##### 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
 For the year ended December 31, 2003  (  ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
  Commission File Number 1-9043 B.H.I.T. INC. 
  Delaware
    
    
    36-3361229(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)6950 South Edgerton Road, Brecksville, Ohio
    
    
    44141(Address of principal executive offices)
    
    (Zip Code)(440) 838-4700Registrant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 $20,822. Shares
of common stock outstanding as of March 19, 2004: 14,988,051. Aggregate
market value of the Registrants shares of common stock held by
non-affiliates as of such date was approximately $1,311,673. DOCUMENTS INCORPORATED BY REFERENCE Exhibit index located on page 8 of sequentially numbered pages references
Exhibits 31.1 and 31.2 Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and
Exhibit 32 Certification Pursuant to U.S.C. Section 1350. Transitional Small Business Disclosure Format Yes (   ) No (X).




---



B.H.I.T. INC. ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 2003 TABLE OF CONTENTS INDEX
    
    
    
    PAGEPART IItem 1.
    
    Description of Business
    
    
    1Item 2.
    
    Description of Property
    
    
    1Item 3.
    
    Legal Proceedings
    
    
    2Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    2PART IIItem 5.
    
    Market for Common Equity and Related Shareholder Matters
    
    
    3Item 6.
    
    Managements Discussion and Analysis or Plan of Operation
    
    
    3-4Item 7.
    
    Financial Statements
    
    
    4Item 8.
    
    Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    
    5Item 8A.
    
    Controls and Procedures
    
    
    5PART IIIItem 9.
    
    Directors and Executive Officers of the Company
    
    
    6Item 10.
    
    Executive Compensation
    
    
    7Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    7Item 12.
    
    Certain Relationships and Related Transactions
    
    
    8Item 13.
    
    Exhibits and Reports on Form 8-K
    
    
    8Item 14.
    
    Principal Accountant Fees and Services
    
    
    8SIGNATURES
    
    
    9EX-31.1 302 CEO CERTIFICATIONEX-31.2 302 CFO CERTIFICATIONEX-32 906 CEO AND CFO CERTIFICATION




---



##### 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 cash
investment portfolio and seeking profitable investments including mortgage
loans 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 $86,462,681 on December 31,
2003. 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 6,243,563 shares, or 41.7% of the outstanding shares on
December 31, 2003. 
 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




---



##### Table of Contents



B.H.I.T. INC. 
 ITEM 3. LEGAL PROCEEDINGS The Company is not aware of any pending legal proceedings as of March 1,
2004, nor were any proceedings terminated during the year ended December 31,
2003. 
 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, 2003. 2




---



##### 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, 2003 and 2002
are as follows: Calendar
    
    
    
    
    
    Share PriceQuarter
    
    
    
    
    
    2003
    
    2002First
    
    High
    
    $
    0.16
    
    
    $
    0.12Quarter
    
    Low
    
    
    0.10
    
    
    
    0.11Second
    
    High
    
    
    0.22
    
    
    
    0.12Quarter
    
    Low
    
    
    0.14
    
    
    
    0.09Third
    
    High
    
    
    0.25
    
    
    
    0.10Quarter
    
    Low
    
    
    0.16
    
    
    
    0.09Fourth
    
    High
    
    
    0.32
    
    
    
    0.11Quarter
    
    Low
    
    
    0.19
    
    
    
    0.10
 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 2003 or
2002. On December 31, 2003, there were 2,197 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, 2003 and 2002 was $20,822 and
$60,810, respectively. The decrease of $39,988 in 2003 was primarily due to
reduced interest earned resulting from lower interest rates. The lower
interest rate resulted primarily from the repayment of a high yield mortgage
note, referred to in Note 2 of the accompanying financial statements. 3




---



##### Table of Contents



B.H.I.T. INC. RESULTS OF OPERATIONS (continued) Total expenses for the years ended December 31, 2003 and 2002 were $117,799
and $90,886, respectively. The increase of $26,913 was due primarily to
increases in various expenses including insurance, franchise tax, and
professional service fees, such as outside audit fees and stock transfer
agency fees. The net loss for 2003 was $96,977 ($0.006 per share) compared to a net loss
of $30,076 ($0.002 per share) for 2002. LIQUIDITY AND CAPITAL RESOURCES During 1997, the Company invested $1,000,000 in a mortgage loan, at monthly
interest of 12% per annum. Principal payments of $700,000 and $25,000,
respectively, were made in April 1998 and June 2000. 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, 2003 and 2002 was
$1,612,724 and $1,712,815 respectively. The decrease of $100,091 in cash and
cash equivalents during 2003 is the primarily the result of the net loss of
$96,977. 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




---



##### Table of Contents



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. 
 ITEM 8A. CONTROLS AND PROCEDURES Under the direction of our Chief Executive Officer and Chief Financial
Officer, we have evaluated disclosure controls and procedures and internal
control over financial reporting and concluded that (i) our disclosure
controls and procedures were effective as of December 31, 2003, and (ii) no
change in internal control over financial reporting occurred during the
quarter ended December 31, 2003 that has materially affected, or is
reasonably likely to materially affect, such internal control over financial
reporting. 5




---



##### Table of Contents



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 67, 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.George M. Isdale, Jr., age 62, 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.James A. Lash, age 59, was a Director of the Company from September 2000 to
February 9, 2004. 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. Effective February 9, 2004, Mr. Lash
resigned from the Board of Directors of B.H.I.T. Inc. The resignation was
not requested by the Company and was not the result of any disagreement
between Mr. Lash and the Company. No replacement has yet been named to the
Board.John V. Curci, age 59, 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, Secretary and
Chief Financial Officer of Vesper Corporation since 1979. In addition, Mr.
Curci has been Vice President, Treasurer and Chief Financial Officer of
Arrowhead Holdings Corporation since 1983. The Company has adopted a code of ethics that applies to all directors,
officers and employees of the Company. A copy of the Companys code of ethics
will be made available, without charge, to any person who requests a copy by
submitting a written request addressed to the Chief Financial Officer of the
Company at 6950 South Edgerton Road, Brecksville, Ohio 44141-3184. The Company believes that all reports required to be filed pursuant to the
1934 Act, with respect to transactions in the Companys Common Stock through
December 31, 2003, were filed on a timely basis. 6




---



##### Table of Contents



B.H.I.T. INC. 
 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 2003 and 2002. B. EXECUTIVE COMPENSATION  No salary was paid to the Companys Chief Executive Officer during 2003 or
2002 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 2003 and 2002. There were no options
outstanding to acquire stock of the Company as of December 31, 2003. 
 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT The following table sets forth information, as of March 19, 2004, 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 andNature ofName of
    
    Beneficial
    
    PercentTitle of Class
    
    Beneficial Owner
    
    Ownership
    
    of ClassShares of Common Stock
$.01 Par Value
    
    Arrowhead Holdings
Corporation
6950 South Edgerton Road
Brecksville, Ohio, 44141
    
    6,243,563 shares
    
    
    41.7
    %Directors and Officers (1)
    
    
    
    
 (1) 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. 7




---



##### Table of Contents



B.H.I.T. INC. 
 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Companys principal offices are located in a facility shared with
Arrowhead. During the years ended 2003 and 2002, the Company reimbursed
Arrowhead for expenses totaling $53,230 and $38,298, respectively,
principally for salaries including benefits, and also insurance, rent,
utilities and various other office expenses. 
 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS  EXHIBIT 31.1 Certification of the Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002  EXHIBIT 31.2 Certification of the Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002  EXHIBIT 32 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 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Grant Thornton LLP has served as the Companys Certified Public Accountants
since the year 2000. Audit fees billed during the years ended December 31,
2003 and 2002 were $23,675 and $19,315, respectively. There were no other
services rendered by Grant Thornton, LLP during 2003 or 2002. 8




---



##### Table of Contents



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.
    
    Date: March 22, 2004Chairman of the Board of Directors,President and Chief Executive Officer/s/ John V. CurciJohn V. Curci
    
    Date: March 22, 2004Vice-President, Treasurer & Chief Financial Officer,Principal Accounting Officer
 9




---



##### Table of Contents



B.H.I.T. INC. INDEX TO FINANCIAL STATEMENTS Report of Independent Certified Public Accountants
    
    F - 2Balance Sheets as of December 31, 2003 and 2002
    
    F - 3Statements of Operations
For the Years Ended December 31, 2003 and 2002
    
    F - 4Statements of Stockholders Equity
For the Years Ended December 31, 2003 and 2002
    
    F - 5Statements of Cash Flows
For the Years Ended December 31, 2003 and 2002
    
    F - 6Notes to Financial Statements
    
    F - 7 to F - 9
 F-1




---



##### 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, 2003 and 2002, 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, 2003 and 2002 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 30, 2004 F-2




---



##### Table of Contents



B.H.I.T. INC. 
 Balance Sheets December 31,2003
    
    2002ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    1,612,724
    
    
    $
    1,712,815Interest receivable on cash and cash equivalents
    
    
    1,624
    
    
    
    2,142Prepaid insurance
    
    
    14,250
    
    
    
    9,000Total Current Assets
    
    $
    1,628,598
    
    
    $
    1,723,957LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)CURRENT LIABILITIESAccounts payable and other accrued expenses
    
    $
    38,621
    
    
    $
    37,003STOCKHOLDERS EQUITY (DEFICIT)Shares of Common Stock, $0.01 par value,
20,000,000 shares authorized, 15,020,808 shares
issued as of December 31, 2003 and 2002
    
    
    88,060,847
    
    
    
    88,060,847Accumulated deficit
    
    
    (86,462,681
    )
    
    
    (86,365,704
    )Treasury stock, at cost, for 32,757 shares
of Common Stock
    
    
    (8,189
    )
    
    
    (8,189
    )Total Stockholders Equity
    
    
    1,589,977
    
    
    
    1,686,954Total Liabilities and Stockholders Equity
    
    $
    1,628,598
    
    
    $
    1,723,957
 See accompanying notes to the Financial Statements. F-3




---



##### Table of Contents



B.H.I.T. INC. 
 Statements of Operations Years Ended December 31,2003
    
    2002REVENUEInterest earned on cash and cash equivalents
    
    $
    20,822
    
    
    $
    28,875Interest earned on mortgage receivable
    
    
    
    
    
    
    31,935Total revenue
    
    
    20,822
    
    
    
    60,810EXPENSESGeneral and administrative
    
    
    117,799
    
    
    
    90,886Net loss
    
    $
    (96,977
    )
    
    $
    (30,076
    )Basic and diluted net loss per share of Common
Stock (based on weighted average number of
shares outstanding of 14,988,051 in 2003 and 2002)
    
    $
    (0.006
    )
    
    $
    (0.002
    )
 See accompanying notes to the Financial Statements. F-4




---



##### Table of Contents



B.H.I.T. INC. 
 Statements of Stockholders Equity Years Ended December 31, 2003 and 2002
 Common Stock


    
    
    
    
    
    Treasury StockShares
    
    
    
    
    
    AccumulatedIssued
    
    Amount
    
    Deficit
    
    Shares
    
    Amount
    
    TotalStockholders equity (deficit)
December 31, 2001
    
    
    15,020,808
    
    
    $
    88,060,847
    
    
    $
    (86,335,628
    )
    
    
    32,757
    
    
    $
    (8,189
    )
    
    $
    1,717,030Net 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
    )
    
    $
    1,686,954Net loss for the year ended
December 31, 2003
    
    
    
    
    
    
    
    
    
    
    (96,977
    )
    
    
    
    
    
    
    
    
    
    
    (96,977
    )Stockholders equity (deficit)
December 31, 2003
    
    
    15,020,808
    
    
    $
    88,060,847
    
    
    $
    (86,462,681
    )
    
    
    32,757
    
    
    $
    (8,189
    )
    
    $
    1,589,977
 See accompanying notes to the Financial Statements. F-5




---



##### Table of Contents



B.H.I.T. INC. 
 Statements of Cash Flows Years Ended December 31,2003
    
    2002Operating Activities:Net Loss
    
    $
    (96,977
    )
    
    $
    (30,076
    )Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:Changes in certain assets and liabilities:Mortgage loan receivable
    
    
    
    
    
    
    275,000Interest and miscellaneous receivables
    
    
    518
    
    
    
    6,348Prepaid insurance
    
    
    (5,250
    )
    
    
    (9,000
    )Accounts payable and accrued expenses
    
    
    1,618
    
    
    
    (596
    )Net cash provided by (used in) operating activities
    
    
    (100,091
    )
    
    
    241,676Cash and cash equivalents at beginning of period
    
    
    1,712,815
    
    
    
    1,471,139Cash and cash equivalents at end of period
    
    $
    1,612,724
    
    
    $
    1,712,815
 See accompanying notes to the Financial Statements. F-6




---



##### Table of Contents



B.H.I.T. INC. 
 NOTES TO FINANCIAL STATEMENTS Years Ended December 31, 2003 and 2002
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Basis of PresentationB.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.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 OperationsThe Companys current operations relate primarily to servicing its cash
investment portfolio and seeking profitable investments including mortgage
loans for its available funds.Income TaxesThe 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 ShareBasic and diluted loss per share was calculated in 2003 and 2002 using
14,988,051 shares, the shares outstanding each year. There were no
dilutive securities outstanding during 2003 and 2002.Cash and Cash EquivalentsThe Company considers all highly liquid instruments purchased with maturity
of three months or less to be cash and cash equivalents. F-7




---



##### Table of Contents



B.H.I.T. INC. NOTES TO FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2003 and 2002 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  Revenue RecognitionInterest income from the mortgage portfolio and cash equivalents is
recorded on an accrual basis.Use of EstimatesThe 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.
Principal payments were made in April 1998 and June 2000, totaling
$725,000. Mortgage loan terms required monthly interest payments at the
rate of 12% per annum. On December 18, 2002, the Company received
repayment of the outstanding principal balance of $275,000 plus accrued
interest. NOTE 3. TRANSACTIONS WITH AFFILIATES  The Companys principal offices are located in a facility shared with
Arrowhead Holdings Corporation (Arrowhead). During the years ended 2003
and 2002, the Company reimbursed Arrowhead $53,230 and $38,298,
respectively, principally for salaries including benefits, and also
insurance, rent, utilities and various other office expenses. F-8




---



##### Table of Contents



B.H.I.T. INC. NOTES TO FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2003 and 2002 NOTE 4. LEASE COMMITMENTS  Since October 1, 2001, office space is shared with Arrowhead in Brecksville,
Ohio. Rent expense for the years ended December 31, 2003 and 2002 was $3,919
and $3,700, respectively. The Company is not a party to the Ohio office
lease, accordingly, there are no future lease commitments. NOTE 5. INCOME TAXES  The Company reported no income tax expense or benefit for the years ended
December 31, 2003 and 2002 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. 2003
    
    2002Tax effect of net operating
loss carryforward
    
    $
    29,648,364
    
    
    $
    29,610,368Valuation allowance
    
    
    (29,648,364
    )
    
    
    (29,610,368
    )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 2003.  The net operating loss carryforwards are scheduled to expire between 2005
and 2023. Net operating loss utilization may be subject to any applicable
limitation contained in the Internal Revenue Code. F-9