SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1996 Commission file number: 0-28152
Affinity Technology Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 57-0991269
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Affinity Technology Group, Inc.
1333 Main Street, Suite 101
Columbia, SC 29201-3201
(Address of principal executive offices)
(Zip code)
(803) 254-9006
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ____ No X
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
27,773,680 shares of Common Stock, $.0001 par value, as of June 10, 1996.
<PAGE>
AFFINITY TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995........................................ 3
Condensed Consolidated Statements of Income for the three
months ended March 31,1996 and 1995.......................... 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1996 and 1995.......................... 5
Notes to Condensed Consolidated Financial Statements........... 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................. 8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K......................... 10
Signature............................................................... 11
Exhibit Index........................................................... 12
<PAGE>
Part I. Financial Information
Item 1. Financial Statements.
AFFINITY TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1996 1995
ASSETS
Current assets:
Cash and cash equivalents......................... $ - $1,235,983
Cash in escrow.................................... 450,000 -
Accounts receivable, net.......................... 262,595 143,295
Net investment in sales-type leases - current..... 399,630 297,576
Inventories....................................... 667,050 366,610
Other current assets.............................. 284,301 29,534
--------- ---------
Total current assets...................... 2,063,576 2,072,998
Net investment in sales-type leases - non-current... 1,011,578 860,295
Property and equipment, net......................... 2,267,439 1,446,675
Software development costs ......................... 207,858 203,048
Other assets........................................ 191.666 8,152
--------- ---------
$5,742,117 $4,591,168
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable and capital lease
obligations...................................... 1,163,075 $ 247,419
Accounts payable and accrued expenses............. 2,443,323 1,192,862
Current portion of deferred revenue............... 619,662 1,767,182
------- ---------
Total current liabilities................. 4,226,060 3,207,463
Notes payable and capital lease obligations,
less current portion.............................. 53,538 370,518
Deferred revenue.................................... 419,631 258,275
Capital stock of subsidiary held by minority
investor........................................... 137,500 137,500
Stockholders' equity:
Preferred stock, common stock and additional
paid-in capital.................................. 8,598,945 7,221,986
Deferred compensation............................. (4,761,375) (3,590,574)
Accumulated deficit............................... (3,232,182) (3,014,000)
--------- -----------
Total stockholders' equity..................... 605,388 617,412
--------- ---------
$5,742.117 $4,591,168
========= =========
(1) The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
<PAGE>
AFFINITY TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months
Ended March 31,
1996 1995
---- ----
Revenues:
Initial set-up, transactions and other........ $ 258,653 $ 231
Sales and rental ............................. 388,743 424,261
License revenue............................... 1,237,500 -
--------- -------
Total revenues........................ 1,884,896 424,492
Costs and expenses:
Cost of revenues.............................. 728,211 137,299
Research and development...................... 387,437 25,736
Selling, general and administrative expenses.. 1,003,103 92,818
--------- -------
Total costs and expenses.............. 2,118,751 255,853
--------- -------
Operating (loss) income......................... (233,855) 168,639
Interest income (expense), net.................. 15,673 (24,114)
--------- -------
Net (loss) income............................... $ (218,182) $ 144,525
========= =======
Net (loss) income per share..................... $ (0.007) $ 0.005
========= =======
Shares used in computing net(loss)income per
share.......................................... 30,422,971 29,159,427
See accompanying notes.
<PAGE>
AFFINITY TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months
Ended March 31,
1996 1995
---- ----
Operating activities
Net (loss) income.................................. $ (218,182) $ 144,525
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Depreciation and amortization.................... 94,578 20,388
Amortization of deferred compensation............ 206,158 -
Deferred revenue................................. (986,164) 126,021
Changes in assets and liabilities:
Accounts receivable........................... (119,300) (11,165)
Net investment in sales-type leases........... (253,337) (400,591)
Inventories................................... (300,440) (51,776)
Other assets.................................. (888,499) (27,318)
Accounts payable and accrued expenses......... 1,250,461 155,457
--------- -------
Net cash used in operating activities.............. (1,214,725) (44,459)
Investing activities
Purchases of property and equipment................ (901,147) (137,169)
Software development costs......................... (18,787) (44,586)
--------- -------
Net cash used in investing activities.............. (919,934) (181,755)
Financing activities
Proceeds from notes payable........................ 911,841 379,369
Payments on notes payable and capital leases....... (13,165) (24,701)
--------- -------
Net cash provided by financing activities.......... 898,676 354,668
--------- -------
Net (decrease) increase in cash.................... (1,235,983) 128,454
Cash and cash equivalents at beginning of period... 1,235,983 29,985
--------- -------
Cash and cash equivalents at end of period......... $ - $ 158,439
========= =======
See accompanying notes.
<PAGE>
AFFINITY TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1996
1. Basis of Presentation
The accompanying unaudited condensed financial statements reflect all
adjustments (consisting of normal recurring accruals) which, in the opinion of
management, are necessary for a fair presentation of the results for the periods
shown. The results of operations for such periods are not necessarily indicative
of the results expected for the full fiscal year or for any future period. The
accompanying financial statements should be read in conjunction with the audited
consolidated financial statements of Affinity Technology Group, Inc. for the
year ended December 31, 1995.
2. Inventories
Inventories consist of the following
March 31, December 31,
1996 1995
---- ----
Electronic parts and other components $461,959 $182,680
Work in progress 251.091 229.930
-------- --------
713,050 412,610
Inventory valuation reserve (46,000) (46,000)
-------- --------
$667,050 $366,610
======== ========
3. License Revenue
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. 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 fee was deferred at
December 31, 1995 pending delivery of the product. The Company delivered the
product to the financial institution in the quarter ended March 31, 1996, and
accordingly recognized the associated revenue during such quarter.
4. Net (Loss) Income Per Share of Common Stock
Net (loss) income per share of Common Stock is computed based on the weighted
average number of shares of Common Stock outstanding. In accordance with Staff
Accounting Bulletin No. 83 of the Securities and Exchange Commission, all
issuances of the Company's Common Stock options, warrants, convertible preferred
stock and other potentially dilutive securities, at prices below the expected
initial public offering price during the twelve month period preceding the
offering, have been included as Common Stock equivalents as if they had been
issued at the Company's inception
<PAGE>
5. Subsequent Events
On May 1, 1996, the Company purchased for $450,000 certain furniture, fixtures,
equipment and computer hardware of Association Membership Services, Inc. d/b/a
Electronic Merchant Services ("EMS"), a private company that develops and
markets software designed to process credit card and other transactions. As of
March 31, 1996, the Company had placed the purchase price of $450,000 in escrow,
which funds were obtained from a note payable with a bank.
On May 1, 1996, the Company successfully completed its initial public offering
of 5,060,000 shares of its Common Stock. The offering yielded net proceeds to
the Company of approximately $60.2 million. The Company's shares are traded on
the The Nasdaq National Market under the symbol "AFFI". Contemporaneously with
consummation of the offering, all outstanding shares of Series A and Series B
Preferred Stock (including 3,702 shares of Series B Preferred Stock issued upon
the exercise of outstanding Preferred Stock warrants) were converted into shares
of the Company's Common Stock.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Overview
The Company was formed in January 1994 to develop and market technologies that
enable financial institutions and other businesses to provide consumer financial
services electronically with reduced or no human intervention. The Company
currently markets one product, the Affinity ALM, which was first placed in
service in January 1995.
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 March 31,1996 of
$3,232,182 with operating losses of $218,182 for the three months ended March
31, 1996.
Results of Operations
Revenues
The Company's revenues for the three months ended March 31, 1996 and 1995 were
$1,884,896 and $424,492 respectively.
Initial Set-up,Transactions, and Other. Income from initial set-up, transactions
and other amounted to $258,653 and $231 for the three month period ended March
31, 1996 and 1995, respectively. The increase resulted from volume increases as
significantly more ALMs were installed and in service throughout the quarter
ended March 31, 1996 than in the corresponding period of 1995.
Sales and Rental. Sales and rental revenues were $388,743 and $424,261 for the
three months ended March 31, 1996 and 1995, respectively, representing an 8.4%
decrease. The decrease is primarily due to the timing of ALM installations and a
corresponding decrease in revenues for the ALM capital leases.
License Revenue. License revenue amounted to $1,237,500 during the three months
ended March 31, 1996. This item related to a non-exclusive, perpetual,
royalty-free license granted to a financial institution to use one of the
Company's software products, Assets3. The financial institution had paid the
Company $1,237,500 in 1995 as an initial license fee for use of an initial
version of Assets3 in the United States, which fee was deferred at December 31,
1995. The revenue was recognized in the quarter ended March 31, 1996 upon
delivery of the product. In addition, such financial institution has the
option to purchase for $562,500 a perpetual, royalty-free license to use
Assets3 in North America upon the Company's enhancement of such system. The
Company expects to record such additional license fee as revenue if and when
such payment is received. While the Company may continue to enter into similar
arrangements in the future, the Company does not currently anticipate any
additional significant revenue of this type during the remainder of 1996.
Costs and Expenses
Cost of Revenues. Cost of revenues for the three months ended March 31, 1996 and
1995 totalled $728,211 and $137,299, respectively. The increase is primarily due
to an increase in staffing and other spending increases necessary to prepare for
increased levels of output.
Research and Development. Research and development costs totalled $387,437, and
$25,736 for the three months ended March 31, 1996 and 1995, respectively. Cost
increases in this area are primarily associated with increased staffing in the
Company's technical area. The Company anticipates that it will continue to
commit substantial resources to research and development activities for the
foreseeable future.
<PAGE>
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses totalled $1,390,540 and $92,818 for the three months
ended March 31, 1996 and 1995, respectively. In 1996, the major cost element was
salaries and wages, totaling $861,510, which includes $206,158 related to the
amortization of deferred compensation expense resulting from stock options
granted in 1995 and 1996. Increased selling, general, and administrative
expenses in 1996 were primarily attributable to increased levels of staffing to
prepare for increased levels of output.
Interest Income/Expense. Interest income was $37,174 in the three months ended
March 31, 1996. No interest income was reported in the corresponding period in
1995. In 1996, the majority of interest income was attributable to deferred
interest income relating to ALM's under capital leases. The Company expects
interest income to increase in future periods as more ALM's are placed into
service under capital leases.
Interest expense for the three months ended March 31, 1996 and March 31, 1995
was $21,501 and $24,114, respectively. The Company expects interest expense to
be nominal in the near future.
Liquidity and Capital Resources
The Company has generated operating losses of $3,232,182 since its inception and
has financed its operations primarily through the private sale of debt and
equity securities, capital lease obligations, bank financing and loans from
affiliates. The Company has on two occasions financed, and may from time to time
in the future finance, its operations through the sale of ALM rental contracts
to a commercial factor. During 1995, the Company raised $2,982,356 in equity
capital through the sale of the Series A and Series B Preferred Stock of the
Company.
Cash used in investing activities of approximately $920,000 during the three
months ended March 31, 1996 related primarily to capital expenditures. Cash
flows from financing activities of approximately $900,000 were primarily due to
proceeds received from notes payable.
At March 31, 1996, the Company's principal source of liquidity was a $2,000,000
revolving line of credit with a bank of which approximately $462,000 was
utilized at March 31, 1996. The Company also had entered into a $450,000
unsecured short-term loan to a bank to finance its acquisition of certain assets
of Association Membership Services Inc, d/b/a Electronic Merchant Services. As
of June 10, 1996, the Company had no outstanding borrowings under its line of
credit and had repaid its $450,000 short-term loan in full.
On May 1, 1996, the Company successfully completed its initial public offering
of 5,060,000 shares of its Common Stock. The offering yielded net proceeds to
the Company of approximately $60.2 million. The Company has used a portion of
the proceeds of this offering to pay down outstanding bank debt, and expects to
use the remaining balance to implement an extensive marketing plan, to fund
research and development and capital expenditures and for general corporate
purposes, which may include the acquisition of services, products, technologies
or companies that complement or otherwise enhance the companies existing
business.
The Company believes that the proceeds from the sale of the Common Stock,
internally generated funds and available borrowings, will be sufficient to meet
the Company's currently anticipated operating and capital expenditure
requirements, including planned expenditures for the enhancement of the
Affinity ALM, the development of Assets3 and general research and development.
<PAGE>
Part II. Other Information
Item 1, 2, 3, 4 and 5 are not applicable and have been ommitted.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 11 - Statement of Computation of Net (Loss) Income Per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
March 31, 1996..
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Affinity Technology Group, Inc.
By: /s/ Carl M. Donnelly
Carl M. Donnelly
Executive Vice President, Chief Financial Officer
Date: June 10, 1996
EXHIBIT INDEX
Exhibit
Number Description
11 Statement of Computation of Net (loss) income per share
27 Financial Data Schedule
EXHIBIT 11
AFFINITY TECHNOLOGY GROUP, INC.
COMPUTATION OF NET (LOSS) INCOME PER SHARE
Three months
ended
March 31,
--------
1996 1995
---- ----
Historical weighted average shares outstanding (1).. 16,695,318 14,636,780
Preferred stock, Series A and B, assumed converted
to Common Stock at consummation of the planned
initial public offering (1) (2) ................. 5,625,950 5,625.950
Common stock equivalents for options and warrants
outstanding (1) (2) (3) ......................... 8,101,703 8,896,697
---------- ----------
Shares used in computing net (loss) income
per share................................. 30,422,971 29,159,427
========== ==========
Net (loss) income................................... $ (218,182) $ 144,525
========== ==========
Net (loss) income per share......................... $ (0.007) $ 0.005
========== ==========
(1) All common, preferred stock, options and warrants have been adjusted for
the 106-for-1 common stock split effected prior to consummation of the
initial public offering.
(2) Issuance of common stock options, warrants, convertible preferred stock
and other potentially dilutive securities, at prices below the public
offering price during the twelve month period preceding the offering,
have been included as common stock equivalents as if they had been issued
as common stock at the Company's inception in accordance with Staff
Accounting Bulletin No. 83 of the Securities and Exchange Commission.
(3) The repurchase price for all periods used in computing the proceeds
received under the treasury stock approach is the initial public offering
price.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,673,803
<ALLOWANCES> 0
<INVENTORY> 667,050
<CURRENT-ASSETS> 2,063,576
<PP&E> 2,267,439
<DEPRECIATION> 192,910
<TOTAL-ASSETS> 5,742,117
<CURRENT-LIABILITIES> 4,226,060
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 605,388
<TOTAL-LIABILITY-AND-EQUITY> 5,742,117
<SALES> 0
<TOTAL-REVENUES> 1,884,896
<CGS> 0
<TOTAL-COSTS> 2,118,751
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (15,673)
<INCOME-PRETAX> (218,182)
<INCOME-TAX> 0
<INCOME-CONTINUING> (218,182)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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