respectively, which are expected to be recognized over weighted average periods of 7 months and 9 months, respectively.

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Balance Sheets (Unaudited) (USD $)	Jun. 30, 2012	Dec. 31, 2011
ASSETS
Cash and cash equivalents	$ 2,269,024	$ 1,280,926
Accounts receivable, net	1,057,125	2,889,658
Prepaid expenses	446,273	787,290
Note receivable - employees, current	16,808	6,668
Total current assets	3,789,230	4,964,542
Fixed assets, net	39,037	40,440
Note receivable - employee, long-term	865	4,287
Other assets	6,281	6,281
Total assets	3,835,413	5,015,550
LIABILITIES & STOCKHOLDERS' EQUITY
Accounts payable	206,263	998,160
Commissions payable	782,424	679,498
Deferred revenue	442,899	939,783
Accrued payroll and related liabilities	274,584	247,885
Other accrued liabilities	56,447	107,235
Income taxes payable	0	2,800
Total current liabilities	1,762,617	2,975,361
Stockholders' equity:
Common stock, $0.01 par value, 30,000,000 shares authorized, 12,844,376 and 12,839,376 shares issued, 11,201,760 and 11,196,760 shares outstanding as of June 30, 2012 and December 31, 2011, respectively	128,443	128,393
Additional paid-in capital	14,577,791	14,574,128
Accumulated deficit	(11,703,227)	(11,732,121)
Treasury stock, 1,642,616 shares at cost	(930,211)	(930,211)
Total stockholders' equity	2,072,796	2,040,189
Total liabilities and stockholders' equity	$ 3,835,413	$ 5,015,550

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1. Basis of Presentation

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

1. Basis of Presentation

The accompanying unaudited financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 8-03 of Regulation S-X.  Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities Exchange Commission.  In the opinion of management, the unaudited financial statements include all adjustments necessary (which are of a normal and recurring nature) for the fair and not misleading presentation of the results of the interim periods presented.  These unaudited financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2011 included in the Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission on March 31, 2012.  The results of operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.

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3. Stock Options (Details Narrative1) (USD $)	Jun. 30, 2012	Jun. 30, 2011
Stock Options Details Narrative1
Unrecognized compensation cost associated with non-vested share-based employee and non-employee compensation	$ 6,598	$ 4,085
Weighted average period for recognition of compensation cost associated with non-vested share-based employee and non- employee compensation	7 months	9 months

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2. Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

2. Summary of Significant Accounting Policies

Operations

Information Analysis Incorporated (“IAI”, or the “Company”) was incorporated under the laws of the Commonwealth of Virginia in 1979 to develop and market computer applications software systems, programming services, and related software products and automation systems.  The Company provides services to customers throughout the United States, with a concentration in the Washington, D.C. metropolitan area.

Revenue Recognition

The Company recognizes revenue when a contract has been executed, the contract price is fixed and determinable, delivery of services or products has occurred, and collectability of the contract price is considered probable and can be reasonably estimated. Revenue is earned under time and materials and fixed-price contracts. For sales of third-party software products, revenue is recognized upon delivery.

Revenue on time and materials contracts is recognized based on direct labor hours expended at contract billing rates and adding other billable direct costs.

For fixed-price contracts that are based on unit pricing, the Company recognizes revenue for the number of units delivered in any given reporting period.

For fixed-price contracts in which the Company is paid a specific amount to be available to provide a particular service for a stated period of time, revenue is recognized ratably over the service period.  The Company applies this method of revenue recognition to sales of maintenance contracts on third-party software sales, such as Adobe and Micro Focus software, for which the Company is responsible for “first line support” to the customer and for serving as a liaison between the customer and the third-party maintenance provider for issues the Company is unable to resolve.

The Company engages in fixed-price contracts with the U.S. federal government involving the complex delivery of technology products and services. Accordingly, these contracts are within the scope of the American Institute of Certified Public Accountants Audit and Accounting Guide for Audits of Federal Government Contractors. To the extent contracts are incomplete at the end of an accounting period, revenue is recognized on a proportional performance basis, using costs incurred in relation to total estimated costs.

Sales of third-party software products such as Adobe and Micro Focus products are reported on a gross basis with the Company as a principal under authoritative guidance issued by the Financial Accounting Standards Board (the “FASB”). This determination was based on the following: 1) the Company has inventory risk as suppliers are not obligated to accept returns, 2) the Company has reasonable latitude, within economic constraints, in establishing price, 3) the Company, in its marketing efforts, frequently aids the customer in determining product specifications, 4) the Company has physical loss and inventory risk as title transfers at the shipping point, 5) the Company bears full credit risk, and 6) the amount the Company earns in the transaction is neither a fixed dollar amount nor a fixed percentage.

For software and software-related multiple element arrangements, the Company must: (1) determine whether and when each element has been delivered; (2) determine whether undelivered products or services are essential to the functionality of the delivered products and services; (3) determine the fair value of each undelivered element using vendor-specific objective evidence ("VSOE"), and (4) allocate the total price among the various elements. Changes in assumptions or judgments or changes to the elements in a software arrangement could cause a material increase or decrease in the amount of revenue that the Company reports in a particular period.

The Company determines VSOE for each element based on historical stand-alone sales to third parties or from the stated renewal rate for the elements contained in the initial arrangement.  The Company has established VSOE for its third-party software maintenance and support services.

The Company’s contracts with agencies of the U.S. federal government are subject to periodic funding by the respective contracting agency. Funding for a contract may be provided in full at inception of the contract or ratably throughout the contract as the services are provided. In evaluating the probability of funding for purposes of assessing collectability of the contract price, the Company considers its previous experiences with its customers, communications with its customers regarding funding status, and the Company’s knowledge of available funding for the contract or program. If funding is not assessed as probable, revenue recognition is deferred until realization is deemed probable.

Payments received in advance of services performed are recorded and reported as deferred revenue.  Services performed prior to invoicing customers are recorded as unbilled accounts receivable and are presented on the Company’s balance sheets in the aggregate with accounts receivable.

Revenue derived as commission for facilitating a sales transaction in which a customer introduced by the Company makes a purchase directly from the Company’s supplier or another designated reseller is recognized when the commission payment is received.  Since the Company is not a direct party in the sales transaction, payment by the supplier is the Company’s confirmation that the sale occurred.

Government Contracts

Company sales to departments or agencies of the U.S. federal government are subject to audit by the Defense Contract Audit Agency (“DCAA”), which could result in the renegotiation of amounts previously billed.  Because the Company has not entered into any cost plus fixed fee contracts since 1997, management believes there is minimal risk of an audit by DCAA resulting in a material misstatement of previously reported financial statements.

Accounts Receivable

Accounts receivable consist of trade accounts receivable and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company reviews its allowance for doubtful accounts monthly. Accounts with receivable balances past due over 90 days are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers. The Company has recorded an allowance for doubtful accounts of $90,582 at June 30, 2012 and $141,721 at December 31, 2011.

Notes Receivable - employees

Notes receivable - employees consists of two notes issued to non-officer employees of the Company which were outstanding as of June 30, 2012 and one note issued to a non-officer employee of the Company which was outstanding as of December 30, 2011.  The note that was outstanding at both periods reported bears interest compounded at 3.5%, requires equal semi-monthly payments, and will mature on August 10, 2013.  The other note, which was only outstanding as of June 30, 2012, bears simple interest of 3.5%, and requires a lump-sum payment on October 7, 2012.

Total compensation expense was $1,787 and $1,462 for the quarters ended June 30, 2012 and 2011, respectively, of which $0 related to options awarded to non-employees.  For the six months ended June 30, 2012 and 2011, total compensation expense was $3,363 and $4,846, respectively, of which $550 and $0, respectively, related to options awarded to non-employees.  The Company estimates the fair value of options granted using a Black-Scholes valuation model to establish the expense.  When stock-based compensation is awarded to employees, the expense is recognized ratably over the vesting period.  When stock-based compensation is awarded to non-employees, the expense is recognized immediately.

Earnings Per Share

The Company’s earnings per share calculations are based upon the weighted average of shares of common stock outstanding.  The dilutive effect of stock options, warrants and convertible notes are included for purposes of calculating diluted earnings per share, except for periods when the Company reports a net loss, in which case the inclusion of such equity instruments would be antidilutive.

Reclassifications

Certain prior period balances have been reclassified to conform to the presentation of the current period.

Subsequent Events

The Company has evaluated the period from June 30, 2012, the date of the financial statements, through the date of the issuance and filing of the financial statements, and has determined that no material subsequent events have occurred that would affect the information presented in these financial statements or require additional disclosure.

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Balance Sheets (Parenthetical)(Unaudited) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Stockholders Equity
Common Stock shares par value	$ 0.01	$ 0.01
Common Stock shares Authorized	30,000,000	30,000,000
Common Stock shares Issued	12,844,376	12,839,376
Common Stock shares Outstanding	11,201,760	11,196,760
Treasury Stock	1,642,616	1,642,616

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3. Stock Options (Details4) (USD $)	3 Months Ended
	Jun. 30, 2012	Mar. 31, 2012
Nonvested Stock Awards Beginning Balance	100,500	60,000
Granted	42,500	65,000
Vested	22,750	18,500
Expired before Vesting	10,000	6,000
Nonvested Stock Awards Ending Balance	110,250	100,500
Weighted Average Grant Date Fair Value
Nonvested Stock Awards Beginning Balance	$ 0.08	$ 0.09
Granted	$ 0.08	$ 0.08
Vested	$ 0.09	$ 0.11
Expired before Vesting	$ 0.08	$ 0.09
Nonvested Stock Awards Ending Balance	$ 0.08	$ 0.08

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Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Aug. 04, 2012
Document And Entity Information
Entity Registrant Name	INFORMATION ANALYSIS INC
Entity Central Index Key	0000803578
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		11,201,760
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2012

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4. Earnings Per Share (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Income available to common stockholders
Net Income	$ 51,444	$ 47,282	$ 28,894	$ 38,187
Shares	11,199,782	11,196,760	11,198,271	11,196,760
Per Share Amount	$ 0	$ 0	$ 0	$ 0
Effect of dilutive stock options
Net Income	0	0	0	0
Shares	11,800	16,706	16,846	26,103
Per Share Amount	$ 0	$ 0	$ 0	$ 0
Diluted net income per common share
Net Income	$ 51,444	$ 47,282	$ 28,894	$ 38,187
Shares	11,211,582	11,213,466	11,215,117	11,222,863
Per Share Amount	$ 0	$ 0	$ 0	$ 0

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Statements of Operations and Comprehensive Income(Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Sales
Professional fees	$ 1,362,747	$ 1,147,873	$ 2,527,996	$ 2,251,200
Software sales	1,071,844	472,608	1,420,585	793,018
Total sales	2,434,591	1,620,481	3,948,581	3,044,218
Cost of sales
Cost of professional fees	698,997	691,965	1,375,630	1,284,981
Cost of software sales	1,018,864	365,891	1,323,533	642,174
Total cost of sales	1,717,861	1,057,856	2,699,163	1,927,155
Gross profit	716,730	562,625	1,249,418	1,117,063
Selling, general and administrative expenses	464,333	376,257	872,413	764,986
Commissions on sales	202,520	141,060	351,169	317,997
Income from operations	49,877	45,308	25,836	34,080
Other income, net	1,567	1,974	3,058	4,107
Income before provision for income taxes	51,444	47,282	28,894	38,187
Provision for income taxes	0	0	0	0
Net income	51,444	47,282	28,894	38,187
Comprehensive income	$ 51,444	$ 47,282	$ 28,894	$ 38,187
Earnings per common share:
Basic:	$ 0	$ 0	$ 0	$ 0
Diluted:	$ 0	$ 0	$ 0	$ 0
Weighted average common shares outstanding
Basic	11,199,782	11,196,760	11,198,271	11,196,760
Diluted	11,211,582	11,213,466	11,215,117	11,209,229

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4. Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

Reconciliation of Earning per Share

	Net Income		Shares		Per Share Amount
Basic net income per common share for the three months ended June 30, 2012:
Income available to common stockholders	$	51,444		11,199,782	$	0.00
Effect of dilutive stock options		-		11,800		-
Diluted net income per common share for the three months ended June 30, 2012:	$	51,444		11,211,582	$	0.00
Basic net income per common share for the six months ended June 30, 2012:
Income available to common stockholders	$	28,894		11,198,271	$	0.00
Effect of dilutive stock options		-		16,846		-
Diluted net income per common share for the six months ended June 30, 2012:	$	28,894		11,215,117	$	0.00
Basic net income per common share for the three months ended June 30, 2011:
Income available to common stockholders	$	47,282		11,196,760	$	0.00
Effect of dilutive stock options		-		16,706		-
Diluted net income per common share for the three months ended June 30, 2011:	$	47,282		11,213,466	$	0.00
Basic net income per common share for the six months ended June 30, 2011:
Income available to common stockholders	$	78,445		11,196,760	$	0.00
Effect of dilutive stock options		-		26,103		-
Diluted net income per common share for the six months ended June 30, 2011:

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3. Stock Options (Tables)

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

Black-Scholes option pricing model assumptions

	Three Months ended June 30,				Six Months ended June 30,
	2012		2011		2012		2011
Risk free interest rate	0.75 – 1.10	%	1.65 – 1.72	%	0.75 – 2.31	%	1.65 - 2.30	%
Dividend yield	0	%	0	%	0	%	0	%
Expected term	5 years		5 years		5-10 years		5 years
Expected volatility	62.8	%	61.7	%	62.8 - 67.9	%	61.7 – 61.9	%

Options outstanding

	Options outstanding
	Number of shares		Weighted average price per share
Balance at December 31, 2011		1,003,000	$	0.31
Options granted		65,000		0.15
Options exercised, expired or forfeited		28,000		0.36
Balance at March 31, 2012		1,040,000	$	0.30
Options granted		42,500		0.15
Options exercised		5,000		0.07
Options expired or forfeited		20,000		0.20
Balance at June 30, 2012		1,057,500	$	0.29

	Options outstanding
	Number of shares		Weighted average price per share
Balance at December 31, 2010		1,119,000	$	0.30
Options granted		10,000		0.16
Options exercised, expired or forfeited		4,500		0.27
Balance at March 31, 2011		1,124,500	$	0.30
Options granted		35,500		0.17
Options exercised, expired or forfeited		--		--
Balance at June 30, 2011		1,160,000	$	0.29

Options Summary

Options outstanding								Options exercisable
Total shares		Weighted average exercise price		Weighted average remaining contractual life in years		Aggregate intrinsic value		Total shares		Weighted average exercise price		Weighted average remaining contractual life in years		Aggregate intrinsic value
	1,057,500	$	0.29		4.69	$	1,770		947,250	$	0.31		4.12	$	1,770

Nonvested Stock awards

	Nonvested
	Number of shares		Weighted average grant date fair value
Balance at December 31, 2011		60,000	$	0.09
Granted		65,000		0.08
Vested		18,500		0.11
Expired before vesting		6,000		0.09
Balance at March 31, 2012		100,500	$	0.08
Granted		42,500		0.08
Vested		22,750		0.09
Expired before vesting		10,000		0.08
Balance at June 30, 2012		110,250	$	0.08

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2. Summary of Significant Accounting Policies (Details Narrative) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Summary Of Significant Accounting Policies Details Narrative
Allowance for doubtful accounts	$ 90,582	$ 141,721

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3. Stock Options (Details2) (USD $)	Jun. 30, 2012
Options outstanding	1,057,500
Weighted Average Price per share	$ 0.29
Weighted average remaing contractual life in years	4.69
Aggregate intrinsic value	$ 1,770

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3. Stock Options (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Stock Options Details
Risk free interest rate	0.75 - 1.10%	1.65 - 1.72%	0.75 - 2.31%	1.65 - 2.30 %
Dividend yield	0%	0%	0%	0%
Expected term	5 years	5 years	5-10 years	5 years
Expected volatility	62.8 %	61.7 %	62.8 - 67.9 %	61.7 - 61.9%

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3. Stock Options (Details1)	3 Months Ended
	Jun. 30, 2012	Mar. 31, 2012	Jun. 30, 2011	Mar. 31, 2011
Number of Shares
Beginning Balance	1,040,000	1,003,000	1,124,500	1,119,000
Options granted	42,500	65,000	35,500	10,000
Options exercised, expired or forfeited		28,000		4,500
Options exercised	5,000
Options expired or forfeited	20,000
Ending Balance	1,057,500	1,040,000	1,160,000	1,124,500
Weighted Average Price per Share
Beginning Balance	0.30	0.31	0.30	0.30
Options granted	0.15	0.15	0.17	0.16
Options exercised, expired or forfeited		0.36		0.27
Options exercised	0.07
Options expired or forfeited	0.20
Ending Balance	0.29	0.30	0.29	0.30

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3. Stock Options (Details3) (USD $)	Jun. 30, 2012
Options Exercisable	947,250
Weighted Average price per share	$ 0.31
weighted average remaing contractual life in years	4.12
aggregate intrinsic value	$ 1,770

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3. Stock Options (Details Narrative)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Stock Options Details Narrative
Option awards granted to employees	42,500	35,500	102,500	10,000
Option awards granted to non-employees	0	0	5,000	0

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Statements of Cash Flows (Unaudited) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Cash flows from operating activities:
Net Income	$ 28,894	$ 38,187
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	13,021	9,338
Stock option compensation	3,363	4,846
Bad debt expense	1,020	1,138
Changes in operating assets and liabilities
Accounts receivable	1,831,513	(137,968)
Other receivables and prepaid expenses	341,017	270,480
Accounts payable and accrued expenses	(815,986)	26,463
Commissions payable	102,926	69,125
Deferred revenue	(496,884)	(276,445)
Income taxes payable	(2,800)	0
Net cash provided by (used in)operating activities	1,006,084	5,164
Cash flows from investing activities:
Payments received on notes receivable - employees	3,305	3,191
Increase in notes receivable - employees	(10,023)	0
Acquisition of furniture and equipment	(11,618)	(6,189)
Net cash used in investing activities	(18,336)	(2,998)
Cash flows from financing activities:
Proceeds from exercise of stock options	350	0
Net cash provided by financing activities	350	0
Net increase (decrease) in cash and cash equivalents	988,098	2,166
Cash and cash equivalents, beginning of the period	1,280,926	1,968,077
Cash and cash equivalents, end of the period	2,269,024	1,970,243
Supplemental cash flow information
Interest paid	0	0
Income taxes paid	$ 2,800	$ 0

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2. Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

Revenue Recognition

Revenue Recognition

The Company recognizes revenue when a contract has been executed, the contract price is fixed and determinable, delivery of services or products has occurred, and collectability of the contract price is considered probable and can be reasonably estimated. Revenue is earned under time and materials and fixed-price contracts. For sales of third-party software products, revenue is recognized upon delivery.

Revenue on time and materials contracts is recognized based on direct labor hours expended at contract billing rates and adding other billable direct costs.

For fixed-price contracts that are based on unit pricing, the Company recognizes revenue for the number of units delivered in any given reporting period.

For fixed-price contracts in which the Company is paid a specific amount to be available to provide a particular service for a stated period of time, revenue is recognized ratably over the service period.  The Company applies this method of revenue recognition to sales of maintenance contracts on third-party software sales, such as Adobe and Micro Focus software, for which the Company is responsible for “first line support” to the customer and for serving as a liaison between the customer and the third-party maintenance provider for issues the Company is unable to resolve.

The Company engages in fixed-price contracts with the U.S. federal government involving the complex delivery of technology products and services. Accordingly, these contracts are within the scope of the American Institute of Certified Public Accountants Audit and Accounting Guide for Audits of Federal Government Contractors. To the extent contracts are incomplete at the end of an accounting period, revenue is recognized on a proportional performance basis, using costs incurred in relation to total estimated costs.

Sales of third-party software products such as Adobe and Micro Focus products are reported on a gross basis with the Company as a principal under authoritative guidance issued by the Financial Accounting Standards Board (the “FASB”). This determination was based on the following: 1) the Company has inventory risk as suppliers are not obligated to accept returns, 2) the Company has reasonable latitude, within economic constraints, in establishing price, 3) the Company, in its marketing efforts, frequently aids the customer in determining product specifications, 4) the Company has physical loss and inventory risk as title transfers at the shipping point, 5) the Company bears full credit risk, and 6) the amount the Company earns in the transaction is neither a fixed dollar amount nor a fixed percentage.

Government Contracts

Government Contracts

Company sales to departments or agencies of the U.S. federal government are subject to audit by the Defense Contract Audit Agency (“DCAA”), which could result in the renegotiation of amounts previously billed.  Because the Company has not entered into any cost plus fixed fee contracts since 1997, management believes there is minimal risk of an audit by DCAA resulting in a material misstatement of previously reported financial statements.

Accounts Receivable

Accounts Receivable

Accounts receivable consist of trade accounts receivable and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company reviews its allowance for doubtful accounts monthly. Accounts with receivable balances past due over 90 days are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers. The Company has recorded an allowance for doubtful accounts of $90,582 at June 30, 2012 and $141,721 at December 31, 2011.

Notes Receivable - employees

Notes Receivable - employees

Notes receivable - employees consists of two notes issued to non-officer employees of the Company which were outstanding as of June 30, 2012 and one note issued to a non-officer employee of the Company which was outstanding as of December 30, 2011.  The note that was outstanding at both periods reported bears interest compounded at 3.5%, requires equal semi-monthly payments, and will mature on August 10, 2013.  The other note, which was only outstanding as of June 30, 2012, bears simple interest of 3.5%, and requires a lump-sum payment on October 7, 2012.

Stock based compensation

Stock-Based Compensation

Total compensation expense was $1,787 and $1,462 for the quarters ended June 30, 2012 and 2011, respectively, of which $0 related to options awarded to non-employees.  For the six months ended June 30, 2012 and 2011, total compensation expense was $3,363 and $4,846, respectively, of which $550 and $0, respectively, related to options awarded to non-employees.  The Company estimates the fair value of options granted using a Black-Scholes valuation model to establish the expense.  When stock-based compensation is awarded to employees, the expense is recognized ratably over the vesting period.  When stock-based compensation is awarded to non-employees, the expense is recognized immediately.

Earnings Per Share

Earnings Per Share

The Company’s earnings per share calculations are based upon the weighted average of shares of common stock outstanding.  The dilutive effect of stock options, warrants and convertible notes are included for purposes of calculating diluted earnings per share, except for periods when the Company reports a net loss, in which case the inclusion of such equity instruments would be antidilutive.

Reclassifications

Reclassifications

Certain prior period balances have been reclassified to conform to the presentation of the current period.

Subsequent Events

Subsequent Events

The Company has evaluated the period from June 30, 2012, the date of the financial statements, through the date of the issuance and filing of the financial statements, and has determined that no material subsequent events have occurred that would affect the information presented in these financial statements or require additional disclosure.

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2. Summary of Significant Accounting Policies (Details Narrative 1) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Summary Of Significant Accounting Policies Details Narrative 1
Total compensation expense for stock options	$ 1,787	$ 1,462	$ 3,363	$ 4,846
Options awarded to non-employees expense	$ 0	$ 0	$ 550	$ 0