UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K


(Mark
One)





þ
            Annual
      report under Section 13 or 15(d) of the Securities Exchange Act of
      1934


For the
fiscal year ended December 31,
2008





o
            Transition
      report under Section 13 or 15(d) of the Exchange
  Act





Commission
file number: 1-9043




B.H.I.T. Inc.(Name
      of small business issuer in its
charter)




Delaware
                
                36-3361229(State
      of incorporation)
                
                (I.R.S.
      Employer Identification No.)
 
 2255 Glades Road, Suite 342-W, Boca Raton, Florida
      33431(Address
      of principal executive offices)561-443-5300(Issuer’s
      telephone number)




Securities
registered under Section 12(b) of the Exchange Act:  None




Securities
registered under Section 12(g) of the Exchange Act:  Common stock, $0.01 par value per
share




Check if
the issuer is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.   Yes  ̈   No
þ




Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act.    ̈




Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.Yes þ  No  ̈




Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form
10-KSB    ̈




Check
whether the issuer is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company.  See
definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check One):




Large
Accelerated Filer  ̈                                                           Accelerated
Filer  ̈




Non-accelerated
filer  ̈                                                               Smaller
Reporting Company þ




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




State
issuer’s revenues for its most recent fiscal year.  $47,615




State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.)  $5,510,775 as of March 2,
2009.




State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: 26,120,808 shares of
common stock, $0.01 par value per share, as of March 2, 2009




Transitional
Small Business Disclosure Format (check one): Yes  ̈      No
þ










TABLE
OF CONTENTS





PART
      I
                  1Item
      1.       Description of
      Business.
                  1Recent
      Events
                  1Management
      Changes
                  1The
      Colo Acquisition
                  1Our
      History
                  1Employees
                  2Forward
      Looking Statements
                  2How
      to Learn More About Us
                  3Item
      2.       Properties.
                  3Item
      3.       Legal Proceedings.
                  3Item
      4.       Submission of Matters to a Vote of
      Security Holders.
                  3PART
      II
                  4Item
      5.       Market For Registrant’s Common
      Equity, Related Stockholder Matters and Issuer
                    Purchases of Equity Securities.
                  4Item
      6.       Management’s Discussion and
      Analysis of Financial Condition and Results of Operations.
                  5Results
      of Operations
                  5Financial
      Condition and Liquidity
                  5Off-Balance
      Sheet Arrangements
                  5Critical
      Accounting Policies
                  6Item
      8.       Financial Statements and
      Supplementary Data.
                  6Item
      9.       Changes in and Disagreements with
      Accountants on Accounting and Financial Disclosure.
                  6Item
      9A(T).   Controls and Procedures.
                  6Evaluation
      of Disclosure Controls and Procedures
                  6Management’s
      Report on Internal Control over Financial Reporting
                  6Changes
      in Internal Control Over Financial Reporting
                  7Attestation
      Report of Independent Registered Public Accounting Firm
                  7Item
      9B.     Other Information
                  7PART
      III
                  7Item
      10.     Directors, Executive Officers, and Corporate
      Governance.
                  7Committees
      of the Board
                  8Code
      of Ethics
                  8Compliance
      with Section 16(a) of the Exchange Act
                  9Item
      11.     Executive Compensation.
                  9Director
      Compensation
                  10Item
      12.     Security Ownership of Certain Beneficial
      Owners and Management and Related
                    Stockholder Matters.
                  10Equity
      Compensation Plan Information
                  11Item
      13.     Certain Relationships and Related
      Transactions, and Director Independence.
                  12Item
      14.     Principal Accountant Fees and
      Services.
                  12Item
      15.     Exhibits.
                  12SIGNATURES
                  14




i




PART
I




Item
1.        Description of
Business.




B.H.I.T.
Inc. is a shell company without significant operations or sources of revenues
other than its investments. Our existing operations relate primarily to
servicing our cash investment portfolio and maximizing existing capital with
stable interest generating instruments. However, our management team is
aggressively investigating potential operating companies to acquire and
additional sources of financing. Currently we are focusing our efforts on
railroad track construction, repair and maintenance businesses, but we cannot
guarantee we will complete an acquisition in this industry. Accordingly, we may
explore potential acquisitions in other industries as well.





Recent
Events


Management
Changes


Effective
November 14, 2008, our board appointed Gary O. Marino president and chief
executive officer of BHIT. Mr. Marino will continue to serve as chairman of the
board. The board expects BHIT to benefit from Mr. Marino’s railroad experience
as the company focuses on making acquisitions in that industry. At the same
time, the board appointed Bennett Marks vice president and chief financial
officer and to serve as a member of our board of directors. Paul S. Dennis
stepped down as interim CEO and CFO and was appointed as vice president and
treasurer. Mr. Dennis will continue to serve on the board.





The
Colo Acquisition


On July
24, 2008 we entered into an asset purchase agreement with L.A. Colo, LLC
(“Colo”) and Iron Rail Group, LLC (“Iron Rail”), the current owner of Colo,
pursuant to which we agreed to purchase substantially all of the assets of Colo
for $15.0 million, subject to adjustment. Colo provides railroad maintenance and
construction services to short line railroads and industrial customers. We
expected to complete the Colo acquisition by the end of September, but the
transaction was delayed due to deteriorating financial and economic conditions.
We subsequently elected not to proceed with the acquisition due to a reported
reduction in the financial results of Colo, which were contrary to prior
representations of Colo as to their financial performance.





Colo and
Iron Rail have brought an action against us to obtain $340,000 we placed in a
purchase money escrow for the Colo acquisition. We dispute that Colo and Iron
Rail are entitled to the escrow and intend to contest this matter vigorously.
For additional information, please turn to “Legal Proceedings” on page
3.





Our
History




The
company was originally organized under the laws of the State of Massachusetts in
1985, under the name VMS Hotel Investment Trust, for the purpose of investing in
mortgage loans, principally to entities affiliated with VMS Realty Partners.
These loans were collateralized by hotel and resort properties. The company was
subsequently reorganized as a Delaware corporation in 1987 and changed its name
to B.H.I.T. Inc. in 1998.





1




As the
result of a public offering in 1986, the company received gross proceeds of
$98,482,751. From 1989 to 1992 we experienced severe losses due primarily to a
decline in real estate property values and the resulting default on mortgage
loans held by us. The company has recorded losses every year since 1989
resulting in the accumulated deficit totaling $87,833,681 on December 31,
2008.





In
September 2000, Summa Holdings, Inc. (“Summa”), formerly known as Arrowhead
Holdings Corporation, purchased 5,870,563 shares of our stock, or 39.2% of the
outstanding shares. Subsequent purchases of our shares resulted in Summa owning
a total of 6,243,563 shares, or 41.7% of the outstanding shares on December 31,
2006.





On
January 24, 2007, a group of private investors purchased all of the BHIT shares
held by Summa. As a result of the transaction, James Benenson, Jr. and John V.
Curci each resigned as directors and officers of the company and Paul S. Dennis,
Gary O. Marino, Harvey J. Polly and Andrew H. Scott were appointed to fill
vacancies in the board. To learn more about our current management team, please
turn to Item 10 on page 7.




Employees


We do not
have any full or part-time employees. We plan to add additional personnel as our
operations infrastructure dictates.





Forward
Looking Statements


Some of
the statements that we make in this report, including statements about our
confidence in BHIT’s prospects and strategies, are forward-looking statements
within the meaning of § 21E of the Securities Exchange Act. Some of these
forward-looking statements can be identified by words like “believe,” “expect,”
“will,” “should,” “intend,” “plan,” or similar terms; others can be determined
by context. Statements contained in this report that are not historical facts
are forward-looking statements. These statements are necessarily estimates
reflecting our best judgment based upon current information, and involve a
number of risks and uncertainties. Many factors could affect the accuracy of
these forward-looking statements, causing our actual results to differ
significantly from those anticipated in these statements. While it is impossible
to identify all applicable risks and uncertainties, they include our ability
to:




·
            execute
      our business plan by identifying and acquiring an operating
      company;




·
            obtain
      appropriate financing to complete potential
  acquisitions;




·
            effectively
      invest our existing funds and raise additional capital to fund our
      operations; and




·
            comply
      with SEC regulations and filing requirements applicable to us as a public
      company.





You
should not place undue reliance on our forward-looking statements, which reflect
our analysis only as of the date of this report. The risks and uncertainties
listed above and elsewhere in this report and other documents that we file with
the Securities and Exchange Commission, including our annual report on Form
10-K, quarterly reports on Form 10-Q, and any current reports on Form 8-K, must
be carefully considered by any investor or potential investor in
BHIT.





2




How
to Learn More About Us




We file
annual, quarterly and special reports and other information with the SEC. Our
SEC filings are available to the public on the internet at the SEC’s web site at
SEC.gov. To learn more about BHIT you can also contact our CEO, Gary O. Marino,
at 561-443-5300.




Item
2.       Properties.




We do not
own any real property.




Item
3.       Legal Proceedings.




On July
24, 2008, we entered into an asset purchase agreement with L.A. Colo, LLC and
Iron Rail Group, LLC, the owner of Colo, pursuant to which we agreed to purchase
substantially all of the assets of Colo for $15.0 million, subject to
adjustment. Colo provides railroad maintenance and construction services to
short line railroads and industrial customers. The transaction was delayed due
to deteriorating financial and economic conditions and was ultimately terminated
by us due to a reported reduction in the financial results of Colo, which were
contrary to prior representations of Colo as to their financial
performance.





We had
originally placed $60,000 in a purchase money escrow for the acquisition. On
September 30, 2008, we placed an additional $290,000 in the escrow and paid Colo
$50,000 for the option to extend the proposed closing date of the acquisition.
Colo and Iron Rail demanded payment of the $350,000 in escrow in connection with
the termination of the purchase agreement. We authorized the distribution of
$10,000 of the escrow to Iron Rail on October 31, 2008, but dispute that Colo
and Iron Rail are entitled to the remaining $340,000. On November 18, 2008, Colo
and Iron Rail instituted arbitration proceedings before the American Arbitration
Association under the terms of the escrow agreement against BHIT and the escrow
agent to obtain the remaining contents of the escrow in an action captioned
L.A. Colo, LLC and Iron Rail
Group LLC v. B.H.I.T. Inc. and Kohrman Jackson & Krantz PLL. Because
of the nature of the circumstances surrounding the termination of the
acquisition, we believe that we are entitled to the escrow and intend to contest
this matter vigorously. Of course, we cannot guaranty the outcome of this action
and BHIT could be required to disburse the escrow proceeds to Colo as well as
pay for their legal costs, which would negatively impact our results of
operations.





We are
not aware of any other pending legal proceedings involving BHIT as of March 2,
2009, nor were any proceedings terminated in 2008.




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




Not
applicable.





3




PART
II




Item
      5.
            Market
      For Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.




Shares of
our common stock are traded over-the-counter and sales are reported on the OTC
Bulletin Board® under
the symbol “BHIT.OB.”  The last reported sale price on March 2, 2009
was $0.28 per share. The following table lists the high and low closing sale
prices of our stock during 2008 and 2007 as reported on OTCBB. These sale prices
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.





2008
                  
                  
                  2007High
                  
                  
                  Low
                  
                  
                  High
                  
                  
                  LowFourth
      Quarter
                  
                  $
                  0.42
                  
                  
                  $
                  0.17
                  
                  
                  $
                  0.51
                  
                  
                  $
                  0.30Third
      Quarter
                  
                  $
                  0.60
                  
                  
                  $
                  0.25
                  
                  
                  $
                  0.50
                  
                  
                  $
                  0.20Second
      Quarter
                  
                  $
                  0.54
                  
                  
                  $
                  0.26
                  
                  
                  $
                  0.25
                  
                  
                  $
                  0.17First
      Quarter
                  
                  $
                  0.51
                  
                  
                  $
                  0.16
                  
                  
                  $
                  0.27
                  
                  
                  $
                  0.13





There
were approximately 1,836 stockholders of record of BHIT’s common stock as of March 2,
2009. There are additional stockholders who own stock in their accounts at
brokerage firms and other financial institutions.





We intend
to reinvest our earnings, if any, in the business, and have never declared or
paid, and do not intend to declare or pay, any cash dividends on our
stock.





On
November 21, 2008, BHIT sold 1.1 million shares of common stock in a private
placement to accredited investors for $0.25 a share, or $275,000 in the
aggregate. The shares were not registered under the Securities Act of 1933 in
reliance on the private offering exemption from registration provided by § 4(2)
of the act and related Rule 506 of Regulation D.





On
November 14, 2008, BHIT granted non-qualified stock options to purchase 125,000
shares of the company’s stock for $0.30 a share to Bennett Marks in connection
with his appointment to the board of directors. The options were fully vested on
the date of grant and expire on November 14, 2011. On December 16, 2008, BHIT
granted Mr. Marks non-qualified options to purchase an additional 125,000 shares
for $0.22 a share as compensation for serving as vice president and CFO. The
options were fully vested on the date of grant and expire on December 16, 2011.
Mr. Mark’s options were not registered under the Securities Act of 1933 in
reliance on the private offering exemption from registration provided by § 4(2)
of the act and related Rule 506 of Regulation D.





4




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




BHIT is
currently a shell company without significant operations or sources of revenues
other than its investments. However, we are aggressively investigating potential
acquisition candidates and additional sources of financing.





Results
of Operations




Our total
revenue for 2008 was $47,615 compared to $80,890 in 2007, a decrease of $33,275,
or 41.1%. Revenues decreased as the result of lower interest earned on invested
funds.





Our
expenses for 2008 decreased $80,959, or 11.7%, to $610,451, compared to $691,410
in 2007. The decrease was caused by lower stock-based compensation charges in
2008 partially offset by increased expenses associated with exploring
acquisition candidates. Non-cash stock-based compensation charges of $430,000
were recognized in 2007 for the issuance of options to our directors for serving
on the board, compared to option charges of $28,750 in 2008. However, in 2008
expenses included acquisition costs of $374,193 for professional fees and other
costs associated with exploring potential acquisition candidates, principally
Colo.





Accordingly,
our net loss for 2008 was $562,836 ($0.02 per share), compared to $610,520
($0.03 per share) in 2007, a decrease of $47,684.





Financial
Condition and Liquidity




Cash and
cash equivalents consist of cash and short-term investments. Our cash and cash
equivalents balance at December 31, 2008 was $1,613,173, a decrease of $655,881,
or 28.9%, from $2,269,054 at December 31, 2007. Cash and cash equivalents
decreased in 2008 as a result of our net loss for the year as well as the
$340,000 placed in the Colo purchase price escrow, which is not included in our
cash and cash equivalents, partially offset by gross proceeds of $275,000 from
the sale of 1.1 million shares of our common stock to accredited investors for
$0.25 per share in November 2008. Although we have requested that the escrow
agent return the Colo escrow funds to us, Colo has instituted arbitration
proceedings to obtain the contents of the escrow and we may not be able to
recover the funds. For additional information regarding the escrow funds, please
turn to “Legal Proceedings” on page 3.





We are
exploring various acquisition opportunities and may incur due diligence, legal
and accounting costs in connection with evaluating these
opportunities.  At this time, we have no other material commitments
for capital expenditures. We believe our cash is sufficient to meet our needs
for anticipated operating expenses as a shell company for 2009. However, we are
exploring additional sources of financing to fund the possible acquisition of an
operating company. We cannot guaranty we will be able to obtain adequate
financing on acceptable terms.





Off-Balance
Sheet Arrangements




We do not
have any material off-balance sheet arrangements.





5




Critical
Accounting Policies




For a
discussion of significant accounting policies that impact our financial
reporting, please turn to Note 1 of our financial statements beginning on page
F-7.




Item
8.       Financial Statements and
Supplementary Data.




Our 2008
and 2007 consolidated financial statements audited by Grant Thornton LLP follow
this annual report beginning on page F-1.




Item
      9.
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure.




Not
applicable.




Item
9A(T).     Controls and Procedures.




Evaluation
of Disclosure Controls and Procedures




As of
December 31, 2008, our management, under the direction of our principal
executive officer and principal financial officer, evaluated the effectiveness
of the design and operation of BHIT’s disclosure controls and procedures as
defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended.
Based on this evaluation, our chief executive officer and chief financial
officer each concluded that our disclosure controls and procedures were
effective as of December 31, 2008.





Management’s
Report on Internal Control over Financial Reporting




Our
management is responsible for establishing and maintaining an adequate system of
internal control over financial reporting as defined in Exchange Act Rule
13a-15(f). Our internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of the consolidated financial statements for external purposes in
accordance with generally accepted accounting principles defined in the Exchange
Act.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements and even when determined to be effective, can
only provide reasonable assurance with respect to financial statement
preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with policies or procedures may deteriorate.





We
carried out an evaluation under the direction of our chief executive officer and
chief financial officer of our effectiveness of internal control over financial
reporting. In making this evaluation, management used the criteria set forth in
Internal Control Over
Financial Reporting—Guidance for Smaller Public
Companies (2006) issued by the Committee of Sponsoring Organizations of
the Treadway Commission, or COSO. Based upon that evaluation, our management
concluded that our internal control over financial reporting was effective as of
December 31, 2008.





6




Changes
in Internal Control Over Financial Reporting




There
have been no changes in our internal control over financial reporting during the
last fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.





Attestation
Report of Independent Registered Public Accounting Firm




This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting,
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this annual
report.





Item
9B.    Other Information




Not
applicable.





PART
III




Item
      10.
            Directors,
      Executive Officers, and Corporate
Governance.




Our
current directors and executive officers are:





Gary O. Marino, age 64, joined
our board in January 2007, was appointed chairman in January 2008 and chief
executive officer in November 2008. Mr. Marino has served as chairman, president
and CEO of Patriot Rail Corp., an owner and operator of short line and regional
railroads, since 2005, and formerly held the same positions at RailAmerica, Inc.
(NYSE:RRA), a company he founded in 1985, until his retirement in 2004. From
1984 until 1993, Mr. Marino served as chairman, president and CEO of Boca Raton
Capital Corporation, a publicly owned venture capital investment company. Prior
to that he spent more than fifteen years in commercial banking in New York as a
senior loan officer and was also president and CEO of two small business
investment companies (SBICs), as well as president of a Florida-based commercial
bank. Mr. Marino received his B.A. degree from Colgate University and his M.B.A.
from Fordham University. From 1966 to 1969, he served as an officer of the
United States Army Ordnance Corps. He has also served on the board of directors
of the American Association of Railroads.





Paul S. Dennis, age 71, joined
the board in January 2007 and was appointed interim chief financial officer in
February 2007 and interim chief executive officer in April 2008. Mr. Dennis
stepped down as interim CEO and CFO in November 2008 and was appointed as vice
president and treasurer. Mr. Dennis has served as president and CEO of
Associated Health Care Management Company, Inc. since 1977. Health Care
Management is a Cleveland, Ohio based company that managed eight nursing care
facilities and four congregate living facilities. The company has sold all but
one of its facilities. Mr. Dennis has also been a director and officer with
various companies and business ventures in the hardware distribution,
pharmaceuticals distribution and steel fabrication industries and a real estate
developer, general contractor, owner and investor.





7




Bennett Marks, age 60, joined
the board and was appointed vice president and chief financial officer in
November 2008. Mr. Marks has been executive vice president and CFO of Patriot
Rail Corp., an owner and operator of short line and regional railroads, since
2005. Mr. Marks has served as EVP and CFO of six publicly-held and
privately-owned companies in the transportation, healthcare, manufacturing,
distribution and telecommunications industries. While CFO at RailAmerica, Inc.
(NYSE:RRA), he developed and implemented the financial framework of the company
as revenues grew from $130 million to $450 million. Mr. Marks has more than
twenty years of experience in public accounting, including ten years as an
audit/client services partner with KPMG where he was an Associate SEC Reviewing
Partner and the Administrative Partner in Charge of the West Palm Beach office.
A licensed CPA in Florida and New York, he has held leadership positions in a
variety of community, charitable, and professional organizations. Mr. Marks
received his degree in accounting from New York University.





Harvey J. Polly, age 80,
joined our board in January 2007 and served as chairman until January
2008.  Mr. Polly previously served as our CEO from 1995 to 2000 before
selling his interest in the company to Summa. He has been a principal
shareholder, director and COO of various short line railroads and The Hanover
Bank of Florida, and a principal and the president of Helena Rubinstein, an
international cosmetics company.  Mr. Polly is a graduate of Keystone
College and Columbia University’s Graduate School of Business.





Committees
of the Board




We are
still in the early stages of our business plan and our new board has only four
members. Because of the small size of our board, our directors have not yet
designated audit, nominating or other committees. Instead, these
responsibilities are handled by the entire board. Without an audit committee, we
have not designated a director as an “audit committee financial expert” as
defined by SEC rules. Although we are pleased with the diverse skills and level
of expertise that our directors possess, we intend to add additional directors
when we acquire an operating company. Our board plans to form appropriate
committees at that time.





Code
of Ethics




In the
wake of the recent corporate scandals, the SEC has adopted rules encouraging
companies to adopt written ethical guidelines for their officers and employees.
We believe strongly in the importance of ethical conduct in our business
endeavors, and in March 2004, our board of directors unanimously adopted a code
of conduct and ethics that applies to all of our officers, directors and
employees, including our principal executive officer and principal financial and
principal accounting officer. We will provide a copy of our code without charge
upon written request to Gary O. Marino, 2255 Glades Road, Suite 342-W, Boca
Raton, Florida 33431.





8




Compliance
with Section 16(a) of the Exchange Act




Section
16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers, and persons who own more than 10% of our common stock, to
make filings with the SEC reporting their ownership of our common stock and to
furnish us with copies of these filings. In 2008, Paul Dennis filed one Form 4
late reporting two purchases of common stock.  Based solely on our
review of copies of reports furnished to us, we believe that all other Section
16(a) filing requirements were met in 2007. Copies of these filings are
available on the SEC’s website at www.sec.gov.







Item
11.     Executive Compensation.




Summary
Compensation Table




We did
not pay any executive officer, including our chief executive officers, any
salary, bonus or other cash compensation in 2008 or 2007, although our executive
officers did receive stock options in 2007 for serving on our
board.  The following table summarizes the compensation paid by us to
our chief executive officers in 2008 and 2007.





Name and
                                              Principal Position
                                            
                                            Year
                                            
                                            Salary
                                            
                                            
                                            Bonus
                                            
                                            
                                            Option
                                              Awards
                                            
                                            
                                            All Other
                                              Compensation
                                            
                                            
                                            TotalGary
      O. Marino
                                            
                                            2008
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —Chairman and Chief
      Executive Officer(1)
                                            
                                            2007
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            $
                                            107,500
                                            (2)
                                            
                                            
                                            —
                                            
                                            
                                            $
                                            107,500Andrew
      H. Scott
                                            
                                            2008
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —Former Interim Chief
      Executive Officer(3)
                                            
                                            2007
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            $
                                            107,500
                                            (2)
                                            
                                            
                                            —
                                            
                                            
                                            $
                                            107,500Paul
      S. Dennis
                                            
                                            2008
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —Former Interim Chief
      Executive Officer(4)
                                            
                                            2007
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            $
                                            107,500
                                            (2)
                                            
                                            
                                            —
                                            
                                            
                                            $
                                            107,500







(1)
            Mr.
      Marino was appointed our Chief Executive Officer in November
      2008.




(2)
            The
      fair value of stock options is based on the FAS 123(R) compensation
      expense recognized as of the date of grant. We use the Black-Scholes
      option pricing model to estimate compensation cost for stock option
      awards. Please see the table regarding the assumptions used in this
      calculation in Note 1: “Summary of Business and Significant Accounting
      Policies — Stock-Based Compensation” to our consolidated financial
      statements included in this Form
10-K.




(3)
            Mr.
      Scott resigned as our Interim Chief Executive Officer in April
      2008.




(4)
            Mr.
      Dennis served as our Interim Chief Executive Officer from April 2008 to
      November 2008.  Until November 2008, he also served as our
      Interim Chief Financial Officer.





9




Outstanding
Equity Awards at December 31, 2008




The
following table summarizes information with respect to the stock options held by
the executive officers in our summary compensation table as of December 31,
2008.





Name
                                      
                                      Number of
                                        Underlying
                                        Unexercised
                                        Options
                                        Exercisable
                                      
                                      
                                      Number of
                                        Underlying
                                        Unexercised Options
                                        Unexercisable
                                      
                                      
                                      Option Exercise
                                        Price
                                      
                                      Option Expiration
                                        DateGary
      O. Marino
                                      
                                      
                                      250,000
                                      
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      0.35
                                      
                                      10/23/2010
                                      (1)250,000
                                      
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      0.15
                                      
                                      3/02/2010
                                      (2)Andrew
      H. Scott
                                      
                                      
                                      125,000
                                      
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      0.35
                                      
                                      10/23/2010
                                      (1)250,000
                                      
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      0.15
                                      
                                      3/02/2010
                                      (2)Paul
      S. Dennis
                                      
                                      
                                      250,000
                                      
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      0.35
                                      
                                      10/23/2010
                                      (1)250,000
                                      
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      0.15
                                      
                                      3/02/2010
                                      (2)





(1)  Options
vested on October 23, 2007, the date of grant.


(2)  Options
vested on March 2, 2007, the date of grant.





Director
Compensation




None of
our directors received additional compensation in 2008 for serving on the
board.  However, Bennett Marks, who was appointed to the board in
November 2008, did receive options to purchase 125,000 shares of the company’s
stock in connection with joining the board and options to purchase an additional
125,000 shares for serving as vice president and chief financial officer. The
following table summarizes information with respect to the compensation paid to
Mr. Marks during the fiscal year ended December 31, 2008.





Name
                        
                        Fees Earned or
                          Paid in Cash
                        
                        
                        Option
                          Awards
                        
                        
                        All Other
                          Compensation
                        
                        
                        TotalBennett
      Marks
                        
                        
                        —
                        
                        
                        $
                        28,750
                        *
                        
                        
                        —
                        
                        
                        $
                        28,750
                        *





*
            The
      fair value of stock options is based on the FAS 123(R) compensation
      expense recognized as of the date of grant. We use the Black-Scholes
      option pricing model to estimate compensation cost for stock option
      awards. Please see the table regarding the assumptions used in this
      calculation in Note 1: “Summary of Business and Significant Accounting
      Policies — Stock-Based Compensation” to our consolidated financial
      statements included in this Form
10-K.







Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.




The
following table lists the stock ownership of our directors, executive officers
and significant stockholders as of March 2, 2009.




10




Significant Stockholders
                                            
                                            Shares
                                            
                                            Options
                                            
                                            Total
                                            
                                            Percentage(1)Gary
      O. Marino
                                              Patriot
      Equity, LLC
                                              2255
      Glades Road,
                                              Suite
      342-W
                                              Boca
      Raton, FL 33431
                                            
                                            1,460,613
                                            (2)
                                            500,000
                                            
                                            1,960,613
                                            
                                            7.4
                                            %Paul S.
      Dennis
                                              Associated
      Health Care
                                              Management
                                              7005
      Stadium Drive,
                                              Suite
      100
                                              Brecksville,
      OH 44141
                                            
                                            2,231,250
                                            
                                            500,000
                                            
                                            2,731,250
                                            
                                            10.3
                                            %Harvey J.
      Polly
                                              2901
      South Ocean Blvd.,
                                              Penthouse
      5
                                              Highland
      Beach, FL 33487
                                            
                                            2,486,250
                                            (3)
                                            500,000
                                            
                                            2,986,250
                                            
                                            11.2
                                            %Bennett
      Marks
                                              Patriot
      Rail, LLC
                                              2255
      Glades Road,
                                              Suite
      342-W
                                              Boca
      Raton, FL 33431
                                            
                                            261,354
                                            
                                            250,000
                                            
                                            511,354
                                            
                                            1.9
                                            %Andrew H.
      Scott
                                              Laidlaw
      & Company
                                              90
      Park Avenue, 31st Floor
                                              New
      York, NY 10016
                                            
                                            490,833
                                            
                                            375,000
                                            
                                            865,833
                                            
                                            3.3
                                            %All
      directors, and executive officers as a group (4
    individuals)
                                            
                                            6,439,467
                                            
                                            1,750,000
                                            
                                            8,189,467
                                            
                                            29.4
                                            %





(1)
            There
      were 26,120,808 shares outstanding on March 2, 2009. Assumes the exercise
      of options held by that director, but no
others.




(2)
            Shares
      held by Patriot Equity, LLC, a limited liability company of which Mr.
      Marino is the sole member.




(3)
            Includes
      100,000 shares beneficially owned by Mr. Polly’s
  wife.





Equity
Compensation Plan Information




Our
directors each received a total of 500,000 options as compensation for serving
on our board in 2007 and 2008.  125,000 of these options were
subsequently cancelled upon a board member’s resignation from the
board.  In 2008, a newly appointed director and officer received
125,000 options in connection with joining the board and 125,000 options for
serving as an officer.  BHIT has not issued any other options,
warrants or rights.  Our equity plans are summarized in the following
table.




11





Plan
      category
                                
                                Number of
                                  securities
                                  to be issued upon
                                  exercise of
                                  outstanding options
                                
                                
                                Weighted-average
                                  exercise price of
                                  outstanding options
                                
                                
                                Number of
                                  securities
                                  remaining available
                                  for future issuance
                                  under equity
                                  compensation plans
                                  (excluding securities reflected
                                  in the first column)Equity
      compensation plans approved by security holders
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —Equity
      compensation plans not approved by security holders
                                
                                
                                2,125,000
                                
                                
                                $
                                0.25
                                
                                
                                
                                —Total
                                
                                
                                2,125,000
                                
                                
                                $
                                0.25
                                
                                
                                
                                —





Item
13.     Certain Relationships and Related Transactions,
and Director Independence.




We did
not engage in any related party transactions in 2008.





None of
our directors are independent, nor are we required to have independent directors
as shares of our common stock are not listed on any exchange but are traded
over-the-counter.




Item
14.     Principal Accountant Fees and
Services.




Grant
Thornton LLP has served as BHIT’s certified public accountants since 2000. We
paid Grant Thornton $38,809 in 2008 and $34,155 in 2007 for audit fees. Grant
Thornton did not render any other services to BHIT during 2008 or
2007.





Because
of the small size of our board, the directors have not designated an audit
committee.  Instead, these responsibilities are handled by the entire
board, which considers and pre-approves any audit or non-audit services to be
performed by Grant Thornton. Our board believes the services provided by Grant
Thornton are compatible with maintaining our auditor’s
independence.




Item
15.     Exhibits.




14
            Code
      of Ethics (filed as Exhibit 14 to BHIT’s Annual Report on Form 10-K for
      the fiscal year ended December 31, 2006 filed with the SEC on April 16,
      2007 and incorporated herein by
reference)





31.1
            Rule
      13a-14(a)/15d-14(a) Certification of Principal Executive Officer Pursuant
      to Section 302 of the Sarbanes-Oxley Act of
2002





31.2
            Rule
      13a-14(a)/15d-14(a) Certification of Principal Financial Officer Pursuant
      to Section 302 of the Sarbanes-Oxley Act of
2002





12


32
            Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002





13




SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, B.H.I.T. Inc. caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





B.H.I.T.
      Inc.Date:
      March 25, 2009
              /s/ Gary O. MarinoBy
      Gary O. Marino,Chief
      Executive Officer and Chairman of the Board(Principal
      Executive Officer)Date:
      March 25, 2009
              /s/ Bennett MarksBy
      Bennett Marks,Vice
      President and Chief Financial Officer(Principal
      Financial and Accounting
Officer)





In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of B.H.I.T. Inc. and in the capacities and on the
dates indicated.





Date:
      March 25, 2009
              /s/ Gary O. MarinoBy
      Gary O. Marino,Chief
      Executive Officer and Chairman of the BoardDate:
      March 25, 2009
              /s/ Bennett MarksBy
      Bennett Marks,Vice
      President, Chief Financial Officer and DirectorDate:
      March 25, 2009
              /s/ Paul S. DennisBy
      Paul S. Dennis, Vice President, Treasurer andDirectorDate:
      March 25, 2009
              /s/ Harvey J. PollyBy
      Harvey J. Polly, Director




14


Financial
Statements and Report of Independent


Registered
Public Accounting Firm




B.H.I.T.
Inc.




December
31, 2008 and 2007





B.H.I.T.
Inc.




Index
to Financial Statements




Report
      of Independent Registered Public Accounting Firm
                F-2Balance
      Sheets as of December 31, 2008 and 2007
                F-3Statements
      of Operations for the Years Ended December 31, 2008 and
    2007
                F-4Statements
      of Stockholders’ Equity for the Years Ended December 31, 2008 and
      2007
                F-5Statements
      of Cash Flows for the Years Ended December 31, 2008 and
    2007
                F-6Notes
      to Financial Statements
                F-7








Report
of Independent Registered Public Accounting Firm





The Board
of Directors and Stockholders of


B.H.I.T.
Inc.





We have
audited the accompanying balance sheets of B.H.I.T. Inc. (a Delaware
corporation) as of December 31, 2008 and 2007, 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 the standards of the Public Company
Accounting Oversight Board (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. The Company is not required to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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. as of December 31,
2008 and 2007, 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 LLPCleveland,
      OhioMarch
      17, 2009





B.H.I.T.
Inc.


Balance
Sheets


December
31, 2008 and 2007





2008
                      
                      
                      2007AssetsCurrent
      assets:Cash
      and cash equivalents
                      
                      $
                      1,613,173
                      
                      
                      $
                      2,269,054Interest
      receivable on cash and cash equivalents
                      
                      
                      107
                      
                      
                      
                      1,897Prepaid
      insurance
                      
                      
                      9,750
                      
                      
                      
                      13,786Total
      current assets
                      
                      
                      1,623,030
                      
                      
                      
                      2,284,737Other
      assets - deposit
                      
                      
                      340,000
                      
                      
                      
                      -Total
      assets
                      
                      $
                      1,963,030
                      
                      
                      $
                      2,284,737Liabilities
      and Stockholders’ EquityCurrent
      liabilities:Accounts
      payable and accrued expenses
                      
                      $
                      10,303
                      
                      
                      $
                      72,924Commitments
      and contingencies
                      
                      
                      -
                      
                      
                      
                      -Stockholders’
      equity:Common
      stock, par value $.01 per share.75,000,000
      shares authorized. 26,120,808 sharesand
      25,020,808 shares issued at December 31,2008
      and 2007, respectively
                      
                      
                      89,794,597
                      
                      
                      
                      89,490,847Accumulated
      deficit
                      
                      
                      (87,833,681
                      )
                      
                      
                      (87,270,845
                      )Treasury
      stock, at cost (32,757 common shares)
                      
                      
                      (8,189
                      )
                      
                      
                      (8,189
                      )Total
      stockholders’ equity
                      
                      
                      1,952,727
                      
                      
                      
                      2,211,813Total
      liabilities and stockholders’ equity
                      
                      $
                      1,963,030
                      
                      
                      $
                      2,284,737





See
accompanying notes to the financial statements.


F-3


B.H.I.T.
Inc.


Statements
of Operations


Years
Ended December 31, 2008 and 2007





2008
                
                
                2007Revenue:Interest
      earned on cash and cash equivalents
                
                $
                47,615
                
                
                $
                80,890Expenses:General
      and administrative expenses
                
                
                207,508
                
                
                
                261,410Acquisition
      costs
                
                
                374,193
                
                
                
                -Stock-based
      compensation
                
                
                28,750
                
                
                
                430,000Total
      expenses
                
                
                610,451
                
                
                
                691,410Net
      loss
                
                $
                (562,836
                )
                
                $
                (610,520
                )Weighted
      average number of common shares outstanding
                
                
                25,110,273
                
                
                
                20,659,284Basic
      and diluted net loss per share of common stock
                
                $
                (0.02
                )
                
                $
                (0.03
                )





See
accompanying notes to the financial statements.


F-4


B.H.I.T.
Inc.


Statements
of Stockholders’ Equity


Years
Ended December 31, 2008 and 2007





Common Stock
                
                
                
                
                
                Treasury StockAccumulatedShares Issued
                
                
                Amount
                
                
                Deficit
                
                
                Shares
                
                
                Amount
                
                
                TotalStockholders’
      equity (deficit) December 31, 2006
                
                
                15,020,808
                
                
                $
                88,060,847
                
                
                $
                (86,660,325
                )
                
                
                32,757
                
                
                $
                (8,189
                )
                
                $
                1,392,333Proceeds
      from sale of common stock
                
                
                10,000,000
                
                
                
                1,000,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,000,000Stock
      compensation expense
                
                
                -
                
                
                
                430,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                430,000Net
      loss for the year ended December 31, 2007
                
                
                -
                
                
                
                -
                
                
                
                (610,520
                )
                
                
                -
                
                
                
                -
                
                
                
                (610,520
                )Stockholders’
      equity (deficit) December 31, 2007
                
                
                25,020,808
                
                
                
                89,490,847
                
                
                
                (87,270,845
                )
                
                
                32,757
                
                
                
                (8,189
                )
                
                
                2,211,813Proceeds
      from sale of common stock
                
                
                1,100,000
                
                
                
                275,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                275,000Stock
      compensation expense
                
                
                -
                
                
                
                28,750
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                28,750Net
      loss for the year ended December 31, 2008
                
                
                -
                
                
                
                -
                
                
                
                (562,836
                )
                
                
                -
                
                
                
                -
                
                
                
                (562,836
                )Stockholders’
      equity (deficit) December 31, 2008
                
                
                26,120,808
                
                
                $
                89,794,597
                
                
                $
                (87,833,681
                )
                
                
                32,757
                
                
                $
                (8,189
                )
                
                $
                1,952,727





See
accompanying notes to the financial statements.


F-5


B.H.I.T.
Inc.


Statements
of Cash Flows


Years
Ended December 31, 2008 and 2007





2008
                
                
                2007Cash
      flows from operating activities:Net
      loss
                
                $
                (562,836
                )
                
                $
                (610,520
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Stock-based
      compensation
                
                
                28,750
                
                
                
                430,000Changes
      in assets and liabilities:Interest
      receivable on cash and cash equivalents
                
                
                1,790
                
                
                
                3,743Prepaid
      insurance
                
                
                4,036
                
                
                
                240Accounts
      payable and accrued expenses
                
                
                (62,621
                )
                
                
                25,278Net
      cash used in operating activities
                
                
                (590,881
                )
                
                
                (151,259
                )Cash
      flows from investing activities:Deposit
      on acquisition
                
                
                (340,000
                )
                
                
                -Net
      cash used in investing activities
                
                
                (340,000
                )
                
                
                -Cash
      flows from financing activities:Sale
      of common stock
                
                
                275,000
                
                
                
                1,000,000Net
      cash provided by financing activities
                
                
                275,000
                
                
                
                1,000,000Net
      increase (decrease) in cash
                
                
                (655,881
                )
                
                
                848,741Cash
      and cash equivalents, beginning of period
                
                
                2,269,054
                
                
                
                1,420,313Cash
      and cash equivalents, end of period
                
                $
                1,613,173
                
                
                $
                2,269,054





See
accompanying notes to the financial statements.


F-6





B.H.I.T.
Inc.


Notes
to Financial Statements


Years
Ended December 31, 2008 and 2007





Note
1. Summary of Business and Significant Accounting Policies





Basis of Presentation –B.H.I.T. Inc. (“BHIT,” “we,” “our” or the “Company”) was originally
organized under the laws of the State of Massachusetts in 1985, under the name
VMS Hotel Investment Trust, for the purpose of investing in mortgage loans,
principally to entities affiliated with VMS Realty Partners. The Company was
subsequently reorganized as a Delaware corporation in 1987. We changed our name
from Banyan Hotel Investment Fund to B.H.I.T. Inc. in 1998.





On
January 24, 2007, a group of private investors purchased all of the BHIT shares
held by Summa Holdings, Inc., then the Company’s largest stockholder. As a
result of the transaction, the officers and directors representing Summa
resigned, and new officers and directors have been appointed. Our new management
team is aggressively investigating potential operating companies to acquire and
additional sources of financing. Currently we are focusing our efforts on
railroad track repair and maintenance businesses, but we cannot guarantee we
will complete an acquisition in this industry. Accordingly, we may explore
potential acquisitions in other industries as well.





Because
we are currently a shell company, our business is not seasonal, we have no
foreign or export business, and we do not segregate revenue or assets by
geographical region.





Nature of Operations –Currently BHIT is a shell company without significant operations or
sources of revenues other than its investments. Our existing operations relate
primarily to servicing our cash investment portfolio and maximizing existing
capital with stable interest generating instruments.





Stock Offerings –On November
21, 2008, the Company sold an aggregate of 1,100,000 shares of its common stock
in a private placement to accredited investors at a price of $.25 per share for
a total of $275,000. On June 8, 2007, the Company sold an aggregate of
10,000,000 shares of its common stock in a private placement to accredited
investors at a price of $.10 per share for a total of $1,000,000.





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.


F-7





B.H.I.T.
Inc.


Notes
to Financial Statements


Years
Ended December 31, 2008 and 2007





Loss Per Share –Basic and
diluted loss per share are calculated using the number of weighted average
shares outstanding each year. The impact of outstanding stock options is not
included in dilutive earnings per share as their inclusion would be
anti-dilutive.





Cash and Cash Equivalents –We
consider all highly liquid instruments purchased with maturities of three months
or less to be cash and cash equivalents. At times we maintain cash balances in
banks in excess of the F.D.I.C. insured limits.




Revenue Recognition –We
record interest income from cash and cash equivalents on an accrual
basis.




Stock-Based Compensation –The
Company has stock option agreements with its directors that provide for the
issuance of a total of 2,125,000 shares of common stock for serving on the
Company’s Board of Directors for 2007 and 2008, as follows:





Weighted Average
                  
                  Weighted AverageNumber
                  
                  
                  Exercise Price
                  
                  RemainingDate of Grant
                  
                  of Shares
                  
                  
                  per Share
                  
                  Contractual LifeMarch
      2, 2007
                  
                  
                  1,000,000
                  
                  
                  $
                  .15
                  
                  1.2
      yearsOctober
      23, 2007
                  
                  
                  1,000,000
                  
                  
                  
                  .35
                  
                  1.8
      yearsNovember
      14, 2008
                  
                  
                  125,000
                  
                  
                  
                  .30
                  
                  2.8
      yearsNovember
      19, 2008
                  
                  
                  (125,000
                  )
                  
                  
                  .35
                  
                  CancelledDecember
      16, 2008
                  
                  
                  125,000
                  
                  
                  
                  . 22
                  
                  2.9 yearsOutstanding,
      December 31, 2008
                  
                  
                  2,125,000
                  
                  
                  $
                  .25
                  
                  1.6
years





The
number of options issued and the grant dates were determined at the discretion
of the Company’s Board. The options vested at the date of grant, and are
exercisable for a period not to exceed three years from the date of grant. No
options were exercised during 2008 or 2007.





The fair
values of the stock options issued each year have been determined using the
Black-Scholes method, whereby the valuation model takes into account variables
such as volatility, dividend yield, and the risk free interest rate. Management
has determined that the March 2, 2007 options had a grant date value of $.18 per
share and the October 23, 2007 options had a grant date value of $.25 per share,
resulting in total compensation expense for the year ended December 31, 2007 of
$430,000. Similarly, management has determined that the November 14, 2008
options had a grant date value of $.13 per share and the December 16, 2008
options had a grant date value of $.10 per share, resulting in total
compensation expense for the year ended December 31, 2008 of
$28,750.


F-8


B.H.I.T.
Inc.


Notes
to Financial Statements


Years
Ended December 31, 2008 and 2007





Expected
volatility rate was estimated using the average volatility rates of fourteen
public companies in the financial and business services industry. The weighted
average assumptions used in the option-pricing models during 2008 and 2007 were
as follows:





2008
                    
                    
                    2007Discount
      interest rate
                    
                    
                    1.84
                    %
                    
                    
                    4.28
                    %Expected
      life (years)
                    
                    
                    3
                    
                    
                    
                    3Expected
      volatility
                    
                    
                    64.28
                    %
                    
                    
                    69.67
                    %Dividend
      yield
                    
                    
                    0
                    
                    
                    
                    0





The stock
options are not considered in calculating diluted earnings per share because
they are anti-dilutive.




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.





New Accounting Pronouncements –In February 2007, the Financial Accounting Standards Board (“FASB”)
issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities-including an amendment of FASB Statement No. 115.” SFAS 159 allows
companies to choose to elect measuring eligible financial instruments and
certain other items at fair value that are not required to be measured at fair
value. SFAS 159 requires that unrealized gains and losses on items for which the
fair value option has been elected be reported in earnings at each reporting
date. SFAS 159 is effective for fiscal years beginning after November 15, 2007.
We adopted SFAS 159 on January 1, 2008. The implementation of SFAS 159 in 2008
did not have a significant impact on the Company’s financial position or results
of operations.





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which
defines fair value, provides a framework for measuring fair value, and expands
the disclosures required for fair value measurements. SFAS 157 applies to other
accounting pronouncements that require fair value measurements; it does not
require any new fair value measurements. SFAS 157 was to be effective for BHIT
on January 1, 2008. However, in February 2008, the FASB released a FASB Staff
Position (FSP FAS 157-2 — Effective Date of FASB Statement No. 157) which
delayed the effective date of SFAS No. 157 for BHIT to January 1, 2009. The
Company believes that the adoption of SFAS 157 will not have a material impact
on the Company’s financial position or operating results.


F-9





B.H.I.T.
Inc.


Notes
to Financial Statements


Years
Ended December 31, 2008 and 2007





In
December 2007, the FASB issued Statement 141 (revised 2007), “Business
Combinations” (SFAS 141R) to change how an entity accounts for the acquisition
of a business. When effective, SFAS 141R will replace existing SFAS 141 in its
entirely.





SFAS 141R
carries forward the existing requirements to account for all business
combinations using the acquisition method (formerly called the purchase method).
In general, SFAS 141R will require acquisition-date fair value measurement of
identifiable assets acquired, liabilities assumed and noncontrolling interests
in the acquiree. SFAS 141R will eliminate the current cost-based purchase method
under SFAS 141.





SFAS 141R
amends the goodwill impairment test requirements in SFAS 142. For a goodwill
impairment test as of a date after the effective date of SFAS 141R, the value of
the reporting unit and the amount of implied goodwill, calculated in the second
step of the test, will be determined in accordance with the measurement and
recognition guidance on accounting for business combinations under SFAS 141R.
This change could effect the determination of what amount, if any, should be
recognized as an impairment loss for goodwill recorded before the effective date
of SFAS 141R. This accounting will be required when SFAS 141R becomes effective
(January 1, 2009 for the Company) and applies to goodwill related to
acquisitions accounted for originally under SFAS 141 as well as those accounted
for under SFAS 141R.





SFAS 141R
is effective for fiscal years and interim periods within those fiscal years
beginning on or after December 15, 2008. Early adoption is prohibited. The
Company intends to adopt SFAS 141R effective January 1, 2009 and to apply its
provisions prospectively. The Company believes that the adoption of SFAS 141R
will not have a material impact on the Company’s financial position or operating
results.





Note
2. Income Taxes




The
Company reported no income tax expense or benefit for 2008 and 2007 due to the
net operating losses incurred during both years.





Our
Federal net operating loss (“NOL”) carryforward balance as of December 31, 2008
and 2007 was $2,684,645 and $3,754,529, respectively. Our NOL carryforwards are
scheduled to expire between 2009 and 2028. NOL utilization may be subject to a
limitation contained in Internal Revenue Code Section 382. The purchase of the
Summa shares and subsequent stock issuances may have substantially limited or
eliminated the opportunity to utilize our NOL carryforwards.


F-10





B.H.I.T.
Inc.


Notes
to Financial Statements


Years
Ended December 31, 2008 and 2007





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 tax
assets:




2008
                  
                  
                  2007Tax
      effect of net operating loss carryforward
                  
                  $
                  912,779
                  
                  
                  $
                  1,276,540Stock
      compensation benefit
                  
                  
                  155,975
                  
                  
                  
                  146,200Valuation
      allowance
                  
                  
                  (1,068,754
                  )
                  
                  
                  (1,422,740
                  )Net
      deferred tax asset
                  
                  $
                  -
                  
                  
                  $
                  -





For 2008,
the net decrease of $363,761 in the tax-effected NOL carryforward and the
valuation allowance was the result of the net loss for 2008 and the expiration
of $1,603,971 of NOL generated in 1993.




In June
2006, the FASB issued FASB Interpretation No. 48 (FIN 48), “Accounting for
Uncertainty in Income Taxes.” Previously, the Company had accounted for
contingencies in accordance with Statement of Financial Accounting Standards No.
5, “Accounting for Contingencies.” The interpretation provides guidance on
recognition, classification and disclosure concerning uncertain tax liabilities.
The evaluation of a tax position requires recognition of a tax benefit if it is
‘more-likely-than-not’ that it will be sustained upon examination. For tax
positions meeting the ‘more-likely-than-not’ threshold, the amount recognized in
the financial statements is the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement with the relevant tax
authority. FIN 48 is effective for fiscal years beginning after December 15,
2006. Accordingly, the Company adopted FIN 48 effective January 1, 2007. At the
adoption date, the Company applied FIN 48 to all positions for which the statute
of limitations remained open. The Company recorded a valuation allowance for all
deferred tax assets as of December 31, 2007, to be adjusted if the deferred tax
asset realization is more likely than not. The Company believes that the
adoption of FIN 48 did not have any material impact on the Company’s financial
position.





Note
3. Contingencies





In July,
2008, we entered into an asset purchase agreement with L.A. Colo, LLC and Iron
Rail Group, LLC (Colo’s parent), pursuant to which we agreed to purchase
substantially all of the assets of Colo for $15,000,000, subject to adjustment.
Colo provides railroad maintenance and construction services to short line
railroads and industrial customers. The transaction was delayed due to
deteriorating financial and economic conditions and was ultimately terminated by
BHIT due to a reported reduction in the financial results of Colo, which were
contrary to prior representations of Colo as to its financial
performance.


F-11





B.H.I.T.
Inc.


Notes
to Financial Statements


Years
Ended December 31, 2008 and 2007





We had
originally placed $60,000 in a purchase money escrow for the acquisition. In
September, 2008 we placed an additional $290,000 in escrow and paid $50,000 to
Colo for the option to extend the closing date. Colo and Iron Rail demanded
payment of the $350,000 in escrow in connection with the termination of the
purchase agreement. We authorized the distribution of $10,000 of the escrow to
Iron Rail, but dispute that Colo and Iron Rail are entitled to the remaining
$340,000. The parties are scheduled for binding arbitration in 2009 to resolve
this matter. Because of the nature of the circumstances surrounding the
termination of the acquisition, the Company believes it is entitled to the
escrow and intends to contest this matter vigorously. Accordingly, no provision
for loss of the escrowed funds has been recorded as of December 31,
2008.


F-12