<PAGE>

          _____________________________________________________________

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

              Annual Report pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                   For the Fiscal Year Ended December 31, 2001
                           Commission File No. 0-22405

                        Information Analysis Incorporated
             (Exact name of Registrant as specified in its charter)

                 Virginia                                54-1167364
      (State or other jurisdiction of                   (IRS Employer
      incorporation or organization)                  Identification No.)

       11240 Waples Mill Road, Suite 400 Fairfax, Virginia 22030
         (Address of principal executive offices)   (Zip Code)

                                 (703) 383-3000
              (Registrant's telephone number, including area code)

          Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $0.01 par value
                                (Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No

The issuer's revenue for its most recent fiscal year was $6,086,474.

The aggregate market value of the Registrant's Common Stock held by
non-affiliates as of March 27, 2002 was approximately $3,374,940.

As of March 27, 2002 the Registrant had 10,283,515 shares of Common Stock
outstanding.

          _____________________________________________________________


<PAGE>

Information Analysis Incorporated              2001 Report on Form 10-KSB
-------------------------------------------------------------------------

     This Form 10-KSB contains forward-looking statements. These statements are
based on certain assumptions and involve risks and uncertainties. Actual future
results may vary materially from those discussed herein. Any statements that are
not historical facts should be forward-looking statements. These forward-looking
statements are subject to the safe harbor created by the Private Securities
Litigation Reform act of 1995. IAI does not undertake any obligation to publicly
release the result of any revision which may be made to any forward-looking
statements after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.

                                     PART I

Item 1.  Business Description

Overview

     Founded in 1979, Information Analysis Incorporated ("IAI" or "the Company")
is in the business of modernizing client information systems. Since its
inception, IAI has performed software development and conversion projects for
over 100 commercial and government clients including Computer Sciences
Corporation, IBM, Computer Associates, MCI, Sprint, Citibank, U.S. Customs
Service, U.S. Department of Agriculture, U.S. Department of Energy, U.S. Army,
U.S. Air Force, Veterans Administration, and the Federal Deposit Insurance
Corporation. Today, IAI primarily applies its technology, services and
experience to legacy software migration and modernization and to developing
web-based solutions.

     The migration and modernization market is complex and diverse as to the
multiple requirements clients possess to upgrade their older systems. In the
early 1990's, many organizations tried to convert or re-engineer their mainframe
legacy systems to PC client server environments. Many of these attempts failed
because the technology for client servers lacked sufficient hardware performance
and capacity. The available software languages and tools were also immature. By
the mid 1990's, organizations did establish mid-level server technology (Unix)
to off-load and decentralize some of their decision support or departmental
systems, and they connected local area networks of PCs to provide better user
interfaces. However, many large legacy systems remained in use because of the
enormous cost to re-engineer these systems.

     Currently, the options available to modernize these systems are many.
Performance and capacity of client server systems, both UNIX and NT, rival the
traditional mainframe systems. There is a plethora of software that can
interface with legacy systems via PC interfaces. New software development
languages also allow users to warehouse and data-mine information from legacy
databases. Finally, the arrival of the internet and intranet technology offers a
different approach at collecting and processing large volumes of user
transactions, processes which are the forte of older legacy systems.

     Companies are being driven for various reasons to address the upgrading of
their legacy systems. The Y2K experience has impressed on them the difficulty of
finding and retaining staff with outdated technical skills, much of which are
practiced by senior programmers in their fifties. Hardware platforms such as
Unisys and Honeywell are reaching the horizon of their usefulness, and older
programming and data base languages are poorly supported by their providers.
Additionally, maintenance costs are skyrocketing as vendors squeeze the most out
of clients before the life-cycles of hardware and software expire. In addition,
the internet has added a new level of pressure to compete in the electronic
marketplace with their sector rivals. The next ten years should see an upsurge
of movement and change as organizations revamp their older legacy systems.

     The web solutions market is the fastest growing segment of the computer
consulting business as individuals, small companies, large companies, and
governmental agencies rush to establish a presence on the Internet. The range of
products and services involved in this sector is extensive and therefore,
require some specialization for a small company such as IAI to make an impact.
Most small web companies are involved in building web-sites and typically have
many short duration projects. More complex web applications generally require
knowledge of clients' back-end systems based on mainframe or mid-level
computers. Few small companies have the expertise to develop these more
sophisticated web applications. However, these types of applications will be
more prominent in the future as the web is better understood and this will be
the area that future expenditures will grow the most.

                                       1

<PAGE>

Information Analysis Incorporated              2001 Report on Form 10-KSB
-------------------------------------------------------------------------

     The commercial and government sectors of the market can be quite different
in their requirements on the Internet, as, generally, companies are interested
in cataloging and selling items versus government agencies that wish to
disseminate data to the citizenry. There is some overlap in common functionality
when web applications are designed for procurement transactions or customer
relations. What distinguishes the government requirements is that most
government processes are based on forms. Many government agencies rely on
thousands of internal and external forms to conduct their business. Any company
that wishes to develop governmental web applications must address the forms
issue. Accelio (previously known as JetForm), the electronic forms product
resold and supported by IAI is the predominant forms software in the federal
government.

Description of Business and Strategy

     Since the mid-90's IAI has migrated clients from older computer languages
generally associated with legacy computer systems to more modern languages used
with current-day computer system platforms. In fixing their legacy systems to
comply with Y2K dates impacts, many organizations became aware of the evolving
obsolescence of these systems and are now beginning to fund their modernization.
In addition, as part of this modernization many organizations wish to extend
these legacy systems to interface with Internet applications The company's
strategy has been to develop and/or acquire tools that will facilitate the
modernization process and differentiate the Company's offerings in the
marketplace.

     The Company has developed a series of workbench tools called ICONS. These
tools, used in conjunction with IAI's methodology, enhance a programmer's
ability to convert code to new platforms and/or computer languages. ICONS can be
used with a variety of languages such as DATACOM COBOL and IDEAL, and Unisys
COBOL. ICONS will facilitate the Company's ability to provide systems
modernization services to companies that seek to migrate from mainframe legacy
systems to modern environments, including current computer languages, data
bases, and mainframe, midrange, client servers, intranet and internet platforms.

     IAI has structured the company to address the wide range of requirements
that it envisions the market will demand. The suite of ICONS tools give IAI, in
its opinion, a competitive edge in performing certain conversions and migrations
faster and more economically than many other vendors. The diverse capabilities
of IAI's staff in mainframe technology and client server implementations help to
assure that IAI staff can analyze the original systems properly to conduct
accurate and thorough conversions.

     IAI's modernization methodology has developed over the past several years
through the completion of successful conversion projects. Senior members of
IAI's professional staff can perform both technical and business requirements
analyses, and prepare general and detail design documentation, develop project
plans including milestones, staffing, deliverables, and schedules. The actual
work can be performed at client sites or at IAI's premises, which has mainframe
and client server facilities for the use of IAI's personnel.

     During the past year and a half IAI has secured contracts to modernize
several large legacy systems for a federal agency. These projects are giving IAI
staff valuable experience with state of the art web-application products
recently released by Oracle Corporation. Personnel with these skills are in
great demand and can form the nucleus of a new business division within IAI. It
is management's intention to build on these contracts and expand revenues in
this area over the next five years.

     The Company is also using the experience it has acquired as an Accelio
reseller to help secure engagements for web-based applications requiring forms.
The Accelio product has evolved over the years into a robust tool that can form
the backbone of applications, especially those requiring forms. The company has
used this expertise to penetrate a number of federal government clients and
build sophisticated web applications. IAI's knowledge of legacy system languages
has been instrumental in connecting these web applications to legacy databases
residing on mainframe computers. The company has built a core group of
professionals that can build this practice over the coming years.

     Concentrating on the niche of electronic forms-related web applications
through IAI's relationship with Accelio, the company has developed a cadre of
professionals that can quickly and efficiently develop web applications. IAI
will focus on federal government clients during 2002 and leverage the company's
outstanding reputation with federal clients to penetrate these agencies. IAI
will be able to reference

                                       2

<PAGE>

Information Analysis Incorporated              2001 Report on Form 10-KSB
-------------------------------------------------------------------------

successful projects completed or in development for the Department of Veterans
Affairs (VA), Federal Mediation and Conciliation Service (FMCS), U.S. Department
of Agriculture (USDA), Immigration and Naturalization Service (INS), General
Services Administration (GSA), Army Reserve, and U.S. Air Force Logistics
Command (AFLC).

Competition

     The competition in the conversion and modernization market is very strong.
Many software professional services companies have had some involvement in this
area and profess proficiency in performing these projects. The Company also
faces competition from other companies which purport to substantially automate
the process through software tools including Alydaar, Crystal Systems Solutions
and Sapiens International. "Off the shelf" software for enterprise resource
planning, such as SAP and Baan, provides an additional source of competition,
although, to date, the cost and lengthy installation time for enterprise
resource planning software has slowed its implementation in the market place. No
matter what type of solution is offered, many of the Company's competitors have
greater name recognition than the Company, a larger, more established customer
base, and significantly greater financial and market resources in comparison to
the Company.

Patents and Proprietary Rights

     The Company depends upon a combination of trade secret and copyright laws,
nondisclosure and other contractual provisions and technical measures to protect
its proprietary rights in its methodologies, databases and software. The Company
has not filed any patent applications covering its methodologies and software.
The Company distributes ICONS under agreements that grant customers
non-exclusive licenses and contain terms and conditions restricting the
disclosure and use of the Company's databases or software and prohibiting the
unauthorized reproduction or transfer of its products. In addition, IAI attempts
to protect the secrecy of its proprietary databases and other trade secrets and
proprietary information through agreements with employees and consultants.

     The Company also seeks to protect the source code of ICONS as trade secrets
and under copyright law. The copyright protection accorded to databases,
however, is fairly limited. While the arrangement and selection of data can be
protected, the actual data is not, and others are free to create software
performing the same function. The Company believes, however, that the creation
of competing databases would be very time consuming and costly.

Backlog

     As of December 31, 2001, the Company estimated its backlog at approximately
$4 million. Of the entire backlog, the Company believes approximately 95% will
be completed by December 31, 2002. This backlog consists of outstanding
contracts and general commitments from current clients. The Company regularly
provides services to certain clients on an as-needed basis without regard to a
specific contract. General commitments represent those services which the
Company anticipates providing to such clients during a twelve-month period.

Employees

     As of December 31, 2001, the Company employed 43 full-time and part-time
individuals. In addition, the Company maintained independent contractor
relationships with 20 individuals for computer services. Approximately 80% of
the Company's professional employees have at least four years of related
experience. For computer related services, the Company believes that the diverse
professional opportunities and interaction among its employees contribute to
maintaining a stable professional staff with limited turnover.

                                       3

<PAGE>

Information Analysis Incorporated              2001 Report on Form 10-KSB
-------------------------------------------------------------------------

Item 2.  Properties

     The Company's offices are located at 11240 Waples Mill Road, Suite 400,
Fairfax, VA. 22030. IAI holds a lease for 12,345 square feet. This lease expires
on February 29, 2004.

Item 3.  Legal Proceedings

     The Company is not aware of any legal proceedings against it at this time.

Item 4.  Submission of Matters to a Vote of Security Holders

     No matter was submitted during the fourth quarter of fiscal 2001 to a vote
of security holders, either through the solicitation of proxies or otherwise.

                                     PART II
Item 5.  Market for the Company's Common Stock and Related Stockholder Matters

     The Company's Common Stock (symbol: IAIC) has been traded on over the
counter bulletin board (OTCBB) since July 29, 1999. The following table sets
forth, for the fiscal periods indicated, the high and low bid prices of the
Common Stock, as reported:

<TABLE>
<CAPTION>
         Fiscal Year Ended December 31, 2000      Fiscal Year Ended December 31, 2001
         -----------------------------------      -----------------------------------
                      Quarter Ended:                          Quarter Ended:
         3/31/00   6/30/00   9/30/00   12/31/00   3/31/01   6/30/01   9/30/01   12/31/01
         -------   -------   -------   --------   -------   -------   -------   --------
<S>      <C>       <C>       <C>       <C>        <C>       <C>       <C>       <C>
High     $2.156    $1.063    $0.594    $0.438     $0.300    $0.740    $0.410    $0.590
Low      $0.531    $0.375    $0.260    $0.040     $0.090    $0.200    $0.120    $0.130
</TABLE>


     The quotations on which the above data are based reflect inter-dealer
prices without adjustment for retail markup, markdown or commission, and may not
necessarily represent actual transactions.

As of December 31,2001, the Company had 119 stockholders of record. The Company
has never paid a cash dividend on its Common Stock. The Company does not
anticipate the payment of cash dividends to the holders of Common Stock in the
foreseeable future.

     The Company issued to six accredited investors a total of $125,000 of three
year 12% convertible notes, having a conversion price of $0.25 per share. The
Company relied upon section 4(2) in issuing these notes without registration
under the Securities Act of 1933.

                                       4

<PAGE>

Information Analysis Incorporated              2001 Report on Form 10-KSB
-------------------------------------------------------------------------

Item 6.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

Overview

     During 2001 IAI sales and marketing organizations were focused to
capitalize on its services and tools to address the legacy modernization and
conversion market. Additional resources were added to support Web-based
solutions and staff augmentation.

     IAI was profitable in 2001after considering an extraordinary gain. The
Company's expenses related to sales, marketing, and administrative
infrastructure were reduced and revenue increased during 2001. As we continue to
build backlog, we believe the Company's economic prospects will improve.

Results of Operations

The following table sets forth, for the periods indicated, selected information
from the Company's Consolidated Statements of Operations, expressed as a
percentage of revenue:

                                                        Years Ended
                                               -----------------------------
                                               December 31,   December 31,
                                                   2001          2000
                                                   ----          ----
   Revenue                                        100.0%       100.0%
   Cost of Goods Sold                              75.3%        74.1%
   Gross Profit                                    24.7%        25.9%
   Operating Expenses
       Selling, general and administrative         27.6%        38.7%
   Loss from operations                            (2.9%)      (12.8%)
   Non recurring item                               0.0%         0.0%
   Other (expense) income                          (0.5%)       (0.7%)
   Loss before income taxes                        (3.4%)      (13.5%)
   Net income (loss)                                1.6%       (13.5%)
   Extraordinary Gain                               5.0%           0

2001 Compared to 2000

Revenue. Fiscal 2001 revenue increased $0.3 million, or 5.5%, to $6.1 million
from $5.8 million in fiscal year 2000. Revenue from software sales decreased
$0.4 million, or 43.6%, to $0.4 million in fiscal year 2001 from $0.8 million in
fiscal year 2000. Revenue from professional services increased $0.7 million, or
13.9%, to $5.6 million in fiscal year 2001 from $4.9 million in fiscal year
2000.

Gross Profit. Gross profit was $1.5 million in fiscal 2001 versus $1.4 million
in 2000,or 24.7% of revenue in 2001 compared to 25.9% of revenue in 2000.
Professional services gross margin was 29.8% of revenue in 2001, compared to
25.8% in 2000. The increase in professional services gross margin was primarily
attributable to new contracts in 2001, which generated a higher gross margin for
the year. Software sales gross margin was (35.0%) of revenue in 2001, down from
26.5% in 2000. The decrease in software sales gross margin was do to lower
software sales and the amortization for capitalized software during fiscal year
2001.

Selling, General and Administrative (SG&A). Fiscal 2001 SG&A expense decreased
to $1.7 million, or 27.6% of revenue, from $2.2 million, or 38.7% of revenue in
2000, a decrease in expenses of 24.6%. The decrease is due to a continued effort
by management to scale back expenses as the Company positions itself to meet its
current needs.

Liquidity and Capital Resources

         The proceeds derived from the $125,000 convertible notes issued in
2001, along with current collections and net borrowing of $(2,591) from the
Company's bank provided financing for the Company's operations in 2001. Certain
creditors accepted 582,042 shares of common stock and two creditors

                                       5


<PAGE>

Information Analysis Incorporated              2001 Report on Form 10-KSB
--------------------------------------------------------------------------

accepted warrants for 47,636 shares of common stock in satisfaction of their
claims in the amount of $519,057. For fiscal year 2001, net cash provided by
operating, investing and financing activities of $5,000 along with net income of
$96,953 resulted in cash and cash equivalents of $102,640 at year end. The
Company's line of credit of $2,000,000 with First Virginia Bank expired on June
19, 1999. First Virginia Bank has executed forbearance agreements with the
Company, which effectively extends a line of credit of $800,000 until April 23,
2002. The Company is in negotiations with First Virginia Bank and expects to
have the line of credit extended.

         The Company cannot be certain that there will not be a need for
additional cash resources at some point in fiscal 2002. Accordingly, the Company
may from time to time consider additional equity offerings to finance business
expansion. The Company is uncertain that it will be able to raise additional
capital.

Item 7.  Financial Statements and Supplementary Data

         See Consolidated Financial Statements included herein beginning on page
F-1.

Item 8.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

         None

                                       6

<PAGE>

Information Analysis Incorporated              2001 Report on Form 10-KSB
-------------------------------------------------------------------------

                                    PART III

Item 9.  Directors and Executive Officers of the Registrant

The executive officers and directors of the Company are:

<TABLE>
<CAPTION>
NAME                      DIRECTOR SINCE           OFFICE HELD WITH COMPANY
----                      --------------           ------------------------
<S>                       <C>                      <C>
Sandor Rosenberg          1979                     Chairman of the Board, Chief Executive
                                                   Officer
Richard S. DeRose         1991                     Executive Vice President, Chief Financial Officer,
                                                   Secretary
Stanley A. Reese          1993                     Senior Vice President, Chief Operating Officer
Charles A. May, Jr.       1997                     Director
Bonnie K. Wachtel         1992                     Director
James D. Wester           1985                     Director
</TABLE>

         Directors serve until the next annual meeting of shareholders or until
successors have been elected and qualified. Officers serve at the discretion of
the Board of Directors.

Sandor Rosenberg, 55, is the founder of the Company and has been Chairman of the
Board and Chief Executive Officer of the Company since 1979. Mr. Rosenberg holds
a BS degree in Aerospace Engineering from Rensselaer Polytechnic Institute, and
has done graduate studies in Operations Research at George Washington
University.

Richard S. DeRose, 63, has been Executive Vice President since 1991. From 1979
to 1991 he served as the President and CEO of DHD, Inc. and was a founder of the
company. Prior to DHD, Mr. DeRose held several management positions in the
information technology and telecommunications industries at RCA, Burroughs, and
MCI. Mr. DeRose holds a BS degree in Science from the US Naval Academy and an MS
degree in Computer Systems Management from the US Naval Postgraduate School,
Monterey.

Stanley A. Reese, 45, joined the Company in 1993. Mr. Reese has been Senior Vice
President since 1997 and Chief Operating Officer since March 1999. From 1992 to
1993, he served as Vice President, Technical Services at Tomco Systems, Inc.
Prior to Tomco Systems, he served as Senior Program manager at ICF Information
Technology, Inc. Mr. Reese has over 17 years experience managing and marketing
large scale mainframe and PC-based applications. Mr. Reese holds a BA in History
from George Mason University

Charles A. May, Jr., 64, is a consultant focusing on national security and
defense conversion issues. In 1992, he retired as a Lt. General from the Air
Force where he last served as Assistant Vice Chief of Staff, Headquarters US Air
Force, Washington, D.C. He is a graduate of the US Air Force Academy, where he
once served as an Associate Professor of Political Science. General May has also
graduated from the NATO Defense College and has completed the University of
Pittsburgh's Management Program for Executives.

Bonnie Wachtel, 46, has served as vice president and general counsel of Wachtel
& Co., Inc., a Washington, D.C.-based brokerage and investment banking firm,
since 1984. Ms. Wachtel holds BA and MBA degrees from the University of Chicago
and a JD from the University of Virginia. She is a director of Integral Systems,
Inc., a provider of computer systems and software for the satellite
communications market; and VSE Corporation, a provider of technical services to
the federal government.

James Wester, 63, has been a computer services marketing consultant for more
than 15 years. Since 1984, he has been president of Results, Inc., a computer
services marketing firm. Mr. Wester holds a BME degree from Auburn University
and an MBA from George Washington University.

There are no family relationships between any directors or executive officers of
IAI.

                                       7

<PAGE>

Information Analysis Incorporated              2001 Report on Form 10-KSB
-------------------------------------------------------------------------

Compliance with Section 16(a) of the Exchange Act

Section 16(a) ("Section 16(a)") of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), requires executive officers and Directors and
persons who beneficially own more than ten percent (10%) of the Company's Common
Stock to file initial reports of ownership and reports of changes in ownership
with the Securities and Exchange Commission (the "Commission") and any national
securities exchange on which the Company's securities are registered. Executive
officers, Directors and greater than ten percent (10%) beneficial owners are
required by the Commission's regulations to furnish the Company with copies of
all Section 16(a) forms they file.

Based solely on a review of the copies of such forms furnished to the Company
and written representations from the executive officers and Directors, the
Company believes that all Section 16(a) filing requirements applicable to its
executive officers, Directors and greater than ten percent (10%) beneficial
owners were satisfied, except for Traditions LP and any filing required in
connection with option grants.

Item 10.  Executive Compensation

         The Summary Compensation Table below sets forth individual compensation
information for the Chief Executive Officer and the other executive officers
serving as executive officers as of December 31, 2001 (collectively "Named
Executive Officers"):

                           Summary Compensation Table
<TABLE>
<CAPTION>
Name and Principal                               Annual Compensation        Securities
                                                 -------------------        Underlying
Position                           Year        Salary             Bonus              Options (#)
--------                           ----        -------            -----              -------
<S>                                <C>         <C>                <C>       <C>
Sandor Rosenberg                   2001        $85,165               --                  --
Chairman of the Board and          2000        $76,904               --                  --
Chief Executive Officer            1999        $76,457               --                  --
----------------------------- ------------------------------------------- --------------------
Richard S. DeRose                  2001        $87,017               --                  --
Executive Vice President           2000        $75,000               --              50,000
Chief Financial Officer            1999        $97,617               --              20,000
----------------------------- ------------------------------------------- --------------------
Stanley A. Reese                   2001        $82,742               --              50,000
Senior Vice President and          2000        $75,000               --                 --
Chief Operating Officer            1999        $97,867               --              20,000
----------------------------- ----------------------------------------------------------------
</TABLE>

No Named Executive Officer has received any perquisite or benefit, securities,
or property that exceeded the lesser of $50,000 or 10% of the total annual
salary and bonus reported for such executive officer.

         The following table sets forth all option grants during 2001 to all
executive officers.

<TABLE>
<CAPTION>
                        Option Grants in Last Fiscal Year

                 Number of Securities
 Name            Underlying Options      % of Total Options Granted      Exercise Expiration
 ----
                        Granted          To Employees in Fiscal Year     Price       Date
                        -------          ---------------------------     -----       -----
<S>                     <C>              <C>                             <C>         <C>
Stanley A. Reese        50,000                  37.5%                    $0.200      09/07/11
</TABLE>


         The following table depicts option exercise activity in the last fiscal
year and fiscal year-end option values with respect to each of the Named
Executive Officers. The value of unexercised in-the-money options at December
31, 2001 equals the market value of the underlying common stock at December 31,
2001 minus the option exercise price. The fair market value of the Company's
common stock at December 31, 2001 was $0.55.

                                       8

<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

    Aggregated Option Exercises in Last Fiscal Year and FY End Option Values


<TABLE>
<CAPTION>
                                                 Number of Securities           Value of Unexercised
                       Shares                   Underlying Unexercised         In-the-Money Options at
                      Acquired                    Options at 12/31/01                  12/31/01
                                                  -------------------                  --------
Name                     on      Value        Exercisable    Unexercisable    Exercisable    Unexercisable
----                             -----        -----------    -------------    -----------    -------------
                      Exercise   Realized
                      --------   --------
<S>                   <C>        <C>          <C>            <C>              <C>            <C>
Richard S. DeRose        --          --         167,900           --            $15,285           --
Stanley A. Reese         --          --         178,750           --            $18,428           --
</TABLE>

     Directors of the Company who are not executive officers of the Company
receive a stipend of $500 per quarter plus reimbursement of reasonable expenses
incurred in attending meetings.

                                        9

<PAGE>

Information Analysis Incorporated              2001 Report on Form 10-KSB
-------------------------------------------------------------------------

Item 11.  Security Ownership of Certain Beneficial Owners and Managers

     The following table sets forth, as of March 27, 2002, the number of shares
and percentage of the Company's Common Stock owned by all persons known by the
Company to own beneficially more than 5% of the Company's Common Stock, by each
director, by each executive officer named in the Summary Compensation Table, and
by all directors and executive officers as a group. This information has been
obtained in part from such persons and in part from the Company's records. Each
person has sole voting and investment power with respect to the shares indicated
except for shares which may be acquired upon exercise of options and as
otherwise noted.

<TABLE>
<CAPTION>
NAME AND ADDRESS OF                             SHARES BENEFICIALLY
BENEFICIAL OWNER (1)                                      OWNED (2)            % OF CLASS
-----------------------------------------------------------------------------------------
<S>                                                       <C>                       <C>
Sandor Rosenberg, Chairman, CEO, and Director             1,752,800                 17.0%
Richard S. DeRose, Executive Vice President                 365,900     (3)          3.5%
Stanley A. Reese, Senior Vice President                     200,750     (4)          1.9%
Charles A. May, Jr., Director                                16,000     (5)             *
Bonnie K. Wachtel, Director                                 112,800     (6)          1.1%
James D. Wester, Director                                   427,355     (7)          4.0%
Kenneth Parsons                                             712,500     (8)          6.5%
Traditions LP                                             1,500,000     (9)         13.9%

All directors and executive officers as a group           2,875,605    (10)         26.4%
</TABLE>

           *less than 1%

(1)      The address of all beneficial holders is care of the Company, except
         Ms. Wachtel, whose address of record is 1101 14/th/ St. NW, Washington,
         DC 20001.
(2)      All shares are held outright by the individuals listed. References to
         options and warrants include all options and warrants exercisable
         within 60 days of March 27, 2002.
(3)      Includes options on 167,900 shares.
(4)      Includes options on 178,750 shares.
(5)      Includes options on 16,000 shares.
(6)      Includes options on 13,000 shares.
(7)      Includes warrants on 108,000 shares and options for 190,000 shares.
(8)      Includes options on 712,500 shares.
(9)      Includes warrants on 500,000 shares.
(10)     Includes options on 565,650 shares and warrants for 108,000 shares.


Item 13.  Exhibits, Financial Statements Schedules, and Reports on Form 8-K

          (a) (1) Financial Statements:
                  Report of Independent Auditors                        F-1
                  Balance Sheet                                         F-2
                  Consolidated Statements of Operations                 F-3
                  Consolidated Statements of Stockholders' Equity       F-4
                  Consolidated Statements of Cash Flows                 F-5
                  Notes to Consolidated Financial Statements            F-6-F-17

          (a) (2) Exhibits:
                  See Exhibit Index on page 12.

          (b)     No reports were filed on Form 8-K during the last quarter of
                  2001.

                                       10


<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

Signatures

Pursuant to the requirements of Section 13 or 15(d), of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                               INFORMATION ANALYSIS INCORPORATED

                                     By:

                                               Sandor Rosenberg, President
                                                     April 12, 2002

Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

Signature                        Title                       Date

 /s/ Sandor Rosenberg            Chairman of the Board       April 12, 2002
----------------------------     and President
Sandor Rosenberg


 /s/ Charles A. May, Jr.         Director                    April 12, 2002
----------------------------
Charles A. May


 /s/ Bonnie K. Wachtel           Director                    April 12, 2002
----------------------------
Bonnie K. Wachtel


 /s/ James D. Wester             Director                    April 12, 2002
----------------------------
James D. Wester


 /s/ Richard S. DeRose           Treasurer                   April 12, 2002
----------------------------
Richard S. DeRose

                                       11

<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

                                  Exhibit Index
<TABLE>
<CAPTION>
Exhibit       Description                                            Location
No.
<S>           <C>                                                    <C>
3.1           Amended and Restated Articles of Incorporation         Incorporated by reference from the
              effective March 18, 1997                               Registrant's Form 10-KSB/A for the
                                                                     fiscal year ending December 31, 1996
                                                                     and filed on July 3, 1997

3.2           Articles of Amendment to the Articles of Incorporation Incorporated by reference from the
                                                                     Registrant's Form 10-KSB/A for the
                                                                     fiscal year ending December 31, 1997
                                                                     and filed on March 30, 1998

3.3           Amended By-Laws of the Company                         Incorporated by reference from the
                                                                     Registrant's Form S-18 dated November
                                                                     20, 1986 (Commission File No. 33-9390).

4.1           Copy of Stock Certificate                              Incorporated by reference from the
                                                                     Registrant's Form 10-KSB/A for the
                                                                     fiscal year ending December 31, 1997
                                                                     and filed on March 30, 1998

4.2           Form of Warrant issued in December 1999 and January    Incorporated by reference from the
              2000                                                   Registrant's Form 10-KSB for the fiscal
                                                                     year ending December 31, 2000 and filed
                                                                     on March 29, 2000

4.3           Common Stock and Warrant Purchase Agreement dated      Incorporated by reference from the
              December 1999                                          Registrant's Form 10-KSB for the fiscal
                                                                     year ending December 31, 2000 and filed
                                                                     on March 29, 2000

4.4           Form of 12% 3 year convertible note                    Incorporated by reference from the
                                                                     Registrant's Form 10-QSB for the period
                                                                     ending September 30, 2001 and filed on
                                                                     November 12, 2001.

4.5           Form of Warrant issued to trade creditors who          Incorporated by reference from the
              exchanged claims for warrants.                         Registrant's Form 10-QSB for the
                                                                     period ending September 30, 2001
                                                                     and filed on November 12, 2001.

10.1          Office Lease for 18,280 square feet at 11240 Waples    Incorporated by reference from the
              Mill Road, Fairfax, Virginia 22030.                    Registrant's Form 10-KSB/A for the
                                                                     fiscal year ending December 31, 1996
                                                                     and filed on July 3, 1997

10.2          Company's 401(k) Profit Sharing Plan through Aetna     Incorporated by reference from the
              Life Insurance and Annuity Company.                    Registrant's Form 10-KSB/A for the
                                                                     fiscal year ending December 31, 1996
                                                                     and filed on July 3, 1997

10.3          1986 Stock Option Plan                                 Incorporated by reference from the
                                                                     Registrant's Form S-8 filed on December
                                                                     20, 1988

10.4          1996 Stock Option Plan                                 Incorporated by reference from the
                                                                     Registrant's Form S-8 filed on June 25,
                                                                     1996

10.5          Line of Credit Agreement with First Virginia Bank      Incorporated by reference the
                                                                     Registrant's Form 10-KSB for the fiscal
                                                                     year ending December 31, 1995 and filed
                                                                     April 15, 1996
</TABLE>

                                       12

<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
<S>           <C>                                                    <C>
                                                                     (Commission File No. 33-9390).

10.6          Warrant Agreement between James D. Wester, a director, Incorporated by reference from the
              and the Company dated February 24, 1993                Registrant's Form 10-KSB/A for the
                                                                     fiscal year ending December 31, 1996
                                                                     and filed on July 3, 1997

10.7          Office lease for 19,357 square feet at 3877 Fairfax    Incorporated by reference from the
              Ridge Road, Fairfax, Virginia                          Registrant's Form 10-QSB for the period
                                                                     ending March 31, 1998 and filed on May
                                                                     15, 1998.

10.8          Modification of Office Lease to 12,345 square feet at  Incorporated by reference from the
              11240 Waples Mill Road, Fairfax, Virginia 22030.       Registrant's Form 10-QSB for the period
                                                                     ending March 31, 2001 and filed on
                                                                     May 11, 2001.

21.1          List of Subsidiaries.                                  Filed with this Form 10-KSB

23.1          Consent of independent auditors, Rubino &              Filed with this Form 10-KSB
              McGeehin, Chartered
</TABLE>

                                       13

<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

Exhibit 21.1

                                 SUBSIDIARIES OF
                        INFORMATION ANALYSIS INCORPORATED

<TABLE>
<CAPTION>
                                                                                                    Name under which
                     Name                              State of Incorporation                   Subsidiary Does Business
<S>                                                    <C>                                      <C>
Allied Health & Information Systems, Inc.                        VA                                       N/A

International Software Services Corporation                      VA                                       N/A
</TABLE>



<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

Exhibit 23.1


                         Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Form SB-2 No.
333-95775 dated September 4, 2000 and Registration Statements (Form S-8 No.
33-26249 and No. 33-305136) pertaining to the 1986 Stock Option Plan and 1996
Stock Option Plan of Information Analysis Incorporated and in the related
prospectus' of our report dated March 29, 2002 with respect to the consolidated
financial statements and schedule of Information Analysis Incorporated included
in the Annual Report (Form 10-KSB) for the year ended December 31, 2001.

                                    /s/ Rubino & McGeehin, Chartered

Bethesda, Maryland
April 15, 2002

<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Information Analysis Incorporated

We have audited the accompanying consolidated balance sheet of Information
Analysis Incorporated and subsidiaries as of December 31, 2001, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the years ended December 31, 2001 and 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Information Analysis Incorporated and subsidiaries as of December 31, 2001, and
their consolidated results of operations and cash flows for the years ended
December 31, 2001 and 2000, in conformity with accounting principles generally
accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming
Information Analysis Incorporated and subsidiaries will continue as a going
concern. As discussed in Note 16, the Company has suffered recurring losses from
operations and has cash flows problems and financing requirements that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regards to these matters are described in Note 16. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

March 29, 2002
Bethesda, MD                                    /S/ Rubino & McGeehin, Chartered

                                       F-1

<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

               INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET

                                ---------------

<TABLE>
<CAPTION>
                                                                                  December 31, 2001
                                                                                  -----------------
                                     ASSETS
<S>                                                                               <C>
Current assets
  Cash and cash equivalents                                                       $    102,640
  Accounts receivable, net of allowance of $469,957                                  1,526,372
  Prepaid expenses                                                                      22,255
  Note receivable                                                                       75,000
  Other receivables                                                                     22,203
                                                                                  ------------
       Total current assets                                                          1,748,470

Fixed assets, net of accumulated depreciation
  and amortization of $2,237,780                                                        34,654
Capitalized software, net of accumulated amortization
  of $472,045                                                                          292,065
Other receivables                                                                       31,865
Other assets                                                                            58,275
                                                                                  ------------

       Total assets                                                               $  2,165,329
                                                                                  ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Revolving line of credit                                                        $    596,000
  Accounts payable                                                                   1,024,717
  Accrued payroll and related liabilities                                              294,489
  Other accrued liabilities                                                            175,158
  Deferred revenue                                                                     157,882
                                                                                  ------------
       Total current liabilities                                                     2,248,246
Long-term liabilities
  Notes payable                                                                        125,001
                                                                                  ------------
       Total liabilities                                                             2,373,247
                                                                                  ------------

Stockholders' equity
  Common stock, $0.01 par value, 30,000,000 shares authorized,
    11,788,126 shares issued, 10,283,515 shares outstanding                            117,881
  Additional paid-in capital                                                        14,122,019
  Accumulated deficit                                                              (13,593,505)
  Less treasury stock, 1,504,611 shares, at cost                                      (854,313)
                                                                                  ------------

       Total stockholders' equity (deficit)                                           (207,918)
                                                                                  ------------

       Total liabilities and stockholders' equity                                 $  2,165,329
                                                                                  ============
</TABLE>

       The accompanying notes are an integral part of the consolidated financial
statements


                                      F-2

<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

               INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED STATEMENTS OF OPERATIONS

                              -----------------

<TABLE>
<CAPTION>

                                                                              For the years ended December 31,
                                                                                2001                     2000
                                                                          ---------------            ------------
Sales
<S>                                                                       <C>                        <C>
     Professional fees                                                    $     5,606,815            $  4,920,931
     Software sales                                                               479,659                 849,710
                                                                          ---------------            ------------
              Total sales                                                       6,086,474               5,770,641
                                                                          ---------------            ------------

Cost of sales
     Cost of professional fees                                                  3,936,288               3,653,333
     Cost of software sales                                                       647,643                 624,654
                                                                          ---------------            ------------
              Total cost of sales                                               4,583,931               4,277,987
                                                                          ---------------            ------------

Gross profit                                                                    1,502,543               1,492,654
Selling, general and administrative expenses                                    1,681,479               2,231,056
                                                                          ---------------            ------------

Loss from operations                                                             (178,936)               (738,402)
Other expenses                                                                    (31,031)                (42,338)
                                                                          ---------------            ------------

Loss before provision for income taxes and
     extraordinary item                                                          (209,967)               (780,740)
Provision for income taxes                                                              -                       -
                                                                          ---------------            ------------

Net loss before extraordinary item                                               (209,967)               (780,740)
Extraordinary gain-settlement of debt with equity                                 306,920                       -
                                                                          ---------------            ------------

Net income (loss)                                                         $        96,953            $   (780,740)
                                                                          ===============            ============

Earnings per common share - Basic and Diluted
     Net loss before extraordinary item                                   $         (0.02)           $      (0.08)
     Extraordinary gain                                                              0.03                       -
                                                                          ---------------            ------------
     Net income (loss)                                                    $          0.01            $      (0.08)
                                                                          ===============            ============

Weighted average common shares outstanding
     Basic                                                                      9,970,133               9,576,981
                                                                          ===============            ============
     Diluted                                                                    9,970,133               9,576,981
                                                                          ===============            ============
</TABLE>

     The accompanying notes are an integral part of the consolidated financial
statements

                                       F-3

<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

               INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                ----------------

<TABLE>
<CAPTION>
                                    Shares of
                                      Common                      Additional
                                      Stock        Common           Paid-in        Accumulated  Treasury
                                      Issued       Stock            Capital         Deficit       Stock           Total
                                 ------------- ------------  ---------------- --------------- ----------- -----------------
<S>                               <C>          <C>            <C>             <C>             <C>          <C>
Balances, December 31, 1999       10,723,284   $    107,233   $    13,763,904 $  (12,909,718) $ (854,313)  $      107,106

  Exercise of stock options and
    warrants                         112,800          1,128            30,498              -           -           31,626
  Stock issued for private
     placement                       250,000          2,500           122,500              -           -          125,000
  Stock issued as contingent
payment of debt                      120,000          1,200            (1,200)             -           -                -
  Net loss                                 -              -                 -       (780,740)          -         (780,740)
                                ------------    -----------    --------------  -------------   ---------    -------------

Balances, December 31, 2000       11,206,084        112,061        13,915,702    (13,690,458)   (854,313)        (517,008)

  Stock issued as settlement
    of debt                          582,042          5,820           206,317              -           -          212,137
  Net Income                               -              -                 -         96,953           -           96,953
                                ------------    -----------    --------------  -------------   ---------    -------------

Balances, December 31, 2001       11,788,126   $    117,881   $    14,122,019 $  (13,593,505) $ (854,313)  $     (207,918)
                                ============    ===========    ==============  =============   =========    =============
</TABLE>

    The accompanying notes are an integral part of the consolidated financial
                                   statements

                                      F-4

<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

               INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                ----------------

<TABLE>
<CAPTION>
                                                                              For the years ended December 31,
                                                                               2001                    2000
                                                                      ------------------------   ----------------------
<S>                                                                           <C>                 <C>
Net income (loss)                                                               $  96,953             $(780,740)
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
    Extraordinary gain                                                           (306,920)
    Depreciation and amortization                                                  73,822               188,484
    Amortization of capitalized software                                          199,487               154,548
    Gain on sale of fixed assets                                                   (9,537)                    -
    Changes in operating assets and liabilities
      Accounts receivable                                                        (452,431)              828,303
      Other receivables and prepaid expenses                                       99,494                11,699
      Accounts payable and accrued expenses                                        74,683              (557,215)
      Deferred revenue                                                            157,882                     -
                                                                                ---------             ---------

        Net cash used by operating activities                                     (66,567)             (154,921)
                                                                                ---------             ---------

Cash flows from investing activities:
  Acquisition of furniture and equipment                                           (5,630)                    -
  Proceeds from sale of fixed assets                                                9,547                     -
  Increase in capitalized software                                                      -              (182,447)
                                                                                ---------             ---------

         Net cash provided (used) by investing activities                           3,917              (182,447)
                                                                                ---------             ---------

Cash flows from financing activities:
  Net (payments) borrowings under bank revolving line of credit                    (2,591)               97,091
  Net received on long-term note payable                                          125,000                     -
  Principal payments on capital leases                                                  -                (6,936)
  Proceeds from private placement of common stock                                       -               125,000
  Proceeds from exercise of stock options and warrants                                  -                31,626
                                                                                ---------             ---------

        Net cash provided by financing activities                                 122,409               246,781
                                                                                ---------             ---------

Net increase (decrease) in cash and cash equivalents                               59,759               (90,587)

Cash and cash equivalents, beginning of the year                                   42,881               133,468
                                                                                ---------             ---------

Cash and cash equivalents, end of the year                                      $ 102,640             $  42,881
                                                                                =========             =========
Supplemental cash flow information
    Interest paid                                                               $  48,219             $  60,999
                                                                                =========             =========
    Non-cash financing activity
      Issuance of common stock to settle debt                                   $ 212,137
                                                                                =========
    Non-cash operating activity
      Reduction of accounts payable through issuance of equity                  $ 519,057
                                                                                =========
</TABLE>


    The accompanying notes are an integral part of the consolidated financial
                                   statements

                                      F-5

<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

               INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ---------

1.       Summary of Significant Accounting Policies

         Operations
         ----------

         Information Analysis Incorporated (the Company) was incorporated under
         the corporate 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.

         Principles of Consolidation
         ---------------------------

         The consolidated financial statements include the accounts of the
         Company and its wholly owned subsidiaries, International Software
         System Corporation (ISSC) and Allied Health & Information Systems, Inc.
         (AHISI). Upon consolidation, all material intercompany accounts,
         transactions and profits are eliminated.

         Accounting Estimates
         --------------------

         The preparation of financial statements in conformity with accounting
         principles generally accepted in the United States requires management
         to make estimates and assumptions that affect certain reported amounts
         and disclosures. Accordingly, actual results could differ from these
         estimates.

         Revenue Recognition
         -------------------

         The Company provides services under various pricing arrangements.
         Revenue from "cost-plus-fixed-fee" contracts is recognized on the basis
         of reimbursable contract costs incurred during the period, plus a
         percentage of the fixed fee. Revenue from "firm-fixed-price" contracts
         is recognized on the percentage-of-completion method. Under this
         method, individual contract revenues are recorded based on the
         percentage relationship that contract costs incurred bear to
         management's estimate of total contract costs. Revenue from "time and
         material" contracts is recognized on the basis of hours utilized, plus
         other reimbursable contract costs incurred during the period. Contract
         losses, if any, are accrued when their occurrence becomes known and the
         amount of the loss is reasonably determinable. Changes in job
         performance, job conditions and estimated profitability, including
         final contract settlements, may result in revisions to costs and income
         and are recognized in the period in which the revisions are determined.

         Revenue from software sales is recognized upon delivery, when
         collection of the receivable is probable. Maintenance revenue is
         recognized ratably over the maintenance period.

                                      F-6

<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

               INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ---------

1.       Summary of Significant Accounting Policies (continued)

         Segment Reporting
         -----------------

         The Company adopted Statement No. 131, "Disclosures about Segments of
         an Enterprise and Related Information," in 1998, and concluded that it
         operates in one business segment, providing products and services to
         modernize client information systems.

         Government Contracts
         --------------------

         Company sales to departments or agencies of the United States
         Government are subject to audit by the Defense Contract Audit Agency
         (DCAA), which could result in the renegotiating of amounts previously
         billed. Audits by DCAA were completed through the year ended December
         31, 1997. No amounts were changed as a result of the audits. Management
         is of the opinion that any disallowance of costs for subsequent fiscal
         years by the government auditors, other than amounts already provided,
         will not materially affect the Company's financial statements.

         Cash and Cash Equivalents
         -------------------------

         For the purposes of the statement of cash flows, 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 insured limits,
         but management does not consider this to be a significant concentration
         of credit risk.

         Fixed Assets
         ------------

         Fixed assets are stated at cost and are depreciated using the
         straight-line method over the estimated useful lives of the assets.
         Leasehold improvements are amortized over the 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 current operations.

         Advertising
         -----------

         All costs related to advertising the Company's products are expensed in
         the period incurred.

                                      F-7

<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

               INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   ---------

1.       Summary of Significant Accounting Policies (continued)

         Software Development Costs
         --------------------------

         The Company has capitalized costs related to the development of the
         ICONS software product. In accordance with Statement of Financial
         Accounting Standards No. 86, capitalization of costs begins when
         technological feasibility has been established and ends when the
         product is available for general release to customers. Amortization is
         computed and recognized for the product when available for general
         release to customers based on the greater of (a) the ratio that current
         gross revenues for the product bear to the total of current and
         anticipated future gross revenues for that product or, (b) the
         straight-line method over the economic life of the product. Capitalized
         costs and amortization periods are management's estimates and may have
         to be modified due to inherent technological changes in software
         development.

         Stock-Based Compensation
         ------------------------

         The Company records compensation expense for all stock-based
         compensation plans using the intrinsic value method prescribed by APB
         Opinion No. 25, "Accounting for Stock Issued to Employees." The
         Company's annual financial statements disclose the required pro forma
         information as if the fair value method prescribed by Financial
         Accounting Standards Board's Statement No. 123, "Accounting for
         Stock-Based Compensation," had been adopted.

         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, for 2001, convertible notes, are
         included for purposes of calculating diluted earnings per share, except
         for periods when the Company reports a net loss before extraordinary
         item, in which case the inclusion of such equity instruments would be
         antidilutive.

         Income Taxes
         ------------

         Under Financial Accounting Standards Board Statement No. 109,
         "Accounting for Income Taxes," the liability method is used in
         accounting for income taxes. Under this method, deferred tax assets and
         liabilities are determined based on differences between financial
         reporting and tax bases of assets and liabilities, and are measured
         using the enacted tax rates and laws that will be in effect when the
         differences are expected to reverse.

                                      F-8

<PAGE>

Information Analysis Incorporated                    2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

               INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              _____________________

1.       Summary of Significant Accounting Policies (continued)

         Fair Market Value of Financial Instruments
         ------------------------------------------

         The Company's financial instruments include trade receivables, other
         receivables, accounts payable, and notes payable. Management believes
         the carrying value of financial instruments approximates their fair
         market value, unless disclosed otherwise in the accompanying notes.

2.       Receivables

         Accounts receivable at December 31, 2001, consist of the following:

         Billed-federal government                       $      1,921,565
         Billed-commercial and other                               18,750
                                                            -------------
                  Total billed                                  1,940,315
         Unbilled                                                  56,015
         Less: allowance of doubtful accounts                    (469,958)
                                                            -------------
                  Accounts receivable, net               $      1,526,372
                                                            =============

         Billed receivables from the federal government includes amounts due
         from both prime contracts and subcontracts where the federal government
         is the end customer. Unbilled receivables are for services provided
         through the balance sheet date which are expected to be billed and
         collected within one year.

         At December 31, 2001, there is a note receivable of $75,000 from a
         customer. The note bears interest of 7% and is due September 30, 2002.

3.       Fixed Assets

         A summary of fixed assets and equipment at December 31, 2001, consist
         of the following:

         Furniture and equipment                         $        341,055
         Leasehold improvements and other                         204,634
         Computer equipment and software                        1,726,745
                                                            -------------
                                                                2,272,434
         Less: accumulated depreciation and amortization       (2,237,780)
                                                            -------------
                  Total                                  $         34,654
                                                            =============

         Depreciation expense for the years ended December 31, 2001 and 2000,
         was $73,822 and $188,484 respectively.

                                      F-9

<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

               INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             _____________________


4.       Software Development Costs

         Software development costs as of December 31, 2001, consist of the
         following:

         Cumulative costs incurred                      $        764,110
         Accumulated amortization                               (472,045)
                                                           -------------
                  Net software development costs        $        292,065
                                                           =============

         Amortization expense for the years ended December 31, 2001 and 2000,
         was $199,487 and $154,548, respectively.

         At December 31, 2001, capitalized software development cost is for the
         ICONS software tool. All costs related to other products have been
         fully amortized or written off.

5.       Other Assets

         Other assets at December 31, 2001, consist of the following:

         Security deposits                              $         48,275
         Other                                                    10,000
                                                            ------------
                 Total other assets                     $         58,275
                                                            ============

6.       Other Accrued Liabilities

         Other accrued liabilities at December 31, 2001, consist of the
         following:

         Royalties payable                              $         18,558
         Accrued payables                                        146,489
         Other                                                    10,111
                                                            ------------
                  Total other accrued liabilities       $        175,158
                                                            ============

                                      F-10

<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

               INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           __________________________

7.       Revolving Line of Credit

         At December 31, 2001, the Company had a revolving line of credit with a
         bank providing for demand or short-term borrowings up to $1,000,000.
         The bank has executed a forbearance agreement with the Company for
         demand or short-term borrowings up to $800,000, which effectively
         extends the line of credit until April 23, 2002. Draws against this
         line are limited by varying percentages of the Company's accounts
         receivable balances depending on the source of the receivables and
         their age. The bank is granted a security interest in certain assets if
         there are borrowings under the line of credit. Interest on outstanding
         amounts is payable monthly at the bank's prime rate plus 2.5% (7.25% at
         December 31, 2001). The lender has a first priority security interest
         in the Company's receivables and a direct assignment of its U.S.
         Government contracts. The revolving line of credit, among other
         covenants, requires the Company to comply with certain financial
         ratios. The Company was not in compliance with any of the financial
         ratios at December 31, 2001, when there was an outstanding balance of
         $596,000 on the line.

         The Company is in negotiations with various organizations to obtain a
         new line of credit. The current line of credit, coupled with funds
         generated from operations, assuming the operations are cash flow
         positive, should be sufficient to meet the Company's operating cash
         requirements. The Company, however, may be required from time to time
         to delay timely payments of its accounts payable. The Company cannot be
         certain that there will not be a need for additional working capital in
         the near future. It is uncertain whether the Company will be able to
         obtain such additional working capital.

8.       Commitments and Contingencies

         Operating Leases
         ----------------

         The Company leases facilities and equipment under long-term operating
         lease agreements. Rent expense was $141,936 and $212,756 for the years
         ended December 31, 2001 and 2000, net of sublease income of $288,398
         and $301,306, respectively. During 2001, the Company renegotiated its
         lease without penalty to lease less space in the current building. The
         future minimum rental payments to be made under long-term operating
         leases principally for facilities, and giving effect to the
         aforementioned reduction in space, are as follows:

         Year ending December 31, 2002                  $       369,100
                                  2003                          361,000
                                  2004                           82,300
                                                           ------------
         Total minimum rent payments                    $       812,400
                                                           ============

                                      F-11

<PAGE>

Information Analysis Incorporated                    2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

               INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           _________________________

8.       Commitments and Contingencies (continued)

         The above minimum lease payments reflect the base rent under the lease
         agreements. However, these base rents can be adjusted each year to
         reflect increases in the consumer price index and the Company's
         proportionate share of real estate tax increases on the leased
         property. The leases are secured by security deposits in the amount of
         $48,275.

         The aggregate future minimum rentals to be received under
         non-cancelable subleases as of December 31, 2001, is $531,200 of which
         $239,400 is receivable in 2002, $230,200 is receivable in 2003, and
         $61,600 is receivable in 2004.

9.       Income Taxes

         The tax effect of significant temporary differences representing
         deferred tax assets and deferred tax liabilities at December 31, 2001,
         are as follows:

         Deferred tax assets:
         Net operating loss carry forward               $      6,264,700
         Accrued vacation                                         59,800
         Allowance for bad debts                                 178,600
         Intangibles                                              41,100
         Fixed assets                                             87,900
         Other                                                     1,600
                                                           -------------
              Subtotal                                         6,633,700
         Valuation allowance                                  (6,633,700)
                                                           -------------
              Total                                                    -
                                                           -------------

         The provision for income taxes is at an effective rate different from
         the federal statutory rate due principally to the following:

                                      F-12

<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

               INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 -------------

9.       Income Taxes (continued)

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                                   2001                 2000
                                                                                   ----                 ----
<S>                                                                         <C>                 <C>
         Income (loss) before taxes, including
              extraordinary item for 2001                                   $         96,953    $       (780,740)
                                                                               =============       =============
         Income taxes (benefit) on above amount at federal
             statutory rate                                                           23,200            (265,500)
         State income taxes, net of federal benefit                                    4,900             (31,200)
         (Decrease) increase in valuation allowance                                  (29,600)            295,000
         Effect of change in estimates and non-deductible
             items
                                                                                       1,500               1,700
                                                                               -------------       -------------

         Provision for income taxes                                         $              -    $              -
                                                                               =============       =============
</TABLE>

         The Company has recognized a valuation allowance to the full extent of
         its net deferred tax assets since the likelihood of realization of the
         benefit cannot be determined.

         The Company has net operating loss carryforwards of approximately $16.5
         million, which expire, if unused, in the year 2020. The tax benefits of
         approximately $2.3 million of net operating losses related to stock
         options will be credited to equity when the benefit is realized through
         utilization of the net operating loss carryover.

10.      Major Customers

         Traditionally, the Company's clients have spanned a wide range of
         enterprises in the private sector along with government agencies. The
         Company's prime contracts and subcontracts with agencies of the federal
         government accounted for 98% of the Company's 2001 revenues and 73% of
         the 2000 revenues. The Company's subcontracts with two prime
         contractors accounted for 38% of the Company's 2001 revenue.

11.      Retirement Plans

         The Company adopted a Cash or Deferred Arrangement Agreement (CODA)
         which satisfies the requirements of section 401(k) of the Internal
         Revenue Code, on January 1, 1988. This defined contribution retirement
         plan covers substantially all employees. Participants can elect to have
         up to 15% of their salary reduced and contributed to the plan. The
         Company is required to make a matching contribution of 25% of the first
         6% of this salary reduction. The Company can also make additional
         contributions at its discretion. There was no expense under the plan
         for the years ended December 31, 2001 and 2000. Payments for 2001 and
         2000 were paid from the Company's forfeiture account, which offset any
         matching expenses incurred in both years.

                                      F-13

<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

               INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  ------------

12.      Stock Options and Warrants

         The Company has an incentive stock option plan, which became effective
         June 25, 1996. The plan provides for the granting of stock options to
         certain employees and directors. The maximum number of shares for which
         options may be granted under the plans is 2,575,000. Options expire no
         later than ten years from the date of grant or when employment ceases,
         whichever comes first, and vest over periods determined by the Board of
         Directors. The average vesting period for options granted in 2001 was
         eight months. The exercise price of each option equals the quoted
         market price of the Company's stock on the date of grant. The stock
         option plan is accounted for under Accounting Principles Board (APB)
         Opinion No. 25. Accordingly, no compensation has been recognized for
         the plan. Had compensation cost for the plans been determined based on
         the estimated fair value of the options at the grant date consistent
         with the method of Statement of Financial Accounting Standards (SFAS)
         No. 123, the Company's net income and earnings would have been:

<TABLE>
<CAPTION>
        ------------------------------------------------------------------------------------------------------
                                                               2001                        2000
                                                               ----                        ----
<S>                                                        <C>                         <C>
        Net income (loss)          As reported             $      96,953               $    (780,740)
                                   Pro forma               $      71,958               $    (812,440)
        Net income (loss)          As reported             $        0.01               $       (0.08)
             per share             Pro forma               $        0.01               $       (0.08)
        ------------------------------------------------------------------------------------------------------
</TABLE>

         The fair value of the options granted in 2001 and 2000 is estimated on
         the date of the grant using the Black-Scholes options-pricing model
         assuming the following:

                                                 2001                    2000
                                                 ----                    ----

         Dividend yield                          None                    None
         Risk-free interest rate                4.59%                    5.5%
         Expected volatility                    163.7%                  135.7%
         Expected term of options              3 years                  3 years

         The effects on 2001 and 2000 pro forma net income and earnings per
         share of expensing the estimated fair value of stock options are not
         necessarily representative of the effects on reported net income for
         future years due to such things as the vesting period of the stock
         options and the potential for issuance of additional stock options in
         future years. The weighted average fair value per option granted in
         2001 and 2000, was $0.18 and $0.43, respectively.

                                      F-14

<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

               INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 --------------

12.      Stock Options and Warrants (continued)

         The following table summarizes information about stock options
         outstanding at December 31, 2001:

<TABLE>
<CAPTION>
                                            Options Outstanding                              Options Exercisable
                               ----------------------------------------------------- -----------------------------------------
                                                                      Weighted
                                                    Weighted           Average
                                    Number           Average          Remaining                             Weighted
               Range of               of            Exercise          Contractual        Number of          Average
            Exercise Prices         Options           Price              Life             Options         Exercise Price
         ---------------------- ---------------- ---------------- ------------------ ------------------- ---------------------
<S>                               <C>               <C>               <C>               <C>               <C>
         Less than $1.00            1,473,650       $     0.40         6.0 years            1,294,150           $ 0.43
         $1.00 and more               178,300       $     5.76         5.7 years              178,300           $ 5.76
                                    ---------                                           -------------
               Total                1,651,950       $     0.98         5.9 years            1,472,450           $ 1.07
                                    =========                                           =============
</TABLE>

         Unexercisable options are as follows: 1,000 at $0.51 per share; 3,500
         options at $0.36 per share; 4,000 options at $0.35 per share; 7,000
         options at $0.30 per share; 2,000 options at $0.24 per share; 41,500
         options at $0.21 per share; 119,000 options at $0.20 per share; 1,500
         options at $0.15 per share. Transactions involving the plan were as
         follows:

<TABLE>
<CAPTION>
                                                                               December 31,
                                                               2001                                  2000
                                                               ----                                  ----
                                                                       Weighted                               Weighted
                                                                       Average                                Average
                                                     Shares             Price             Shares               Price
                                                 ----------------    -------------    ----------------     ---------------

<S>                                              <C>                 <C>              <C>                  <C>
         Outstanding, beginning of year              1,455,950       $    1.14           1,505,550         $    1.11
         Granted                                       239,000            0.21              94,000              0.43
         Exercised                                           0                            (112,800)             0.28
         Canceled                                      (43,000)           2.07             (30,800)             0.90
                                                 -------------                        ------------

         Outstanding, end of year                    1,651,950       $    0.98           1,455,950         $    1.14
                                                 =============        ========        ============          ========
</TABLE>

                                      F-15

<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

               INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 -------------

12.      Stock Options and Warrants (continued)

         The Board of Directors has also granted warrants to directors,
         employees and others. No warrants were issued to directors or employees
         in 2001 and 2000. In 2001, the Company issued 47,636 warrants to
         certain creditors in satisfaction of their claims totaling $38,109.
         There were no warrants exercised in 2001 or 2000. As of December 31,
         2001, outstanding warrants are 1,717,975 of which 1,633,000 expire
         within 3 years and 84,975 expire thereafter. The purchase price for
         shares issued upon exercise of these warrants range from $0.01 to $6.42
         per share. These warrants are exercisable immediately.

13.      Convertible Notes Payable

         During 2001, the Company issued to accredited investors $125,000 of
         3-year 12% convertible notes, having a conversion price of $0.25 per
         share. Notes totaling $80,000 were issued to stockholders, officers and
         directors.

14.      Extraordinary Gain

         During 2001, the Company issued 582,042 shares of stock and 47,636
         warrants to certain creditors in satisfaction of claims totaling
         $519,057. The stock was recorded at its market value based upon quoted
         trade prices, and the transactions resulted in an extraordinary gain of
         $306,920.

15.      Computation Of Earnings (Loss) Per Share

<TABLE>
<CAPTION>
                                                                               For the years ended December 31,
                                                                                 2001                   2000
                                                                                 ----                   ----
<S>                                                                        <C>                    <C>
         Numerator for basic and diluted earnings
              (loss) per share - net income (loss)                         $         96,953       $       (780,740)
                                                                            ---------------          --------------

         Denominator for basic earnings per
              share - weighted average shares                                     9,970,133              9,576,981

         Effect of dilutive securities:
              Stock options, warrants, and convertible
                  notes payable assumed conversions                                       -                      -
                                                                              -------------          -------------

         Denominator for diluted earnings per
              share - adjusted weighted average
              shares and assumed conversions                                      9,970,133              9,576,981
                                                                              -------------          -------------

         Basic net earnings (loss) per share                               $           0.01       $          (0.08)

         Diluted net earnings (loss) per share                             $           0.01       $          (0.08)
</TABLE>

                                      F-16

<PAGE>

Information Analysis Incorporated                     2001 Report on Form 10-KSB
--------------------------------------------------------------------------------

               INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                ---------------


16.      Going Concern Evaluation

         The accompanying financial statements have been prepared on a going
         concern basis, which contemplates the realization of assets and the
         satisfaction of liabilities in the normal course of business. The
         Company has realized approximately $97,000 in net income after
         extraordinary items for the year ended December 31, 2001 but incurred
         losses of approximately $210,000 and $800,000 before extraordinary
         items for the years ended December 31, 2001 and 2000, respectively. The
         gain in 2001 contributed to improved cash flow and financial position.
         The Company, however, remains in violation of loan covenants with its
         bank and has negotiated a forbearance agreement through April 23, 2002
         (see Note 7).

         A breach of any of the terms and conditions of the forbearance
         agreement, or subsequent breaches of the financial covenants under the
         credit facility, could result in acceleration of the Company's
         indebtedness, in which case the debt would become immediately due and
         payable. Based upon current projections, management does not believe
         the Company will comply with the existing financial covenants unless
         they are modified. If the forbearance agreement is not extended after
         April 23, 2002, the Company may not be able to repay the credit
         facility or borrow sufficient funds from another financial institution
         to refinance it. Management expects that the forbearance agreement will
         be extended under its existing terms.

         Management is seeking alternative financing and capital sources to
         replace the existing credit facility. The Company's ability to continue
         operations, however, is contingent upon obtaining new financing and
         capital, returning to profitable operations, and continuing to reduce
         overhead and general administrative costs. The financial statements do
         not include any adjustments that might result from the outcome of this
         uncertainty.

                                      F-17