SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended June 30, 2006 Commission file number: 0-28152

Affinity Technology Group, Inc.
(Exact name of registrant as specified in its charter)

Delaware 57-0991269
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

Affinity Technology Group, Inc.
8807-A Two Notch Road
Columbia, SC 29223
(Address of principal executive offices)
(Zip code)

(803) 758-2511
(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):

Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [X]

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

Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

44,904,802 shares of Common Stock, $0.0001 par value, as of August 1, 2006.

AFFINITY TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

INDEX

PAGE
PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2006 and
December 31, 2005 ................................................................. 4
Condensed Consolidated Statements of Operations for the three and six months
ended June 30, 2006 and 2005 ...................................................... 5
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 2006 and 2005 ............................................................ 6
Notes to Condensed Consolidated Financial Statements ................................ 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................................... 12
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ............................... 15
ITEM 4. Controls and Procedures .................................................................. 15
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ........................................................................ 16
ITEM 1A. Risk Factors ............................................................................... 16
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds .............................. 17
ITEM 3. Defaults Upon Senior Securities .......................................................... 17
ITEM 4. Submission of Matters to a Vote of Security Holders ...................................... 18
ITEM 5. Other Information ........................................................................ 18
ITEM 6. Exhibits ................................................................................. 19
Signature ................................................................................................ 19

Statements in this report (including Management's Discussion and
Analysis of Financial Condition and Results of Operations) that are not
descriptions of historical facts, such as statements about the Company's future
prospects and cash requirements, are forward-looking statements and are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Actual results may vary due to risks and uncertainties,
including the Company's very limited capital resources and the possibility that
it may be unable to raise additional capital in amounts sufficient to permit it
to continue operations; the risk that the Company may lose all or part of the
claims covered by its patents as a result of challenges to its patents; the risk
that its patents may be subject to additional reexamination by the U.S. Patent
and Trademark Office or challenge by third parties; the result of ongoing
litigation; and unanticipated costs and expenses affecting the Company's cash
position. If the Company is not able to raise additional capital immediately, it
may be forced to consider alternatives for winding down its business, which may
include offering its patents for sale or filing for bankruptcy protection.
Moreover, there can be no assurance that the Company will prevail on its claims
of patent infringement against third parties or that such claims will result in
monetary damages to the Company. These and other factors discussed in the
Company's filings with the Securities and Exchange Commission, including the
information set forth in Part I, Item 1A. "Risk Factors" of the Company's Annual
Report on Form 10-K for the year ended December 31, 2005, may cause actual
results to differ materially from those anticipated.

Part I. Financial Information

Item 1. Financial Statements

Affinity Technology Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

June 30,
2006 December 31,
(Unaudited) 2005
----------------------------
Assets
Current assets:

Cash and cash equivalents $ 72,101 $ 13,776
Receivables -- 100,000
Prepaid expenses 31,588 33,739
----------------------------
Total current assets 103,689 147,515
Property and equipment, net 3,019 4,796
----------------------------
Total assets $ 106,708 $ 152,311
============================
Liabilities and stockholders' deficiency
Current liabilities:
Accounts payable $ 96,090 $ 119,768
Accrued expenses 492,964 390,564
Accrued interest -- 294,570
Convertible notes -- 1,301,336
Deferred revenue 33,333 33,333
----------------------------
Total current liabilities 622,387 2,139,571
Non-current liabilities:
Convertible notes 1,039,000 --
Accrued interest 220,022 --
Deferred revenue 44,444 61,111
----------------------------
Total non-current liabilities 1,303,466 61,111
----------------------------
Total liabilities 1,925,853 2,200,682
Commitments and contingent liabilities
Stockholders' deficiency:
Common stock, par value $0.0001; authorized 100,000,000
shares, issued 47,072,810 and 44,393,104 shares at
June 30, 2006 and December 31, 2005, respectively 4,707 4,439
Additional paid-in capital 71,235,765 70,696,896
Treasury Stock, at cost (2,168,008 shares at June 30, 2006
and December 31, 2005) (3,505,287) (3,505,287)
Accumulated deficit (69,554,330) (69,244,419)
----------------------------
Total stockholders' deficiency (1,819,145) (2,048,371)
----------------------------
Total liabilities and stockholders' deficiency $ 106,708 $ 152,311
============================

See accompanying notes.

Affinity Technology Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

Three months ended Six months ended
June 30, June 30,
2006 2005 2006 2005
----------------------------------- ----------------------------------
Revenues:

Patent license revenue $ 8,334 $ 4,412 $ 16,667 $ 8,824
--------------------------------------------------------------------------
Costs and expenses:
Cost of revenues 834 441 1,667 882
General and administrative expenses 206,458 145,259 278,177 255,506
----------------------------------- ----------------------------------
Total cost and expenses 207,292 145,700 279,844 256,388
----------------------------------- ----------------------------------
Operating loss (198,958) (141,288) (263,177) (247,564)
Other income (expense):
Interest income 478 - 722 61
Interest expense (21,485) (24,042) (47,456) (47,452)
----------------------------------- ----------------------------------
Net loss $ (219,965) $ (165,330) $ (309,911) $ (294,955)
=================================== ==================================
Net loss per share - basic and diluted: $ (0.00) $ (0.00) $ (0.01) $ (0.01)
=================================== ==================================
Shares used in computing net loss per share 44,217,651 42,215,096 43,235,883 42,187,348
=================================== ==================================

See accompanying notes.

Affinity Technology Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Six Months Ended
June 30,
2006 2005
--------------------------------
Operating activities

Net loss $ (309,911) $ (294,955)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,564 4,000
Amortization of stock option compensation 1,597 -
Deferred revenue (16,667) (8,824)
Other 3,200 -
Changes in current assets and liabilities:
Accounts receivable 100,000 -
Prepaid expenses 2,150 19,439
Accounts payable and accrued expenses 126,178 169,013
--------------------------------
Net cash used in operating activities (90,889) (111,327)

Investing activities
Purchases of property and equipment, net (786) -
--------------------------------
Net cash used in investing activities (786) -

Financing activities
Proceeds from convertible notes 150,000 75,000
--------------------------------
Net cash provided by financing activities 150,000 75,000
--------------------------------
Net increase (decrease) in cash 58,325 (36,327)
Cash and cash equivalents at beginning of period 13,776 62,756
--------------------------------
Cash and cash equivalents at end of period $ 72,101 $ 26,429
================================

See accompanying notes.

Notes to Condensed Consolidated Financial Statements

1. The Company - Going Concern

Affinity Technology Group, Inc. (the "Company") was formed to develop
and market technologies that enable financial institutions and other businesses
to provide consumer financial services electronically with reduced or no human
intervention. Products and services previously offered by the Company include
its DeciSys/RT(R) loan processing system, which automated the processing and
consummation of consumer financial services transactions; the Affinity Automated
Loan Machine (the ALM), which allowed an applicant to apply for and, if
approved, obtain a loan in as little as ten minutes; the Mortgage ALM, which
allowed an applicant to apply for a mortgage loan; e-xpertLender(R), which
permitted a financial institution to make automated lending decisions through
its call centers and branches; iDEAL, which permitted automobile lenders to make
automobile lending decisions for loan applications originated at automobile
dealers; and rtDS, which permitted lenders to deliver credit decisions to
applicants over the Internet. Due to capital constraints, the Company has
suspended all efforts to further develop, market and operate these products and
services. The Company's last processing contract terminated in late 2002, and
the Company has no plans in the near term to engage in further sales or other
activities related to its products or services, other than to attempt to license
certain of the patents that it owns. Currently, the Company's business
activities consist exclusively of attempting to enter into license agreements
with third parties to license the Company's rights under certain of its patents.

In conjunction with its product development activities, the Company
applied for and obtained three patents. The Company has been granted two patents
covering its fully-automated loan processing systems (U.S. Patent Nos. 5,870,721
C1 and 5,940,811 C1). In August 2000, the U.S. Patent and Trademark Office
("PTO") issued to the Company a patent covering the fully-automated
establishment of a financial account, including credit accounts (U.S. Patent No.
6,105,007 C1).

All of these patents have been subject to reexamination by the PTO as a
result of challenges to such patents by third parties. On January 28, 2003, the
Company received a Reexamination Certificate (U. S. Patent No. 5,870,721 C1)
from the PTO which formally concluded the reexamination of U. S. Patent No.
5,870,721. On December 20, 2005, the Company received a Reexamination
Certificate (U.S. Patent No. 5,940,811 C1) from the PTO which formally concluded
the reexamination of U.S. Patent No. 5,940,811. On July 25, 2006 the Company
received a Reexamination Certificate (U.S. Patent No. 6,105,007 C1) from the PTO
which formally concluded the reexamination of U.S. Patent No. 6,105,007 and
which indicated that the reexamination resulted in the full allowance of all the
claims of this patent. It is possible that third parties may bring additional
actions to contest all or some of the Company's patents. The Company can make no
assurances that it will not lose all or some of the claims covered by its
existing patents.

To date, the Company has generated substantial operating losses and has
been required to use a substantial amount of cash resources to fund its
operations. At June 30, 2006, the Company had cash and cash equivalents of
$72,101. To date, the Company generally has been unable to enter into licensing
agreements with potential licensees upon terms that are acceptable to the
Company. Accordingly, the Company has been forced to become involved in
litigation with alleged infringers. The Company believes that these lawsuits may
require substantial resources and take an extended period of time to complete,
and no assurance can be given that the Company will have the resources necessary
to complete these lawsuits or that it will be successful in obtaining a
favorable outcome. To continue its operations through the remainder of 2006 and
beyond, the Company must raise additional capital immediately. Unless the
Company raises additional capital, it will have to consider alternatives for
winding down its business, which may include offering its patents for sale or
filing for bankruptcy protection.

Management's plan to continue the operations of the Company include the
restructuring of its convertible notes which were in default as of June 30, 2006
and the efforts to sell additional debt and/or equity securities to fund the
Company's patent litigation and licensing efforts. In July 2006, the Company
engaged an investment banking firm to assist with the efforts to sell additional
debt and/or equity securities and to provide other services associated with its
patent licensing program. As more fully explained in Notes 6 and 9, in August
2006, the Company reached an agreement with the holders of its convertible
notes, all of which were in default, to extend the maturity date of these
convertible notes to August 2008. No assurances can be given that the Company
will be able to raise additional capital.

There is substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or amounts and classification of liabilities that may result from this
uncertainty. However, management believes that any adjustments to reflect the
possible future effects on the recoverability and classification of assets and
amounts of liabilities would not materially change the Company's financial
position.

2. Basis of Presentation

The accompanying unaudited financial statements of the Company have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. The balance sheet at December 31, 2005 has been derived
from the audited consolidated financial statements at that date, but does not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.

The accompanying unaudited condensed consolidated financial statements
reflect all adjustments (consisting of normal, recurring accruals) which, in the
opinion of management, are necessary for a fair presentation of the results for
the periods shown. The results of operations for such periods are not
necessarily indicative of the results expected for the full year or for any
future period. The accompanying financial statements should be read in
conjunction with the audited consolidated financial statements of the Company
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2005.

In accordance with management's oversight of the Company's operations,
the Company conducts its business in one industry segment - financial services
technology (see Note 7).

Certain amounts in 2005 have been reclassified to conform to 2006
presentation for comparability. These reclassifications have no effect on
previously reported stockholders' equity or net loss.

3. New Accounting Standards

The following is a summary of recent authoritative pronouncements that
affect accounting, reporting, and disclosure of financial information by the
Company:

In March 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 156, "Accounting for
Servicing of Financial Assets" (SFAS 156), which amends SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities", with the respect to the accounting for separately recognized
servicing assets and servicing liabilities. SFAS 156 permits the choice of the
amortization method or the fair value measurement method, with changes in fair
value recorded in income, for the subsequent measurement for each class of
separately recognized servicing assets and servicing liabilities. The statement
is effective for years beginning after September 15, 2006, with earlier adoption
permitted. The Company does not expect SFAS 156 to have a material impact on the
Company's financial position or results of operations.

Other accounting standards that have been issued or proposed by the
FASB or other standards-setting bodies that do not require adoption until a
future date are not expected to have a material impact on the Company's
consolidated financial statements upon adoption.

4. Stock Based Compensation

The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 123R, "Share-Based Payments" (SFAS 123R), on January 1, 2006. This statement
requires the Company to recognize the cost of employee and director services
received in exchange for the stock options it has awarded. Under SFAS 123R the
Company is required to recognize compensation expense over an award's vesting
period based on the award's fair value at the date of grant. The Company has
elected to adopt SFAS 123R on a modified prospective basis; accordingly the
financial statements for the periods prior to January 1, 2006 do not include
stock based compensation under the fair value method.

The Company uses the Black-Scholes option pricing model to value its
stock option grants. The Company did not issue any new stock option awards in
the six months ended June 30, 2006. Stock based compensation expense recognized
for the three and six month period ended June 30, 2006 for previously issued
awards was $754 and $1,597, respectively.

Prior to January 1, 2006, the Company applied APB Opinion No. 25,
"Accounting for Stock Issued to Employees" for measurement and recognition of
stock based transactions with its employees and directors. If the Company had
recognized compensation expense for its stock based transactions based on the
fair value method prescribed by SFAS 123R, net loss and net loss per share for
the three and six month period ended June 30, 2005 would have been as follows:

Three Months Ended Six Months Ended
June 30, 2005 June 30, 2005
--------------------------------- -------------------------------
Net loss:

As reported $ (165,330) $ (294,955)
Deduct: stock-based compensation expense
determined under the fair value based
method for all awards (1,339) (4,802)
---------------- ----------------
Pro forma net loss $ (166,669) $ (299,757)
================ ================

Net loss per common share:
As reported:
Basic and diluted $ (0.00) $ (0.01)
Pro forma:
Basic and diluted $ (0.00) $ (0.01)

Using the Black-Scholes option-pricing model, the fair value at the
date of grant for these options was estimated using the following assumptions:
expected volatility, 85% to 142%; risk free rate of return, 1.99% to 6.60%;
dividend yield, 0%; and expected option life, 3 years.

The Black-Scholes and other option pricing models were developed for
use in estimating fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option-pricing models
require the input of highly subjective assumptions. The Company's employee stock
options have characteristics significantly different than those of traded
options, and changes in the subjective assumptions can materially affect the
fair value estimate. Accordingly, in management's opinion, these existing models
may not necessarily provide a reliable single measure of the fair value of
employee stock options.

5. Net Loss Per Share of Common Stock

Net loss per share of Common Stock amounts presented on the face of the
consolidated statements of operations have been computed based on the weighted
average number of shares of Common Stock outstanding in accordance with the SFAS
No. 128, "Earnings Per Share." Stock warrants and stock options were not
included in the calculation of diluted loss per share because the Company has
experienced operating losses in all periods presented and, therefore, the effect
would be anti-dilutive.

6. Convertible Notes

In 2002, the Company initiated a convertible note program under which
it was authorized to issue up to $1,500,000 principal amount of its 8%
convertible secured notes (the "notes"). In April 2006, the convertible note
program was amended to allow the Company to issue up to $3,000,000 of its notes.
As of June 30, 2006, the Company had issued an aggregate of $1,575,336 principal
amount of notes under this program, including notes with an aggregate principal
amount of $536,336 that have been converted into shares of the Company's common
stock.

These notes bear interest at 8%, are convertible into the Company's
common stock at a conversion rate of $.20 per share (for notes issued prior to
the April 2006 amendment to the program) or $.50 per share (for notes issued in
May 2006), and are secured by the Company's equity interest in decisioning.com,
Inc., which owns the Company's patent portfolio. Principal and interest under
these notes generally becomes payable in full on the second anniversary of the
date on which these notes were issued. However, under the terms of the notes,
the full amount of principal and interest under all notes may be declared
immediately due and payable in certain events, including bankruptcy or similar
proceedings involving the Company, a default in the payment of principal and
interest under any note, or a change in control of the Company.

As of June 30, 2006 and December 31, 2005, the Company was in default
regarding payment of principal and interest due under certain of the notes.
Accordingly, the full amount of principal and interest outstanding under all
notes was payable at the option of all noteholders. As of June 30, 2006, and
December 31, 2005, the amount of principal and accrued interest outstanding
under all of the notes was $1,259,022 and $1,595,906, respectively.

In August 2006, the Company and the holders of all outstanding notes
entered into an amended and restated note purchase agreement under which such
holders agreed to extend the maturity date of such notes by exchanging them
(including all interest accrued thereon) for new two-year notes due in August
2008 in the aggregate principal amount of $1,268,027. Under the amended note
purchase agreement, the Company may issue notes in the aggregate principal
amount of up to $5,000,000 (including the notes issued to current noteholders,
as described in the preceding sentence) having an exercise price determined by
the Company and each investor at the time of issuance. As a result of the
amended note purchase agreement, the full amount of principal and accrued
interest under all the notes is shown as a long-term liability as of June 30,
2006.

The new notes issued in August 2006 have the same terms as the old
notes exchanged therefor, except that the new notes will mature in August 2008.
Of the new notes issued, notes with a principal amount of $1,115,068 are
convertible into shares of the Company's common stock at $.20 per share, and
notes with a principal amount of $152,959 are convertible into shares of the
Company's common stock at $.50 per share. The new notes include a note in the
principal amount of $166,863 issued to the Company's Chief Executive Officer and
a note in the principal amount of $122,115 issued to a subsidiary of The South
Financial Group. The South Financial Group Foundation, a non-profit foundation
established by the South Financial Group, owns approximately 10% of the
Company's outstanding capital stock.

7. Segment Information

The Company conducts its business within one industry segment -
financial services technology. To date, all revenues generated have been from
transactions with North American customers.

8. Commitments and Contingencies

The Company and its founder, Jeff Norris, have been defendants in a
lawsuit filed by Temple Ligon on November 30, 1996 in the Court of Common Pleas
for the County of Richland in Columbia, South Carolina. Mr. Ligon claims, among
other things, that the Company and Mr. Norris breached an agreement to give him
a 1% equity interest in the Company in consideration of services Mr. Ligon
claims to have performed in 1993 and 1994 in conjunction with the formation of
the Company, and seeks monetary damages of $5,463,000. This lawsuit initially
resulted in a jury verdict against the Company of $68,000. However, Mr. Ligon
subsequently requested and was granted a new trial. In January 2004, this
lawsuit resulted in another jury verdict against the Company of $382,148. In
connection with the litigation and the resulting jury verdict, the Company filed
post-trial motions with the trial court in which, among other things, it claimed
that the jury verdict should be set aside. On July 23, 2004, the trial judge
granted the Company's motions, set aside the jury verdict, and ordered entry of
a judgment in favor of the Company. The plaintiff has appealed the trial judge's
ruling to the South Carolina Court of Appeals. If the Company becomes obligated
to pay more than an insignificant amount of damages in connection with this
litigation, it will be forced to consider alternatives for winding down its
business, which may include offering its patents for sale or filing for
bankruptcy protection.

The Company is involved in three other lawsuits involving claims by the
Company that third parties have infringed its patents.

9. Subsequent Events

Convertible Note Program. In August 2006, the Company and the holders
of all of its outstanding convertible notes entered into an amended and restated
convertible note purchase agreement under which such holders agreed to extend
the maturity date of such notes by exchanging them (including all interest
accrued thereon) for new two-year notes due in August 2008. Under the amended
agreement, the Company may issue convertible notes in the principal amount of up
to $5,000,000 (including the notes issued in exchange of all outstanding notes)
having an exercise price as agreed upon by the Company and each investor at the
time of issuance. For additional information with respect to the amended
convertible note purchase agreement, refer to Note 6, Convertible Notes, to
these financial statements.

Compensation Matters. In July 2006, the Company issued to the Company's
executive officers and non-employee directors options to acquire an aggregate of
4,350,000 shares of common stock of the Company at prices ranging from $0.35 to
$0.50 per share. Of these options, options to acquire approximately 1,616,666
shares are currently exercisable, and the remaining options to acquire 2,733,334
shares become exercisable over the two-year period following grant. The Company
also increased the base salary payable to the Company's Chief Executive Officer
to $250,000 per year in connection with the resumption of his full-time
employment with the Company and the base salary payable to the Company's Chief
Operating Officer to $125,000 per year.

Engagement of Morgan Keegan. In July 2006, the Company engaged Morgan
Keegan & Company ("Morgan Keegan") to act as its exclusive financial advisor to
assist the Company in raising capital and with the Company's patent licensing
program and strategic and financial alternatives. Under the terms of the
engagement, the Company has issued to Morgan Keegan, as an advisory fee, a
warrant with a five-year term to purchase 2,500,000 shares of the Company's
common stock for $0.50 per share and agreed to pay Morgan Keegan a placement fee
ranging from 1% to 5% of the amount of debt or equity securities sold by the
Company, subject to certain exceptions. If the Company decides to pursue the
sale of the Company or to acquire another company, Morgan Keegan has agreed to
represent the Company in the transaction, and the Company has agreed to pay
Morgan Keegan a transaction fee equal to 2% of the aggregate consideration paid
in the transaction.

Legal Services Agreement. In July 2006, the Company engaged McBride
Law, PC (the "McBride Firm") to assist the Company and Withrow & Terranova
("W&T") in connection with its patent licensing program and related litigation.
The Company has agreed to pay W&T and the McBride Firm a fee equal to 19% and
6%, respectively, of all amounts received from parties against whom the Company
has commenced litigation, all other revenues received by the Company pursuant to
any patent agreements (subject to reduction in certain events), and all amounts
received from the sale of the Company's patents. The Company has also agreed to
pay W&T and the McBride Firm 50% of their billing rates for their services.

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

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

Statements in this report (including Management's Discussion and
Analysis of Financial Condition and Results of Operations) that are not
descriptions of historical facts, such as statements about the Company's future
prospects and cash requirements, are forward-looking statements and are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Actual results may vary due to risks and uncertainties,
including the Company's very limited capital resources and the possibility that
it may be unable to raise additional capital in amounts sufficient to permit it
to continue operations; the risk that the Company may lose all or part of the
claims covered by its patents as a result of challenges to its patents; the risk
that its patents may be subject to additional reexamination by the U.S. Patent
and Trademark Office or challenge by third parties; the result of ongoing
litigation; and unanticipated costs and expenses affecting the Company's cash
position. If the Company is not able to raise additional capital immediately, it
will be forced to consider alternatives for winding down its business, which may
include offering its patents for sale or filing for bankruptcy protection.
Moreover, there can be no assurances that the Company will prevail on its claims
of patent infringement against third parties or that such claims will result in
monetary damages to the Company. These and other factors discussed in the
Company's filings with the Securities and Exchange Commission, including the
information set forth in Part I, Item 1A. "Risk Factors" of the Company's Annual
Report on Form 10-K for the year ended December 31, 2005, may cause actual
results to differ materially from those anticipated.

Overview

All of these patents have been subject to reexamination by the PTO as a
result of challenges to such patents by third parties. On January 28, 2003, the
Company received a Reexamination Certificate (U. S. Patent No. 5,870,721 C1)
from the PTO which formally concluded the reexamination of U. S. Patent No.
5,870,721. On December 20, 2005, the Company received a Reexamination
Certificate (U.S. Patent No. 5,940,811 C1) from the PTO which formally concluded
the reexamination of U.S. Patent No. 5,940,811. On July 25, 2006, the Company
received a Reexamination Certificate (U.S. Patent No. 6,105,007 C1) from the PTO
which formally concluded the reexamination of U.S. Patent No. 6,105,007 and
which indicated that the reexamination resulted in the full allowance of all the
claims of this patent. It is possible that third parties may bring additional
actions to contest all or some of the Company's patents. The Company can make no
assurances that it will not lose all or some of the claims covered by its
existing patents.

To date, the Company has generated substantial operating losses and has
been required to use a substantial amount of cash resources to fund its
operations. At June 30, 2006, the Company had cash and cash equivalents of
$72,101. To continue its operations through the remainder of 2006 and beyond,
the Company must raise additional capital immediately. Unless the Company raises
additional capital, it will have to consider alternatives for winding down its
business, which may include offering its patents for sale or filing for
bankruptcy protection.

The Company generally has been unable to enter into licensing
agreements with potential licensees upon terms that are acceptable to the
Company. As discussed elsewhere, the Company has been forced to become involved
in litigation with alleged infringers. The Company believes that these lawsuits
may require substantial resources and take an extended period of time to
complete, and no assurance can be given that the Company will have the resources
necessary to complete these lawsuits or that it will be successful in obtaining
a favorable outcome. To vigorously prosecute these lawsuits, the Company
anticipates that it will need to increase its operating expenses due to, among
other things, increased litigation costs and related expenses. Accordingly, to
remain viable, it is critical that the Company raise additional capital
immediately. No assurances can be given that the Company will be able to raise
additional capital or generate working capital from its patent licensing
business.

Critical Accounting Policies

The Company applies certain accounting policies, which are critical in
understanding the Company's results of operations and the information presented
in the condensed consolidated financial statements. We consider critical
accounting policies to be those that require more significant judgments and
estimates in the preparation of our financial statements, the most critical of
which pertains to the valuation reserve on net deferred tax assets. The Company
records a valuation allowance to reduce its deferred tax assets to the amount
that it estimates is more likely than not to be realized. As of June 30, 2006
and December 31, 2005, the Company recorded a valuation allowance that reduced
its deferred tax assets to zero.

Results of Operations

Revenues

Patent license revenue. The Company recognized $8,334 and $16,667 for
the three and six month periods ended June 30, 2006, respectively, compared to
$4,412 and $8,824 in the corresponding periods in 2005. All the Company's patent
licensing revenues are related to a license agreement entered into in 1999 which
is renewable every three years.

Costs and Expenses

Cost of Revenues. Cost of revenues for the three month and six month
periods ended June 30, 2006 was $834 and $1,667, respectively, compared to $441
and $882 in the corresponding periods in 2005. Cost of revenues consists of
commissions paid to the Company's patent licensing representatives.

General and Administrative Expenses. General and administrative
expenses totaled $206,458 and $278,177 for the three and six month periods ended
June 30, 2006, respectively, as compared to $145,259 and $255,506 for the
corresponding periods in 2005. The increase for the three and six month periods
ended June 30, 2006, as compared to the corresponding periods of 2005 is
primarily attributable to higher professional fees associated with the Company's
prosecution of its patent infringement lawsuits. The lawsuits were stayed during
the reexamination of the Company's U.S. Patent No. 6,105,007 from March 2004
until March 2006, at which time the stays were lifted.

Interest expense. Interest expense for the three and six month periods
ended June 30, 2006, was $21,485 and $47,456, respectively, compared to $24,042
and $47,452 for the corresponding periods in 2005. Interest expense is related
to the Company's convertible notes which accrue interest at 8%. The changes in
interest expense during the three and six month periods ended June 30, 2006
compared to the corresponding periods in 2005 are due to changes in the
aggregate average balance of the convertible notes outstanding during the
respective periods resulting from the issuance of new notes and conversions of
existing notes. During the quarter ended June 30, 2006, notes with an aggregate
principal amount of $387,336 were converted into shares of common stock, which
more than offset the issuance of additional notes of $150,000 during the period.

Liquidity and Capital Resources

The Company has generated net losses of $69,554,330 since its inception
and has financed its operations primarily through net proceeds from its initial
public offering in May 1996 and cash generated from operations and other
financing transactions. Net proceeds from the Company's initial public offering
were $60,088,516.

Net cash used by operations during the six months ended June 30, 2006,
was $90,889, compared to $111,327 used by operations for the same period in
2005. The change in operating cash flows was primarily attributable to the
collection of a $100,000 patent license payment in the first quarter of 2006,
offset by the payment of deferred accounts payable and accrued expenses during
the quarter ended June 30, 2006 with the proceeds from the issuance of
additional notes with a principal amount of $150,000. The Company anticipates
that its expense and operating cash needs will increase as it actively pursues
its patent infringement litigation. At June 30, 2006 cash and liquid investments
were $72,101, as compared to $13,776 at December 31, 2005. At June 30, 2006
working capital was a deficit of $518,698 as compared to a deficit of $1,992,056
at December 31, 2005.

To date, the Company has generated substantial operating losses and has
been required to use a substantial amount of cash resources to fund its
operations. At June 30, 2006, the Company had cash and cash equivalents of
$72,101. To continue its operations through the remainder of 2006 and beyond,
the Company must raise additional capital immediately. Unless the Company raises
additional capital, it will have to consider alternatives for winding down its
business, which may include offering its patents for sale or filing for
bankruptcy protection.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Company does not believe that its current business exposes it to
significant market risk for changes in interest rates.

Item 4. Controls and Procedures

The Company has carried out an evaluation, under the supervision and
with the participation of the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as defined in Rule 13a-15 of the
Securities Exchange Act of 1934 (the "Exchange Act"). Based upon that
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures were effective
as of June 30, 2006, in recording, processing, summarizing and reporting
information required to be disclosed by the Company (including consolidated
subsidiaries) in the Company's Exchange Act filings.

There were no changes in the Company's internal controls over financial
reporting that occurred during the Company's most recent fiscal quarter that
materially affected, or are reasonably likely to materially affect, the
Company's internal controls over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

The Company and its founder, Jeff Norris, are defendants in a lawsuit
filed by Temple Ligon on November 30, 1996 in the Court of Common Pleas for the
County of Richland in Columbia, South Carolina. Mr. Ligon claims, among other
things, that the Company and Mr. Norris breached an agreement to give him a 1%
equity interest in the Company in consideration of services Mr. Ligon claims to
have performed in 1993 and 1994 in conjunction with the formation of the
Company, and seeks monetary damages of $5,463,000. This lawsuit initially
resulted in a jury verdict against the Company of $68,000. However, Mr. Ligon
subsequently requested and was granted a new trial. In January 2004, this
lawsuit resulted in another jury verdict against the Company of $382,148. In
connection with the litigation and the resulting jury verdict, the Company filed
post-trial motions with the trial court in which, among other things, it claimed
that the jury verdict should be set aside. On July 23, 2004, the trial judge
granted the Company's motions, set aside the jury verdict, and ordered entry of
a judgment in favor of the Company. The plaintiff has appealed the trial judge's
ruling to the South Carolina Court of Appeals. If the Company becomes obligated
to pay more than an insignificant amount of damages in connection with this
litigation, it will be forced to consider alternatives for winding down its
business, which may include offering its patents for sale or filing for
bankruptcy protection.

In June 2003, the Company filed a lawsuit against Federated Department
Stores, Inc. ("Federated"), and certain of its subsidiaries alleging that
Federated has infringed one of the Company's patents (U. S. Patent No.
6,105,007). In September 2003, the Company filed a similar lawsuit against
Ameritrade Holding Corporation and its subsidiary, Ameritrade, Inc.
(collectively "Ameritrade"), alleging infringement of the same patent. Both
lawsuits were filed in the United States District Court in Columbia, South
Carolina (the "Columbia Federal Court"), and both seek unspecified damages. In
2004, at the request of Federated and Ameritrade, the PTO determined to
reexamine U.S. Patent No. 6,105,007. As a result of the reexamination of U.S.
Patent No. 6,105,007, the Company jointly, with Federated and Ameritrade,
requested the Columbia Federal Court to stay the lawsuits against Federated and
Ameritrade pending resolution of the reexamination of U. S. Patent No.
6,105,007. In March 2006, the Company was notified that the PTO had concluded
the reexamination of U.S. Patent No. 6,105,007 and that such reexamination
resulted in the full allowance of all the claims of this patent. As a result of
the completion of the PTO's reexamination of U.S. Patent No. 6,105,007, the stay
of these lawsuits against Federated and Ameritrade was automatically lifted, and
these lawsuits are now proceeding.

In November 2003, Household International, Inc. ("Household") filed a
declaratory judgment action against the Company in the United States District
Court in Wilmington, Delaware (the "Delaware Federal Court"). In its complaint
Household requested the Delaware Federal Court to rule that Household was not
infringing any of the claims of the Company's patents (U.S. Patent No. 5,870,721
C1, No. 5,940,811 C1, and No. 6,105,007) and that the patents were not valid.
The Company filed counterclaims against Household claiming that Household
infringes U. S. Patent No. 5,870,721 C1, No. 5,940,811 C1 and No. 6,105,007. The
Company also filed a motion with the Delaware Federal Court to transfer the case
to the Columbia Federal Court. In April 2004, the Delaware Federal Court granted
the Company's motion to transfer the case to Columbia Federal Court. As a result
of the reexamination of U.S. Patent No. 6,105,007, the Company jointly, with
Household, requested and received a stay of the Household action from the
Columbia Federal Court pending the resolution of the PTO's reexamination of U.S.
Patent No. 6,105,007. As discussed above, the PTO has concluded the
reexamination of U.S. Patent No. 6,105,007. Accordingly, the stay of this
lawsuit was automatically lifted, and this lawsuit is now proceeding.

The Company believes that the lawsuits with Federated, Ameritrade and
Household may require substantial resources and take an extended time to
complete. No assurances can be given that the Company will have the resources
necessary to complete these lawsuits or that it will be successful in obtaining
a favorable outcome.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you
should carefully consider the factors discussed in Part I, Item 1A. "Risk
Factors" in our Annual Report on Form 10-K for the year ended December 31, 2005,
which could materially affect our business, financial condition or results of
operations.

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

(a) On May 11, 2006, the Company issued $150,000 principal amount of
its convertible secured notes for cash in a transaction exempt
from registration pursuant to Section 4(2) of the Securities Act
of 1933. These notes are convertible into shares of common stock
of the Company at a price of $0.50 per share.

On May 17, 2006, certain noteholders converted $150,000 principal
and $47,467 accrued interest related to the Company's convertible
secured notes into 987,333 shares of the Company's common stock.
All shares issued upon conversion of the Company's convertible
secured notes were issued in transactions exempt from registration
pursuant to Section 3(a)(9) of the Securities Act of 1933.

(b) Not applicable.

Item 3. Defaults Upon Senior Securities

The Company has a convertible note program under which it is authorized
to issue notes that are convertible into shares of its common stock. Principal
and interest under these notes generally becomes payable in full on the second
anniversary of the date on which these notes were issued. However, under the
terms of the notes, the full amount of principal and interest under all notes
may be declared immediately due and payable in certain events, including
bankruptcy or similar proceedings involving the Company, a default in the
payment of principal and interest under any note, or a change in control of the
Company.

As of June 30, 2006, outstanding notes with a principal amount of
$744,000 had become due and payable in accordance with their contractual
two-year maturity dates. Because the Company was in default regarding payment of
principal and interest due under certain of the notes, the full amount of
principal and interest outstanding under all notes had become payable at the
option of the noteholders. As of June 30, 2006, and December 31, 2005, the
amount of principal and accrued interest outstanding under all of the notes was
$1,259,022 and $1,595,906, respectively.

In August 2006, the Company and the holders of all outstanding notes
entered into an amended and restated note purchase agreement under which such
holders agreed to extend the maturity date of such notes by exchanging them
(including all interest accrued thereon) for new notes in the aggregate
principal amount of $1,268,027. These new notes issued in August 2006 have the
same terms as the old notes exchanged therefor, except that the new notes will
mature in August 2008. As a result of the amended note purchase agreement, the
full amount of principal and accrued interest under all the notes is shown as a
long-term liability as of June 30, 2006. Under the amended note purchase
agreement, the Company is authorized to issue notes having a principal amount of
up to $5,000,000 (including the new notes issued in exchange for outstanding
notes), and such notes will be convertible into shares of the Company's common
stock at a price determined by the Company and each investor at the time of
issuance.

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

The 2006 Annual Meeting of Stockholders of Affinity Technology Group,
Inc., was held on June 15, 2006 (the "Annual Meeting"). At the Annual Meeting,

o Joseph A. Boyle, Robert M. Price, and Peter R. Wilson were duly
elected to the Board of Directors of the Company;

o the amendment to the Certificate of Incorporation of the Company to
increase the number of authorized shares of Common Stock to
100,000,000 was approved; and,

o the appointment of Scott McElveen LLP as independent auditors for the
year ending December 31, 2006, was ratified.

Votes cast by the stockholders of the Company at the Annual Meeting are
as follows:

- ---------------------------------------- -------------------------- ------------------------- ------------------------
Nominees for Director Shares Voted in Favor Shares Withheld Broker Non-Votes
- ---------------------------------------- -------------------------- ------------------------- ------------------------

Joseph A. Boyle 40,041,322 1,442,255 -
- ---------------------------------------- -------------------------- ------------------------- ------------------------
Robert M. Price 40,176,213 1,307,364 -
- ---------------------------------------- -------------------------- ------------------------- ------------------------
Peter R. Wilson 40,167,051 1,316,526 -
- ---------------------------------------- -------------------------- ------------------------- ------------------------

- ----------------------------------------------------------------------------------------------------------------------
Approval of the amendment to the Certificate of Incorporation
- ----------------------------------------------------------------------------------------------------------------------
Shares Voted In Favor Shares Voted Against Shares Abstaining Broker Non-Votes
- ---------------------------------------- -------------------------- ------------------------- ------------------------
39,751,976 1,711,601 20,000 -
- ---------------------------------------- -------------------------- ------------------------- ------------------------

- ----------------------------------------------------------------------------------------------------------------------
Ratification of the appointment of Scott McElveen LLP
- ----------------------------------------------------------------------------------------------------------------------
Shares Voted In Favor Shares Voted Against Shares Abstaining Broker Non-Votes
- ---------------------------------------- -------------------------- ------------------------- ------------------------
40,896,736 101,499 485,342 -
- ---------------------------------------- -------------------------- ------------------------- ------------------------

Item 5. Other Information

On May 17, 2006, holders of certain 8% convertible secured notes issued
by the Company converted $150,000 principal amount and $47,467 of accrued
interest under their convertible secured notes into 987,333 shares of the
Company's common stock. All shares issued upon conversion of the Company's
convertible secured notes were issued in transactions exempt from registration
pursuant to Section 3(a)(9) of the Securities Act of 1933.

On August 9, 2006, the Company and the holders of its outstanding
convertible notes entered into an amended and restated convertible note purchase
agreement under which such holders agreed to extend the maturity date of such
notes by exchanging them (including all interest accrued thereon) for new
two-year notes due in August 2008 in the aggregate principal amount of
$1,268,027. Of the new notes issued, notes with a principal amount of $1,115,068
are convertible into shares of the Company's common stock at $0.20 per share,
and notes with a principal amount of $152,959 are convertible into shares of the
Company's common stock at $0.50 per share. Under the amended note purchase
agreement, the Company may issue additional notes in the aggregate principal
amount of up to $5,000,000 (including the notes issued to current noteholders,
as described above) having an exercise price determined by the Company and each
investor at the time of issuance.

Item 6. Exhibits

Exhibit Number Description
-------------- ------------

3.1 Certificate of Incorporation of Affinity Technology Group,
Inc. (the "Company"), which is hereby incorporated by
reference to Exhibit 3.1 to the Registration Statement on Form
S-1 of Affinity Technology Group, Inc. (File No. 333-1170).

3.2 Certificate of Amendment to Certificate of Incorporation of
the Company

3.3 Bylaws of the Company, which is hereby incorporated by
reference to Exhibit 3.2 to the Registration Statement on Form
S-1 of Affinity Technology Group, Inc. (File No. 333-1170).

4.1 Amended and Restated Convertible Note Purchase Agreement,
dated August 9, 2006, among the Company and the investors
named therein.

4.2 Form of 8% Convertible Secured Note

4.3 Amended and Restated Security Agreement, dated August 9, 2006,
among the Company and the investors named therein.

10.1 Letter Agreement, effective as of April 17, 2006, between the
Company and the holders of the 8% convertible secured notes
issued under the Convertible Note Purchase Agreement, dated as
of June 3, 2002, among the Company and the investors named
therein, which is hereby incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K filed on
April 17, 2006.

10.2 Letter Agreement, dated July 10, 2006, between the Company and
Morgan Keegan & Company, which is hereby incorporated by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K filed on July 14, 2006.

10.3 Amended and Restated Legal Representation Agreement, dated
July 10, 2006, among the Company, decisioning.com, Inc. and
Withrow & Terranova, PLLC, which is hereby incorporated by
reference to Exhibit 10.2 to the Company's Current Report on
Form 8-K filed on July 14, 2006.

10.4 Engagement Agreement, dated July 10, 2006, among the Company,
decisioning.com, Inc. and McBride Law, PC, which is hereby
incorporated by reference to Exhibit 10.3 to the Company's
Current Report on Form 8-K filed on July 14, 2006.

31 Rule 13a-14(a) 15d-14(a) Certifications

32 Section 1350 Certifications

Pursuant to the requirements 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.

Affinity Technology Group, Inc.

By: /s/ Joseph A. Boyle
-------------------
Joseph A. Boyle
Chairman, President,
Chief Executive Officer and
Chief Financial Officer
(principal executive and financial officer)

Date: August 14, 2006

EXHIBIT INDEX

Exhibit 3.2 Certificate of Amendment to Certificate of
Incorporation of the Company

Exhibit 4.1 Amended and Restated Convertible Note Purchase Agreement,
dated August 9, 2006, among the Company and the investors
named therein.

Exhibit 4.2 Form of 8% Convertible Secured Note

Exhibit 4.3 Amended and Restated Security Agreement, dated
August 9, 2006, among the Company and the
investors named therein.

Exhibit 31 Rule 13a-14(a) 15d-14(a) Certifications

Exhibit 32 Section 1350 Certifications