**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





(Mark
      One)





þ
            Quarterly
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934


For
      the
      quarterly period ended **September 30, 2008**





o
            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.**(Exact
                name of registrant as specified 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**(Registrant’s
                telephone number)





**7005
                Stadium Drive, Suite 100, Brecksville, Ohio
                44141**(Former
                Address)





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





Indicate
      by a check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting
      company.


Large
                  Accelerated Filer  ̈
              Accelerated
                  Filer  ̈Non-Accelerated
                  Filer  ̈
              Smaller
                  Reporting Company þ





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




Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date: **24,988,051
      shares of common stock, $0.01 par value per share, as of October 31,
      2008.**










**Table
      of Contents**





Part
                I — Financial Information
            1Item
                1.
            Financial
                Statements
            1Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            1Recent
                Events
            1Management
                Changes
            1The
                Colo Acquisition
            2Our
                History
            2Forward
                Looking Statements
            3Results
                of Operations
            3Comparison
                of Three Months Ended September 30, 2008 and 2007
            3Comparison
                of Nine Months Ended September 30, 2008 and 2007
            4Financial
                Condition and Liquidity
            4Off-Balance
                Sheet Arrangements
            4How
                to Learn More About BHIT
            4Item
                4.
            Controls
                and Procedures
            4Part
                II — Other Information
            5Item
                1.
            Legal
                Proceedings
            5Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            5Item
                3.
            Defaults
                Upon Senior Securities
            5Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            5Item
                5.
            Other
                Information
            5Item
                6.
            Exhibits
            5Signatures
            6Financial
                Statements
            F-1Notes
                to Financial Statements
            F-4





**Part
      I — Financial Information**




**Item
      1.**  **Financial
      Statements**





Our
      September 30, 2008 unaudited consolidated financial statements follow this
      quarterly report beginning on page F-1.




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





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 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 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. Biographical
      information for Messrs. Marino and Marks follows.





Gary
      O.
      Marino, age 64, joined our board in January 2007 and was appointed chairman
      in
      January 2008 and CEO in November 2008. Mr. Marino serves as chairman, president
      and CEO of Patriot Rail Corp., an owner and operator of short line and regional
      railroads, 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.


1





Bennett
      Marks, age 60, is executive vice president and CFO of Patriot Rail Corp., an
      owner and operator of short line and regional railroads. 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 21 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.





*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, 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 economical conditions. We
      subsequently elected not to proceed with the acquisition.





BHIT
      had
      placed $350,000 in a purchase money escrow for the Colo acquisition. Iron Rail
      has demanded payment of this amount in full in connection with the termination
      of the purchase agreement. We have authorized the distribution of $10,000 of
      the
      escrow to Iron Rail, but dispute that Iron Rail is entitled to the remaining
      $340,000. The parties are currently in discussions to resolve this matter,
      but
      there can be no guaranty that they will be able to do so.





**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.





As
      the
      result of a public offering in 1986, the company received gross proceeds of
      $98.5 million. 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 $87,733,320 on September 30,
      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.


2





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. In April 2008 Mr. Scott resigned from the board to
      pursue other business interests.





In
      June
      2007, we sold 10.0 million of our common shares in a private placement for
      $0.10
      per share for a total of $1.0 million.





**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-KSB, 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.





**Results
      of Operations**




*Comparison
      of Three Months Ended September 30, 2008 and 2007*




Our
      total
      revenues for the quarter ended September 30, 2008 were $10,539, compared to
      $25,820 for the same period in 2007, a decrease of $15,281, or 59.2%. Revenues
      decreased as the result of a decrease in invested funds as well as lower
      interest rates earned on invested funds.





Our
      total
      expenses for the third quarter of 2008 increased $351,955, or 1,026.7%, to
      $386,236, compared to $34,281 for the second quarter of 2007. The increase
      was
      caused by the write off of $355,898 in professional fees and other costs
      associated with the Colo acquisition due to the termination of the transaction
      in October 2008.





Accordingly,
      our net loss for the third quarter of 2008 was $375,697 ($0.015 per share),
      compared to a net loss of $8,461 ($0.001 per share) in 2007, an increase of
      $367,236.


3





*Comparison
      of Nine Months Ended September 30, 2008 and 2007*




Our
      total
      revenues for the nine months ended September 30, 2008 were $39,695, compared
      to
      $56,468 for the same period in 2007, a decrease of $16,773, or 29.7%. Revenues
      decreased as the result of lower interest earned on invested funds. Lower
      interest rates were partially offset by an increase in funds from the proceeds
      of our June 2007 private placement.





Our
      total
      expenses for the first nine months of 2008 increased $236,024, or 88.7%, to
      $502,170, compared to $266,146 for the same period in 2007. The increase was
      caused by higher general and administrative expenses in 2008 as a result of
      professional fees associated with exploring potential acquisition candidates,
      including the write off of $355,898 previously deferred for these acquisitions,
      partially offset by $180,000 in stock based compensation expense recognized
      in
      2007 arising from the issuance of stock options to members of the board of
      directors.





Accordingly,
      our net loss for the first nine months of 2008 was $462,475 ($0.019 per share),
      compared to a net loss of $209,678 ($0.012 per share) in 2007, an increase
      of
      $252,797.





**Financial
      Condition and Liquidity**




Cash
      and
      cash equivalents consist of cash and short-term investments. Our cash and cash
      equivalents balance at September 30, 2008 was $1,533,629, a decrease of $735,425
      from $2,269,054 at December 31, 2007. Cash and cash equivalents decreased in
      the
      first nine months of 2008 primarily as the result of our net loss for the period
      and the $340,000 we deposited in escrow in connection with the terminated Colo
      acquisition.





At
      this
      time, we have no material commitments for capital expenditures, although we
      are
      reviewing various acquisition opportunities. We believe our cash is sufficient
      to meet our needs for anticipated operating expenses as a shell company for
      2008. However, we are exploring additional sources of financing to fund the
      possible acquisition of an operating company.





**Off-Balance
      Sheet Arrangements**




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





**How
      to Learn More About** **BHIT**




We
      file
      annual, quarterly and current 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
      4.**  **Controls
      and Procedures**





Under
      the
      direction of our chief executive officer and chief financial officer, management
      evaluated our disclosure controls and procedures (as defined in Exchange Act
      Rule 13a-15(e)) and internal control over financial reporting (as defined in
      Exchange Act Rule 13a-15(f)) and concluded that our disclosure controls and
      procedures were effective as of September 30, 2008, and no change in our
      internal control over financial reporting occurred during the quarter ended
      September 30, 2008 that has materially affected, or is reasonably likely to
      materially affect, our internal control over financial
      reporting.


4





**Part
      II — Other Information**




**Item
      1.**  **Legal
      Proceedings**





We
      are
      not aware of any pending legal proceedings involving BHIT as of October 31,
      2008, nor were any proceedings terminated in the third quarter of
      2008.




**Item
      2.**  **Unregistered
      Sales of Equity Securities and Use of Proceeds**





Not
      applicable.




**Item
      3.**  **Defaults
      Upon Senior Securities**





Not
      applicable.




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





Not
      applicable.




**Item
      5.**  **Other
      Information**





For
      information regarding recent changes in BHIT’s management team, please turn to
“Recent Events” on page 1.




**Item
      6.**  **Exhibits**





31.1
            Rule
                13a-14(a)/15d-14(a) Certification of Principal Executive Officer
                Pursuant
                to § 302 of the Sarbanes-Oxley Act of 200231.2
            Rule
                13a-14(a)/15d-14(a) Certification of Principal Financial Officer
                Pursuant
                to § 302 of the Sarbanes-Oxley Act of 200232
            Rule
                13a-14(b)/15d-14(b) Certification Pursuant to § 906 of the Sarbanes-Oxley
                Act of 2002


5


**Signatures**





In
      accordance with the requirements of the Securities Exchange Act of 1934,
      B.H.I.T. Inc. has duly caused this report to be signed on its behalf by the
      undersigned thereunto duly authorized.





B.H.I.T.
                Inc.Date:
                November 14, 2008
            /s/
                Gary O. MarinoBy
                Gary O. MarinoChairman
                and Chief Executive Officer


6




**B.H.I.T.
      Inc.**





**Balance
      Sheets**


**As
      of September 30, 2008 and December 31, 2007**





**September 30, 2008**
            
            **December 31, 2007**(Unaudited)**ASSETS****Current
                Assets**Cash
                and cash equivalents
            
            $
            1,533,629
            
            $
            2,269,054Interest
                receivable on cash and cash equivalents
            
            
            444
            
            
            1,897Prepaid
                insurance
            
            
            -
            
            
            13,786Total
                Current Assets
            
            
            1,534,073
            
            
            2,284,737**Other
                Assets**Escrowed
                funds
            
            
            340,000
            
            
            -Total
                Other Assets
            
            
            340,000
            
            
            -Total
                Assets
            
            $
            1,874,073
            
            $
            2,284,737**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                Liabilities**Accounts
                payable and other accrued expenses
            
            $
            124,735
            
            $
            72,924**Stockholders'
                Equity**Shares
                of Common Stock, $0.01 par value, 75,000,000 shares authorized and
                25,020,808 shares issued at September 30, 2008 and at December 31,
                2007
            
            
            89,490,847
            
            
            89,490,847Accumulated
                deficit
            
            
            (87,733,320
            )
            
            (87,270,845
            )Treasury
                stock, at cost, for 32,757 shares of Common Stock
            
            
            (8,189
            )
            
            (8,189
            )Total
                Stockholders' Equity
            
            
            1,749,338
            
            
            2,211,813Total
                Liabilities and Stockholders' Equity
            
            $
            1,874,073
            
            $
            2,284,737








See
      accompanying notes to financial statements


F-1





**B.H.I.T.
      Inc.**





**Statements
      of Operations**


**For
      the Three and Nine Months Ended September 30, 2008 and
      2007**


(Unaudited)





**Three Months**
            
            **Nine Months****2008**
            
            **2007**
            
            **2008**
            
            **2007****Revenue**Interest
                earned on cash and cash equivalents
            
            $
            10,539
            
            $
            25,820
            
            $
            39,695
            
            $
            56,468**Expenses**General
                and administrative
            
            
            30,338
            
            
            34,281
            
            
            146,272
            
            
            86,146Write
                off of acquisition costs
            
            
            355,898
            
            
            -
            
            
            355,898
            
            
            -Stock
                based compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            180,000Total
                Expenses
            
            
            386,236
            
            
            34,281
            
            
            502,170
            
            
            266,146**Net
                Loss**
            
            $
            (375,697
            )
            $
            (8,461
            )
            $
            (462,475
            )
            $
            (209,678
            )Weighted
                average number of shares outstanding
            
            
            24,988,051
            
            
            17,515,524
            
            
            24,988,051
            
            
            16,258,769Basic
                and diluted net loss per share of Common Stock
            
            $
            (0.015
            )
            $
            (0.001
            )
            $
            (0.019
            )
            $
            (0.012
            )




See
                accompanying notes to financial
                statements


F-2





**B.H.I.T.
      Inc.**





**Statements
      of Cash Flows**


**For
      the Nine Months Ended September 30, 2008 and 2007**


(Unaudited)




**2008**
            
            **2007****Operating
                Activities**Net
                Loss
            
            $
            (462,475
            )
            $
            (209,678
            )****Adjustments
                to reconcile net loss to net cash used in operating
                activities:Stock
                based compensation
            
            
            -
            
            
            180,000Changes
                in assets and liabilities:****Interest
                receivable on cash and cash equivalents
            
            
            1,453
            
            
            4,682Prepaid
                insurance and miscellaneous expenses
            
            
            13,786
            
            
            (4,356
            )Accounts
                payable and accrued expenses
            
            
            51,811
            
            
            (34,261
            )Net
                cash used in operating activities
            
            
            (395,425
            )
            
            (63,613
            )**Investing
                Activities**Escrowed
                funds for potential acquisition
            
            
            (340,000
            )
            
            -Net
                cash used in investing activities
            
            
            (340,000
            )
            
            -**Financing
                Activities**Sale
                of Common Stock
            
            
            -
            
            
            1,000,000Net
                cash from financing activities
            
            
            -
            
            
            1,000,000Net
                increase (decrease) in cash
            
            
            (735,425
            )
            
            936,387Cash
                and cash equivalents at beginning of period
            
            
            2,269,054
            
            
            1,420,313Cash
                and cash equivalents at end of period
            
            $
            1,533,629
            
            $
            2,356,700




See
      accompanying notes to financial statements


F-3




**B.H.I.T.
      Inc.**


**Notes
      to Financial Statements**


**Three
      and Nine Months Ended September 30, 2008 and 2007**


**(Unaudited)**




**Nature
      of Operations**


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.





Currently
      BHIT is a shell company without significant operations or sources of revenues
      other than interest on its investments. 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 and we may explore
      potential acquisitions in other industries as well.




**Basis
      of Presentation**


We
      have
      prepared the accompanying financial statements pursuant to the rules and
      regulations of the Securities and Exchange Commission. In the opinion of
      management, these financial statements give effect to all normal recurring
      adjustments necessary to present fairly the financial position of the company
      as
      of September 30, 2008 and December 31, 2007, and the results of operations
      and
      cash flows for the three and nine months ended September 30, 2008 and 2007.
      The
      financial information for the three and nine months ended September 30, 2008
      and
      2007 is unaudited.





Although
      we believe that the disclosures included in our financial statements are
      adequate to make the information presented not misleading, certain information
      and footnote disclosures normally included in financial statements prepared
      in
      accordance with generally accepted accounting principles have been omitted.
      Accordingly, the accompanying financial statements should be read in conjunction
      with BHIT’s latest annual report on Form 10-KSB for the year ended December 31,
      2007.





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.





The
      results of operations for the three and nine months ended September 30, 2008
      are
      not necessarily indicative of the results to be expected for the full 2008
      year.




**Stock
      Offering**


On
      June
      8, 2007, the company sold an aggregate of 10.0 million shares of its common
      stock in a private placement to a total of 36 accredited investors, primarily
      existing stockholders of the company. The shares were sold at a price of $0.10
      per share for a total of $1.0 million.


F-4


**B.H.I.T.
      Inc.**


**Notes
      to Financial Statements**


**Three
      and Nine Months Ended September 30, 2008 and 2007**


**(Unaudited)**




**Stock-Based
      Compensation**


The
      company has stock option agreements with its directors that provide for the
      issuance of a total of 2.0 million shares of common stock. We entered into
      stock
      option agreements for the purchase of a total of 1.0 million shares with our
      directors on March 2, 2007, with an exercise price of $0.15 a share, as
      compensation for serving on the board in 2007. We entered into stock option
      agreements for the purchase of an additional 1.0 million shares on October
      23,
      2007, with an exercise price of $0.35 a share, as compensation for serving
      on
      the board in 2008. The number of options issued and the grant dates were
      determined at the discretion of the company’s board. Grantees vested in the
      options immediately. The options are exercisable for a period not to exceed
      three years. No options were exercised during 2007 or during the nine months
      ended September 30, 2008.





The
      fair
      values of the stock options issued during 2007 have been estimated 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 have a value of $0.18 per share
      ($180,000 in total) and the October 23, 2007 options have a value of $0.25
      per
      share ($250,000 in total) resulting in total compensation expense for the year
      ended December 31, 2007 of $430,000.





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 2007 were as
      follows:





Risk
                free interest rate
            
            
            4.28
            %Expected
                life (years)
            
            
            3Expected
                volatility
            
            
            69.67
            %Dividend
                yield
            
            
            0





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




**New
      Accounting Pronouncements**


In
      February 2007, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standards (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. The company did not elect to measure
      eligible items at fair value.


F-5


**B.H.I.T.
      Inc.**


**Notes
      to Financial Statements**


**Three
      and Nine Months Ended September 30, 2008 and 2007**


**(Unaudited)**





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 companies like BHIT to January
      1,
      2009. We are currently evaluating the impact of the adoption of SFAS 157 on
      the
      company’s financial condition and operating results.




**Subsequent
      Events**


On
      July
      24, 2008 we entered into an asset purchase agreement with L.A. Colo, LLC and
      Iron Rail Group, LLC, 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 economical conditions. We subsequently elected
      not
      to proceed with the acquisition.





BHIT
      had
      placed $350,000 in a purchase money escrow for the Colo acquisition. Iron Rail
      has demanded payment of this amount in full in connection with the termination
      of the purchase agreement. We have authorized the distribution of $10,000 of
      the
      escrow to Iron Rail, but dispute that Iron Rail is entitled to the remaining
      $340,000. Because of the nature of the circumstances surrounding the termination
      of the acquisition, the company believes it is entitled to the return of the
      escrowed funds. Accordingly, no provision for loss of the escrowed funds has
      been provided. The parties are currently in discussions to resolve this matter,
      but there can be no guaranty that they will be able to do so.


F-6