1.	Summary of Significant Accounting Policies

Organization and Business

Founded in

1979,

Information Analysis Incorporated, which we refer to as the “Company”, “we”, or “IAI”, is in the business of modernizing client information systems, performing professional information technology (IT) services, and developing and maintaining IT systems for government and commercial organizations. IAI's core competencies lie in legacy system (COBOL) migration and modernization, including developing user-friendly interfaces for complex legacy environments, database conversion and migration, development of electronic fillable forms (e-Forms), including smart forms, Section

508

compliant forms, and web-based and mobile device forms solutions, full life cycle Oracle development, and custom software development. The Company also engages in sales of

third

-party software for electronic forms development and management, legacy systems modernization, and robotics process automation. IAI's ultimate customers include federal and state government agencies as well as private sector organizations throughout the United States, with a concentration in the Washington, D.C. metropolitan area.

Unaudited Interim Financial Statements

The accompanying unaudited financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for Form

-Q and Article

of Regulation S-

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 and Exchange Commission (“SEC”). 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 the Company's audited financial statements for the year ended

December 31, 2020

included in the Annual Report on Form

-K filed by the Company with the SEC on

March 31, 2021 (

the “Annual Report”), as amended. The accompanying

December 31, 2020,

balance sheet was derived from the audited financial statements included in the Annual Report. The results of operations for any interim periods are

not

necessarily indicative of the results of operations for any other interim period or for a full fiscal year.

There have been

changes in the Company's significant accounting policies as of

March 31, 2021,

as compared to the significant accounting policies disclosed in Note

"Summary of Significant Accounting Policies" in the Company's Annual Report on Form

-K for the fiscal year ended

December 31, 2020,

that was filed with the SEC on

March 31, 2021.

Use of Estimates and Assumptions

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect certain 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 revenue and expenses during the reporting period. Actual results can, and in many cases will, differ from those estimates.

Revenue Recognition

See Note

for a detailed description of revenue recognition under Accounting Standards Update

No.

2014

09,

Revenue from Contracts with Customers (Topic

606

) (“ASU

2014

09”

) and its related amendments (collectively known as “ASC

606”

Segment Reporting

The Company has concluded that it operates in

one

business segment, providing products and services to modernize client information systems.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of

ninety

days or less at the time of purchase to be cash equivalents. Deposits are maintained with a federally insured bank. Balances at times exceed federally insured limits, but management does

not

consider this to be a significant concentration of credit risk.

Accounts Receivable

Accounts receivable consist of trade accounts receivable and do

not

bear interest. The Company typically does

not

require collateral from its customers. 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

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.

allowance for doubtful accounts has been recorded at

March 31, 2021

and

December 31, 2020.

Property and Equipment

Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. Furniture and fixtures are depreciated over the lesser of the useful life or

five

years, off-the-shelf software is depreciated over the lesser of

three

years or the term of the license, custom software is depreciated over the least of

five

years, the useful life, or the term of the license, and computer equipment is depreciated over

three

years. Leasehold improvements are amortized over the estimated term of the lease or the estimated life of the improvement, whichever is shorter. Maintenance and minor repairs are charged to operations as incurred. Gains and losses on dispositions are recorded in operations.

Stock-Based Compensation

December 31, 2020,

the Company had the stock-based compensation plans described in Note

below. Total compensation expense related to these plans was

$27,711

and

$450

for the

three

months ended

March 31, 2021

and

2020,

respectively. 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 over the period of performance.

Income Taxes

Deferred tax assets and liabilities are computed based on the difference between the financial statement and tax basis of assets and liabilities and are measured by applying enacted tax rates and laws for the taxable years in which those differences are expected to reverse. In addition, a valuation allowance is required to be recognized if it is believed more likely than

not

that a deferred tax asset will

not

be fully realized. Authoritative guidance prescribes a recognition threshold of more likely than

not,

and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those positions to be recognized in the financial statements. The Company continually reviews tax laws, regulations and related guidance in order to properly record any uncertain tax liabilities. The net operating loss carryforwards are offset by a full valuation allowance.

The Company has analyzed its income tax positions using the criteria required by GAAP and concluded that as of

March 31, 2021,

and

December 31, 2020,

it has

material uncertain tax positions and

interest or penalties have been accrued. The Company has net operating loss carryforwards of approximately

$2.7

million,

none

of which will expire, if unused, on

December 31, 2021.

Income (Loss) Per Share

The Company's income (loss) per share calculations are based upon the weighted average number of shares of common stock outstanding. The dilutive effect of stock options, warrants and other equity instruments are included for purposes of calculating diluted income per share, except for periods when the Company reports a net loss, in which case the inclusion of such equity instruments would be antidilutive. See Note

for more details.

Related Party Transactions

The Company's Director of Human Resources is the spouse of Stan Reese, who served as the Senior Vice President and Chief Operating Officer of the Company through

December 31, 2020,

and now serves as Chief Executive Officer and President. During the

three

months ended

March 31, 2021

and

2020,

the Director of Human Resources received wages and paid leave distributions totaling

$37,511

and

$34,536,

respectively, as an employee of the Company.

COVID-

The COVID-

(coronavirus) outbreak has had a notable impact on general economic conditions, including, but

not

limited to, the temporary closures of many businesses, “shelter in place” and other governmental regulations, and “work from home” directives. There are many unknowns, and many regional inconsistencies. Notable potential effects on the Company include U.S. government procurements

may

be delayed or cancelled, work on new or existing contracts that require personal interactions

may

be suspended, payment processing for customer invoices

may

be delayed, employees and customers or their families

may

become infected, and personal business development meetings

may

not

be able to take place. The Company continues to monitor the impact of the COVID-

outbreak closely.

To date, the COVID-

impact on the Company's existing business has been minimal. The Company had previously implemented the necessary infrastructure for its employees to work remotely, so it did

not

experience material issues supporting its customers. The Company rapidly adapted to the challenges presented to its administration, including challenges to management, accounting, and information technology infrastructure. The extent to which business development efforts have been hampered by the inability to meet with potential customers in person is indeterminable. The full extent to which the COVID-

outbreak will impact the Company's business, results of operations, financial condition, and cash flows over time is uncertain.