UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 2006

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________.

                         Commission file number 0-28152

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

                                    Delaware
         (State or other jurisdiction of incorporation or organization)

                                   57-0991269
                      (I.R.S. Employer Identification No.)

                           1310 Lady Street, Suite 601
                               Columbia, SC 29201
                    (Address of principal executive offices)
                                   (Zip code)

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

                              8807-A Two Notch Road
                               Columbia, SC 29223
 (Former name, former address and former fiscal year, if changed since last
                                    report)

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                    Common Stock, par value $.0001 per share
                                (Title of class)

         Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [ X ]

         Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes [   ]   No [ X ]

         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 [ ]

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         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         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 ]

         The aggregate market value of the Registrant's outstanding Common Stock
held by non-affiliates of the Registrant was approximately $7,880,000 as of June
30, 2006. For purposes of such calculation, persons who hold more than 10% of
the outstanding shares of Common Stock, directors and officers of the Registrant
and certain of their immediate family members have been treated as affiliates.
This determination is not conclusive.

         There were 45,267,398 shares of the Registrant's Common Stock
outstanding as of January 15, 2007.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Certain portions of the Registrant's proxy statement with respect to
the 2007 Annual Meeting of Stockholders of the Registrant have been incorporated
by reference herein.

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                                  Introduction

         As used in this report, unless the context otherwise requires, the
terms "we," "our," "us" (or similar terms), the "Company" or "Affinity" include
Affinity Technology Group, Inc. and its subsidiaries, except that when used with
reference to common stock or other securities described herein and in describing
the positions held by management of the Company, the term includes only Affinity
Technology Group, Inc. The Company maintains a web site at http://www.affi.net,
although the contents of such web site are not incorporated into this report.
The Company has made its annual reports on Form 10-K, quarterly reports on Form
10-Q, and current reports on Form 8-K and any amendments to these reports
available through its web site free of charge through a link to the SEC's web
site. These documents are available for access as soon as reasonably practicable
after we electronically file these documents with the SEC.

                           Forward-Looking Statements

         Statements in this report, including in Part I, Item 1, "Business" and
Part II, Item 7, "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. Forward-looking
statements typically are identified by words such as "may," "will," "should,"
"anticipate," "estimate," "expect," "plan," "believe," predict," "potential,"
"intend," "continue" and similar expressions, although some forward-looking
statements may be expressed differently. Forward-looking statements are subject
to known and unknown risks, assumptions that may prove inaccurate, uncertainties
and other factors, including those set forth below in Part I, Item 1A, "Risk
Factors," that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements. You are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date they are made. The Company undertakes no ongoing obligation to
update these forward-looking statements if we learn that any of the
forward-looking statements or the underlying assumptions are incorrect.

Part I

Item 1.  Business

         Overview

         Affinity  Technology  Group,  Inc. was  incorporated  as a Delaware
corporation  in 1994.  Its  principal executive  offices are located at 1310
Lady Street,  Suite 601,  Columbia,  South Carolina 29201, and its telephone
number is (803) 758-2511.

         Affinity 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 Affinity include its DeciSys/RT 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, 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, we have suspended all efforts to further develop, market and
operate these products and services. Our last processing contract terminated in
late 2002, and we have no plans in the near term to engage in further sales or
other activities related to our products or services, other than to attempt to
license certain of the patents that we own. Currently, our business activities
consist exclusively of attempting to enter into license agreements with third
parties to license our rights under certain of our patents and in pursuing the
patent litigation described below in an effort to protect our intellectual
property and obtain recourse against alleged infringement of our patents. In
2006, our sole revenues from operations were generated from one outstanding
license of our patents.

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         Patents and Legal Matters

         In conjunction  with our product  development  activities,  we applied
for and obtained three patents.  We have been granted two patents covering our
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 us 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,  we  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, we 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,
we  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 our  patents. We can make no
assurances that we will not lose all or some of the claims covered by our
existing patents.

         In June 2003, we filed a lawsuit against Federated Department Stores,
Inc.  ("Federated"),  and certain of its  subsidiaries  alleging  that
Federated  has  infringed  one of our patents (U. S. Patent No.  6,105,007). In
September 2003, we 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,  we
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, we were
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 us 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 our patents (U.S. Patent No.
5,870,721 C1, No.  5,940,811,  and No. 6,105,007) and that the patents were not
valid. We filed  counterclaims  against Household claiming that Household
infringes U. S. Patent No. 5,870,721 C1, No.  5,940,811,  and No.  6,105,007.
We 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 our motion to transfer the case to Columbia Federal Court. As a result
of the  reexamination of U.S. Patent No.  6,105,007,  we 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 (formerly Ameritrade) and HSBC (formerly Household), as described
above, a "Markman Hearing" was held in December 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 were consolidated into one hearing and held by the Columbia Federal
Court. As a result of the Markman proceedings the Columbia Federal Court
interpreted and construed the meaning of numerous claim terms which bear on the
scope of our patents. Although most claim terms were construed in a manner we
believe are favorable, the trial judge interpreted and construed certain claim
terms, most notably those related to the term "remote interface" as claimed in
our second loan processing patent

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<PAGE>

(U.S. Patent No. 5,940,811 C1) and our financial account patent (U.S. Patent No.
6,105,007 C1), in a manner unacceptable and unfavorable to us. In these patents,
the Court interpreted and construed "remote interface" to mean computer
equipment, including personal computer equipment, that is not owned by a
consumer. The Court applied no such limitation in construing the term "remote
interface" under our first loan processing patent (U.S. Patent No. 5,870,721
C1). Unless we can obtain a more favorable interpretation of certain claim
terms, it is possible the scope of our patents could be significantly limited.
In order to seek a reversal of these unfavorable Markman rulings, we will likely
be required to appeal the rulings to the Federal Circuit Court of Appeals.
Moreover, we believe that an appeal of the Markman rulings will likely delay our
current patent infringement lawsuits and hinder our ability to license our
patents. Further, an appeal of the Markman rulings will likely require
substantial resources and an extended period of time to complete, which will in
turn likely increase the already significant costs and expected time required to
prosecute our existing infringement actions. No assurance can be given that we
will have the resources necessary to complete our appeal of the Markman rulings
or our underlying lawsuits or that we will be successful in obtaining a
favorable outcome.

         In addition, we and our 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 Affinity and Mr. Norris breached an agreement to give him a
1% equity interest in Affinity in consideration of services Mr. Ligon claims to
have performed in 1993 and 1994 in conjunction with the formation of Affinity,
and seeks monetary damages of $5,463,000. This lawsuit initially resulted in a
jury verdict against us 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 us of $382,148. In connection with the litigation and the
resulting jury verdict, we filed post-trial motions with the trial court in
which, among other things, we claimed that the jury verdict should be set aside.
On July 23, 2004, the trial judge granted our motions, set aside the jury
verdict, and ordered entry of a judgment in favor of us. 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. Our petition to the
Appeals Court for a rehearing of this case has been denied, and we intend to
petition the South Carolina Supreme Court for relief from this ruling. If we
become obligated to pay more than an insignificant amount of damages in
connection with this litigation, we could be forced to consider alternatives for
winding down our business, which may include offering our patents for sale or
filing for bankruptcy protection.

         To date, we have generated substantial operating losses and have been
required to use a substantial amount of cash resources to fund our operations.
At December 31, 2006, we had cash and cash equivalents of $1,026,978. We
generally have been unable to enter into licensing agreements with potential
licensees upon terms that are acceptable to us and, as discussed above, we are
attempting to seek recourse through litigation with alleged infringers of our
patents. To vigorously pursue our lawsuits, we anticipate that we will need to
increase our operating expenses due to, among other things, increased litigation
costs and related expenses. Accordingly, to remain viable through 2007, it is
critical that we raise additional capital through the sale of debt and/or equity
securities or from licensing our patents. No assurances can be given that we
will be able to raise additional capital or generate capital from our patent
licensing business. Unless we raise additional capital, we may have to consider
alternatives for winding down our business, which may include offering our
patents for sale or filing for bankruptcy protection.

         Patent Licensing Agent

         On May 27, 2003, our decisioning.com, Inc. subsidiary, which owns our
patent portfolio, entered into a legal representation agreement with Withrow &
Terranova, PLLC ("W&T"), pursuant to which decisioning.com appointed W&T as its
exclusive representative for the solicitation and negotiation of agreements to
license our patents. (This arrangement replaced the former patent licensing
agent agreement between decisioning.com and Information Ventures LLC d/b/a LPS
Group, which was terminated on April 30, 2003.) Under the agreement, W&T agreed
to promote, market, solicit, and negotiate the licensing of our patents with
third parties and to represent decisioning.com as legal counsel in connection
with any patent litigation associated with the enforcement of our patents. As
compensation for its services under the agreement, W&T was to receive 25% of all
revenues received by decisioning.com under any patent agreements and 25% of all
amounts paid in settlement of any patent litigation commenced by
decisioning.com. The term of the agreement is for the life of the patents,
subject to either party's right to terminate the agreement for "cause," as
specified in the agreement, and without cause following the third anniversary of
the agreement.

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<PAGE>

If the agreement is terminated by decisioning.com, W&T will be entitled to
continue to receive compensation attributable to patent agreements negotiated
prior to termination and, if such termination is without cause, compensation for
certain future patent agreements.

         In July 2006, we engaged McBride Law, PC (the "McBride Firm") to assist
us and W&T in connection with our patent licensing program and related
litigation. In conjunction with the engagement of the McBride Firm we amended
our agreement with W&T and 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 we
have commenced litigation, all other revenues received by us pursuant to any
patent agreements (subject to reduction in certain events), and all amounts
received from the sale of our patents. We have also agreed to pay W&T and the
McBride Firm 50% of their billing rates for their services. Otherwise, the terms
of the agreements with W&T and McBride Law are consistent with the terms
discussed above.

         Competition

         The market for technologies that enable electronic commerce is highly
competitive and is subject to rapid innovation and technological change,
shifting consumer preferences, new product introductions and competition from
traditional methods having all or some of the same features as technologies
enabling electronic commerce. Competitors in this market have frequently taken
different strategic approaches and have launched substantially different
products or services in order to exploit the same perceived market opportunity.
Until the market actually validates a strategy through widespread acceptance of
a product or service, it is difficult to identify all current or potential
market participants. There can be no assurance that the technologies covered by
our patents will be competitive technologically or otherwise.

         Electronic commerce technologies in general, including the methods
covered by our patents, compete with traditional methods for processing
financial transactions. The success of our patent licensing efforts will depend
in part on consumer acceptance of electronic commerce and industry use of
systems that are covered by our patents.

         Intellectual Property

         We were issued two patents in 1999  covering  systems and methods for
real-time  loan  processing  over a computer  network  without human
intervention  ("System and Method for Real-time Loan  Approval", U.S. Patent No.
5,870,721,  and "Closed-loop  Financial Transaction Method and Apparatus," U.S.
Patent No. 5,940,811).  Both of our patents  covering fully automated loan
processing  systems expire in 2013 and have been subject to reexamination by
the PTO at the request of third  parties who  challenged  the  validity of the
patents.  On January 28,  2003,  we received a  Reexamination  Certificate (U.S.
Patent No.  5,870,721  C1) relating to the  completion  of the PTO's
reexamination of U. S. Patent No.  5,870,721.  On December 20, 2005, we received
a Reexamination  Certificate (U.S. Patent No. 5,940,811 C1) relating to the
completion of the PTO's reexamination of U.S. Patent No. 5,940,811.

         In August  2000,  we were issued a patent  covering the  automated
establishment  of a financial  account without human intervention  ("Automatic
Financial Account  Processing  System",  U.S. Patent No. 6,105,007).  This
patent also expires in 2013.  On June 23,  2004,  we were  notified by the PTO
that it had granted a  reexamination request  previously  filed by Federated and
Ameritrade to reexamine U. S. Patent No.  6,105,007.  On July 25, 2006, we
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.

         As discussed  above,  we have lawsuits  pending against  Federated and
Ameritrade in the Columbia  Federal Court in which we claim  that both
Federated  and  Ameritrade  infringe  U. S.  Patent No.  6,105,007  C1. We have
similar litigation pending against Household International, Inc. ("Household"),
in which we claim that Household infringes U.S. Patent No. 5,870,721 C1, No.
5,940,811 C1 and No. 6,105,007 C1.

         Other parties may take actions to challenge our patents. We can make no
assurances that we will not lose all or some of the claims covered by our
existing patents as the result of such challenges or other litigation, including
actions initiated by us, regarding our patents.

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         We also hold a patent,  which expires in 2014,  covering the issuance
of insurance products  automatically through a kiosk ("Method and Apparatus for
Issuing Insurance from a Kiosk", U.S. Patent No. 5,537,315).

         "iDEAL," and "rtDS," are registered service marks of Affinity.

         Our success is completely dependent upon our ability to defend and
license our patents. There can be no assurance that we will be able to protect
our intellectual property rights under our patents. Moreover, there can be no
assurance that new technological innovations will not be developed and widely
accepted by the market which will render obsolete the types of systems and
methods over which we believe we have proprietary intellectual property rights.

         Employees

         At December 31, 2006, we employed 2 full-time employees, compared to 1
full-time employee and one part-time employee at December 31, 2005. We have no
collective bargaining agreements.

Item 1A. Risk Factors

         An investment in our common stock involves numerous types of risks and
a high degree of risk generally. You should carefully consider the following
risk factors, in addition to the other information contained in this report, in
evaluating our company and any potential investment in our common stock. If any
of the following risks or uncertainties occurs, our business, financial
condition and operating results could be materially and adversely affected, the
trading price of our common stock could decline and you could lose all or a part
of your investment in our common stock. The risks and uncertainties described in
this section are not the only ones facing us. Additional risks and uncertainties
not presently known to us or that we currently deem immaterial may also
materially and adversely affect our business, operating results and financial
condition.

         We have limited capital resources and have continued to incur
significant operating losses, all of which threaten and raise substantial doubt
about our ability to continue as a going concern.

         We have generated net losses of $71,943,941 since our inception and
have financed our operations primarily through net proceeds from our initial
public offering in May 1996 and cash generated from operations and other
financing transactions. Net proceeds from our initial public offering were
$60,088,516.

         Our substantial operating losses have required us to use a substantial
amount of cash resources to fund our operations. Net cash used by operations
during the year ended December 31, 2006, was $1,058,217, and at December 31,
2006, we had a working capital deficit of $34,451. See Part 1, Item 1,
"Business" and Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity." We generally have been
unable to enter into licensing agreements with potential licensees upon terms
that are acceptable to us, and are pursuing litigation against alleged
infringers, as described further in Part 1, Item 1, "Business." To pursue an
appeal of unfavorable rulings issued in December 2006 in a Markman hearing, and
to continue vigorously pursue these lawsuits generally, we anticipate that we
will need to increase our operating expenses due to, among other things,
increased litigation costs and related expenses. Accordingly, to remain viable
through 2007, it is critical that we raise additional capital through the sale
of debt and/or equity securities or from licensing our patents. No assurances
can be given that we will be able to raise additional capital or generate
capital from our patent licensing business. Unless we raise additional capital,
we may have to consider alternatives for winding down our business, which may
include offering our patents for sale or filing for bankruptcy protection.

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         The report of our independent registered public accounting firm on our
audited financial statements included with this report contains a statement
noting that our recent history of losses, combined with other factors, raise
substantial doubt about our ability to continue as a going concern. Although our
plans to address these issues are discussed in Note 1 to the audited financial
statements included in this report and elsewhere in this report, these plans are
subject to numerous risks and contingencies, many of which are beyond our
control, and we can give no assurance as to whether or how long we may be able
to succeed in addressing these issues and maintaining our viability as a going
concern.

         We have incurred and continue to incur significant debt relative to our
revenues and if we are unable to repay this debt when due, as we have
experienced in the past, our operations and flexibility may be restricted and
the viability of our Company may be threatened.

         In 2002, we initiated a convertible note program under which we were
authorized to issue up to $1,500,000 principal amount of our 8% convertible
secured notes (the "notes"). In February 2006, the convertible note program was
amended to allow us to issue up to $3,000,000 of our notes. Prior to August
2006, we 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 our common stock.

         These notes bear interest at 8%, are convertible into our 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 our equity interest in our decisioning.com, Inc. subsidiary,
which owns our 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
us, 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, we were 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.

         In August 2006, we 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, we 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 us 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 our common stock at $.20 per share, and notes with a
principal amount of $152,959 are convertible into shares of our common stock at
$.50 per share. The new notes include a note in the principal amount of $166,863
issued to our 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 our outstanding capital stock.

         In September 2006, we sold additional convertible notes in the
aggregate principal amount of $1,905,000. The terms of these notes are the same
as the notes we previously issued, except that they may be converted into our
common stock at a rate of $.42 per share, and we have agreed to prepare and file
with the Securities and Exchange Commission, on or before January 31, 2007, a
registration statement with respect to our common stock issuable upon conversion
of these notes.

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<PAGE>

         Although our refinancing in August 2006 of the notes under which we
were previously in default and our additional issuance of notes in September
2006 have afforded us additional time and resources to execute our business
strategy, we can give no assurance that we will be successful in doing so or in
generating revenues sufficient to repay this indebtedness when due. In such an
event, the lenders under these notes would have the option to declare all
amounts under the notes due and payable, and our resulting inability to pay
could force us to liquidate or otherwise wind down our business operations,
including our possible filing for bankruptcy protection and the potential loss
of our patents through sale or foreclosure by the holders of the notes pursuant
to their security interest in our patents.

         Our business depends exclusively on the success of our patent licensing
program, which if unsuccessful, will threaten our survival.

         Due to capital constraints, we have suspended efforts to deploy our
loan processing products and services. Our business activities currently consist
exclusively of attempting to license certain of our patents. Our prospects are
wholly dependent on our ability to finance and execute a sustainable patent
licensing program. Even though we believe there are companies that may be using
systems, processes and methods covered by our patents, it is not known whether
we will be able to enter into any new licensing agreements. Moreover, we may not
have the resources to sustain our patent licensing program, enforce our patent
rights, finance any related litigation, or successfully negotiate patent
licenses on terms that will generate meaningful future revenues.

         We are further subject to the risk that negotiations to license our
patents may be lengthy and that it may be necessary for us to become involved in
additional litigation to assert and protect our intellectual property rights. To
date, we generally have been unable to enter into licensing agreements with
potential licensees upon terms that are acceptable to us. As a result, we have
been forced to become involved in litigation with alleged infringers. Currently,
we are involved in three patent litigation actions. We believe that these
lawsuits may take an extended period of time to complete. We can give no
assurance that we will have the resources necessary to complete these lawsuits
or that we will be successful in obtaining a favorable outcome. Prolonged patent
litigation could have a material adverse effect on our business, operating
results and financial position.

         Challenges to our patents could significantly diminish or eliminate any
potential value these patents may have to us.

         All of our patents have been subject to reexamination by the PTO as a
result of challenges to such patents by third parties. Additionally, we have
lawsuits pending against alleged infringers of our patents. For more information
regarding these reexaminations and lawsuits, see Part I, Item 1, "Business." In
conjunction with these lawsuits, a Markman hearing was held in December 2006, in
which the court interpreted certain of our patent's claim terms in a manner
unacceptable and unfavorable to us. Unless we can obtain a more favorable
interpretation of the claim terms, likely through an appeal of the ruling, which
may require substantial resources and extended time to complete, it is possible
that the scope of our patents could be significantly limited.

         Defendants in these lawsuits have challenged the validity of our
patents by requesting reexaminations and otherwise, and we expect that current
or future defendants will continue to challenge the validity of our patents and
assert non-infringement as a defense. It is also possible that other third
parties may bring additional actions to contest all or some of our patents. We
may lose all or some of the claims covered by our existing patents as a result
of existing or future challenges. The loss of all or some of our claims or a
significant limitation of such claims could have a material adverse effect on
our ability to execute a successful patent licensing program. Moreover, if other
parties request reexaminations of or otherwise challenge our patents in the
future, we are subject to the risk that such proceeding may not be resolved to
our satisfaction on a timely basis, if at all. Any such proceeding may have a
material adverse effect on our business, operating results and financial
position. Further, in the event a challenge to our patents results in a
significant loss of all or some of its claims, our only remedy may be to contest
the decision, which would likely be a lengthy process. Due to our limited
capital resources, it is unlikely that we could successfully contest such a
decision without additional cash resources.

         If the e-commerce channels and processes on which our patents depend
are rendered obsolete, incompatible, or undesirable due to changes in
technology, shifting consumer preferences or competition from products and
services delivered by more traditional or other means, our business and the
potential value of our patents would be materially and adversely affected.

                                       9
<PAGE>

         Our patents are specific to the e-commerce businesses of the financial
services industry and generally cover the automated establishment of loans,
financial accounts and credit accounts using specific e-commerce related
systems, processes and methods. The market for products and services that enable
e-commerce is subject to change and technological development, shifting consumer
preferences, new product introductions and competition from traditional products
and services having all or some of the same features as products and services
which enable e-commerce. It is possible that new products or technologies may be
developed that may render obsolete the systems, processes and methods over which
we believe we have intellectual property rights. Moreover, the delivery of
products and services through e-commerce channels is not fully developed, and
competition from traditional channels to deliver these same products and
services is intense. Any wide-scale rejection of e-commerce channels by
consumers will have a material adverse effect on our business, operating results
and financial position.

         Because of the highly technical and specialized business of patent
licensing, our success depends on the expertise and efforts of third parties we
engage at significant expense.

         Patent licensing is a highly technical and specialized business which
requires that we rely on the services of third parties. We have appointed
Withrow & Terranova, PLLC ("W&T") as our exclusive patent licensing agent. Under
the terms of the agreement, W&T has agreed, among other things, to perform
market research, initiate the sales of patent license agreements, negotiate
patent licensing arrangements with third parties, and represent us as legal
counsel in connection with the enforcement of our patents. Accordingly, we are
dependent on the efforts of W&T to successfully execute our patent licensing
program. Additionally, the agreement requires W&T to coordinate the engagement
of experts, on terms satisfactory to us, if litigation becomes necessary to
enforce our patent rights. Moreover, experts frequently request and charge
significant fees. In addition, because of the specialized knowledge required to
perform these duties, we may not be able to critically evaluate the advice,
efforts, judgments and recommendations of these experts and to know whether our
interests would be better served by additional or different advice or expertise.
To the extent the advice, efforts, judgments or recommendations of our third
party experts prove inferior to other alternatives, our patent licensing
program, business prospects and financial condition may be materially and
adversely affected.

         Our quarterly results tend to fluctuate significantly, which could have
a material adverse effect on the price of our common stock.

         Since its inception, our quarterly results have fluctuated and have not
been susceptible to meaningful period-to-period comparisons. We believe that we
may continue to experience significant fluctuations in our quarterly operating
results in the foreseeable future. We anticipate that our period-to-period
revenue and operating results will depend on numerous factors, including our
ability to successfully negotiate and enter into patent licensing agreements and
the timing, terms and the pricing attributes of any such agreements.

         We believe that period-to-period comparisons of our operating results
are not meaningful and should not be relied upon as an indication of future
performance. The uncertainty regarding the extent and timing of our revenues,
coupled with the risk of substantial fluctuations in our quarterly operating
results may have a material adverse effect on the price of our common stock.

         The loss of the services of our Chairman, President and Chief Executive
Officer could have a material adverse effect on our business and our existing
financial condition and adversely affect our ability to recruit and retain key
employees and executives to further our business interests.

         We are highly dependent on the services of our Chairman, President and
Chief Executive Officer, Joseph A. Boyle, but do not have an employment
agreement with Mr. Boyle or "key man" insurance on his life. The complete loss
of the services of Mr. Boyle could have a material adverse effect on our
business, operating results and financial condition. Based on our existing
financial condition, we maintain a minimal staff and have not sought to recruit
new key employees and executives who possess the experience, knowledge and
skills to assist us in furthering our business interests or expanding our
operations. In any event, we believe that it would be difficult to attract and
retain such employees in light of our existing financial condition.

                                       10
<PAGE>

         We have a significant number of securities outstanding that are
convertible into our common stock, and the conversion of these securities could
result in substantial dilution to existing stockholders.

         We have issued notes that are convertible into common stock at $0.20,
$0.50 and $0.42 per share, which conversion prices could be substantially less
than the market price of the common stock at the time of conversion. The
issuance of stock at a price that is less than the market price could have an
immediate adverse effect on the market price of our common stock. In addition,
we have issued options and warrants to acquire shares of our common stock. See
Notes 4 & 5 to our audited financial statements included in this report for more
information regarding these convertible notes, options and warrants. We may
issue additional convertible notes or warrants in connection with financing
arrangements and may grant additional stock options that may further dilute our
common stock. The exercise of such securities would have a dilutive effect on
our common stock. Also, to the extent that persons who acquire shares under all
the foregoing agreements sell those shares in the open market, the price of our
shares may decrease due to additional shares in the market.

         Our common stock is subject to significant fluctuations in price and
volume, which could cause rapid and significant losses in the value of our
common stock and subject us to litigation from stockholders.

         Our common stock price has been volatile and has experienced
substantial and sudden fluctuations in response to a number of events and
factors. In addition, the stock market has experienced significant price and
volume fluctuations that have especially affected the market prices of equity
securities of many companies directly and indirectly involved in the technology
sector, and that often have been unrelated to the operating performance of such
companies. These broad market fluctuations have adversely affected and may
continue to adversely affect the market price of our common stock. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against such a
company. The institution of such litigation against us could result in
substantial costs and a diversion of management's attention and resources, which
would have a material adverse effect on our business, operating results and
financial condition.

         Our common stock is considered a penny stock and is not traded on a
regulated market such as NASDAQ or a major stock exchange. Accordingly, our
common stock may be more difficult to trade, and investors may lose the benefit
of certain rules and regulations that govern securities traded in regulated
markets.

         Our common stock is traded on the OTC Bulletin Board. Securities in the
OTC market are generally more difficult to trade than those on the NASDAQ
National Market, the NASDAQ SmallCap Market or the major stock exchanges. In
addition, accurate price quotations are also more difficult to obtain.

         The trading market for our common stock is also subject to special
regulations governing the sale of penny stock. A "penny stock" is defined by
regulations of the Securities and Exchange Commission as an equity security with
a market price of less than $5.00 per share. If you buy or sell a penny stock
from a broker or dealer, these regulations require that you receive, prior to
the transaction, a disclosure explaining the penny stock market and associated
risks. Furthermore, trading in our common stock is generally subject to Rule
15g-9 of the Exchange Act. Under this rule, broker-dealers who recommend our
securities to persons other than established customers and accredited investors
must make a special written suitability determination for the purchaser and
receive the purchaser's written agreement to a transaction prior to sale.

         Penny stock regulations tend to reduce market liquidity of our common
stock, because they limit the broker-dealers' ability to trade, and a
purchaser's ability to sell the stock in the secondary market. The low price of
our common stock will have a negative effect on the amount and percentage of
transaction costs paid by individual shareholders. The low price of our common
stock may also limit our ability to raise additional capital by issuing
additional shares.

         In addition, companies whose securities are listed on NASDAQ or other
major stock exchanges are required to comply with certain corporate governance
and disclosure requirements that are designed to protect investors in those
stocks.

                                       11
<PAGE>

Because our common stock is not so regulated, our observance of many of these
requirements and practices is not mandated, and to the extent we determine not
to observe such practices or are unable to do so because of cost constraints,
investors in our common stock will not have the benefit of these protections,
and the price of our common stock may be materially and adversely affected.

         Certain provisions of Delaware law and our governing documents could
prevent or delay a change in control of our company, and could adversely affect
the value of our common stock.

         Certain provisions of Delaware law and the Company's Certificate of
Incorporation and bylaws could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. Such provisions could limit the price that
certain investors might be willing to pay in the future for shares of our common
stock. These provisions of Delaware law and our Certificate of Incorporation and
bylaws may also have the effect of discouraging or preventing certain types of
transactions involving an actual or threatened change of control of the Company
(including unsolicited takeover attempts), even though such a transaction may
offer our stockholders the opportunity to sell their stock at a price above the
prevailing market price. Certain of these provisions allow us to issue preferred
stock with rights senior to those of the common stock and other rights that
could adversely affect the interests of holders of common stock without any
further vote or action by our stockholders. The issuance of preferred stock, for
example, could decrease the amount of earnings or assets available for
distribution to the holders of common stock or could adversely affect the rights
and powers, including voting rights, of the holders of the common stock. In
certain circumstances, such issuance could have the effect of decreasing the
market price of the common stock, as well as having the anti-takeover effects
discussed above.

Item 1B.  Unresolved Staff Comments

         Not applicable.

Item 2.  Properties

         Our principal executive offices are located at 1310 Lady Street, Suite
601, in Columbia, South Carolina. Such office space encompasses approximately
900 square feet and is currently under a prepaid two-year lease. We also lease
warehouse space located in Columbia, South Carolina, which encompasses
approximately 4,000 square feet. Such space is under a month-to-month lease.

Item 3.  Legal Proceedings

         The information above in Part I, Item 1, "Business-Patents and Legal
Matters," is incorporated herein by reference in response to this Item 3.

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

         Not applicable.

Item 4A.  Executive Officers

         The information regarding our executive officers set forth in Part III,
Item 10 of this report under "Directors and Executive Officers of the
Registrant" is incorporated herein in response to this Item 4A.

                                       12
<PAGE>

Part II

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

         (a)  Since February 12, 2001, our common stock has traded on the OTC
              Bulletin Board under the symbol "AFFI." Our common stock traded on
              the Nasdaq SmallCap Market from March 27, 2000 to February 12,
              2001. Prior to March 27, 2000, the Company's common stock was
              traded on the Nasdaq National Market. The following table presents
              the high and low sales prices of our Common Stock for the periods
              indicated during 2006 and 2005 as reported by the OTC Bulletin
              Board. The quotations reflect inter-dealer prices, without retail
              mark-up, mark-down or commissions and may not represent actual
              transactions. As of January 15, 2007, there were 434 stockholders
              of record of our Common Stock.

                                                      Sales Price Per Share
                                                      ---------------------
                                                       High            Low
                                                       ----            ----
               2006
               First Quarter                           0.85            0.08
               Second Quarter                          0.82            0.16
               Third Quarter                           0.60            0.15
               Fourth Quarter                          0.50            0.15
               2005
               First Quarter                           0.19            0.05
               Second Quarter                          0.15            0.06
               Third Quarter                           0.10            0.06
               Fourth Quarter                          0.10            0.05

              On January 25, 2007, the high and low sales prices of our common
              stock on the OTC Bulletin Board were $ 0.18 and $ 0.17,
              respectively.

              We have never paid dividends on our capital stock. We intend to
              retain earnings, if any, for use in our business and do not
              anticipate paying any cash dividends in the foreseeable future.


         (b)  Not applicable

         (c)  Not applicable

                                       13
<PAGE>

Item 6.  Selected Financial Data

         The following table presents selected financial data of the Company for
the periods indicated. The following financial data should be read in
conjunction with the information set forth under "Management's Discussion and
Analysis of Financial Condition and Results of Operations," our Consolidated
Financial Statements and Notes thereto and other information included elsewhere
in this report.
<TABLE>
<CAPTION>
<S>                             <C>          <C>        <C>         <C>          <C>
                                                  Year Ended December 31,
                                   2006         2005        2004        2003         2002
                              --------------------------------------------------------------
Statement of Operations Data:
Revenues                        $  33,333    $  20,261  $  287,298  $  517,647   $  185,960
                              --------------------------------------------------------------
Cost and expenses:
    Cost of revenues                3,333        2,026      64,265       1,765       16,846
    Selling, general and
      administrative expenses   2,606,386      486,607     732,285     996,711    1,406,841
                              --------------------------------------------------------------
Total costs and expenses        2,609,719      488,633     796,550     998,476    1,423,687
                              --------------------------------------------------------------
Operating loss                 (2,576,386)    (468,372)   (509,252)   (480,829)  (1,237,727)
Interest income                    17,907          182       1,967         694        1,643
Interest expense                 (141,043)     (98,197)    (95,990)    (80,373)     (70,334)
Litigation accrual reversal             -            -     386,148           -            -
                              --------------------------------------------------------------
Net loss                      $(2,699,522)   $(566,387)  $(217,127)  $(560,508) $(1,306,418)
                              ==============================================================
Loss per share - basic and
 diluted                      $     (0.06)   $   (0.01)  $   (0.01)  $   (0.01) $     (0.03)
                              ==============================================================
Shares used in computing
    net loss per share         44,194,562   42,207,884  41,926,272  41,512,897   40,707,108
                              ==============================================================

</TABLE>

<TABLE>
<CAPTION>
<S>                             <C>             <C>            <C>           <C>            <C>
                                                             December 31,
                                    2006          2005          2004           2003           2002
                                -----------------------------------------------------------------------
Balance Sheet Data:
Cash and cash equivalents       $1,026,978      $13,776        $62,756       $578,398       $156,780
Working capital                    (34,451)  (1,992,056)    (1,524,772)      (909,356)       (82,512)
Total assets                     1,112,246      152,311        121,240        618,002        234,848
Convertible notes and accrued
 interest                        3,225,089    1,595,906 (3)  1,383,149 (2)  1,291,841 (1)    868,427
Stockholder's equity
 (deficiency)                   (3,279,752)  (2,048,371)    (1,513,523)    (1,329,579)      (908,230)

</TABLE>

--------------------------------
(1) Of the amount outstanding under the convertible notes as of December 31,
      2003, $756,336 was classified as a current liability and, accordingly, is
      included in the working capital of the Company at December 31, 2003, set
      forth above.

(2) All amounts outstanding under the convertible notes as of December 31, 2004,
      were classified as a current liability and, accordingly, are included in
      the working capital of the Company at December 31, 2004, set forth above.

(3) All amounts outstanding under the convertible notes as of December 31, 2005,
      were classified as a current liability and, accordingly, are included in
      the working capital of the Company at December 31, 2005, set forth above.

                                       14
<PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Overview

         Affinity was formed in 1994 to develop and market technologies that
enable financial institutions and other businesses to provide consumer financial
services electronically with reduced or no human intervention. Due to capital
constraints, we have suspended efforts to deploy products and services that use
our loan processing system, DeciSys/RT, in order to focus our efforts
exclusively on attempting to license certain of our patents. Currently, our
business activities consist exclusively of attempting to enter into license
agreements with third parties to license our rights under certain of our patents
and in pursuing patent litigation in an effort to protect our intellectual
property and obtain recourse against alleged infringement of our patents.
Accordingly, our prospects are wholly dependent on these efforts to finance and
execute a sustainable patent licensing program.

         As more fully described above in Part I, Item 1, "Business--Patents and
Legal Matters" in conjunction with its product development activities, we
applied for and obtained three patents, two of which cover fully-automated loan
processing systems and one of which covers the fully-automated establishment of
a financial account, including credit accounts.. All of these patents have been
subject to reexamination by the U.S. Patent and Trademark Office ("PTO") as a
result of third party challenges. It is possible that third parties may bring
additional actions to contest all or some of our patents, and we can give no
assurance that we will not lose all or some of the claims covered by our
existing patents.

         In addition, as described more fully above in Part I, Item 1,
"Business--Patents and Legal Matters," we, and in some cases, alleged infringers
of these patents, have initiated lawsuits to determine whether our patents are
being infringed. In light of the most recent reexamination certificate issued in
July 2006 regarding our third patent, these lawsuits are now proceeding. In
December 2006, a "Markman Hearing" was held in connection with these
infringement actions. 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 were consolidated into one
hearing and held by the United States District Court for the State of South
Carolina (the "Columbia Federal Court"). As a result of the Markman proceedings,
the Columbia Federal Court interpreted and construed the meaning of numerous
claim terms which bear on the scope of the patents. Although most claim terms
were construed in a manner we believe are favorable, the trial judge interpreted
and construed certain claim terms, most notably those related to the term
"remote interface" as claimed in our second loan processing patent (U.S. Patent
No. 5,940,811 C1) and our financial account patent (U.S. Patent No. 6,105,007
C1), in a manner unacceptable and unfavorable to us. In these patents, the Court
interpreted and construed "remote interface" to mean computer equipment,
including personal computer equipment, that is not owned by a consumer. The
Court applied no such limitation in construing the term "remote interface" under
our first loan processing patent (U.S. Patent No. 5,870,721 C1). Unless we can
obtain a more favorable interpretation of certain claim terms, it is possible
the scope of our patents could be significantly limited.

         In order to seek a reversal of these unfavorable Markman rulings, we
will likely be required to appeal the rulings to the Federal Circuit Court of
Appeals. Moreover, we believe that an appeal of the Markman rulings will likely
delay our current patent infringement lawsuits and hinder our ability to license
our patents. Further, the appeal of the Markman rulings will likely require
substantial resources and an extended period of time to complete, which will in
turn likely increase the already significant costs and expected time required to
prosecute our existing infringement actions. No assurance can be given that we
will have the resources necessary to complete an appeal of the Markman rulings
or our underlying lawsuits or that we will be successful in obtaining a
favorable outcome.

         We also recently received an adverse ruling in our longstanding legal
dispute with Temple Ligon, which is more fully described in Part I, Item 1,
"Business--Patents and Legal Matters." On October 30, 2006, the South Carolina
Court of Appeals Court reversed the trial judge's 2004 decision and reinstated
the jury verdict of $382,148. Our petition to the Appeals Court for a rehearing
of this case has been denied, and we intend to petition the South Carolina
Supreme Court for relief from this ruling.

                                       15
<PAGE>

If we become obligated to pay more than an insignificant amount of damages in
connection with this litigation, we could be forced to consider alternatives for
winding down our business, which may include offering our patents for sale or
filing for bankruptcy protection.

         To date, we have generated substantial operating losses and have been
required to use a substantial amount of cash resources to fund our operations.
Net cash used by operations during the year ended December 31, 2006, was
$1,058,217, and at December 31, 2006, we had a working capital deficit of
$34,451. At December 31, 2006, we had cash and cash equivalents of $1,026,978.
We generally have been unable to enter into licensing agreements with potential
licensees upon terms that are acceptable to us, and are pursuing litigation
against alleged infringers, as described above and further in Part 1, Item 1,
"Business--Patents and Legal Matters." To pursue an appeal of unfavorable
rulings issued in December 2006 in a Markman hearing, and to continue to
vigorously pursue these lawsuits generally, we anticipate that it will need to
increase our operating expenses due to, among other things, increased litigation
costs and related expenses. Accordingly, to remain viable through 2007, it is
critical that we raise additional capital through the sale of debt and/or equity
securities or from licensing our patents. No assurances can be given that we
will be able to raise additional capital or generate capital from our patent
licensing business. Unless we raise additional capital, we may have to consider
alternatives for winding down our business, which may include offering our
patents for sale or filing for bankruptcy protection.

         The report of our independent registered public accounting firm on our
audited financial statements included with this report contains a statement
noting that our recent history of losses, combined with other factors, raise
substantial doubt about our ability to continue as a going concern. Although our
plans to address these issues are discussed in Note 1 to the audited financial
statements included in this report and elsewhere in this report, these plans are
subject to numerous risks and contingencies, many of which are beyond our
control, and we can give no assurance as to whether or how long we may be able
to succeed in addressing these issues and maintaining our viability as a going
concern.

Critical Accounting Policies

         We apply certain accounting policies which are important in
understanding our results of operations and the information presented in the
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 and include the valuation reserve on net
deferred tax assets. We record a valuation allowance to reduce our deferred tax
assets to the amount that we estimate is more likely than not to be realized. As
of December 31, 2006, we recorded a valuation allowance that reduced our
deferred tax assets to zero.

Results of Operations

         Revenues. Our revenues from continuing operations were $33,333, $20,261
and $287,298 for the years ended December 31, 2006, 2005 and 2004, respectively.
The types of revenue we recognized are as follows:
<TABLE>
<CAPTION>
<S>                      <C>             <C>      <C>           <C>      <C>             <C>
                                                 Years ended December 31,
                                 2006                    2005                  2004
                        ----------------------   --------------------  ----------------------
                         Amount         % of       Amount      % of       Amount       % of
                                        Total                  Total                   Total
                        -------------  -------  ------------  -------  -------------  -------
Patent license revenue   $   33,333      100.0    $   20,261    100.0    $   267,647     93.2
Other income                     -           -             -        -         19,651      6.8
                        -------------  -------  ------------  -------  -------------  -------
                         $   33,333      100.0    $   20,261    100.0    $   287,298    100.0
                        =============  =======  ============  =======  =============  =======
</TABLE>

         Patent license revenue. We recognized patent licensing revenue of
$33,333, $20,261 and $267,467 in 2006, 2005 and 2004, respectively. In 2006,
2005 and 2004, we recognized patent licensing revenue associated with the annual
fee from one patent license agreement executed in 1999. Of the total amount
recognized in 2004, $250,000 was non-recurring revenue related to a settlement
agreement with an institution that formerly maintained a system that permitted
consumers to apply for credit cards over the Internet.

                                       16
<PAGE>

         Other income. In 2006 and 2005, we recognized no amounts classified as
other income. In 2004, other income consisted exclusively of non-recurring
miscellaneous income items primarily associated with the sale of equipment no
longer needed in the operation of our business.

Costs and Expenses

         Costs of Revenues. Costs of revenues for the years ended December 31,
2006, 2005 and 2004 were $3,333 $2,026 and $64,265, respectively. Cost of
revenues consists of commissions paid to our patent licensing agents.

         General and Administrative Expenses. General and administrative ("G&A")
expenses for the year ended December 31, 2006 were $2,606,386, compared to
$486,607 and $732,285 for the years ended December 31, 2005 and 2004,
respectively. G&A expenses have fluctuated significantly over the past three
years and depend to a great extent on the level of our business activities and
particularly, the level of litigation in which we are involved in a period. The
components of G&A expenses incurred in 2006, 2005 and 2004 are as follows:
<TABLE>
<CAPTION>
<S>                      <C>            <C>      <C>           <C>      <C>            <C>
                                      Years ended December 31,

                                 2006                   2005                   2004
                        ---------------------   --------------------  ----------------------
                           Amount      % of       Amount      % of       Amount       % of
                                       Total                  Total                   Total
                        ------------  -------  ------------  -------  -------------  -------
Salaries and benefits    $  268,381     10.3     $ 248,415     51.1     $  271,777     37.1
Stock-based compensation    874,081     33.5             -        -              -        -
Professional fees           971,773     37.3       138,768     28.5        321,135     43.9
Litigation accrual          382,148     14.7             -        -              -        -
Insurance                    47,078      1.8        54,251     11.1         55,273      7.6
Rent                         20,518      0.8        25,820      5.3         40,534      5.5
Other                        42,407      1.6        19,353      4.0         43,566      5.9
                        ------------  -------  ------------  -------  -------------  -------
                         $2,606,386    100.0     $ 486,607    100.0     $  732,285    100.0
                        ============  =======  ============  =======  =============  =======
</TABLE>

         G&A expenses increased $2,119,779 in 2006 compared to 2005. As
indicated in the above table, G&A expenses increased $2,089,234 as a result of
an increase in stock compensation, professional fees and a litigation accrual.
In 2006, we issued options to our executives and directors in conjunction with a
non-qualified option plan adopted by our Board of Directors. We also issued
warrants to our investment advisor for services associated with the investment
advisor's assistance in raising capital and other advisory services. As a result
of the option and warrant grants, we recognized non-cash stock-based
compensation expense of $874,081. Professional fees increased $833,005 in 2006
compared to 2005, most of which was related to our patent infringement lawsuits.
In March 2006, we were notified by the PTO that the reexamination of our U.S.
Patent No. 6,105,007 had been concluded. The conclusion of the reexamination
resulted in the lifting of the stays of our patent infringement lawsuits with
Federated, TD Ameritrade and HSBC. The lawsuits proceeded during the remainder
of 2006 with a corresponding increase in legal and other professional fees. We
also accrued $382,148 to reflect the reinstatement by the South Carolina Court
of Appeals of a jury verdict previously set aside by the trial judge in 2004.

         The decrease in G&A in 2005 compared to 2004 is due to the continued
reduction of our activities and curtailment of other expenses in 2005 and 2004,
primarily as a result of the granting by the PTO of a request to reexamine our
U.S. Patent No. 6,105,007 in 2004. As a result of the reexamination, our patent
infringement lawsuits were stayed and we implemented measures to conserve our
financial resources until the reexamination was concluded. G&A expenses were
lower in all material categories in 2005 compared to 2004. Professional fees
decreased significantly in 2005 compared to 2004, primarily as a result of the
costs of our defense associated with the civil action brought by Temple Ligon
and which case was tried in 2004.

Interest Income

         Interest income was $17,907, $182 and $1,967 in 2006, 2005 and 2004,
respectively, and primarily reflects interest income attributable to our cash
balances.

                                       17
<PAGE>

The increase in interest income in 2006, is related to the interest
earned on cash balances associated with the sale of our convertible notes in
September 2006 in the aggregate principal amount of $1,905,000.

Interest Expense

         Interest expense was $141,043, $98,197 and $95,990 in 2006, 2005 and
2004, respectively. Interest expense is primarily associated with the interest
on $3,480,336 aggregate principal amount of convertible notes issued in
installments in June 2002 ($830,336), March 2003 ($200,000), August 2003
($25,000), November 2003 ($150,000), December 2003 ($50,000), January 2004
($25,000), May 2005 ($75,000), August 2005 ($45,000) and December 2005
($25,000), May 2006 ($150,000) and September 2006 ($1,905,000). Of the aggregate
note principal issued, aggregate principal in the amount of $568,697 has been
converted into shares of our common stock. Additionally, in August 2006, and in
accordance with the issuance of new notes in satisfaction of our then
outstanding notes, $229,027 of accrued interest was converted into note
principal. The increase in interest expense in 2006 compared to 2005 and 2005
compared to 2004 is attributable to the increase in the average amounts of the
convertible notes outstanding.

Litigation Accrual Reversal

         We have been a defendant in a lawsuit which resulted in a jury verdict
against us in January 2004. We had recorded a reserve in 2003 for the estimated
loss in this litigation of $386,148 as a result of the jury verdict. In July
2004, the trial judge ruled on post-trial motions submitted by us and set aside
the jury verdict, and accordingly, in the third quarter of 2004, the Company
reversed the $386,148 accrual and recognized a like amount as other income. As
discussed above under the caption "General and Administrative Expenses," the
South Carolina Court of Appeals reinstated the jury verdict in 2006.

Income Taxes

         We have recorded a valuation allowance for the full amount of our net
deferred income tax assets as of December 31, 2006, 2005, and 2004, based on
management's evaluation of the recognition criteria as set forth in Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."

Liquidity and Capital Resources

         We have generated net losses of $71,943,941 since our inception and
have financed our operations primarily through net proceeds from our initial
public offering in May 1996 and cash generated from operations and other
financing transactions. Net proceeds from our initial public offering were
$60,088,516.

         Net cash used by operations during the year ended December 31, 2006,
was $1,058,217, compared to $194,285 and $557,545 used by operations in 2005 and
2004, respectively. The increase in cash used by operations in 2006 compared to
2005 was primarily the result of an increase in professional fees associated
with our patent litigation. Our patent lawsuits were stayed in 2004 and during
2005 pending the conclusion of the reexamination of U.S. Patent No. 6,105,007,
our patent covering the automated establishment of financial accounts. As
discussed in Part 1, Item 1, "Business--Patents and Legal Matters," the
reexamination was concluded in 2006, the stay of the lawsuits was lifted and the
lawsuits proceeded. The decrease in cash used by operations in 2005 compared to
2004 was primarily attributable to additional cost reduction measures taken by
us in 2005 and the deferral of the payment of certain accounts payable and
accrued expenses in 2004 until 2005 and the expense of a civil action against us
incurred in 2004. At December 31, 2006 cash and liquid investments were
$1,026,978, as compared to $13,776 at December 31, 2005. At December 31, 2006
working capital was a deficit of $34,451 as compared to a deficit of $1,992,056
at December 31, 2005. For purposes of determining working capital at December
31, 2005, $1,595,906 of principal and accrued interest under our convertible
notes are included as current liabilities.

         To date, we have generated substantial operating losses and have been
required to use a substantial amount of cash resources to fund our operations.
We generally have been unable to enter into licensing agreements with potential
licensees upon terms that are acceptable to the Company, and are pursuing
litigation against alleged infringers, as described above and further in Part 1,
Item 1, "Business--Patents and Legal Matters."

                                       18
<PAGE>

To pursue an appeal of unfavorable rulings issued in December 2006 in a
Markman hearing, and to continue to vigorously pursue these lawsuits generally,
we anticipate that we will need to increase our operating expenses due to, among
other things, increased litigation costs and related expenses. Accordingly, to
remain viable through 2007, it is critical that we raise additional capital
through the sale of debt and/or equity securities or from licensing our patents.
No assurances can be given that we will be able to raise additional capital or
generate capital from our patent licensing business. Unless we raise additional
capital, we may have to consider alternatives for winding down our business,
which may include offering our patents for sale or filing for bankruptcy
protection.

         The report of our independent registered public accounting firm on our
audited financial statements included with this report contains a statement
noting that our recent history of losses, combined with other factors, raise
substantial doubt about our ability to continue as a going concern. Although our
plans to address these issues are discussed in Note 1 to the audited financial
statements included in this report and elsewhere in this report, these plans are
subject to numerous risks and contingencies, many of which are beyond our
control, and we can give no assurance as to whether or how long we may be able
to succeed in addressing these issues and maintaining our viability as a going
concern.

         In 2002, we initiated a convertible note program under which we were
authorized to issue up to $1,500,000 principal amount of our 8% convertible
secured notes (the "notes"). In February 2006, the convertible note program was
amended to allow us to issue up to $3,000,000 of our notes. Prior to August
2006, we 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 our common stock.

         These notes bear interest at 8%, are convertible into our 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 our equity interest in our decisioning.com, Inc. subsidiary,
which owns our 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
us, 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, we were 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.

         In August 2006, we 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, we 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 us and each
investor at the time of issuance.

         The new notes issued in August 2006 have the same terms as the old
notes for which they were exchanged, 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 our common stock at $.20 per share,
and notes with a principal amount of $152,959 are convertible into shares of our
common stock at $.50 per share. The new notes include a note in the principal
amount of $166,863 issued to our 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, we sold additional convertible notes in the
aggregate principal amount of $1,905,000.

                                       19
<PAGE>

The terms of these notes are the same as the notes previously issued by us,
except that they may be converted into our common stock at a rate of $.42 per
share, and we have agreed to prepare and file with the Securities and Exchange
Commission, on or before January 31, 2007, a registration statement with respect
to out common stock issuable upon conversion of these notes.

Contractual Obligations

         The following table sets forth our long-term debt and other obligations
at December 31, 2006.
<TABLE>
<CAPTION>
<S>                          <C>              <C>               <C>            <C>           <C>
                                                           Payment Due By Period
                                             ----------------------------------------------------------------
                                 Total       Less than 1 year    1-3 years     3-5 years    More than
                                                                                             5 years
                            ---------------------------------------------------------------------------------
Convertible Notes (1)        $   3,225,089    $        -        $  3,225,089   $   -         $   -
Operating Lease Obligations          1,200          1,200                -         -             -
Purchase Obligations                     -             -                 -         -             -
                            ---------------------------------------------------------------------------------
Total                        $   3,226,289    $     1,200       $  3,225,089   $   -         $   -
                            =================================================================================
</TABLE>

(1) Convertible notes consist of the Company's convertible notes, including
accrued interest.


Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 8.  Financial Statements and Supplementary Data

         The report of Independent Registered Public Accounting Firm and
consolidated financial statements are set forth below (see item 15(a) for list
of financial statements):

                                       20
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Affinity Technology Group, Inc.
Columbia, South Carolina

         We have audited the accompanying consolidated balance sheets of
Affinity Technology Group, Inc. and subsidiaries (collectively, the "Company")
as of December 31, 2006 and 2005, and the related consolidated statements of
operations, changes in stockholders' equity (deficiency), and cash flows for
each of the years in the three-year period ended December 31, 2006. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

         We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 2006 and 2005, and the consolidated results of
its operations and its cash flows for each of the years in the three-year period
ended December 31, 2006, in conformity with accounting principles generally
accepted in the United States of America.

         As discussed in Note 2 to the consolidated financial statements,
effective January 1, 2006 the Company changed its method of accounting for
share-based payments as required by Statement of Financial Accounting Standards
No. 123R, Share-Based Payment.

         The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has limited capital resources, has incurred
recurring operating losses and has an accumulated deficit. These matters raise
substantial doubt about the ability of the Company to continue as a going
concern. Management's plans in regard to these matters are also discussed in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.


                                                     /s/ SCOTT McELVEEN, L.L.P.


Columbia, South Carolina
January 24, 2007,
except for Notes 1 and 11,
which are as of January 30, 2007


                                       21
<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries

                           Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S>                                            <C>                   <C>

                                                            December 31,
                                                      2006               2005
                                              --------------------------------------
Assets
Current assets:
  Cash and cash equivalents                    $     1,026,978       $     13,776
  Receivables                                                -            100,000
  Prepaid expenses                                      77,702             33,739
                                              --------------------------------------
Total current assets                                 1,104,680            147,515
Property and equipment, net                              7,566              4,796
                                              --------------------------------------
Total assets                                   $     1,112,246       $    152,311
                                              ======================================





Liabilities and stockholders' deficiency
Current liabilities:
  Accounts payable                             $       248,834       $    119,768
  Accrued expenses                                     445,284            362,018
  Accrued compensation and related benefits            411,680            323,116
  Convertible notes                                          -          1,301,336
  Current portion of deferred revenue                   33,333             33,333
                                               -------------------------------------

Total current liabilities                            1,139,131          2,139,571
Non-current liabilities:
  Convertible notes                                  3,140,666                  -
  Accrued interest                                      84,423                  -
  Deferred revenue                                      27,778             61,111
                                               -------------------------------------
Total non-current liabilities                        3,252,867             61,111
                                               -------------------------------------
Total liabilities                                    4,391,998          2,200,682
                                               -------------------------------------


Commitments and contingent liabilities
Stockholders' deficiency:
  Common stock, par value $0.0001;
    authorized 60,000,000 shares,
    issued 47,435,406 shares in 2006 and
    44,393,104 shares in 2005                            4,744              4,439
  Additional paid-in capital                        72,164,732         70,696,896
  Treasury stock, at cost (2,168,008 shares at
     December 31, 2006 and 2005)                    (3,505,287)        (3,505,287)
  Accumulated deficit                              (71,943,941)       (69,244,419)
                                               ----------------------------------------
Total stockholders' deficiency                      (3,279,752)        (2,048,371)
                                               ----------------------------------------
Total liabilities and stockholders' deficiency $     1,112,246       $    152,311
                                               ========================================

See accompanying notes.
</TABLE>

                                       22
<PAGE>



                Affinity Technology Group, Inc. and Subsidiaries

                      Consolidated Statements of Operations
<TABLE>
<CAPTION>
<S>                                         <C>               <C>               <C>

                                                           Years ended December 31,
                                                  2006              2005              2004
                                         ------------------------------------------------------
Revenues:
 Patent license revenue                     $     33,333      $     20,261      $    267,647
 Other income                                          -                 -            19,651
                                         ------------------------------------------------------
                                                  33,333            20,261           287,298
                                         ------------------------------------------------------
Costs and expenses:
 Cost of revenues                                  3,333             2,026            64,265
 General and administrative expenses           2,606,386           486,607           732,285
                                         ------------------------------------------------------
                                               2,609,719           488,633           796,550
                                         ------------------------------------------------------

Operating loss                                (2,576,386)         (468,372)         (509,252)
Other income (expenses):
 Interest income                                  17,907               182             1,967
 Interest expense                               (141,043)          (98,197)          (95,990)
 Litigation accrual reversal                           -                 -           386,148
                                         ------------------------------------------------------
Net loss                                    $ (2,699,522)     $   (566,387)     $   (217,127)
                                         ======================================================
Net loss per share - basic and diluted      $      (0.06)     $      (0.01)     $      (0.01)
                                         ======================================================
Shares used in computing net loss
per share                                     44,194,562        42,207,884        41,926,272
                                         ======================================================

See accompanying notes.
</TABLE>

                                       23
<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries

          Consolidated Statements of Stockholders' Equity (Deficiency)
<TABLE>
<CAPTION>
<S>                               <C>            <C>         <C>            <C>                 <C>              <C>
                                       Common Stock
                                --------------------------                                                         Total
                                                         Additional Paid-in                    Accumulated      Stockholders'
                                    Shares        Amount      Capital       Treasury Stock       Deficit     Equity (Deficiency)
                                -------------  -----------------------------------------------------------------------------------

Balance at December 31, 2003      44,032,493      4,403      70,632,210      (3,505,287)        (68,460,905)     (1,329,579)
Note payable conversion to
    common stock                     148,417         15          29,668             -                   -            29,683
Issuance of common stock
    as finder's fees                  50,000          5           3,495             -                   -             3,500
Net loss                                 -          -               -               -              (217,127)       (217,127)
                                -------------  -----------------------------------------------------------------------------------
Balance at December 31, 2004      44,230,910      4,423      70,665,373      (3,505,287)        (68,678,032)     (1,513,523)
Note payable conversion to
    common stock                     152,194         15          30,424             -                   -            30,439
Issuance of common stock
    as finder's fees                  10,000          1           1,099             -                   -             1,100
Net loss                                 -          -               -               -              (566,387)       (566,387)
                                -------------  -----------------------------------------------------------------------------------
Balance at December 31, 2005      44,393,104      4,439      70,696,896      (3,505,287)        (69,244,419)      (2,048,371)
Note payable conversion to
    common stock                   2,834,302        284         566,576             -                   -            566,860
Issuance of common stock
    as finder's fees                   8,000          1           3,199             -                   -              3,200
Stock option exercise                200,000         20          23,980             -                   -             24,000
Grant of stock options                   -          -           674,081             -                   -            674,081
Issuance of warrants                     -          -           200,000             -                   -            200,000
Net loss                                 -          -               -               -            (2,699,522)      (2,699,522)
                                -------------  -----------------------------------------------------------------------------------
Balance at December 31, 2006      47,435,406   $  4,744   $  72,164,732   $  (3,505,287)     $  (71,943,941)   $  (3,279,752)
                                =============  ===================================================================================

See accompanying notes.
</TABLE>

                                       24
<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
<S>                                                            <C>                      <C>                    <C>
                                                                               Years ended December 31,
                                                                   2006                   2005                   2004
                                                          -------------------------------------------------------------------
Operating activities
Net loss                                                       $ (2,699,522)            $ (566,387)            $ (217,127)
Adjustments to reconcile net loss to net cash used in
  operating activities:
    Depreciation and amortization                                     4,360                  6,453                  8,181
    Impairment loss                                                       -                      -                  1,147
    Amortization of stock option compensation                       874,081                      -                      -
    Deferred revenue                                                (33,333)                79,738                (17,647)
    Litigation accrual reversal                                           -                      -               (386,148)
    Other                                                             3,651                    796                (14,497)
    Changes in current assets and liabilities:
       Accounts receivable                                          100,000               (100,000)                     -
       Prepaid expenses                                             (43,963)                13,496                (27,114)
       Accounts payable                                             129,066                 98,266                (54,554)
       Accrued expenses                                             518,880                 90,127                103,024
       Accrued compensation and related benefits                     88,563                183,226                 47,190
                                                          -------------------------------------------------------------------
Net cash used in operating activities                            (1,058,217)              (194,285)              (557,545)
                                                          -------------------------------------------------------------------

Investing activities
Purchases of property and equipment                                  (7,581)                     -                 (1,697)
Proceeds from sale of property and equipment                              -                    305                 18,600
                                                          -------------------------------------------------------------------
Net cash (used in) provided by investing activities                  (7,581)                   305                 16,903
                                                          -------------------------------------------------------------------

Financing activities
Proceeds from convertible notes                                   2,055,000                145,000                 25,000
Exercise of stock options                                            24,000                      -                      -
                                                          -------------------------------------------------------------------
Net cash provided by financing activities                         2,079,000                145,000                 25,000
                                                          -------------------------------------------------------------------
Net increase (decrease) in cash                                   1,013,202                (48,980)              (515,642)
Cash and cash equivalents at beginning of year                       13,776                 62,756                578,398
                                                          -------------------------------------------------------------------

Cash and cash equivalents at end of year                      $   1,026,978             $   13,776             $   62,756
                                                          ===================================================================


See accompanying notes.

</TABLE>

                                       25
<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements


1.       The Company - Going Concern

         Affinity 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 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, 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 and in pursuing the patent
litigation described below in an effort to protect this intellectual property
and obtain recourse against alleged infringement of these 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 December 31, 2006, the Company had cash and cash equivalents of
$1,026,978. The Company generally has been unable to enter into licensing
agreements with potential licensees upon terms that are acceptable to the
Company and, as discussed above, is attempting to seek recourse through
litigation with alleged infringers of its patents. To vigorously pursue its
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.

         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.

                                       26
<PAGE>

         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,  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, 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 (formerly Ameritrade) and HSBC (formerly Household), as described
above, a "Markman Hearing" was held in December 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 were consolidated into one hearing and held by the Columbia Federal
Court. As a result of the Markman proceedings the Columbia Federal Court
interpreted and construed the meaning of numerous claim terms which bear on the
scope of the patents. Although most claim terms were construed in a manner the
Company believes are favorable, the trial judge interpreted and construed
certain claim terms, most notably those related to the term "remote interface"
as claimed in the Company's second loan processing patent (U.S. Patent No.
5,940,811 C1) and its financial account patent (U.S. Patent No. 6,105,007 C1),
in a manner unacceptable and unfavorable to the Company. In these patents, the
Court interpreted and construed "remote interface" to mean computer equipment,
including personal computer equipment, that is not owned by a consumer. The
Court applied no such limitation in construing the term "remote interface" under
the Company's first loan processing patent (U.S. Patent No. 5,870,721 C1).
Unless the Company can obtain a more favorable interpretation of certain claim
terms, it is possible the scope of the Company's patents could be significantly
limited. In order to seek a reversal of these unfavorable Markman rulings, the
Company will likely be required to appeal the rulings to the Federal Circuit
Court of Appeals. Moreover, the Company believes that an appeal of its Markman
rulings will likely delay its current patent infringement lawsuits and hinder
its ability to license its patents. Further, the appeal of the Markman rulings
will likely require substantial resources and an extended period of time to
complete, which will in turn likely increase the already significant costs and
expected time required to prosecute the Company's existing infringement actions.
No assurance can be given that the Company will have the resources necessary to
complete its appeal of the Markman rulings or its underlying lawsuits or that it
will be successful in obtaining a favorable outcome.

         In addition, 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.

                                       27
<PAGE>

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's petition to
the Appeals Court for a rehearing of this case has been denied, and we intend to
petition the South Carolina Supreme Court for relief from this ruling. 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.

         Management's plans with respect to addressing the matters discussed
above are to continue to prosecute the patent infringement lawsuits in which the
Company is involved and to seek remedies which would provide to it a more
favorable interpretation of its patent claims, as such terms were interpreted in
its Markman proceedings by the Columbia Federal Court. It is likely that the
Company will have to appeal the Columbia Federal Court's Markman rulings. The
Company's currently limited capital resources may not be sufficient to continue
to prosecute its patent infringement lawsuits and to prosecute an appeal of its
Markman rulings. In the event the Company's current capital resources are not
sufficient, management intends to attempt to raise additional capital to
continue the prosecution of its lawsuits and any necessary appeals. No assurance
can be given that management will be successful in raising additional capital if
needed to continue the operations of the Company.

         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.       Summary of Significant Accounting Policies

Principles of Consolidation

         The consolidated  financial  statements  include the accounts of
Affinity  Technology  Group, Inc. and its subsidiaries,   Affinity  Bank
Technology  Corporation,   Affinity  Clearinghouse  Corporation,   Affinity
Credit Corporation,   Affinity  Processing  Corporation,   Affinity  Mortgage
Technology,  Inc.,  decisioning.com,   Inc. ("decisioning.com"),  and Multi
Financial Services,  Inc. All significant  inter-company  balances and
transactions have been eliminated in consolidation.

Cash and Cash Equivalents

         The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

Fair Value of Financial Instruments

         The carrying amounts reported in the balance sheet for cash and cash
equivalents, accounts payable and notes payable approximate their fair values.

Property and Equipment

         Property and equipment are recorded at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the assets.

                                       28
<PAGE>

Estimated useful lives range from five to ten years for office furniture and
fixtures and three to five years for all other depreciable assets. Depreciation
expense was approximately $4,000, $6,000 and $7,000 during 2006, 2005 and 2004,
respectively.

Revenue Recognition

         Patent licensing - The Company recognizes revenue from patent licensing
activities pursuant to the provisions of each license agreement which specify
the periods to which the related license and corresponding revenue applies.

         Deferred revenues - Deferred revenues relate to unearned revenue
associated with cash received for patent licenses. Such revenue is recognized in
the period the patent license entitles the licensee to use technology covered by
the Company's patents.

Cost of Revenues

         Cost of revenues consists solely of commissions paid to the Company's
patent licensing agents. Commissions paid or accrued by the Company totaled
$3,333, $2,026 and $64,265 for the years ended December 31, 2006, 2005, and
2004, respectively.


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.

         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 years ended December 31, 2005 and 2004 would have been as follows:

<TABLE>
<CAPTION>
<S>                                                          <C>                  <C>

                                                                   2005                 2004
                                                            --------------------------------------

            Net loss:
            As reported                                      $   (566,387)        $   (217,127)
            Add:  stock-based compensation expense
                  included in reported net income                       -                    -

            Deduct: stock-based compensation expense
                    determined under the fair value based
                    method for all awards                          (6,543)             (22,887)
                                                            --------------------------------------
            Pro forma net loss                               $   (572,930)        $   (240,014)
                                                            ======================================

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

         See Note 5 for more information regarding the Company's stock
compensation plans and the assumptions used to prepare the pro forma information
presented above.
</TABLE>

                                       29
<PAGE>

Net Loss Per Share of Common Stock

         All net loss per share of Common Stock amounts presented have been
computed based on the weighted average number of shares of Common Stock
outstanding in accordance with SFAS 128. Stock warrants and stock options are
not included in the calculation of dilutive loss per common share because the
Company has experienced operating losses in all periods presented and,
therefore, the effect would be antidilutive.

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.

         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 the Company's 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.

Income Taxes

         Deferred income taxes are calculated using the liability method
prescribed by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109").

                                       30
<PAGE>

Concentrations of Credit Risk

         The Company is not exposed to any concentration of credit risk.

Use of Estimates

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.


Reclassification

         Certain amounts in 2004 and 2005 have been reclassified to conform to
2006 presentations for comparability. These reclassifications have no effect on
previously reported stockholders' equity (deficiency) or net loss.

3.       Property and Equipment

Property and equipment consists of the following:
<TABLE>
<CAPTION>
<S>                                                <C>                  <C>

                                                              December 31,
                                                       2006                 2005
                                                -----------------------------------------
Data processing equipment                          $    22,032          $    32,109
Office furniture and fixtures                           19,087               37,161
Other equipment                                         11,038               11,038
Purchased software                                       3,770                3,770
                                                -----------------------------------------
                                                        55,927               84,078
Less accumulated depreciation and amortization         (48,361)             (79,282)
                                                -----------------------------------------
                                                   $     7,566          $     4,796
                                                =========================================
</TABLE>

4.       Convertible Notes

         The contractual maturities of the principal outstanding related to the
Company's convertible notes at December 31, 2006 are as follows:


                Contractual Maturity Date        Principal Outstanding
               ---------------------------     -------------------------
                       August 2008                  $   1,235,666
                      September 2008                    1,905,000
                                                   ----------------
                          Total                     $   3,140,666
                                                   ================


         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 February 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 its
decisioning.com, Inc. subsidiary, 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.

                                       31
<PAGE>

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.

         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 for which they were exchanged, 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.

5.       Stockholders' Deficiency

Preferred Stock

         Pursuant to the Company's Certificate of Incorporation, the Board of
Directors has the authority, without further action by the stockholders, to
issue up to 5,000,000 shares of preferred stock in one or more series and to fix
the designations, powers, preferences, privileges, and relative participating,
optional or special rights and the qualifications, limitations, or restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater than
the rights of the common stock. At December 31, 2006 and 2005 there are no
shares of preferred stock issued or outstanding.

Stock Option Plans

         During 2006, the Company had two stockholder-approved stock option
plans, the 1995 Stock Option Plan and the 1996 Incentive Stock Option Plan.
Under the 1995 Stock Option Plan the Company granted incentive stock options and
nonqualified stock options to employees, directors, consultants and independent
contractors. This plan closed in April 1996. In 2006, all outstanding and
unexercised stock options granted under the plan expired. Accordingly, at
December 31, 2006, there were no outstanding options under the 1995 Stock Option
Plan.

         In April 1996, the Company adopted the 1996 Incentive Stock Option
Plan. This plan closed in April 2006. Under the terms of the plan, incentive
options were issued at an exercise price not less than the estimated fair market
value on the date of grant. Generally, options granted vest ratably over a 60
month term.

                                       32
<PAGE>

The 1996 Incentive Stock Option Plan was amended and restated effective May 28,
1999, to increase the number of shares of common stock available for issuance
from 1,900,000 to 2,900,000 and to permit non-employee directors to participate
in the 1996 Stock Option Plan. Under the Company's director compensation program
in effect from April 1999 to March 2002, non-employee directors received options
under the 1996 Incentive Stock Option Plan to purchase 5,000 shares of common
stock of the Company on the 5th business day after each annual shareholder
meeting. In March 2002, the Company adopted a new director compensation program
as a component of the 1996 Incentive Stock Option Plan under which all
non-employee directors received a one-time grant of options to purchase 100,000
shares of the Company's stock at the closing sales price of the Company's common
stock on the business day immediately prior to the date of grant. Such options
vest ratably over a two-year period. Under the program, all non-employee
directors on the Board were granted options to purchase 100,000 shares on March
20, 2002.

         Additionally, on July 14, 2006, the Board of Directors granted to
executives of the Company and to its non-employee directors an additional
4,350,000 options to purchase the Company's common stock ("The 2006 Stock Option
Grant"). Included in the 2006 Stock Option Grant were options granted to
executive officers to purchase 3,350,000 shares of the Company's common stock at
an exercise price of $0.50. One-third of the options granted to the executive
officers vested at the date of grant and the remainder vest in two annual
installments on the first and second anniversaries of the date of grant.

         The 2006 Stock Option Grant also included options granted to
non-employee directors to purchase 1,000,000 shares of the Company's common
stock. Of these options, 500,000 options are exercisable at $0.35 per share and
vested at the grant date. The remaining 500,000 options granted to non-employee
directors are exercisable at $0.50, and vest in two equal installments on the
first and second anniversaries of the grant date. The closing price of the
Company's common stock was $0.35 on the day immediately preceding the date of
the 2006 Stock Option Grant.

         All the options granted pursuant to the 2006 Stock Option Grant have a
contractual term of 10 years and a remaining contractual term of 9.5 years at
December 31, 2006. During 2006, none of the options were exercised or forfeited.
At the grant date and at December 31, 2006, the weighted-average exercise price
was $0.48. At December 31, 2006, the weighted-average exercise price of the
1,616,666 options exercisable pursuant to the 2006 Stock Option Grant was $0.45.
At the date of grant, the options granted had a weighted-average fair value of
$0.26 and total compensation cost was $1,136,000. Of the total compensation
costs related to the 2006 Stock Option Grant, the Company recognized
compensation expense of $671,556 in 2006 and will recognize $355,333 and
$109,111 in 2007 and 2008, respectively. At December 31, 2006, the closing price
of the Company's common stock was less than the weighted-average exercise price
of options which were outstanding and which were exercisable; accordingly, there
was no intrinsic value associated with such options.

                                       33
<PAGE>

A summary of activity under the 1995 and 1996 Option Plans is as follows:
<TABLE>
<CAPTION>
<S>                                                     <C>         <C>               <C>

                                                                         Options Outstanding
                                                                --------------------------------------
                                                     Shares          Number      Weighted Average
                                                   Available           of             Price
                                                   for Grant         Shares          Per Share
      1995 Stock Option Plan
      Balance at December 31, 2003                      -           18,020            $0.44
      Options canceled/forfeited/expired                -          (10,600)           $0.44
                                               -------------------------------------------------------
      Balance at December 31, 2004                      -            7,420            $0.44
      Options canceled/forfeited/expired                -           (4,240)           $0.44
                                               -------------------------------------------------------
      Balance at December 31, 2005                      -            3,180            $0.44
      Options canceled/forfeited/expired                -           (3,180)           $0.44
                                               -------------------------------------------------------
      Balance at December 31, 2006                      -               -                -
                                               =======================================================




      1996 Incentive Stock Option Plan
      Balance at December 31, 2003                  577,250      2,150,820             $0.50
      Options granted                                   -               -              $0.00
      Options cancelled/forfeited                    17,500        (17,500)            $0.22
                                               -------------------------------------------------------
      Balance at December 31, 2004                  594,750      2,133,320             $0.50
      Options granted                                   -               -              $0.00
      Options cancelled/forfeited                    99,620        (99,620)            $0.34
                                               -------------------------------------------------------
      Balance at December 31, 2005                  694,370      2,033,700             $0.51
      Plan Closed                                  (694,370)            -                -
      Options exercised                                 -         (200,000)            $0.12
      Options cancelled/forfeited                       -         (100,000)            $1.47
                                               -------------------------------------------------------
      Balance at December 31, 2006                      -        1,733,700             $0.50
                                               =======================================================

</TABLE>

         A summary of stock options exercisable and stock options outstanding
under the 1996 Incentive Stock Option Plan is as follows:

<TABLE>
<CAPTION>
<S>                         <C>                   <C>            <C>                  <C>                <C>
                                              1996 Incentive Stock Option Plan
  -------------------------------------------------------------------------------------------------------------------------
                                Options Exercisable                                Options Outstanding
                                at December 31, 2006                               At December 31, 2006
                      -----------------------------------------------------------------------------------------------------
       Range                                    Weighted                            Weighted          Weighted
         of                  Number              Average          Number             Average           Average
      Exercise             Exercisable            Price         Outstanding           Price           Remaining
       Prices                                      Per                                 Per           Contractual
                                                  Share                               Share          Life (years)
  -------------------------------------------------------------------------------------------------------------------------
    $0.09 - $0.94           1,370,000             $0.20          1,440,000            $0.20              4.6
    $1.06 - $3.75             293,700             $1.98            293,700            $1.98              2.5
                      -----------------------------------------------------------------------------------------------------
    $0.09 - $3.75           1,663,700             $0.52          1,733,700            $0.50              4.3
                      =====================================================================================================

</TABLE>

                                       34
<PAGE>

         At December 31, 2006, the closing price of the Company's common stock
was less than the weighted-average exercise price of options granted in
accordance with the 1996 Stock Option Plan which were outstanding and which were
exercisable; accordingly, there was no intrinsic value associated with such
options. In 2006, the Company recognized $2,524 of compensation expense
associated with options granted under this plan and additional compensation cost
of $1,558 will be recognized over the next 2 years.

          The fair value of each option award is estimated using the
Black-Scholes option-pricing at the date of grant. The following table sets
forth the assumptions used by the Company to estimate the fair value of options
granted in 2006. Expected volatility is based on historical monthly stock prices
starting on April 26, 1996. Historical data and other factors that could affect
the Company and its options programs are used to estimate the expected option
life. The risk-free rate for periods within the contractual life of the option
is based on the U.S. Treasury yield in effect at the time of grant.

                                                        2006
                                                --------------------
                    Dividend yield                        -
                    Expected volatility                 138%
                    Risk-free rate of return           4.82%
                    Expected option life, years           3



         For purposes of preparing its pro forma stock-based compensation
disclosures as set forth in Note 2, the Company estimated the fair value at the
date of grant for the options issued prior to 2006 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.

         Stock Warrants

          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
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. The
warrant was exercisable at the date of issuance and the Company recognized the
estimated fair value of the warrant as an expense of $200,000. The Company
estimated the fair value of the warrant in a manner consistent with its method
for estimating the fair value of its stock options as discussed above.

         In September 2000, the Company entered into a convertible debenture and
warrants purchase agreement with an investor and, in connection therewith,
issued to the broker representing the investor in this transaction a five-year
warrant to acquire 35,000 shares of the Company's common stock at $0.47 per
share. These warrants expired unexercised in 2005.

6.       Employee Benefit Plans

         The Company has an employee savings plan (the Savings Plan) that
qualifies as a deferred salary arrangement under Section 401(k) of the Internal
Revenue Code. Under the Savings Plan, participating employees may defer a
portion of their pretax earnings, up to the Internal Revenue Service annual
contribution limit.

                                       35
<PAGE>

7.       Leases

         The Company has a prepaid two-year lease on its principal office space.
The lease expires in December 2008. Additionally, the Company has a
month-to-month operating lease for the rental of its warehouse. Future minimum
lease payments under these leases at December 31, 2006 are approximately $1,200,
all of which is payable in 2007. In 2006, 2005, and 2004 the Company incurred
rent expense, including rent associated with cancelable rental agreements, of
approximately $21,000, $24,000 and $32,000, respectively.

8.       Income Taxes

         As of December 31, 2006, the Company had federal and state tax net
operating loss carryforwards of approximately $69,949,000. The net operating
loss carryforwards will begin to expire in 2009, if not utilized.

        Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities consist of the
following:
<TABLE>
<CAPTION>
<S>                                               <C>                 <C>

                                                          December 31,
                                                    2006                2005
                                                -----------------------------------
           Deferred tax assets:
              Net operating loss carryforwards    $ 26,091,000        $ 25,102,000
              Accrued expenses                          37,000              19,000
              Other                                          -                   -
                                                -----------------------------------
           Total deferred tax assets                26,128,000          25,121,000
                                                -----------------------------------
           Deferred tax liabilities:
              Other                                          -                   -
                                                -----------------------------------
           Total deferred tax liabilities                    -                   -
                                                -----------------------------------
           Less:  Valuation allowance              (26,128,000)        (25,121,000)
                                                -----------------------------------
           Total net deferred taxes               $          -        $          -
                                                ===================================
</TABLE>

         The Company has recorded a valuation allowance for the full amount of
its net deferred tax assets as of December 31, 2006 and 2005, based on
management's evaluation of the evidential recognition requirements under the
criteria of SFAS 109. The main component of the evidential recognition
requirements was the Company's cumulative pretax losses since inception. The
provision for income taxes at the Company's effective rate did not differ from
the provision for income taxes at the statutory rate for 2006, 2005, and 2004.

9.       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. Single entities accounted for 100%,
100% and 87% of revenues in 2006, 2005, and 2004, respectively.

10.      Related Party Transactions

         In December 2003, the Company sold a two year convertible note in the
principal amount of $100,000 to a subsidiary of The South Financial Group, which
at that time owned approximately 12% of the Company's outstanding common stock.
In June 2002, the Company sold a two year convertible secured note to its
Chairman, President and Chief Executive Officer in the principal amount of
$125,000. These notes bear interest at 8%, and principal and accrued interest
were due in December 2005 and June 2004, respectively. As discussed more fully
in Note 4, in August 2006 the Company exchanged its outstanding convertible
notes for new convertible notes. In accordance with the exchange the Company
issued new convertible notes to a subsidiary of The South Financial Group, Inc.
and to the Company's Chief Executive Officer in the principal amounts of
$122,115 and $166,863, respectively.

                                       36
<PAGE>

         In 2006, 2005 and 2004, the Company leased office space from a holder
of a portion of its convertible notes. The lease was on a month-to-month basis
and was terminated in January 2007. Rental expense for the office space was
$6,000, $9,250 and $18,000 in 2006, 2005 and 2004, respectively.

11.      Commitments and Contingent Liabilities

         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's petition to the Appeals Court for a
rehearing of this case has been denied, and we intend to petition the South
Carolina Supreme Court for relief from this ruling. 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.

12.      Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
<S>                           <C>              <C>              <C>             <C>

                                  First          Second           Third          Fourth
                                 Quarter        Quarter           Quarter        Quarter
                              -----------------------------------------------------------------
   Year ended December 31,
   2006
   Revenue                    $   8,333        $   8,334        $   8,333       $   8,333
   Gross profit                   7,500            7,500            7,500           7,500
   Net (loss) income            (89,946)        (219,965)      (1,610,054)       (779,557)
   Net loss per share -
   basic and diluted              (0.00)           (0.00)           (0.04)          (0.02)

   Year ended December 31,
   2005
   Revenue                    $   4,412        $   4,412        $   4,411       $   7,026
   Gross profit                   3,971            3,971            3,969           6,324
   Net (loss) income           (129,625)        (165,330)        (134,976)       (136,456)

   Net loss per share -
   basic and diluted              (0.00)           (0.00)           (0.00)          (0.00)


The sum of certain net loss per share amounts differs from the annual reported
total due to rounding.
</TABLE>

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

         Not applicable

Item 9A.  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").

                                       37
<PAGE>

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 December 31, 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.

Item 9B.  Other Information

         Not applicable

Part III

Item 10.   Directors, Executive Officers and Corporate Governance

               Executive Officers and Directors of the Registrant
<TABLE>
<CAPTION>
<S>                            <C>            <C>

  Name                          Age             Position with the Company
  ----                          ---            -------------------------
  Joseph A. Boyle               52              Chairman, President, Chief Executive Officer, and Chief
                                                Financial Officer
  S. Sean Douglas               38              Executive Vice President and Chief Operating Officer
  Robert M. Price               76              Director
  Peter R. Wilson               54              Director
</TABLE>

Joseph A. Boyle became President and Chief Executive Officer of the Company in
January 2000 and Chairman in March 2001. Mr. Boyle has also served as Chief
Financial Officer of the Company since September 1996. Mr. Boyle also held the
title of Senior Vice President from September 1996 to January 2000. Mr. Boyle
has previously served as Secretary and Treasurer of the Company. To conserve the
Company's limited financial resources, Mr. Boyle has from time to time reduced
his time commitment to and compensation received from the Company. From January
2005 until June 2006, Mr. Boyle performed consulting services for a local
financial institution. From April 2003 to August 2004, Mr. Boyle also was a
partner of Elliott Davis, LLC, a South Carolina public accounting firm. Prior to
joining the Company, Mr. Boyle served as Price Waterhouse, LLP's engagement
partner for most of its Kansas City, Missouri, financial services clients and
was a member of the firm's Mortgage Banking Group. Mr. Boyle was employed by
Price Waterhouse, LLP from June 1982 to August 1996.

S. Sean Douglas became Executive Vice President and Chief Operating Officer of
the Company in March 2003. Mr. Douglas also held the title of Senior Vice
President of Finance, Operations and Administration of the Company from March
2002 to March 2003. From January 2000 to March 2002, Mr. Douglas held the title
of Vice President and Controller of the Company. From November 1995 to January
2000 Mr. Douglas was the Company's accounting manager.

Robert M. Price has served as a director of the Company since November 1994. He
has been President of PSV, Inc., a technology consulting business located in
Burnsville, Minnesota, since 1990. Between 1961 and 1990, Mr. Price served in
various executive positions, including Chairman and Chief Executive Officer,
with Control Data Corporation, a mainframe computer manufacturer and business
services provider. Mr. Price is a graduate of Duke University, and earned a
master's degree at the Georgia Institute of Technology. Mr. Price is a director
of PNM Resources and Datalink Corporation.

Dr. Peter R. Wilson has been a director of the Company since March 1994. Dr.
Wilson served as Secretary of the Company from March 1994 until February 1996
and has been an Associate Professor at the Fuqua School of Business at Duke
University since September 1991. He was an Assistant Professor at New York
University's Stern School of Business between January 1983 and August 1991. Dr.
Wilson teaches in the areas of financial accounting, financial reporting,
financial statement analysis and strategic cost management. He earned a
bachelor's degree and a Ph.D. in accounting at the University of North Carolina.

                                       38
<PAGE>

                               Board of Directors

         The business and affairs of the Company are managed by or under the
direction of the Board of Directors, as provided by Delaware law and our
By-Laws. The directors establish overall policies and standards for the Company
and review the performance of management. The directors are kept informed of our
operations at meetings of the Board, through reports and analyses and through
discussions with management.

Meetings of the Board

         The Board of Directors met five times during the year ended December
31, 2006. All directors participated in at least 75% of all meetings of the
Board of Directors and the committees of the Board of Directors on which they
served during 2006.

Committees of the Board

         The Board of Directors has  established  an Audit  Committee  and a
Compensation  Committee.  There is no nominating committee of the Board of
Directors.

         The Audit Committee, established in 1996, has the authority to appoint
and remove our independent public accounting firm, with whom the Audit Committee
reviews the scope of audit and non-audit assignments and related fees, the
accounting principles used by us in financial reporting and the adequacy of our
internal control procedures. The members of the Audit Committee, which met once
during the year ended December 31, 2006, are Dr. Peter R. Wilson (Chairman) and
Robert M. Price.

         The Compensation Committee has the authority, among other things, to:
(i) determine the cash and non-cash compensation of each of our executive
officers and any other employee with an annual salary in excess of $100,000;
(ii) consider and recommend to the Board such general and specific employee
equity and other incentives as it may from time to time deem advisable; and
(iii) administer our stock option plans. The members of the Compensation
Committee, which met one time during the year ended December 31, 2006, are
Robert M. Price (Chairman) and Dr. Peter R. Wilson.

         The Board of Directors has not established a nominating committee
primarily because it believes that the current composition and size of the Board
permit candid and open discussion regarding potential new candidates for
director. The entire Board of Directors currently operates as our nominating
committee, and all directors participate in the consideration of director
nominees. Of the three directors currently serving on the Board, we believe that
Dr. Peter R. Wilson and Robert M. Price are independent directors within the
meaning of the NASDAQ Marketplace Rules applicable to directors and audit,
compensation and nominating committee members of companies listed on the NASDAQ
Global Market. The Company does not believe that Messrs. Wilson or Price are
parties to other transactions, relationships or arrangements not otherwise
disclosed in this prospectus that affect their independence. There is no formal
process or policy that governs the manner in which we identify potential
candidates for director, and the Board of Directors has not adopted any
specific, minimum qualifications that must be met to be nominated to serve as a
director. Historically, however, the Board of Directors has considered several
factors in evaluating candidates for nomination to the Board, including the
candidate's knowledge of our business, the candidate's business experience and
credentials, and whether the candidate would represent the interests of all our
stockholders as opposed to a specific group of stockholders. We do not have a
formal policy with respect to our consideration of director nominees recommended
by our stockholders because the Board of Directors believes that it has been
able to give appropriate consideration to candidates recommended by stockholders
in prior years on a case-by-case basis.

                        Audit Committee Financial Expert

         The Board of Directors has determined that Dr. Peter R. Wilson is an
"audit committee financial expert" for purposes of the rules and regulations of
the Securities and Exchange Commission adopted pursuant to the Sarbanes-Oxley
Act of 2002. Mr. Wilson also is an independent director within the meaning of
the NASDAQ Marketplace Rules applicable to audit committee members of companies
listed on the NASDAQ Global Market.

                                       39
<PAGE>

         Additional information required by this Item will be contained in the
Registrant's definitive proxy statement relating to its 2007 Annual Meeting of
Stockholders under the captions "Board of Directors - Code of Ethics," "Board of
Directors--Nominees for Director," and "Section 16(a) Beneficial Ownership
Reporting Compliance," which are incorporated by reference herein.

Item 11.  Executive Compensation

Compensation Discussion and Analysis

         Affinity has two employees, a Chief Executive Officer and a Chief
Operating Officer. Both of these employees are "named executives" as such term
is used for purposes of a discussion of our compensation policies and
arrangements. Historically, our compensation policies and arrangements have, to
a great extent, been dictated by the limited cash resources available for cash
compensation to our named executives. Due to our limited cash resources, from
2003 until August 2006 both of our named executives received only a portion of
the cash compensation each earned. During that period, our Chief Executive
Officer and Chief Operating Officer received 60% and 63%, respectively, of cash
compensation they earned. Moreover, during that period our Chief Executive
Officer, from time to time, reduced his time commitment to Affinity in order to
conserve cash resources.

         Due to our limited cash resources we have placed a high degree of
emphasis on stock-based compensation, primarily in the form of stock option
grants. These grants are intended to achieve our principal compensation
objectives of retaining executive officers who have developed the significant
historical experience, knowledge and relationships necessary to continue
operating our highly specialized business and rewarding them for their
contributions to the further development of our business and prospects. Further,
we believe that stock-based compensation achieves an important compensation
objective of aligning the interest of our named executives with the interest of
our stockholders over a long period of time.

         As more fully explained in Part I, Item 1. "Business - Patents and
Legal Matters," during 2006, we successfully concluded the reexamination of our
U.S. Patent No. 6,105,007 in 2006. The successful conclusion of the
reexamination caused the lifting of our patent infringement lawsuits,
facilitated our ability to raise additional capital and necessitated the return
to full time status of our Chief Executive Officer.

         In light of the general advance of our business activities as a result
of the successful conclusion of the reexamination of our U.S. Patent 6,105,007,
in July 2006 our Board of Directors approved new compensation terms for our
named executives. The compensation terms consisted of the establishment of base
cash compensation for and the granting of stock options to our named executives
as described in the tables below. In determining the base cash compensation
amounts our Board considered numerous factors, including: cash compensation
levels of executives in comparably sized and complex companies; the cash
compensation amount our named executives would likely receive from other
companies based on their experience levels and the historical amounts we have
paid to them, including these executives' history of voluntary salary reductions
and deferral of earned cash compensation.

         During 2006, we granted a significant number of options to our named
executives. Key factors considered in determining the level of stock options
granted of to our named executives in 2006 included: levels of ownership of
executives considered appropriate for similar companies at a comparable stage of
development; the absence of stock option grants to the named executives in the
preceding two years; and, our progress in advancing our patent and business
interests in 2006.

         Other than cash compensation, which includes our named executives' base
salary and amounts paid to them to defray the cost of their health care
premiums, and stock-based compensation in the form of stock option grants, we
currently provide no other compensation to our named executives. It is possible
that, depending on our progress in the future, our Board of Directors could
grant bonuses to our named executives based on factors they consider relevant at
that time or that a formal bonus plan could be developed to reward our named
executives for the achievement of specific objectives.

                                       40
<PAGE>

         Furthermore, neither of our named executives is subject to an
employment contract and there are no formal or informal agreements with them
concerning severance arrangements, other than common accelerated vesting
provisions related to unvested stock options in the event we have a change of
control.

         During 2006, neither of our named executives exercised any stock
options.

Summary Compensation Table

         The following summary compensation table sets forth information
concerning the cash and non-cash compensation earned by, paid to and awarded to
our named executives during the year ended December 31, 2006:
<TABLE>
<CAPTION>
<S>                                <C>         <C>              <C>               <C>              <C>
                                                    Annual Compensation
                                              ------------------------------------------------
          Name and                                                  Option         All Other
     Principal Position            Year           Salary            Awards         Compensation      Total
------------------------------  ----------    ---------------    -------------    -------------   ------------
   Joseph A. Boyle                 2006        $ 137,310 (1)    $ 366,803 (2)     $ 3,058 (3)      $ 507,171
     President and Chief
     Executive Officer

   S. Sean Douglas                 2006        $ 111,918 (4)    $ 124,713 (5)     $ 3,058 (6)      $ 239,689
     Executive Vice President
     And Chief Operating Officer

</TABLE>

(1)      Amount represents cash compensation of $93,071 Mr. Boyle received
         subsequent to his returning to full-time employment with Affinity in
         July 2006 and accrued compensation of $44,239 which has not been paid
         to Mr. Boyle due to our limited cash resources. From January 2006
         through June 2006, Mr. Boyle received no cash compensation and
         compensation was accrued on his behalf at an annual rate of $24,000.
         From July 2006 through September 2006, Mr. Boyle was paid cash
         compensation at a rate less than the amount of compensation he earned
         due to limited cash resources. In July 2006, Mr. Boyle's base annual
         salary was established at $250,000.
(2)      Amount represents the expense we recognized in 2006 related to the
         stock options we granted to Mr. Boyle in July 2006 in accordance with a
         compensation plan adopted by the Board of Directors. The expense we
         recognized represents the portion of the estimated fair value of the
         options we granted allocable to 2006 and was determined in accordance
         with Statement of Financial Accounting Standards No. 123R, "Share-Based
         Payments." Under the plan Mr. Boyle received options to purchase 2.5
         million shares of our common stock at an exercise price of $0.50 per
         share. The options are classified as non-qualified stock options for
         federal tax purposes and were granted outside of a shareholder-approved
         plan. One-third (833,333) of the options vested at the date of grant
         and an additional 833,333 will vest on the first and second anniversary
         of the grant date, respectively. The assumptions used in valuing these
         options are set forth in Note 5 of our consolidated financial
         statements included herewith.
(3)      Amount represents payments of $979 to Mr. Boyle and accrued payments of
         $2,079 for the maintenance of health insurance coverage under a
         non-company sponsored plan. We discontinued offering health insurance
         to our employees in 2003 in an effort to conserve cash.
(4)      Amount represents cash compensation of $66,789 Mr. Douglas received
         during 2006 and accrued compensation of $45,129 which has not been paid
         to Mr. Douglas due to our limited cash resources. In July 2006, Mr.
         Douglas' base annual salary was established at $125,000.
(5)      Amount represents the expense we recognized in 2006 related to the
         stock options we granted to Mr. Douglas in July 2006 in accordance with
         a compensation plan adopted by the Board of Directors. The expense we
         recognized represents the portion of the estimated fair value of the
         options we granted allocable to 2006 and was determined in accordance
         with Statement of Financial Accounting Standards No. 123R, "Share-Based
         Payments." Under the plan Mr. Douglas received options to purchase 850
         thousand shares of our common stock at an exercise price of $0.50 per
         share. The options are classified as non-qualified stock options for
         federal tax purposes and were granted outside of a shareholder-approved
         plan. One-third (283,333) of the options vested at the date of grant
         and an additional 283,333 will vest on the first and second anniversary
         of the grant date, respectively. The assumptions used in valuing these
         options are set forth in Note 5 of our consolidated financial
         statements included herewith.

                                       41
<PAGE>

(6)      Amount represents payments of $2,324 to Mr. Douglas and accrued
         payments of $734 for the maintenance of health insurance coverage under
         a non-company sponsored plan. We discontinued offering health insurance
         to our employees in 2003 in an effort to conserve cash.

         The following table provides information regarding awards of equity
compensation (all in the form of options to purchase our common stock) to our
named executives during the year ended December 31, 2006.

                         Grants of Plan-Based Awards Table

                                            Option Awards
                                 ------------------------------------
                                  Number of    Exercise      Grant
                                 Securities      Price       Date
                    Grant        Underlying       of         Fair
     Name            Date          Options      Options      Value
---------------   -----------    -----------   ---------  -----------
Joseph A. Boyle  July 14, 2006    2,500,000      $0.50     $650,000

S. Sean Douglas  July 14, 2006      850,000      $0.50     $221,000

         The following table provides information with respect to unexercised
options for our named executives as of December 31, 2006.

                           Outstanding Equity Awards at December 31,2006

                    Number of        Number of
                    Securities       Securities
                    Underlying       Underlying
                   Unexercised      Unexercised       Option       Option
                     Options-         Options-       Exercise    Expiration
     Name          Exercisable     Unexercisable       Price        Date
---------------   -------------   ---------------   ----------   -----------
Joseph A. Boyle         70,000                          $3.75      7/9/2007
                       125,000                           0.94     7/28/2008
                       100,000                           0.50     10/4/2008
                       200,000                           1.47     2/28/2010
                       200,000                           0.09     4/19/2011
                       500,000                           0.09     3/19/2012
                       833,333         1,666,667         0.50     7/13/2016

S. Sean Douglas            200                           2.31     3/23/2008
                         1,000                           1.50      7/6/2009
                        15,000                           1.06     2/22/2010
                         7,500                           1.06     7/21/2010
                        80,000            20,000         0.09     3/19/2012
                        75,000            50,000         0.19     4/27/2013
                       283,333           566,667         0.50     7/13/2016


                                       42
<PAGE>

Director Compensation

         We have two non-employee directors, Robert M. Price and Dr. Peter R.
Wilson. In order to conserve our cash resources, since March 2002 we have
compensated our directors through stock-based compensation, primarily in the
form of stock option grants. Prior to that time our policy was to compensate our
non-employee directors primarily through cash compensation and each received
$2,000 for each meeting attended in person and $500 for each meeting attended by
teleconference. In January 2003, we issued to Mr. Price and Dr. Wilson, each,
141,667 shares of our common stock to compensate them for cash compensation they
had deferred due to our limited cash resources.

         In March 2002, we adopted a director compensation plan under which
non-employee directors received a one-time grant to purchase 100,000 shares of
our common stock at the closing price on the date immediately preceding the
grant date. The options vested over two years and were designed to compensate
our non-employee directors for the two-year period ending in March 2004.

         From March 2004 until July 2006, our non-employee directors received no
compensation from us. In July 2006, and as discussed in detail in above, in
August 2006 our Board of Directors approved a stock option grant in which our
non-employee directors participated, the details of which are set forth in the
table below. Our objectives in granting our non-employee directors the stock
options were to compensate them for the period in which we have not compensated
them, to provide them with future compensation during the period that the stock
options vest and to further align their interest with the interest of our
stockholders.

         Other than the reimbursement of out-of-pocket expenses incurred in
attending meetings, we currently provide no other compensation to our
non-employee directors.

         The following summary compensation table sets forth information
concerning the cash and non-cash compensation earned by, paid to and awarded to
our non-employee directors during the year ended December 31, 2006:


                 Director Compensation in 2006

                    Fees
                   Earned
                   or Paid         Option         All Other
     Name          In Cash         Awards        Compensation        Total
---------------   ---------    -------------    --------------    ----------
Robert M. Price    $  -         $ 90,020 (1)     $    -            $  90,020

Peter R. Wilson    $  -         $ 90,020 (1)     $    -            $  90,020


(1)      Amount represents the expense we recognized in 2006 related to the
         stock options we granted to Mr. Price and Dr. Wilson in July 2006 in
         accordance with a compensation plan adopted by the Board of Directors.
         The expense we recognized represents the portion of the estimated fair
         value of the options we granted allocable to 2006 and was determined in
         accordance with Statement of Financial Accounting Standards No. 123R,
         "Share-Based Payments." Under the plan Mr. Price and Dr. Wilson, each,
         received options to purchase 500,000 shares of our common stock at an
         exercise price of $0.35 per share and options to purchase 500,000
         shares of our common stock at an exercise price of $0.50 per share. The
         total fair value of the options we granted to Mr. Price and Dr. Wilson
         was $132,500. The options with an exercise price of $0.35 vested
         immediately and the options with and exercise price of $0.50 vest
         ratably on the first and second anniversary of the grant date. The
         options are classified as non-qualified stock options for federal tax
         purposes and were granted outside of a shareholder-approved plan. The
         assumptions used in valuing these options are set forth in Note 5 of
         our consolidated financial statements included herewith.

         Additional information required by this Item will be contained in the
Registrant's definitive proxy statement relating to its 2007 Annual Meeting of
Stockholders under the caption "Report of the Compensation Committee on
Executive Compensation," which is furnished, but not deemed filed herewith, by
incorporation by reference herein in accordance with Instruction 2 to Item
407(e)(5) of Regulation S-K.

                                       43

<PAGE>

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

         The following table sets forth certain information regarding the
beneficial ownership of shares of Common Stock as of January 1, 2007, by: (i)
each director and nominee for director of the Company; (ii) each current
executive officer of the Company named under the caption "Executive
Compensation--Summary Compensation Table," below; (iii) each other person who is
known by the Company to beneficially own more than five percent of the
outstanding shares of Common Stock (a "five percent stockholder"); and (iv) all
directors and executive officers as a group. Except as set forth in the
footnotes to the table below, each of the stockholders identified in the table
below has sole voting and investment power over the shares beneficially owned by
such person.
<TABLE>
<CAPTION>
<S>                                                                 <C>                  <C>
                                                                                          Percent of
                                                                  Number of Shares       Outstanding
DIRECTORS AND EXECUTIVE OFFICERS                                 Beneficially Owned      Shares Owned
--------------------------------                                 ------------------     -------------
Peter R. Wilson (1)                                                    630,067             1.39%
Robert M. Price (2)                                                    686,179             1.52%
Joseph A. Boyle (3)                                                  3,401,033             7.51%
S. Sean Douglas (4)                                                    462,033             1.02%
Directors and executive officers as a group (4 persons)              5,179,312            11.44%

FIVE PERCENT STOCKHOLDERS
--------------------------
The South Financial Group (5)                                        5,084,035            11.23%

-------------------
*Indicates less than one percent.
(1)  Includes options to acquire 350,000 shares of Common Stock. that are
     currently exercisable.
(2)  Includes options to acquire 350,000 shares of Common Stock. that are
     currently exercisable.
(3)  Includes options to acquire 2,028,333 shares of Common Stock. that are
     currently exercisable. Also includes 828,380 shares of Common Stock that
     may be acquired upon conversion of a convertible note in the principal
     amount of $166,863 held by Mr. Boyle. Also includes 31,820 shares that may
     be issued in lieu of cash, at the Company's election, in payment of accrued
     interest on such convertible note.
(4)  Consists entirely of options to acquire Common Stock that are currently
     exercisable.
(5)  In March 2005, The South Financial Group, Inc. ("The South Financial
     Group") transferred 4,876,340 shares of the Company's Common Stock to The
     South Financial Group Foundation (the "Foundation"), and at January 1,
     2007, the Foundation held 4,454,190 shares of the Company's Common Stock.
     The shares shown in the table above also include 606,560 shares of Common
     Stock that may be acquired upon conversion of a convertible note in the
     principal amount of $122,115 held by CF Investment Company, a subsidiary of
     The South Financial Group. This amount also includes 23,285 shares that may
     be issued in lieu of cash, at the Company's election, in payment of accrued
     interest on such convertible note. The South Financial Group's address is
     Post Office Box 1029, Greenville, South Carolina, 29602.
</TABLE>

                                       44
<PAGE>
<TABLE>
<CAPTION>
<S>                                    <C>                            <C>                             <C>
                                            Equity Compensation Plan Information
------------------------------- ---------------------------- ---------------------------- ----------------------------
                                                                                             Number of securities
                                                                                            remaining available for
                                Number of securities to be    Weighted-average exercise      future issuance under
                                  issued upon exercise of       price of outstanding       equity compensation plans
                                   outstanding options,         options, warrants and        (excluding securities
        Plan Category               warrants and rights                rights              reflected in column (a))
------------------------------- ---------------------------- ---------------------------- ----------------------------
                                           (a)                          (b)                            (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------
  Equity compensation plans
 approved by security holders           1,733,700                      $0.50                            -
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans not
 approved by security holders           6,850,000                      $0.49                            -
------------------------------- ---------------------------- ---------------------------- ----------------------------
            Total                       8,583,700                      $0.49                            -
------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>

         The table set forth above does not include any information with respect
to shares of common stock that may be issued upon the conversion of convertible
notes that have been issued by the Company. At December 31, 2006, there was
$3,225,089 of principal and accrued interest outstanding under these notes,
which could be converted into an aggregate of 10,543,606 shares of the Company's
common stock at a conversion price of $0.20 ($1,116,792 principal and accrued
interest), $0.42 ($1,950,511 principal and accrued interest) or $0.50 ($157,786
principal and accrued interest) per share.

         As set forth in the above table, we issued stock options and warrants
exercisable into 6,850,000 of shares of our common stock. Of such amount,
4,350,000 were stock options granted to employees and non-employee directors.
The grant of these stock options is discussed in detail in Part III, Item 11.,
"Executive Compensation" and Note 5 to our consolidated financial statements
included herein also discusses these stock options and warrants to purchase
2,500,000 shares of our common stock issued to Morgan Keegan & Company for
advisory and other services.

Item 13.   Certain Relationships, Related Transactions and Director Independence

Related Transactions

         Since June 2002, we have primarily financed our operations from the
proceeds received through the issuance of convertible notes. In June 2002, our
Chief Executive Officer purchased a convertible note in the principal amount of
$125,000. In June 2004, all of our then outstanding convertible notes, including
the note issued to our Chief Executive Officer, went into default. In August
2006, we reached an agreement with the holders of our notes outstanding at that
time (the "existing notes"), under which we exchanged the existing notes, all of
which were in default, for new notes. The principal of the new notes included
the original principal of the existing notes plus the accrued interest on the
existing notes and matured in August 2008. In accordance with the exchange, we
issued to our Chief Executive Officer a new note in the amount of $166,863.
Additional information regarding our convertible notes and this transaction with
our Chief Executive Officer is discussed in Part II, Item 7., "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" and in Note 4 to our consolidated financial
statements included herein.

Director Independence

         Information regarding the independence of our outside directors is
contained in Part III, Item 10., "Directors and Executive Officers of the
Registrant - Board of Directors."

                                       45

<PAGE>

Item 14.  Principal Accountant Fees and Services

         Information required by this item will be contained in the Registrant's
definitive proxy statement relating to its 2007 Annual Meeting of Stockholders,
under the caption "Accounting Fees."

Part IV

Item 15.  Exhibits

(a)      (1) The following consolidated financial statements of Affinity
         Technology Group, Inc. and subsidiaries included in this Annual Report
         on Form 10-K are included in Item 8.
         i.    Consolidated Balance Sheets as of December 31, 2006 and 2005.
         ii.   Consolidated Statements of Operations for the years ended
                 December 31, 2006, 2005, and 2004.
         iii.  Consolidated Statements of Stockholders' Equity (Deficiency) for
                 the years ended December 31, 2006, 2005, and 2004.
         iv.   Consolidated Statements of Cash Flows for the years ended
                 December 31, 2006, 2005, and 2004.
         v.    Notes to Consolidated Financial Statements.

         (2) Exhibits:

         Documents incorporated by reference to exhibits that have been filed
with the Company's reports or proxy statements under the Securities Exchange Act
of 1934 are available to the public over the Internet from the SEC's web site at
http://www.sec.gov. You may also read and copy any such document at the SEC's
public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C.
20549 under the Company's SEC file number (0-28152).


   Exhibit Number        Description
--------------------------------------------------------------------------------
        3.1           Certificate of Incorporation of Affinity Technology Group,
                      Inc., 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, which is hereby incorporated by reference
                      to Exhibit 3.2 to the Company's Quarterly Report on Form
                      10-Q for the quarter ended June 30, 2006
        3.3           Bylaws of Affinity Technology Group, Inc., 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           Specimen Certificate of Common Stock, which is hereby
                      incorporated by reference to Exhibit 4.1 to the
                      Registration Statement on Form S-1 of Affinity Technology
                      Group, Inc. (File No. 333-1170).
        4.2           Sections 4, 7 and 8 of the Certificate of Incorporation of
                      Affinity Technology Group, Inc., as amended, and Article
                      II, Sections 3, 9 and 10 of the Bylaws of Affinity
                      Technology Group, Inc., as amended, which are incorporated
                      by reference to Exhibits 3.1 and 3.2, respectively, to the
                      Registration Statement on Form S-1 of Affinity Technology
                      Group, Inc. (File No. 333-1170).
        4.3           Convertible Note Purchase Agreement, dated June 3, 2002,
                      between Affinity Technology Group, Inc., and certain
                      investors, which is incorporated by reference to Exhibit
                      4.1 to the Company's Quarterly Report on Form 10-Q for the
                      Quarter ended June 30, 2002.
        4.4           Amended and Restated Convertible Note Purchase Agreement,
                      dated 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 Quarterly Report on Form
                      10-Q for the quarter ended June 30, 2006.
        4.5           Form of 8% Convertible Secured Note, which is hereby
                      incorporated by reference to Exhibit 4.2 to the Company's
                      Quarterly Report on Form 10-Q for the quarter ended June
                      30, 2006.

                                       46
<PAGE>


        4.6           Amended and Restated Security Agreement, dated August 9,
                      2006, among the Company and the investors named therein,
                      which is hereby incorporated by reference to Exhibit 4.3
                      to the Company's Quarterly Report on Form 10-Q for the
                      quarter ended June 30, 2006.
        4.7           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*          Form of Stock Option Agreement (1995 Stock Option Plan),
                      which is hereby incorporated by reference to Exhibit 10.7
                      to the Registration Statement on Form S-1 of Affinity
                      Technology Group, Inc. (File No. 333-1170).
       10.2*          Form of Stock Option Agreement (1996 Stock Option Plan),
                      which is hereby incorporated by reference to Exhibit 10.8
                      to the  Registration Statement on Form S-1 of Affinity
                      Technology Group, Inc. (File No. 333-1170).
       10.3*          Form of Stock Option Agreement (Directors' Stock Option
                      Plan), which is hereby incorporated by reference to
                      Exhibit 10.9 to the Registration Statement on Form S-1 of
                      Affinity Technology Group, Inc. (File No. 333-1170).
       10.4*          1995 Stock Option Plan of Affinity Technology Group, Inc.,
                      which is hereby incorporated by reference to Exhibit 10.10
                      to the Registration Statement on Form S-1 of Affinity
                      Technology Group, Inc. (File No. 333-1170).
       10.5*          Amended and Restated 1996 Stock Option Plan of Affinity
                      Technology Group, Inc., which is hereby incorporated by
                      reference to Exhibit 10 to the Company's Quarterly Report
                      on Form 10-Q for the quarter ended September 30, 1999.
       10.6*          Non-Employee Directors' Stock Option Plan of Affinity
                      Technology Group, Inc., which is hereby incorporated by
                      reference to Exhibit 10.12 to the Registration Statement
                      on Form S-1 of Affinity Technology Group, Inc. (File No.
                      333-1170).
        10.7          Stock Rights Agreement, dated October 20, 1995, between
                      Affinity Technology Group, Inc., and certain investors,
                      which is hereby incorporated by reference to Exhibit 10.15
                      to the Registration Statement on Form S-1 of Affinity
                      Technology Group, Inc. (File No. 333-1170).
       10.8*          Declaration of First Amendment to 1996 Stock Option Plan
                      of Affinity Technology Group, Inc., and 1995 Stock Option
                      Plan of Affinity Technology Group, Inc., which is
                      incorporated by reference to Exhibit 10.10 to the
                      Company's Annual Report on Form 10-K for the year ended
                      December 31, 1998.
       10.9*          Restricted Stock Agreement between Affinity Technology
                      Group, Inc., and Joseph A. Boyle, which is incorporated by
                      reference to Exhibit 10.1 of the Company's Quarterly
                      Report on Form 10-Q for the quarter ended June 30, 2002.
       10.10*         Stock Agreement between Affinity Technology Group, Inc.,
                      and Wade H. Britt, III, which is incorporated by reference
                      to Exhibit 10.2 of the Company's Quarterly Report on Form
                      10-Q for the quarter ended June 30, 2002.
       10.13          Legal Representation Agreement, dated May 27, 2003,
                      between decisioning.com, Inc., and Withrow & Terranova,
                      PLLC, which is incorporated by reference to Exhibit 10.1
                      of the Quarterly Report on Form 10-Q for the quarter
                      ended June 30, 2003.
       10.14          Letter Agreement, effective as of April 17, 2006, between
                      Affinity Technology Group, Inc. (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 there
                      in, which is incorporated by reference to Exhibit 10.1 to
                      the Company's Current Report on Form 8-K filed on April
                      17, 2006.
       10.15          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.
       10.16          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.

                                      47
<PAGE>

       10.17          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.
         14           Code of Ethics, which is incorporated by reference to
                      Exhibit 14 of the Company's Annual Report on Form 10-K for
                      the year ended December 31, 2003.
         21           Subsidiaries of Affinity Technology Group, Inc.
        23.1          Consent of Scott McElveen, L.L.P.
         31           Rule 13a-14(a)/15d-14(a) Certification.
         32           Section 1350 Certification.
*         Denotes a management contract or compensatory plan or arrangement.

(b)      Exhibits

         The exhibits required by Item 601 of Regulation S-K are filed herewith
and incorporated by reference herein. The response to this portion of Item 15 is
submitted under Item 15(a) (2).



                                       48

<PAGE>

                                   Signatures

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                     Affinity Technology Group, Inc.

Date:    January 30, 2006            By:   /s/  Joseph A. Boyle
                                           -------------------------------------
                                           Joseph A. Boyle
                                           President and Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


Signatures                     Title                      Date
--------------------------------------------------------------------------------


/s/ Joseph A. Boyle                                             January 30, 2006
---------------------
Joseph A. Boyle             Chairman, President,
                            Chief Executive Officer and
                            Chief Financial Officer
                            and Director (principal executive
                            and financial officer)

/s/  Robert M. Price, Jr.                                       January 30, 2006
----------------------
Robert M. Price, Jr.        Director


/s/  Peter R. Wilson, Ph.D.                                     January 30, 2006
-----------------------
Peter R. Wilson, Ph.D.      Director


/s/  S. Sean Douglas                                            January 30, 2006
-----------------------
S. Sean Douglas             Executive Vice President and
                            Chief Operating Officer
                            (principal accounting officer)







                                       49
<PAGE>

Exhibit Index

Exhibit Number         Description
--------------------------------------------------------------------------------
21                     Subsidiaries of Affinity Technology Group, Inc.
23.1                   Consent of Independent Registered Public Accounting Firm
31                     Rule 13a-14(a)/15d-14(a) Certifications
32                     Section 1350 Certifications



                                       50