##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB

|     |  |                                                                                          
|---- |  | -----------------------------------------------------------------------------------------
|(X)  |  | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES 
EXCHANGE ACT OF 1934    
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|     |  |                                                                                          
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|     |  | For the year ended December 31, 2002                                                     
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|     |  | OR                                                                                       
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|(  ) |  | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES
 EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-9043



B.H.I.T. INC.  (Exact name of Registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 36-3361229                          
|                                                               |  |                                     
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |  |                                     
|                                                              
|                                                              
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|                                                              
|6950 South Edgerton Road, Brecksville, Ohio                    |  | 44141                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip Code)                          
|                                                              
|                                                              
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|                                                              
|                                                               |  |                                     
|                                                              
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|(440) 838-4700                                                 |  |                                     
|                                                               |  |                                     
|Registrants telephone number, including area code             |  |                                     

Check 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 ( ).

Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of the
Registrants knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB (X)

The Registrants Revenue for the preceding twelve months was $60,810. Shares
of common stock outstanding as of March 21, 2003: 14,988,051. Aggregate
market value of the Registrants shares of common stock held by
non-affiliates as of such date was approximately $961,894.

DOCUMENTS INCORPORATED BY REFERENCE

Exhibit index located on page 7 of sequentially numbered pages references
Exhibit 99 Certification Pursuant to U.S.C. Section 1350. Transitional Small
Business Disclosure Format Yes ( ) No (X).





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TABLE OF CONTENTS



|                                                   |                                                                                              |  |  |  |  |  |  | 
|-------------------------------------------------- | -------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                            
|                                                   | ITEM 1. DESCRIPTION OF BUSINESS                                                             
|                                                   | ITEM 2. DESCRIPTION OF PROPERTY                                                             
|                                                   | ITEM 3. LEGAL PROCEEDINGS                                                                   
|                                                   | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                 
|PART II                                           
|                                                   | ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                            
|                                                   | ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                           
|                                                   | ITEM 7. FINANCIAL STATEMENTS                                                                
|                                                   | ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|PART III                                          
|                                                   | ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY                                     
|                                                   | ITEM 10. EXECUTIVE COMPENSATION                                                             
|                                                   | ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                     
|                                                   | ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                     
|                                                   | ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K                                                   
|SIGNATURES                                        
|CERTIFICATION OF CHIEF EXECUTIVE OFFICER          
|CERTIFICATION OF CHIEF FINANCIAL OFFICER          
|INDEX TO FINANCIAL STATEMENTS                     
|Report of Independent Certified Public Accountants
|                                                   | Balance Sheets                                                                              
|                                                   | Statements of Operations                                                                    
|                                                   | Statements of Stockholders Equity Years Ended December 31, 2002 and 2001                   
|                                                   | Statements of Cash Flows                                                                    
|                                                   | NOTES TO FINANCIAL STATEMENTS Years Ended December 31, 2002 and 2001                        
|EX-99 Certification                               



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##### Table of Contents



B.H.I.T. INC.

ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 2002

TABLE OF CONTENTS

|               |  |                                                                                      |      |  |     |      |  | 
|-------------- |  | ------------------------------------------------------------------------------------ | ---- |  | --- | ---- |  | 
|               |  |                                                                                      |      |  |     | PAGE
|               |  |                                                                                      |      |  |     |     
|INDEX         
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|PART I         |  |                                                                                      |      | 
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|              
|Item 1.        |  | Description of Business                                                              |      |  | 1   |     
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|Item 2.        |  | Description of Property                                                              |      |  | 1   |     
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|Item 3.        |  | Legal Proceedings                                                                    |      |  | 2   |     
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|Item 4.        |  | Submission of Matters to a Vote of Security Holders                                  |      |  | 2   |     
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|PART II        |  |                                                                                      |      | 
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|Item 5.        |  | Market for Common Equity and Related Shareholder Matters                             |      |  | 3   |     
|              
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|              
|              
|Item 6.        |  | Managements Discussion and Analysis or Plan of Operation                            |      |  | 3-4 |     
|              
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|Item 7.        |  | Financial Statements                                                                 |      |  | 4   |     
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|              
|Item 8.        |  | Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure |      |  | 5   |     
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|PART III       |  |                                                                                      |      | 
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|Item 9.        |  | Directors and Executive Officers of the Company                                      |      |  | 6   |     
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|Item 10.       |  | Executive Compensation                                                               |      |  | 6   |     
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|Item 11.       |  | Security Ownership of Certain Beneficial Owners and Management                       |      |  | 7   |     
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|Item 12.       |  | Certain Relationships and Related Transactions                                       |      |  | 7   |     
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|Item 13.       |  | Exhibits and Reports on Form 8-K                                                     |      |  | 7   |     
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|SIGNATURES     |  |                                                                                      | 8    | 
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|CERTIFICATIONS |  |                                                                                      | 9-10 | 





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##### Table of Contents



B.H.I.T. INC.




PART I




ITEM 1. DESCRIPTION OF BUSINESS

B.H.I.T. Inc. (the Company) was originally organized under the laws of the
State of Massachusetts pursuant to a Declaration of Trust filed March 19, 1985,
under the name VMS Hotel Investment Trust, for the purpose of investing in
mortgage loans. The Company was subsequently reorganized as a Delaware
corporation on March 13, 1987. The Company changed its name from Banyan Hotel
Investment Fund to B.H.I.T. Inc. in 1998.

BUSINESS OPERATIONS AND HISTORY

The Companys current operations relate primarily to servicing its mortgage
loan and investment portfolio and seeking profitable investments for its
available funds.

The business of the Company is not seasonal and the Company has no foreign or
export business. The Company does not segregate revenue or assets by
geographical region because such presentation would not be material to an
understanding of the Companys business taken as a whole.

The Company was originally established to invest in mortgage loans
principally to entities affiliated with VMS Realty Partners. These loans were
collateralized by hotel and resort properties.

As the result of a public offering that concluded January 13, 1986, the
Company received gross proceeds of $98,482,751. During the years 1989
through 1992 the Company experienced severe losses due primarily to a decline
in real estate property values and the resulting default on mortgage loans
held by the Company. The Company has recorded losses every year since 1989
resulting in the accumulated deficit totaling $86,365,704 on December 31,
2002.

In September 2000, Arrowhead Holdings Corporation (Arrowhead) purchased
5,870,563 shares of the Company stock, or 39.2% of the outstanding shares.
Subsequent purchases of the Companys shares have resulted in Arrowhead
owning a total of 6,111,563 shares, or 40.8% of the outstanding shares on
December 31, 2002.




ITEM 2. DESCRIPTION OF PROPERTY

The Companys principal office is located in Brecksville, Ohio in a leased
facility that is shared with common employees of Arrowhead.

1



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B.H.I.T. INC.




ITEM 3. LEGAL PROCEEDINGS

The Company is not aware of any pending legal proceedings as of March 5,
2003, nor were any proceedings terminated during the year ended December 31,
2002.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the
quarter ended December 31, 2002.

2



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##### Table of Contents



B.H.I.T. INC.




PART II




ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Companys shares of common stock trade on the NASDAQ Over The Counter
Bulletin Board (OTC) (Symbol  VHTI). The range of high and low closing
prices for each of the quarters in the years ended December 31, 2002 and 2001
are as follows:

|         |         |  |      |  |   |       |             |      |   |       |  |  | 
|-------- | ------- |  | ---- |  | - | ----- | ----------- | ---- | - | ----- |  |  | 
|         |         |  |      |  |   |       | Share Price
|Calendar |         |  |      |  |   |      
|Quarter  |         |  |      |  |   | 2002  |             | 2001
|         |         |  |      |  |   |       |             |     
|         | First   |  | High |  | $ | 0.120 |             |      | $ | 0.330 | 
|        
|        
|        
|        
|         | Quarter |  | Low  |  |   | 0.110 |             |      |   | 0.188 | 
|        
|        
|        
|        
|         | Second  |  | High |  |   | 0.120 |             |      |   | 0.320 | 
|        
|        
|        
|        
|         | Quarter |  | Low  |  |   | 0.090 |             |      |   | 0.219 | 
|        
|        
|        
|        
|         | Third   |  | High |  |   | 0.100 |             |      |   | 0.250 | 
|        
|        
|        
|        
|         | Quarter |  | Low  |  |   | 0.090 |             |      |   | 0.150 | 
|        
|        
|        
|        
|         | Fourth  |  | High |  |   | 0.110 |             |      |   | 0.170 | 
|        
|        
|        
|        
|         | Quarter |  | Low  |  |   | 0.100 |             |      |   | 0.090 | 

The Companys shares began trading on the OTC during the week of October 28,
1996, prior to that time they traded on the American Stock Exchange. The
Company has not made distributions nor declared dividends in either 2002 or
2001. On December 31, 2002, there were 2,205 record holders of common stock.




ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

RESULTS OF OPERATIONS

Total revenue for the years ended December 31, 2002 and 2001 was $60,810 and
$91,209, respectively. The decrease of $30,399 was primarily due to reduced
interest earned resulting from lower interest rates on cash investments.

3



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B.H.I.T. INC.

RESULTS OF OPERATIONS (continued)

Total expenses for the years ended December 31, 2002 and 2001 were $90,886
and $195,363, respectively. The decrease of $104,477 was primarily the result
of savings associated with the relocation of the Companys principal office
to a facility shared with Arrowhead in Brecksville, Ohio. Prior to September
30, 2001, the Company operated from an office in New York City. During
2002, salary and salary-related expenses were reduced by $69,867 compared to
2001. During 2002, rent and utilities expenses were reduced by $16,582
compared to 2001. These reductions were the result of savings realized in a
shared facility versus the cost of a separate office. In addition during
2002, professional services declined by $13,190 and other miscellaneous
expenses declined by $4,838.

The net loss for 2002 was $30,076 ($0.002 per share) compared to a net loss
of $104,154 ($0.007 per share) for 2001.

LIQUIDITY AND CAPITAL RESOURCES

During 1997, the Company invested $1,000,000 in a mortgage loan. Principal
payments of $700,000 and $25,000, respectively, were made in April 1998 and
June 2000. The outstanding mortgage balance on December 31, 2001 was
$275,000, with a due date of April 16, 2002. This loan required monthly
interest payments at the rate of 12% per annum. During April 2002, by mutual
consent, the loan due date was extended through April 1, 2003 with the same
terms. On December 18, 2002, the Company received full repayment of the
outstanding principal balance of $275,000 plus accrued interest.

Cash and cash equivalents consist of cash and short-term investments. The
Companys cash and cash equivalents balance on December 31, 2002 and 2001 was
$1,712,815 and $1,471,139 respectively. The increase of $241,676 in cash and
cash equivalents during 2002 is the result of a reduction of a mortgage loan
receivable totaling $275,000, a decrease in interest and miscellaneous
receivables of $6,348, offset by the net loss of $30,076, increase in prepaid
insurance of $9,000, and a decrease in various liabilities totaling $596.

At this time, there are no material commitments for capital expenditures. The
Companys cash is sufficient to meet its needs for anticipated operating
expenses. The Company deems its liquidity to be adequate.




ITEM 7. FINANCIAL STATEMENTS

See the index to the Financial Statements on page F-1 of this report for the
financial statements of the Company.

4



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B.H.I.T. INC.




ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There have been no changes in or disagreements with the accountants on any
matter of accounting principles, practices or financial disclosure.

5



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B.H.I.T. INC.




PART III




ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The following individuals are Directors and/or Officers of the Company:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | James Benenson, Jr., age 66, has served as Chairman of the Board of
Directors since October 2001, and as President and Chief Executive Officer
of the Company since September 2000. Mr. Benenson is also a Director and
the Chief Executive Officer of Vesper Corporation since 1979, and Chairman
and Chief Executive Officer of Arrowhead Holdings Corporation since 1983.                                                                      
|
| | James A. Lash, age 58, has been a Director of the Company since September
2000. Mr. Lash has also been Chairman, since 1976, of Manchester Principal
LLC, a venture capital firm and also a Director of Vesper Corporation since
1998.                                                                                                                                                                                                            
|
| | George M. Isdale, Jr., age 61, has been a Director of the Company since
December 2002. Mr. Isdale has been a Senior Vice President of UBS Group, a
global financial services organization, since 1990.                                                                                                                                                                                                                                            
|
| | John V. Curci, age 58, has been the Chief Financial Officer since October
2001, and the Vice President and Treasurer of the Company since September
2000. Mr. Curci has also been the Vice President, Treasurer and Secretary
of Vesper Corporation since 1979 and was the Chief Financial Officer until
2002. In addition, Mr. Curci has been Vice President, Treasurer and Chief
Financial Officer of Arrowhead Holdings Corporation since 1983.




ITEM 10. EXECUTIVE COMPENSATION

A.   DIRECTOR COMPENSATION



| |                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | No arrangements currently exist with respect to payments to the Directors
for their service on the Companys Board of Directors, and no fees have
been paid during the years 2002 and 2001.

B.   EXECUTIVE COMPENSATION



| |                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | No salary was paid to the Companys Chief Executive Officer during 2002 or
2001 nor was any other officer paid $100,000 or more during those years.                                                             
|
| | There were no long-term compensation awards, payments or options granted or
exercised during the years 2002 and 2001. There were no options
outstanding to acquire stock of the Company as of December 31, 2002.

6



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B.H.I.T. INC.




ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information, as of March 21, 2003, on each
shareholder who is known by the Company to own beneficially more than 5% of
the shares of its Common Stock. There are no shares beneficially owned by any
current director or officer of the Company.

|                                      |  |                                                                                  |  |                      |  |         
|------------------------------------- |  | -------------------------------------------------------------------------------- |  | -------------------- |  | --------
|                                      |  |                                                                                  |  | Amount and           |  |         
|                                      |  | Name of                                                                          |  | Nature of            |  | Percent 
|Title of Class                        |  | Beneficial Owner                                                                 |  | Beneficial Ownership |  | of Class
|                                      |  |                                                                                  |  |                      |  |         
|Shares of Common Stock
$.01 Par Value |  | Arrowhead Holdings
Corporation
6950 South Edgerton Road
Brecksville, Ohio, 44141 |  | 6,243,563 shares (1) |  | 41.7%   
|                                      |  | Directors and Officers (2)                                                       |  |                     |  |        



| |                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) On January 7, 2003, Arrowhead purchased an additional
132,000 shares of the Companys common stock.                                                                                                                                  
|
| | (2) Mr. Benenson is the Chairman and Chief Executive
Officer of Arrowhead and holds the majority of the voting
stock in Arrowhead. Mr. Benenson disclaims any beneficial
interest in the Common Stock of B.H.I.T. Inc. held by
Arrowhead.




ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Effective October 1, 2001, the Companys principal offices were relocated to
Brecksville, Ohio, to a facility shared with Arrowhead. During the years
ended 2002 and 2001, the Company reimbursed Arrowhead $38,298 and $11,721,
respectively, principally for salaries and also including benefits,
insurance, rent, utilities and various other office expenses. During 2001,
the Company reimbursed an affiliated company $13,809 for health insurance
premiums paid on behalf of the Company.




ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K



|(a) |  | EXHIBITS                                                                                                                         
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | EXHIBIT 99 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
|   
|(b) |  | REPORTS ON FORM 8-K                                                                                                              
|   
|    |  | None                                                                                                                             

7



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B.H.I.T. INC.




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.

|                                                                                                                     |  |                     
|-------------------------------------------------------------------------------------------------------------------- |  | --------------------
|/s/ James Benenson, Jr.James Benenson, Jr.
Chairman of the Board of Directors,
President and Chief Executive Officer |  | Date: March 24, 2003
|                                                                                                                    
|/s/ John V. CurciJohn V. Curci
Vice-President, Treasurer & Chief Financial Officer,
Principal Accounting Officer     |  | Date: March 24, 2003

8



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CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, James Benenson, Jr., the Chief Executive Officer of B.H.I.T. Inc.,
certify that:

1.     I have reviewed this annual report on Form 10-KSB of B.H.I.T. Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to us by others
within those entities, particularly during the period in which this annual
report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and

c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officer and I have indicted in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                     |  |                                                                                                                       
|-------------------- |  | ----------------------------------------------------------------------------------------------------------------------
|Date: March 24, 2003 |  | By: /s/ James Benenson, Jr.James Benenson, Jr.
Chairman of the Board of Director
President and Chief Executive Officer

9



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CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, John V. Curci, the Chief Financial Officer of B.H.I.T. Inc., certify
that:

1.     I have reviewed this annual report on Form 10-KSB of B.H.I.T. Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to us by others
within those entities, particularly during the period in which this annual
report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and

c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officer and I have indicted in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                     |  |                                                                                                                    
|-------------------- |  | -------------------------------------------------------------------------------------------------------------------
|Date: March 24, 2003 |  | By: /s/ John V. CurciJohn V. Curci
Vice-President, Treasurer & Chief Financial Officer
Principal Accounting Officer

10



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##### Table of Contents



B.H.I.T. INC.




INDEX TO FINANCIAL STATEMENTS

|                        |                                                                                   |  |                 |  | 
|----------------------- | --------------------------------------------------------------------------------- |  | --------------- |  | 
|ITEM 13 (a) (1) and (2) |                                                                                   |  |                 | 
|                       
|                       
|                       
|                       
|                        | Report of Independent Certified Public Accountants                                |  | F - 2           | 
|                       
|                       
|                       
|                       
|                        | Balance Sheets as of December 31, 2002 and 2001                                   |  | F - 3           | 
|                       
|                       
|                       
|                       
|                        | Statements of Operations
For the Years Ended December 31, 2002 and 2001           |  | F - 4           | 
|                       
|                       
|                       
|                       
|                        | Statements of Stockholders Equity
For the Years Ended December 31, 2002 and 2001 |  | F - 5           | 
|                       
|                       
|                       
|                       
|                        | Statements of Cash Flows
For the Years Ended December 31, 2002 and 2001           |  | F - 6           | 
|                       
|                       
|                       
|                       
|                        | Notes to Financial Statements                                                     |  | F - 7 to F - 10

F-1



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##### Table of Contents






Report of Independent Certified Public Accountants

The Stockholders
B.H.I.T. Inc.

We have audited the accompanying balance sheets of B.H.I.T. Inc. as of
December 31, 2002 and 2001, and the related statements of operations,
stockholders equity, and cash flows for the years then ended. 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 of America. 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 financial statements referred to above present fairly, in
all material respects, the financial position of B.H.I.T. Inc. on December
31, 2002 and 2001 and the results of its operations and its cash flows for
the years then ended in conformity with accounting principles generally
accepted in the United States of America.



| | /s/ Grant Thornton LLP
| | ----------------------

Cleveland, Ohio
January 31, 2003

F-2



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##### Table of Contents






B.H.I.T. INC.
Balance Sheets

ASSETS

|                                               |                                                                                                                   |   |              |             |      |   |           |             |  
|---------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | - | ------------ | ----------- | ---- | - | --------- | ----------- | -
|                                               |                                                                                                                   |   | December 31,
|                                               |                                                                                                                   |   |             
|                                               |                                                                                                                   |   | 2002         |             | 2001
|                                               |                                                                                                                   |   |              |             |     
|CURRENT ASSETS                                 |                                                                                                                   |   |              |             |      |   |           |            
|                                              
|                                              
|                                              
|                                              
|                                               | Cash and cash equivalents                                                                                         |   | $            | 1,712,815   |      |   | $         | 1,471,139   |  
|                                              
|                                              
|                                              
|                                              
|                                               | Interest receivable on cash and cash equivalents                                                                  |   |              | 2,142       |      |   |           | 2,935       |  
|                                              
|                                              
|                                              
|                                              
|                                               | Mortgage loan receivable                                                                                          |   |              |            |      |   |           | 275,000     |  
|                                              
|                                              
|                                              
|                                              
|                                               | Interest receivable on mortgage loan                                                                              |   |              |            |      |   |           | 5,500       |  
|                                              
|                                              
|                                              
|                                              
|                                               | Miscellaneous receivable                                                                                          |   |              |            |      |   |           | 55          |  
|                                              
|                                              
|                                              
|                                              
|                                               | Prepaid insurance                                                                                                 |   |              | 9,000       |      |   |           |            |  
|                                               |                                                                                                                   |   |              |             |      |   |           |            
|Total Current Assets                           |                                                                                                                   | $ | 1,723,957    |             |      | $ | 1,754,629 |            
|                                               |                                                                                                                   |   |              |             |      |   |           |            
|                                              
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                   |   |              |             |      |   |           |            
|                                              
|                                              
|                                              
|                                              
|CURRENT LIABILITIES                            |                                                                                                                   |   |              |             |      |   |           |            
|                                              
|                                              
|                                              
|                                              
|                                               | Accounts payable and other accrued expenses                                                                       |   | $            | 37,003      |      |   | $         | 37,599      |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                   |   |              |             |      |   |           |            
|                                              
|                                              
|                                              
|                                              
|STOCKHOLDERS EQUITY (DEFICIT)                 |                                                                                                                   |   |              |             |      |   |           |            
|                                              
|                                              
|                                              
|                                              
|                                               | Shares of Common Stock, $0.01 par value,
20,000,000 shares authorized, 15,020,808 shares
issued for 2002 and 2001 |   |              | 88,060,847  |      |   |           | 88,060,847  |  
|                                              
|                                              
|                                              
|                                              
|                                               | Accumulated deficit                                                                                               |   |              | (86,365,704 | )    |   |           | (86,335,628 | )
|                                              
|                                              
|                                              
|                                              
|                                               | Treasury stock, at cost, for 32,757 shares
of Common Stock                                                        |   |              | (8,189      | )    |   |           | (8,189      | )
|                                               |                                                                                                                   |   |              |             |      |   |           |            
|Total Stockholders Equity                     |                                                                                                                   |   | 1,686,954    |             |      |   | 1,717,030 |            
|                                               |                                                                                                                   |   |              |             |      |   |           |            
|Total Liabilities and Stockholders Equity     |                                                                                                                   | $ | 1,723,957    |             |      | $ | 1,754,629 |            
|                                               |                                                                                                                   |   |              |             |      |   |           |            

See accompanying notes to the Financial Statements.

F-3



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##### Table of Contents



B.H.I.T. INC.




Statements of Operations

|                                                                                                                                             |                                              |               |        |                          |         |      |        |         |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | ------------- | ------ | ------------------------ | ------- | ---- | ------ | ------- | -------- | -
|                                                                                                                                             |                                              |               |        | Years Ended December 31,
|                                                                                                                                             |                                              |               |        |                         
|                                                                                                                                             |                                              |               |        | 2002                     |         | 2001
|                                                                                                                                             |                                              |               |        |                          |         |     
|REVENUE                                                                                                                                      |                                              |               |        |                          |         |      |        |        
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                             | Interest earned on cash and cash equivalents |               | $      | 28,875                   |         |      | $      | 58,209  |         
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                             | Interest earned on mortgage receivable       |               |        | 31,935                   |         |      |        | 33,000  |         
|                                                                                                                                             |                                              |               |        |                          |         |      |        |        
|                                                                                                                                             |                                              | Total revenue |        |                          | 60,810  |      |        |         | 91,209   |  
|                                                                                                                                             |                                              |               |        |                          |         |      |        |        
|EXPENSES                                                                                                                                     |                                              |               |        |                          |         |      |        |        
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                             | General and administrative                   |               |        | 90,886                   |         |      |        | 195,363 |         
|                                                                                                                                             |                                              |               |        |                          |         |      |        |        
|                                                                                                                                             |                                              | Net loss      |        | $                        | (30,076 | )    |        | $       | (104,154 | )
|                                                                                                                                             |                                              |               |        |                          |         |      |        |        
|Basic and diluted net loss per share of Common
Stock (based on weighted average number of
shares outstanding of 14,988,051 in 2002 and 2001) |                                              | $             | (0.002 | )                        |         | $    | (0.007 | )      
|                                                                                                                                             |                                              |               |        |                          |         |      |        |        

See accompanying notes to the Financial Statements.

F-4



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##### Table of Contents



B.H.I.T. INC.




Statements of Stockholders Equity
Years Ended December 31, 2002 and 2001

|                                                 |  |              |            |        |  |         |            |                |  |        |             |       |  |  |        |  |  |   |        |   |  |   |           |  
|------------------------------------------------ |  | ------------ | ---------- | ------ |  | ------- | ---------- | -------------- |  | ------ | ----------- | ----- |  |  | ------ |  |  | - | ------ | - |  | - | --------- | -
|                                                 |  | Common Stock |            |        |  |         |            | Treasury Stock |  |        |             |      
|                                                 |  |              |            |        |  |         |            |                |  |        |             |      
|                                                 |  | Shares       |            |        |  |         |            | Accumulated    |  |        |             |       |  |  |        |  |  |   |        |  
|                                                 |  | Issued       |            | Amount |  | Deficit |            | Shares         |  | Amount |             | Total
|                                                 |  |              |            |        |  |         |            |                |  |        |             |      
|Stockholders equity (deficit)
December 31, 2000 |  |              | 15,020,808 |        |  | $       | 88,060,847 |                |  | $      | (86,231,474 | )     |  |  | 32,757 |  |  | $ | (8,189 | ) |  | $ | 1,821,184 |  
|                                                
|                                                
|                                                
|                                                
|Net loss for the year ended
December 31, 2001    |  |              |           |        |  |         |           |                |  |        | (104,154    | )     |  |  |       |  |  |   |       |   |  |   | (104,154  | )
|                                                 |  |              |            |        |  |         |            |                |  |        |             |       |  |  |        |  |  |   |        |   |  |   |           |  
|Stockholders equity (deficit)
December 31, 2001 |  |              | 15,020,808 |        |  | $       | 88,060,847 |                |  | $      | (86,335,628 | )     |  |  | 32,757 |  |  | $ | (8,189 | ) |  | $ | 1,717,030 |  
|                                                
|                                                
|                                                
|                                                
|Net loss for the year ended
December 31, 2002    |  |              |           |        |  |         |           |                |  |        | (30,076     | )     |  |  |       |  |  |   |       |   |  |   | (30,076   | )
|                                                 |  |              |            |        |  |         |            |                |  |        |             |       |  |  |        |  |  |   |        |   |  |   |           |  
|Stockholders equity (deficit)
December 31, 2002 |  |              | 15,020,808 |        |  | $       | 88,060,847 |                |  | $      | (86,365,704 | )     |  |  | 32,757 |  |  | $ | (8,189 | ) |  | $ | 1,686,954 |  
|                                                 |  |              |            |        |  |         |            |                |  |        |             |       |  |  |        |  |  |   |        |   |  |   |           |  

See accompanying notes to the Financial Statements.

F-5



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##### Table of Contents



B.H.I.T. INC.




Statements of Cash Flows

|                                                 |                                                                                           |          |                                                     |                                        |         |                          |           |      |          |         |        |  
|------------------------------------------------ | ----------------------------------------------------------------------------------------- | -------- | --------------------------------------------------- | -------------------------------------- | ------- | ------------------------ | --------- | ---- | -------- | ------- | ------ | -
|                                                 |                                                                                           |          |                                                     |                                        |         | Years Ended December 31,
|                                                 |                                                                                           |          |                                                     |                                        |         |                         
|                                                 |                                                                                           |          |                                                     |                                        |         | 2002                     |           | 2001
|                                                 |                                                                                           |          |                                                     |                                        |         |                          |           |     
|Operating Activities:                            |                                                                                           |          |                                                     |                                        |         |                          |           |     
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                           | Net Loss |                                                     | $                                      | (30,076 | )                        |           | $    | (104,154 | )      
|                                                
|                                                
|                                                
|                                                
|                                                 | Adjustments to reconcile net loss to net cash provided by
(used in) operating activities: |          |                                                     |                                        |         |                          |           |      |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                           |          | Changes in certain assets and liabilities:          |                                        |         |                          |           |      |          |         |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                           |          |                                                     | Mortgage loan receivable               |         |                          | 275,000   |      |          |         |       |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                           |          |                                                     | Interest and miscellaneous receivables |         |                          | 6,348     |      |          |         | (5,740 | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                           |          |                                                     | Prepaid insurance                      |         |                          | (9,000    | )    |          |         | 14,753 |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                           |          |                                                     | Other assets                           |         |                          |          |      |          |         | 3,198  |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                           |          |                                                     | Accounts payable and accrued expenses  |         |                          | (596      | )    |          |         | 10,575 |  
|                                                 |                                                                                           |          |                                                     |                                        |         |                          |           |     
|                                                 |                                                                                           |          | Net cash provided by (used in) operating activities |                                        |         | 241,676                  |           |      |          | (81,368 | )     
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents at beginning of period |                                                                                           |          | 1,471,139                                           |                                        |         |                          | 1,552,507 |     
|                                                 |                                                                                           |          |                                                     |                                        |         |                          |           |     
|Cash and cash equivalents at end of period       |                                                                                           | $        | 1,712,815                                           |                                        |         | $                        | 1,471,139 |     
|                                                 |                                                                                           |          |                                                     |                                        |         |                          |           |     

See accompanying notes to the Financial Statements.

F-6



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##### Table of Contents



B.H.I.T. INC.




NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002 and 2001

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



| |  | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | B.H.I.T. Inc. (the Company) was organized under the laws of the State of
Massachusetts pursuant to a Declaration of Trust filed March 19, 1985, for
the purpose of investing in mortgage loans. The Company was subsequently
reorganized as a Delaware corporation on March 13, 1987.                                                                                                                                                                                         
|
| |  | Effective June 14, 2001, the Company dissolved its two wholly owned
subsidiaries both of which were inactive during 2001.                                                                                                                                                                                                                                                                                                                                                       
|
| |  | The business of the Company is not seasonal and the Company has no foreign
or export business. The Company does not segregate revenue or assets by
geographical region because such presentation would not be material to an
understanding of the Companys business taken as a whole.                                                                                                                                                                                          
|
| |  | Nature of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | The Companys current operations primarily relate to servicing its mortgage
loan and investment portfolio. Management allocates its resources to
service its mortgage and cash equivalent investments and seeking profitable
investments for its available funds.                                                                                                                                                                                                               
|
| |  | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The Company utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized
by applying enacted statutory tax rates, applicable to future years, to
temporary differences between the tax bases and financial statement carrying
values of the Companys assets and liabilities. A valuation allowance is
provided where it is more likely than not that deferred tax assets will not
be realized.
|
| |  | Loss Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Basic and diluted loss per share was calculated in 2002 and 2001 using
14,988,051 shares, the shares outstanding each year. There were no
dilutive securities outstanding during 2002 and 2001.                                                                                                                                                                                                                                                                                 
|
| |  | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | The Company considers all highly liquid instruments purchased with maturity
of three months or less to be cash and cash equivalents.                                                                                                                                                                                                                                                                                                                                            

F-7



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##### Table of Contents



B.H.I.T. INC

NOTES TO FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2002 and 2001

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



| |  | Revenue Recognition                                                                                                                                                                                                                                                                                                         
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Interest income from the mortgage portfolio and cash equivalents is
recorded on an accrual basis.                                                                                                                                                                                                                           
|
| |  | Use of Estimates                                                                                                                                                                                                                                                                                                            
|
| |  | The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect amounts reported
in the financial statements and accompanying notes. Actual results could
differ from these estimates.

NOTE 2. MORTGAGE LOANS RECEIVABLE



| |  | On August 20, 1997, the Company made a first mortgage loan in the amount of
$1,000,000, secured by a commercial property located in Dallas, Texas, and
guaranteed by the corporate owner of the secured property, the maker of the
Note (an affiliate company of the owner), and by the principals of the
corporate owners of the property. Principal payments were made in April
1998 and June 2000, totaling $725,000. On December 31, 2001, the principal
balance due was $275,000, with a due date of April 16, 2002, which was
extended in 2002 to April 1, 2003. Mortgage loan terms required monthly
interest payments at the rate of 12% per annum. The accrued interest on
the mortgage loan on December 31, 2001 was $5,500. On December 18, 2002,
the Company received repayment of the outstanding principal balance of
$275,000 plus accrued interest.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-8



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##### Table of Contents



B.H.I.T. INC.

NOTES TO FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2002 and 2001

NOTE 3. TRANSACTIONS WITH AFFILIATES



| |  | Effective October 1, 2001, the Companys principal offices were relocated
to Brecksville, Ohio, to a facility shared with Arrowhead Holdings
Corporation (Arrowhead). During the years ended 2002 and 2001, the
Company reimbursed Arrowhead $38,298 and $11,721, principally for salaries
and also including benefits, insurance, rent, utilities and various other
office expenses..
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | During the year ended 2001, the Company reimbursed an affiliated company
$13,809 for health insurance premiums paid on behalf of the Company.                                                                                                                                                                                                                                           

NOTE 4. OTHER INVESTMENTS



| |  | In June 2001, the Company and the Limited Partnership dissolved the BHF
Merger Corp. and BMC Santa Barbara Corp. The Company owned a 50% interest in
the Limited Partnership. These entities had no value at the time of
dissolution.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 5. LEASE COMMITMENTS



| |  | Since October 1, 2001, office space is shared with Arrowhead in Brecksville,
Ohio. Prior to that time the Company leased an office in New York City. The
lease in New York expired in September 2001. Rent expense for the year
ended December 31, 2001 was $16,783, which consisted of $15,325 for the New
York office and $1,458 for the Ohio office.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Rent expense for the year ended December 31, 2002 was $3,700. The Company is
not a party to the Ohio office lease, accordingly, there are no future lease
commitments.                                                                                                                                                                                 

F-9



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##### Table of Contents



B.H.I.T. INC.

NOTES TO FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2002 and 2001

NOTE 6. INCOME TAXES



| |  | The Company reported no income tax expense or benefit for the years ended
December 31, 2002 and 2001 due to the net operating losses incurred during
both years.      
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The following deferred tax assets were offset by a valuation allowance due
to the uncertainty of realizing the income tax benefit associated with the
deferred assets.

|                                              |  |      |             |      |  |   |             |  
|--------------------------------------------- |  | ---- | ----------- | ---- |  | - | ----------- | -
|                                              |  | 2002 |             | 2001
|                                              |  |      |             |     
|Tax effect of net operating
loss carryforward |  | $    | 29,616,245  |      |  | $ | 29,604,460  |  
|                                             
|                                             
|                                             
|                                             
|Valuation allowance                           |  |      | (29,616,245 | )    |  |   | (29,604,460 | )
|                                              |  |      |             |      |  |   |             |  
|Net deferred tax asset                        |  | $    |            |      |  | $ |            |  
|                                              |  |      |             |      |  |   |             |  



| |  | The net change in the tax-effected net operating loss and the total
valuation allowance is the result of the loss in 2002.                                                                            
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The net operating loss carryforwards are scheduled to expire between 2005
and 2022. Net operating loss utilization may be subject to any applicable
limitation contained in the Internal Revenue Code.

F-10