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Registration No. 333-48176
As filed with the Securities and Exchange Commission on January 18, 2001
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
on FORM S-2
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AFFINITY TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 1201 Main Street, Suite 2080 57-0991269
(State or Other Columbia, SC 29201 (I.R.S. Employer
Jurisdiction of (803) 758-2511 Identification No.)
Incorporation or (Address, including zip code,
Organization) and telephone number, including
area code, of Registrant's
principal executive offices)
-------------------------
Joseph A. Boyle
President, Chief Executive Officer and Chief Financial Officer
Affinity Technology Group, Inc.
1201 Main Street, Suite 2080
Columbia, South Carolina 29201
(803) 758-2511
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies to:
David W. Dabbs
Robinson, Bradshaw & Hinson, P.A.
101 North Tryon Street, Suite 1900
Charlotte, North Carolina 28246
(704) 377-8383
-------------------------
Approximate date of commencement of the proposed sale to the public:
From time to time after the effective date of this Registration Statement as
determined by the selling stockholders.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective statement for the
same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
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===================================================================================================================================
Title of Each Class of Proposed Maximum Proposed Maximum
Securities to Be Amount to be Offering Price Aggregate Offering Amount of Registration
Registered Registered Per Unit Price Fee
------------------------------ -------------------- ---------------- ------------------ ----------------------
<S> <C> <C> <C> <C>
Common Stock, $.0001 par value 6,105,426 shares (1) (2) (2) (2)
(upon conversion of a
convertible debenture)
Common Stock, $.0001 par value 235,000 shares (1) (2) (2) (2)
(underlying warrants)
Total 6,340,426 shares (2) (2) (2)
===================================================================================================================================
</TABLE>
(1) Together with such indeterminate number of securities to be offered as
a result of any adjustment for stock splits, stock dividends, exercise
price adjustments or similar events. No adjustment to the number of
securities registered hereby shall be made pursuant to Rule 416 under
the Securities Act of 1933 as a result of a decline in the market price
of the Registrant's common stock. If market conditions cause the number
of securities
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issuable under the convertible debenture to exceed the number of
securities registered hereby, the Registrant will file a separate
registration statement (or, if permissible, file an amendment to this
registration statement) to register such securities under the
Securities Act of 1933.
(2) The registration fee was paid in connection with the initial filing of
this registration statement on October 18, 2000.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE OR JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 18, 2001
-------------------
P R O S P E C T U S
-------------------
6,340,426 Shares
AFFINITY TECHNOLOGY GROUP, INC.
Common Stock
This prospectus relates to shares of common stock of Affinity
Technology Group, Inc. that may be offered and sold, from time to time, by the
selling stockholders, who may acquire all or a portion of these shares in
connection with a convertible debenture and warrants purchase agreement, dated
September 22, 2000, between one of the selling stockholders and us. We will not
receive any of the proceeds from the sale of the shares offered hereby.
The selling stockholders may sell the shares of common stock at various
times in various types of public or private transactions, including sales in the
open market, in negotiated transactions or by any combination of these methods,
at prevailing market prices or at privately negotiated prices. The shares may be
sold directly or through agents or broker-dealers acting as principal or agent,
or in block trades or through one or more underwriters on a firm commitment or
best-efforts basis. The selling stockholders may engage underwriters, brokers,
dealers or agents, who may receive commissions or discounts from the selling
stockholders. We do not know, however, when the proposed sale of the shares by
the selling stockholders will occur. We will pay the expenses incident to the
registration of such shares, except for selling commissions.
The selling stockholders and any underwriters, agents or broker-dealers
that participate with the selling stockholders in the distribution of the common
stock may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, and any commissions received by them and any profit on the resale
of the common stock may be deemed to be underwriting commissions or discounts
under such Act.
Our common stock is traded on the Nasdaq SmallCap Market under the
trading symbol "AFFI." The reported closing price on the Nasdaq SmallCap Market
on January 16, 2001 was $0.2344 per share.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 6 OF
THIS PROSPECTUS BEFORE PURCHASING ANY OF THE COMMON STOCK OFFERED HEREBY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is January 18, 2001.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Affinity Technology Group.................................................................................... 3
Risk Factors................................................................................................. 6
Use of Proceeds.............................................................................................. 15
Selling Stockholders......................................................................................... 15
Plan of Distribution......................................................................................... 19
Legal Matters................................................................................................ 21
Experts...................................................................................................... 21
Available Information........................................................................................ 21
Information Incorporated by Reference........................................................................ 21
Indemnification of Directors and Officers.................................................................... 22
Description of Capital Stock................................................................................. 22
</TABLE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. The selling stockholders are offering to sell, and
seeking offers to buy, shares of our common stock only in jurisdictions where
offers and sales are permitted. You should not assume that the information in
this prospectus or any supplement is accurate as of any date other than the date
on the cover page of such documents.
In this prospectus, "Affinity," "we," "us" and "our" refer to Affinity
Technology Group, Inc., a Delaware corporation, and the "selling stockholders"
refers to AMRO International, S.A. and Cardinal Securities, LLC, as described in
the section titled "Selling Stockholders" beginning on page 15.
FORWARD-LOOKING INFORMATION
This prospectus, including the information incorporated by reference
herein, contains 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. Some of this information is based on the beliefs of management as well as
assumptions made by and information currently available to management. When used
in this prospectus or in the documents incorporated by reference in this
prospectus, the words "anticipate," "believe," "estimate," "expect," "intend,"
"plan," or any similar expressions, as they relate to Affinity or our
management, or the management of our business, may identify forward-looking
statements. Our actual results could differ materially from those projected in
the forward-looking statements as a result of the risks and uncertainties
described in this prospectus under the title "Risk Factors," the risks and
uncertainties described in the section titled "Business - Business Risks" of our
annual report on Form 10-K for the year ended December 31, 1999 and the risks
and uncertainties described in the section titled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of our annual report
on Form 10-K for the year ended December 31, 1999 and our quarterly report on
Form 10-Q for the quarter ended September 30, 2000, both of which are
incorporated by reference in this prospectus, and any subsequently filed reports
under the Securities Exchange Act of 1934.
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AFFINITY TECHNOLOGY GROUP
We develop and market technologies that enable financial institutions
and other businesses to provide consumer financial services electronically with
reduced or no human intervention. Our DeciSys/RT(SM) processing system automates
the processing and consummation of consumer financial services. DeciSys/RT can
simultaneously accept and capture consumer information through remote input
devices, such as touch-screen terminals or loan officers, and automatically
interact with credit bureaus and other third parties that supply information
necessary to process a consumer financial transaction. Our products and services
currently consist of:
- the Affinity Automated Loan Machine (the ALM(R)), which looks
and functions much like an automated teller machine and
permits a consumer to apply for and, if approved, receive a
consumer loan without human intervention in as little as 10
minutes;
- our e-xpertLender(SM) system, which permits a financial
institution to use our DeciSys/RT(R) system to make automated
lending decisions through call centers, branches and
automobile dealerships;
- iDEAL(SM) (indirect electronic automobile lending system),
which permits a lender to make automated lending decisions for
loan applications originated at an automobile dealership; and
- rtDS (realtime decisioning services), which is based on our
e-xpertLender system and permits a lender to deliver credit
decisions to loan applicants over the Internet.
In addition, through our wholly-owned subsidiary Surety Mortgage, Inc.,
we originate and process mortgage loans.
We have been granted two patents covering our fully-automated loan
processing system. In addition, in 1997 we acquired a patent that covers the
automated processing of an insurance binder through a point-of-sale
consumer-directed device. Also, in August 2000 we were granted a patent covering
the automated establishment of a financial account. We have initiated a patent
licensing program for our loan processing patents and are developing a licensing
program for our newly-issued financial account patent. As discussed below under
"Recent Developments," the U.S. Patent and Trademark Office is reexamining some
of our patents.
Since we were formed in January 1994, we have generated substantial
operating losses, have experienced an extremely lengthy sales cycle for our
products and services and have been required to use a substantial amount of
existing cash resources to fund our operations. At September 30, 2000, we had
cash and cash resources of approximately $833,000.
In January 2000, we reduced our employee base by 47%. Assuming that we
do not incur any material liability in connection with the conversion of the
debenture that we have issued to AMRO International, S.A., as described below
under "Recent Developments," we believe that existing cash and internally
generated funds will be sufficient to fund our operations during the first
quarter of 2001. However, we may encounter unexpected expenses, the loss of
anticipated revenues and other developments that would impact our ability to
fund operations for the entire first quarter of 2001. In particular, we may be
required to make a cash payment to AMRO in connection with the conversion of its
debenture, the amount of which may be significant depending on our stock price
at the time of conversion, as described in the section titled "Selling
Stockholders." We may not have the financial resources to pay this liability.
Therefore, we cannot assure you that we will have enough cash to operate through
the end of the first quarter of 2001. Moreover, we believe that our existing
cash resources will be insufficient to fund our operations after the first
quarter of 2001. To remain viable, we must raise additional capital. In
addition, we may be required to reduce our operations significantly. We cannot
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assure you that we will be able to raise additional capital or reduce our
operations in a manner that will permit us to continue operations.
Our principal offices are located at 1201 Main Street, Suite 2080,
Columbia, South Carolina 29201, and our telephone number is (803) 758-2511.
RECENT DEVELOPMENTS
We have been notified by the Nasdaq Stock Market that we are not in
compliance with Nasdaq listing standards that require our stock to maintain a
minimum bid price of $1.00 or more. We initially were given until December 28,
2000 to regain compliance, which would have required our stock price to close at
$1.00 or more for at least ten consecutive trading days. We failed to regain
compliance by December 28, 2000. As permitted by the rules of the Nasdaq Stock
Market, we have requested a review by Nasdaq of its determination to delist our
stock, and that request has temporarily suspended the delisting of our stock for
an indefinite period of time. We cannot assure you that we will be able to
regain compliance with Nasdaq listing standards or that our stock will continue
to be eligible for trading on the Nasdaq SmallCap Market or any other market.
On April 18, 2000, we filed a lawsuit against The Dime Savings Bank of
New York, FSB and Hudson United Bancorp in The United States District Court for
the District of South Carolina, Columbia Division. The lawsuit arises out of our
contract with The Dime Savings Bank relating to the development of a system to
process and automate decisioning of automobile loans. This contract was acquired
by The Dime Savings Bank in connection with its acquisition of the indirect
automobile loan business formerly operated by Citibank, N.A. In our complaint,
we allege a breach of contract by The Dime Savings Bank and intentional
interference with the contract by Hudson United Bancorp, which attempted to
merge with The Dime Savings Bank earlier this year. The lawsuit also contains a
civil conspiracy claim against both The Dime Savings Bank and Hudson United
Bancorp and seeks actual and punitive damages against both defendants. Since we
filed this lawsuit, Hudson United Bancorp has been granted a request to dismiss
the lawsuit against it due to lack of jurisdiction in South Carolina. We are
evaluating whether to re-institute a similar lawsuit against Hudson United
Bancorp in another jurisdiction. In addition, The Dime Savings Bank has asserted
counterclaims against us for an unspecified amount of damages for breach of
contract, breach of warranty, constructive fraud and negligent
misrepresentation. We intend to contest these allegations vigorously.
Both of our patents covering fully-automated lending systems are being
reexamined by the U.S. Patent and Trademark Office due to challenges by third
parties. In March 2000 and again in August 2000, the U.S. Patent and Trademark
Office issued a preliminary office action rejecting all previously issued claims
under our first patent covering fully-automated lending systems. It is likely
that third parties may bring additional actions to contest some of or all our
patents. We cannot assure you that we will not lose some of or all the claims
covered by our existing patents.
In June 2000, we entered into an agreement with Redmond Fund, Inc.
under which Redmond acquired, for $500,000, 484,848 shares of our common stock
and a warrant to acquire an additional 484,848 shares for $1.37 per share. We
have registered these shares for resale by Redmond under the Securities Act of
1933 pursuant to our agreement with Redmond.
In August 2000, the U.S. Patent and Trademark Office issued to us a
patent covering the fully-automated establishment of a financial account,
including credit accounts (U.S. Patent No. 6,105,007).
On September 22, 2000, we entered into a convertible debenture and
warrants purchase agreement with AMRO International, S.A. Under the agreement,
on November 22, 2000 we issued to AMRO an 8% convertible debenture in the
principal amount of $1,000,000. The debenture is convertible, at the option of
AMRO, into shares of our common stock at a price equal to the lesser of $1.00
per share or a percentage, which will be either 65% or 75% depending on the
primary trading market for our stock at the time of conversion, of the average
of the three lowest closing prices of our stock during the month prior to
conversion. The debenture matures 18 months after its issuance, subject to
earlier conversion
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and certain provisions regarding acceleration upon default and prepayment. In
this regard, the debenture requires us to use no less than 25% of the proceeds
from any future equity financing to repay as much of the debenture as we can at
a price equal to 120% of the principal amount of the debenture plus all accrued
and unpaid interest. Under the agreement, on November 22, 2000 we also issued to
AMRO a three-year warrant to acquire 200,000 shares of our common stock. The
warrant exercise price initially is $0.425. The warrant exercise price is
subject to reduction in certain instances. AMRO is one of the selling
stockholders named in this prospectus, and in accordance with our agreement with
AMRO, we are registering the shares of stock that may be issued upon conversion
of the 8% convertible debenture and exercise of the warrant for resale by AMRO
under the Securities Act of 1933. For more information about our agreement with
AMRO, please refer to the information under the section titled "Selling
Stockholders" on page 15.
The rules of the Nasdaq Stock Market require Nasdaq SmallCap issuers to
obtain stockholder approval prior to issuing a number of shares equal to or in
excess of 20% of the number of shares outstanding prior to the transaction,
subject to certain exceptions. Under these rules, so long as our stock continues
to trade on the Nasdaq SmallCap Market, we would not be permitted to issue more
than 6,105,426 shares upon conversion of the debenture that we have issued to
AMRO without obtaining the prior approval of our stockholders. If we are
required under the debenture to issue a number of shares that would cause us to
violate Nasdaq rules, then in lieu of issuing all such shares, we would be
required to issue the maximum number of shares that we could and pay AMRO in
cash an amount equal to the aggregate value of the remaining shares based on our
closing stock price on the date of conversion. Under these provisions, if AMRO
had converted the debenture in full on January 16, 2001, we would have been
required to issue to AMRO 6,105,426 shares of our common stock and pay AMRO
$1,069,155. We would not have had the financial resources to honor our
obligations under the debenture if AMRO had exercised the debenture in full on
January 16, 2001. The Nasdaq's stockholder approval rules will not apply if the
OTC Bulletin Board becomes the principal market for our stock.
On September 26, 2000, we entered into a common stock purchase
agreement with an unrelated accredited investor. Under the agreement, we may
sell, periodically in monthly installments during a period of 18 months, up to
6,000,000 shares of our common stock at a price equal to 85% of the volume
adjusted average market price of our stock at the time of issuance. We would not
be permitted to sell any shares until we have registered such shares for resale
by the investor under the Securities Act of 1933. Under the agreement, we have
issued to the investor a three-year warrant to acquire 720,000 shares of our
common stock at a price equal to 115% of the average closing price of our stock
at the time of issuance. In addition, any time we sell any shares of stock under
the agreement, we would be required to issue to the investor a 35-day warrant to
acquire 25% of the number of shares sold. The warrant would be exercisable at
the average purchase price paid by the investor for such shares. Depending on
the number of shares we ultimately issue under the agreement and the convertible
debenture described above, we may be required to obtain prior stockholder
approval of the transaction under the regulations of the Nasdaq Stock Market
relating to transactions involving the issuance of a number of shares equal to
or in excess of 20% of the number of shares outstanding prior to the
transaction.
The amount of capital we may raise under the common stock purchase
agreement during any month may not be less than $250,000 or more than the lesser
of:
- $1,000,000, or
- 4.5% of the product of the daily volume-weighted average stock
price during the three-month period prior to a drawdown
request and the total trading volume in our stock during the
same three-month period.
Based on these limitations, as of January 16, 2001, we would not be able to sell
any of our shares under the agreement. In addition, our ability to sell any
shares under the agreement is subject to certain conditions. A material adverse
event or development affecting Affinity may result in the termination of the
agreement.
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In December 2000, we entered into a joint venture agreement with a
subsidiary of HomeGold Financial, Inc. under which our subsidiary, Surety
Mortgage, Inc., will process and underwrite all conventional mortgage loan
applications received by HomeGold. The agreement expires on December 31, 2001,
but may be terminated prior to that time by either party on 90 days' notice.
RISK FACTORS
You should carefully consider the risks described below before making
an investment decision. The risks and uncertainties described below are not the
only ones facing us. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial may also impair our business operations.
If any of the following risks actually occur, our business, financial
condition or results of operations could be materially and adversely affected.
In such case the trading price of our common stock could decline and you could
lose all or part of your investment.
WE HAVE VERY LIMITED CAPITAL RESOURCES AND MAY NOT BE ABLE TO RAISE
ADDITIONAL CAPITAL, AND WE MAY BECOME INSOLVENT IF WE DO NOT RAISE ADDITIONAL
CAPITAL.
We have generated substantial operating losses since our inception in
January 1994, and we have financed our operations primarily with the net
proceeds of approximately $60 million from our initial public offering in May
1996. As of September 30, 2000, we had cash and liquid investments of
approximately $833,000. We have used, and expect to continue to use, a
substantial amount of our cash resources to fund our operations.
We have taken certain measures to reduce our cash usage rate, including
decreasing our employee base by 47% in January 2000. Assuming that we do not
incur any material liability in connection with the conversion of the debenture
that we have issued to AMRO, as discussed below, we believe that our cash
resources and internally generated funds will be sufficient to fund our
operations during the first quarter of 2001. However, we may encounter
unexpected expenses, the loss of anticipated revenues and other developments
that would negatively affect our ability to continue to operate for the entire
first quarter of 2001. In particular, we may be required to make a cash payment
to AMRO in connection with the conversion of its debenture, the amount of which
may be significant depending on our stock price when the debenture is exercised,
as discussed below and in the section titled "Selling Stockholders." We may not
have the financial resources to pay this liability. Therefore, we cannot assure
you that we will have enough cash to operate through the end of the first
quarter of 2001. Moreover, we believe that our existing cash resources will be
insufficient to fund our operations after the first quarter of 2001. To remain
viable, we must raise additional capital. In addition, we may be required to
reduce our operations significantly. We cannot assure you that we will be able
to raise additional capital or reduce our operations in a manner that will allow
us to continue operations.
The debenture that we have issued to AMRO is convertible into shares of
our stock at a price equal to the lesser of $1.00 or a percentage, which will be
either 65% or 75% depending on the primary trading market of our stock at the
time of conversion, of the average of the three lowest closing prices of our
stock during the month prior to conversion. The rules of the Nasdaq Stock Market
require Nasdaq SmallCap issuers to obtain stockholder approval prior to issuing
a number of shares equal to or in excess of 20% of the number of shares
outstanding prior to the transaction, subject to certain exceptions. Under these
rules, so long as our stock continues to trade on the Nasdaq SmallCap Market, we
would not be permitted to issue more than 6,105,426 shares upon conversion of
the debenture without obtaining the prior approval of our stockholders. If we
are required under the debenture to issue a number of shares that would cause us
to violate Nasdaq rules, then in lieu of issuing all such shares, we would be
required to issue the maximum number of shares that we could and pay AMRO in
cash an amount equal to the aggregate value of the remaining shares based on our
closing stock price on the date of conversion. Under these provisions, if AMRO
had converted the debenture in full on January 16, 2001, we would have been
required to issue to AMRO 6,105,426 shares of our common stock and pay AMRO
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$1,069,155. We would not have had the financial resources to honor our
obligations under the debenture if AMRO had exercised the debenture in full on
January 16, 2001. The Nasdaq's stockholder approval rules will not apply if the
OTC Bulletin Board becomes the principal market for our stock.
We may seek to raise capital through the issuance of equity or
convertible debt securities, in which case:
- the percentage interest of our stockholders will be reduced;
- our stockholders may experience additional dilution; and
- the securities we sell may have rights, preferences and
privileges senior to our common stock.
WE ARE INCURRING SUBSTANTIAL LOSSES, EXPECT TO CONTINUE INCURRING
LOSSES AND MUST SIGNIFICANTLY INCREASE OUR REVENUES TO BECOME PROFITABLE.
We have incurred substantial losses in the past and anticipate that we
will incur losses for the immediate future. As of September 30, 2000, our
accumulated deficit was $59,941,917, and we incurred operating losses of
$4,868,733 for the nine-month period ended September 30, 2000 and $12,466,000,
$15,906,000, $17,398,000, $11,731,000 and $2,251,000 for the years ended
December 31, 1999, 1998, 1997, 1996 and 1995, respectively. To become
profitable, we must significantly increase our revenues. Operating our business
involves substantial expenditures. Therefore, it is uncertain if we will ever
become profitable or viable as a long-term enterprise.
WE HAVE A LIMITED OPERATING HISTORY AND HAVE NEVER OPERATED PROFITABLY.
We are a relatively new business and our revenues are not currently
sufficient for us to achieve profitability. We were founded in January 1994 and
we have never operated at a profit. You should consider our prospects in light
of the risks, expenses and difficulties that companies in their early stage of
development encounter, particularly companies in new and rapidly evolving
markets. Our success depends upon our ability to address those risks
successfully, which include, among other things:
- whether we will have enough capital to develop and exploit our
technology and pursue our business plans;
- whether we can respond quickly and effectively to
technological changes and competitive forces in our markets;
- whether we will be able to assemble and maintain the necessary
resources that we will need to develop and upgrade our
technology to meet evolving market demands;
- whether we will be able to implement an effective sales and
marketing strategy;
- whether we will be able to develop and manage strategic
relationships to maximize acceptance of our products and
services; and
- whether our financial position will adversely affect our
ability to sell our products and services, develop strategic
relationships, attract and retain qualified employees, and
raise additional capital.
If we do not succeed in addressing these risks, our business likely
will be materially and adversely affected.
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OUR STOCK PRICE IS VOLATILE, AND OUR STOCK MAY BE DELISTED FROM THE
NASDAQ SMALLCAP MARKET IN THE FUTURE.
The price of our common stock has been and likely will continue to be
subject to wide fluctuations in response to a number of events and factors, such
as:
- developments affecting us, including developments affecting
our patents and patent applications, the announcement of new
customers or the loss of existing customers, and changes in
management;
- the absence of significant new customer relationships in
recent periods;
- sales by significant stockholders of their shares in the
company, many of which were acquired before our initial public
offering in May 1996;
- news reports relating to trends in our market; and
- developments affecting technology stocks in general.
In addition, the stock market in general, and the market prices for
technology companies in particular, have experienced significant price and
volume fluctuations that often have been unrelated to the operating performance
of the companies affected by these fluctuations. These broad market fluctuations
may adversely affect the market price of our common stock, regardless of our
operating performance. Securities class action litigation has often been
instituted against companies that have experienced periods of volatility in the
market price for their securities. If we were to become the target of this kind
of litigation, the cost in dollars and management attention could be
substantial, and the diversion of management's attention and resources could
have a material adverse affect on our business.
We have been notified by the Nasdaq Stock Market that we are not in
compliance with Nasdaq listing standards that require our stock to maintain a
minimum bid price of $1.00 or more. We initially were given until December 28,
2000 to regain compliance, which would have required our stock price to close at
$1.00 or more for at least ten consecutive trading days. We failed to regain
compliance by December 28, 2000. As permitted by the rules of the Nasdaq Stock
Market, we have requested a review by Nasdaq of its determination to delist our
stock, and that request has temporarily suspended the delisting of our stock for
an indefinite period of time. We cannot assure you that we will be able to
regain compliance with Nasdaq listing standards or that our stock will continue
to be eligible for trading on the Nasdaq SmallCap Market or any other market.
On two prior occasions (in 1998 and 1999), the Nasdaq Stock Market
advised us that we were not in compliance with Nasdaq's $1.00 minimum price
requirement. In both cases, our stock price recovered prior to a decision by
Nasdaq to delist our stock. In the second proceeding, the Nasdaq determined to
transfer the listing of our stock from the Nasdaq National Market to the Nasdaq
SmallCap Market due to a concern by Nasdaq about our ability to maintain net
tangible assets of $4 million or more, which is required of companies listed on
the Nasdaq National Market.
OUR COMMON STOCK WILL BE SUBSTANTIALLY DILUTED BY THE CONVERTIBLE
DEBENTURE AND WARRANTS PURCHASE AGREEMENT AND OTHER AGREEMENTS THAT WE HAVE
ENTERED INTO.
The issuance of additional shares and the eligibility of issued shares
for resale will substantially dilute our common stock and may lower the price of
our common stock.
The convertible debenture that we have issued under the convertible
debenture and warrants purchase agreement between AMRO International, S.A. and
us is convertible into shares of common stock at a price that will be
substantially less than the market price of our stock at the time of conversion.
In addition, the lower the price of our stock at the time of conversion of the
convertible debenture, the
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<PAGE> 11
greater the number of shares that we will be required to issue, and the greater
the dilution that our existing shareholders will incur. Also, the perceived risk
of dilution may cause our existing shareholders and other holders to sell their
shares of our stock, which would contribute to a decrease in our stock price. In
this regard, significant downward pressure on the trading price of our stock may
also cause investors to engage in short sales, which would further contribute to
significant downward pressure on the trading price of our stock. For additional
information about the dilutive effect of the convertible debenture and warrants
purchase agreement, please refer to the section titled "Selling Stockholders"
beginning on page 15 of this prospectus.
In addition, we have entered into other agreements under which we may
sell stock at a price that may be substantially less than the market price of
our stock at the time of sale. These agreements are described under the section
titled "Affinity Technology Group -- Recent Developments" on pages 4 and 5 of
this prospectus. The sale of stock at a price that is less than market value
could have an immediate adverse effect on the market price of our common stock.
In addition, we have issued options and warrants to acquire shares of our common
stock, and we may issue additional warrants in connection with our financing
arrangements and may grant additional stock options under our stock option plan
that may further dilute our common stock. The exercise of such warrants and
options would have a dilutive effect on our common stock. Also, to the extent
that persons who acquire shares under all the foregoing agreements sell those
shares in the market, the price of our shares may decrease due to additional
shares in the market.
WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS, PERMITTING
COMPETITORS TO DUPLICATE OUR PRODUCTS AND SERVICES.
Our success and ability to compete is dependent in part upon our
proprietary technology. We rely primarily on patent, copyright, trade secret and
trademark law to protect our technology. Our patents are subject to challenge by
third parties. We hold four United States patents, and have applied for others
in the United States to protect certain features of our technology. However, as
a result of challenges by third parties, the U.S. Patent and Trademark Office is
reexamining both of our patents covering fully-automated lending systems
("System and Method for Real-time Loan Approval," U.S. Patent No. 5,870,721, and
"Closed-loop Financial Transaction Method and Apparatus," U.S. Patent No.
5,940,811). On two occasions, the U.S. Patent and Trademark Office has reached a
preliminary decision to reject the claims covered by one of these patents (U.S.
Patent No. 5,870,721). The reexamination process could result in a loss or
limitation of some of or all the claims under these patents. Further, it is
likely that third parties may bring additional actions to contest some of or all
our patents. Such actions could result in a limitation or the complete loss of
some of or all the patents we have or may obtain in the future. Moreover, while
we intend to continue to file patent applications to further protect our
technology, we cannot assure you that any of these patents will be granted, that
if granted these patents would survive a legal challenge to their validity or
provide meaningful levels of protection or that we will have sufficient capital
to prosecute and protect any of these patents.
Despite our efforts to protect our proprietary rights, third parties
may attempt to copy aspects of our products and services or to obtain and use
information that we regard as proprietary. Policing unauthorized use of our
products and services is difficult, particularly in the global environment in
which we operate, and the laws of other countries may afford us little or no
effective protection of our intellectual property. Additionally, policing the
unauthorized use of our intellectual property rights may be very expensive, and
we may not have the resources to do so. We cannot assure you that the steps that
we have taken will prevent others from misappropriating our technology.
WE MAY BE REQUIRED TO ENGAGE IN LITIGATION TO ENFORCE OUR PROPRIETARY
RIGHTS, AND WE MAY NOT HAVE SUFFICIENT CAPITAL RESOURCES TO DO SO.
We believe that certain companies have developed or will develop
systems and technologies that are covered by one or more of the claims covered
by either our existing patents or pending patent applications. Our capital
resources are very limited, and we may not be able to take the actions necessary
to enforce our proprietary rights. Moreover, if we were to initiate litigation
to enforce our
9
<PAGE> 12
proprietary rights, whether successful or unsuccessful, it would result in
substantial costs and a diversion of resources, which could have a material
adverse effect on our business, financial condition or operating results.
WE ARE OPERATING IN AN UNPROVEN MARKET, AND WE DO NOT KNOW WHETHER THE
MARKET WILL ACCEPT OUR PRODUCTS AND SERVICES.
Our market is new and unproven. As is the case of a new and evolving
industry, demand and market acceptance for our products and services is
uncertain. Our future growth and financial performance will depend on consumer
acceptance of e-commerce as an attractive means for processing consumer
financial services and institutional acceptance of our products and services as
the preferred means for serving customers. Acceptance by institutions will
depend in part upon their acceptance of quantitative credit scoring and
automated lending methodologies. Our business will likely be materially and
adversely affected if:
- the market for automated consumer financial services fails to
develop or grows more slowly than anticipated;
- lenders do not use quantitative scoring tools and automated
systems to process consumer financial services;
- our products and services do not satisfy the expectations of
our customers or consumers in general; or
- the market does not accept our products and services as the
preferred means of providing automated consumer financial
services.
Because the market for our products and services is new and uncertain,
we are unable to determine the size or predict the future growth rate, if any,
of this market. Our business will be materially and adversely affected if:
- the market for our products and services does not develop or
develops at a slower pace than expected; or
- our products and services are not adopted by participants in
this market or are adopted by only a limited number of
participants.
OUR PRODUCTS AND SERVICES ARE IN AN EARLY STAGE OF DEVELOPMENT, AND WE
HAVE EXPERIENCED A LENGTHY SALES CYCLE.
Our products and services are in an early stage of development and are
subject to the risks associated with developing new products and services,
including unforeseen design and engineering problems, changes in customer
requirements and consumer preferences, and delays in deployment. These risks
have greatly affected our ability to introduce new products and services, and we
cannot assure you that these risks will not materially and adversely continue to
affect our business. In addition, we have experienced an extremely lengthy sales
cycle for our products and services. In most cases, the time between initial
customer contact and the execution of a final contract has exceeded six months.
OUR PRODUCTS AND SERVICES MAY BECOME OUTDATED OR MAY REQUIRE LARGE
INVESTMENTS TO REMAIN VIABLE.
The market for products and services that automate the processing of
consumer financial services is very competitive, is evolving rapidly and is
subject to:
- rapid innovation and technological change;
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<PAGE> 13
- shifting consumer preferences;
- frequent new product introductions; and
- competition from traditional methods having all or some of the
same features as products and services that automate the
processing of consumer financial services.
Competitors in this market have taken different strategic approaches
and have developed substantially different products having all or some of the
same features as our products and services 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 market participants or
their respective competitive position. We do not know whether our products and
services will be able to compete technologically or otherwise. Our ability to
compete in this market will depend upon, among other things, broad acceptance of
our products and services and our ability continually to improve our products
and services to meet changing customer requirements and consumer preferences.
Our business will be materially and adversely affected if:
- we do not have the capital necessary to exploit our technology
or to develop and bring to market new and enhanced products
and services;
- we are unable to identify successfully new product and service
opportunities and develop and bring to market new and enhanced
products and services in a timely manner;
- we are unable to penetrate new markets in a timely manner in
response to changing market conditions, customer requirements
or consumer preferences; or
- any new or enhanced products or services we develop do not
achieve a significant degree of market acceptance.
THE NATURE OF OUR BUSINESS MAKES IT DIFFICULT TO PREDICT OUR REVENUES
AND OPERATING RESULTS, WHICH MAY NEGATIVELY AFFECT OUR STOCK PRICE.
Our revenues and operating results have varied significantly from
period to period. In particular, our customer base has been highly concentrated,
which has had a significant effect on our quarterly revenues. It is likely that
we will continue to experience substantial quarterly fluctuations in operating
results due to the uncertainty regarding future revenues and the fact that we
are unable to adjust many of our operating expenses in response to a lack of
revenues. As a result of these factors, we believe that period-to-period
comparisons of our results of operations are not necessarily meaningful and
should not be relied upon as an indication of future performance. Also, it is
possible that our operating results in some future quarter may be below the
expectation of public market analysts and investors, in which event the price of
our stock could be materially and adversely affected.
WE FACE INTENSE COMPETITION THAT MAY ADVERSELY AFFECT OUR PROSPECTS.
We compete with a number of companies, and we expect this competition
to intensify in the future, particularly with regard to the development of
technologies that automate the processing of consumer financial services. We
compete with other e-commerce technologies and traditional methods for
processing consumer financial services, including in-person applications at
branch offices of financial institutions, automobile dealerships and mortgage
loan offices, cash advances on credit cards and other consumer credit
arrangements. Our ability to compete with traditional lending methods will
depend on consumer acceptance of e-commerce technologies to process consumer
financial services in general and industry acceptance of our products and
services in particular. This competitive environment will make it difficult for
us to gain market acceptance of our products and services, and it could also at
some future point force us to reduce the prices for some of our products and
services.
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<PAGE> 14
WE DEPEND ON THE CONSUMER LENDING INDUSTRY, AND OUR PROSPECTS WILL
SUFFER IF THERE IS A DOWNTURN IN THAT INDUSTRY.
Our business currently is concentrated in the consumer lending industry
and is expected to be so concentrated for the foreseeable future. We are
susceptible to a downturn in that industry. For example, a decrease in consumer
lending could result in a smaller market for our products and services and a
decrease in revenues generated by our products and services. Moreover, our
revenues have been attributable to a small number of customers, and our business
will be materially and adversely affected by negative developments affecting the
businesses of our customers.
Demand for consumer loans is cyclical, in large part based on general
economic conditions, cycles in overall consumer indebtedness levels and changes
in interest rates. These factors may adversely affect the demand for consumer
loans or the willingness of financial institutions to provide consumer loans.
TO SUCCEED, WE MUST ACHIEVE BROAD MARKET ACCEPTANCE FOR OUR PRODUCTS
AND SERVICES AND BE ABLE TO DEVELOP NEW PRODUCTS AND SERVICES TO ADDRESS CHANGES
IN INDUSTRY STANDARDS.
Broad acceptance of our products and services and their use in large
numbers is critical to our success. Our business has been materially and
adversely affected by the fact that our initial product, the Affinity Automated
Loan Machine, has failed to meet customer expectations or to obtain widespread
acceptance as a viable alternative to traditional and other automated lending
methods. None of our other products and services has been generally accepted as
a viable alternative to traditional and other automated lending methods. To be
successful, we must obtain broad market acceptance of our products and services,
or modify our products and services to meet whatever industry standards do
ultimately develop. It is not certain that we will be able to do either.
WE MAY EXPERIENCE SOFTWARE DEFECTS AND DEVELOPMENT DELAYS, WHICH MAY
DAMAGE OUR CUSTOMER RELATIONS.
Services based on software and computing systems often encounter
development delays, and the underlying software may contain undetected errors or
failures when introduced or when the volume of services provided increases. We
have experienced and may continue to experience delays in the development of our
products and the software and computing systems underlying our services. In
addition, our software may contain errors. Any material development delays or
errors could damage the reputation of the service or software affected, as well
as our customer relations, which could have a material adverse effect on our
business.
OUR BUSINESS INVOLVES SOME RISK OF FRAUD, WHICH MAY NEGATIVELY AFFECT
OUR BUSINESS.
Our business involves the risk of consumer fraud. We are unaware of any
significant instance of fraud in connection with loans that were processed by
our products and services. However, the rate of fraudulent activity could
increase, especially if the number of transactions we process increases.
Moreover, in light of our limited operating history, we cannot assure you that
our experience is indicative of future events. While our contracts require our
customers to bear the risk of collection in any given transaction, we may
nevertheless be held responsible for losses associated with fraudulent
transactions if they are attributable to our products and services. Also, even
if we are not directly liable for fraudulent transactions processed by our
products and services, an increase in fraud likely would have a material and
adverse effect on our ability to attract and retain customers. In addition, any
measures we may be required to take to reduce the occurrence of fraud may be
expensive.
WE RELY ON THIRD PARTIES TO PROVIDE CERTAIN SERVICES.
We rely on third parties for certain fraud detection systems and for
obtaining credit information about loan applicants. We also use a dedicated
private data network provided by a third party to gain
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<PAGE> 15
access to the networks maintained by such third parties and to customers.
Prolonged or repeated failure of any of these services would materially and
adversely affect our business.
We currently have strategic alliances with third parties to license our
patents and to promote our mortgage processing business. In addition, we rely,
and plan to continue to rely, on current and potential customers to develop or
promote systems that use or will use our products and services. Our success will
depend on the ability of customers and third parties to market our products and
services. Failure by those parties to generate and sustain demand for our
products and services has had and may continue to have a material and adverse
effect on our business.
Our future success will depend on our ability to work successfully with
third parties. We cannot assure you that we will be able to identify suitable
third parties, reach acceptable agreements with third parties or successfully
implement any agreements with third parties.
WE MAY EXPERIENCE BREAKDOWNS IN OUR PROCESSING SYSTEM, HARMING OUR
BUSINESS.
We would be unable to deliver our services if our system infrastructure
breaks down or is otherwise interrupted. Events that could cause system
interruptions are:
- fire,
- earthquake,
- power loss,
- telecommunications failure, and
- unauthorized entry or other events.
We have adopted a formal disaster recovery plan and have contracted
with a disaster recovery company for back-up and off-site processing systems
capable of supporting our processing operations if there is a system or other
failure. These measures will not necessarily ensure the continued, uninterrupted
operation of our processing capabilities in the event of a regional natural
disaster, power outage, communications interruption, or other catastrophic
event. Also, we have never experienced substantial transaction volumes that may
stress the capacity of our systems. There is a possibility that our existing
systems may be inadequate to handle substantially increased transaction volumes,
which may cause serious failures of our services. Finally, although we regularly
back up data from operations and take other measures to protect against loss of
data, there is still some risk of some losses. A system outage or data loss
could materially and adversely affect our business.
Our infrastructure may be vulnerable to computer viruses, hackers,
rogue employees or similar sources of disruption. Any damage or failure that
causes interruptions in our operations could have a material adverse effect on
our business. Any problem of this nature could result in significant liability
to customers and also may deter potential customers from using our services.
OUR RESULTS MAY SUFFER IF WE ARE UNABLE TO ATTRACT AND MAINTAIN
QUALIFIED MANAGEMENT AND TECHNICAL PERSONNEL.
Our performance is substantially dependent on the performance of our
executive officers and key employees. We depend on our ability to retain and
motivate high quality personnel, especially our management and technical
personnel. We do not have "key person" life insurance policies on any of our
employees. The loss of the services of any of our executive officers or key
employees could have a material adverse effect on us. Our future success also
depends on our continuing ability to identify, hire, train and retain other
highly qualified technical and managerial personnel. Competition for these
employees is intense and increasing. We may not be able to attract, assimilate
or retain qualified
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<PAGE> 16
technical and managerial personnel in the future, and the failure to do so would
have a material adverse effect on our business.
WE CURRENTLY HAVE NO SALES FORCE, AND THERE ARE NO DEVELOPED
DISTRIBUTION CHANNELS FOR OUR PRODUCTS AND SERVICES.
We currently do not have a dedicated sales staff that focuses
exclusively on the marketing and sales of our products and services. Moreover,
we have been unable to enter into strategic relationships with any third parties
that have resulted in meaningful sales of our products and services. Due to
measures taken to reduce our employee base and preserve cash resources, we do
not expect to hire any sales and marketing personnel unless we are able to raise
sufficient additional capital. We currently rely on the efforts of our senior
officers to pursue opportunities to market and sell our products and services.
These officers have only a limited amount of time to dedicate to our marketing
and sales efforts. As a result, our ability to identify and pursue new
opportunities to market and sell our products and services is extremely limited.
For us to achieve increased distribution of our products and services, we will
need to develop a sales force or develop successful strategic relationships with
third parties.
MANY OF OUR EXISTING AND POTENTIAL CUSTOMERS ARE SUBJECT TO EXTENSIVE
GOVERNMENT REGULATION, WHICH MAY CHANGE AND HARM OUR BUSINESS.
The financial services industry is subject to extensive and complex
federal and state regulation. Our current customers and our prospective
customers, which consist of state and federally chartered banks, savings and
loans, credit unions, consumer finance companies, mortgage brokers and insurance
companies, operate in markets that are subject to extensive and complex federal
and state banking and insurance regulation. Our products and services must be
designed to work within the regulatory constraints in which our 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
- other restrictions on the establishment, number and location
of branch offices and remote electronic banking facilities.
Many of these laws and regulations were adopted before the development
of e-commerce technologies, and their application to our products and services
is uncertain. Also, we have not attempted to review all laws that may be
applicable to the deployment of our products and services. It is possible that
new federal and state laws and regulations adopted in the future may have a
negative effect on the deployment of our products and services.
EFFECTING A CHANGE OF CONTROL OF AFFINITY WOULD BE DIFFICULT, WHICH MAY
DISCOURAGE OFFERS FOR SHARES OF OUR COMMON STOCK AND DEPRESS THE VALUE OF OUR
COMMON STOCK.
Our certificate of incorporation authorizes our board of directors to
issue up to 5,000,000 shares of preferred stock and to determine the price,
rights, preferences and privileges, including voting rights, of those shares
without any further vote or action by our stockholders. The rights of the
holders of our common stock will be subject to, and may be adversely affected
by, the rights of the holders of any
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<PAGE> 17
preferred stock that may be issued in the future. Certain other provisions of
our bylaws and certificate of incorporation, as well as applicable provisions of
Delaware law, could have the effect of making it more difficult for a third
party to acquire control of the company or of discouraging a third party from
attempting to acquire control of the company. These provisions may limit the
price that certain investors would pay for our stock, depress our stock price or
discourage a hostile bid in which stockholders could receive a premium for their
shares. In addition, these provisions could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock, or delay, prevent or deter a merger, acquisition, tender offer or proxy
contest for us.
USE OF PROCEEDS
The proceeds from the sale of the common stock offered pursuant to this
prospectus are solely for the account of the selling stockholders identified in
this prospectus. We will not receive any proceeds from the sale of the shares by
the selling stockholders. We will use the net proceeds we received from the
issuance of the 8% convertible debenture and upon any exercise of the related
warrants for working capital and general corporate purposes. In this regard, in
certain cases the warrants may be exercised by cashless exercise, which would
require us to withhold shares that we would otherwise issue as payment of the
purchase price.
SELLING STOCKHOLDERS
On September 22, 2000, we entered into a convertible debenture and
warrants purchase agreement with AMRO International, S.A. Under the agreement,
on November 22, 2000 we issued to AMRO an 8% convertible debenture in the
principal amount of $1,000,000. The debenture is convertible, at the option of
AMRO, into shares of our common stock at a price equal to the lesser of $1.00
per share or a percentage, which will be either 65% or 75% depending on the
primary trading market for our stock at the time of conversion, of the average
of the three lowest closing prices of our common stock during the month prior to
conversion. So long as our stock is traded on the Nasdaq SmallCap Market, the
debenture will be convertible at a price equal to the lesser of $1.00 per share
or 75% of the average of the three lowest closing prices of our common stock
during the month prior to conversion. However, if the OTC Bulletin Board becomes
the principal market for our stock, the debenture will thereafter be convertible
at a price equal to the lesser of $1.00 per share or 65% of the average of the
three lowest closing prices of our common stock during the month prior to
conversion. Without AMRO's consent, the debenture may not be exercised at any
given time into a number of shares that would make AMRO a beneficial owner of
more than 9.9% of the outstanding shares of our stock. Under the debenture,
interest is payable quarterly, and AMRO may elect to receive shares of our stock
in payment of interest using the conversion price formula described above.
The table below shows the number of shares that we would be required to
issue upon conversion of the debenture at various average stock prices ranging
from $2.00 per share to $0.05 per share. For purposes of the following table, we
have assumed that AMRO will not elect to receive any shares of our stock in
payment of accrued and unpaid interest. For purposes of the table, "average
stock price" means the average of the three lowest closing prices of our common
stock during the month prior to conversion. Our "average stock price" at any
given time will likely be significantly less than the actual trading price of
our stock at the time of conversion. The table below does not include any shares
that we may issue upon exercise of the warrants that we have issued to AMRO
International, Inc. and Cardinal Securities, LLC. The closing sale price of our
common stock on January 16, 2001 was $0.2344 per share.
<TABLE>
<CAPTION>
Average Number of Shares Issued if Number of Shares Issued if
Stock Conversion Price is Conversion Price is
Price 75% of Average Stock Price 65% of Average Stock Price
-------- -------------------------- --------------------------
<S> <C> <C>
$ 2.00 1,000,000 shares 1,000,000 shares
1.75 1,000,000 shares 1,000,000 shares
1.50 1,000,000 shares 1,025,641 shares
1.25 1,066,666 shares 1,230,769 shares
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
Average Number of Shares Issued if Number of Shares Issued if
Stock Conversion Price is Conversion Price is
Price 75% of Average Stock Price 65% of Average Stock Price
------- -------------------------- --------------------------
<S> <C> <C>
1.00 1,333,333 shares 1,538,461 shares
0.75 1,777,777 shares 2,051,282 shares
0.50 2,666,666 shares 3,076,923 shares
0.25 5,333,333 shares 6,153,846 shares
0.20 6,105,426 shares(1) 7,692,307 shares
0.15 6,105,426 shares(1) 10,256,410 shares
0.10 6,105,426 shares(1) 15,384,615 shares
0.05 6,105,426 shares(1) 30,769,230 shares
</TABLE>
---------------
(1) As discussed in the following paragraph, under the rules of the Nasdaq
Stock Market, so long as our stock continues to trade on the Nasdaq
SmallCap Market, we would not be entitled to issue more than 6,105,426
shares upon conversion of the debenture without the prior approval of
our stockholders. Nasdaq's stockholder approval rules will not apply if
the OTC Bulletin Board becomes the primary market for our stock. If we
are required under the debenture to issue a number of shares that would
cause us to violate Nasdaq rules, then in lieu of issuing all such
shares, we would be required to issue the maximum number of shares that
we could and pay AMRO in cash an amount equal to the aggregate value of
the remaining shares based on the closing price of our stock on the
date of conversion. Assuming that the closing price of our stock on the
date of conversion is equal to the "average stock price" as shown in
the table above, the amount of cash that we would be required to pay to
AMRO at the following prices is as follows:
<TABLE>
<CAPTION>
Stock Price Cash Payment
----------- ------------
<S> <C>
$ 0.20 $ 112,248
0.15 417,519
0.10 722,791
0.05 1,028,062
</TABLE>
As indicated above, it is likely that our "average stock price" on the
date of conversion will be significantly less than the actual trading
price of our stock on the date of conversion. Accordingly, the amount
of our obligation to AMRO upon conversion of the debenture may be
significantly greater than the amounts set forth above.
The rules of the Nasdaq Stock Market require Nasdaq SmallCap issuers to
obtain stockholder approval prior to issuing a number of shares equal to or in
excess of 20% of the number of shares outstanding prior to the transaction, if
such shares are issued at a price that is less than the market value and book
value of the shares at the time of issuance. Under these rules, so long as our
stock continues to trade on the Nasdaq SmallCap Market, we would not be
permitted to issue more than 6,105,426 shares in connection with the convertible
debenture transaction without obtaining the prior approval of our stockholders.
In this regard, we are not required to count any shares that may be issued upon
exercise of a warrant if the warrant exercise price is equal to or greater than
both the market value and the book value of our stock on the date we issued the
warrant. Since the warrants that we have issued to AMRO and Cardinal initially
are exercisable at a price that exceeds the market value and book value of our
stock on the date of issuance, we currently would be allowed to issue up to
6,105,426 shares of our common stock upon conversion of the debenture without
obtaining stockholder approval. The number of shares that we may issue upon
conversion of the debenture without stockholder approval will decrease by
200,000 if the exercise price of the warrant that we have issued to AMRO is
adjusted below the market price of our stock on the date of issuance. If we are
required under the debenture to issue a number of shares that would cause us to
violate Nasdaq rules, then in lieu of issuing all such shares, we would be
required to issue the maximum number of shares that we could and pay AMRO in
cash an amount equal
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<PAGE> 19
to the aggregate value of the remaining shares based on the closing price of our
stock on the date of conversion. Under these provisions, if AMRO had converted
the debenture in full on January 16, 2001, we would have been required to issue
to AMRO 6,105,426 shares of our common stock and pay AMRO $1,069,155. Nasdaq's
stockholder approval rules do not apply if the OTC Bulletin Board becomes the
primary market for our stock.
The debenture will mature 18 months after its issuance, subject to
earlier conversion. However, all amounts under the debenture will become
immediately due and payable upon a default by us. A default will occur, among
other cases, if:
- we fail to pay principal and interest under the debenture
within 10 business days of the due date;
- we breach any material representations and warranties made by
us in the convertible debenture and warrants purchase
agreement;
- we fail to issue shares of stock to AMRO upon proper
conversion of the debenture or we fail to permit the lawful
transfer of those shares by AMRO, and such failure remains
uncured for 10 business days;
- we fail to observe any material covenant, term, provision,
condition, agreement or obligation under the convertible
debenture and warrants purchase agreement, our registration
rights agreement with AMRO or the 8% convertible debenture,
and such failure continues for 30 business days after notice
thereof;
- we become insolvent or subject to a bankruptcy proceeding, or
certain events evidencing our insolvency occur, including our
failure to pay a judgment in excess of $100,000 within 60 days
of the time it is entered; or
- our stock is suspended from trading or otherwise not traded on
the Nasdaq SmallCap Market, the OTC Bulletin Board, the Nasdaq
National Market, the American Stock Exchange or the New York
Stock Exchange.
We are required to use no less than 25% of the proceeds from any future
equity financing to repay the debenture, in whole or in part, at a price equal
to 120% of the principal amount of the debenture plus all accrued and unpaid
interest. In addition, other than under existing agreements, we may not sell any
of our equity securities at a discount without first obtaining AMRO's consent,
subject to certain exceptions. We will be subject to this restriction until the
earlier of September 22, 2003 or 180 days following the effective date of the
registration statement of which this prospectus is a part.
Under the agreement, on November 22, 2000 we also issued to AMRO a
warrant to acquire 200,000 shares of our common stock. The warrant exercise
price initially is $0.425 per share. The warrant exercise price will be reduced
to $0.3542 per share if the OTC Bulletin Board becomes the primary market for
our stock or if our cash usage rate is in excess of a certain amount.
We are required to register the shares of our stock that may be issued
under the convertible debenture and warrants purchase agreement for resale by
AMRO under the Securities Act of 1933. These shares consist of shares that AMRO
may acquire:
- upon conversion of the 8% convertible debenture; and
- upon exercise of the warrant that we have issued to AMRO.
Cardinal Securities, LLC acted as our broker in connection with the
convertible debenture and warrants purchase agreement. Pursuant to our agreement
with Cardinal, on November 22, 2000 we paid
17
<PAGE> 20
Cardinal a commission of $60,000 and issued to Cardinal a five-year warrant to
acquire 35,000 shares of our common stock for $0.4688 per share. Cardinal
Securities, LLC is one of the selling stockholders named in this prospectus, and
in accordance with our agreement with Cardinal, we are registering the shares
that may be issued to Cardinal under the warrant for resale by Cardinal under
the Securities Act of 1933.
This prospectus covers an aggregate of 6,340,426 shares of our common
stock, consisting of:
- up to 6,105,426 shares that may be sold from time to time by
AMRO, who may acquire these shares upon conversion of the 8%
convertible debenture;
- 200,000 shares that may be sold from time to time by AMRO, who
may acquire these shares upon exercise of the warrant that we
have issued to AMRO; and
- 35,000 shares that may be sold from time to time by Cardinal,
who may acquire these shares upon conversion of the warrant
that we have issued to Cardinal.
The shares covered by this prospectus that may be acquired by AMRO upon
conversion of the 8% convertible debenture represent the maximum number of
shares that we may issue upon conversion of the debenture without obtaining the
prior approval of our stockholders under the corporate governance rules of the
Nasdaq Stock Market. The number of shares that we may issue upon conversion of
the debenture without stockholder approval will decrease by 200,000 if the
exercise price of the warrant that we have issued to AMRO is adjusted below the
market price of our stock on the date of issuance.
The table below sets forth information known to us with respect to the
beneficial ownership of our common stock as of January 16, 2001 by the selling
stockholders. The table assumes that the selling stockholders sell all their
shares. Since the selling stockholders may choose not to sell their shares, we
are unable to state the exact number of shares that actually will be sold. As
indicated in the footnote (1) to the following table, the debenture that we have
issued to AMRO may not, without AMRO's consent and 75 days' notice to us, be
exercised at any given time into a number of shares that would make AMRO a
beneficial owner of more than 9.9% of the outstanding shares of our stock.
Information with respect to beneficial ownership shown below is based
on information supplied by the selling stockholders. For purposes of calculating
the percentage beneficially owned, the shares of common stock deemed outstanding
include:
- 30,545,360 shares outstanding as of January 16, 2001;
- with respect to shares beneficially owned by AMRO, 6,105,426
shares that we may issue upon conversion of the 8% convertible
debenture, which represents the number of shares that we would
have been required to issue as of January 16, 2001 had the
debenture been converted on that date, and 200,000 shares that
we may issue under the warrant we have issued to AMRO; and
- with respect to shares beneficially owned by Cardinal, 35,000
shares that we may issue under to the warrant we have issued
to Cardinal.
18
<PAGE> 21
<TABLE>
<CAPTION>
Common Stock Common Stock
Beneficially Owned Beneficially Owned
Prior to this Offering Common Stock After This Offering
------------------------- to be sold in -------------------
Name Shares Percentage this Offering Shares Percentage
---- --------- ---------- ------------- ------ ----------
<S> <C> <C> <C> <C> <C>
AMRO International, S.A. (1) 6,105,426 16.67% 6,105,426 0 0.0%
Cardinal Securities, LLC (2) 35,000 * 35,000 0 0.0%
</TABLE>
---------------
* Denotes less than one percent.
(1) Without AMRO's consent and 75 days' notice to the Company, the debenture may
not be exercised at any given time into a number of shares that would make AMRO
a beneficial owner of more than 9.9% of the outstanding shares of our stock.
AMRO's address is Grossmunster Platz 26, Zurich CH 8022, Switzerland. Based on
information provided by AMRO, all decisions relating to the voting and
disposition of shares of our stock held by AMRO are made by its board of
directors. The members of AMRO's board of directors are H.U. Bachofen, Michael
Klee and Ruth Streitenberger, and their address is the same as AMRO's business
address set forth above.
(2) Cardinal Securities, LLC's address is 3340 Peachtree Road N.E., Suite 620,
Atlanta, Georgia 30326. Based on information provided by Cardinal, all decisions
relating to the voting and disposition of shares of our stock held by Cardinal
are made by its board of directors. The members of Cardinal's board of directors
are Robert Rosenstein, David Cohert and Scott Koch, and their business address
is the same as Cardinal's business address as set forth above.
PLAN OF DISTRIBUTION
The selling stockholders and any of their respective pledgees,
assignees and successors-in-interest may sell, from time to time, any or all of
the shares of common stock covered by this prospectus on any stock exchange,
market or trading facility on which the shares are traded or in private
transactions. These sales may be at fixed or negotiated prices. The selling
stockholders may use any one or more of the following methods when selling
shares:
- sales in the over-the-counter market or otherwise at prices and at
terms then prevailing or at prices related to the then-current market price;
- underwritten offerings;
- ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
- block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction;
- purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
- an exchange distribution in accordance with the rules of the
applicable exchange;
- privately negotiated transactions;
- short sales;
19
<PAGE> 22
- broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
- a combination of any such methods of sale; or
- any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, if available, rather than under this prospectus.
The selling stockholders may, together with any of their respective
agents, accept or reject in whole or in part any proposed purchase of the shares
of common stock offered by this prospectus. We will not receive any proceeds
from the sale of shares by the selling stockholders.
Under applicable rules and regulations under the Securities Exchange
Act of 1934, any person engaged in a distribution of the shares of common stock
covered by this prospectus may be limited in its ability to engage in market
activities with respect to such shares. The selling stockholders, for example,
will be subject to applicable provisions of the Securities Exchange Act of 1934
and the rules and regulations under it, including, without limitation,
Regulation M, which provisions may restrict certain activities of the selling
stockholders and limit the timing of purchases and sales of any shares of common
stock by the selling stockholders. Furthermore, under Regulation M, persons
engaged in a distribution of securities are prohibited from simultaneously
engaging in market making and certain other activities with respect to such
securities for a specified period of time prior to the commencement of such
distribution, subject to specified exceptions or exemptions. The foregoing may
affect the marketability of the shares offered by this prospectus.
The selling stockholders may also engage in short sales against the
box, puts and calls and other transactions in our securities or derivatives of
our securities and may sell or deliver shares in connection with these trades.
The selling stockholders may pledge its shares to its brokers under the margin
provisions of customer agreements. If the selling stockholders default on a
margin loan, the broker may offer and sell, from time to time, the pledged
shares.
The selling stockholders may sell shares directly to market makers
acting as principals and/or broker-dealers acting as agents for themselves or
their customers. Broker-dealers engaged by the selling stockholders may arrange
for other brokers-dealers to participate in sales. Broker-dealers may receive
commissions, concessions or discounts from the selling stockholders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated. The selling stockholders do not expect these
commissions and discounts to exceed what is customary in the types of
transactions involved. Market makers and block purchasers that purchase the
shares will do so for their own account and at their own risk. It is possible
that the selling stockholders will attempt to sell shares in block transactions
to market makers or other purchasers at a price per share that may be below the
then-current market price. We cannot make assurances that all or any of the
shares of common stock will be sold by the selling stockholders.
The selling stockholders and any broker-dealers or agents that are
involved in selling their respective shares may be deemed to be underwriters
within the meaning of the Securities Act of 1933 in connection with such sales.
In such event, any commissions received by such broker-dealers or agents and any
profit on the resale of the shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act of 1933.
We have not registered or qualified the shares of common stock offered
by this prospectus under the laws of any country, state or jurisdiction, other
than the United States. In certain states, the selling stockholders may not
offer or sell their shares of common stock unless (1) we have registered or
qualified such shares for sale in such states or (2) we have complied with an
available exemption from registration or qualification. Also, in certain states,
to comply with such state securities laws, the selling stockholders can offer
and sell their shares of common stock only through registered or licensed
brokers or dealers.
20
<PAGE> 23
We are required to pay all fees and expenses incident to the
registration of the shares. The selling stockholders will pay any sales
commissions or other seller's compensation applicable to these transactions. We
have agreed to indemnify AMRO International, S.A. against certain losses,
claims, damages and liabilities under the Securities Act of 1933.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
us by Robinson, Bradshaw & Hinson, P.A., Charlotte, North Carolina.
EXPERTS
The consolidated financial statements of Affinity Technology Group,
Inc. appearing in Affinity Technology Group, Inc.'s Annual Report (Form 10-K)
for the year ended December 31, 1999, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any documents we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's public reference rooms in
New York, New York and Chicago, Illinois. Please call the SEC at 1-800-732-0330
for further information about the public reference rooms. Our SEC filings are
also available to the public at the SEC's web site at http://www.sec.gov.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information about our
company to you by referring you to those documents. The information incorporated
by reference is considered to be part of this prospectus, and information that
we subsequently file with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below. This
prospectus is part of a Registration Statement we filed with the SEC
(Registration No. 333-48176). The documents we incorporate by reference are:
1. Our Annual Report on Form 10-K for the fiscal year ended
December 31, 1999;
2. Our Quarterly Report on Form 10-Q for the quarter ended March
31, 2000;
3. Our Quarterly Report on Form 10-Q for the quarter ended June
30, 2000;
4. Our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000; and
5. Our 1999 Annual Report to Shareholders, excluding the
information on pages 1 through 9 thereof under the headings
"Introduction," "Letter to Our Stockholders," "e-xpertLender,"
"iDEAL," "rtDS," "Point-of-Sale Mortgage Origination System"
and "Outsourced Loan Processing Services," and on page 32
thereof under the heading "Corporate and Stockholder
Information."
21
<PAGE> 24
You may request a copy of these filings, at no cost, by writing or
calling Gina Champion, secretary of Affinity, at the following address: Affinity
Technology Group, Inc., 1201 Main Street, 20th Floor, Columbia, South Carolina
29201; telephone number (803) 758-2511. A copy of our 1999 Annual Report to
Shareholders and our quarterly report on Form 10-Q for the quarter ended
September 30, 2000 is being delivered with this prospectus.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our by-laws require us to indemnify our officers and directors against
any expenses and liabilities reasonably incurred by them as a result of serving
as an officer or director of the company to the fullest extent authorized by the
General Corporation Law of the State of Delaware. We maintain an insurance
policy to support the foregoing indemnity obligations. In addition, our
certificate of incorporation has eliminated the personal liability of our
directors to the company and our stockholders for monetary damages for breach of
their fiduciary duties as a director, subject to certain exceptions.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or controlling persons
pursuant to the foregoing provisions, we have been informed that, in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
DESCRIPTION OF CAPITAL STOCK
The descriptions in this section and in other sections of this
prospectus of our securities and various provisions of our certificate of
incorporation and our bylaws are descriptions of the material terms of our
securities.
Our authorized capital stock consists of 60,000,000 shares of common
stock, par value $.0001 per share, and 5,000,000 shares of preferred stock, par
value $.0001 per share. There currently are no shares of our preferred stock
issued and outstanding. As of January 16, 2001, 30,545,360 shares of common
stock were issued and outstanding and an aggregate of 19,384,560 shares of
common stock were reserved for issuance as follows:
- 3,471,340 shares were reserved for issuance under a warrant
issued to Carolina First Corporation;
- 484,848 shares were reserved for issuance under a warrant
issued to Redmond Fund, Inc. in connection with a stock
purchase agreement with Redmond Fund, Inc. entered into on
June 2, 2000;
- 12,210,852 shares were reserved for issuance under an 8%
convertible debenture that we have issued to AMRO
International, S.A., which number represents 200% of the
number of shares that would be issued upon conversion of the
warrant as of January 16, 2001;
- 235,000 shares were reserved for issuance under warrants that
we have issued to AMRO International, S.A. and Cardinal
Securities, LLC in connection with our convertible debenture
and warrants purchase agreement with AMRO;
- 720,000 shares were reserved for issuance under a warrant that
we have issued to Karencove Limited in connection with a
common stock purchase agreement between Karencove and us; and
- 2,262,520 shares of common stock were reserved for issuance
pursuant to currently outstanding options.
22
<PAGE> 25
COMMON STOCK
The holders of our common stock are entitled to equal amounts per share
of any dividends and distributions declared by the board of directors. No holder
of any shares of our common stock has a pre-emptive right to subscribe for any
of our securities, nor are any shares subject to redemption or convertible into
any other securities. Upon liquidation, dissolution or winding up of Affinity,
and after payment of creditors and preferred stockholders, if any, our remaining
assets will be divided pro-rata on a share-for-share basis among the holders of
the shares of common stock. All shares of common stock now outstanding are fully
paid, validly issued and non-assessable.
Each share of common stock is entitled to one vote with respect to the
election of any director or any other matter upon which stockholders are
required or permitted to vote. Holders of common stock do not have cumulative
voting rights, so the holders of more than 50% of the combined shares voting for
the election of directors may elect all of the directors if they choose to do
so, and, in that event, the holders of the remaining shares will not be able to
elect any members to the board of directors.
The common stock currently is traded on the Nasdaq SmallCap Market
under the trading symbol "AFFI." However, as described in the section titled
"Affinity Technology Group -- Recent Developments," the Nasdaq Stock Market has
advised us that our stock will be delisted unless we regain compliance with
Nasdaq's $1.00 minimum price requirement.
PREFERRED STOCK
Pursuant to our certificate of incorporation, our board of directors
has the authority, without further action by our stockholders, to issue up to
5,000,000 shares of preferred stock. Shares of preferred stock may be issued in
one or more series, and our board of directors may determine the rights,
preferences and designations of any preferred stock that is issued. Shares of
preferred stock may have rights that are superior to our common stock. For
example, our board of directors, without stockholder approval, can issue
preferred stock with voting, conversion, liquidation or other rights that could
adversely affect the voting power, liquidation rights and other rights of the
holders of common stock. Our board of directors could also issue shares of
preferred stock with terms calculated to delay or prevent a change in control of
Affinity or make removal of management more difficult. Additionally, the
issuance of preferred stock may decrease the market price of our common stock.
Currently, there are no shares of preferred stock outstanding, and we have no
plans to issue any shares of preferred stock.
DELAWARE ANTI-TAKEOVER LAW AND PROVISIONS OF OUR CERTIFICATE OF INCORPORATION
AND BY-LAWS
Provisions of Delaware law and our certificate of incorporation and
by-laws could make it more difficult for a third party to acquire us or to
remove our incumbent officers and directors. These provisions, summarized below,
will discourage coercive takeover practices and encourage persons seeking to
acquire control of Affinity to first negotiate with us. We believe that the
benefits of increased protection of our ability to negotiate with the proponent
of an unfriendly or unsolicited acquisition proposal outweigh the disadvantages
of discouraging these proposals because, among other things, negotiation could
result in an improvement of the terms of the proposed transaction.
We are subject to Section 203 of the Delaware General Corporation Law,
which regulates corporate acquisitions. In general, Section 203 prohibits a
publicly-held Delaware corporation from engaging in a business combination with
an interested stockholder for a period of three years following the date the
person became an interested stockholder, unless:
- the board of directors approved the transaction in which the
person became an interested stockholder prior to the date the
interested stockholder attained this status;
- upon consummation of the transaction that resulted in the
person's becoming an interested stockholder, he or she owned
at least 85% of the voting stock of the corporation
outstanding
23
<PAGE> 26
at the time the transaction commenced, excluding shares owned
by persons who are directors and also officers; or
- on or after the date of the business combination, it is
approved by the board of directors and authorized at an annual
or special meeting of stockholders by the affirmative vote of
at least two-thirds of the outstanding stock which is not
owned by the interested stockholder.
A business combination generally includes a merger, asset or stock
sale, or other transaction resulting in a financial benefit to the interested
stockholder. In general, an interested stockholder is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.
Under our by-laws, special meetings of the stockholders may only be
called by the chairman of the board, the chief executive officer, or a majority
of the board of directors, or upon the written demand of the holders of a
majority of the outstanding shares of our capital stock entitled to vote at any
such meeting. This provision makes it more difficult for stockholders to require
us to call a special meeting of stockholders to consider any proposed corporate
action, including any sale of the company that may be favored by the
stockholders. In addition, under our certificate of incorporation and by-laws,
stockholder action may only be taken at a special or annual stockholder meeting
called for such purpose and not by the written consent of the stockholders.
These requirements may delay stockholder action on matters requiring stockholder
approval.
Our by-laws provide that stockholders seeking to bring any business or
to nominate one or more directors at any meeting of stockholders must provide us
with written and timely notice of the proposed action. These provisions may
preclude some stockholders from bringing matters before the stockholders at an
annual or special meeting, including making nominations for directors. These
procedures provide that the notice of stockholder proposals and director
nominations must be in writing, contain certain specified information and be
received by the secretary of Affinity:
- in the case of an annual meeting that is called for a date
that is within 30 days before or after the anniversary date of
the immediately preceding annual meeting of stockholders, not
less than 60 days nor more than 90 days prior to such
anniversary date, and
- in the case of an annual meeting that is called for a date
that is not within 30 days before or after the anniversary
date of the immediately preceding annual meeting, or in the
case of a special meeting of stockholders, not later than the
close of business on the 10th day following the day on which
notice of the date of the meeting was mailed or public
disclosure of the date of the meeting was made, whichever
occurs first.
Our by-laws provide that our board of directors will consist of no fewer than
three and no more than 15 members, as determined from time to time by the board
of directors. The by-laws further provide that any vacancy on the board of
directors, including a vacancy resulting from any increase in the authorized
number of directors, may be filled only by a vote of a majority of directors
then in office. Therefore, our board of directors may be able to prevent any
stockholder from obtaining majority representation on the board of directors by
increasing the size of the board and filling the newly created directorships
with its own nominees.
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<PAGE> 27
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses to be borne by Affinity
Technology Group, Inc. (the "Registrant") in connection with the issuance and
distribution of the securities being registered hereby. No portion of such
expenses will be paid by the selling stockholders. All expenses other than the
SEC registration fee and the Nasdaq listing fee are estimated.
<TABLE>
<S> <C>
SEC registration fee................. $ 942.00
Nasdaq listing fee................... 17,500.00
Accounting fees and expenses......... 15,000.00
Legal fees and expenses.............. 10,000.00
Miscellaneous........................ 1,500.00
-----------
Total................................ $ 44,942.00
===========
</TABLE>
Item 15. Indemnification of Directors and Officers.
Article VIII, Section 8 of the by-laws of the Registrant provides that
in addition to any rights to which its officers and directors may be entitled by
law, the Registrant shall indemnify its officers and directors against any
expenses and liabilities reasonably incurred as a result of serving as an
officer or director of the Registrant to the fullest extent authorized by the
Delaware General Corporation Law.
Section 145 of the Delaware General Corporation Law generally provides
that a corporation may indemnify any officer or director who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor, against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such officer or director is adjudged liable to the corporation without
application to and approval by the court. Section 145 also provides that a
corporation may indemnify any officer or director who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, other than an action by or in the right of the corporation,
by reason of the fact that such person is or was a director or officer against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. If any officer or director
is successful on the merits or otherwise in the defense of any action, suit or
proceeding, whether or not by or in the right of the corporation, or in any
claim, issue or matter therein, the corporation must indemnify him against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
In accordance with Section 145(g) of the Delaware General Corporation
Law, the Registrant has obtained an insurance policy to support the foregoing
indemnity obligations. The policy provides indemnity coverage for certain
liabilities incurred by the Registrant's officers and directors in connection
with the performance of duties in their capacities as such, in connection with
their service on certain outside boards (e.g., civic and charitable) and in
connection with their fiduciary responsibilities under certain benefit programs.
II-1
<PAGE> 28
In addition, pursuant to Article 6 of the Registrant's Certificate of
Incorporation and Section 102 of the Delaware General Corporation Law, the
Registrant has eliminated the personal liability of its directors to the
Registrant and its stockholders for monetary damages for breach of fiduciary
duty as a director, other than: (1) any breach of the director's duty of loyalty
to the Registrant or its stockholders; (2) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law; (3)
for unlawful payment of dividends or unlawful stock purchases or redemptions;
(4) for any transaction from which the director derived an improper personal
benefit; and (5) for any act for which liability may not be limited or
eliminated by virtue of the provisions of Section 102(b)(7) of the Delaware
General Corporation Law.
Item 16. Exhibits.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-----------------------------------------------------------------------------------------------------------
<S> <C>
4.1* Specimen Certificate of Common Stock, which is hereby incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-1 of Affinity Technology Group,
Inc. (File No. 333-1170).
4.2* Warrant to Purchase Common Stock of Affinity Technology Group, Inc., dated November 8,
1995, for the purchase, subject to certain conditions, of up to 6,666,340 shares of
Common Stock, which is hereby incorporated by reference to Exhibit 4.7 to the
Registration Statement on Form S-1 of Affinity Technology Group, Inc. (File No.
333-1170).
4.3* Sections 4, 7 and 8 of the Certificate of Incorporation of Affinity Technology Group,
Inc., as amended, and Article II, Sections 3, 9 and 10 of the By-laws of Affinity
Technology Group, Inc., as amended, which are incorporated by reference to Exhibits
3.1 and 3.2, respectively, to the Registration Statement on Form S-1 of Affinity
Technology Group, Inc. (File No. 333-1170).
4.4* Common Stock Purchase Agreement, dated as of June 2, 2000, between Affinity Technology
Group, Inc. and Redmond Fund, Inc., which is hereby incorporated by reference to
Exhibit 4.4 to the Registration Statement on Form S-3 of Affinity Technology Group,
Inc. (File No. 333-41898).
4.5* First Amendment to Common Stock Purchase Agreement, dated as of September 1, 2000,
between Affinity Technology Group, Inc. and Redmond Fund, Inc., which is hereby
incorporated by reference to Exhibit 4.6 to the Registration Statement on Form S-3 of
Affinity Technology Group, Inc. (File No. 333-41898).
4.6* Second Amendment to Common Stock Purchase Agreement, dated as of October 2, 2000, between
Affinity Technology Group, Inc. and Redmond Fund, Inc., which is hereby incorporated
by reference to Exhibit 4.7 to the Registration Statement on Form S-3 of Affinity
Technology Group, Inc. (File No. 333-41898).
4.7* Form of Common Stock Purchase Warrant issued by Affinity Technology Group, Inc. to
Redmond Fund, Inc., which is hereby incorporated by reference to Exhibit 4.5 to the
Registration Statement of Form S-3 of Affinity Technology Group, Inc. (File No.
333-41898)
4.8** Convertible Debenture and Warrants Purchase Agreement, dated as of September 22, 2000,
between Affinity Technology Group, Inc. and AMRO International, S.A.
4.9** Form of 8% Convertible Debenture to be issued by Affinity Technology Group, Inc. to AMRO
International, S.A.
4.10** Form of Stock Purchase Warrant to be issued by Affinity Technology Group, Inc. to AMRO
International, S.A.
4.11** Registration Rights Agreement, dated as of September 22, 2000, between Affinity
Technology Group, Inc. and AMRO International, S.A.
</TABLE>
II-2
<PAGE> 29
<TABLE>
<S> <C>
4.12** Form of Stock Purchase Warrant to be issued by Affinity Technology Group, Inc. to
Cardinal Securities, LLC
5** Opinion of Robinson, Bradshaw & Hinson, P.A.
13 1999 Annual Report to Stockholders
23.1 Independent Auditors' Consent.
23.2** Consent of Robinson, Bradshaw & Hinson, P.A. (included in Exhibit 5)
24** Power of Attorney (included on signature page)
</TABLE>
---------------
* Incorporated by reference.
** Previously filed.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement; provided,
however, that paragraphs (1)(i) and (1)(ii) do not apply if the Registration
Statement is on Form S-3 or Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court
II-3
<PAGE> 30
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-4
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this Amendment
No. 2 on Form S-2 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Columbia, State of
South Carolina, on January 16, 2001.
AFFINITY TECHNOLOGY GROUP, INC.
By: /s/ Joseph A. Boyle
---------------------------------------------
Joseph A. Boyle
President, Chief Executive Officer and Chief
Financial Officer
II-5
<PAGE> 32
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 on Form S-2 to the Registration Statement has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Joseph A. Boyle President, Chief Executive Officer, Chief January 16, 2001
--------------------------------- Financial Officer and Director (Principal
Joseph A. Boyle Executive Officer, Principal Financial Officer
and Principal Accounting Officer)
/s/ Alan H. Fishman* Director January 16, 2001
---------------------------------
Alan H. Fishman
/s/ Robert M. Price* Director January 16, 2001
---------------------------------
Robert M. Price
Director
---------------------------------
Edward J. Sebastian
/s/ Peter R. Wilson* Director January 16, 2001
---------------------------------
Peter R. Wilson
</TABLE>
* By: /s/ Joseph A. Boyle
---------------------------------------
Joseph A. Boyle
Attorney-in-Fact
II-6
