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, 1999

[    ] 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.)

                          1201 Main Street, Suite 2080

                             Columbia, SC 29201-3201

                    (Address of principal executive offices)
                                   (Zip code)

                                 (803) 758-2511

              (Registrant's telephone number, including area code)

               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 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 [ ]


<PAGE>


         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. [ ]

         The  aggregate  market value of the  Registrant's  Common Stock held by
non-affiliates of the Registrant was  approximately  $62,924,299 as of March 16,
2000. For purposes of such  calculation,  shares of Common Stock held by persons
who hold more than 10% of the outstanding shares of Common Stock and shares held
by  directors  and  officers of the  Registrant  and certain of their  immediate
family  members  have been  included  because  such  persons may be deemed to be
affiliates. This determination is not necessarily conclusive.

         There  were  31,870,311   shares  of  the  Registrant's   Common  Stock
outstanding as of March 16, 2000.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Certain  portions of the  Registrant's  proxy statement with respect to
the 2000 Annual Meeting of Stockholders of the Registrant have been incorporated
by reference herein.


<PAGE>


         Item 1 of this Form 10-K  entitled  "Business"  and Item 7 of this Form
10-K entitled  "Management's  Discussion and Analysis of Financial Condition and
Results of Operations" contain forward-looking  statements within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange Act of 1934.  Forward-looking  statements are inherently  uncertain and
actual results could differ  materially  from those  expressed or implied by the
forward-looking   statements.   These   forward-looking   statements  should  be
considered  in the  context of the  business  risks set forth below in Item 1 of
this report under the caption "Business Risks."

Part I
Item 1  Business

General

         Affinity  Technology  Group, Inc. (the "Company") was formed to develop
and market technologies that enable financial  institutions and other businesses
to provide consumer financial services  electronically  with reduced or no human
intervention.  From the period of inception  (January 12, 1994) through December
31,  1994,  the Company was a  development  stage  company,  and its  activities
principally related to developing its DeciSys/RT  technology  (formerly known as
the "DSS  System") and the Affinity  Automated  Loan  Machine  ("ALM"),  raising
capital and recruiting personnel.

         To date, the Company has generated  substantial  operating losses,  has
experienced  an extremely  lengthy sales cycle for its products and services and
has been required to use a substantial amount of existing cash resources to fund
its  operations.  If the Company  continues  to use cash at the rate used during
1999, the Company would deplete its existing cash reserves in the second quarter
of 2000.  Although the Company has taken steps to reduce its operating  expenses
and believes that existing cash, cash equivalents and internally generated funds
will be sufficient to fund operations during 2000, such resources, together with
projected  revenues  that may be  received  under  existing  contracts,  will be
insufficient  to fund the  Company's  operations  in 2001 and beyond.  To remain
viable  after 2000,  the Company must  substantially  increase  revenues,  raise
additional capital and/or substantially reduce its operations. No assurances can
be  given  that  the  Company  will be  able to  increase  its  revenues,  raise
additional  capital or reduce its  operations in a manner that would allow it to
continue operations in 2001 and beyond.

         During 1995,  1996 and early 1997, the Company's  primary  products and
services  consisted  of the ALM,  which  captures  origination  information  for
unsecured  consumer loan  applications  and then routes this  information to the
Company's  proprietary  DeciSys/RT for an automated decision,  and a call center
decisioning  system that  provided  financial  institutions  with the ability to
originate unsecured consumer loans with reduced or no human intervention. During
this period,  the Company's  primary  product  offering to its customers was the
ALM. Also during this period the Company developed additional financial products
which could be  originated  at an ALM and processed  through  DeciSys/RT.  These
products  included  loans  secured by cash  collateral  and the  ability to open
checking  accounts,  renew  existing  loans,  cross sell other products and make
counter  offers to applicants who qualify for a loan amount higher or lower than
the loan amount originally requested.

         During 1997, the Company  developed  e-xpertLender,  which  establishes
connectivity  among a  financial  institution's  delivery  channels,  Affinity's
automated decisioning system, and its risk management group. e-xpertLender also,
upon approval,  gives the consumer the choice of closing or fulfillment  methods
that include  branches,  ALMs, mail, and third party closing agents.  The system
enables call center  agents and branch  personnel to inquire as to the status of
applications at any time and electronically  notifies loan officers with respect
to exceptions and the reason for referral.  e-xpertLender replaced the Company's
previously developed call center decisioning system.

         During 1998, the Company's  principal  activities  were directed toward
enhancing its  e-xpertLender  product  delivery  capabilities  and designing and
developing  a system to  process  automobile  loans  pursuant  to a  development
contract  with  Citibank.  In 1999 Citibank  sold its indirect  automobile  loan
business to Dime Savings  Bank.  To date,  Dime has not  deployed the  Company's
indirect automobile loan processing system.  Moreover,  the Company is unsure as
to Dime's ultimate intention of deploying the Company's indirect automobile loan
processing system due to Dime's proposed merger with Hudson United Bancorp.  The
Company  believes that it is due significant  amounts related to its development
contract and certain other amounts related to the Dime Citibank  transaction and
the proposed Dime/Hudson United transaction.  In the event the Company is unable
to deploy its indirect automobile loan processing system with Dime and is unable
to  collect  amounts it is due for its  development  activities,  the  Company's
future results of operations and financial  position may be adversely  affected.
During 1999, the Company  completed the development of a general release version
of an automobile loan processing system,  which is being offered under the brand
name of iDEAL.

         In the latter part of 1998 and continuing  throughout 1999, the Company
renewed   its  efforts  to  design   additional   products   available   through
point-of-sale  devices similar to the ALM. The primary product  developed during
this  period  was  software  to  capture  consumer  application  information  to
originate a mortgage loan ("Mortgage  ALM"). The Company believes that continued
development efforts will be necessary during 2000 to refine the Mortgage ALM for
sale to  potential  customers.  The Company  formed a wholly  owned  subsidiary,
Surety  Mortgage,  Inc.  ("Surety"),  to deploy Mortgage ALMs for the purpose of
originating  mortgage  loans  and to gain an  understanding  of the  market  and
consumer  response to the Mortgage ALM prior to marketing  Mortgage  ALMs to the
financial  services   industry.   The  Company  does  not  anticipate  that  any
significant sales of Mortgage ALMs to third parties will occur before the latter
part of 2000.

         In 1999, the U.S. Patent and Trademark Office (the "PTO") issued to the
Company two patents  covering  certain  fully  automated  lending  processes and
methods and the Company is currently in a reexamination proceeding on one of the
patents  and has  received a  preliminary  rejection  of the  previously  issued
claims.  In February 2000,  the Company  received a notice of allowance from the
PTO pertaining to a system for real-time  establishment of a financial  account,
including   credit   accounts,   over  a  computer  network  without  any  human
intervention  other than by the  applicant.  The  Company  believes  its patents
provide it with  proprietary  rights  covering fully  automated loan  processing
which is initiated by a consumer through a remote computer interface,  which the
Company believes includes the Internet, wide area networks, local area networks,
and any other communications network. Kiosk lending systems, including ALMs, are
also included  within the scope of the patent.  During 1999, the Company entered
into one significant  patent license agreement and other less significant patent
license agreements.

         During  February 1999,  the Company  formed a wholly owned  subsidiary,
decisioning.com,  Inc., which holds certain rights to the Company's  patents and
is developing strategies to commercialize and license the Company's rights under
the  patents.  rtDS,  which  is  based  on the  Company's  previously  developed
e-xpertLender technology, will deliver credit decisions to loan applicants using
the  Internet.  rtDS has been  completed  for a single  lender,  single  product
implementation  and is in the early  stage of  development  for a multi  lender,
multi product capability.

Products and Services

         The  Company's   DeciSys/RT   System   automates  the   processing  and
consummation  of  financial  products  and  services.  Based  on  the  Company's
proprietary   object-oriented   software,   DeciSys/RT   uses   a   multi-tiered
client/server  architecture to provide a stable,  scalable  platform  capable of
processing  large numbers of  transactions  in a reliable,  efficient and timely
fashion.  DeciSys/RT can  simultaneously  accept and capture  consumer  personal
information through remote input devices (such as through touch-screen terminals
or through  desktop  browsers)  and  through  automated  interaction  with third
parties (such as credit bureaus) that supply additional information necessary to
process the transaction  efficiently.  A central server located at the Company's
Network  Operations  Center  ("NOC")   coordinates  the  flow  and  analysis  of
information and evaluates,  based on each customer's underwriting model, whether
and on what terms the transaction can be consummated.

         The Company has focused its product  development  efforts on exploiting
its DeciSys/RT  technology to enhance  transaction  origination,  processing and
fulfillment systems. The Company believes its DeciSys/RT technology is useful to
businesses, such as consumer lending institutions,  engaged in transactions that
require collecting information from consumers and third parties,  analyzing such
information to reach a credit  decision and providing  transaction  fulfillment.
For such transactions, the channel integration in conjunction with the speed and
efficiency of  DeciSys/RT-based  systems have the potential to offer significant
advantages when compared to more labor intensive and less  technically  advanced
origination, processing and fulfillment systems.

         The Affinity ALM

         General.  The ALM and  DeciSys/RT  (together,  the "ALM System")  fully
automate the consumer lending process,  enabling  consumers to apply for and, if
approved, receive a personal loan (including loan documentation and proceeds) in
as little as 10  minutes  without  involving  loan  officers,  customer  service
representatives  or  other  lending  personnel.  Similar  in  appearance  to  an
automated  teller  machine  ("ATM"),  the ALM is a fully  automated  system that
utilizes the Company's  proprietary  DeciSys/RT  technology  to process  certain
financial  service  transactions,  generate  the  underlying  documentation  and
distribute proceeds from loan transactions.

         Design and Features.  The ALM looks and interacts  with  consumers much
like  an ATM  and can be  operated  as a free  standing  kiosk.  The ALM  System
contains a magnetic strip card reader used to identify loan applicants by credit
card, charge card, or debit card, a personal  identification  number ("PIN") pad
which can be used in conjunction  with the magnetic strip card reader to capture
PIN codes used by debit and ATM cards as an alternative or additional  method to
identify loan applicants, a touch-screen monitor used to elicit information from
applicants,  a magnetic pen and  signature  capture unit used to  electronically
execute loan documents,  a magnetic ink character reference ("MICR") reader used
to verify savings and checking account information, a digital camera system used
to photograph applicants as they sign loan documents, video cameras used to take
pictures at intervals  during all hours of ALM operations,  a laser printer used
to  print  loan  documents  and  checks  and a modem  connecting  the ALM to the
Company's  NOC.  The  software  supporting  each ALM System is  modified  by the
Company to meet the marketing and  underwriting  requirements  of each financial
institution customer.

         The  products and services  currently  available  through an ALM System
include auto loan  vouchers,  the ability to open checking  accounts,  overdraft
protection,  the  ability  to apply  for lines of credit  and  credit  cards and
unsecured  personal  loans.  The ALM  System  can also  make  counter  offers to
applicants  who qualify  for a loan amount  higher or lower than the loan amount
originally  requested.  The ALM System also has the ability to cross-sell  other
products and services  offered by the institution  during the time the applicant
is waiting for a decision on a loan application.

         Other ALM  Products.  The  Company has also  developed a Mortgage  ALM.
Similar to the ALM, the Mortgage ALM is a kiosk  designed to allow  consumers to
pre-qualify  for a mortgage  loan,  determine  the payments for  specified  loan
amounts and apply for a mortgage loan.

         The Company is also considering the further development of an insurance
kiosk that will allow a consumer to consummate an insurance  transaction without
human intervention. The insurance kiosk would provide consumers with the ability
to compare rates and coverages  available  from several  insurance  carriers and
select the carrier and coverage appropriate for the consumer's  situation.  Once
the consumer selects a carrier and the desired  coverage,  the kiosk would allow
the  consumer to bind the  insurance  coverage at the kiosk,  in  real-time  and
without  human  intervention.  To  date,  the  Company  has not  had  sufficient
resources to more fully develop the insurance kiosk system.

     The Company's developmental activities are subject to the risks inherent in
the development of new products and  applications,  including the development of
unforeseen  design or engineering  problems.  See "Business  Risks - Early Stage
Products and Services."

         Fraud Detection. The ALM System employs a number of methods intended to
detect and prevent fraudulent  applications,  some of which are standard for all
ALMs and some of which are customized to fit each customer's  underwriting model
and specifications.  Certain information,  such as credit card data, is verified
by contacting third party  verification  services.  In addition,  the DeciSys/RT
system contains fraud analysis software that evaluates  consumer-supplied  data,
such as social  security  numbers and addresses,  against a number of format and
consistency tests. Moreover,  additional fraud analysis is performed through the
use of on-line fraud detection service providers.  As a further deterrent,  each
ALM has the ability to imprint a digital photograph of the loan applicant on all
checks  and  other  loan  documents  generated  in a  transaction.  The  Company
periodically refines its fraud detection programs to include other forms of data
verification  to aid in the  identification  of fraud.  Although  the Company is
unaware  of  any  significant  instances  of  fraud  in  connection  with  loans
consummated  through  the use of ALMs,  the rate of  fraudulent  activity  could
increase.   See  "Business  Risks  -  Risk  of  Fraud  in  Electronic   Commerce
Transactions."

         Deployment.  The  Company  currently  is able to design,  assemble  and
install an ALM or Mortgage ALM System for a new deployment in 45 to 90 days from
the time an order is accepted.

         The Company has established  relationships with vendors of the hardware
components of the ALM and Mortgage  ALM. The Company  purchases ALM and Mortgage
ALM components as needed to meet firm and expected orders.  The Company believes
that all ALM and Mortgage ALM  components  are available  from a wide variety of
sources.

         e-xpertLender

         During 1997,  the Company  developed its  e-xpertLender  System,  which
enables automated  decisioning and processing of certain  financial  products by
DeciSys/RT  through ALMs and other  non-ALM  channels,  including  call centers,
branches, and other locations.  e-xpertLender  establishes  connectivity between
the Company's automated decisioning system and all of a financial  institution's
delivery  channels and its risk management group. The System enables call center
agents and branch  personnel to inquire as to the status of any  transaction any
time  and for loan  transactions  electronically  notifies  loan  officers  with
respect to any  exceptions and the reason for referral.  e-xpertLender  supports
the ability to open, process and track checking accounts,  overdraft protection,
applications for lines of credit and credit cards,  unsecured personal loans and
direct and indirect auto loans. Using the e-xpertLender inquiry capabilities,  a
lender can review online the status of a transaction and, when appropriate, make
counter  offers to applicants who qualify for a loan amount higher or lower than
the loan amount originally requested.  e-xpertLender also, upon approval,  gives
the consumer a choice of closing methods that includes branches,  ALMs, mail and
third party closing agents.

         The Company currently has only one customer utilizing the e-xpertLender
System.  Such  System has been  deployed in phases as the  functionality  of the
System has been developed and completed.  The Company  believes an e-xpertLender
System for a new  customer  can be  installed  in 60 to 90 days from the time an
order is accepted. However, due to the single e-xpertLender installation and the
nature of the initial  installation  process, no assurance can be given that the
Company will be able to meet such installation estimates.

         iDEAL

         The Company has  developed an Indirect  Electronic  Automobile  Lending
system  ("iDEAL"),   which  enables  automated  decisioning  and  processing  of
automobile loan applications  originating at an automobile  dealer.  iDEAL is an
expansion of the core technology of  e-xpertLender,  enhanced  specifically  for
supporting  lending  activities   associated  with  obtaining   automobile  loan
applications through an automobile dealer. Upon receipt of the loan application,
loan processing personnel input the loan applicant's  information into the iDEAL
System through a standard set of input screens.  The applicant's  information is
immediately  transmitted to the Company's  proprietary  DeciSys/RT System and an
automated  lending  decision  is  transmitted  to the dealer.  The iDEAL  System
enables  financial  institution  personnel  to  inquire  as to the status of any
transaction  anytime and  notifies  the  financial  institution  with respect to
exceptions.  In situations  where an exception  exists or an automated  decision
cannot be rendered due to credit  attributes of the loan applicant or collateral
values, iDEAL enables the financial institution to electronically refer the loan
application to a credit analyst so additional evaluations can be made. The iDEAL
system allows the credit analyst to input additional  information  received from
the loan  applicant or the dealer and render a new  decision  and transmit  that
decision to the dealer.  In addition,  iDEAL  provides  support for auditing and
dealer funding of approved loans when the loan package is completed.

         Mortgage Brokerage Business

         In January 1998, the Company formed Surety Mortgage,  Inc. to engage in
the mortgage brokerage business, including marketing,  originating,  closing and
selling mortgage loans to permanent investors. The Company formed Surety for the
primary  purpose of directly  deploying  Mortgage  ALMs in a manner in which the
Company believes will facilitate future marketing and deployment of its mortgage
loan  processing  products.  Surety's  mission  is to locate  viable  deployment
locations and develop  deployment and business  strategies  which provide actual
market data that can be used to market the Company's  mortgage  loan  processing
products to prospective customers.  As of March 20, 2000, Surety has deployed 11
Mortgage ALMs in real estate agencies and community bank branches.

         Surety  offers  first   mortgage   loans   directly  to  consumers  and
immediately sells such loans to wholesale mortgage bankers  ("wholesalers") that
sponsor the loan programs offered by Surety.  Surety only offers loans that will
be acquired  by  wholesalers  under such  programs.  Moreover,  upon making loan
commitments  to  consumers,  Surety  immediately  receives a  commitment  from a
wholesaler to acquire the loan upon closing,  thereby  reducing the risk of loss
due to changes in interest rates.  Prior to the time a loan is closed,  the loan
is usually  submitted to a wholesaler for  underwriting.  Accordingly,  when the
loans are closed  they are  immediately  transferred  to a  wholesaler,  thereby
minimizing any credit risk associated with lending activities.

Sales and Marketing

         The Company  currently does not maintain a dedicated  sales force.  The
Company consults with existing and prospective  customers to identify  instances
where the Company's technologies are a suitable solution to core business issues
confronting such customers.  Using market and process research, the Company also
consults with existing and potential customers to identify suitable applications
of the Company's technologies and refines underwriting models to achieve desired
rates of return and risk  tolerance.  The  Company can also  provide  after-sale
support to its  customers  with  respect to  improving  the  performance  of its
products and services.

Competition

         The market for products and services that enable electronic commerce is
highly competitive and is subject to rapid innovation and technological  change,
shifting   consumer   preferences,   frequent  new  product   introductions  and
competition  from  traditional  products and services  having all or some of the
same features as products and services 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 or gauge their relative
competitive position.  There can be no assurance that the Company's products and
services will be competitive  technologically  or otherwise.  The ability of the
Company to compete in the market will depend  upon,  among other  things,  broad
acceptance of the Company's  products and services and on the Company's  ability
to  continually  improve and expand such  products and services to meet changing
customer requirements.

         Electronic  commerce  technologies  in general,  including the ALM, the
Mortgage ALM, e-xpertLender and iDEAL, compete with traditional consumer lending
methods,  including  in-person  applications  at  branch  offices  of  financial
institutions and cash advances on credit cards,  home equity lines of credit and
other  revolving  credit  facilities,  some or all of which are  employed by the
Company's  existing  and  potential  customers.  The  ability  of the  Company's
products  and  services to compete  with  traditional  lending  methods  will be
dependent in part on consumer  acceptance of electronic  commerce in general and
industry acceptance of the Company's products and services in particular.

         The  Company  also  faces  competition  from  companies  engaged in the
business  of  producing  automated  lending  and  processing  systems  and other
alternatives to conventional consumer transactions,  including software and data
processing  companies  and  technology  and service  companies.  In  particular,
several  companies,  including Dyad Corporation  ("Dyad"),  Alltell  Corporation
("Alltell"),   FiData,  Inc.  ("FiData")  and  AnyTime  Access,  Inc.  ("Anytime
Access"),  have developed  video and other kiosk  technology for the delivery of
financial  services.  In  addition,  certain  companies  have  designed  and are
marketing  software  that  enables  loan  applications  to  be  taken  over  the
telephone.  The Company  also is aware that many banks have begun using  on-line
services and Internet service  providers to provide certain  financial  services
electronically,  and is  aware of  several  companies  that  have  already  made
substantial  investments  in software  products  that enable  various other home
banking  services.  Additionally,  a number of companies have developed  certain
on-line processing systems to automate the mortgage application and underwriting
processes.   Further,   the  Company  understands  that  ULTRADATA   Corporation
("ULTRADATA"),  Anytime  Access,  and  FiData  have  developed  certain  on-line
processing systems for the credit union market that may be in direct competition
with the  Company's  products and  services.  The Company will also compete with
Credit Management Solutions,  Inc. ("CMSI"),  Corporate Solutions International,
Inc.  ("CSI"),  APPRO  Systems,  Inc.  (APPRO) and American  Management  Systems
("AMS") in connection with the Company's  automobile loan system.  See "Business
Risks - Competition; Future Price Erosion".

         The Company expects competition to increase in the future from existing
and new competitors that produce  automated loan systems and other  alternatives
to traditional consumer lending methods.  Such competitors may include actual or
potential  customers  of the  Company  that may develop  competitive  technology
internally.  All  of  the  Company's  current  and  potential  competitors  have
substantially  greater  financial,  marketing and technical  resources  than the
Company.  Accordingly,  the  Company  may not be able  to  compete  successfully
against new or existing  competitors.  Furthermore,  competition  may reduce the
prices the  Company is able to charge for its  products  and  services,  thereby
potentially  lowering revenues and margins,  which would have a material adverse
effect on the Company's business, operating results and financial condition. See
"Business Risks - Rapid Technological Changes" and "- Competition;  Future Price
Erosion".

Technology

         The DeciSys/RT System employs a multi-tiered client/server architecture
that  integrates  the  consumer  interface,  application  analysis  function and
multiple  data  sources  together  in  a  seamless  operating  environment.  The
DeciSys/RT  architecture enables true multi-tasking,  which permits an expedited
loan decision. DeciSys/RT uses standard C++ code and object-oriented programming
which permits the decoupling of functional  development from system  deployment,
greatly reducing the time and cost of maintenance.  The Company anticipates easy
platform  portability  by  using  standards  such as the  TCP/IP  communications
protocol and C++ programming  language,  while  maintaining  compatibility  with
widely accepted third-party database programs and operating systems.

         The  Company's  NOC,  located in  Columbia,  South  Carolina,  connects
through a private network to the various ALMs and e-xpertLender  workstations in
service.  The NOC is  connected  to the  network via  dedicated  56.6 Kbps lines
(upgradable  to  T-1),   while  the  ALMs  use  dial-up   connections   and  the
e-xpertLender  System  utilizes  T-1 or dial-up  connections.  The Company  also
maintains leased line connections to TRW Inc., Trans Union Corporation,  Equifax
Inc., and other providers of information for validation of a consumer's identity
and loan  underwriting.  The combination of  data-encryption  techniques and the
closed loop nature of the system provide for a secure environment.

         The  Company's  operations  are dependent on its ability to protect its
NOC against damage from fire, earthquake, power loss, telecommunications failure
or similar events.  All of the Company's  computer  equipment  constituting  its
central computer system, including its processing operations,  is located at the
Company's  NOC in  Columbia,  South  Carolina.  The Company has adopted a formal
disaster  recovery plan and has contracted with a disaster  recovery company for
back-up and off-site  processing  systems  capable of supporting  its DeciSys/RT
operations in the event of system and other failure.

Intellectual Property

         The Company was issued two patents in 1999 covering systems and methods
for  real-time  loan   processing   over  a  computer   network   without  human
intervention.  The Company is in a reexamination proceeding with the U.S. Patent
and Trademark  Office  ("PTO") on one of the previously  issued loan  processing
patents  ("System  and Method for  real-time  loan  approval",  U.S.  Patent No.
5,870,721) due to a third party's  request to invalidate or otherwise  limit the
patent.  In addition,  the Company has received a  preliminary  rejection of the
previously issued claims.  The reexamination is expected to conclude in 2000 and
could result in a loss or  limitation  of some or all of the  previously  issued
claims under the 5,870,721 patent.

         In addition,  the Company also holds a patent  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).  The Company has
recently been  notified by the PTO that its fourth patent  covering an automated
system for establishing a financial account,  including credit accounts,  over a
computer network has been allowed. The Company has also applied with the PTO for
additional patent  protection for certain features of the Company's  technology,
including  additional  aspects of its closed loop lending system,  its automated
insurance  product,  and its Internet related products and services.  Certain of
such  applications  and  amendments  thereto  have been  rejected by the PTO and
others are at a  preliminary  stage.  There can be no assurance  that any of the
Company's patent applications or amendments thereto will be allowed by the PTO.

         "Affinity",  "ALM" and "e-xpertLender" are registered trademarks of the
corporation,  and "Affinity Technologies",  "Affinity enabled", and "Decisys/RT"
are registered servicemarks of the Corporation.

         The Company's  success and ability to compete is heavily dependent upon
its  proprietary  technology.  The  Company  also  relies  on trade  secret  and
copyright  law and  employee,  customer  and  business  partner  confidentiality
agreements to protect its technology. However, the Company believes that factors
such  as  technological  and  creative  skills  of its  personnel,  new  product
developments,  frequent  product  enhancements,  name  recognition  and reliable
product   maintenance   are  essential  to   establishing   and   maintaining  a
state-of-the-art  technological  system.  There  can be no  assurance  that  the
Company will be able to protect its  technology  from  disclosure or that others
will not develop  technologies  that are  similar or  superior to the  Company's
technology. See "Business Risks - Limited Protection of Technology".

Research and Development

         The Company's ability to attract and retain highly skilled research and
development  personnel is important to the Company's success.  During 1999, 1998
and 1997, the Company spent approximately $1,871,000, $2,560,000 and $3,526,000,
respectively,   on  research  and  development   activities  which   represented
approximately   65.1%,  96.4%  and  85.0%  of  1999,  1998  and  1997  revenues,
respectively.  During 1999, the Company  capitalized  approximately  $138,000 of
software development costs.

         In  January  2000,  the  Company  substantially  reduced  the number of
employees on its research and development staff. While the Company believes that
its current  research and  development  staff is sufficient  to support  ongoing
developmental  projects,  the Company  does not  currently  have the capacity to
initiate numerous new projects.

Government Regulation

         The  financial  services  industry is subject to extensive  and complex
federal and state regulation.  The Company's current and prospective  customers,
which consist of state and federally chartered banks,  savings and loans, credit
unions,  consumer  finance  companies  and other  consumer  lenders,  as well as
customers in real estate development, real estate sales and insurance industries
that the Company may target in the future,  operate in markets  that are subject
to extensive and complex federal and state banking and insurance regulation. The
Company's  products and services must be designed to work within the  regulatory
environment in which its customers operate.

         Federal  and state  laws and  regulations  also  regulate  the  lending
practices  of  financial  institutions.  These laws  include  federal  and state
truth-in-lending   disclosure   rules,   state  usury  laws,  the  Equal  Credit
Opportunity  Act,  which  prohibits  discrimination  in lending  practices,  the
Electronic Funds Transfer Act, which regulates  electronic funds transfers,  the
Fair Credit  Reporting Act, which regulates  access to and use of credit records
maintained by credit bureaus, and the Community Reinvestment Act, which requires
financial  institutions  to serve the credit  needs of the entire  community  in
which they operate,  including low and middle income neighborhoods.  While these
regulations  must be taken into account in the design of the Company's  products
and services, the Company itself (with the exception of its mortgage subsidiary)
is not  directly  subject  to  these  regulations,  and the  Company's  standard
agreement with its customers  provides that the customer will be responsible for
compliance with these laws.

Employees

         At December 31, 1999, the Company  employed  approximately 77 full-time
employees  and 1 part-time  employee,  compared to 87 full-time  and 1 part-time
employee at December 31, 1998.  Effective  January 21, 2000, the Company reduced
its  work  force  significantly  and  the  Company  currently  has 40  full-time
employees and 1 part-time  employee.  The Company has no  collective  bargaining
agreements.

Business Risks

         In addition to the other  information  in this report,  readers  should
carefully consider the following  important factors,  among others, that in some
cases have  affected,  and in the future  could  affect,  the  Company's  actual
results and could cause the Company's actual consolidated  results of operations
to differ materially from those expressed in any forward looking statements made
by, or on behalf of, the Company.

Limited Capital Resources; Operating Losses

         The Company has generated net losses of $55,073,000 since its inception
and has financed its operations  primarily through net proceeds from its initial
public  offering in May 1996.  Net proceeds  from the Company's  initial  public
offering were  $60,088,516.  At December 31, 1999,  cash and liquid  investments
were  $3,591,000.  Net cash used during the year ended December 31, 1999 to fund
operations was  approximately  $6,101,000.  Proceeds from the offering and other
sources  of cash were  used to fund  current  period  operations,  research  and
development of approximately  $1,871,000,  software development of approximately
$138,000, and capital expenditures of approximately $195,000.

         The Company  continues  to use a  substantial  amount of existing  cash
resources to fund its operations. If the Company continued to use cash resources
at the rate used in 1999,  the Company would deplete its existing cash resources
in the second quarter of 2000. The Company has taken certain  measures to reduce
its cash depletion rate, including decreasing its employee base. Currently,  the
Company's  employee base is  approximately  49% less than it was at December 31,
1999 and 53%  less  than it was at  December  31,  1998.  The  Company  believes
existing  cash,  cash  equivalents  and  internally   generated  funds  will  be
sufficient to meet the Company's currently  anticipated cash requirements during
2000.  However,  no  assurances  can be given that the  Company's  existing cash
resources will be sufficient to fund the Company's cash  requirements  for 2000.
Moreover,  existing cash  resources and projected  revenues that may be received
under existing  contracts will be insufficient to fund the Company's  operations
for 2001 and thereafter.  Accordingly,  to remain viable after 2000, the Company
must   substantially   increase   revenues,   raise  additional  capital  and/or
substantially reduce its operations.  No assurance can be given that the Company
will be able to increase its revenues,  raise  additional  capital or reduce its
operations in a manner that would allow it to continue operations after 2000. In
order to fund operations, the Company may need to raise additional funds through
the issuance of equity securities, in which case the percentage ownership of the
stockholders  of the  Company  will  be  reduced,  stockholders  may  experience
additional dilution,  or such equity securities may have rights,  preferences or
privileges  senior to common stock.  There can be no assurance  that  additional
financing  will be  available on terms  acceptable  to the Company or at all. If
adequate  funds are not  available or not  available on  acceptable  terms,  the
Company  may be unable to  continue  operations,  develop,  enhance  and  market
products, retain qualified personnel, take advantage of future opportunities, or
respond to  competitive  pressures,  any of which could have a material  adverse
effect on the Company's business, operating results and financial condition.

         Significant Losses; Accumulated Deficit; Future Losses

         To  date,  the  Company  has  incurred   significant   losses  and  has
experienced  substantial negative cash flow from operations.  The Company had an
accumulated  deficit as of December 31, 1999 of  $55,073,000  with net losses of
$706,000 for the period from inception  (January 12, 1994) through  December 31,
1994, and $2,308,000, $9,692,000,  $15,399,000,  $14,873,000 and $12,095,000 for
the years ended December 31, 1995, 1996, 1997, 1998, and 1999, respectively. The
Company expects to incur substantial additional costs to finance its operations.
There can be no assurance that the Company will ever achieve  profitability  or,
if achieved, sustain such profitability.

         The  Company's  prospects  must be  considered  in light of the  risks,
expenses,  and difficulties  frequently  encountered by companies in their early
stage of  development,  particularly  technology  based  companies  operating in
unproven  markets with unproven  products.  To address these risks,  the Company
must, among other things, respond to competitive developments, attract, motivate
and retain  qualified  personnel,  establish  effective  distribution  channels,
effectively  manage  any  growth  that may occur and  continue  to  upgrade  its
technologies and successfully  commercialize products and services incorporating
such technologies.

         Potential for Fluctuation in Quarterly Results

         The Company's  revenues are affected by many factors,  including demand
for the Company's  technology and demand for any additional products or services
developed by the Company,  introduction and enhancement of products and services
by the Company and its  competitors,  market  acceptance  of such  technology in
existence or developed in the future,  types of  distribution  channels  through
which  products are sold and general  economic  conditions  (particularly  those
conditions  affecting  financial  products  and  services  supply  and  demand).
Further,  the Company's customer base historically has been highly  concentrated
and such  concentration  has had a  significant  effect on  quarterly  revenues.
Shortfalls  in revenues in relation to the Company's  expectations  have had and
may  continue to have an adverse  effect on the  Company's  business,  operating
results and financial condition.

         The  uncertainty  regarding  the extent and timing of revenues  coupled
with the Company's  substantial operating expenses (many of which the Company is
unable to adjust in a timely manner) means that the Company may likely  continue
to experience  substantial  quarterly  fluctuations in its operating results. In
addition,  the Company will continue to commit significant resources to fund its
operations,  develop new products and broaden its customer support capabilities.
To the extent  these  expenses  are not  preceded or  followed by  substantially
increased  revenues,  the Company's  business,  operating  results and financial
condition will be materially adversely affected.

         In accordance with Statement of Financial  Accounting  Standards No. 13
"Accounting  for Leases," the Company treats certain of its ALM leases for which
the present value of future  minimum lease  payments  exceeds 90% of the cost of
the related ALM as sales-type  leases. All other leases are treated as operating
leases. For sales-type leases, the Company recognizes as revenue, generally upon
ALM  installation  and  acceptance,  the present value of the  aggregate  future
minimum  lease  payments  to be received  during the term of the related  rental
agreement  using the  Company's  incremental  borrowing  rate for  lease-secured
transactions as the discount rate. For operating leases,  the Company recognizes
lease payments as revenue ratably over the term of the applicable  agreement.  A
default by any significant  customer of its obligation to make lease payments or
a termination of an ALM agreement  could have an adverse effect on the Company's
quarterly  operating  results,  particularly with regard to ALMs that are leased
under agreements treated as sales-type leases.

         As a result of all the foregoing  factors and other  factors  discussed
under "Business Risks," the Company believes that  period-to-period  comparisons
of its results of operations  are not  necessarily  meaningful and should not be
relied upon as an indication of future performance.  Moreover, it is likely that
in some  future  quarter  the  Company's  operating  results  will be below  the
expectation of public market analysts and investors. In such event, the price of
the Company's Common Stock could be materially adversely affected.

     Unproven Market; Unproven Acceptance of the Company's Products and Services

         The market for products and services that enable electronic commerce is
new,  developing and  uncertain.  As is typical in the case of a new and rapidly
evolving industry, demand and market acceptance for recently introduced products
and services are subject to a high level of  uncertainty.  The Company's  future
growth and  financial  performance  will  depend  upon  consumer  acceptance  of
electronic  commerce  as an  attractive  means of  conducting  certain  consumer
financial  transactions and also upon institutional  acceptance of the Company's
products  as  a  preferred  means  for  serving  consumers.  Such  institutional
acceptance  will in part depend on continued and growing use of  relatively  new
quantitative  credit scoring  methodologies that are amenable to automation.  If
the  electronic  commerce  market  fails  to  grow or  grows  more  slowly  than
anticipated,  or if lenders  reduce  their use of  quantitative  credit  scoring
tools, the Company's  business,  operating results and financial condition would
be  materially  adversely  affected.  Furthermore,  even  if  this  market  does
experience  substantial  growth,  there can be no assurance  that the  Company's
products  and  services  will be  commercially  successful  or benefit from such
growth.  Failure of either the providers of consumer  financial  services or the
consumers of such services to quickly accept  electronic  commerce  distribution
channels in general, and the Company's electronic commerce enabling technologies
in  particular,  or the  inability  of the  Company's  products  and services to
satisfy its customers' or consumers' expectations,  have had and may continue to
have a  material  effect  on  the  Company's  business,  operating  results  and
financial condition.

         Because  the market for the  Company's  products  and  services is new,
evolving and  uncertain,  it is difficult to determine  the size and predict the
future  growth  rate,  if any,  of this  market.  The market  for the  Company's
products may never be developed,  or may develop at a slower pace than expected,
or such products and services may not be adopted by  participants in this market
or may be adopted by only a limited number of participants.  If the market fails
to develop or develops more slowly than expected,  or if the Company's  products
and  services  do not  achieve  significant  market  acceptance,  the  Company's
business,   operating  results  and  financial  condition  would  be  materially
adversely affected.

         Lengthy Sales Cycle

         The  Company  has to date  experienced  a lengthy  sales  cycle for its
products and services.  In most cases, the time between initial customer contact
and the execution of a final contract has exceeded six months. While the Company
believes  that the length of the sales  cycle may  compress  over  time,  if the
Company's  technologies  gain  acceptance  in the  marketplace,  there can be no
assurance such compression will take place in the future.

         Early Stage Products and Services

         The  Company's  products  and  services  are in  the  early  stages  of
development  and are  subject  to the  risks  inherent  in the  development  and
marketing of new products,  including the  development  of unforeseen  design or
engineering problems with the Company's products and applications.  There can be
no assurance that these or other risks  associated with new product  development
will not  occur.  The  occurrence  of one or more of these  risks  could  have a
material  adverse  effect  on the  Company's  business,  operating  results  and
financial condition.

         Rapid Technological Changes

         The market for products and services that enable electronic commerce is
highly  competitive and subject to rapid  innovation and  technological  change,
shifting   consumer   preferences,   frequent  new  product   introductions  and
competition  from  traditional  products and services  having all or some of the
same features as products and services 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 validates a strategy through
widespread  acceptance of a product or service,  it is difficult to identify all
current or potential  market  participants  or gauge their relative  competitive
position.  There can be no assurance  that the  Company's  products and services
will be competitive  technologically or otherwise. The ability of the Company to
compete in this market will depend upon, among other things, broad acceptance of
the Company's  products and services and on the Company's ability to continually
improve its products and services to meet changing customer requirements.  There
can be no assurance that the Company will successfully  identify new product and
service  opportunities  and  develop  and bring to the market  new and  enhanced
services  and  products in a timely  manner;  that such  products,  services and
technologies will be commercially successful; that the Company will benefit from
such  development;  or that  products,  services and  technologies  developed by
others  will not  render  the  Company's  products,  services  and  technologies
noncompetitive or obsolete. If the Company is unable to penetrate new markets in
a  timely  manner  in  response  to  changing  market   conditions  or  customer
requirements or if new or enhanced products do not achieve a significant  degree
of market acceptance,  the Company's  business,  operating results and financial
condition would be materially and adversely affected.

         Competition; Future Price Erosion

         Electronic  commerce  technologies in general,  including the Company's
products  and  services,  compete with  traditional  consumer  lending  methods,
including in-person  applications at branch offices of financial institutions or
at automobile  dealerships and cash advances on credit cards and other revolving
credit  facilities,  some or all of which are employed by the Company's existing
and potential  customers.  The ability of the Company's products and services to
compete with  traditional  lending methods will be dependent in part on consumer
acceptance  of  electronic  commerce in general and industry  acceptance  of the
Company's products and services in particular.

         The  Company  also  faces  competition  from  companies  engaged in the
business  of  producing  automated  lending  systems and other  alternatives  to
conventional consumer lending,  including software and data processing companies
and  technology  and  service  companies.  In  particular,   several  companies,
including Dyad,  Alltell,  FiData, and AnyTime Access,  have developed video and
other kiosk  technology  for the  delivery of financial  services.  In addition,
certain  companies  have designed and are  marketing  software that enables loan
applications to be taken over the telephone. The Company also is aware that many
banks have begun using  on-line  services  and  Internet  service  providers  to
provide  certain  financial  services  electronically,  and is aware of  several
companies that have already made  substantial  investments in software  products
that  enable  various  other home  banking  services.  Numerous  companies  have
developed   certain  on-line   processing   systems  to  automate  the  mortgage
application and underwriting  processes.  Further,  the Company understands that
ULTRADATA,  Anytime Access, and FiData have developed certain on-line processing
systems for the credit union market that may be in direct  competition  with the
Company's  products and services.  The Company will also compete with CMSI, CSI,
APPRO and AMS in connection with the Company's automobile loan system.

         The Company expects competition to increase in the future from existing
and new competitors that produce  automated loan systems and other  alternatives
to traditional consumer lending methods.  Such competitors may include actual or
potential  customers  of the  Company  that may develop  competitive  technology
internally.  Most  of the  Company's  current  and  potential  competitors  have
substantially  greater  financial,  marketing and technical  resources  than the
Company.  Accordingly,  the  Company  may not be able  to  compete  successfully
against new or existing  competitors.  Furthermore,  competition  may reduce the
prices that the Company is able to charge for its products and services, thereby
potentially  lowering revenues and margins,  which would have a material adverse
effect on the Company's business, operating results and financial condition.

         Dependence on Consumer  Retail Lending Industry; Cyclical  Nature  of
Consumer Lending

         The  Company's  business  is  currently  concentrated  in the  consumer
lending  industry  and is expected  to be so  concentrated  for the  foreseeable
future,  thereby making the Company  susceptible to a downturn in that industry.
For example,  a decrease in consumer  lending could result in a smaller  overall
market for the Company's  products and  services.  Furthermore,  U.S.  banks are
continuing to consolidate, decreasing the overall potential number of buyers for
the Company's  products and  services.  Moreover,  two  customers  accounted for
approximately  48.9% of the Company's  revenue in 1999. The Company expects that
its operating  revenues will continue to be attributable  to a relatively  small
number of  customers.  These  factors as well as others  affecting  the consumer
lending industry could have a material adverse effect on the Company's business,
operating results and financial condition.

         The Company's  business  currently  depends upon the volume of consumer
loans made through its products and services. Historically,  demand for consumer
loans has been cyclical,  in large part based on general economic conditions and
cycles in overall  consumer  indebtedness  levels.  Changes in general  economic
conditions  that  adversely   affect  the  demand  for  consumer  loans  or  the
willingness of financial  institutions to provide such loans, such as changes in
interest  rates  and the  overall  consumer  indebtedness  level,  could  have a
material  adverse  effect  on the  Company's  business,  operating  results  and
financial condition.

         Limited Protection of Technology

         The  Company  regards  certain of its  technology  as  critical  to its
business and attempts to protect such  technology  under  patent,  copyright and
trade secret laws and through the use of employee, customer and business partner
confidentiality   agreements.   Such  measures,  however,  afford  only  limited
protection,  and the Company may not be able to maintain the  confidentiality of
its technology.  As a result,  existing and potential competitors may be able to
develop  products and services  that are  competitive  with, or superior to, the
Company's  products and  services,  and such  competition  could have a material
adverse  effect on the  Company's  business,  operating  results  and  financial
condition.

         Risk of Fraud in Electronic Consumer Transactions

         Electronic  consumer  transactions  involve the risk of consumer fraud.
The customer using the Company's  products is responsible  for the selection and
use of the origination and underwriting  parameters incorporated in the software
supporting  the Company's  products and services.  The Company is unaware of any
significant  instances of fraud in connection  with the funding of loans through
the use of the Company's products and services.  However, the rate of fraudulent
activity could increase,  especially if the number of transactions  processed by
the Company's products and services increased. Moreover, in light of the limited
operating  experience  of the  Company,  there  can  be no  assurance  that  the
Company's  experience  with  respect  to fraud to date is  indicative  of future
performance for the Company's products and services.  While the Company believes
the risk of collection in any given  transaction  belongs to its customers,  the
Company  may  nevertheless  be  held  responsible  for  losses  associated  with
fraudulent  transactions if such  transactions are attributable to the Company's
malfeasance.  Furthermore,  even  if the  Company  is  not  directly  liable  or
contractually  liable for  fraudulent  transactions  processed by the  Company's
products  and  services,  an  increase  in fraud to levels  greater  than  those
experienced in traditional and other emerging consumer credit processing systems
would likely have a material and adverse impact on the ability of the Company to
attract and retain  financial  institution  customers  and thus on the Company's
business,  operating results and financial condition.  In addition,  the Company
may not be able to control  adequately  the occurrence of fraud in the future or
may only be able to do so at considerable cost, either of which would materially
and adversely  affect the Company's  business,  operating  results and financial
condition.

         Risk of Third-Party Network Failure

         The Company relies on third parties for certain fraud detection systems
and for obtaining credit  information about loan applicants.  Additionally,  the
Company uses a dedicated  private data network provided by a third party to gain
access to the  networks  maintained  by such  third  parties  and to  customers.
Prolonged  or  repeated  failure  of  (i) a  network  that  provides  access  to
information  necessary to complete a transaction through the Company's system or
(ii) the Company's network access provider to provide access to such networks or
customers  would  materially  and  adversely  affect  the  Company's   business,
operating results and financial condition.

         Dependence on Third Parties

         The  expected  rapid  growth of the market  for  products  that  enable
electronic  commerce,  together  with the number and  resources  of  competitors
seeking to serve that market and the limited resources of the Company,  make the
success of the Company and its business  dependent on, among other  things,  its
ability  to  identify  and reach  agreements  and work  successfully  with third
parties.  In  particular,  the  Company  relies or may rely on third  parties in
connection with its customer  relationships,  strategic  alliance  arrangements,
assembly of products and other areas. There can be no assurance that the Company
will be successful in identifying  such third  parties,  that it will be able to
reach  suitable  agreements  with such third  parties or that it will be able to
successfully  implement  any  such  agreements  that are or have  been  reached.
Failure by the  Company  to  accomplish  any of the above  could have a material
adverse  effect on the  Company's  business,  operating  results  and  financial
condition.

         The Company's success depends  particularly on the ability of customers
and third parties to  successfully  market the Company's  products and services.
For  example,  the ability of the  Company to realize  recurring  revenues  from
transactions is dependent on the success of its customers in generating consumer
demand for transactions  using the Company's  products and services.  Failure of
customers to generate and sustain consumer demand for the Company's products and
services  has had and may  continue to have an adverse  effect on the  Company's
business, operating results and financial condition.  Although the Company views
its strategic and other  alliances with third parties as an important  factor in
the development and commercialization of its products and services, there can be
no assurance  that such third parties view their  alliances  with the Company as
significant  for their own  businesses  or that  they  will not  reassess  their
commitment to the Company in the future.  Currently,  the  Company's  agreements
with  customers  generally  do not  require  them  to meet  minimum  performance
requirements.  Instead,  the  Company  relies on the  voluntary  efforts of such
customers to promote consumer  acceptance and use of the Company's  products and
services. The Company's ability to maintain relationships with its customers and
third  parties  will depend,  in part,  on its ability to  successfully  enhance
products  and services and develop new  products  and  services.  The  Company's
inability  to meet such  requirements  could result in its  customers  and third
parties seeking  alternative  providers of the Company's  products and services,
which would have an adverse effect on the Company's business,  operating results
and financial condition.

         Undeveloped Distribution Channels

         The Company  currently  sells its products and  services  directly.  To
date,  the  Company  has been unable to enter into  strategic  partnerships  and
distribution agreements that have resulted in substantial sales of the Company's
products and services. For the Company to ever achieve broad distribution of its
products  or  services,  it  will  have to  implement  effective  marketing  and
distribution  programs.  The  inability of the Company to develop and  implement
effective  marketing  programs  could  have a  material  adverse  effect  on the
Company's  business,  operating results and financial  condition.  To the extent
broad distribution of the Company's products and services is not achieved, there
would be a material adverse effect on the Company's business,  operating results
and financial condition.

         Dependence on Key Employees

         The Company is highly  dependent on certain key executive  officers and
technical  employees.  The Company is also  dependent on its ability to recruit,
retain and motivate high quality  personnel.  Competition  for such personnel is
intense, and the inability to attract and retain qualified employees or the loss
of current key employees  could  materially  and adversely  affect the Company's
business, operating results and financial condition.  Additionally,  the Company
does not maintain "key man"  insurance  policies on any of its key employees nor
does the Company  intend to secure such  insurance.  The loss of the services of
any of the Company's  executive  officers  could have a material  adverse effect
upon the Company's business, operating results and financial condition.

        Shares Eligible for Future Sale; Possible Adverse Effect on Market Price

         Sales of  substantial  amounts of Common Stock in the public  market or
the  prospect  of such sales  could  adversely  affect the market  price for the
Company's Common Stock and the ability of the Company to raise equity capital in
the future.  As of March 16, 2000,  the Company had  outstanding an aggregate of
31,870,311 shares of Common Stock. Of such shares,  the Company believes that an
aggregate  of  approximately  20,760,244  shares  of  Common  Stock  are  freely
tradeable without  restriction or further  registration under the Securities Act
of 1933 (the  "Securities  Act"),  except  for any of such  shares  acquired  by
"affiliates"  of the  Company,  as that  term is  defined  in Rule 144 under the
Securities  Act  ("Affiliates").  The Company  believes  that the holders of the
remaining 11,110,067 shares are Affiliates of the Company and, accordingly, that
such  shares  may be sold  without  registration  only in  compliance  with  the
Securities Act (including Rule 144). In this regard,  since April 28, 1999, Jeff
A. Norris,  the  Company's  founder,  has sold  approximately  5,664,725  shares
beneficially  owned by him and has filed notice to sell the remaining  2,942,667
shares  beneficially owned by him. At December 31, 1999,  approximately  308,000
and  200,000  options  are  exercisable  under the 1996 and 1995  Option  Plans,
respectively,   at  weighted   average  exercise  prices  of  $2.15  and  $0.44,
respectively,  with a weighted average  remaining  contractual life of 8.5 years
and 6.8  years,  respectively.  There  also were  warrants  exercisable  into an
aggregate of 3,471,340  shares of common  stock at a weighted  average  exercise
price of  approximately  $0.0001  per share.  The  issuance of shares of capital
stock to address  liquidity needs of the Company or for other business  purposes
could also adversely affect the market price of the Company's Common Stock.

         Volatility  of Stock Price and Risk of  Litigation;  Possible Delisting
 of  Securities  from NASDAQ Stock Market

         The Company's  Common Stock price has been  extremely  volatile and has
experienced  substantial and sudden fluctuations.  In addition, the stock market
has experienced  significant price and volume  fluctuations that have especially
affected  the  market  prices  of  equity  securities  of many  high  technology
companies,  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 the Company's 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.  Such  litigation  could  result  in  substantial  costs  and a
diversion of management's  attention and resources,  which would have a material
adverse  effect on the  Company's  business,  operating  results  and  financial
condition.

         On two separate occasions (once in 1998 and again on October 18, 1999),
the Company was notified by the Nasdaq Stock Market,  Inc.  ("Nasdaq")  that the
Company was not in compliance  with Nasdaq  listing  standards  that require the
Company's  stock to maintain a minimum bid price of $1.00 or more. In each case,
the Company was provided  approximately  90 days to regain  compliance with such
standards  (which would  require the Common Stock to have a closing bid price of
$1.00 or more for at least ten  consecutive  business  days).  In each case, the
Company's Common Stock did not regain compliance during such 90-day period,  and
the Company  requested a review by Nasdaq,  which stayed delisting  temporarily.
During the period in which the delisting was stayed,  the Company's Common Stock
closed at or above $1.00 for the necessary 10  consecutive  trading days. In the
case of the first  delisting  notice received by the Company in 1998, the Nasdaq
thereafter  notified the Company that it had evidenced  compliance with Nasdaq's
requirement for continued  listing.  In the case of the second  delisting notice
received by the Company in October 1999, on March 13, 2000,  Nasdaq notified the
Company of an  additional  concern with respect to the ability of the Company to
sustain  compliance  with the $4 million net  tangible  assets  requirement  for
continued  listing on the Nasdaq National Market. On March 21, 2000, the Company
submitted a response to the Nasdaq's  March 13, 2000 letter.  On March 22, 2000,
the Company was  notified of a decision by the Nasdaq  Stock  Market to transfer
the Company from the Nasdaq National Market to the Nasdaq SmallCap  Market.  The
Company's  continued  listing on the Nasdaq  SmallCap  Market is contingent upon
successful  completion of an  application  and review  process.  There can be no
assurances  the  Company's  Common  Stock will not be  delisted  from the Nasdaq
SmallCap  Market or that the Company  will be able to maintain  compliance  with
Nasdaq listing standards in the future.

         Government Regulation and Uncertainties of Future Regulation

         The  financial  services  industry is subject to extensive  and complex
federal and state regulation.  The Company's current and prospective  customers,
which consist of state and federally chartered banks,  savings and loans, credit
unions,  consumer  finance  companies  and other  consumer  lenders,  as well as
customers  in the real  estate  development,  real  estate  sales and  insurance
industries  that the Company may target in the future,  operate in markets  that
are subject to extensive  and complex  federal and state  banking and  insurance
regulation.  The Company's products and services must be designed to work within
the  extensive  and  evolving  regulatory  constraints  in which  its  customers
operate. These constraints include federal and state truth-in-lending disclosure
rules,  state usury laws, the Equal Credit Opportunity Act, the Electronic Funds
Transfer Act, the Fair Credit Reporting Act, the Community Reinvestment Act, and
restrictions  on the  establishment,  number and location of branch  offices and
remote electronic banking facilities such as automated teller machines.  Because
many of these  regulations were  promulgated  before the development of products
that enable  electronic  commerce,  the  application of such  regulations to any
products  and  services  developed  by  the  Company  must  be  determined  on a
case-by-case  basis.  The Company has not  attempted  to review the laws of each
state that might be applicable  to the  deployment of its products and services.
It is possible  that other states may have or will in the future adopt  specific
regulations applicable to the deployment and operation of the Company's products
and services.  Regulations  currently existing or promulgated in the future that
significantly restrict the ability of a financial institution to install ALMs at
multiple locations outside branch offices or otherwise  adversely affect the use
of ALMs or any other  products or services the Company has or may develop  could
have a material adverse effect on the Company's business,  operating results and
financial condition.

         Anti-Takeover Provisions

         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 the
Company's  Common  Stock.  These  provisions  of Delaware law and the  Company's
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 the Company's  stockholders  the opportunity
to sell their stock at a price above the  prevailing  market  price.  Certain of
these  provisions  allow the Company to issue Preferred Stock with rights senior
to those of the Common  Stock and other rights that could  adversely  affect the
interest of holders of Common  Stock  without any further  vote or action by the
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 2.  Properties

         The  Company's  principal  executive  offices  are located at 1201 Main
Street in Columbia, South Carolina. Such office space encompasses  approximately
33,000  square feet and is  currently  under lease  which  expires in 2001.  The
Company  also leases  approximately  2,800  square feet of office  space at 1500
Hampton Street, Suite 130 in Columbia, South Carolina, under a lease that is due
to  expire  in 2001.  The  Company's  primary  assembly  and  quality  assurance
facilities are located at 2500 Leaphart Road in West Columbia,  South  Carolina,
which encompasses  approximately 19,000 square feet and is currently under lease
which expires in 2001.  During 1999, the Company also  sub-leased  approximately
1,000  square feet of sales  office  space in New York,  New York from  Columbia
Financial  Partners,  L.P., an affiliate of Alan H. Fishman,  who is Chairman of
the Board and a director of the Company.  Such lease was  terminated  in January
2000.

Item 3.  Legal Proceedings

         Not applicable

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

         Not applicable

                      Executive Officers of the Registrant

  Name                      Age   Position with the Company

  Joseph A. Boyle           46    President, Chief Executive Officer,
                                  Chief Financial Officer
  Terrence J. Sabol, Sr.    54    Senior Vice President of Technology
  John D. Rogers            56    Senior Vice President

     Joseph A. Boyle became President and Chief Executive Officer of the Company
in January  2000.  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 and Treasurer from May 1997.  From
May 1997 to July 1998, Mr. Boyle also served as Secretary of the Company.  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 as
a member of the firm's Mortgage  Banking Group.  Mr. Boyle was employed by Price
Waterhouse, LLP from June 1982 to August 1996.

     Terrence J. Sabol,  Sr.,  Senior Vice President of  Technology,  joined the
Company in October  1995.  From July 1990 to October 1995, he served as Products
Manager for Policy Management Systems  Corporation,  a Columbia,  South Carolina
company that provides and supports computer systems for insurance companies.

     John D. Rogers became Senior Vice President of the Company in January 1997.
Mr. Rogers served as President of Affinity Processing Corporation,  a subsidiary
of the Company,  from May 1996 until May 1997. Prior to joining the Company, Mr.
Rogers served as Executive Vice President of the  Information  Services Group of
BISYS Group, Inc., from 1989 to 1996.

Part II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

(a)           Until March 27, 2000 the Company's  Common Stock was traded on the
              Nasdaq  National  Market under the symbol "AFFI."  Effective as of
              the opening of business on March 27, 2000,  the  Company's  Common
              Stock began trading on the Nasdaq SmallCap Market under the symbol
              "AFFI." The following table presents the high and low sales prices
              of the  Company's  Common Stock for the periods  indicated  during
              1999 and 2000, as reported by the Nasdaq  National  Market.  As of
              March  16,  2000,  there  were 289  stockholders  of record of the
              Common Stock.

                                 Sales Price Per Share
                                  High            Low

       1998:

       First Quarter              3.03           2.25
       Second Quarter             2.25           0.69
       Third Quarter              1.09           0.50
       Fourth Quarter             0.97           0.22

       1999

       First Quarter              2.50           0.63
       Second Quarter             3.81           1.19
       Third Quarter              1.78           0.69
       Fourth Quarter             1.31           0.41

              The Company has never paid  dividends  on its capital  stock.  The
         Company intends to retain earnings, if any, for use in its business and
         does not  anticipate  paying  any  cash  dividends  in the  foreseeable
         future.

              On two separate  occasions,  the Company has been  notified by the
         Nasdaq  Stock  Market,  Inc.  ("Nasdaq")  that the  Company  was not in
         compliance with Nasdaq's  listing  standards that require the Company's
         stock to  maintain a minimum  bid price of $1.00 or more.  On March 22,
         2000 the Company was  notified of a decision by Nasdaq to transfer  the
         Company from the Nasdaq National Market to the Nasdaq SmallCap  Market.
         The  Company's  continued  listing  on the  Nasdaq  SmallCap  Market is
         contingent  upon  successful  completion of an  application  and review
         process.  SmallCap  issuers must maintain a $1.00 minimum bid price and
         have  net  tangible  assets  of  $2  million,   a  $35  million  market
         capitalization  or $500,000 in net  income,  among other  requirements.
         There can be no assurances that the Company's  Common Stock will not be
         delisted  from the Nasdaq  SmallCap  Market or that the Company will be
         able to  maintain  compliance  with  Nasdaq  listing  standards  in the
         future. See Item I "Business--Business Risks."
<TABLE>

(b)           The  Company's  registration  statement  on  Form  S-1  (File  No.
              333-1170) with regard to an initial  public  offering of 5,060,000
              shares of common stock, par value $.0001 per share, of the Company
              was declared  effective by the Securities and Exchange  Commission
              on April 24, 1996. As set forth in the  Company's  Form SR, Report
              of Sales of Securities and Use of Proceeds  Therefrom,  Montgomery
              Securities and Donaldson, Lufkin & Jenrette Securities Corporation
              acted  as  the  managing  underwriters  for  the  offering,  which
              commenced April 25, 1996. As of December 31, 1999, the Company has
              used net proceeds of $60,078,000 from the offering as follows:
<CAPTION>

                                                           Direct or indirect  payments to
                                                           directors,   officers,  general
                                                           partners   of  the   issuer  or
                                                           their  associates;  to  persons
                                                           owning  ten  percent or more of
                                                           any class of equity  securities
                                                           of   the    issuer;    and   to      Direct or indirect
                                                           affiliates of the issuer.            payments to others
                                                           --------------------------------    ----------------------

<S>                                                               <C>                                <C>
Construction of plant, building and facilities                                                       $            -
Purchase and installation of machinery and equipment                                                      5,668,000
Purchase of real estate                                                                                           -
Acquisition of other business(es)                                                                           300,000
Repayment of indebtedness                                         $       771,000 1                       1,000,000
Working capital                                                                                          31,530,000
Temporary investments:
     US Treasury obligations                                                                              1,475,000
     Commercial paper                                                                                             0
     Money market /cash                                                                                   2,116,000
Other purposes:
     Marketing                                                                                            4,531,000
     Research & development                                                                              10,446,000
     Purchase of software                                                                                 2,241,000
</TABLE>
[FN]

1  Reflects  the  repayment  of debt  owed to  Carolina  First  Corporation,  as
described under the caption "Use of Proceeds" in the Company's Prospectus, dated
April 25, 1996.
</FN>


<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,"  the  Company's
Consolidated  Financial  Statements  and Notes  thereto  and  other  information
included elsewhere in this report.

<TABLE>
<CAPTION>
                                                                   Year ended
                                                                  December 31,
                                             1999              1998            1997             1996            1995
                                       ------------------ --------------- ---------------- --------------- ---------------
<S>                                          <C>           <C>             <C>              <C>             <C>
Statements of Operations Data:

Revenues                                     $ 2,874,901   $   2,656,259   $    4,146,899   $   5,081,818   $   1,524,911
Costs and expenses:
Cost of revenues                               2,262,468       1,644,653        2,125,646       3,088,321       1,101,330
Research and development                       1,870,509       2,559,600        3,526,257       2,905,232         368,452
Selling, general and
     administrative expenses                  11,208,310      14,358,335       15,892,560      10,819,381       2,305,653
                                       ------------------ --------------- ---------------- --------------- ---------------
Total costs and expenses                      15,341,287      18,562,588       21,544,463      16,812,934       3,775,435
                                       ------------------ --------------- ---------------- --------------- ---------------
Operating loss                             ( 12,466,386)     (15,906,329)     (17,397,564)    (11,731,116)     (2,250,524)
Interest income                                  375,514       1,044,251        2,033,571       2,099,004          48,476
Interest expense                                 (3,764)         (10,923)         (35,359)        (60,083)       (105,981)
                                       ------------------ --------------- ---------------- --------------- ---------------
Net loss                                    (12,094,636)   $ (14,873,001)  $  (15,399,352)  $  (9,692,195)  $  (2,308,029)
                                                          =============== ================ =============== ===============
                                       ================== =============== ================ =============== ===============
Net loss per share -
     basic and diluted                         $  (0.41)   $       (0.50)  $       (0.54)   $       (0.40)  $       (0.15)
                                       ================== =============== ================ =============== ===============
                                                          =============== ================ =============== ===============
Shares used in computing
     net loss per share                       29,738,459      29,755,034       28,477,880      24,136,480      15,044,286
                                       ================== =============== ================ =============== ===============
</TABLE>
<TABLE>
<CAPTION>


                                                                         December 31,
                                            1999             1998             1997            1996             1995
                                       ---------------- ---------------- --------------- ---------------- ---------------

Balance Sheet Data:

<S>                                        <C>           <C>              <C>             <C>              <C>
Cash and cash equivalents                  $ 2,116,016   $    2,026,932   $   4,470,185   $   31,563,950   $   1,235,983
Short-term investments                       1,474,949        8,068,310      19,135,415       10,583,997               -
Working capital (deficit)                    4,637,238       13,543,782      28,599,560       43,672,679      (1,134,465)
Net investment in sales-type
      leases, less current portion             249,830          574,347       1,328,741        2,386,010         860,295
Total assets                                13,129,528       24,196,875      42,209,570       56,098,857       4,591,168
Notes payable, less
     current portion                                 -                -               -                -         222,399
Capital lease obligations to related
     party, less current portion                     -                -               -           66,245         148,119
Capital stock of subsidiary held
     by minority investor                            -                -               -          200,000         137,500
Stockholders' equity                        10,670,980       22,556,201      39,230,570       52,134,639         617,412


</TABLE>


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

Overview

         The Company 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.  From the period
of inception  (January 12, 1994)  through  December 31, 1994,  the Company was a
development stage company, and its activities  principally related to developing
its DeciSys/RT  technology (formerly known as the "DSS System") and the Affinity
ALM, raising capital and recruiting personnel.

         Until early 1997 the Company's primary products and services  consisted
of the ALM, which captures  origination  information for unsecured consumer loan
applications  and then  routes this  information  to the  Company's  proprietary
DeciSys/RT for an automated decision,  and a call center decisioning system that
provided financial institutions with the ability to originate unsecured consumer
loans with reduced or no human intervention.  During 1997, the Company developed
e-xpertLender,   which  connects  all  of  a  financial  institution's  delivery
channels,  its automated  decisioning  system, and its risk management group and
gives the  consumer a choice of closing  methods that  include  branches,  ALMs,
mail, and third party closing agents.  During 1998, the Company began developing
a system to process  automobile  loans  pursuant to a development  contract with
Citibank.  In 1999 Citibank sold its indirect  automobile  loan business to Dime
Savings Bank.  In 1998 and 1999,  the Company also renewed its efforts to design
additional products available through  point-of-sale devices similar to the ALM.
The primary product developed during this time period is the Mortgage ALM, which
captures  information  necessary to originate a mortgage loan.  During 1999, the
Company  completed  the  development  of  its  general  release  version  of  an
automobile loan processing  system,  which is being offered under the brand name
of iDEAL.

         During 1999, the Company  committed  significant  development and other
internal  resources to  enhancing  its  e-xpertLender  product,  fulfilling  its
obligations  under its Dime contracts and completing  iDEAL for general release.
As a  result,  the  Company  was  unable  to,  and did not,  devote  significant
resources to the  development,  sales and marketing of any of its other products
and services.  The Company deployed no ALMs during 1999. Average consumer use of
ALMs and  average  rates of loan  approvals  have been lower than most  customer
expectations.  The Company  believes  that the ALM has not proven to be a viable
channel  for  the   delivery  of  consumer   loans  and  other   products  in  a
fully-automated  manner.  Accordingly,  the Company  did not devote  significant
resources  to the  development  of the ALM  product  during  1999,  nor  does it
contemplate  the allocation of  significant  resources to the ALM product in the
future.  Most of the Company's ALM customers have terminated their  relationship
with the Company and at December 31, 1999, there were 68 ALMs in operation.

         To date, the Company has generated  substantial  operating losses,  has
experienced  an extremely  lengthy sales cycle for its products and services and
has been required to use a substantial amount of existing cash resources to fund
its  operations.   Although  the  Company  believes  that  existing  cash,  cash
equivalents and internally generated funds will be sufficient to fund operations
during 2000,  such  resources,  together  with  projected  revenues  that may be
received under existing  contracts,  may be  insufficient  to fund the Company's
operations  in 2001 and beyond.  To remain  viable after 2000,  the Company must
substantially  increase revenues,  raise additional capital and/or substantially
reduce its operations.  No assurances can be given that the Company will be able
to increase its revenues, raise additional capital or reduce its operations in a
manner that will allow it to continue operations in 2001 and beyond.

         To date,  the Company has generated  minimal  operating  revenues,  has
incurred  significant losses and has experienced  substantial negative cash flow
from  operations.  The  Company's  prospects  must be considered in light of the
risks,  expenses and difficulties  frequently  encountered by companies in their
early stage of development, particularly technology-based companies operating in
unproven markets with unproven products.  The Company had an accumulated deficit
as of  December  31,  1999  of  $55,073,184  with  net  losses  of  $12,094,636,
$14,873,001  and  $15,399,352  for the years ended  December 31, 1999,  1998 and
1997, respectively. The Company expects to incur substantial additional costs to
develop its financial product  origination  capabilities,  to enhance and market
iDEAL,  e-xpertLender,  and  Decisys/RT  and to complete  any new  products  and
services that may be developed.  Accordingly, there can be no assurance that the
Company will ever be able to achieve profitability or, if achieved, sustain such
profitability.

         The market for the Company's products and services is new, evolving and
uncertain,  and it is  difficult  to  determine  the size and predict the future
growth rate,  if any, of this market.  In addition,  the market for products and
services that enable electronic commerce is highly competitive and is subject to
rapid innovation and competition  from traditional  products and services having
all or some of the same  features as products and services  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 has
validated a strategy through widespread  acceptance of a product or service,  it
is difficult to identify all current or potential  market  participants or gauge
their relative competitive position.

Results of Operations

         Revenues.  The  Company's  revenues  were  $2,874,901,  $2,656,259  and
$4,146,899 for the years ended December 31, 1999,  1998 and 1997,  respectively.
The types of revenue  recognized by the Company in the years ended  December 31,
1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>

                                                     Years ended December 31,
                                           1999                           1998                          1997
                               ----- ------------------ ---    --- ------------------- ---    -- ------------------- ---
                                                    % of                           % of                          % of
                                   Amount           Total         Amount           Total         Amount          Total
                               ---------------     --------    --------------     --------    --------------    --------
<S>                                 <C>               <C>          <C>               <C>          <C>              <C>
Transaction fees                    $ 538,073         18.7         $ 750,936         28.3         $ 545,551        13.2
Mortgage processing fees              397,024         13.8           453,657         17.1                 -           -
Initial set-up fees                         -            -            91,000          3.4           638,687        15.4
Sales and rental fees                  48,962          1.7            66,369          2.5         1,590,620        38.4
Professional services fees            850,497         29.6           797,301         30.0           792,734        19.1
Patent license revenue                645,000         22.4                 -            -                 -           -
Other income                          395,345         13.8           496,996         18.7           579,307        13.9
                               ---------------     --------    --------------     --------    --------------    --------
                                  $ 2,874,901        100.0       $ 2,656,259        100.0       $ 4,146,899       100.0
                               ===============     ========    ==============     ========    ==============    ========
</TABLE>

         The nature and types of  revenues  earned by the  Company  has  changed
significantly  in the three-year  period ended  December 31, 1999.  During 1997,
53.8% of the Company's  revenues were derived from initial set-up fees and sales
and rental fees,  most of which was associated with the deployment of ALMs under
sales-type  leases.  Revenue  associated with ALM deployments was  significantly
diminished in 1998 and 1999.  In 1997 the Company  entered into two contracts to
customize its core technology to accommodate  specific  customer  requests.  The
Company entered into a contract to provide  professional  services to a specific
customer to customize its core technology to accommodate an enterprise-wide loan
processing  system,  which  became  the  basis for the  Company's  e-xpertLender
System.  Additionally,  in 1997 the Company  entered  into a contract to provide
professional services to a specific customer to customize an indirect automobile
loan processing system,  which became the basis for the Company's iDEAL product.
The delivery of professional  services under both contracts  continued into 1998
and 1999.  In addition,  the Company  began  processing  mortgage  loans through
Surety  in 1998.  In 1999,  the  Company  was  granted  a  patent  covering  its
consumer-directed  fully-automated  lending system,  and recognized  $645,000 in
patent license revenue in 1999.

         Transaction  fees. The decrease in transaction fees in 1999 compared to
1998 is attributable  primarily to the sale of the Company's former  Transaction
Processing  Division ("TPS") in December 1998.  Transaction fees associated with
processing credit and debit card transactions through the Company's TPS division
were  approximately  $218,000 in 1998. The increase in transaction  fees in 1998
compared to 1997 is attributable  primarily to the deployment in mid-1997 of the
Company's first  e-xpertLender  System.  Transaction fees processed through such
system  were  generated  during  the  entire  year  of  1998.  Transaction  fees
associated  with  processing  credit and debit  card  transactions  through  the
Company's TPS division decreased slightly from approximately $245,000 in 1997 to
approximately $218,000 in 1998.

         Mortgage processing fees. Surety Mortgage,  Inc.  ("Surety"),  a wholly
owned subsidiary of the Company,  engages in mortgage brokerage activities which
involve  originating,  processing and selling  mortgage loan products to outside
investors.   Surety  originates  and  processes  mortgage  loans  directly  with
consumers or on behalf of  correspondents,  and immediately  sells such loans to
institutions  that  sponsor  the loan  programs  offered by Surety.  Surety only
offers  loans that will be acquired by such  institutions  under such  programs.
Upon making the loan commitment to the borrower,  Surety immediately  receives a
commitment  from an  institution  to  acquire  the loan upon  closing.  Mortgage
processing  fees include gains on sales of mortgage  loans to  institutions  and
loan fees received for  originating  and processing the loan.  Loan  origination
fees and all other direct costs associated with originating loans are recognized
at the time the loans are sold. The decrease in mortgage processing fees in 1999
compared  to 1998 is  attributable  to the  processing  of  fewer  loans in 1999
compared to 1998.  In 1999 Surety  processed  and closed an aggregate  principal
balance  of loans  of  approximately  $17,408,000  compared  with  approximately
$21,745,000  in 1998.  The  Company  did not  generate  revenues  from  mortgage
processing services prior to 1998.

         Initial  set-up fees.  The Company did not deploy any ALMs in 1999 and,
accordingly, recognized no set-up fees. Set-up fees recognized in 1998 relate to
the deployment of one ALM and the recognition of previously deferred set-up fees
associated  with a customer's  decision not to deploy ALMs.  Set-up fees in 1997
relate to the deployment of 53 ALMs.

         Sales and rental fees. The decrease in sales and rental revenue in 1999
compared  to 1998 is due to a  decrease  in the  number of ALMs  deployed  under
operating  leases in 1999 compared to 1998 for which there were scheduled rental
payments.  The decrease in sales and rental  revenue in 1998 compared to 1997 is
attributable  to a substantial  decrease in ALM  deployments in 1998 compared to
1997.  Amounts  recognized in 1998 also consisted of rental payments received on
ALMs  deployed  under  operating  leases in prior  years.  In 1997,  the Company
recognized  sales  revenue  associated  with  the  deployment  of 28 ALMs  under
sales-type leases as well as rental revenue  associated with ALMs deployed under
operating leases.

         Professional   services  fees.  When  the  Company  agrees  to  provide
professional  services to customize its core technology to conform to a specific
customer request, the Company generally enters into a contract with the customer
for the  performance  of these services which  typically  defines  deliverables,
specific  delivery and  acceptance  dates and specified  fees for such services.
Upon completion and acceptance of the specific deliverables by the customer, the
Company recognizes the corresponding  revenue as professional  services revenue.
The level of professional  services revenue remained  relatively  consistent for
the years 1999,  1998 and 1997. In 1999,  64% and 36% of  professional  services
fees were associated with the  customization of the Company's  e-xpertLender and
iDEAL systems, respectively. This customization was performed during the year to
meet the specific  requirements  of two of the  Company's  customers.  These two
customers  represent 100% of the amounts recognized in 1999 for customization of
the e-xpertLender  and iDEAL systems.  In 1998 and 1997,  professional  services
revenue related  primarily to the  customization of the Company's  e-xpertLender
System to meet a specific customer's requirements. Such customer represented 97%
and 91% of professional services revenue in 1998 and 1997, respectively.

         Patent  license  revenue.  The  Company was granted two patents in 1999
covering  automated loan processing.  Patent license revenue  recognized in 1999
relates to certain patent licenses granted by the Company.  Licensing agreements
with one  customer  and an affiliate  of that  customer  constituted  93% of the
patent license revenue recognized in 1999.

         As indicated  above,  two customers  accounted for 100% of professional
services fees recognized in 1999.  Moreover,  in 1999 the  development  contract
under which the Company recognized 36% of its professional  services revenue was
assigned to the Company's  other  customer  which  accounted for 64% of its 1999
professional services revenue. When combined,  one current customer,  therefore,
accounted for 100% of professional services revenue in 1999. Additionally,  when
combined with other revenue  associated with services provided to this customer,
the customer  accounted  for 49% of total  revenue  recognized by the Company in
1999. This same customer  accounted for 99.1% of professional  services  revenue
for 1998 and 60.2% and 91.3% of ALM sales and rental and  professional  services
revenue,  respectively,  during 1997. This same customer accounted for 49.1% and
48.0% of total  revenue  for 1998 and 1997,  respectively.  One  other  customer
accounted  for 13% of total revenue  during 1997.  For  information  relating to
customer revenue concentrations, see Note 12 of "Notes to Consolidated Financial
Statements  -  Segment  Information."  The loss of this  customer  or any  other
significant  customer  may  have a  material  adverse  effect  on the  Company's
financial condition or results of operations due to the developing nature of the
Company's  customer base and revenue streams.  Additionally,  revenue associated
with the Company's  patent  licensing  program was 22% of total revenue in 1999.
One of the Company's  patents is currently  being  reexamined by the PTO and has
resulted in a preliminary  rejection of the patent  claims.  Such  reexamination
could result in a loss or otherwise  limit the  previously  issued  claims which
could negatively  affect the Company's  ability to maintain or expand its patent
licensing  program.  The  Company  expects  that a  substantial  portion  of the
Company's  operating  revenues in the future may continue to be  attributable to
relatively  few customers.  Such customer  concentration  may cause  significant
fluctuations  in  the  Company's  quarterly  and  annual  revenues  due  to  the
uncertainty  of the  timing  of new and  additional  orders  for  the  Company's
products and services.

Costs and Expenses

         Costs of Revenues.  Costs of revenues for the years ended  December 31,
1999, 1998 and 1997 were $2,262,468,  $1,644,653, and $2,125,646,  respectively.
Cost of revenues  includes the direct costs  associated  with the  generation of
specific types of revenue and the allocation of certain indirect costs when such
costs  are  specifically   identifiable  and  allocable  to  revenue   producing
activities.  During the three  years ended  December  31,  1999,  the nature and
amounts of costs,  as well as gross  profit  margins,  associated  with  certain
revenue producing  activities varied  significantly due to changes in the nature
of the services offered by the Company and due to different  pricing  structures
offered to certain customers.

         Costs of revenues and the  percentage of the costs of revenues to total
costs of revenues for the years ended  December  31, 1999,  1998 and 1997 are as
follows:
<TABLE>
<CAPTION>

                                                     Year ended December 31,

                                             1999                          1998                            1997
                                  --- ------------------- ---    -- -------------------- --     --- ------------------- --------
                                                      % of                           % of                              % of
                                      Amount          Total         Amount          Total          Amount             Total
                                  ---------------    --------    --------------     -------     --------------     -------------
<S>                                    <C>               <C>         <C>              <C>           <C>                    <C>
Transaction fees                       $ 209,424         9.2         $ 388,734        23.6          $ 328,067              15.4
Mortgage processing fees                 194,239         8.6           192,726        11.7                  -                 -
Initial set-up fees                            -           -                 -           -            232,077              10.9
Sales and rental fees                    445,581        19.7           379,775        23.1          1,041,455              49.0
Professional services fees               573,381        25.3           204,058        12.4            524,047              24.7
Patent license                            64,500         3.0                 -           -                  -                 -
revenue
Contract loss provision                  775,343        34.2           479,360        29.2
                                  ---------------    --------    --------------     -------     --------------     -------------
                                  ---------------    --------    --------------     -------     --------------     -------------
                                     $ 2,262,468       100.0       $ 1,644,653       100.0        $ 2,125,646             100.0
                                  ===============    ========    ==============     =======     ==============     =============
</TABLE>

         Costs of  transaction  fees.  The  cost of  transaction  fees  consists
primarily  of  the  direct  costs  incurred  by  the  Company  to  process  loan
applications and debit and credit card  transactions  through its systems.  Such
direct costs are associated with services provided by third parties and includes
the cost of credit reports,  fraud reports and  communications  networks used by
the Company. The cost of transaction fees decreased in 1999 compared to 1998 and
increased in 1998 compared to 1997 in direct  correlation  to a decrease in 1999
from 1998, and an increase in 1998 from 1997, of the volume of transactions  the
Company processed through its systems compared with the previous period.

         Costs of mortgage  processing  fees.  The costs of mortgage  processing
fees  consist  of the  direct  cost  incurred  by  Surety  associated  with  the
underwriting,  processing  and closing of  mortgage  loans.  Such costs  include
credit reports,  appraisal reports,  flood  certifications,  administration fees
charged by the  purchasers  of loans and fees paid to other lenders that provide
certain  processing  services  associated with loans  originated by Surety.  The
costs of mortgage  processing fees remained  consistent in 1999 compared to 1998
even  though  Surety  originated  fewer  loans.  Accordingly,  costs of mortgage
processing  fees  increased on a  loan-for-loan  basis in 1999 compared to 1998.
This  increase  was due to Surety's  increased  use of other  lenders to provide
certain processing services in 1999 compared to 1998.

         Costs of initial  set-up  fees.  The costs of initial  set-up  fees are
related to the initial  costs  incurred to deploy and install  ALMs.  Such costs
include the  allocation of direct and indirect  labor and certain other indirect
costs  associated  with the initial  preparation  and deployment of ALMs for the
Company's  customers.  Additionally,  the costs include direct costs incurred by
the Company, including shipping costs and amounts paid to third parties.

         The  Company  deployed  no ALMs in 1999  and no costs  associated  with
set-up fees were  incurred  during  1998.  In 1997 the Company  deployed 53 ALMs
under both sales-type and operating leases.

         Costs of sales and  rental  fees.  Costs of sales and  rental  fees are
related to the cost of ALM hardware  components  associated  with ALMs  deployed
under sales-type leases,  maintenance of installed ALMs, amortization associated
with  capitalized ALM and related systems  development  costs,  and depreciation
associated  with ALMs deployed under  operating  leases.  Costs  associated with
sales and rental fees remained consistent in 1999 compared to 1998 and reflected
an increase in  amortization  and  depreciation  related to ALMs deployed  under
operating  leases and related  systems.  Such  increase  was offset by lower ALM
maintenance  costs in 1999  compared  to 1998.  In 1998 the  costs of sales  and
rental fees consisted  primarily of depreciation  related to ALMs deployed under
operating  leases  and the  costs  associated  with  maintaining  the  Company's
installed base of ALMs.  Costs of sales and rental  revenues were  significantly
lower in 1998 compared to 1997  primarily as a result of the  deployment in 1997
of 28 ALMs under  sales-type  leases  compared  to only 1 ALM  deployed  under a
sales-type lease in 1998.

         Under the terms of an agreement with one customer covering 30 ALMs, the
customer's payment obligation to the Company is based on ALM performance,  which
has  resulted  in  revenues  insufficient  to  cover  the  depreciation  expense
recognized by the Company.  Accordingly,  the cost of sales and rental  revenues
exceeded  the sales and  rental  revenues  recognized  by the  Company  for such
contract. This contract will expire in early 2000 at which time the related ALMs
will be fully depreciated.

         Costs of professional services fees. The costs of professional services
fees  consist of the costs of the  direct  labor and the  allocation  of certain
indirect costs  associated  with  performing  software and system  customization
services for customers.  The costs of providing  professional services will vary
depending  upon the  nature  of  professional  services  rendered,  the level of
developers  assigned  to specific  projects  and the  duration  of the  project.
Accordingly,  the  margins  recognized  by the  Company  may vary  significantly
depending  upon the nature of the project.  The costs of providing  professional
services increased in 1999 compared to 1998 primarily as a result of the greater
amount of time to conclude certain projects in 1999 compared to 1998. Similarly,
costs of professional services decreased in 1998 compared to 1997 as a result of
the shorter average duration of projects in 1998 compared to 1997.

         Costs of  patent  license  revenue.  Costs of  patent  license  revenue
recognized  in  1999  consists  of  commissions  paid  to the  Company's  patent
licensing  agent and is  associated  with such  agent's  commissions  for patent
licenses  granted by the Company.  The Company  commenced  its patent  licensing
program in 1999.

         Contract loss  provision.  The Company  periodically  enters  long-term
development contracts to design, develop and install loan processing systems for
its  customers.  In  conjunction  with such  contracts the Company  periodically
evaluates  whether  costs  incurred and estimated  future costs exceed  revenues
under the contract.  To the extent such costs exceed  contracted  revenues,  the
Company  records a charge to costs of  revenues.  In 1999 and 1998,  the Company
recorded contract loss provisions of $775,343 and $479,360, respectively.

         Research  and  Development.  The  Company  accounts  for  research  and
development  costs as  operating  costs and  expenses  such  costs in the period
incurred.  In accordance with Statement of Financial Accounting Standards No. 86
("SFAS 86"),  "Computer Software to be Sold, Leased or Otherwise  Marketed," the
Company  capitalizes  software costs  incurred in the  development of a software
application  after the  technological  feasibility of the  application  has been
established. Technological feasibility is established when an application design
and a working model of the application  have been completed and the completeness
of the working model and its consistency  with the application  design have been
confirmed by testing.  From the time  technological  feasibility  is established
until the time the  relevant  application  is available  for general  release to
customers,  software  development costs incurred are capitalized at the lower of
cost or net realizable value.  Thereafter,  costs related to the application are
again expensed as incurred. Capitalized software development costs are amortized
using  the  greater  of the  revenue  curve  or  straight-line  method  over the
estimated economic life of the application.  Software costs capitalized  include
direct  labor,  other costs  directly  associated  with the  development  of the
related  application  and an allocation of indirect  costs,  primarily  facility
costs and other costs associated with the Company's software  development staff.
The Company bases such allocation on the percentage of the Company's total labor
costs represented by the software development labor costs.

         Research and development  expenses for the year ended December 31, 1999
were  approximately  $1,871,000,  compared to $2,560,000 and $3,526,000 for 1998
and 1997, respectively. The decrease in research and development expense in 1999
compared  to 1998 is due to an  overall  decrease  in the  number  of  employees
involved in  development  activities in 1999  compared to 1998.  The decrease in
research  and  development  expenses in 1998  compared to 1997 is also due to an
overall decrease in the number of employees involved in developmental activities
in 1998  compared  to 1997 as well as the  progression  of  certain  development
activities  in  1998  to a  point  where  the  costs  of  such  activities  were
capitalized pursuant to applicable accounting guidelines.

         During  1999,  1998 and 1997,  the  Company  capitalized  approximately
$138,000, $1,041,000, and $568,744,  respectively, of software development costs
related primarily to the development of certain  financial service  applications
processed using  DeciSys/RT.  When a product is available for general release to
customers,  capitalization of such costs is discontinued and amounts capitalized
are generally  amortized over a 48 month period. The Company anticipates that it
will  continue  to commit  substantial  resources  to research  and  development
activities for the foreseeable future.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  ("SG&A")  expenses  for the year ended  December  31,  1999 were
$11,208,310,  compared  to  $14,358,335  and  $15,892,560  for the  years  ended
December 31, 1998 and 1997, respectively.

         SG&A expenses during 1999 consisted  primarily of personnel  expense of
approximately   $4,283,000;   professional   fees  of  approximately   $969,000;
depreciation and amortization expense of approximately $1,695,000;  rent expense
of approximately $903,000; provision for excess rental capacity of approximately
$449,000;  writedown of deferred  software  development  costs of  approximately
$370,000; and, travel costs of approximately $270,000. SG&A expenses during 1998
consisted primarily of personnel costs of approximately $6,283,000; professional
fees of approximately $1,722,000; depreciation and amortization of approximately
$1,693,000;  rent expense of approximately  $915,000;  advertising and marketing
costs of approximately  $193,000;  deferred compensation expense amortization of
approximately  $599,000;  and,  travel  costs of  approximately  $437,000.  SG&A
expenses  during 1997 consisted  primarily of personnel  costs of  approximately
$7,207,000;  professional  fees of  approximately  $1,892,000;  advertising  and
marketing  costs of  approximately  $1,488,000;  deferred  compensation  expense
amortization  of  approximately  $481,000;  and,  travel costs of  approximately
$935,000.

         The  decrease  in SG&A  expense  in 1999  compared  to 1998 is due to a
substantial reduction in the Company's work force in the fourth quarter of 1998.
Other than certain increases  associated with contract  services,  the provision
for excess rental capacity, and certain amounts the Company wrote off related to
capitalized software development costs, SG&A expenses were lower in all material
categories in 1999 compared with 1998.  The decrease in SG&A expense in 1998, as
compared to 1997 is primarily  attributable  to a decrease  in: (i.)  employment
costs,  primarily wage and recruiting costs associated with an overall reduction
in the Company's  employee base; (ii.)  advertising and marketing costs;  (iii.)
professional  fees  consisting  primarily of legal,  accounting,  recruiting and
relocation  fees; and, (iv.) travel costs.  The decrease in SG&A expenses was in
1998 compared to 1997 was partially offset by an increase in: (i.)  depreciation
and  amortization  expense  associated with an overall increase in the Company's
depreciable  assets;   (ii.)  an  increase  in  inventory  valuation  allowances
associated  with   potentially   obsolete  ALM  shells  due  to  planned  design
improvements;  and, (iii.) costs  associated with benefits  including  severance
benefits for certain employees terminated during 1998.

Interest Income

         Interest income of $375,514,  $1,044,251,  and $2,033,571  during 1999,
1998 and 1997, respectively,  primarily reflects interest income attributable to
the  short-term  investment of the proceeds from the  Company's  initial  public
offering in May 1996. Interest income also reflects the amortization of deferred
interest income  attributable to ALM sales-type leases. The decrease in interest
income in 1999  compared  to 1998 is  attributable  to a decrease in the average
cash and cash equivalents and investment  balances in 1999 compared to 1998. The
decrease in interest income in 1999 and 1998 compared to the previous periods is
due to a lesser extent to a decrease in the amount of  amortization  of deferred
interest  income   associated  with  ALMs  under  sales-type  lease  agreements.
Similarly,  the  decrease  in  interest  income  in 1998  compared  to 1997  was
attributable  to a  decrease  in the  average  cash  and  cash  equivalents  and
investments balances in 1998 compared to 1997.

Interest Expense

         Interest  expense  for the year ended  December  31,  1999 was  $3,764,
compared to $10,923 and  $35,359  for 1998 and 1997,  respectively.  The nominal
amount of interest expense recognized by the Company in 1999 was attributable to
use of a line of credit for  short-term  loan  funding by the  Company's  wholly
owned  subsidiary  Surety.  The decrease for the year ended December 31, 1998 as
compared to 1997,  is due  primarily to payments made under the terms of capital
lease  obligations.  The Company had no  outstanding  capital lease  obligations
outstanding at December 31, 1998.

Income Taxes

         The Company has recorded a valuation  allowance  for the full amount of
its net  deferred  income tax assets as of December 31,  1999,  1998,  and 1997,
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

         The Company has generated net losses of $55,073,184 since its inception
and has financed its operations  primarily through net proceeds from its initial
public offering in May 1996. Prior to the Company's initial public offering, the
Company's  operations were financed  through the private sale of debt and equity
securities,  capital lease obligations, bank financing,  factoring of ALM rental
contracts,  and loans from affiliates.  Net proceeds from the Company's  initial
public offering were $60,088,516.

         The Company  continues  to use a  substantial  amount of existing  cash
resources to fund its operations. If the Company continued to use cash resources
at the rate used in 1999,  the Company would deplete its existing cash resources
in the second quarter of 2000. The Company has taken certain  measures to reduce
its cash depletion rate, including decreasing its employee base. Currently,  the
Company's  employee base is  approximately  49% less than it was at December 31,
1999,  53% less  than it was  December  31,  1998  and 73%  less  than it was at
December 31, 1997. The Company  believes  existing cash,  cash  equivalents  and
internally  generated  funds will be sufficient to meet the Company's  currently
anticipated cash requirements  during 2000.  However, no assurances can be given
that the  Company's  existing  cash  resources  will be  sufficient  to fund the
Company's  cash  requirements  for 2000.  Moreover,  existing cash resources and
projected  revenues  that  may be  received  under  existing  contracts  will be
insufficient  to  fund  the  Company's   operations  for  2001  and  thereafter.
Accordingly,  to remain viable in 2001, the Company must substantially  increase
revenues,  raise additional capital and/or  substantially reduce its operations.
No  assurances  can be  given  that the  Company  will be able to  increase  its
revenues,  raise  additional  capital or reduce its  operations in a manner that
would allow it to continue operations through 2001. In order to fund operations,
the Company may need to raise  additional  funds  through the issuance of equity
securities,  in which case the percentage  ownership of the  stockholders of the
Company will be reduced,  stockholders may experience  additional  dilution,  or
such equity  securities  may have rights,  preferences  or privileges  senior to
Common  Stock.  There can be no  assurance  that  additional  financing  will be
available when needed on terms  acceptable to the Company or at all. If adequate
funds are not available or not available on acceptable terms, the Company may be
unable to continue  operations;  develop,  enhance and market  products;  retain
qualified  personnel;  take  advantage  of future  opportunities;  or respond to
competitive pressures,  any of which could have a material adverse effect on the
Company's business, operating results and financial condition.

         Net cash  used  during  the  year  ended  December  31,  1999,  to fund
operations was approximately $6,101,000 compared to approximately $9,498,000 and
$15,395,000 for the same periods in 1998 and 1997,  respectively.  Proceeds from
the  offering  and  other  sources  of cash  were  used to fund  current  period
operations,  research and  development  of  approximately  $1,871,000,  software
development of approximately  $138,000 and capital expenditures of approximately
$195,000. During 1998, proceeds from the offering and other sources of cash were
used  to  fund  current   period   operations,   research  and   development  of
approximately  $2,560,000,  software  development of  approximately  $1,041,000,
capital expenditures of approximately $696,000 and the repurchase of outstanding
shares of the Company's common stock of approximately  $2,404,000.  During 1997,
proceeds  from  the  offering  and  other  sources  of  cash  were  used to fund
operations,  research  and  development  of  approximately  $3,526,000,  capital
expenditures of approximately  $1,687,000,  repurchase of outstanding  shares of
the Company's common stock of approximately $872,000 and software development of
approximately  $569,000.  At December 31, 1999,  1998 and 1997,  cash and liquid
investments were $3,590,965,  $10,095,242,  and $23,605,600, and working capital
was $4,637,238, $13,543,782, and $28,599,560, respectively.

         During 1997, the Company  adopted a share  repurchase  plan under which
the Company was authorized to use up to $2 million of general corporate funds to
acquire from time to time in the open market  shares of the  outstanding  common
stock of the Company. During the first quarter of 1998, the Company expanded its
share  repurchase  plan by  authorizing  the use of an  additional $2 million of
general corporate funds under the plan. As of December 31, 1999, the Company had
repurchased  a total of 1,417,000  shares at an average price of $2.31 per share
for an  aggregate  cost of  $3,271,700  under  the  share  repurchase  plan.  In
addition,  during 1997 the Company repurchased an aggregate of 643,066 shares of
its common stock from former  employees  of the Company at an aggregate  cost of
$484 pursuant to stock repurchase agreements with such former employees.

         During  June  1999,  Surety  renewed  its  agreement  with a lender  to
maintain  a credit  facility  with a maximum  borrowing  amount  of  $2,000,000.
Pursuant  to the terms of the  agreement,  Surety may obtain  advances  from the
lender for funding of mortgage  loans made by Surety  during the interim  period
between the funding and sale of the loans to permanent  investors.  All advances
made pursuant to the agreement are secured by a security  interest in the rights
and benefits due Surety in conjunction  with the making of the underlying  loan.
The credit  facility  bears  interest at the  lender's  prime rate plus 50 basis
points and expires on June 1, 2000.  Surety had no outstanding  borrowings under
the Loan Warehousing Agreement as of December 31, 1999.

       During 1997 in connection with its acquisition of Buy American, Inc. and
Project Freedom,  Inc., the Company issued  restricted common stock subject to a
call option by the Company and put option by the sellers.  Under such agreement,
the  sellers  had an option to sell any or all the shares of  restricted  common
stock held by them to the Company at a price of $3.47 per share.  These  options
were  exercisable  for a 30 day period ending May 31, 1999.  In April 1999,  the
Company and the sellers of Buy American,  Inc. and Project Freedom,  Inc. agreed
to cancel their respective call and the put options.

Implications of Year 2000 Issues

         The Company's operational  transition into the year 2000 was uneventful
and the Company is unaware of any material problems or issues with the operation
of its  Systems as a result of Year 2000  issues.  In  addition,  the Company is
unaware of any material problems or issues with critical third party systems and
services  utilized by the Company.  The Company's  incremental  costs associated
with Year 2000 issues have been  insignificant  and the Company does not believe
that  significant  future  costs will be  incurred in  remediation  of Year 2000
issues.


Item 7(a).  Quantitative and Qualitative Disclosures about Market Risk

         The Company's  market risk exposure is the potential  loss arising from
changes  in  interest  rates and its  impact on  investments  and the  Company's
mortgage brokerage  business.  The extent of market rate risk to the Company due
to exposure of changes in interest rates is not  quantifiable or predictable due
to the potential fluctuations of future interest rates, but the Company does not
believe such risk is material.  The Company's cash and cash equivalents  consist
of highly  liquid  investments  with  maturities  of three  months  or less.  At
December 31, 1999, short term investments consisted of approximately  $1,475,000
in a certificate of deposit.  Further, when the Company receives a commitment to
originate  a  mortgage  loan  from a  consumer  or  correspondent,  the  Company
immediately  receives a commitment  from an investor to buy such mortgage  loan.
The Company does not believe that its mortgage  brokerage business exposes it to
significant market risk for changes in interest rates.

Item 8.  Financial Statements and Supplemental Data

         The  report  of  independent   auditors  and   consolidated   financial
statements are set forth below (see item 14(a) for list of financial  statements
and financial statement schedules):

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Affinity Technology Group, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets  of  Affinity
Technology Group, Inc. and subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of operations,  stockholders'  equity and cash
flows for each of the three  years in  the  period  ended  December  31,  1999.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a)(2). These  financial statements and schedule are  the responsibility
of the Company's management. Our responsibility  is to express  an opinion  on
these financial  statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the 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 examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,   the  consolidated   financial  position  of  Affinity
Technology Group, Inc. and  subsidiaries  at  December  31, 1999 and  1998 and
the  consolidated  results of their  operations and their cash flows for each of
the three years in the period  ended  December  31,  1999,  in  conformity  with
accounting principles generally accepted in the  United  States.  Also in  our
opinion, the related financial statement schedule, when considered in  relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

                                                          /s/ ERNST & YOUNG LLP
Greenville, South Carolina
March 29, 2000


<TABLE>
<CAPTION>



                Affinity Technology Group, Inc. and Subsidiaries

                           Consolidated Balance Sheets

                                                                               December 31,
                                                                        1999                   1998
                                                                ---------------------- ---------------------
<S>                                                               <C>                   <C>
Assets
Current assets:

  Cash and cash equivalents                                       $    2,116,016         $    2,026,932
  Investments                                                          1,474,949              8,068,310
  Accounts receivable, less allowance for doubtful accounts
    of $105,076 and $45,513 at December 31, 1999 and 1998,
    respectively                                                         713,644                727,999
  Net investment in sales-type leases - current:                         324,485                534,302
  Inventories                                                          1,224,532              2,054,542
  Other current assets                                                   626,354              1,349,995
                                                                ---------------------- ---------------------
Total current assets                                                   6,479,980             14,762,080
Net investment in sales-type leases - non-current:                       249,830                574,437
Property and equipment, net                                            2,921,770              4,511,924
Software development costs, less accumulated
  amortization of $368,033 and $111,211 at December
  31, 1999 and 1998, respectively                                      1,199,053              1,773,057
Other assets                                                           2,278,895              2,575,377
                                                                ---------------------- ---------------------
Total assets                                                      $   13,129,528         $   24,196,875
                                                                ====================== =====================
</TABLE>



<TABLE>
<CAPTION>




                                                                               December 31,
                                                                        1999                   1998
                                                                ---------------------- ---------------------
<S>                                                               <C>                    <C>
Liabilities and stockholders' equity Current liabilities:

  Accounts payable                                                       215,897                184,619
  Accrued expenses                                                       788,763                388,466
  Accrued compensation and related benefits                              759,372                359,670
  Notes payable                                                                -                141,480
  Current portion of deferred revenue - third parties                     78,710                144,063
                                                                ---------------------- ---------------------
Total current liabilities                                              1,842,742              1,218,298
Deferred revenue                                                         615,806                422,376
Commitments and contingent liabilities
Stockholders' equity:
  Common stock, par value $0.0001; authorized 60,000,000
     shares, issued 31,961,956 shares in 1999 and
     31,572,880 shares in 1998                                             3,196                  3,157
  Additional paid-in capital                                          69,394,954             69,392,545
  Deferred compensation                                                 (163,167)              (489,656)
  Treasury stock, at cost (2,163,556 and 2,073,207 shares at
     December 31, 1999 and 1998, respectively)                        (3,490,819)            (3,371,297)
  Accumulated deficit                                                (55,073,184)           (42,978,548)
                                                                ---------------------- ---------------------
Total stockholders' equity                                            10,670,980             22,556,201
                                                                ---------------------- ---------------------
Total liabilities and stockholders' equity                        $   13,129,528         $   24,196,875
                                                                ====================== =====================


See accompanying notes.
</TABLE>

<TABLE>
<CAPTION>


                Affinity Technology Group, Inc. and Subsidiaries

                      Consolidated Statements of Operations

                                                                           Years ended December 31,
                                                              1999                   1998                   1997
                                                      ---------------------- ---------------------- ---------------------
<S>                                                     <C>                    <C>                    <C>
Revenues:
   Transactions                                         $       538,073        $       750,936        $       545,551
   Mortgage processing services                                 397,024                453,657                      -
   Initial set-up                                                     -                 91,000                638,687
   Sales and rental                                              48,962                 66,369              1,590,620
   Professional services                                        850,497                797,301                792,734
   Patent license revenue                                       645,000                      -                      -
   Other income                                                 395,345                496,996                579,307
                                                      ---------------------- ---------------------- ---------------------
                                                              2,874,901              2,656,259              4,146,899
Costs and expenses:
   Cost of revenues                                           2,262,468              1,644,653              2,125,646
   Research and development                                   1,870,509              2,559,600              3,526,257
   Selling, general and administrative expenses              11,208,310             14,358,335             15,892,560
                                                      ---------------------- ---------------------- ---------------------
Total costs and expenses                                     15,341,287             18,562,588             21,544,463
                                                      ---------------------- ---------------------- ---------------------
Operating loss                                              (12,466,386)           (15,906,329)           (17,397,564)
Interest income                                                 375,514              1,044,251              2,033,571
Interest expense                                                 (3,764)               (10,923)               (35,359)
                                                      ---------------------- ---------------------- ---------------------
Net loss                                                $  (12,094,636)        $   (14,873,001)       $   (15,399,352)
                                                      ====================== ====================== =====================
Net loss per share - basic and diluted                  $        (0.41)        $        (0.50)        $        (0.54)
                                                      ====================== ====================== =====================
Shares used in computing net loss per share                  29,738,459             29,755,034             28,477,880
                                                      ====================== ====================== =====================


See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>

         Affinity Technology Group, Inc. and Subsidiaries

         Consolidated Statements of Stockholders' Equity

                                               Additional                                                    Total
                                     Common    Paid-in        Deferred       Treasury      Accumulated       Stockholders'
                                     Stock     Capital        Compensation   Stock         Deficit           Equity
                                     --------- -------------- -------------- ------------- ----------------- ---------------
       <S>                           <C>       <C>            <C>            <C>           <C>               <C>
       Balance at December 31, 1996  $         $ 68,777,090   $              $             $ (12,706,195)    $ 52,134,639
                                         2,788                 (3,939,044)            -
       Exercise of warrants                  4      37,473              -             -               -           37,477
       Exercise of warrants by
       related party                       240           -              -             -               -              240
       Exercise of stock options            30     144,034              -             -               -          144,064
       Amortization of deferred
       compensation                          -           -        480,534             -               -          480,534
       Forfeiture of stock options           -  (1,899,936)     1,899,936             -               -                -
       Purchase of treasury stock            -           -              -      (967,035)              -         (967,035)
       Issuance of common  stock in
       exchange  for capital  stock
       of   subsidiary    held   by
       minority investor                    67   1,599,933              -             -               -        1,600,000
       Issuance  of  common   stock
       for acquisition                      26   1,199,977              -             -               -        1,200,003
       Net loss                              -           -              -             -     (15,399,352)     (15,399,352)
                                     --------- -------------- -------------- ------------- ----------------- ---------------
       Balance at December 31, 1997                                                            (28,105,547)      39,230,570
                                     3,155     69,858,571     (1,558,574)    (967,035)
       Exercise of stock options             2       4,228              -             -               -            4,230
       Amortization of deferred
       compensation                          -           -        598,664             -               -          598,664
       Forfeiture of stock options           -    (470,254)       470,254             -               -                -
       Purchase of treasury stock            -           -              -    (2,404,262)              -       (2,404,262)
       Net loss                              -           -              -             -     (14,873,001)     (14,873,001)
                                     --------- -------------- -------------- ------------- ----------------- ---------------
       Balance at December 31, 1998        3,157 69,392,545      (489,656)     (3,371,297)   (42,978,548)      22,556,201
       Exercise of stock options            39     173,209              -      (119,522)              -           53,726
       Amortization of deferred
       compensation                          -           -        155,689             -               -          155,689
       Forfeiture of stock options           -    (170,800)       170,800             -               -                -
       Net loss                              -           -              -             -     (12,094,636)     (12,094,636)
                                     --------- -------------- -------------- ------------- ----------------- ---------------
       Balance at December 31, 1999   $ 3,196  $69,394,954    $  (163,167)   $ (3,490,819) $ (55,073,184)    $10,670,980
                                     ========= ============== ============== ============= ================= ===============
                                     ========= ============== ============== ============= ================= ===============


      See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>

                Affinity Technology Group, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows

                                                                               Years ended December 31,
                                                                  1999                   1998                   1997
                                                          ---------------------- ---------------------- ---------------------
Operating activities

<S>                                                         <C>                    <C>                    <C>
Net loss                                                    $   (12,094,636)       $   (14,873,001)       $   (15,399,352)
Adjustments to reconcile net loss to net cash used in
  operating activities:
    Depreciation and amortization                                 2,449,521              2,369,220              2,066,270
    Amortization of deferred compensation                           155,689                598,664                480,534
    Writedown of software development costs                         369,787                      -                      -
    Provision for doubtful accounts                                  60,000                370,000                456,841
    Inventory valuation allowance                                   694,940              1,060,000                230,000
    Contract loss provision                                         775,343                479,360                      -
    Deferred revenue                                                128,077                187,175                368,594
    Other                                                            24,837                 94,808                195,505
    Changes in current assets and liabilities:
       Accounts receivable                                          (45,645)               543,906             (2,073,893)
       Net investment in sales-type leases                          534,425                937,388                189,721
       Inventories                                                   71,051                450,258               (755,248)
       Other assets                                                 (55,395)            (1,029,727)                (6,633)
       Accounts payable                                              31,278               (482,205)              (775,838)
       Accrued expenses                                             400,297                 (2,118)              (477,046)
       Accrued compensation and related benefits                    399,702               (201,721)               105,986
                                                          ---------------------- ---------------------- ---------------------
Net cash used in operating activities                            (6,100,729)            (9,497,993)           (15,394,559)
Investing activities
Purchases of property and equipment                                (194,726)              (696,122)            (1,683,755)
Proceeds from sale of property and equipment                         16,872                 47,622                144,535
Software development costs                                         (137,940)            (1,041,091)              (568,744)
Purchases of short-term investments                              (2,474,949)            (9,436,211)           (34,345,695)
Sales of short-term investments                                   9,068,310             20,503,316             25,794,277
Other                                                                     -                      -               (300,000)
                                                          ---------------------- ---------------------- ---------------------
Net cash provided by (used in) investing activities               6,277,567              9,377,514            (10,841,942)
Financing activities
Proceeds from notes payable to third parties                              -                141,480                      -
Principal payments on capital leases                                      -                (64,222)               (72,010)
Payments on notes payable to third parties                         (141,480)                     -                      -
Purchase of treasury stock                                                0             (2,404,262)              (871,775)
Exercise of warrants                                                      -                      -                 37,717
Exercise of options                                                  53,726                  4,230                 48,804
Net cash used in financing activities                               (87,554)            (2,322,774)              (857,264)
                                                          ---------------------- ---------------------- ---------------------
Net (decrease) increase in cash                                      89,084             (2,443,253)           (27,093,765)
Cash and cash equivalents at beginning of year                    2,026,932              4,470,185             31,563,950
                                                          ----------------------
                                                                                 ---------------------- ---------------------
Cash and cash equivalents at end of year                    $     2,116,016        $     2,026,932        $     4,470,185
                                                          ====================== ====================== =====================

See accompanying notes.
</TABLE>


                Affinity Technology Group, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements

                                December 31, 1999

1.       Going Concern

To date,  the  Company  has  generated  operating  losses,  has  experienced  an
extremely  lengthy  sales cycle for its products and has been  required to use a
substantial  amount of existing cash  resources to fund its  operations.  If the
Company  continues to use cash at the rate used during 1999,  the Company  would
deplete its existing cash reserves in the second  quarter of 2000.  Although the
Company has taken  steps to reduce its  operating  expenses  and  believes  that
existing  cash,  cash  equivalents  and  internally   generated  funds  will  be
sufficient  to fund  operations  during  2000,  such  resources,  together  with
projected  revenues  that may be  received  under  existing  contracts,  will be
insufficient  to fund the  Company's  operations  in 2001 and beyond.  To remain
viable  after 2000,  the Company must  substantially  increase  revenues,  raise
additional capital and/or substantially reduce its operations.

Management's  plan  include  increased  sales  with new  customer  relationships
established  during 1999,  sales growth through  deployment of existing  product
offerings to new customers, deployment of a recently developed Internet product,
and continued  cost  curtailment.  In addition,  the Company  believes it is due
significant amounts related to a development  contract and certain other amounts
and is pursuing  collection  on these  balances.  The  Company  also has several
patents which management  would consider  selling,  if necessary.  Additionally,
management  intends to continue  discussions with investment bankers and venture
capital firms regarding additional financing.

2.       The Company

Affinity  Technology Group, Inc. (the "Company") was incorporated on January 12,
1994.  On May 1, 1996,  the  Company  completed a public  offering of  5,060,000
shares of $0.0001 par value Common Stock (the "Initial  Public  Offering").  The
Initial  Public  Offering  price was $13 per  Common  Share  resulting  in gross
offering proceeds of $65,780,000.  Proceeds to the Company, net of underwriters'
discount and total offering expenses, were approximately $60,089,000.

Simultaneously with the offering, the preferred stock of the Company, consisting
of 23,810  shares  of Series A  Preferred  Stock and  32,967  shares of Series B
Preferred Stock  (including 3,702 shares of Series B Preferred Stock issued upon
the exercise of  outstanding  warrants),  was  automatically  converted  into an
aggregate of 6,018,362 shares of Common Stock.

Since its formation the Company has concentrated its product development efforts
primarily  on a "closed  loop"  electronic  commerce  system that  utilizes  its
proprietary Decisys/RT technology and enables financial institutions to automate
the processing and  consummation of consumer loans and other financial  services
at  the  point  of  sale.  This  technology  is  designed  to  enable  financial
institutions to open new distribution  channels for their products and services,
thereby  increasing  assets and revenues and broadening  customer  relationships
while reducing their operating and infrastructure costs.

The  Company  has  developed  several  products  which  utilize  its  DeciSys/RT
technology  to  process   certain  types  of  loans  with  little  or  no  human
intervention.  The Company's  iDEAL System allows the automated  decisioning and
processing of automobile loans originating at an automobile dealership.  Similar
to iDEAL, the Company's  e-xpertLender  System allows the automated  decisioning
and  processing  of loans  originating  at bank or other  financial  institution
branches.  The  Company's  Automated  Loan Machine  ("ALM")  which is similar in
appearance to an automated  teller machine allows consumers to apply for, and if
approved,   receive  a  loan,   including  the  loan  proceeds  and   underlying
documentation in as little as 10 minutes.

3.       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 ("APC"),  Affinity Mortgage  Technology,  Inc.,
decisioning.com  and  Multi  Financial  Services,  Inc.  and  its  wholly  owned
subsidiary  Surety  Mortgage,  Inc.,  ("Surety").  All significant  intercompany
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.

Investments

The Company  classifies  its  investments  as held to maturity or available  for
sale. At December 31, 1999 the Company's investments of approximately $1,475,000
were all classified as held to maturity.  Investments  consist of investments in
certificates  of  deposit,  or  other  similar  money  market  investments  with
maturities  of less than three  months.  The Company had no  unrealized  holding
gains or losses  associated  with  investments  classified as available for sale
during the years ended December 31, 1999, 1998 and 1997.

Fair Value of Financial Instruments

The  carrying   amounts  reported  in  the  balance  sheet  for  cash  and  cash
equivalents,  investments,  accounts  receivable,  net  investment in sales-type
leases,  accounts payable and notes payable  approximate their fair values. Fair
values of investments are based on quoted market prices.

Inventories

Inventories  at  December  31,  1999 and 1998 are stated at the lower of cost or
market.  Cost is  determined  using the first-in,  first-out  ("FIFO") cost flow
assumption.

Other Current Assets

Other current assets at December 31, 1999  consisted of deferred  contract costs
of $329,266, prepaid expenses of $275,954 and interest receivable of $21,134. At
December 31, 1998, other current assets consisted of deferred  contract costs of
$810,457, prepaid expenses of $418,781 and interest receivable of $120,757.

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. 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 (including  amortization of equipment leased under capital
leases) was  approximately  $1,807,000,  $1,893,000 and $1,799,000  during 1999,
1998 and 1997, respectively.


                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

3.       Summary of Significant Accounting Policies (continued)

Software Development Costs

Costs incurred in the development of software,  which is incorporated as part of
the Company's  products or sold  separately,  are capitalized  after a product's
technological feasibility has been established.  Capitalization of such costs is
discontinued  when a product is  available  for  general  release to  customers.
Software  development  costs  are  capitalized  at  the  lower  of  cost  or net
realizable  value and amortized using the greater of the revenue curve method or
the  straight-line  method  over  the  estimated  economic  life of the  related
product.  Amortization  begins  when a product is ready for  general  release to
customers.  The  net  realizable  value  of  unamortized  capitalized  costs  is
periodically  evaluated  and, to the extent such costs exceed the net realizable
value, unamortized amounts are reduced to net realizable value.

Amortization of capitalized  software  development was  approximately  $342,000,
$82,000  and  $65,000  during  1999,  1998  and  1997,  respectively.  In  1999,
capitalized  software  development  costs  were  written  down by approximately
$370,000 to net realizable value.

Valuation of Long-Lived Assets

In  accordance  with  Statement  of  Financial  Accounting  Standards  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121"),  the Company  periodically  evaluates the carrying
value of long-lived assets to be held and used, including property and equipment
and goodwill,  when events and circumstances warrant such a review. The carrying
value  of a  long-lived  asset  is  considered  impaired  when  the  anticipated
undiscounted  cash flow from such asset is separately  identifiable  and is less
than its carrying value. In the event of such, a loss is recognized based on the
amount  by  which  the  carrying  value  exceeds  the fair  market  value of the
long-lived  asset.   Fair  market  value  is  determined   primarily  using  the
anticipated cash flows discounted at a rate commensurate with the risk involved.
Based on the anticipated cash flows from the Company's business plan, management
believes that no impairment  writedown is required for long-lived assets for the
year ended December 31, 1999.

Intangible Assets

Intangible  assets  arising  from the  excess of cost over  acquired  assets are
amortized by the straight  line method over their  estimated  useful life of ten
years.  Intangible  assets,  primarily  goodwill,   consisted  of  approximately
$1,470,000  which  was  recorded  in  conjunction  with the  acquisition  of Buy
American,  Inc.  and  Project  Freedom,  Inc.  (see Note 8),  and  approximately
$1,400,000  which was  recorded in  conjunction  with the exchange of APC common
stock  for  ATG  common  stock.  See  "Minority  Investor"  below.   Accumulated
amortization  associated with these intangible assets approximated  $661,000 and
$373,000 at December 31, 1999 and 1998, respectively.

Minority Investor

An  unrelated  third  party  exchanged  240,570  shares of APC common  stock for
666,667  shares of ATG Common Stock on May 21, 1997.  The exchange was accounted
for as a purchase of minority interest in a majority owned subsidiary.  The fair
market  value  of  the  ATG  Common  Stock  at the  time  of  the  exchange  was
approximately $1,600,000.  The unrelated third party had previously acquired the
shares of APC common stock for aggregate  consideration of $125,000,  and 90,988
shares of APC  convertible  preferred  stock,  which was acquired for  aggregate
consideration of $75,000.  These holdings  represented a 24.9% minority interest
in APC at the date of exchange.



                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

3.       Summary of Significant Accounting Policies (continued)

Software Revenue Recognition

The Company has adopted the American  Institute of Certified Public  Accountants
("AICPA")  Statement  of Position  97-2  "Software  Revenue  Recognition"  ("SOP
97-2"),  as amended,  effective  for  transactions  entered into in fiscal years
beginning  after  December  15,  1997.  SOP 97-2  provides  guidance on software
revenue  recognition  associated  with the  licensing  and  selling of  computer
software.  The  Company  did  not  recognize  any  revenue  during  1999 or 1998
associated with contracts subject to SOP 97-2 guidance.

Revenue Recognition

Transaction  fees -  Transaction  fee  revenue  is  recognized  as  the  related
transactions  are processed.  Transaction  processing  fees revenue  represented
approximately  19%, 28% and 13% of total  revenue  during  1999,  1998 and 1997,
respectively.

Mortgage processing  services - Surety engages in mortgage brokerage  activities
which  generally  involve  originating,  processing,  and selling  mortgage loan
products to outside investors. Surety originates and/or processes mortgage loans
directly with consumers or on behalf of  correspondents  and  immediately  sells
such loans to investors that sponsor the loan programs offered by Surety. Surety
only offers loans that will be acquired by the  investors  under such  programs.
Upon making the loan commitment to the borrower,  Surety immediately  receives a
commitment from an investor to acquire the loan upon closing.  Loan  origination
fees include gains on sales of mortgage loans to investors and loan  origination
fees received for originating and processing the loan. Loan origination fees and
all direct costs  associated with  originating  loans are recognized at the time
the loans are sold.

Initial set-up - The Company leases ALMs to customers  utilizing both sales-type
and operating  lease  arrangements  and  concurrently  enters into a service and
processing  agreement (the "ALS Agreement")  with the customer.  Pursuant to the
ALS  Agreement,  the  customer  pays an initial  set-up  fee which is  initially
recognized  as deferred  revenue.  Generally  upon  installation  of an ALM, the
Company recognizes as revenue the portion of the initial set-up fee attributable
to the related  costs of set-up and  installation.  The remainder of the initial
fee is deferred and amortized ratably over the term of the ALS Agreement.

Sales and  rental - Revenue  and costs  related to leases of ALM  equipment  are
recognized in accordance  with Statement of Financial  Accounting  Standards No.
13,  "Accounting  for Leases" (see Note 3).  Revenue from  sales-type  leases is
generally  recognized  when the  equipment  is  installed  and  accepted  by the
customer. Operating lease revenue is recognized ratably over the lease term.

Professional  services - In conjunction  with the  installation of the Company's
technology,  periodically additional customer specific technology development is
performed  by the  Company in the form of  professional  services.  The  Company
generally  enters into a contract with the customer for the performance of these
services.  Upon  completion  and  acceptance  of  professional  services  by the
customer, the Company recognizes the corresponding revenue.

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

Software  licensing  - The  Company  recognizes  revenue  from sales of software
licenses upon delivery of the software product to a customer, unless the Company
has significant  related  obligations  remaining.  When significant  obligations
remain after the software product has been delivered,  revenue is not recognized
until such  obligations  have been completed or are no longer  significant.  The
costs of any remaining  insignificant  obligations  are accrued when the related
revenue is recognized.

Deferred  revenues - Deferred  revenues relate to unearned revenue on ALM leases
and certain  other  amounts  billed to  customers  for which  acceptance  of the
underlying product or service is not fully complete.

Cost of Revenues

Cost of revenues  consists of costs associated with initial set-up,  transaction
fees, sales and rental revenues,  professional  services and mortgage processing
services.  Additionally,  contract  loss  provisions  are  charged  to  cost  of
revenues.  Costs associated with initial set-up fees include labor, other direct
costs and an allocation of related  indirect  costs.  The Company did not deploy
any ALMs during 1999 and  deployments  were  insignificant  in 1998 and no costs
were  incurred  in 1999 and 1998 in  association  with  initial  set-up  revenue
recognized.  Labor and other direct costs  associated  with initial  set-up fees
were  approximately  $232,000  for the  year  ended  December  31,  1997.  Costs
associated  with  transaction  fees  includes the direct  costs  incurred by the
Company  related  to  transactions  it  processes  for its  customers.  Costs of
transaction fees approximated $209,000,  $389,000 and $328,000 in 1999, 1998 and
1997, respectively.  Costs associated with sales and rental revenues include the
cost of the leased ALM hardware, other direct costs and an allocation of related
indirect costs. Costs of ALM hardware sold under sales-type leases, depreciation
expense for hardware leased to customers under operating leases and other direct
costs associated with sales and rental revenues totaled approximately  $446,000,
$380,000 and $1,041,000  for the years ended  December 31, 1999,  1998 and 1997,
respectively.  Costs associated with professional  services include labor, other
direct costs and an allocation of related indirect costs. Labor and other direct
and allocation of indirect costs associated with  professional  services totaled
approximately  $573,000,  $204,000 and $524,000 for the years ended December 31,
1999, 1998, and 1997  respectively.  Costs  associated with mortgage  processing
services  include  direct  costs  associated  with  originating  and  processing
mortgage  loans and totaled  approximately  $194,000  and $193,000 for the years
ended  December 31, 1999 and 1998,  respectively.  Prior to 1998 the Company did
not perform services of this nature. Costs of patent license revenues consist of
commissions  paid by the  Company  to its  patent  licensing  agent and  totaled
$64,500 in 1999. In 1999 and 1998, the Company recorded contract loss provisions
of approximately $775,000 and $480,000, respectively.

Stock Based Compensation

The Company  accounts for stock  options in accordance  with APB Opinion  No.25,
"Accounting  for  Stock  Issued  to  Employees"  ("APB  25").  Under  APB 25, no
compensation  expense is recognized  for stock or stock  options  issued at fair
value.  For stock options  granted at exercise  prices below the estimated  fair
value,  the Company  records  deferred  compensation  expense for the difference
between the  exercise  price of the shares and the  estimated  fair  value.  The
deferred  compensation  expense is amortized  ratably over the vesting period of
the individual options. For performance based stock options, the Company records
compensation expense related to these options over the performance period.

Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"),  provides an alternative to APB 25 in accounting for
stock based compensation issued to employees. SFAS 123 provides for a fair value
based  method of  accounting  for  employee  stock  options and  similar  equity
instruments.  However,  for  companies  that continue to account for stock based
compensation  arrangements under APB 25, SFAS 123 requires disclosure of the pro
forma  effect on net income and  earnings  per share as if the fair value  based
method  prescribed  by SFAS 123 had been  applied.  The pro forma  effect on net
income and earnings per share were not material for the years ended December 31,
1999,  1998 and 1997. The Company intends to continue to account for stock based
compensation  arrangements  under  APB No.  25 and  has  adopted  the pro  forma
disclosure requirements of SFAS 123.

Advertising Expense

The cost of  advertising  is expensed as  incurred.  Advertising  and  marketing
expense was approximately $77,000, $193,000 and $1,488,000 during 1999, 1998 and
1997, respectively.

Net Loss Per Share of Common Stock

In 1997, the Financial  Accounting Standards Board issued Statement of Financial
Accounting  Standards No. 128,  "Earnings per Share" ("SFAS 128")  effective for
fiscal years  ending  after  December  15,  1997,  which  superseded  Accounting
Principles  Board  Opinion No. 15  "Earnings  Per Share"  ("APB  15").  SFAS 128
changed the method used to compute earnings per share and requires  companies to
restate all prior  periods  where  applicable.  Under the new  requirements  for
calculating  basic earnings per share,  the dilutive effect of stock options and
warrants  are to be excluded.  The Company  adopted SFAS 128 in 1997 and 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.

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").

Concentrations of Credit Risk

The  Company  markets  its  products  and  services  to  financial  institutions
throughout the United States. The Company performs ongoing credit evaluations of
customers  and  retains a  security  interest  in leased  equipment  related  to
sales-type leases.

Segment Information

The Company has adopted the  reporting  requirements  of  Statement of Financial
Accounting  Standards No. 131,  "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131") in its financial statements for the year ended
December 31, 1998. SFAS No. 131 establishes standards for the way that companies
report information about operating segments in annual financial  statements.  It
also establishes  standards for related disclosures about products and services,
geographic  areas,  and major  customers  as well as the  reporting  of selected
information   about  operating   segments  in  interim   financial   reports  to
stockholders.  In  accordance  with  management's  oversight  of  the  Company's
operations,  the Company  conducts  its business  within one industry  segment -
financial services technology.

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 1998 and 1997 have been  reclassified  to  conform  to 1999
presentations  for  comparability.  These  reclassifications  have no  effect on
previously reported stockholders' equity or net loss.

4.       Sales-Type and Operating Leases

The components of the net investment in sales-type leases are as follows:
<TABLE>
<CAPTION>

                                                                          December 31,

                                                                    1999                 1998
                                                             -------------------- -------------------
<S>                                                               <C>               <C>
  Total minimum lease payments receivable                         $ 628,081         $   1,244,355
  Less unearned interest income                                     (53,766)             (135,616)
                                                             -------------------- -------------------
  Net investment in sales-type leases                             $ 574,315         $   1,108,739
                                                             ==================== ===================
  Net investment in sales-type leases is classified as:

     Current                                                      $ 324,485         $     534,302
     Non-current                                                    249,830               574,437
                                                             -------------------- -------------------
                                                                  $ 574,315         $   1,108,739
                                                             ==================== ===================

</TABLE>

             Notes to Consolidated Financial Statements (continued)

4.       Sales-Type and Operating Leases (continued)

Future  minimum lease  payments to be received on sales-type  leases at December
31, 1999 are as follows:
                                                             Sales-Type

                                                             -----------------
                   2000                                      $        364,441
                   2001                                               257,676
                                                             -----------------
                                                             $        628,081
                                                             =================

5.       Inventories

Inventories consist of the following:
<TABLE>
<CAPTION>

                                                                           December 31,

                                                                     1999                 1998
                                                              -------------------- -------------------
<S>                                                             <C>                  <C>
Electronic parts and other components                           $      976,345       $    1,062,180
Work in process                                                      1,189,766            1,207,915
Finished goods                                                         772,407              880,145
                                                              -------------------- -------------------
                                                                     2,938,518            3,150,240
Reserve for obsolescence                                            (1,713,986)          (1,095,698)
                                                              -------------------- -------------------
                                                                $    1,224,532       $    2,054,542
                                                              ==================== ===================
</TABLE>

6.       Property and Equipment

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

                                                                            December 31,

                                                                     1999                 1998
                                                              -------------------- --------------------
<S>                                                             <C>                  <C>
ALM equipment leased to others under operating leases           $      424,518       $      676,326
Data processing equipment                                            2,594,052            2,622,410
Demonstration equipment                                              1,080,259              687,632
Office furniture and fixtures                                        2,337,307            2,359,147
Automobiles                                                             72,003               72,003
Purchased software                                                   2,173,584            2,164,463
                                                              -------------------- --------------------
                                                                     8,681,723            8,581,981
Less accumulated depreciation and amortization                      (5,759,953)          (4,070,057)
                                                              --------------------
                                                                                   --------------------
                                                                $    2,921,770       $    4,511,924
                                                              ==================== ====================

Accumulated  depreciation  of ALM equipment  leased to others was  approximately
$394,000 and $455,000 at December 31, 1999 and 1998, respectively.
</TABLE>


                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

7.       Notes Payable

During June 1998,  Surety entered into an agreement with a lender to establish a
credit facility with a maximum  borrowing amount of $2,000,000.  Pursuant to the
terms of the agreement,  Surety may obtain  advances from the lender for funding
of mortgage  loans made by Surety during the interim  period between the funding
and sale of the loans to permanent investors.  All advances made pursuant to the
agreement  are  secured by a security  interest in the rights and  benefits  due
Surety  in  conjunction  with the  making of the  underlying  loan.  The  credit
facility  bears  interest at the  lender's  prime rate plus 50 basis  points and
expires on June 1, 2000.  There were no  outstanding  borrowings  under the Loan
Warehousing  Agreement as of December  31, 1999 and  outstanding  borrowings  at
December 31, 1998 were $141,480 bearing an interest rate of 8.25%.

8.        Stockholders' Equity

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,  1999 there are no shares of
preferred stock issued or outstanding.

Stock Option Plans

During  1995,  the Company  adopted  the 1995 Option Plan under which  incentive
stock  options  and  nonqualified  stock  options  may be granted to  employees,
directors,  consultants  or  independent  contractors.  At  December  31,  1999,
approximately  200,000  options were  exercisable.  At December  31,  1999,  the
weighted  average  exercise price was $0.44 and the weighted  average  remaining
contractual life was 6.8 years. This plan closed during April 1996.

In April 1996, the Company adopted the 1996 Incentive  Stock Option Plan.  Under
the terms of both plans,  incentive  options may be 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.

In addition,  the 1996 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.  As a result  of the  amendment,
non-employee  directors will receive  options to purchase 5,000 shares of Common
Stock of the  company  on the 5th  business  day after each  annual  shareholder
meeting.

<TABLE>
<CAPTION>



                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

8.       Stockholder's Equity (continued)

A summary of activity under the 1996 and 1995 Option Plans is as follows:

                                                                            Options Outstanding

                                                                   ---------------------------------------
                                                     Shares                             Weighted Average
                                                   Available             Number               Price
                                                   for Grant            of Shares           Per Share

      1995 Stock Option Plan

      <S>                                             <C>                  <C>                <C>
      Balance at December 31, 1996                             -           1,633,142          $0.44
      Options canceled/forfeited                               -            (426,544)         $0.44
      Options exercised                                        -            (319,202)         $0.44
                                               ------------------- -------------------- ------------------
      Balance at December 31, 1997                             -             887,396          $0.44
      Options canceled/forfeited                               -            (175,642)         $0.44
      Options exercised                                        -              (9,540)         $0.44
                                               ------------------- -------------------- ------------------
      Balance at December 31, 1998                             -             702,214          $0.44
      Options canceled/forfeited                               -             (69,324)         $0.44
      Options exercised                                        -            (387,076)         $0.44
                                               ------------------- -------------------- ------------------
      Balance at December 31, 1999                             -             245,814          $0.44
                                               =================== ==================== ==================

      1996 Stock Option Plan

      Balance at December 31, 1996                     1,802,500              97,500         $11.88
      Options granted                                   (744,225)            744,225          $6.07
      Options canceled/forfeited                         125,525            (125,525)         $7.17
                                               ------------------- -------------------- ------------------
      Balance at December 31, 1997                     1,183,800             716,200          $6.66
      Options granted                                 (1,544,255)          1,544,255          $1.03
      Options canceled/forfeited                         636,805            (636,805)         $5.63
                                               ------------------- -------------------- ------------------
      Balance at December 31, 1998                       276,350           1,623,650          $1.55
      Shares reserved                                  1,000,000                   -            -
      Options granted                                   (235,200)            235,200          $1.52
      Options canceled/forfeited                         316,310            (316,310)         $1.20
      Options exercised                                        -              (2,000)         $0.91
                                               ------------------- -------------------- ------------------
                                               ------------------- -------------------- ------------------
      Balance at December 31, 1999                     1,357,460           1,540,540          $1.63
                                               =================== ==================== ==================

A summary of stock options  exercisable and stock options  outstanding under the
1996 Option Plan is as follows:
</TABLE>
<TABLE>
<CAPTION>

                                                   1996 Stock Option Plan

                                Options Exercisable                                Options Outstanding
                                at December 31, 1999                               At December 31, 1999
                      ========================================= ===========================================================

                      ----------------------------------------- -----------------------------------------------------------
                      -------------------- -------------------- -------------------- -------------------- -----------------
                                                                                                              Weighted

                                                Weighted                                  Weighted            Average

       Range of                                  Average                                   Average           Remaining
       Exercise             Number                Price               Number                Price           Contractual
        Prices            Exercisable           Per Share           Outstanding           Per Share         Life (years)
  ------------------- -------------------- -------------------- -------------------- -------------------- -----------------
  ------------------- -------------------- -------------------- -------------------- -------------------- -----------------
    <S>                     <C>                   <C>                <C>                    <C>                <C>
    $0.50 - $0.94           220,585               $0.90              1,097,865              $0.90               8.6
    $1.50 - $3.75           45,219                $3.35               335,450               $2.21               8.8
    $6.75 - $7.38           42,690                $7.34               107,205               $7.34               7.0
                      --------------------                      --------------------
    $0.50 - $7.38           308,494               $2.15              1,540,520              $1.63               8.5
                      ====================                      ====================
</TABLE>

The Company has recorded in 1996 and 1995 deferred compensation expense totaling
approximately  $5,492,000  for the  difference  between  the grant price and the
deemed fair value of certain of the Company's common stock options granted under
the 1995 Plan.  During 1997,  the Company  adjusted  the  deferred  compensation
expense to reflect actual compensation  expense earned by terminated  employees.
The Company  continues to amortize the deferred  compensation  of the  remaining
individuals  still  employed  by the  Company  over the  vesting  period  of the
individual's  options.  The vesting  period for other  options is  generally  60
months.  Amortization  of deferred  compensation  in 1999, 1998 and 1997 totaled
approximately $156,000, $599,000 and $481,000, respectively.

During July 1998,  independent of the 1995 and 1996 Incentive Stock Option Plans
and in connection  with the  employment  of the  President  and Chief  Executive
Officer of the Company,  the Company issued an option to purchase 250,000 shares
of Common  Stock of the  Company at an  exercise  price of $0.94 per share.  The
exercise  price equaled the estimated fair market value on the date of grant and
the vesting of this option was ratable over a 60 month term.  The  President and
Chief  Executive  Officer  resigned  on  January  10,  2000 and the  option  was
terminated. Also in conjunction with the President and Chief Executive Officer's
resignation  and the  termination  of his option to purchase  250,000  shares of
Common  Stock  of the  Company,  the  Company's  Board  of  Directors  voted  to
accelerate  the vesting of options  granted  under the 1996 Stock Option Plan to
purchase 50,000 shares of the Common Stock of the Company.


                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

8.                Stockholder's Equity (continued)

During 1994 and 1995, in connection with the execution of employment  agreements
with two executive officers and a consulting agreement with one of the Company's
directors,  the Company sold 4,155,200 shares of restricted  common stock to the
officers  and  directors  for  nominal  consideration.  Under  the  terms of the
agreements,  up to 764,048  of the shares  were  subject  to  repurchase  by the
Company  based on cost on a sliding  scale over a 60 month term  (resulting in a
reduced  number of shares  subject  to  repurchase)  if the  related  employment
arrangements   terminated.   During  1997  the  two  officers  terminated  their
employment and the Company repurchased 643,066 shares pursuant to the provisions
of the employment agreements.

During 1996,  40,000  performance based stock options were awarded in connection
with  an  employment  agreement  of a key  employee.  Under  the  terms  of this
agreement,  these  options  lapsed  since the Company did not meet  certain 1997
operating  results.  In  addition,  of the total  options  granted  during 1997,
131,100  were  performance  based  stock  options  awarded  in  connection  with
employment  agreements with key employees.  Under the terms of these agreements,
84,000  lapsed  during 1997 and 47,100  lapsed  during 1998 because the required
performance measures were not met.




                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

8.       Stockholder's Equity (continued)

Stock Warrants

In 1995, the Company  formalized an agreement  with a related  party,  resulting
from certain financing  arrangements  preceding the Initial Public Offering, for
the issuance of a stock  warrant under which the party had the right to purchase
up to an aggregate of  6,666,340  shares of common stock at a purchase  price of
approximately  $.0001 per share.  The agreement  also specified that the warrant
could be  exercised  in whole or in part at any time prior to December  31, 2015
only if, absent prior written regulatory  approval,  after giving effect of such
exercise,  the party beneficially owns less than five percent of the outstanding
shares of the Company's  common stock.  During 1997 the party  obtained  written
regulatory approval to exercise the warrant in its entirety.  The warrant is not
transferable without regulatory approval.  On December 31, 1997 and December 28,
1995,  the party  exercised  portions of the warrant and acquired  2,400,000 and
795,000 shares of Common Stock, respectively.

In 1995, the Company issued  warrants to purchase  shares of Common Stock for an
aggregate  purchase price of $37,500.  Pursuant to the terms of the  agreements,
and in conjunction  with the Company's  issuance of Series B Preferred  Stock in
October 1995,  the per share exercise  price was  established  at  approximately
$0.88,  and  accordingly,  the warrants  represented  rights to purchase  42,571
shares  of  Common  Stock.  During  1997 all of these  warrants  were  exercised
pursuant to the terms of the  agreements.  The warrants had negligible  value at
the time of issuance.



                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

9.       Acquisition

     On May 7, 1997 the Company  acquired the assets of Buy  American,  Inc. and
Project  Freedom,  Inc.,  two related  companies,  for  aggregate  consideration
consisting  of $300,000 in cash and  issuance  of 259,460  shares of  restricted
common stock.  The acquisition  was accounted for as a purchase.  The results of
operations of Buy American,  Inc. and Project Freedom,  Inc. are included in the
consolidated financial statements from the date of acquisition. The consolidated
results  of  operations  for the period  ended  December  31,  1997 would not be
materially  different  had the  acquisition  taken place at the beginning of the
year.

     The restricted  common stock issued in association with the acquisition was
subject  to a call  option by the  Company  and put option by the  sellers.  The
Company had a single option to repurchase any or all shares of restricted common
stock at a price of $5.78 per share.  The  sellers  of Buy  American,  Inc.  and
Project  Freedom,  Inc.  had a single  option  to sell any or all the  shares of
restricted  common stock to the Company at a price of $3.47 per share.  In April
1999, the Company and sellers of Buy American,  Inc. and Project  Freedom,  Inc.
cancelled the call and put options.

     Additionally,  performance consideration in the form of future issuances of
common  stock  and cash  payments  are  contingent  upon  specified  performance
objectives and continued employment of a principal officer of Buy American, Inc.
and  Project  Freedom,   Inc.  by  the  Company.   The  contingent   performance
consideration encompasses the five year period following the date of acquisition
of the assets of Buy American, Inc. and Project Freedom, Inc. Future issuance of
common stock and  disbursement  of cash will result in an additional  element of
the purchase price.

10.      Leases

The Company has noncancelable operating leases for the rental of its offices and
ALM assembly  operations.  Future  minimum lease  payments under these leases at
December 31, 1999 are as follows:

                                         2000                     $   728,858
                                         2001                         428,387
                                                            -------------------
                                         Total                      $1,157,245
                                                            ===================

In 1999,  1998 and  1997 the  Company  incurred  rent  expense,  including  rent
associated  with  cancelable  rental  agreements,   of  approximately  $903,000,
$915,000 and $799,000, respectively.  Additionally, in 1999 the Company recorded
approximately $449,000 for excess rent capacity as other operating expense.

11.      Income Taxes

As of December 31, 1999,  the Company had federal and state net  operating  loss
carryforwards of approximately $52,261,000. 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 consisted of the following:
<TABLE>
<CAPTION>

                                                          December 31,

                                                    1999                 1998
                                            --------------------- --------------------
    <S>                                     <C>                   <C>
    Deferred tax assets:
       Net operating loss carryforwards     $         19,493,400  $        15,860,400
       Inventory valuation reserve                       639,300              415,900
       Capital leases                                          -              343,800
       Other                                             374,100              156,600
                                            --------------------- --------------------
    Total deferred tax assets                         20,506,800           16,276,700
                                            --------------------- --------------------
    Deferred tax liabilities:
       Capitalized software costs                      (447,200)            (673,000)
       Depreciation                                    (154,900)            (301,600)
       Other                                           (113,300)                    -
                                            --------------------- --------------------
                                            --------------------- --------------------
    Total deferred tax liabilities                     (715,400)            (974,600)
                                            --------------------- --------------------
    Less:
       Valuation allowance                                               (15,302,100)
                                  (19,791,400)

                                            --------------------- --------------------
    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, 1999 and 1998,  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.

12.      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.  One customer  accounted for 35%, 49% and 48% of
revenues in 1999, 1998 and 1997, respectively. Two other customers accounted for
20% of revenues in 1997. See Note 3 "Summary of Significant  Accounting Policies
- Deferred  Revenue."  All other  segment  disclosures  required by SFAS 131 are
included  in  the  consolidated  financial  statements  or in the  notes  to the
consolidated financial statements.




                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

13.      Other Related Party Transactions

The Company had leased ALMs to a bank which holds a warrant to acquire shares of
common stock of the Company. See Note 8. The Company had installed and otherwise
delivered a number of ALMs on behalf of the bank during 1996 and 1995.  In 1998,
pursuant to a termination  agreement  executed between the bank and the Company,
amounts  due  the  Company  totaling  approximately  $505,000  were  settled  in
consideration  of a $50,000  payment and the return of the ALMs to the  Company.
The amount due the Company was charged to the allowance for doubtful accounts of
as of December 31, 1998. The bank also provided financing for the Company in the
form of an unsecured  loan  preceding the Initial  Public  Offering and provided
lease financing for a small portion of ALM hardware.

During February 1998, Surety entered into an agreement with Resource  Bancshares
Mortgage Group, Inc. ("RBMG"), pursuant to which the Company will underwrite and
process  mortgage  loans in accordance  with  guidelines  specified by RBMG. The
Company receives a fee from RBMG for the  underwriting  and processing  services
performed.  During 1999,  the Company  processed and sold to RBMG  approximately
$12,369,000 in mortgage loans resulting in approximately $286,000 in revenue for
the  Company.  The  Chairman  of the Board and Chief  Executive  Officer of RBMG
during 1999 is a member of the Company's Board of Directors.

14.      Commitments and Contingent Liabilities

As of December 31, 1999 Surety had  $1,062,600  in  commitments  outstanding  to
originate and sell  mortgage  loans.  Commitments  to originate  mortgage  loans
represent  mortgage  loan  applications  where the  borrower  has  locked in the
interest  rate.  Commitments  to sell  mortgage  loans  to  investors  represent
optional  commitments to sell mortgage loans at a future date and at a specified
price.

The Company is subject to legal  actions  from time to time which have arisen in
the ordinary  course of business.  A certain  claim was filed by a plaintiff who
claimed  certain  rights,  damages  or  interests  incidental  to the  Company's
formation  and  development.  In accordance  with such claim,  a jury returned a
verdict against the Company.  The plaintiff has been granted a new trial and the
Company is appealing such grant. Additionally,  a former employee has filed suit
against the Company  alleging breach of contract and  non-payment of wages.  The
Company  intends to  vigorously  contest all such actions and, in the opinion of
management, the Company has meritorious defenses to such actions.



15.      Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>

                                First              Second                Third              Fourth
                               Quarter             Quarter              Quarter             Quarter
                          ------------------ -------------------- -------------------- ------------------
                          ------------------ -------------------- -------------------- ------------------

   <S>                          <C>                  <C>                    <C>              <C>
   Fiscal year ended
   December 31, 1999

   Net sales                      $ 325,959          $ 1,168,352            $ 879,581           $501,009
   Gross Profit                     156,131              137,676               30,618            288,008
   Net loss                     (2,453,711)          (2,512,132)          (3,305,997)        (3,822,796)
   Net loss per share -
   basic and diluted                 (0.08)               (0.08)               (0.11)             (0.13)

   Fiscal year ended
   December 31, 1998

   Net sales                    $ 1,099,979             $639,244             $442,337           $474,699
   Gross Profit                     664,205              423,527              215,044          (291,169)
   Net loss                     (2,996,475)          (4,532,076)          (3,564,952)        (3,779,498)
   Net loss per share -
   basic and diluted                 (0.10)               (0.15)               (0.12)             (0.13)
</TABLE>

Gross profit in the second  quarter of 1999,  the third  quarter of 1999 and the
fourth  quarter of 1998 have been adjusted from amounts  previously  reported to
reflect the  reclassification of contract loss provisions as a component of cost
of revenues.  Previously reported amounts were $396,530,  $547,110 and $188,190,
respectively.  The sum of net  loss  per  share  for the  first  through  fourth
quarters of 1999 differs  from the annual  results due to the effect of rounding
quarterly results.



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

         Not applicable.

Part III

Item 10.  Directors and Executive Officers of the Registrant

         Information required by this Item will be contained in the Registrant's
definitive proxy statement  relating to its Annual Meeting of Stockholders to be
held on May 26, 2000 under the captions  "Board of Directors" and "Section 16(a)
Beneficial Ownership Reporting  Compliance," which are incorporated by reference
herein.

Item 11. Executive Compensation

         Information required by this Item will be contained in the Registrant's
definitive proxy statement  relating to its Annual Meeting of Stockholders to be
held on May 26,  2000  under  the  caption  "Executive  Compensation",  which is
incorporated by reference herein.

Item 12. Security Ownership of Certain Beneficial Owners and Management

         Information required by this Item will be contained in the Registrant's
definitive proxy statement  relating to its Annual Meeting of Stockholders to be
held on May 26, 2000 under the caption  "Security  Ownership of  Management  and
Certain Beneficial Owners," which is incorporated by reference herein.

Item 13. Certain Relationships and Related Transactions

         Information required by this Item will be contained in the Registrant's
definitive proxy statement  relating to its Annual Meeting of Stockholders to be
held  on May  26,  2000  under  the  caption  "Certain  Transactions"  which  is
incorporated by reference herein.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

     (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,
1999 and 1998.
ii.  Consolidated  Statement of  Operations  for the years ended
December 31, 1999, 1998 and 1997.
iii. Consolidated  Statements of Stockholders'
Equity for the years ended December 31, 1999, 1998 and 1997.
iv.      Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997.
v.       Notes to the Consolidated Financial Statements for the years ended
December 31, 1999, 1998, and 1997.

(2)      Schedule II - See additional sections of this Report.
                  No other  financial  statement  schedules are to be filed with
         this Annual  Report on Form 10-K due to the  absence of the  conditions
         under which they are  required or because the required  information  is
         included  within the  consolidated  financial  statements  or the notes
         thereto included herein.

<TABLE>
<CAPTION>
         (3)      Exhibits:

   Exhibit Number     Description

--------------------- ------------------------------------------------------------------------------------------------
        <S>           <C>
        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           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           Warrant to Purchase  Common Stock of Affinity  Technology  Group,  Inc. dated November 8, 1995,
                        for the purchase,  subject to certain conditions,  of up to 6,666,340 shares of Common Stock,
                        which is hereby  incorporated  by reference to Exhibit 4.7 to the  Registration  Statement on
                        Form S-1 of Affinity Technology Group, Inc. (File No. 333-1170).
        4.3           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 By-laws of Affinity  Technology Group,
                        Inc., as amended, which are incorporated by reference to Exhibits 3.1 and 3.2, respectively.
        10.1          Letter  Agreement,  dated March 13, 1995,  between Affinity  Technology Group, Inc. and Alan H.
                        Fishman,  which is hereby  incorporated  by  reference  to Exhibit  10.6 to the  Registration
                        Statement on Form S-1 of Affinity Technology Group, Inc. (File No. 333-1170).
       10.2*          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).
       10.3*          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).
       10.4*          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).
       10.5*          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).
       10.6*          Amended and  Restated  1996 Stock  Option Plan of Affinity  Technology  Group,  Inc.,  which is
                        hereby  incorporated by reference to Exhibit 10 to the Quarterly  Report on Form 10-Q for the
                        quarter ended September 30, 1999.
       10.7*          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).
        10.8          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).
       10.9*          Declaration of First Amendment to 1995 Stock Option Plan of Affinity Technology Group, Inc.
       10.10*         Nonqualified  Stock Option Agreement,  dated as of July 29, 1998,  between Affinity  Technology
                        Group,  Inc  and  R.  Murray  Smith,   which  is  hereby incorporated by reference to Exhibit 10 of
                        the Quarterly Report on Form 10-Q of Affinity  Technology  Group, Inc.for the quarter ended September
                        30, 1998.
         21           Subsidiaries of Affinity Technology Group, Inc.
        23.1          Consent of Independent Auditors.
         27           Financial Data Schedule.

</TABLE>

* Denotes a management contract or compensatory plan or arrangement.

(b)      Reports on Form 8-K filed in the 4th quarter of 1999:

         The Registrant did not file any Current  Reports on Form 8-K during the
last fiscal quarter of the period covered by this report.

(c)      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 14 is
submitted under Item 14(a) (3).

(d)      Financial Statement Schedules.

         The  response  to  this  portion  of Item 14 is  submitted  under  Item
14(a)(2).

Signatures

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

Affinity Technology Group, Inc.

Date:    March 30, 2000              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.
<TABLE>
<CAPTION>

    <S>                                 <C>                                                <C>
    Signatures                          Title                                               Date

    ----------------------------------- --------------------------------------------------- ---------------------


    /s/ Joseph A. Boyle                                                                     March 30, 2000
    -----------------------------------
    Joseph A. Boyle                     President, Chief Executive and Chief Financial
                                        Officer (principal executive and financial officer)


    /s/  Alan H. Fishman                                                                    March 30, 2000
    -----------------------------------
    Alan H. Fishman                     Director


    /s/  Robert M. Price, Jr.                                                               March 30, 2000
    -----------------------------------
    Robert M. Price, Jr.                Director


    / /  Edward J. Sebastian                                                                March 30, 2000
    -----------------------------------
    Edward J. Sebastian                 Director


    /s/  R. Murray Smith                                                                    March 30, 2000
    -----------------------------------
    R. Murray Smith                     Director


    / /  Peter R. Wilson, Ph.D.                                                             March 30, 2000
    -----------------------------------
    Peter R. Wilson, Ph.D.              Director


    /s/  S. Sean Douglas                                                                    March 30, 2000
    -----------------------------------
    S. Sean Douglas                     Vice President and Controller
                                        (principal accounting officer)

</TABLE>
<TABLE>
<CAPTION>

Schedule II - Valuation and Qualifying Accounts

---------------------------------------- ------------------- ------------------------------------ ------------------- -------------
                 COL.A                        COL. B.                      COL. C                       COL. D             COL. E

---------------------------------------- ------------------- ------------------------------------ -------------------  ------------

                                                             ------------------------------------
                                                             ------------------ -----------------
                                                                                   Charged to

                                             Balance at      Charged to Costs    Other Accounts

                                            Beginning of       and Expenses        - Describe     Deductions-Describe  Bal. at end
              Description                      Period                                                                    of Period
---------------------------------------- ------------------- ------------------ ----------------- ------------------- -------------
<S>                                         <C>                <C>              <C>              <C>                 <C>
YEAR ENDED DECEMBER 31, 1999
Allowance for doubtful accounts               $ 45,513         $ 60,000                        $       437 (1)           $ 105,076
                                                                                $
                                                                                -
Reserve for inventory obsolescence           1,095,698            694,940                             76,652 (2)          1,713,986
                                                                                       -

YEAR ENDED DECEMBER 31,
    1998

Reserves and allowances deducted from asset accounts:

    Allowance for doubtful                 $  400,120          $   370,000      $         -      $  724,607  (1)     $    45,513
       accounts
    Reserve for inventory                     173,007            1,060,000                -      $  137,309  (2)       1,095,698
       obsolescence

YEAR ENDED DECEMBER 31,
    1997

Reserves and allowances deducted from asset accounts:

    Allowance for doubtful                 $  198,987          $  456,841       $         -      $   255,708  (1)    $  400,120
       accounts
    Reserve for inventory                      20,000             230,000                   -         76,993  (2)       173,007
       obsolescence
</TABLE>
[FN]


(1)      Uncollectible accounts written off, net of recoveries.
(2)      Obsolete parts written off.

</FN>

Exhibit Index

Exhibit Number           Description
<TABLE>
<CAPTION>

------------------------ --------------------------------------------------------------------------------------------
21                       Subsidiaries of Affinity Technology Group, Inc.
23.1                     Consent of Ernst & Young LLP
27                       Financial Data Schedule





Exhibit 21 - Subsidiaries of Affinity Technology Group, Inc.

         Name                               Jurisdiction of Incorporation               Percent Owned

<S>                                                  <C>                                         <C>
Affinity Bank Technology Corporation                 Delaware, USA                               100%

Affinity Clearinghouse Corporation                   Delaware, USA                               100%

Affinity Credit Corporation                          Delaware, USA                               100%

Affinity Processing Corporation                      Delaware, USA                               100%

Affinity Mortgage Technology Corporation             Delaware, USA                               100%

decisioning.com, inc.                                Delaware, USA                               100%

Multi Financial Services, Inc.                       Delaware, USA                               100%

Surety Mortgage, Inc.                                Delaware, USA                               100%


</TABLE>



Exhibit 23.1 - Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-10435)  pertaining to the Affinity Technology Group, Inc. 1995 Stock
Option Plan,  1996 Stock  Option and the  Non-Employee  Directors'  Stock Option
Plan,  of our report  dated March 29,  2000,  with  respect to the  consolidated
financial statements of Affinity Technology Group, Inc., included in the Annual
Report (Form 10-K) for the year ended December 31, 1999.

                                                          /s/  ERNST & YOUNG LLP


Greenville, South Carolina
March 30, 2000



Exhibit 27 - Financial Data Schedule

This  schedule  contains  summary  financial   information  extracted  from  the
consolidated  financial  statements  for the year ended December 31, 1999 and is
qualified in its entirety by reference to such statements.