UNITED STATES
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 September 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.
45,267,398 shares of Common Stock, $0.0001 par value, as of November 1, 2006.
AFFINITY TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30,
2006 and December 31, 2005.................................. 4
Condensed Consolidated Statements of Operations for the
three and nine months ended September 30, 2006 and 2005..... 5
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 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..... 16
ITEM 4. Controls and Procedures........................................ 16
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.............................................. 16
ITEM 1A. Risk Factors................................................... 17
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.... 17
ITEM 3. Defaults Upon Senior Securities................................ 19
ITEM 5. Other Information.............................................. 19
ITEM 6. Exhibits....................................................... 19
Signature................................................................... 20
2
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 results of ongoing
litigation; and unanticipated costs and expenses affecting the Company's cash
position. If the Company is not able to raise additional capital to fund its
ongoing operations and patent infringement litigation expenses, 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 the award
of 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.
3
Part I. Financial Information
Item 1. Financial Statements
Affinity Technology Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
September 30,
2006 December 31,
(Unaudited) 2005
------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 1,567,695 $ 13,776
Receivables - 100,000
Prepaid expenses 49,291 33,739
------------------------------------
Total current assets 1,616,986 147,515
Property and equipment, net 1,953 4,796
------------------------------------
Total assets $ 1,618,939 $ 152,311
====================================
Liabilities and stockholders' deficiency
Current liabilities:
Accounts payable $ 161,063 $ 119,768
Accrued expenses 860,066 390,564
Accrued interest - 294,570
Convertible notes - 1,301,336
Deferred revenue 33,333 33,333
------------------------------------
Total current liabilities 1,054,462 2,139,571
Non-current liabilities:
Convertible notes 3,140,666 -
Accrued interest 21,609 -
Deferred revenue 36,111 61,111
------------------------------------
Total non-current liabilities 3,198,386 61,111
------------------------------------
Total liabilities 4,252,848 2,200,682
Commitments and contingent liabilities
Stockholders' deficiency:
Common stock, par value $0.0001; authorized 100,000,000
shares, issued 47,435,406 and 44,393,104 shares at
September 30, 2006 and December 31, 2005, respectively 4,744 4,439
Additional paid-in capital 72,031,018 70,696,896
Treasury Stock, at cost (2,168,008 shares at
September 30, 2006 and December 31, 2005) (3,505,287) (3,505,287)
Accumulated deficit (71,164,384) (69,244,419)
------------------------------------
Total stockholders' deficiency (2,633,909) (2,048,371)
------------------------------------
Total liabilities and stockholders' deficiency $ 1,618,939 $ 152,311
====================================
See accompanying notes to Condensed Consolidated Financial Statements.
4
Affinity Technology Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2006 2005 2006 2005
--------------------------------- ---------------------------------
Revenues:
Patent license revenue $ 8,333 $ 4,411 $ 25,000 $ 13,235
Costs and expenses:
Cost of revenues 833 442 2,500 1,324
General and administrative expenses 1,588,962 113,912 1,867,139 369,418
--------------------------------- ---------------------------------
Total cost and expenses 1,589,795 114,354 1,869,639 370,742
--------------------------------- ---------------------------------
Operating loss (1,581,462) (109,943) (1,844,639) (357,507)
Other income (expense)
Interest income 2,181 85 2,903 146
Interest expense (30,773) (25,118) (78,229) (72,570)
--------------------------------- ---------------------------------
Net loss $ (1,610,054) $ (134,976) $ (1,919,965) $ (429,931)
================================= =================================
Net loss per share -
basic and diluted: $ (0.04) $ (0.00) $ (0.04) $ (0.01)
================================= =================================
Shares used in computing net
loss per share 45,007,822 42,215,096 43,833,020 42,196,699
================================= =================================
See accompanying notes to Condensed Consolidated Financial Statements.
5
Affinity Technology Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
2006 2005
------------------------------------
Operating activities
Net loss $ (1,919,965) $ (429,931)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 3,629 5,226
Amortization of stock compensation 740,367 -
Deferred revenue (25,000) (13,235)
Other 3,200 (305)
Changes in current assets and liabilities:
Accounts receivable 100,000 -
Other current assets (15,552) 21,337
Accounts payable and accrued expenses 589,026 249,154
------------------------------------
Net cash used in operating activities (524,295) (167,754)
Investing activities
(Purchase) sale of property and equipment, net (786) 305
------------------------------------
Net cash (used in) provided by investing activities (786) 305
Financing activities
Proceeds from convertible notes 2,055,000 120,000
Exercise of stock options 24,000 -
------------------------------------
Net cash provided by financing activities 2,079,000 120,000
------------------------------------
Net increase (decrease) in cash 1,553,919 (47,449)
Cash and cash equivalents at beginning of period 13,776 62,756
------------------------------------
Cash and cash equivalents at end of period $ 1,567,695 $ 15,307
====================================
See accompanying notes to Condensed Consolidated Financial Statements.
6
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 September 30, 2006, the Company had cash and cash equivalents of
$1,567,695. The Company believes that its existing cash resources are sufficient
to fund its ordinary course operating expenses and its estimated expenses
related to its ongoing patent litigation through the remainder of 2006 and into
the first quarter of 2007. 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 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 through 2007, it is critical that the Company
raise additional capital through the sale of debt and/or equity securities or
generate capital from licensing its patents. No assurances can be given that the
Company will be able to raise additional capital or generate capital from its
patent licensing business. Unless the Company raises additional capital, it may
have to consider alternatives for winding down its business, which may include
offering its patents for sale or filing for bankruptcy protection.
7
Management's plan to continue the operations of the Company has included
the restructuring of its convertible notes, which were in default through August
2006 and the continuation of its 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 Note 6, 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. In September 2006, the Company sold
additional notes in the aggregate principal amount of $1,905,000.
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.
In June 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN
48"), which clarifies the accounting for uncertainty in income taxes recognized
in an enterprise's financial statements in accordance with FASB Statement No.
109, "Accounting for Income Taxes." FIN 48 prescribes a recognition threshold
and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
48 is effective for fiscal years beginning after December 15, 2006. The Company
does not expect FIN 48 to have a material impact on the Company's financial
position or results of operations.
8
On September 13, 2006, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 108 ("SAB 108"), which provides
interpretive guidance on how the effects of the carryover or reversal of prior
year misstatements should be considered in quantifying a current year
misstatement. SAB 108 is effective for the first fiscal year ending after
November 15, 2006. The adoption of this statement is not expected to have a
material impact on the Company's financial position or results of operations.
Also in September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurement", effective for our fiscal year beginning January 1, 2008. This
Statement defines fair value, establishes a framework for measuring fair value
and expands disclosures about fair value measurements. This Statement does not
require any new fair value measurements, but simplifies and codifies related
guidance within GAAP. This Statement applies under other accounting
pronouncements that require or permit fair value measurements. The Company is
currently reviewing this pronouncement, but believes it will not have a material
impact on our financial statements.
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.
During the three month period ended September 30, 2006, the Company granted
to its management and directors 4,350,000 stock options. All options granted
were at the market value or above the market value at the date of grant. The
grant date fair value of stock options granted during the three month period
ended September 30, 2006 was $1,136,000. Of the stock options granted, 1,616,666
vested as of the grant date. The fair value of these options, $425,333, was
recognized as compensation expense as of the date of grant. The remaining
2,733,334 options with a fair value of $710,667 vest over a two year period and
during the three month period ended September 30, 2006, the Company recognized
$112,973 as compensation expense associated with these options. Total
compensation expense associated with stock options, including expense related to
options granted before January 1, 2006, during the three and nine months ended
September 30, 2006 was $538,771 and $540,367, respectively. Additionally, during
the three month period ended September 30, 2006, the Company granted 2,500,000
warrants to a third party as compensation for investment banking and advisory
services. The warrants vested at the grant date and are exercisable at $.50 per
common share. The fair value of the warrants was $200,000, which the Company
recognized as compensation expense at the date of grant.
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 nine month period ended September 30, 2005 would have been as
follows:
9
Three Months Nine Months
Ended September 30, Ended September 30,
2005 2005
--------------------- ---------------------
Net loss:
As reported $ (134,976) $ (429,931)
Deduct: stock-based compensation expense
determined under the fair value based
method for all awards (899) (5,701)
----------- -----------
Pro forma net loss $ (135,875) $ (435,632)
=========== ===========
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. Prior to
August 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 become 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.
From June 2004 through August 2006, 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. At December 31, 2005, the amount of
principal and accrued interest outstanding under all of the notes was
$1,595,906.
10
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.
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.
In September 2006, The Company sold additional convertible notes in the
aggregate principal amount of $1,905,000. The terms of these notes are the same
as the notes previously issued by the Company, except that they may be converted
into the Company's common stock at a rate of $.42 per share, and the Company has
agreed to prepare and file with the Securities and Exchange Commission, on or
before January 31, 2007, a registration statement with respect to the Company's
common stock issuable upon conversion of these notes.
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, Contingencies and Subsequent Event
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 appealed the trial judge's ruling to the
South Carolina Court of Appeals (the "Appeals Court"). On October 30, 2006, the
Appeals Court reversed the trial judge's decision and reinstated the jury
verdict of $382,148. The Company will petition the Appeals Court for a rehearing
of the case and will seek further appeals, if necessary. If the Company becomes
obligated to pay more than an insignificant amount of damages in connection with
this litigation, it could 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.
11
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 results of ongoing
litigation; and unanticipated costs and expenses affecting the Company's cash
position. If the Company is not able to raise additional capital to fund its
ongoing operations and patent infringement litigation expenses, 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 the award
of 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
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).
12
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 September 30, 2006, the Company had cash and cash equivalents of
$1,567,695. The Company believes that its existing cash resources are sufficient
to fund its ordinary course operating expenses and its estimated expenses
related to its ongoing patent litigation through the remainder of 2006 and into
the first quarter of 2007. To continue its operations thereafter, the Company
must secure additional working capital through the licensing of its patents or
through the sale of additional debt and/or equity securities.
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. See Part II Item 1, "Legal Proceedings." 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 through 2007, it is critical
that the Company raise additional capital through the sale of debt and/or equity
securities or from licensing its patents. No assurances can be given that the
Company will be able to raise additional capital or generate capital from its
patent licensing business. Unless the Company raises additional capital, it may
have to consider alternatives for winding down its business, which may include
offering its patents for sale or filing for bankruptcy protection.
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. The Company considers
critical accounting policies to be those that require more significant judgments
and estimates in the preparation of its 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 September
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 $8,333 and $25,000 for the
three and nine month periods ended September 30, 2006, respectively, compared to
$4,411 and $13,235 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.
13
Costs and Expenses
Cost of Revenues. Cost of revenues for the three month and nine month
periods ended September 30, 2006 was $833 and $2,500, respectively, compared to
$442 and $1,324 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
were $1,588,962 for the three month period ended September 30, 2006 compared to
$113,912 in the corresponding period in 2005, an increase of $1,475,050. For the
nine month period ended September 30, 2006, general and administrative expenses
were $1,867,139 compared to $369,418 in the corresponding period in 2005, an
increase of $1,497,721. The increase in both periods was primarily related to:
an increase in professional fees related to legal and other expenses associated
with the Company's ongoing patent litigation; the recognition of stock-based
compensation expense in July 2006; and, the accrual of a jury verdict against
the Company recognized in September 2006. The Company is attempting to enforce
its patents in three lawsuits. For more information on these lawsuits, see Part
II, Item 1, "Legal Proceedings." The lawsuits were initiated in 2003, but 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. For the three
and nine month periods ended September 30, 2006, professional fees increased
$312,251 and $406,061, respectively, compared to the corresponding periods in
2005. Additionally, during the three months ended September 30, 2006, the
Company recognized a non-cash expense of $738,771 in accordance with stock
options issued to management and directors and warrants issued to Morgan Keegan
for investment banking and advisory services. General and administrative
expenses also include the accrual of a jury verdict of $382,148 recorded by the
Company to reflect the reinstatement of the verdict by the South Carolina Court
of Appeals. Recent developments in this matter are discussed further under the
caption Part II, Item 1, "Legal Proceedings."
Interest expense. Interest expense for the three and nine month periods
ended September 30, 2006, was $30,773 and $78,229, respectively, compared to
$25,118 and $72,570 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 nine month periods ended
September 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. In May 2006 and September 2006, the Company
issued convertible notes in an aggregate principal amount of $150,000 and
$1,905,000, respectively. During the three and nine month periods ended
September 30, 2006, notes in an aggregate principal amount of $32,361 and
$444,697, respectively were converted into shares of the Company's common stock.
Liquidity and Capital Resources
The Company has generated net losses of $71,164,384 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 nine months ended September 30,
2006, was $524,295, compared to $167,754 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 nine month ended September 30, 2006 with the proceeds from the issuance of
additional notes in an aggregate principal amount of $2,055,000. Patent
infringement litigation expenses also increased during the period and the
Company anticipates that its expense and operating cash needs will increase as
it continues to actively pursue its patent infringement litigation. At September
30, 2006 cash and liquid investments were $1,567,695, as compared to $13,776 at
December 31, 2005. At September 30, 2006 working capital was $562,524 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 September 30, 2006, the Company had cash and cash equivalents of
$1,567,695. The Company believes that its existing cash resources are sufficient
to fund its ordinary course operating expenses and its estimated expenses
related to its ongoing patent litigation through the remainder of 2006 and into
the first quarter of 2007. To continue its operations thereafter, the Company
must secure additional capital through the licensing of its patents or through
the sale of additional debt and/or equity securities.
14
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 through 2007, it is critical that the Company raise additional
capital. No assurances can be given that the Company will be able to raise
additional capital or generate capital from its patent licensing business.
Unless the Company raises additional capital, it may have to consider
alternatives for winding down its business, which may include offering its
patents for sale or filing for bankruptcy protection.
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. Prior to
August 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.
From June 2004 through August 2006, 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. At December 31, 2005, the amount of
principal and accrued interest outstanding under all of the notes was
$1,595,906.
15
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.
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.
In September 2006, The Company sold additional convertible notes in the
aggregate principal amount of $1,905,000. The terms of these notes are the same
as the notes previously issued by the Company, except that they may be converted
into the Company's common stock at a rate of $.42 per share, and the Company has
agreed to prepare and file with the Securities and Exchange Commission, on or
before January 31, 2007, a registration statement with respect to the Company's
common stock issuable upon conversion of these notes.
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 September 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 control 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 control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
As previously reported, 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 appealed the
trial judge's ruling to the South Carolina Court of Appeals (the "Appeals
Court"). On October 30, 2006, the Appeals Court reversed the trial judge's
decision and reinstated the jury verdict of $382,148. The Company will petition
the Appeals Court for a rehearing of the case and will seek further appeals, if
necessary. If the Company becomes obligated to pay more than an insignificant
amount of damages in connection with this litigation, it could be forced to
consider alternatives for winding down its business, which may include offering
its patents for sale or filing for bankruptcy protection.
16
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.
In accordance with the patent infringement lawsuits with Federated, TD
Ameritrade and HSBC (formerly Household), as described above, a "Markman
Hearing" is currently scheduled for December 4, 2006. Markman hearings are
proceedings under U.S. patent law in which plaintiffs and defendants present
their arguments to the court as to how they believe the patent claims - which
define the scope of the patent holder's rights under the patent - should be
interpreted for purposes of determining at trial whether the patents have been
infringed. For purposes of the Markman hearing, the Federated, TD Ameritrade and
HSBC cases will be consolidated into one hearing and will be held by the
Columbia Federal Court. No assurances can be given as to the outcome of the
Markman hearing and whether its results will be favorable in whole, in part, or
at all, to the Company.
The Company believes that the lawsuits with Federated, TD Ameritrade and
HSBC 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 August 31, 2006, a noteholder converted $32,361 principal and $158
accrued interest related to the Company's convertible secured notes
into 162,596 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.
17
On September 13, 2006, the Company issued $1,905,000 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 $0.42 per share. Additional information regarding this
sale of notes is set forth in a Current Report on Form 8-K filed on
September 20, 2006.
(b) Not applicable.
(c) Not applicable.
18
Item 3. Defaults Upon Senior Securities
See Note 6 to the Company's unaudited condensed consolidated financial
statements included in this report for information regarding defaults on the
Company's 8% convertible secured notes, which were cured in August 2006 with the
refinancing of such notes.
Item 5. Other Information
On August 31, 2006, holders of certain 8% convertible secured notes issued
by the Company converted $32,361 principal amount and $158 of accrued interest
under their convertible secured notes into 162,596 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.
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.
4.4 Letter Agreement, dated as of September 12, 2006, among
Affinity Technology Group, Inc. and certain purchasers of
convertible notes under the Amended and Restated Convertible
Note Purchase Agreement, dated as of August 9, 2006, among
the Company and the investors named therein, which is hereby
incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed on September 20, 2006.
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
19
SIGNATURE
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: November 14, 2006
20
EXHIBIT INDEX
Exhibit 31 Rule 13a-14(a) 15d-14(a) Certifications
Exhibit 32 Section 1350 Certifications
21