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, 1996


[  ] 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 57-0991269
                (State or other jurisdiction of (I.R.S. Employer
               incorporation or organization) 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.  [ X ]

         The aggregate market value of the Registrant's  Common Stock held by
non-affiliates of the Registrant was approximately  $48,717,651 as of March
17, 1997. For purposes of such  calculation,  shares of Common Stock held by
persons  who hold more than 5% of the  outstanding  shares of Common  Stock and
shares  held by  directors  and officers of the Registrant and their immediate
family members have been included  because such persons may be deemed to be an
affiliate.  This determination is not necessarily conclusive.

         There were 28,150,603 shares of Registrant's Common Stock outstanding
as of March 17, 1997.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Certain  portions  of the  Registrant's  proxy  statement  with
respect  to the 1997  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.

Part I
Item 1  Business

General

         Affinity  Technology Group, Inc. (the "Company" or "Affinity")
develops and markets  electronic  commerce technology that enables financial
institutions and other businesses to provide financial  services  electronically
with reduced or no human  intervention.  Since its  formation in January  1994,
the Company has  concentrated  its product  development  efforts  primarily
on a "closed  loop"  electronic  commerce  system that  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  their  assets  and
revenues  and  broadening  customer relationships while reducing their
operating and infrastructure costs.

         The Company's  current  products and services  consist of the Affinity
Automated Loan Machine ("ALM" Registered Tradmark) and a call center
decisioning system which provide financial institutions the ability to
originate financial products and services with little or no human intervention.
Integral to the capabilities  the Company  provides to its customers is access
to its proprietary Decision Support System/Real Time ("Decisys/RT" Service
Mark) (formerly  known as the DSS system).  To date, the principal financial
product utilized by customers  through the Company's systems has been the
ability to originate unsecured consumer loans. The Company's systems also have
the ability to originate loans secured by cash collateral, renew existing
loans, open demand deposit  accounts,  cross sell other products and services
and make counter offers to applicants  who qualify for a larger loan or who are
initially unable to qualify for the type of loan  requested.  All  products
have the ability to be  communicated  to the  applicant in English and Spanish.
Financial product origination  capabilities  currently under development include
pre-approved personal loans,  automobile  loans,  personal  lines of credit,
credit card accounts and first and second  mortgage  loans through the ALM. The
Company has continued to develop  additional  financial product  origination
capabilities and to  improve  and  enhance  the  technological capabilities  of
the ALM, the call  center  decisioning  system and the Decisys/RT system.

         The ALM permits a consumer to apply for and receive a loan without
human  intervention  in as little as 10 minutes.  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 consumer
loans, generate the underlying loan documentation  and  distribute  loan
proceeds.  The Company  believes its customers can use the ALM as a substitute
for traditional  branch-based  consumer  lending,  which involves  significant
personnel costs and typically takes substantial  time to  complete.  The
Company  further  believes  the  deployment  of ALMs in retail  centers,  the
'
customers to maintain or increase their  revenues  and  assets.  At  December
31,  1996,  there were 164 ALMs  deployed  or  accepted  and  awaiting
deployment.

         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  three-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  interact with consumers
to capture personal  information  (such as through  touch-screen  terminals)
and with third parties (such as credit bureaus)  that supply  additional
information  necessary to  consummate  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.

         Substantially  all the  Company's  recurring  revenues to date have
been derived from fees charged for the installation  and  rental of ALMs.  To a
lesser  extent,  the  Company's  recurring  revenues  have been
derived from  transaction  fees that are  primarily  based on the  aggregate
principal  amount of loans  processed through ALMs. The Company's  strategy is
to generate a substantial  recurring  revenue stream from transaction fees
while recovering its cost of assembling,  installing and maintaining ALMs
through revenue  generated by ALM set-up, rental and other fees.

         The  Company  does not make or  guarantee  loans,  does not  receive
any  interest  income or other  fees directly from  borrowers and does not
offer,  endorse or guarantee  any other  products or services  offered by its
financial  institution  customers.  Under  the  terms of the  contractual
relationships  with its  customers,  the Company is entitled to payment of
without regard to whether consumer loans made through an ALM are repaid.

Products and Services

         The Company has  focused its product  development  efforts on
exploiting  its  Decisys/RT  technology  to enhance  transaction  processing
and delivery  systems.  The Company  believes its Decisys/RT  technology  will
be particularly  attractive  to  businesses,  such as consumer  lending
institutions,  engaged in  transactions  that require  collecting  information
from  consumers  and third  parties,  analyzing  such  information  and
providing on-the-spot transaction  fulfillment.  For such transactions,  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 processing and delivery 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.  The Company
believes the deployment of ALMs in retail centers,  the workplace,  leisure
and travel destinations and other  non-traditional  banking locations will
enable the Company's customers to reduce their costs of processing certain
consumer  financial service  transactions and maintain or increase their
revenues and assets.

         Design and  Features.  The ALM looks and  interacts  with  consumers
much like an ATM and can be operated as a free standing kiosk or wall unit.  The
Company's  existing  customers have located ALMs in traditional  branch
offices, malls, retail stores and other retail environments.

         The ALM System  contains a magnetic  strip card reader used to identify
loan  applicants  by credit card, charge card, or debit card, a touch-screen
monitor used to elicit  information from  applications,  a magnetic pen and
signature  capture  unit used to  electronically  execute  loan  documents,  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 on
site 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  Company's  first ALMs,  introduced  in 1994 and placed into
service in 1995,  permitted  consumers to apply  for and  receive  unsecured
consumer  loans in  amounts,  and on terms  and  conditions,  specified  by the
particular  ALM  sponsor.  The  most  advanced  ALM  System  currently available
also can be  programmed  to make counteroffers  to applicants  who qualify for a
larger loan or who are initially  unable to qualify for the type of loan
requested  (such as by offering  the  applicant  a reduced  principal  amount or
a loan at a higher  interest rate),  communicate in Spanish,  originate  loans
secured by cash  collateral,  renew existing  loans,  open demand deposit
accounts  and  cross-sell  other  products  and services  offered by the
institution  during the time the applicant is waiting for a decision on a loan
application.  In addition,  the Company is developing the ability to originate
certain other financial  products  including  pre-approved  personal loans,
automobile  loans,  personal lines of credit,  credit  card  accounts,  and
first and second  mortgage  loans.  The  Company  also has enhanced Decisys/RT
and the ALM System to support its "Second Look"  program,  as discussed  below.
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 loan  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
imprints 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  and currently is pursuing  certain new processes that aid in the
identification of fraud,  including Personal  Identification Number ("PIN")
codes used by debit and ATM cards.  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 Consumer Lending."

         Second Look Program.  The Company is  developing  its Second Look
program to provide a means through which loan  applications  that are  rejected
by the  primary ALM sponsor can be reviewed  and funded at the ALM by one or
more  secondary  lenders  during a single  application  process.  The Second
Look program is designed to enable the ALM System to serve two  traditionally
distinct  consumer  finance  markets:  the "prime"  market,  consisting  of
consumers  with more  attractive  credit  profiles  who are often  served by
banks,  and the  "sub-prime"  market, consisting of consumers with less

attractive  credit profiles who are more likely to be served by consumer finance
companies.  Under  the  Second  Look  program,  a  consumer  applying  for a
loan  through  an ALM  would  first be considered  by the  institution  that
operates  the ALM. If the consumer  does not meet the primary  institution's
lending  requirements,  he or she would be  considered  by one or more
secondary  lenders  serving  the  sub-prime market.  If the consumer  qualifies
for a loan from a secondary  lender,  the loan could be consummated at the ALM.
In such event,  the primary ALM sponsor  would  receive a fee,  the  secondary
lender  would book the loan and the consumer would obtain the loan from the
secondary  lender.  The Company  believes that the Second Look function can
be performed without adding significant time to the application process.

       The Company has entered into  agreements with two finance  companies
(the "Second Look Lenders")  pursuant to which such lenders will participate as
secondary  lenders in the Second Look program.  In addition,  the Company has
enhanced its  Decisys/RT  system and the ALM to permit the  processing of Second
Look loans.  However,  certain regulatory  issues,  including in particular
state and federal  regulation  of consumer  finance  companies,  have prevented
the Company  from  introducing  the Second  Look  program.  The Company and the
Second Look  Lenders are attempting  to resolve  regulatory  impediments  to the
Second Look  program.  However, no  assurance  can be given that the Company
will ever earn  significant  revenues from its Second Look  program.  See
"Business Risks -  Governmental Regulations."

       Revenue Sources.  The Company derives both recurring and one-time
revenues from ALMs as described below.

       Recurring Revenues:

            First Look  Transaction  Fees.  Upon order of the ALM, the Company
            enters into an Automated Loan System  Agreement  (the "ALS
            Agreement")  with the  customer  pursuant to which the  customer is
            granted a  non-exclusive  license to use certain  software
            supporting the ALM System.  Under the terms of the standard ALS
            Agreement,  the customer  agrees to pay a  transaction  fee equal to
            a percentage  of the  aggregate  principal  amount of all loans
            funded by the customer  through its ALMs.  The amount of such
            transaction  fees will depend on a variety of factors,  including
            the type of loan and the number of ALMs operated by the particular
            customer.

            Second Look  Transaction  Fees.  Under the Second Look program,  if
            such program is successfully implemented,  the Company would earn
            recurring  transaction  fees for loans  processed.  Pursuant to the
            Company's  agreements  with  the  Second  Look  Lenders,  the
            Company  would  receive  a transaction  fee equal to a  percentage
            of the  aggregate  principal  amount of all loans funded through the
            Second Look program.  Under such  agreements,  transaction  fees
            generated by Second Look  loans  generally  would be higher  than
            transaction  fees  generated  by loans made by the primary ALM
            sponsors.  The  implementation  of the Second Look program is
            subject to  successful resolution of certain  regulatory  issues,
            as discussed  above.  See  "-Products  and Services - The  Affinity
            ALM - Second Look Program."

        One-Time Revenues:

            Set-Up Fees.  The  Company's  ALS  Agreement  also  provides for the
            payment of set-up fees that are generally  determined based on the
            number of ALMs operated by the customer.  Generally,  such fees are
            paid by customers  when the ALM is  ordered.  Set-up  fees are
            initially  recorded  as deferred  revenue.  Upon  installation of an
            ALM, the Company  generally  recognizes as revenue a portion  of the
            set-up  fee  in an  amount  approximately  equal  to  the  cost  of
            set-up  and installation of such ALM, with the remainder recorded as
            deferred revenue and amortized ratably over the term of the ALS
            Agreement.  Certain of the  Company's ALS  Agreements  provide that
            the customer  may apply a portion of the  initial  set-up fee to
            future  transaction  and other fees. The Company  capitalizes the
            unearned  portion of such set-up fee as deferred  revenue,  which is
            amortized ratably as revenue over the term of the related agreement.

            Rental  Fees.  The  Company  enters into a lease  agreement  with
            its  customer  under which the customer  agrees to pay a monthly
            rental fee for the hardware  components of the ALM. The amount
            of the rental fee  typically  is based on the number of ALMs
            operated by the customer, and the rental term generally is 48
            months. The Company recognizes revenue associated with ALM leases
            pursuant to Statement of  Financial  Accounting  Standards  No. 13
            ("SFAS 13"),  "Accounting  for Leases."  Under SFAS 13, the
            Company's  ALMs are either  sales-type or operating  leases.  If the
            ALMs meet the  criteria  for  sales-type  leases  under SFAS 13, the
            present  value of the future minimum  lease  payments is  recognized
            as sales revenue in the period in which the sale occurs. Rental
            revenue  associated  with  operating  leases is recognized as rental
            revenue over the term of the ALM lease.

         The Company  recently  entered into agreements with certain hardware
vendors under which such vendors will market and sell kiosks that will utilize
the Company's  Decisys/RT  system in a manner  comparable to the ALM. As a
result of such  agreements,  the Company expects that it may restructure its
pricing  policies such that there will be no advantage to customers as a result
of whether they acquire kiosks  manufactured  by third party vendors or by
the Company.

         Assembly  and  Deployment.  The Company  currently  is able to design,
assemble and install an ALM System for a new customer in 60 to 90 days from the
time an  order  is  accepted.  The  Company  generally  is able to assemble and
install additional ALMs for a customer's existing ALM System in approximately
30 days.

         After an initial  order is  received,  the Company  consults  with the
customer to prepare any  necessary specialized  software  applications and loan
documentation and to design the exterior appearance of the ALM and the computer
screens.  The Company  works  closely  with its  customers  to develop the
program  design and  consumer interface and assists its customers in complying
with  regulatory  requirements  by providing,  among other things, forms
prepared by a third-party  provider of standardized  documents for financial
services.  The Company,  through its  demographic  and  underwriting  consulting
staff,  periodically  consults  with its  customers  regarding ALM performance.

         The Company  subcontracts  with  unaffiliated  third parties to
construct the ALM enclosure,  assemble the ALM components and provide  periodic
maintenance  for ALMs placed in service.  Otherwise,  all aspects of assembly
and  installation,  including  purchasing  of  components,  ALM final  testing
and  transportation,  currently  are performed by employees of the Company.
Once the systems have been  designed and  assembled,  the Company tests the
operational  readiness of each ALM. During this stage,  customers are required
to come to the Company's  offices to review the appearance of the ALM and to run
test loans in order to check  adherence to the customer's  underwriting model.
Prior to  installation,  each  customer  must  certify in writing  that its ALM
System  meets its  lending standards.


         The Company has  established  relationships  with  vendors of the
hardware components of the ALM System. The Company purchases ALM components as
needed to meet firm and expected orders and does not maintain  significant
inventory.  The  signature  capture unit used in the current ALM design is
available  through one vendor only,  and the loss of such vendor could
temporarily  interrupt the  Company's  assembly of ALMs.  The Company  believes
that all other ALM components are available from a wide variety of sources.

         The Company generally is not obligated to retrofit  ALMs in service
with new hardware,  software or other product  enhancements.  However,  the
Company  believes that it is often  advantageous  to do so in order to reduce
costs  associated  with  maintaining  multiple  production  versions in service.
Accordingly,  the  Company's  ALM agreements  require  ALM  customers  who do
not desire to accept  operational  upgrades to ALMs in service to pay a special
maintenance  fee. Due to cost savings often  associated  with upgrades and the
Company's goal of expanding consumer  acceptance and usage of ALMs, the Company
historically  has upgraded ALMs in service.  The net costs of such upgrades have
not been significant  to date and are not expected to be material in the future.
With respect to  product  enhancements  allowing  ALMs to  offer  new  products,
the Company may charge additional fees to incorporate such products into ALMs in
service.

Call Center Decisioning System

         General.  In  June  1996,  the  Company  completed  development  of its
call  center  decisioning  system (formerly known as "Assets3"),  which uses the
Decisys/RT  system to allow banks and other  financial  institutions to (i)
integrate  multiple  computer  systems which store  consumer and other
information, (ii) standardize  and streamline lending and other retail banking
practices and (iii)  increase  marketing  effectiveness  of customer service
representatives,  tellers and other branch  personnel  by providing  them with
(a) point of sale access to pertinent  consumer  data and (b) the  ability  to
consummate  financial  transactions  such as loans by  querying deposit and loan
databases,  verifying  third-party credit information,  scoring an application
and generating loan documents.

         The Company believes that, to date, institutions with multiple retail
banking technology platforms have typically relied on either customized
solutions,  which can be expensive to develop and maintain,  or replacement
programs  involving the  system-wide  acquisition of new  technology  platforms,
which often requires  writing off significant  investments  in  existing
technology  platforms.  The  Company's  call center  decisioning  system is
intended to be a flexible,  lower cost  alternative  that would  integrate  many
of the most common retail  banking technology  platforms at the "front end,"
permitting  banks to gain the cost  advantages  associated with a common
technology platform without writing off existing equipment or incurring new
platform investments.

         Joint Venture  Arrangement with Union Planters.  In connection with the
Company's development of its call center decisioning system, the Company
entered into a joint venture arrangement with Union Planters Corporation, a bank
holding company  headquartered  in Memphis,  Tennessee  ("Union  Planters"),
relating to the development of such system.  Pursuant to such arrangement,
Affinity Processing  Corporation,  a majority-owned  subsidiary of the Company
("APC"), has granted to Union Planters a non-exclusive, perpetual, royalty-free
sublicense to use the call center decisioning system software in North America
for an aggregate  nonrefundable  license fee of $1.8  million.
The  arrangement  also allows  Union  Planters to  purchase,  for its own use,
products and services  offered  by APC to third  parties at a fee equal to APC's
actual cost of producing such products or providing such services  plus 10% of
such cost,  provided  that the only items  chargeable  to Union  Planters in
connection with the use of the call center decisioning system will be the actual
transaction  processing costs and actual costs of installing the call center
decisioning  system on additional or alternative  computer systems that Union
Planters may specify from time to time.  In no event may such fee exceed the fee
at which such  products and services are offered by APC to third parties.
Pursuant to the  arrangement,  APC has engaged the Company to assume full
operational control of all aspects of the management and administration of APC.

         Union Planters currently owns 24.9% of the outstanding stock of APC, on
a fully  diluted  basis.  The Company and Union Planters may not transfer shares
of APC stock without first offering to sell such shares first to APC and, to the
extent not acquired by APC,  then to the other party upon the same terms and
conditions of any proposed  transfer.  Each of the Company and Union  Planters
also is required to sell its share of APC stock first to APC and, to the extent
not acquired by APC, then to the other party at the appraised fair market value
of such shares in certain events, including any party's bankruptcy or insolvency
and the material breach by any party of the terms of the underlying agreement,
if such breach is not cured with 30 days after written notice thereof.

Sales and Marketing.

         The Company has concentrated its sales and marketing resources on
participation in well-recognized and widely  attended  industry  trade shows,
direct  mailing of  literature,  videos and other  materials and regional
presentations at which selected financial  institutions are offered the
opportunity to view a demonstration of an ALM and meet with members of
Affinity's management team.  The Company has an internal marketing group that
coordinates the marketing of the Company and its products nationwide  through
customer  meetings and trade shows and the use of public relations firms and
advertising agencies.  Additionally, this group has designed marketing support
materials for use by Affinity's customers to assist them in educating consumers
and creating product awareness.

         The Company has established an in-house  demographic  and underwriting
consulting  staff to consult with existing and prospective customers to identify
suitable locations for ALMs and refine underwriting models to achieve desired
rates of  return  and risk  tolerance.  The  Company  also  provides  after-sale
support to its customers with respect to improving the performance of ALM
operations.

         To leverage the Company's direct marketing group and sales force, the
Company has entered into strategic alliances with certain  vendors that
presently  service the technology  needs of financial  institutions  and other
potential  customers of the  Company.  Such vendors sell  products or services
that are  complementary  to the ALM and/or the Decisys/RT  system and have
established sales organizations which have formed existing relationships with
potential  customers of the  Company.  The Company also has  recently entered
into  agreements  with certain hardware  vendors,  under which such  vendors
will market and sell  kiosks that contain and access the software applications
developed by the Company in a manner  comparable to the Company's  ALM.  Under
such  agreements,  the vendors will receive a commission for their sales efforts
resulting in ALM sales by the Company,  and will be able to manufacture and sell
their  own  kiosks,  directly  interact  with  customers  with  respect  to ALM
design, certification and implementation and receive a portion of the
transaction fees generated by ALM usage.

         In addition to the Company's strategic alliance program, the Company
intends to enter into nonexclusive distribution  agreements  with  companies
that do not qualify as strategic partners but that have existing relationships
with  potential  customers  and an  established  sales  organization.  Under
the  arrangement with distributors as currently  proposed,  the Company intends
to be directly involved in ALM design,  certification and implementation.
Compensation  of distributors  will be negotiated on a case-by-case  basis.
The Company  believes that adding  strategic  partners and  distributors is a
vital component in its strategy to penetrate target markets and to deploy ALMs.
However,  no assurances can be given that any strategic  partner or  distributor
will be able to market successfully any ALMs or kiosks that employ the Company's
software.  See "Business Risks - Undeveloped Distribution Channels."

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  ALM or  Decisys/RT  will  be  competitive technologically  or  otherwise,
or  that  any  other  products and services developed by the Company 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
continually  to improve and expand the ALM and  Decisys/RT  and other products
and services the Company may develop to meet changing customer requirements.

         Electronic commerce technologies in general, including  the ALM,
compete  with  traditional  consumer lending  methods, including in-person loan
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 ALM and Decisys/RT and of any other electronic
commerce  products  and services  the Company may develop 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,  the Company is aware of
several companies, including Dyad Corporation ("Dyad"), that have developed
video and other  kiosk  technology  for the  delivery  of  financial services.
In addition,  the Company is aware of certain companies that 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, such as America-On-Line,  Inc.  ("America-On-Line"),  CompuServe, Inc.
("CompuServe") and Prodigy  Services Co. ("Prodigy"),  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,   including   International   Business
Machines  Corporation  ("IBM"),   Microsoft  Corp. ("Microsoft"),  Intuit Inc.
("Intuit"),  Meca  Software,  Inc.  ("Meca")  and U.S.  Order,  Inc.  ("U.S.
Order"). Moreover,  IBM and The Chase  Manhattan  Bank have  announced  a system
for  processing  automobile  loans over the Internet.  Further,  the Company
understands  that  ULTRADATA  Corporation ("ULTRADATA") has developed certain
on-line processing  systems for the credit union market that may be in direct
competition with Affinity's  proposed call center decisioning 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.  Most of the Company's current and potential
competitors  in the market for its  products  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 three-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 expedient
loan decision.  The 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 has
ensured easy platform portability  by  using  standards 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 to the
various ALMs in service through a private  network.  The NOC is connected to the
network via dedicated  56.6 Kbps line  (ungradable to T-1) while the ALMs use
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
central  computer  system  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
major disaster recovery company for back-up, off-site processing systems capable
of supporting its Decisys/RT operations in the event of system and other
failure.

Intellectual Property

         The Company has applied with the United States Patent and Trademark
Office  ("PTO") for patents to protect the closed loop lending system utilized
by, and the other  essential  features of, the ALM System.  Such applications
and all amendments thereto to date have been rejected by the PTO based on prior
art.  The Company nevertheless intends to continue vigorous prosecution of its
applications  and, if necessary,  appeal the PTO's rejection of such patent
applications.  "Affinity" and "More Assets, Less  Infrastructure" are
registered service marks and "Assets3" and "ALM" are registered trademarks of
the Company.

         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 software development activities currently include, among
other things, (i) developing new consumer  finance  applications  for the ALM,
such as mortgage  loans,  and (ii) adapting the Company's Decisys/RT technology
for use in the consumer insurance  industry.  The Company's research and
development  activities include the enhancements of existing products and the
development of new products using existing software applications.

         The  Company's  ability to attract  and retain  highly  skilled
research  and  development  personnel  is important to the  Company's  success.
During 1996,  the Company  spent  approximately  $2,905,232  on research and
development  activities,  or approximately  57.2% of 1996 revenues.  The Company
anticipates that it will continue to commit substantial resources to research
and development activities for the future.

Government Regulation

         The market currently targeted by the Company,  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 insurance
industry  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. Because the Company does not make or guarantee  loans,  does not
receive any interest income or other fees directly from  consumers  and does not
offer,  endorse  or  guarantee  any  produce or service offered by its financial
institution  customers,  it is not required to be licensed by the Office of the
Comptroller  of the Currency,  the Federal Reserve Board of other federal or
state agencies that regulate financial  institutions.  Nevertheless,  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 Reports 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 is not directly
subject  to these  regulations  and the  Company's  standard  ALS Agreement
with its customers provides that the customer will be responsible for compliance
with these laws.

         Some consumer groups have expressed concern regarding the privacy and
security of ALMs and whether electronic lending is a desirable technological
development in light of the current level of consumer debt. While the Company
believes these concerns are unfounded,  it is possible that consumer groups or
others could take actions to cause one or more states  eventually to promulgate
specific  regulations  applicable to the  deployment and operation of ALMs. The
Company cannot predict,  however,  when such regulations might be implemented,
if ever, or the effects of any such regulation on the Company's  business,
operating  results or financial  condition.  See "Business Risks  - Government
Regulation and Uncertainties of Future Regulation."

Employees

         At  December  31,  1996 the  Company  employed  approximately  133
full-time  employees  and 2  part-time employees. The Company has no collective
bargaining agreements and believes its relationship with its employees is good.

Backlog

         At March 31, 1997,  the Company had contracts for 35 ALMs and a for the
development of a call center decisioning system that will result in revenues of
approximately $1.3 million.  At April 3, 1996, the Company had contracts for
58 ALMs that resulted in revenues of approximately $2.1 million.

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 Operating History; Significant Losses; Accumulated Deficit;
Future Losses

         The  Company  was  incorporated  in January of 1994 and placed its
first  product,  the ALM,  in service in January  1995.  Accordingly,
the Company has a limited  operating  history upon which an  evaluation of the
Company and its prospects can be based.  To date, the Company has generated
minimal operating revenues,  has incurred significant losses and has experienced
substantial  negative cash flow from operations.  The Company had an accumulated
deficit as of December 31, 1996 of  $12,706,195,  with operating  losses of
$705,971 for the period from inception (January 12, 1994) through  December 31,
1994,  and  $2,308,029 and $9,692,195 for the years ended December 31, 1995 and
1996,  respectively.  The Company expects to incur substantial additional costs
to complete its products and services in development, to enhance and market the
ALM and  Decisys/RT  and to complete any new products and services that may be
developed by the Company.  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 and motivate 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

         Because the Company has a limited  operating  history,  management has
very little data upon which to base estimated operating revenues and expenses.
In addition,  while there can be no assurance  that the Company will achieve, or
will achieve in a  timely  fashion  its  revenue  objectives, the Company has
rapidly expanded its  technology, installation,  sales and marketing and other
resources in order to support its growth  objectives.  The levels of these
expenditures, which are to a large extent fixed,  are based in part on the
Company's goals as to its future revenues.  The Company's revenues will be
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 by the Company and its competitors,
market acceptance of such technology in existence or developed in the future,
mix of distribution channels through  which  products  are sold and  general
economic  conditions (particularly  those conditions affecting financial
services supply and demand). Further,  the Company's current customer base is
highly concentrated and such concentration may have a significant  effect on
revenues due to the uncertainty  of new and  additional  sales of the  Company's
technology. See "- Lack of Product  Diversification; Dependence on Consumer
Retail Lending Industry;  Cyclical Nature of Consumer  Lending." Any significant
shortfall in demand for the Company's technology in relation to the Company's
expectations, or the occurrence of any other factor which causes revenues to
fall short of the Company's  expectations,  would have an  immediate  material
adverse effect on the Companys business, operating results and financial
condition.

         The uncertainty regarding the extent and timing of any revenue growth
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 will
likely experience substantial quarterly fluctuations in its operating results.
In addition, the Company will continue to commit  significant  resources to
further fund  research and  development and increase its sales and marketing
operations,  develop new distribution channels 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
leases for which the present value of future minimum lease payments  exceeds 90%
of the cost of the related ALM as  sales-type  leases and all other  leases are
treated as  operating  leases. For sales-type  leases, the Company  recognizes
as revenue, generally upon ALM installation, 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 revenues and 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,  would have a materially  adverse  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
primary  product, the ALM, and its planned  products and services 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 of
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.

         While  additional  ALM orders have been received from certain existing
customers,  none of the Company's ALM customers has, to the Company's knowledge,
made any determination  with respect to making ALMs a component of its long-term
retail delivery  strategy.  Accordingly,  there can be no assurance when or if
any additional orders will be forthcoming.  Further, even if the Company does
succeed in generating  substantial  additional orders from existing  customers,
uncertainty  as  to  the  timing  and  implementation  of  any  such  orders
adds to the unpredictability if the Company's quarterly operating results.

         As of March 31, 1997,  there were 164 ALMs deployed or accepted and
awaiting deployment.  Agreements with one customer covering 50 ALMs provide that
if, after two years in service,  an ALM covered by such  agreement does not meet
certain financial performance criteria, the customer may terminate the agreement
with respect to such ALM subject to payment of a fee based on the number of
months  remaining  under the contract.  Further,  agreements with one customer
covering eight ALMs in service  provide that if such ALMs do not achieve loan
volumes  averaging one loan per day over a one month period in the second
quarter of 1997,  the customer may  terminate the agreement with respect to such
ALMs. Such performance  criteria are substantially  greater than average
performance results of ALMs currently deployed by such customer.  Further,
agreements with one customer  covering 30 ALMs deployed or awaiting  deployment
provide for the waiver of the monthly  rental fee for any month during which
such ALMs do not process a certain  volume  of loans, which volume of loans is
substantially  greater  than the  volume of loans processed by ALMs currently
deployed by such customer.

Lengthy Sales Cycle

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

Early Stage Products and Services

         The ALM and the Company's planned  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 ALM or the Decisys/RT system will
be competitive technologically or otherwise or that any other products and
services developed by the Company 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 continually to improve the ALM and the Decisys/RT
system and other products and services the Company may develop 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  ervices 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 ALM,
compete with traditional consumer lending methods, including in-person  loan
applications at branch offices of financial institutions 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
ALM and of any other electronic commerce products and services the Company may
develop 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,  the Company is aware of
several  companies,  including Dyad, that have developed  video and other kiosk
technology  for the delivery of financial  services.  In addition,  the Company
is  aware  of  certain  companies  that  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, such
as America-On-Line, CompuServe and Prodigy 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,  including IBM,  Microsoft,  Intuit,  Meca and U.S. Order.
Moreover,  IBM and The Chase Manhattan Bank have announced a system for
processing  automobile loans over the Internet.  Further,  the Company
understands that ULTRADATA has developed  certain on-line  processing  systems
for the credit union market that may be in direct competition with Affinity's
proposed call center decisioning system product. See "Business - Products and
Services."

         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
in the market for its products and services 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 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 - Competition."

Lack of Product  Diversification;  Dependence on Consumer  Retail  Lending
Industry;  Cyclical  Nature of Consumer Lending

         For the year ended December 31, 1996 the Company derived substantially
all of its  recurring  revenues from its ALM  operations,  excluding  certain
revenues that were recognized in 1996 from the licensing of its call center
decisioning  system  software.  Further a substantial  portion of the Company's
revenues in the future are expected to be derived from fees associated with the
ALM.  Accordingly,  the Company will be heavily  dependent on market  acceptance
of the ALM  and, in  particular, its acceptance as a  vehicle for executing
transactions historically  executed through traditional distribution channels.
The failure of the Company to generate demand for the ALM or the  occurrence of
any  significant  technological  problems  with the ALM  would  have a  material
adverse effect on the Company's business, operating results and financial
condition.

         The Company's  business is currently  concentrated on 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 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 58% of the  Company's  revenue in 1996.  The Company expects
that its  operating  revenues  will  continue to be attributable to a relatively
small number of  customers.  See  "--Unproven  Market,  Unproven  Acceptance  of
the Company's Products and Services."  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  ALMs. 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 funds for 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  is  heavily  dependent  upon its  technology,  but holds
no  patents  with  respect  to such technology.  The Company has applied  with
the PTO for patents to protect the closed loop lending  system  utilized by, and
the other  essential  features of, the ALM System.  Such  applications  and all
amendments  thereto to date have been rejected by the PTO  based on prior art.
The  Company  nevertheless  intends  to  continue  vigorous prosecution of its
applications and, if necessary, appeal the PTO's rejection of such patent
applications.

         The Company  regards  certain of its  technology  as critical to its
business and attempts to protect such technology under 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 result of the foregoing factors, 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.  See "Business- Intellectual Property."

New Management; Management of Growth

         The Company's  rapid growth has placed and may continue to place,  a
significant  strain on the Company's managerial, operational and financial
resources.  As of December 31, 1996, the Company had grown to 135 employees
from 55 employees at December 31, 1995 and six  employees at December 31, 1994.
The  inability of  management  and recently hired  employees of the Company to
adjust quickly to, and perform as expected in, their  respective  roles
within the  Company  could  have a  material  adverse  effect on the  Company's
business,  operating  results  and financial condition.

         To manage  growth,  the Company  must  continue to implement and
improve its  operational  and  financial systems and to expand,  train and
manage its employee  base. The Company also will be required to manage  multiple
relationships  with  various  customers,  business  partners  and other third
parties.  Moreover,  the Company has incurred significant expenses associated
with its rapid growth and may incur additional  unexpected costs relating to its
anticipated  expansion.  The Company's  systems,  procedures or controls may not
be adequate to support the Company's  operations and Company  management may not
be able to achieve the rapid  expansion  necessary to exploit potential market
opportunities  for the Company's  products and services.  The Company's future
operating  results may also depend on its ability to expand its sales and
marketing  and  research  and  development  organizations, implement and manage
new distribution  channels to penetrate  markets and expand its support
organization.  If the Company is unable to manage growth effectively,  the
Company's business, operating results and financial condition will be materially
adversely affected.

Risk of Fraud in Consumer Lending

         Consumer  credit  transactions,  such as those  processed by the ALM,
involve the risk of consumer fraud. The customer  operating the ALM is
responsible for the selection and use of the loan  origination and  underwriting
parameters  incorporated in the software  supporting the ALM. In addition,
pursuant to the Company's  standard ALS agreement,  the  Company  disclaims
(i) the  responsibility  for the  collection  of any  payments  due from  loan
applicants  and (ii)  liability or  responsibility  to  customers  or others
with respect to liability caused or alleged to be caused  directly or indirectly
by an ALM.  The Company is unaware of any  significant  instances of fraud in
connection  with the  funding  of loans  through  the use of its  ALM.  However,
the rate of  fraudulent activity could increase,  especially if the number of
transactions  processed by ALMs increase.  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 ALM or any other product or service that the Company may
develop.  While the Company  shifts the risk of  collection in any given
transaction  to its customers under the terms of the ALS agreement,  the Company
may nevertheless be held responsible for losses  associated with fraudulent
transactions if such  transactions  are attributable to the Company's
malfeasance.  The Company has not attempted  to  procure  insurance  to cover
losses it may incur in  connection  with such  fraud and does not know whether
such  insurance is  available. Furthermore, even if the Company is not directly
liable or  contractually liable for  fraudulent  transactions  processed  by its
ALMs,  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 ALM relies on third parties for certain fraud detection  systems
and for obtaining credit information about loan  applicants.  Additionally,  the
Company uses an  Affinity-dedicated  private data network provided by a third
party to gain access to the networks  maintained  by such third  parties.
Prolonged  or repeated  failure of (i) a network that provides access to
information  necessary to complete a loan  transaction  through the Company's
ALMs or (ii) the Company's  network access  provider to provide access to such
networks or to ALMs in service 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 expects to rely on third parties in
connection with its customer  relationships,  the "Second Look" program,
strategic  alliance  arrangements (see "- Undeveloped Distribution  Channels"),
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 will depend  particularly  on the ability of
customers and third parties to market successfully  the Company's  products and
services.  For example, the ability of the Company to realize recurring revenues
from  transactions  will be dependent on the success of its customers in
generating  consumer  demand for transactions  using the  Company's  products
and  services.  Failure of ALM  customers  to  generate  and  sustain consumer
demand for the ALM and other  products  and services  that may be  developed by
the Company  would have a material  adverse  effect on the  Company's  business,
operating  results and  financial  condition.  Although the Company  views its
proposed  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 will view their  alliances
with the Company as significant  for their own businesses or that they will not
reassess their  commitment to the Company at a time in the future.  Currently,
the Company's  agreements with ALM customers 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 ALMs.  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 a material adverse effect on the Company's business,
operating  results and financial condition.

Undeveloped Distribution Channels

         The Company  currently  sells its products and services  directly
through its own sales force,  marketing agreements with strategic  partners and
distribution  agreements  with other  entities.  For the Company to emerge from
its  initial  stages of  development  and  achieve  broad  distribution  of the
ALM or any other products or services it may develop, it must implement
effective marketing and  distribution  arrangements  with third  parties.  The
inability of the Company to enter into favorable  arrangements  with strategic
partners and other entities could have  a  material  adverse  effect  on  the
Company's business, operating  results  and financial  condition. Furthermore,
the Company will incur significant  costs and expend  substantial time to train
and educate strategic partners about the Company's  products and services.  If
the Company is unable to  successfully  and  efficiently train and educate
strategic partners or other third parties,  the Company may not achieve,  or
achieve in a timely fashion, broad distribution of its products and  services.
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.  Given the Company's  early  stage of  development,
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 employees
other than Jeff A. Norris,  its President and Chief Executive Officer  (which
policy  provides  coverage  of only $1.5  million),  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 17, 1997,  the Company had  outstanding  an
aggregate of 28,150,603 shares of Common Stock.  Of such shares, an aggregate of
approximately 5,636,092 shares of Common Stock represent shares sold by
the Company in its initial public offering, shares issued by the Company
under stock option plans that have been registered under the Securities Act of
1933, as amended (the "Securities Act"), and shares that have been sold in the
public market by holders of "restricted securities," as that term is defined by
Rule 144 under the Securities Act, and are freely  tradeble without
restriction or further registration under the Securities Act (except for any of
such shares held by "affiliates," as that term is defined in Rule 144 under the
Securities  Act  ("Affiliates")).  Of the  remaining  shares of Common Stock,
the Company  believes that 19,436,104 shares (the "Affiliate  Shares") are
held by Affiliates and 3,078,407 shares (the  "Nonaffiliate Shares) are held by
nonaffiliates  of the Company.  All of such shares of Common Stock are
"restricted  securities" as that term is defined in Rule 144 under the
Securities Act  ("Restricted  Shares"). The Company  believes that 17,569,020
Affiliate Shares  and 466,179 Nonaffiliate Shares are currently eligible for
sale under Rule 144, and that an additional 1,867,084 Affiliate Shares and
2,589.526 Nonaffiliate Shares will become eligible for sale under Rule 144 on
April 29, 1997 when the recent amendments to Rule 144 (which, among other
things, reduce the holding period for restricted securities) become effective.
Certain  stockholders of the Company have the right to cause the Company to
register their Restricted Shares under the Securities  Act. In addition,  as of
December 31, 1996, the Company had outstanding  options granted under stock
option plans  exercisable  into an aggregate of 446,000 shares of Common Stock
with a weighted average exercise price of approximately $0.58 per share and
there were warrants exercisable into an  aggregate of 5,902,560  shares of
Common  Stock at a  weighted  average  exercise  price of approximately  $0.006
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

         The Company's  Common Stock price has been extremely  volatile and has
experienced  substantial and sudden fluctuation,  particularly as a result of
announcements  by the Company and its  competitors,  changes in financial
estimates by  securities  analysts and  announcements  with respect to the
industry  generally.  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.

Control by Principal Stockholders

         The  directors  and  executive   officers  of  the  Company
collectively beneficially  own approximately  55.2% of the Common Stock and Jeff
A. Norris, the Company's President and Chief Executive Officer,
individually  beneficially owns 37.7% of the Common Stock of the Company.  As a
result,  these persons will be able to exercise control over matters requiring
stockholder  approval,  including the election of directors and approval of
significant  corporate  transactions.  Such  concentration  of  ownership
may have the effect of  delaying  or preventing  a change in control of the
Company and could have an adverse effect on the market  price of the Common
Stock.

Government Regulation and Uncertainties of Future Regulation

         The market currently targeted by the Company,  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
insurance  industry  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. Because the Company does not make or guarantee loans,
does not receive any interest income or other fees directly from  consumers and
does not offer,  endorse  or  guarantee  any  product  or  service  offered  by
its  financial institution  customers,  it is not required to be licensed by the
Office of the  Comptroller  of the Currency,  the Federal Reserve Board of other
federal or state agencies that regulate financial  institutions.  Nevertheless,
the Company's  products  and  services  must be  designed  to work  within the
regulatory  environmental  in which its customers operates.

         While the Company is not itself directly subject to this 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 (such as the ALM), the
application of such  regulations  to any products and services  developed by the
Company must be determined on a case-by-case basis.  Affinity has not attempted
to review the laws of each state that might be  applicable to the  deployment of
ALMs.  It is possible  that other states may have or will in the future adopt
specific  regulations  applicable to the deployment  and operation of ALMs.
Furthermore,  some consumer  groups have  expressed  concern  regarding the
privacy and security of ALMs, the use of automated  credit  scoring tools in
underwriting  and whether  electronic lending is a desirable  technological
development  in light of the current level of consumer debt. It is possible that
consumer  groups or others could take actions to cause one or more states
eventually  to promulgate  specific regulations  applicable to the deployment
and operation of ALMS.  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
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 by-laws 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 by-laws 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 the year 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 the year 2001.  The Company also sub-leases
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.

Item 3.  Legal Proceedings

         The Company is not a party to any material legal proceedings.


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

         Not Applicable

                      Executive Officers of the Registrant

Name                            Age       Position with the Company
Jeff A. Norris                  36        President and Chief Executive Officer
                                              and Director
Joseph A. Boyle                 43        Senior Vice President and Chief
                                              Financial Officer
John D. Rogers                  53        Senior Vice President - Operations
Terrance J. Sabol, Sr.          51        Senior Vice President - Technology

Jeff A. Norris,  founder of the Company,  has served as the  Company's  Chief
Executive  Officer and as a director since  March 1994 and served as  Chairman
of the Board from March 1994 to April 1996 and as  Treasurer  from March 1994 to
February  1996.  Mr. Norris held the position of President  from March 1994 to
May 1994 and reassumed  that position  in October  1995.  Prior to founding the
Company, Mr. Norris was employed as a salesman by Digital Equipment Corporation
for nine years.

Joseph A. Boyle became Senior Vice President and Chief Financial Officer of
the Company in September 1996. Mr. Boyle is a Certified Public Accountant.
Prior to joining the Company, Mr. Boyle served as Price Waterhouse
LLP engagement partner for all 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 September 1982 to August 1996.

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

Terrance J. Sabol, Sr., Senior Vice President of Technology, joined Affinity
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.

Part II

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

         The  Company's  common  stock is  traded on The  Nasdaq  National
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 1996, as reported by the Nasdaq National  Market.  The Company  completed
its initial public offering in the second quarter of 1996 at a price of $13.00
per share.  As of February 28, 1997,  there were 158 stockholders of record
of the common stock.

                                                        Sales Price Per Share
                                                        High             Low
    April 25, 1996 to June 30, 1996                     $24.25           $7.63
    Third Quarter                                        14.25            6.00
    Fourth Quarter                                       10.75            6.25

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.

<PAGE>

Item 6.  Selected Financial Data

     The following table  presents  summary  financial data 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.

                                                                 Period from
                                                                  inception
                                        Year ended            (January 12, 1994)
                                        December 31,                  to
                                 1996               1995       December 31, 1994
Statements of Operations Data:
 Revenues                   $ 5,081,818         $ 1,524,911  $                -
 Costs and expenses:
  Cost of revenues            3,088,321           1,101,330                   -
  Research and development    2,905,232             368,452             264,600
  Selling, general and
   administrative expenses   10,819,381           2,305,653             428,896
                           ----------------------------------------------------
 Total costs and expenses    16,812,934           3,775,435             693,496
                           -----------------------------------------------------
  Operating loss            (11,731,116)         (2,250,524)           (693,496)
  Interest income             2,099,004              48,476                   -
  Interest expense              (60,083)           (105,981)            (12,475)
                           -----------------------------------------------------
  Net loss                  $(9,692,195)        $(2,308,029)       $   (705,971)
                           =====================================================
  Net loss per share       $      (0.40)        $     (0.15)       $      (0.08)
                           =====================================================
  Shares used in computing
   net loss per share         24,136,480          15,044,286           9,185,078
                           =====================================================



                                                December 31,
                           -----------------------------------------------------
                                     1996            1995               1994
Balance Sheet Data
   Cash and cash equivalent      $31,563,950     $ 1,235,983      $      29,985
   Working capital (deficit)      43,672,679      (1,134,465)          (431,547)
   Net investment in sales-type leases,
      less current portion         2,386,010          860,295                 -
   Total assets                   56,098,857        4,591,168           338,172
   Notes payable,
     less current portion                  -          222,399           200,000
   Capital lease obligations to related party,
      less current portion            66,245          148,119           199,508
   Capital stock of subsidiary held by
      minority investor              200,000          137,500                 -
   Stockholders' equity (deficit) 52,134,639          617,412          (679,463)


<PAGE>

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

Overview

         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. For the period
from inception  (January 12, 1994) through  December 31, 1994, the Company was a
development  stage company, and its activities principally related to developing
its Decisys/RTSM  technology  (formerly known as the "DSS System") and the
Affinity Automated Loan Machine ("ALM"), raising capital and recruiting
personnel. The Company did not earn any revenues during this period, and the
Company does not believe that its operating  results during this period can be
used to provide meaningful comparisons with its results of operations in
subsequent periods.

         The  Company's  current  products  and services  consist of the
ALM and a call center  decisioning  system which
provide financial  institutions the ability to originate  financial  products
and services  with  little  or no  human  intervention.  Integral  to the
capabilities  the  Company  provides  to its customers is access to its
proprietary Decisys/RT.  To date, the principal financial product utilized by
customers  through the Company's systems has been the ability to originate
unsecured  consumer loans. The Company's  systems also have the ability to
originate loans secured by cash collateral,  renew existing loans,  open demand
deposit  accounts,  cross sell other products and services and make counter
offers to applicants  who qualify for a larger loan or who are  initially
unable to qualify for the type of loan  requested.  All  products  have the
ability to be  communicated  to the  applicant in English and Spanish.
Financial product origination  capabilities  currently under development include
pre-approved personal loans,  automobile  loans,  personal  lines of credit,
credit card accounts and first and second  mortgage  loans through the ALM. The
Company has continued to develop  additional  financial product  origination
capabilities and to  improve  and  enhance  the  technological  capabilities of
the ALM, the call  center  decisioning  system and the Decisys/RT system.

         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, 1996 of $12,706,195,  with operating
losses of $9,692,195,  $2,308,029 and $705,971  for the years ended  December
31, 1996 and 1995 and for the period from  inception  (January 12, 1994) to
December  31,  1994,  respectively.  The  Company  expects to incur  substantial
additional  costs to develop  its financial product  origination  capabilities,
to enhance and market the ALM and Decisys/RT and to complete any new products
and  services  that may be developed  by the  Company.  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.

Revenue and Expense Recognition

         To date, the Company has derived substantially  all of its recurring
revenues from ALM lease, set-up and transaction processing fees. The Company's
ALM pricing structure is designed to recapture a portion of the Company's costs
through  set-up and lease fees and to generate over the long term a
greater  portion of revenues  through  recurring  transaction  fees.  The
Company's ALM lease pricing  generally is tiered based on the number of ALMs
ordered and  operated by each  customer. However, the terms of each  contract
reflect  negotiations  between the Company and the  customer.  Depending on
whether  certain  criteria are met, ALM leases may be reported as sales-type
leases or operating leases.

         Pursuant to the Company's  standard ALM Automated  Loan System
Agreement (the "ALS  Agreement"),  (i) the Company (a) grants to the customer a
non-exclusive  right to use the software  supporting the ALM and (b) agrees to
provide  technical  assistance to the customer  during the term of such
agreement and (ii) the customer  agrees to pay an initial  set-up  fee as well
as fees for each loan  transaction  consummated  based on a  percentage  of the
principal  amount of the loan.  At the time an order is placed by a  customer,
the  Company  typically  collects a non-refundable  set-up fee, which is
initially  recorded as deferred  revenue.  Generally,  upon installation of an
ALM, the Company recognizes as revenue a portion of the set-up fee in an amount
approximately equal to the cost of set-up and  installation of such ALM, with
the remainder of such set-up fee amortized  ratably over the term of the ALS
Agreement.  Additionally,  under the ALS Agreement,  the Company collects other
miscellaneous  processing fees that are  designed to help the  Company recapture
a portion of its  processing  costs.  The  Company  recognizes transaction fees
as revenue when earned under the terms of the ALS Agreement.

         The Company  generally  leases the ALM hardware to its customers  under
a standard  rental  agreement that typically is  non-cancelable  and has a term
of 48 months,  although  certain of the Company's  current  agreements allow
customers  to  terminate  such  agreements  prior  to the end of their  term in
certain  circumstances.  In accordance  with  Statement of Financial Accounting
Standards  No. 13 ("SFAS 13"),  "Accounting  for Leases," the Company treats
certain  leases as sales-type  leases,  and other leases are treated as
operating  leases.  For its sales-type leases, under SFAS 13, the Company
recognizes as revenue,  generally upon ALM installation,  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 estimated incremental
borrowing rate for lease-secured  transactions as the discount rate.  The
difference  between the aggregate  future  minimum  lease  payments and the
present value of such lease payments  is  capitalized  as unearned  interest
income and  amortized  into  revenue  over the term of the rental
agreement.  For operating  leases,  the Company  recognizes  lease payments as
revenue ratably over the term of the applicable  agreement.  Significant
fluctuations in quarterly  revenue and operating  results may result depending
on whether leases consummated during a period are sales-type or operating
leases.

         Prior to May 31,  1995,  the Company  generally  used an agreement
that  provided for (i) an initial fee, substantially  all of which is credited
against future licensing fees at a predetermined  rate over the term of the
agreement,  and (ii)  monthly  or  quarterly  licensing  fees equal to the
greater  of a minimum  amount and a fee calculated  based upon the principal
amount of loans funded.  Such  agreements  have terms of 12, 24 or 48 months.
The Company has recorded the prepaid  portion of the initial fee as deferred
revenue,  which is amortized over the term of the particular  agreement.  The
Company treats such agreements as operating  leases.  Accordingly,  monthly and
quarterly fees under such  agreements  are  recognized as revenue over the term
of the  applicable  agreements. The Company  depreciates  the cost of ALMs
leased  under such  agreements  over five years using the  straight-line
method.  At December 31, 1996,  there were 59 ALMs in service  under such
agreements.  The Company  believes  that revenues  attributable  to ALMs  leased
under  such  agreements  in 1996  are  substantially  less  than  revenues
attributable to ALMs leased under  agreements that are treated as sales-type
leases primarily due to the fact that agreements  in use prior to May 31,  1995
provide  that  set-up fees will be applied to future ALM fees and do not
provide for  separate  periodic  rental  payments.  The Company  does not plan
to use this form of agreement in the future.

         The Company  accounts for research and  development  costs as operating
costs and expenses  such costs in the time 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 staff labor costs.

Results of Operations

Revenues

         The Company's  revenues were  $5,081,818  and  $1,524,911  for the
years ended December 31, 1996 and 1995, respectively.  The Company did not earn
any revenues from operations during the period from inception  (January 12,
1994) through December 31, 1994.

         Sales and  rental  fees of  $2,552,158,  non-recurring  license revenue
of  $1,800,000  and  set-up  and transaction fees of $729,660  accounted for
approximately  50.2%, 35.4% and 14.4%,  respectively,  of the Company's revenues
for 1996,  whereas  sales and rental  fees of  $1,275,101  and set-up and
transaction  fees of  $198,607 accounted for approximately  83.6% and 13.0%,
respectively,  of the Company's  revenues for 1995. During 1996, the Company
consummated  sales-type  leases for 74 ALMs compared to 30 ALM sales-type leases
in 1995. At December 31, 1996 and 1995 there were a total of 164 and 51 ALMs,
respectively, under both sales-type and operating leases.

         The Company has  experienced  disappointing  revenue  growth,  and
continues to  experience an extremely lengthy sales cycle for the ALM.  Average
consumer  use of ALMs in service and  average  approval  rates for loan
applications have been lower than customers'  expectations,  although
certain customers have deployed their ALMs  in  a  manner  that  has  resulted
in   acceptable   loan   approval   rates.   The  Company   believes  the
lower-than-expected  loan  approval  rates are primarily  attributable  to ALM
locations and the use by many of its customers of overly  conservative loan
scoring models.  Further,  the Company has experienced delays in the
development of certain financial  product  origination  capabilities,
and the Company believes that many of its  current  and  potential  customers
have  been  reluctant  to deploy  ALMs that do not offer a broad  range of
financial  product  origination  capabilities.  The Company  believes that its
future financial performance will depend on, among other factors, a significant
improvement in consumer  acceptance and use of the ALM, a significant
improvement  in loan  approval  rates and timely  development  and  introduction
of additional  financial  product origination capabilities.

         Total  ALM sales  for 1996  were to 11  customers  of which 7 customers
represented  new  relationships. During 1996,  Union Planters  Corporation
("Union  Planters") and Banc One Corporation  accounted for 37% and 21%,
respectively,  of total revenue.  The Company does not believe the loss of any
one of these  customers would 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.  However,  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 ALMs.

         Non-recurring  license  fees of $1.8  million  during 1996  reflect
one-time license fees paid by Union Planters to Affinity Processing Corporation
("APC"), a majority owned subsidiary of the Company, for a perpetual, royalty-
free  license to use the Company's  call center  decisioning  system  (formerly
known as "Assets3") in North America. Pursuant to a joint  venture  arrangement
among the Company,  APC and Union  Planters, all amounts paid by Union Planters
to APC as license fees were paid by APC to the Company as license and management
fees.

         The Company  recently has entered into agreements with certain hardware
vendors under which the vendors will  market and sell kiosks that will utilize
the Company's  Decisys/RT  technology in a manner comparable to the Company's
ALMs. As a result of the agreements,  the Company contemplates
that it may  restructure its pricing policies such that there will be no
material  benefit or  detriment to customers  with respect to whether such
customers  acquire the Company's  ALM or vendors'  kiosks.  Additionally,  it is
the  Company's  intent to utilize  pricing  policies with respect to software
licenses and other services provided by the Company and utilized by the vendors'
customers to produce profit margins for products leased or sold through such
vendors  comparable to the profit margins  realized
through the sale or rental of the Company's ALM.

Costs and Expenses

         Cost of Revenues.  Cost of revenues for the years ended  December  31,
1996 and 1995 were  $3,088,321  and $1,101,330,  respectively.  Cost of revenues
primarily  reflects (i) set-up costs  including the cost of preparing ALMs for
installation,  (ii) the cost of ALM  components  and (iii)  salaries  and
overhead  allocated to cost of revenues.  Approximately  $1,353,334 or 43.8% of
the Company's  cost of revenues for 1996 was  attributable  to the cost of
materials  used in the  assembly  of ALMs, compared to $698,604  or 63.4% during
1995.  The cost of ALM hardware sold under capital leases, depreciation expense
for hardware leased to customers under operating  leases and other direct and
indirect costs associated with sales and rental revenues  totaled  $2,426,476
and $891,040 for the years ended  December 31, 1996 and 1995,  respectively.
Labor and other direct and indirect  costs  associated with initial  set-up,
transactions  and other revenue  totaled  $517,911 and $210,290 for the years
ended December 31, 1996 and 1995,  respectively.  Direct and indirect costs
associated with license revenue consisted primarily of allocated salaries and
overhead and totaled $143,934 in 1996.

        The cost of designing,  assembling and installing  individual ALMs
fluctuated  significantly  during 1995. Prior to September 1995, the Company
incurred  significant  costs in customizing ALM designs for customers.  Since
that time, the Company has standardized the base operating system and redesigned
the cabinet  structure,  graphics and  component  installation  to reduce the
cost,  assembly  time and ALM size.  Further,  during  1996 the Company
outsourced certain aspects of ALM cabinet construction, hardware assembly and
delivery to reduce costs.

Research and Development.

         Research and  development  expenses  for the year ended  December  31,
1996 were  $2,905,232,  compared to $368,452 and $264,600 for the year ended
December 31, 1995 and the period ended  December 31, 1994,  respectively. The
increase in research and development  expenses is primarily  attributable  to
the Company's  enhancement of its Decisys/RT  technology and its financial
product  origination  capabilities.  During 1996, the Company  capitalized
$214,820 of software  development costs related primarily to the development of
certain loan  applications.  During 1995,  the Company  capitalized  $216,587 of
software  development costs related to the ALM.  The Company did not capitalize
any  software  development  costs  during  1994.  Capitalized  software
development  costs  are  being amortized  over 48 months.  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,  1996  were $10,819,381,  compared to  $2,305,653  and
$428,896  for the year ended  December  31,  1995 and the period  ended December
31, 1994,  respectively.  SG&A expenses  during 1996 consisted  primarily of
personnel costs of $5,375,856 not  included  in cost of sales;  professional
fees of  $2,290,017  consisting  primarily  of  legal,  accounting, recruiting
and relocation  fees;  advertising  and marketing  costs of $1,661,508; deferred
compensation expense amortization of  $1,028,489; and travel costs of $791,693.
SG&A  expenses  during 1995  consisted  primarily of personnel costs of $585,421
not included in cost of sales;  professional  fees of $372,076  consisting
principally of legal fees  associated  with  capital  financings,  the Company's
patent  applications  and general  corporate matters;  deferred  compensation
expense  amortization  of $524,248;  and travel costs of $114,823. SG&A expenses
during 1994 consisted  primarily of personnel costs of $179,242,  professional
fees of $59,357 and travel costs of $23,653.

Interest Income

         Interest income of $2,099,004  during 1996 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. Interest income of $48,476 for the year ended  December  31, 1995
reflects the amortization of deferred interest income attributable to ALM sales-
type leases. The Company recognized no interest income during the period ended
December 31, 1994.

Interest Expense

         Interest  expense for the year ended  December 31, 1996 was $60,081,
compared to $105,981 and $12,475 for the year ended December 31, 1995 and the
period ended December 31, 1994,  respectively.  The decrease of $45,900 in 1996
is due primarily to the  re-payment of  outstanding  debt with the use of
proceeds from the Company's  initial public offering.

Income Taxes

         The Company has recorded a valuation  allowance for the full amount of
its deferred  income tax assets as of  December  31, 1996 and 1995,  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  operating  losses of  $12,706,195  since
its  inception  and has  financed its operations  primarily  through  net
proceeds  from its  initial  public  offering  in May 1996 and,  prior to such
offering,  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  $60,091,805.  Net cash used in 1996 to fund  operations was
$12,726,521.  During 1996, net proceeds from the offering  and other  sources
of cash were used to fund current year  operations,  to repay  $1,775,416  in
notes payable and to fund capital  expenditures  of  $5,558,806.  At December
31, 1996,  cash and cash  equivalents were $42,147,947 and working capital was
$43,672,679.

         The Company has entered into a revolving  line of credit with a lender
providing for a maximum  borrowing amount of up to  $2,000,000  (the "Line of
Credit")  which  expires in May 1997.  The  Company  had no  outstanding
borrowings under the Line of Credit as of December 31, 1996.

         The  Company  believes  existing  cash,  cash  equivalents,
internally  generated  funds  and  available borrowings  will be sufficient to
meet the  Company's  currently  anticipated  operating  expenditure requirements
during 1997.  During 1997,  the Company expects to continue to use a significant
amount of existing  cash,  cash equivalents  and  internally  generated  funds
to fund  research and  development,  marketing  efforts  designed to promote
consumer  awareness and use of its products and services and capital
expenditures.  In order to fund more rapid  expansion, to develop new or
enhanced  products  or to address  liquidity  needs  caused by  shortfalls  in
revenues,  the Company may need to raise additional  capital in the future.
If additional funds are raised through the issuance of equity  securities,  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  favorable to the Company or at all. If adequate funds are not available
or not  available  on acceptable terms, the Company may be unable to develop,
enhance and market products,  retain qualified  personnel, take  advantage of
future  opportunities,  or respond to  competitive  pressures,  any of which
could have material adverse effect on the Company's business, operating results
and financial condition.



<PAGE>


Item 8.  Financial Statements and Supplementary Data

The report of independent auditors and consolidated financial statements are
set forth below:

                         Report of Independent Auditors






Board of Directors and Stockholders
Affinity Technology Group, Inc.


We have audited the accompanying  consolidated  balance sheets of Affinity
Technology Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated  statements of operations,  stockholders' equity and
cash flows for the years ended December 31, 1996 and 1995 and for the period
from  inception  (January 12, 1994) to December  31,  1994.  These  financial
statements  are  the  responsibility  of  the  Company's  management.   Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  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, 1996 and
1995, and the  consolidated  results of their operations and their cash flows
for the years ended December 31, 1996 and 1995 and for the period from
inception  (January 12, 1994) to December 31, 1994 in conformity  with generally
accepted accounting principles.



                                                          /s/ Ernst & Young LLP
Greenville, South Carolina
February 12, 1997


<PAGE>


                Affinity Technology Group, Inc. and Subsidiaries

                           Consolidated Balance Sheets

                                                      December 31,
                                             1996                     1995
                              --------------------------------------------------
Assets
Current assets:
   Cash and cash equivalents         $      31,563,950       $       1,235,983
   Investments                              10,583,997                       -
   Accounts receivable, less
    allowance for doubtful accounts of
    $198,987 and $3,667 at December 31,
    1996 and 1995, respectively                812,443                 143,295
   Net investment in sales-type
    leases - current:
     Third parties                             620,270                 182,284
     Related party                             245,110                 115,292
   Inventories                               2,804,978                 366,610
   Other current assets                        336,439                  29,534
                              --------------------------------------------------
Total current assets                        46,967,187               2,072,998
Net investment in sales-
  type leases - non-current:
   Third parties                             2,159,832                 525,227
   Related party                               226,178                 335,068
Property and equipment, net                  6,073,303               1,446,675
Software development costs,
 less accumulated amortization of
 $67,686 and $13,539 at December
 31, 1996 and 1995, respectively               363,721                 203,048
Other assets                                   308,636                   8,152
                              --------------------------------------------------
Total assets                         $      56,098,857       $       4,591,168
                              ==================================================

See accompanying notes.



<PAGE>


                                                       December 31,
                                              1996                     1995
                              --------------------------------------------------
Liabilities and
  stockholders' equity
Current liabilities:
   Current portion of notes
    payable to related parties      $               -       $         103,017
   Current portion of capital
    lease obligations to related
    party                                      69,987                 144,402
   Accounts payable                         1,442,662                 686,656
   Accrued expenses                           802,534                 284,132
   Accrued compensation and
    related benefits                          455,405                 222,074
   Deferred license revenue                         -               1,237,500
   Current portion of deferred
    revenue - related party                    81,259                       -
   Current portion of deferred
    revenue - third parties                   442,661                 529,682
                              --------------------------------------------------
Total current liabilities                   3,294,508               3,207,463
Notes payable to related
 parties, less current portion                      -                 222,399
Capital lease obligations to
 related party, less current portion           66,245                 148,119
Deferred revenue - related party               39,805                       -
Deferred revenue - third parties              363,660                 258,275
Capital stock of subsidiary held
 by minority investor                         200,000                 137,500
Commitments and contingent liabilities
Stockholders' equity:
   Preferred stock - Series A,
    no par value; authorized none in
    1996 and 23,810 shares in 1995;
    issued and outstanding none in 1996
    and 23,810 shares in 1995                        -                 250,000
   Preferred stock - Series B, no
    par value; authorized none in
    1996 and 42,000 shares in 1995;
    issued and outstanding none
    in 1996 and 29,265 shares in 1995                -               2,732,356
   Common stock, par value $0.0001;
    authorized 60,000,000 shares,
    issued and outstanding 27,879,680
    shares in 1996 and
    16,695,318 shares in 1995                    2,788                   1,670
   Additional paid-in capital               68,777,090               4,237,960
   Deferred compensation                    (3,939,044)             (3,590,574)
   Accumulated deficit                     (12,706,195)             (3,014,000)
                              --------------------------------------------------
Total stockholders' equity                  52,134,639                 617,412
                              --------------------------------------------------
Total liabilities and stockholders'
  equity                                  $ 56,098,857              $ 4,591,168
                               =================================================

See accompanying notes.


<PAGE>


                Affinity Technology Group, Inc. and Subsidiaries
<TABLE>

                      Consolidated Statements of Operations
<CAPTION>


                                                                                                             Period from
                                                                                                              inception
                                                                                                            (January 12,
                                                                                 Year ended                   1994) to
                                                                                December 31,                 December 31
                                                                           1996               1995              1994
                                                                  --------------------------------------------------------
<S>                                                                <C>                <C>                 <C>
Revenues:
   Initial set-up, transactions and other                           $        729,660   $        249,810    $             -
   Sales and rental (including $286,413 and  $400,591 from related
     party for 1996 and 1995, respectively)                                2,552,158          1,275,101                  -
   License revenue                                                         1,800,000                  -                  -
                                                                    --------------------------------------------------------
                                                                           5,081,818          1,524,911                  -
Costs and expenses:
   Cost of revenues                                                        3,088,321          1,101,330                  -
   Research and development                                                2,905,232            368,452            264,600
   Selling, general and administrative expenses                           10,819,381          2,305,653            428,896
                                                                    --------------------------------------------------------
Total costs and expenses                                                  16,812,934          3,775,435            693,496
                                                                    --------------------------------------------------------
Operating loss                                                           (11,731,116)        (2,250,524)          (693,496)
Interest income                                                            2,099,004             48,476                  -
Interest expense - third parties                                                   -            (23,325)            (2,810)
Interest expense - related parties                                           (60,083)           (82,656)            (9,665)
                                                                    --------------------------------------------------------
Net loss                                                                  (9,692,195)        (2,308,029)          (705,971)
                                                                    ========================================================
Net loss per share                                                           $(0.40)            $(0.15)            $(0.08)
                                                                    ========================================================
Shares used in computing net loss per share                               24,136,480         15,044,286          9,185,078
                                                                    ========================================================
</TABLE>

See accompanying notes.


<PAGE>


                               Affinity Technology Group, Inc. and Subsidiaries
<TABLE>

                                  Consolidated Statements of Stockholders' Equity
<CAPTION>

                                  Preferred   Preferred                Additional                                  Total
                                   Stock,       Stock,       Common      Paid-in     Deferred     Accumulated  Stockholders'
                                  Series A     Series B       Stock      Capital   Compensation     Deficit        Equity
                                 ---------------------------------------------------------------------------------------------
<S>                             <C>         <C>          <C>         <C>         <C>           <C>           <C>
Balance at inception (January
12, 1994)                        $       -  $        -   $         - $         - $          -  $           -  $        -
   Issuance of common stock              -           -         1,508           -            -              -       1,508
   Issuance of warrants                  -           -             -      25,000            -              -      25,000
   Net loss                              -           -             -           -            -       (705,971)   (705,971)
                                 ---------------------------------------------------------------------------------------------
Balance at December 31, 1994             -           -         1,508      25,000            -       (705,971)   (679,463)
  Issuance of preferred stock,     250,000           -             -           -            -              -     250,000
    Series A
  Issuance of preferred stock,           -   2,732,356             -           -            -              -   2,732,356
    Series B
  Issuance of common stock               -           -           162      98,138            -              -      98,300
  Deferred compensation related
    to grant of stock options            -           -             -   4,114,822   (4,114,822)             -           -
  Amortization of deferred               -           -             -           -      524,248              -     524,248
    compensation
  Net loss                               -           -             -           -            -     (2,308,029) (2,308,029)
                                 ---------------------------------------------------------------------------------------------
Balance at December 31, 1995       250,000   2,732,356         1,670   4,237,960   (3,590,574)    (3,014,000)    617,412
  Exercise of warrants                   -      45,417             -           -            -              -      45,417
  Conversion of preferred stock   (250,000) (2,777,773)          602   3,027,171                                       -
  Initial public offering                                        506  60,088,010            -              -  60,088,516
    proceeds
  Exercise of stock options              -           -            10      46,990            -              -      47,000
  Deferred compensation related
    to grant of stock options            -           -             -   1,376,959   (1,376,959)             -           -
  Amortization of deferred               -           -             -           -    1,028,489              -   1,028,489
    compensation
  Net loss                               -           -             -           -            -     (9,692,195) (9,692,195)
                                 ---------------------------------------------------------------------------------------------
Balance at December 31, 1996     $       -   $       -     $   2,788 $68,777,090  $(3,939,044)  $(12,706,195)$52,134,639
                                 =============================================================================================

</TABLE>

See accompanying notes.


<PAGE>
                Affinity Technology Group, Inc. and Subsidiaries
<TABLE>
                                       Consolidated Statements of Cash Flows

<CAPTION>
                                                                                                  Period from
                                                                       Years ended                 inception
                                                                                                (January 12, 1994) to
                                                            December 31,      December 31,        December 31, 1994
                                                                1996              1995                1994
                                                      -----------------------------------------------------------------
<S>                                                      <C>                 <C>                 <C>
Operating activities
Net loss                                                 $ (9,692,195)       $  (2,308,029)       $    (705,971)
Adjustments to reconcile net loss to net cash used in
   operating activities:
     Depreciation and amortization                            902,846              145,248                2,609
     Amortization of deferred compensation                  1,028,489              524,248                    -
     Provision for doubtful accounts                          170,000                3,667                    -
     Write-off of patent acquisition costs                          -               22,931                    -
     Inventory valuation allowance                             20,000               46,000                    -
     Deferred revenue                                      (1,098,072)             754,227               33,730
     Deferred license revenue                                       -            1,237,500                    -
     Other                                                     59,243                    -               25,000
     Changes in current assets and liabilities:
       Accounts receivable                                   (746,079)            (146,962)                   -
       Net investment in sales-type leases                 (2,093,519)          (1,157,871)                   -
       Inventories                                         (2,420,946)            (257,317)                   -
       Other current assets                                  (300,428)             (28,232)              (1,302)
       Accounts payable                                       702,449              486,309              200,347
       Accrued expenses                                       508,361              281,313               12,475
       Accrued compensation and related benefits              233,331              187,478               34,596
                                                      -----------------------------------------------------------------
Net cash used in operating activities                     (12,726,520)            (209,490)            (398,516)

Investing activities
Purchases of property and equipment                        (5,558,806)          (1,350,702)             (26,092)
Software development costs                                   (214,820)            (216,587)                   -
Purchases of short-term investments                       (10,583,997)                   -                    -
Other                                                        (349,618)              (5,954)             (25,690)
                                                      -----------------------------------------------------------------
Net cash used in investing activities                     (16,707,241)          (1,573,243)             (51,782)

Financing activities
Proceeds from notes payable to related parties                450,000              769,269              441,574
Proceeds from notes payable to third parties                1,000,000              250,000               50,536
Principal payments on capital leases                         (156,289)             (53,075)             (13,335)
Payments on notes payable to related parties                 (775,416)            (170,427)                   -
Payments on notes payable to third parties                 (1,000,000)            (300,536)                   -
Proceeds from sale of capital stock of subsidiary to
   minority interest                                           62,500              137,500                    -
Exercise of warrants                                           45,417                    -                    -
Exercise of options                                            47,000                    -                    -
Proceeds from issuance of common stock                     60,088,516                1,000                1,508
Proceeds from issuance of preferred stock                           -            2,355,000                    -
                                                      -----------------------------------------------------------------
Net cash provided by financing activities                  59,761,728            2,988,731              480,283
                                                      -----------------------------------------------------------------
Net increase in cash                                       30,327,967            1,205,998               29,985
Cash and cash equivalents at beginning of period            1,235,983               29,985                    -
                                                      -----------------------------------------------------------------
Cash and cash equivalents at end of period               $ 31,563,950        $   1,235,983        $      29,985
                                                      =================================================================
</TABLE>

See accompanying notes.


<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements

                                December 31, 1996

1.     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 4,400,000
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 $57,200,000. Proceeds to the Company, net of underwriters'
discount and total offering expenses were $52,109,116.

The following transactions occurred simultaneously with the offering:

      The underwriters  exercised their  over-allotment  option to purchase an
      additional  660,000 shares of Common Stock at $13 per share, resulting in
      additional net proceeds to the Company of $7,979,400.

      The  preferred  stock of the  Company,  consisting  of 23,810  shares of
      Series A Preferred  Stock and 32,967 shares 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.

The Company and its subsidiaries develop and market an electronic commerce
technology that enables  consumers to conveniently  access financial  services
through a variety of platforms.  Since its formation in January 1994, the
Company has concentrated its product  development  efforts primarily on a
"closed loop" electronic  commerce system that enables  financial  institutions
to automate the processing and consummation of consumer loans 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
operating and infrastructure costs.

The primary  platform  currently  offered by the Company is the ALM,  which
permits a consumer to apply for and, if determined to be a suitable credit risk,
receive a loan without human  intervention  in as little as 10 minutes. Similar
in  appearance  to an automated  teller  machine,  the ALM is a fully  automated
system that  utilizes the Company's  proprietary  Decisys/RT  (formerly the
Decision  Support System)  technology to process  consumer loans, generate the
underlying loan  documentation  and distribute loan proceeds.  In addition,  the
ALM can be programmed to process  other  financial  transactions.  In January
1995,  the Company  exited the  development  stage with the delivery  of its
first  operational  ALMs to  paying customers. The  Company's customers consist
primarily  of regional and super-regional financial institutions.

<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

2.     Summary of Significant Accounting Policies

Principles of Consolidation

The  consolidated   financial  statements  include  the  accounts  of  Affinity
Technology  Group,  Inc.  and  its subsidiaries,   Affinity  Bank  Technology
Corporation,   Affinity  Clearinghouse  Corporation,   Affinity  Credit
Corporation,  Affinity Processing  Corporation ("APC"),  Affinity Consulting
Services,  Inc. and Affinity Mortgage Technology, Inc.  All significant
intercompany balances and transactions have been eliminated in consolidation.

Minority Investor

An unrelated third party holds 131,510 shares of APC common stock,  which was
acquired for aggregate consideration of $125,000,  and 90,988 shares of APC
convertible preferred stock, which was acquired for aggregate  consideration
of $75,000  ("capital  stock of  subsidiary  held by minority  investor" as
captioned  in the  Company's  financial statements).  These holdings  represent
 a 24.9% minority  interest in APC. The preferred  stock is convertible on a
one-for-one basis into shares of APC common stock.

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.

Concentrations of Credit Risk

The Company markets its ALM product to financial  institutions  throughout the
United States.  The Company performs ongoing credit evaluations of customers and
retains a security interest in leased equipment.

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.


<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)



2.     Summary of Significant Accounting Policies (continued)

Investments

The Company has adopted Statement of Financial Accounting  Standards No. 115
("SFAS 115"), "Accounting for Certain Investments in Debt and Equity
Securities." In accordance with SFAS 115, the Company classifies its investments
as held to maturity and such  investments are reported at amortized cost at
December 31, 1996,  which  approximates fair value.  These  investments  consist
of corporate bonds and certificates of deposit with maturities of one year
or less.

Inventories

Inventories at December 31, 1996 and 1995 are stated at the lower of cost or
market.  Cost is determined  using the first-in, first-out ("FIFO") cost flow
assumption.

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)  amounted to $848,699,  $109,918 and $2,609 during 1996
and 1995 and during the period from inception (January 12, 1994) to December 31,
1994, respectively.

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.

Amortization of capitalized  software  development  costs began in 1995 and
totaled $54,147 and $13,539 during 1996 and 1995, respectively.

<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

2.     Summary of Significant Accounting Policies (continued)

Revenue Recognition

Initial  set-up and  transaction  fees - 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.  Additionally, the
Company  earns  transaction  fees.  Transaction  fee revenue is  recognized  as
the  related  transactions  are processed.  Transaction  processing fees and
other revenues  represented  approximately  4% of total revenue during 1996 and
1995.

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.

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,  such as installation
services.  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  revenue  relates to unearned  revenue on ALM
leases.  Deferred  license  revenue at December  31,  1995  related to a  non-
exclusive,  perpetual,  royalty-free  license,  to be granted to a financial
institution,  to  use  one  of  the  Company's  software  products,  Assets3.
(The  financial  institution  is the unaffiliated  third party who holds the
minority  interest  in Affinity  Processing  Corporation  - see  "Minority
Investor"  above.) At December 31, 1995,  the financial  institution  had paid
the Company  $1,237,500 as a license fee for use of an initial  version of
Assets3 in the United  States,  which was  deferred  at  December  31,  1995
pending  delivery of the product.  The Company  delivered the product to the
financial  institution  in 1996,  and accordingly  recognized  the deferred
revenue in income.  In addition,  such  financial  institution  has
exercised  its option to purchase for $562,500 a perpetual  royalty-free license
to use Assets3 in North  America, which option  became  exercisable  upon the
Company's  enhancement  of such  system.  The Company  delivered  such
enhancement  during June 1996 and recorded the  additional  license fee as
revenue upon delivery and  acceptance by the financial institution.


<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

2.     Summary of Significant Accounting Policies (continued)

Cost of Revenues

Cost of revenues is comprised of costs  associated  with initial set-up and
transaction  fees and sales and rental revenues. Costs associated  with initial
set-up fees include  labor,  other  direct costs and an  allocation  of related
indirect  costs.  Labor and other direct costs  associated  with initial set-up
fees totaled  $426,848 and $122,404  for the years ended  December 31, 1996 and
1995,  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
$2,426,476 and $746,820  for the years  ended  December  31,  1996 and 1995,
respectively.

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").

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.

In October 1995, the FASB issued Statement of Financial  Accounting  Standards
No. 123, "Accounting for Stock Based Compensation"  ("SFAS 123"),  which
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 disclosure  requirements are
effective  for fiscal years  beginning  after  December 31, 1995,  or upon
initial  adoption of the  statement,  if earlier.  The Company plans to continue
to account for stock based  compensation  arrangements under APB No. 25 and
has adopted the pro forma disclosure requirements of SFAS 123.


<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

2.     Summary of Significant Accounting Policies (continued)

Advertising Expense

The cost of advertising is expensed as incurred.  Advertising and marketing
expense was  approximately  $1,662,000, $154,000 and $35,000  during 1996 and
1995 and the period from  inception  (January 12, 1994) to December 31, 1994,
respectively.

3.     Sales-Type and Operating Leases

The following lists the components of the net investment in sales-type leases at
December 31:

                                                   1996                   1995
Total minimum lease payments
  receivable                                   $  3,271,650        $  1,432,130
Residual values                                     360,000                   -
                                                  3,631,650           1,432,130
Less unearned interest income                      (380,260)           (274,259)
Net investment in sales-type leases               3,251,390           1,157,871
Net investment is classified as:
   Current                                          865,380             297,576
   Non-current                                    2,386,010             860,295
                                               $  3,251,390          $1,157,871

Future  minimum  lease  payments to be received on  sales-type  and  operating
leases at December  31, 1996 are as follows:

                                               Sales Type           Operating
1997                                          $  1,258,800        $    358,800
1998                                             1,376,653             358,800
1999                                               505,765             285,000
2000                                               130,432              32,000
                                              $  3,271,650        $  1,034,600



<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)



4.     Inventories

Inventories consist of the following:

                                                        December 31
                                                    1996              1995
                                              ---------------- -----------------
Electronic parts and other components             $1,166,277         $182,680
Work in process                                      213,646          229,930
Finished goods                                     1,445,055                -
                                              ---------------- -----------------
                                                   2,824,978          412,610
Reserve for obsolescence                             (20,000)         (46,000)
                                              ---------------- -----------------
                                                  $2,804,978         $366,610
                                              ================ =================

5.     Property and Equipment

Property and equipment consists of the following:

                                                           December 31
                                                     1996              1995
                                              ---------------- -----------------
ALM equipment leased to
  others under operating leases              $     1,473,569  $       604,704
Data processing equipment                          2,219,525          395,638
Demonstration equipment                              433,727          136,535
Office furniture and fixtures                      1,347,182          358,040
Automobiles                                           72,003           41,670
Purchased software                                 1,469,605           22,615
                                              ---------------- -----------------
                                                   7,015,611        1,559,202
Less accumulated
  depreciation and amortization                     (942,308)        (112,527)
                                              ---------------- -----------------
                                             $     6,073,303  $     1,446,675
                                              ================ =================

Accumulated  depreciation  of ALM  equipment  leased to others was  $328,433
and $48,216 at December  31, 1996 and 1995, respectively.



<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

6.     Notes Payable to Related Parties

Notes payable to related parties consist of the following:

                                                          December 31
                                                    1996              1995
                                              ---------------- -----------------
Note payable to bank (a stockholder),
 due December 2, 1999, interest at prime
 plus 2% annually, interest payable
 monthly April 1996 through December 1996,
 principal plus interest payable thereafter  $           -        $ 289,269
Note payable to bank (a stockholder), due
 March 7, 1997, interest at 11%, payable in
 monthly installments of $1,864 commencing
 in February 1996                                        -           26,147
Notes payable to stockholders, interest
 at 2% annually, payable on demand                       -           10,000
                                              ---------------- -----------------
                                                         -          325,416
Less current maturities                                  -         (103,017)
                                              ---------------- -----------------
                                               $         -        $ 222,399
                                              ================ =================

Upon  completion of the Initial Public Offering in May, 1996,  the Company paid
off all of its  outstanding  notes payable.

The Company paid interest  totaling  $85,287 and $67,377  during 1996 and 1995,
respectively.  The Company paid no interest during the period from inception
(January 12, 1994) to December 31, 1994.

7.     Revolving Line of Credit

In February  1996,  the  Company  entered  into an  agreement  with a lender for
a revolving  line of credit with a maximum  borrowing amount of up to $2,000,000
(the "Line of Credit").  The Line of Credit  originally bore interest at a 90-
day  LIBOR  rate plus 250 basis  points  and was  secured  by a first  priority
security  interest  on the Company's  tangible  and  intangible  personal
property.  The Line of Credit  was also  initially  unconditionally guaranteed
by the  principal  stockholder  of the Company (the  "Guarantor").  Upon
completion  of the  Company's Initial  Public Offering in May 1996, the interest
rate was reduced to a 90-day LIBOR rate plus 200 basis points, the  Guarantor
was  released  from the  personal  guaranty  and the  lender  released  its lien
on the  Company's property.  The Line of Credit  requires,  among other  things,
that the Company  maintain  certain  amounts of net worth which  increase over
the term of the Line of Credit and certain ratios with regard to total
indebtedness  to tangible net worth.  The Line of Credit expires in May 1997.
There were no outstanding borrowings under the Line of Credit at December 31,
1996.



<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)



8.     Stockholders' Equity

Convertible Preferred Stock

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)  automatically  were converted into an aggregate of
6,018,362  shares of common stock on May 1, 1996.  Upon conversion, all accrued
and unpaid dividends were forfeited.

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,  conversions  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, 1996 there are no
shares of Preferred Stock issued or outstanding.

Stock Split

During April 1996,  the  Company's  Board of Directors  approved a 106-for-1
common stock split and an increase in the common stock par value to $.0001
effective  immediately  upon completion of the Initial Public  Offering.  All
common share, option and warrant data have been restated to reflect the split.



<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)



8.     Stockholders' Equity (continued)

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.  This plan closed during
April 1996.

In April  1996,  the Company  adopted  the 1996 Stock  Option and  Incentive
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. However,
options granted in 1995 to certain officers  vest  over a  shorter  period.  At
December  31,  1996,  approximately  5,000 and  441,000  options  are
exercisable under the 1996 and 1995 Option Plans, respectively.

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

                                   Shares              Options Outstanding
                                              ----------------------------------
                                  Available          Number            Price
                                  for Grant         of Shares        Per Share
                            ----------------- ---------------- -----------------
                            ----------------- ---------------- -----------------
1995 Stock Option Plan
Shares reserved                    2,173,000                 -            -
Options granted                   (1,645,120)        1,645,120         $.44
Options canceled/forfeited             5,300            (5,300)           -
                            ----------------- ---------------- -----------------
Balance at December 31, 1995         533,180         1,639,820         $.44
Options granted                     (178,080)          178,080         $.44
Options canceled/forfeited            78,758           (78,758)        $.44
Options exercised                          -          (106,000)        $.44
Plan closed                         (433,858)                -            -
                            ================= ================ =================
Balance at December 31, 1996               -         1,633,142         $.44
                            ================= ================ =================
1996 Stock Option Plan
Shares reserved                    1,900,000                 -            -
Options granted                      (97,500)           97,500       $11.88
                            ================= ================ =================
Balance at December 31, 1996       1,802,500            97,500       $11.88
                            ================= ================ =================



<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

8.       Stockholder's Equity (continued)

The Company has recorded in 1996 and 1995 deferred  compensation  expense
totaling  $5,491,781  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.  The amount is being  amortized  over the  vesting  period of the
individual  options.  The vesting periods for options  granted to one of the
Company's  officers are: (a) 90 days from hire date for a portion of the options
and (b) a 48 month  period  following  such 90 day period for the  remainder of
the  options.  The vesting period for other options is generally 60 months.
Amortization  of deferred  compensation  in 1996 and 1995 totaled $1,028,489 and
$524,248, respectively.

During 1994 and June, 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 are subject to
repurchase  by the Company  based on cost at a sliding  scale over a 60 month
term  (resulting  in a reduced  number of shares  subject to  repurchase)  if
the related  employment  arrangements terminate.  Subsequent  to December  31,
1996 one of the  executive  officers  terminated  his  employment  and the
Company  intends to repurchase  approximately  200,000  shares in 1997 pursuant
to the provisions of the employment agreement.

In  September,  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 may lapse if the Company does not
meet  certain  1997  operating  results.  If 1997  operating  results are met,
these  options vest over a 60 month period.

The pro forma  disclosures  as  required by SFAS 123  regarding  net loss and
loss per share are to be stated as if the Company has  accounted  for its stock
options  granted  subsequent  to December  31, 1994 using the fair value method.
Using the  Black-Scholes  option  pricing  model the fair value at the date of
grant for these options was estimated  using the following  assumptions,  risk-
free  interest rates ranging from 5.8% to 6.8% for 1996 and 5.3% to 6.8% for
1995,  volatility  factor of the expected  market price of the Company's  common
stock of 0.69,  and an expected option life ranging from 1 to 5 years.

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


<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)



8.       Stockholder's Equity (continued)


For purposes of pro forma  disclosures,  the estimated fair value of the options
are amortized to expense over the expected life of the options.  The Company's
pro forma information follows:

                                           1996                     1995
                                ------------------------ -----------------------
Pro forma net loss                     $(10,662,080)             $(2,279,981)
Pro forma net loss per share               (0.44)                   (0.15)

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 may purchase up to an
aggregate of 6,666,340  shares of Common Stock at a purchase  price of
approximately  $.0001 per share.  The party may  exercise  the  warrant in whole
or in part at any given time prior to December  31, 2015 only if,  after giving
effect to such  exercise,  it  beneficially  owns less than five percent of the
outstanding  shares of the Company's Common Stock.  The warrant is not
transferable  without  regulatory  approval.  On December 28, 1995, the party
exercised a portion of the warrant and acquired 795,000 shares of Common Stock.



<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


8.     Stockholders' Equity (continued)

Pursuant to an agreement  reached in July 1994, the Company issued warrants to
purchase  certain equity  securities as might be determined by a subsequent
financing for an aggregate purchase price of $7,500.  Pursuant to the terms of
the  agreements,  and in conjunction  with the Company's  issuance of Series B
Preferred  Stock in October 1995, the holders of these warrants became entitled
to purchase an aggregate of 79 shares of Series B Preferred  Stock at the price
of $93.366 per share.  These warrants were exercised  concurrently  with the
completion of the Initial Public  Offering and were  automatically  converted
into 8,374 shares of Common Stock.  The warrants had negligible value at the
time of issuance.

In September 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  $.88,  and accordingly,  the warrants represent
rights to purchase  42,571 shares of Common  Stock.  The warrants for 31,220
shares may be exercised,  in whole or in part on or before April 27, 1997. The
remaining  warrant for 11,351 shares of Common Stock expires on October 20,2000.
As of December 31, 1996,  none of these  warrants has been exercised.
The warrants had negligible value at the time of issuance.

The Company agreed,  in connection  with the issuance of a convertible  note in
March 1995, to issue a warrant to a director  of the  Company.  In October 1995,
the  Company  issued the  warrant to the  director  for the right to purchase
3,623  shares of Series B  Preferred  Stock at an  exercise  price of $10.50 per
share.  The  warrant was exercised  concurrently with the completion of the
Initial Public Offering in May 1996 and automatically converted into 384,038
shares of common stock. The warrant had negligible value at the time of
issuance.

Convertible Notes

During 1995,  the Company  issued  707,868  shares of Common Stock upon
conversion of the $75,000 notes payable to individuals  (issued in 1994) plus
accrued  interest of $5,944.  Accordingly,  the Company  transferred  $80,944 to
stockholders' equity to record the conversion.

During 1995, the Company issued  convertible  notes payable for proceeds
totaling  $640,000.  Subsequently in 1995, these notes and the accrued  interest
thereon were  converted  by the holders into 136,210  shares of Common Stock
and 27,854 shares of Preferred Stock.  Accordingly,  the Company  transferred
$649,656 to stockholders'  equity to record the conversion.


<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)



9.     Leases

Prior to 1996,  the  Company  entered  into a number of capital  leases for
computer  equipment  to be used in the production  of ALMs as well as in the
Company's  offices,  including  leases  totaling  $245,281  in 1995.  Future
minimum lease payments under these capital leases in effect at December 31, 1996
 are as follows:

1997                                                      $    92,744
1998                                                           69,558
                                                       ------------------
Total                                                         162,302
Less amounts representing interest                            (26,070)
                                                       ------------------
Capital lease obligation to related party                 $   136,232
                                                       ==================

The Company has noncancellable  operating leases for the rental of its office
and ALM assembly  operations.  Future minimum lease payments under these leases
at December 31, 1996 are as follows:

      1997                                                $   510,511
      1998                                                    482,133
      1999                                                    522,501
      2000                                                    522,501
      2001                                                    348,339
                                                        ==================
      Total                                                $2,385,985
                                                        ==================

In 1996 and 1995 and the period from inception  (January 12, 1994) to December
31, 1994, the Company  incurred rent expense of $445,954, $74,773 and $7,799,
respectively.

10.    Income Taxes

As of December  31, 1996,  the Company had federal and state net operating loss
carryforwards  of  approximately $11,464,000. The net operating loss
carryforwards will begin to expire in 2009 if not utilized.



<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)



10.    Income Taxes (continued)

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 at:

                                                          December 31,
                                                    1996              1995
                                              ---------------- -----------------
Deferred tax assets:
   Net operating loss carryforwards                $4,351,700       $1,080,600
   Other                                              110,500           96,700
                                              ---------------- -----------------
Total deferred tax assets                           4,462,200        1,177,300
                                              ---------------- -----------------
Deferred tax liabilities:
   Capitalized software costs                        (121,200)         (77,000)
   Capital leases                                     (92,500)        (113,600)
   Depreciation                                      (266,000)         (51,900)
   Other                                               (1,700)          (9,200)
                                              ---------------- -----------------
Total deferred tax liabilities                       (481,400)        (251,700)
                                              ---------------- -----------------
                                              ---------------- -----------------
Less:
   Valuation allowance                             (3,980,800)        (925,600)
                                              ---------------- -----------------
Total net deferred taxes                     $              -  $             -
                                              ================ =================


The  Company  has  recorded a  valuation  allowance for the full  amount of its
deferred  income tax assets as of December 31, 1996 and 1995,  based on
management's  evaluation of the negative  evidence under the criteria of SFAS
109. The main  component of the  available  negative  evidence were the
Company's  cumulative  pretax losses since inception.

11. Segment Information

The Company  conducts its business  within one industry  segment.  To date, all
revenues  generated have been from transactions with North American customers.
Two  customers  accounted  for  58%  of  revenues  in  1996  which individually
represented 37% and 21% of revenues,  of which $1.8 million or 34% of total
revenues,  related to the non-exclusive,  perpetual,  royalty-free  license for
the call center  decisioning  system;  see Note 2 "Summary of Significant
Accounting  Policies - Deferred  Revenue." Four customers  accounted for 83% of
revenues in 1995 which individually represented 26%, 26%, 17% and 14% of
revenues.


<PAGE>

                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)



12.     Net Loss Per Share of Common Stock

Net loss per share of Common Stock  amounts  presented on the face of the
consolidated  statements  of  operations have been computed based on the
weighted  average number of shares of Common Stock  outstanding in accordance
with Accounting  Principles  Board  Opinion No. 15 ("APB  15").  Under this
guidance,  options,  warrants, convertible preferred stock and other potentially
dilutive  securities are considered as outstanding  only if their effect is
dilutive.

For periods  presented  prior to the Company's  initial public  offering on May
1, 1996 and which were presented in the Company's  Registration  Statement on
Form S-1 filed in connection  with the Company's  initial public offering of
Common Stock, net loss per share amounts were presented in accordance  with APB
15 as modified by Staff  Accounting  Bulletin No. 83 ("SAB 83") of the
Securities and  Exchange Commission.  Under  SAB  83,  all  issuances  of  the
Company's  Common  Stock options,  warrants, convertible  preferred  stock and
other  potentially dilutive  securities,  at prices  below the  initial  public
offering  price during the twelve month period  preceding the offering,  were
included as Common Stock  equivalents as if they had been  issued  at the
Company's  inception, regardless  of  whether  the  effect  was  dilutive  or
anti-dilutive.  SAB 83 applies to all periods  presented prior to the Company's
initial public offering.  The net loss  per  share  of Common Stock presented
in  accordance with  APB 15 as  modified  by  SAB 83 is presented supplementary
below:

                                                           Period from
                                    Year ended               inception
                                   December 31,         (January 12, 1994)
                                       1995            to December 31, 1994

Net loss per share
   under APB 15 as
   modified by SAB 83               $ (0.09)                  $ (0.04)

Shares used in
   computing net loss
   per share under
   APB 15 as modified
   by SAB 83                        25,660,332               18,051,691

13.    Other Related Party Transactions

The Company has conducted ALM leasing  transactions  with a bank which holds a
warrant to acquire  shares of Common Stock of the Company.  See Note 8. The
Company has  installed  and  otherwise  delivered a number of ALMs on behalf
of the bank  during 1996 and 1995.  The  Company  had a net  investment  of
approximately  $470,000 in  sales-type leases and trade accounts  receivable of
approximately  $168,000 with the bank as of December 31, 1996. 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.


<PAGE>


                Affinity Technology Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


14.   Commitments and Contingencies

     The Company is subject to legal actions from time to time which have arisen
in the  ordinary  course of  business. Certain  claims have also been filed by
plaintiffs  who claim certain  rights,  damages or interests  incidental to
the Company's  formation and  development.  The Company intends to vigorously
contest all such actions and, in the opinion of  management, the Company
has  meritorious  defenses and the  resolution of such actions will not
materially affect the financial position of the Company.



<PAGE>

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 20,  1997  under the caption  "Board of Directors", which is
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 20, 1997 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 20, 1997 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 20, 1997 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.    Report of Independent Auditors
         ii.   Consolidated Balance Sheets as of December 31, 1996 and 1995.
         iii.  Consolidated  Statement  of  Operations  for the years ended
               December 31, 1996 and 1995 and for the period from inception
               (January 12, 1994) to December 31, 1994.
         iv.   Consolidated  Statements of Stockholders'  Equity for the years
               ended December 31, 1996 and 1995 and for the period from
               inception (January 12, 1994) to December 31, 1994.
         v.    Consolidated  Statements  of Cash Flows for the years ended
               December  31, 1996 and 1995 and for the period from inception
               (January 12, 1994) to December 31, 1994.

     (2)  No financial  statement  schedules  are 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.

<PAGE>

     (3) Exhibits:

          Exhibit Number       Description
          3.1                  Certificate of Incorporation of Affinity
                               Technology Group, Inc. which is hereby
                               incorporated by reference to Exhibit 3.1 to the
                               Registration  Statement on Form S-1 of Affinity
                               Technology Group, Inc. (File No. 333-1170).
          3.2                  By-laws 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                  Stock Subscription  Warrant,  dated September 6,
                               1995, for the purchase of up to 11,353  shares of
                               Common Stock which is hereby  incorporated  by
                               reference  to Exhibit 4.2 to the  Registration
                               Statement  on Form S-1 of Affinity  Technology
                               Group, Inc. (File No. 333-1170).
          4.3                  Stock Subscription  Warrant,  dated September 6,
                               1995, for the purchase of up to 11,353  shares of
                               Common  Stock which is hereby  incorporated  by
                               reference  to Exhibit 4.3 to the  Registration
                               Statement  on Form S-1 of Affinity  Technology
                               Group, Inc. (File No. 333-1170).
          4.4                  Stock Subscription Warrant,  dated September 11,
                               1995, for the purchase of up to 2,838  shares of
                               Common  Stock  which is hereby  incorporated  by
                               reference  to Exhibit 4.4 to the  Registration
                               Statement  on Form S-1 of Affinity  Technology
                               Group, Inc. (File No. 333-1170).
          4.5                  Stock Subscription Warrant,  dated September 11,
                               1995, for the purchase of up to
                               5,676  shares of Common  Stock  which is hereby
                               incorporated  by  reference  to Exhibit 4.5 to
                               the  Registration  Statement  on Form S-1 of
                               Affinity  Technology Group, Inc. (File No.
                               333-1170).
          4.6                  Series A Common Stock Warrant,  dated September
                               1995, for the purchase of up to 11,351 shares of
                               Common  Stock which is hereby  incorporated  by
                               reference  to Exhibit 4.6 to the  Registration
                               Statement  on Form S-1 of Affinity  Technology
                               Group, Inc. (File No. 333-1170).
          4.7                  Warrant  to  Purchase  Common  Stock of Affinity
                               Technology  Group,  Inc.  date November  8, 1995,
                               for the purchase, subject to certain conditions,
                               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).
          4.8                  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.
          4.9                  Loan  Agreement,  dated as of March 1, 1996, by
                               and between  Affinity  Technology Group,  Inc.
                               and all of its wholly owned  subsidiaries  and
                               NationsBank,  N.A. which is hereby incorporated
                               by reference  to Exhibit 4.9 to the  Registration
                               Statement on Form S-1 of Affinity Technology
                               Group, Inc. (File No. 333-1170).
          10.1*                Employment  Agreement,  dated June 1, 1995,
                               between Affinity  Technology Group, Inc. and Paul
                               A. Jones,  Jr. which is hereby  incorporated  by
                               reference to Exhibit 10.1 to the  Registration
                               Statement on Form S-1 of Affinity  Technology
                               Group, Inc. (File No. 333-1170).
          10.2*                Stock  Purchase  Agreement,  dated June 15, 1995,
                               between  Affinity  Technology Group,  Inc. and
                               Paul A. Jones, Jr. which is hereby incorporated
                               by reference to Exhibit 10.2 to the Registration
                               Statement on Form S-1 of Affinity  Technology
                               Group, Inc. (File No. 333-1170).
          10.3*                Employment Agreement,  dated October 1, 1995,
                               between Affinity Technology Group, Inc. and Carl
                               M. Donnelly which is hereby  incorporated  by
                               reference to Exhibit 10.3 to the  Registration
                               Statement on Form S-1 of Affinity  Technology
                               Group, Inc. (File No. 333-1170).
          10.4*                Employment  Agreement,  dated May 3, 1994,
                               between Affinity  Technology  Group, Inc. and Mel
                               Ray which is hereby incorporated  by reference to
                               Exhibit 10.4 to the Registration  Statement on
                               Form S-1 of Affinity Technology Group, Inc. (File
                               No. 333-1170).
          10.5*                Stock Purchase Agreement, dated October 2, 1994,
                               between Affinity  Technology Group,  Inc. and Mel
                               Ray which is hereby  incorporated  by reference
                               to Exhibit 10.5 to the Registration Statement on
                               Form S-1 of Affinity  Technology  Group,
                               Inc. (File No. 333-1170).
          10.6                 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).
          10.7*                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).
          10.8*                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).
          10.9*                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).
          10.10*               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).
          10.11*               1996 Stock  Option  Plan of  Affinity Technology
                               Group,  Inc.  which is hereby incorporated  by
                               reference  to Exhibit  10.11 to the Registration
                               Statement on Form S-1 of Affinity Technology
                               Group, Inc. (File No. 333-1170).
          10.12*               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).
          10.13                Series A  Preferred  Stock  Purchase  Agreement,
                               dated June 30,  1995,  between Affinity
                               Technology   Group,  Inc.  and  certain
                               investors  which  is  hereby incorporated  by
                               reference  to Exhibit  10.13 to the  Registration
                               Statement on Form S-1 of Affinity Technology
                               Group, Inc. (File No. 333-1170).
          10.14                Series B Preferred  Stock Purchase  Agreement,
                               dated October 20, 1995,  between Affinity
                               Technology  Group, Inc.  and  certain  investors
                               which  is  hereby incorporated  by reference  to
                               Exhibit  10.14 to the  Registration  Statement on
                               Form S-1 of Affinity Technology Group, Inc. (File
                               No. 333-1170).
          10.15                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).
          10.16                Joint  Venture  Agreement,  dated March 1996, by
                               and among  Affinity  Processing Corporation,
                               Affinity  Technology  Group,  Inc. and Union
                               Planters Corporation which is hereby incorporated
                               by reference to Exhibit 10.16 to the Registration
                               Statement on Form S-1 of Affinity Technology
                               Group, Inc. (File No. 333-1170).
          10.17**              Automated Loan System  Agreement,  dated October
                               4, 1995,  between Affinity Bank Technology
                               Corporation  and  Banco  Popular  de  Puerto
                               Rico  which is  hereby incorporated  by reference
                               to Exhibit  10.17 to the Registration  Statement
                               on Form S-1 of Affinity Technology Group, Inc.
                               (File No. 333-1170).
          10.18**              Master Equipment Rental Agreement,  dated October
                               4, 1995, between Affinity Credit
                               Corporation  and  Banco  Popular  de  Puerto
                               Rico  which is  hereby incorporated  by reference
                               to Exhibit  10.18 to the Registration  Statement
                               on Form S-1 of Affinity Technology Group, Inc.
                               (File No. 333-1170).
          10.19**              Operating  Agreement,  dated March 15, 1996,
                               between  Affinity Clearinghouse Corporation
                               and Banc One Financial  Services,  Inc. which is
                               hereby incorporated by  reference  to Exhibit
                               10.19 to the  Registration  Statement  on Form
                               S-1 of Affinity Technology Group, Inc. (File No.
                               333-1170).
          10.20                Form of Bill of Sale between Affinity Technology
                               Group, Inc. and Association Member  Services,
                               Inc.  which is hereby incorporated by reference
                               to Exhibit 10.20 to the Registration Statement on
                               Form S-1 of Affinity  Technology  Group,
                               Inc. (File No. 333-1170).
          21                   Subsidiaries of Affinity  Technology Group, Inc.
                               which is hereby incorporated by reference  to
                               Exhibit 21 to the  Registration  Statement on
                               Form S-1 of Affinity Technology Group, Inc.
                               (File No. 333-1170).
          23.1                 Consent of Independent Auditors.
          27                   Financial Data Schedule.

*   Denotes a management contract or compensatory plan or arrangement.
**  The registrant has requested that certain provisions of these exhibits
     be given confidential treatement.

<PAGE>

(b)      Reports on Form 8-K filed in the 4th quarter of 1996:

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).





<PAGE>

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 31, 1997                       By:/s/ Jeff A. Norris
                                              -------------------------------
                                               Jeff A. Norris, President and
                                               Chief Executive Officer

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

/s/  Jeff A. Norris                                        March 31, 1997
----------------------                            ------------------------------
Jeff A. Norris         President, Chief Executive
                       Officer and Director
                       (principal executive officer)

/s/  Alan H. Fishman                                       March 31, 1997
-----------------------                           ------------------------------
Alan H. Fishman         Chairman and Director

                                                           March 31, 1997
------------------------                          ------------------------------
Steven J. Gilbert       Director

/s/  Robert M. Price                                       March 31, 1997
------------------------                          ------------------------------
Robert M. Price         Director

/s/ Edward J. Sebastian                                    March 31, 1997
------------------------                          ------------------------------
Edward J. Sebastian     Director

                                                           March 31, 1997
------------------------                          ------------------------------
Peter R. Wilson, Ph.D.   Director

/s/  Joseph A. Boyle                                       March 31, 1997
------------------------                          ------------------------------
Joseph A. Boyle          Senior Vice President and
                         Chief Financial Officer
                         (principal financial officer)

/s/  Richard R. Butcher                                     March 31, 1997
------------------------                          ------------------------------
Richard R. Butcher       Controller
                         (principal accounting officer)




<PAGE>

Exhibit Index

Exhibit Number           Description
--------------           ----------------------------
23.1                       Consent of Ernst & Young LLP
27                       Financial Data Schedule



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 Non-Employee  Directors' Stock
Option  Plan,  of our report  dated  February  12, 1997,  with  respect to the
consolidated  financial  statements included in the Annual  Report (Form 10-K)
of Affinity  Technology  Group,  Inc.,  for the year ended  December 31, 1996.


                                                 /s/  Ernst & Young LLP

Greenville, South Carolina
March 31, 1997