** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

**FORM 10-Q**

 

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF**

**THE SECURITIES EXCHANGE ACT OF 1934**

** **

**FOR THE QUARTER ENDEDMARCH 31, 2003**

 

**COMMISSION FILENUMBER   0-21202**

** **

**FIRSTWAVE TECHNOLOGIES, INC.**

(Exact name of Registrant as specified in its charter)

 

| **GEORGIA**                               |   | **58-1588291**                   |
|-------------------------------------------|--------|----------------------------------|
| (State of incorporation)                  |   | (IRS  Employer Identification #) |
|                                      |   |                             |
| **2859 Paces Ferry Road, Suite 1000**     |
| **Atlanta, Georgia 30339**                |
| (Address  of principal executive offices) |
|                                      |   |                             |
| **(770-431-1200)**                        |
| (Telephone  number of registrant)         |

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.

YES       ý  NO       o

 

Indicate by check mark whether the registrantis an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)  

YES       o  NO       ý

 

Indicate the number of shares outstanding ofeach of the issuer’s classes of common stock, as of the latest practicabledate.

 

|   | Outstanding as of May 9,  2003 |             |
|--------|--------------------------------|------------------|
|   |                           |             |
|   | Common Stock, no par value     | 2,629,500 Shares |

 

 

----

 

**FIRSTWAVE® TECHNOLOGIES, INC.**

 

**FORM 10-Q**

 

**For the quarter ended March 31, 2003**

 

**Index**

 
| Part I                                                                                                       |   | Financial Information                                                                       |
|--------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|
|                                                                                                         |   |                                                                                        |
| Item 1.                                                                                                      |   | Financial Statements                                                                        |
|                                                                                                         |   |                                                                                        |
| Consolidated Balance Sheet -  December 31, 2002 and March 31, 2003                                           |
|                                                                                                         |   |                                                                                        |
| Consolidated Statement  of Operations - For the Three Months Ended  March 31, 2002 and March 31, 2003        |
|                                                                                                         |   |                                                                                        |
| Consolidated  Statement of Changes in Shareholders’ Equity -  For the Three Months Ended March 31, 2003 |
|                                                                                                         |   |                                                                                        |
| Consolidated  Statement of Cash Flows - For the Three Months Ended  March 31, 2002 and March 31, 2003        |
|                                                                                                         |   |                                                                                        |
| Notes to  Consolidated Financial Statements                                                                  |
|                                                                                                         |   |                                                                                        |
| Item 2.                                                                                                      |   | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |
|                                                                                                         |   |                                                                                        |
| Item  3.                                                                                                     |   | Quantitative  and Qualitative Disclosures About Market Risk                                 |
|                                                                                                         |   |                                                                                        |
| Item 4.                                                                                                      |   | Controls and Procedures                                                                     |
|                                                                                                         |   |                                                                                        |
| Part II.                                                                                                     |   | Other Information                                                                           |

 

2

----

 

**PARTI.  FINANCIAL INFORMATION**

 

**Item1.    Financial Statements**

 

**FIRSTWAVE TECHNOLOGIES, INC.**

**ConsolidatedBalance Sheet**

**(in thousands)**

 
|                                                                                         |   | **Dec 31,  2002** |   | **Mar 31,  2003** |   |
|----------------------------------------------------------------------------------------------|--------|-------------------|--------|-------------------|--------|
|                                                                                         |   |              |   | **(unaudited)**   |   |
|                                                                                         |   |              |   |              |   |
| **ASSETS**                                                                                   |   |              |   |              |   |
|                                                                                         |   |              |   |              |   |
| **Current assets:**                                                                          |   |              |   |              |   |
| **Cash and cash equivalents**                                                                |   | $                 | 3,779  |              | $      | 3,557 |   |
| **Accounts receivable, less allowance for  doubtful accounts of $88 and $388, respectively** |   | 2,406             |   | 3,698             |   |
| **Prepaid expenses and other assets**                                                        |   | 664               |   | 687               |   |
| **Total current assets**                                                                     |   | 6,849             |   | 7,942             |   |
|                                                                                         |   |              |   |              |   |
| **Property and equipment, net**                                                              |   | 738               |   | 708               |   |
| **Software development costs, net**                                                          |   | 2,041             |   | 2,812             |   |
| **Intangible assets**                                                                        |   | 0                 |   | 3,376             |   |
| **Goodwill**                                                                                 |   | 175               |   | 173               |   |
|                                                                                         |   | $                 | 9,803  |              | $      | 15,011 |   |
|                                                                                         |   |              |   |              |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                |   |              |   |              |   |
|                                                                                         |   |              |   |              |   |
| **Current liabilities:**                                                                     |   |              |   |              |   |
| **Accounts payable**                                                                         |   | $                 | 909    |              | $      | 1,836 |   |
| **Deferred revenue**                                                                         |   | 812               |   | 1,643             |   |
| **Accrued employee compensation and benefits**                                               |   | 417               |   | 635               |   |
| **Dividends payable**                                                                        |   | 42                |   | 41                |   |
| **Other accrued liabilities**                                                                |   | 802               |   | 593               |   |
| **Total current liabilities**                                                                |   | 2,982             |   | 4,748             |   |
|                                                                                         |   |              |   |              |   |
| **Shareholders’ equity**                                                                |   | 6,821             |   | 10,263            |   |
|                                                                                         |   | $                 | 9,803  |              | $      | 15,011 |   |

 

**The accompanying notes are an integral partof these financial statements.**

 

3

----

 

**FIRSTWAVE TECHNOLOGIES, INC.**

**ConsolidatedStatement of Income**

**(in thousands, except per share amounts)**

**(unaudited)**

 
|                                             |   | **For the Three Months Ended** |   |
|--------------------------------------------------|--------|--------------------------------|--------|
|                                             |   | **Mar 31,  2002**              |   | **Mar 31,  2003** |   |
|                                             |   |                           |   |   |   |
| **Net Revenues**                                 |   |                           |   |   |   |
| **Software**                                     |   | $                              | 728    |   | $ | 1,607 |   |
| **Services**                                     |   | 2,875                          |   | 2,140 |   |
| **Maintenance**                                  |   | 448                            |   | 529 |   |
| **Other**                                        |   | 5                              |   | 5 |   |
|                                             |   | 4,056                          |   | 4,281 |   |
| **Cost and Expenses**                            |   |                           |   |   |   |
| **Cost of revenues**                             |   |                           |   |   |   |
| **Software**                                     |   | 323                            |   | 290 |   |
| **Services**                                     |   | 794                            |   | 953 |   |
| **Maintenance**                                  |   | 163                            |   | 141 |   |
| **Other**                                        |   | 5                              |   | 5 |   |
| **Sales and marketing**                          |   | 780                            |   | 1,101 |   |
| **Product development**                          |   | 100                            |   | 239 |   |
| **General and administrative**                   |   | 863                            |   | 783 |   |
|                                             |   | 3,028                          |   | 3,512 |   |
|                                             |   |                           |   |   |   |
| **Operating income**                             |   | 1,028                          |   | 769 |   |
|                                             |   |                           |   |   |   |
| **Interest income**                              |   | 4                              |   | 11 |   |
| **Income before income taxes**                   |   | 1,032                          |   | 780 |   |
| **Income taxes**                                 |   | 0                              |   | (1 | ) |
| **Net income**                                   |   | $                              | 1,032  |   | $ | 779 |   |
|                                             |   |                           |   |   |   |
| **Dividends on preferred stock**                 |   | (66                            | )      | (55 | ) |
|                                             |   |                           |   |   |   |
| **Net income applicable to common shareholders** |   | $                              | 966    |   | $ | 724 |   |
|                                             |   |                           |   |   |   |
| **Basic:**                                       |   |                           |   |   |   |
| **Earnings per share**                           |   | $                              | 0.46   |   | $ | 0.30 |   |
| **Weighted average shares**                      |   | 2,100                          |   | 2,430 |   |
|                                             |   |                           |   |   |   |
| **Diluted:**                                     |   |                           |   |   |   |
| **Earnings per share**                           |   | $                              | 0.33   |   | $ | 0.24 |   |
| **Weighted average shares**                      |   | 3,108                          |   | 3,299 |   |

 

**The accompanying notes are an integral partof these financial statements.**

 

4

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**FIRSTWAVE TECHNOLOGIES, INC.**

**Consolidated Statement of Changes in Shareholders’ Equity**

**(In thousands, except share data)**

**(unaudited)**

 

**For the Three MonthsEnded March 31, 2003**

 
|                                                 |   |                 |   |       |   |       |   |   |   | **Add’l  paid-in  capital** |   | **Compre-  hensive  income** |   | **Accumulated  Other  comprehensive  loss** |   | **Accumulated  Deficit** |   | **Total** |   |
|------------------------------------------------------|--------|----------------------|--------|------------|--------|------------|--------|--------|--------|----------------------------------|--------|------------------------------|--------|---------------------------------------------|--------|--------------------------|--------|-----------|--------|
| **Common  Stock**                                    |   | **Preferred  Stock** |
| **Shares**                                           |   | **Amount**           |   | **Shares** |   | **Amount** |
|                                                 |   |                 |   |       |   |       |   |   |   |                             |   |                         |   |                                        |   |                     |   |      |   |
| **Balance at December 31, 2002**                     |   | 2,328,713            |   | $          | 12     |       | 29,020 |   | $      | 2,483                            |   | $                            | 22,950 |                                        | $      | 0                        |   | $         | (131   | ) | $ | (18,493 | ) | $ | 6,821 |   |
|                                                 |   |                 |   |       |   |       |   |   |   |                             |   |                         |   |                                        |   |                     |   |      |   |
| **Exercise of common stock options**                 |   | 15,579               |   |       |   |       |   |   |   | 59                               |   |                         |   |                                        |   |                     |   | 59        |   |
|                                                 |   |                 |   |       |   |       |   |   |   |                             |   |                         |   |                                        |   |                     |   |      |   |
| **Employee stock purchases**                         |   | 0                    |   |       |   |       |   |   |   |                             |   |                         |   |                                        |   |                     |   |      |   |
|                                                 |   |                 |   |       |   |       |   |   |   |                             |   |                         |   |                                        |   |                     |   |      |   |
| **Shares issued for Connect Care acquisition**       |   | 200,000              |   | 0          |   |       |   |   |   | 2,630                            |   |                         |   |                                        |   |                     |   | 2,630     |   |
|                                                 |   |                 |   |       |   |       |   |   |   |                             |   |                         |   |                                        |   |                     |   |      |   |
| **Conversion of Series C Preferred Stock to Common** |   | 83,333               |   |       |   | (2,000     | )      | (150   | )      | 150                              |   |                         |   |                                        |   |                     |   | 0         |   |
|                                                 |   |                 |   |       |   |       |   |   |   |                             |   |                         |   |                                        |   |                     |   |      |   |
| **Dividends**                                        |   |                 |   |       |   |       |   |   |   |                             |   |                         |   |                                        |   | (55                      | )      | (55       | )      |
|                                                 |   |                 |   |       |   |       |   |   |   |                             |   |                         |   |                                        |   |                     |   |      |   |
| **Comprehensive income:**                            |   |                 |   |       |   |       |   |   |   |                             |   |                         |   |                                        |   |                     |   |      |   |
| **Net income**                                       |   |                 |   |       |   |       |   |   |   |                             |   | 779                          |   |                                        |   | 779                      |   | 779       |   |
| **Foreign currency translation adjustment**          |   |                 |   |       |   |       |   |   |   |                             |   | 29                           |   | 29                                          |   |                     |   | 29        |   |
| **Accumulated comprehensive loss**                   |   |                 |   |       |   |       |   |   |   |                             |   | 808                          |   |                                        |   |                     |   |      |   |
|                                                 |   |                 |   |       |   |       |   |   |   |                             |   |                         |   |                                        |   |                     |   |      |   |
| **Balance at March 31, 2003**                        |   | 2,627,625            |   | $          | 12     |       | 27,020 |   | $      | 2,333                            |   | $                            | 25,789 |                                        |   |                     | $      | (102      | )      | $ | (17,769 | ) | $ | 10,263 |   |
|                                                      |        |                      |        |            |        |            |        |        |        |                                  |        |                              |        |                                             |        |                          |        |           |        |  |  |  |  |  |  |  |

 

**The accompanying notes are an integral partof these financial statements.**

 

5

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**FIRSTWAVE TECHNOLOGIES, INC.**

**Consolidated Statement of Cash Flows**

**(in thousands)**

**(unaudited)**

 
|                                                     |   | **For the  Three Months Ended** |       |
|----------------------------------------------------------|--------|---------------------------------|------------|
|                                                     |   | **March 31,  2002**             |       | **March 31,  2003** |   |
|                                                     |   |                            | ** ** |   | ** ** |
| **Cash flows provided by operating activities**          |   | $                               | 682        |   | $ | 868 |   |
|                                                     |   |                            |       |   |   |
| **Cash flows from investing activities**                 |   |                            |       |   |   |
| **Software development costs**                           |   | (28                             | )          | (975 | ) |
| **Purchases of property and equipment**                  |   | (57                             | )          | (54 | ) |
| **Acquisition of Connect-Care**                          |   | 0                               |       | (98 | ) |
| **Net cash used in investing activities**                |   | (85                             | )          | (1,127 | ) |
|                                                     |   |                            |       |   |   |
| **Cash flows from financing activities**                 |   |                            |       |   |   |
| **Proceeds from issuance of common stock**               |   | 0                               |       | 59 |   |
| **Payment of dividends on preferred stock**              |   | (227                            | )          | (56 | ) |
| **Net cash provided by/(used in) financing  activities** |   | (227                            | )          | 3 |   |
|                                                     |   |                            |       |   |   |
| **Foreign currency translation adjustment**              |   | 40                              |       | 34 |   |
|                                                     |   |                            |       |   |   |
| **Increase/(decrease) in cash and cash  equivalents**    |   | 410                             |       | (222 | ) |
| **Cash and cash equivalents, beginning of  period**      |   | 1,860                           |       | 3,779 |   |
| **Cash and cash equivalents, end of period**             |   | $                               | 2,270      |   | $ | 3,557 |   |
|                                                     |   |                            |       |   |   |
| **Supplemental disclosure of cash flow  information**    |   |                            |       |   |   |   |   |
| **Cash paid for income taxes**                           |   | $                               | 0          |   | $ | 1 |   |
| **Cash paid for interest**                               |   | $                               | 0          |   | $ | 0 |   |
|                                                          |        |                                 |            |  |  |  |  |  |  |

 

**The accompanying notes are an integral partof these financial statements.**

 

6

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**FIRSTWAVE TECHNOLOGIES, INC.**

**Notes to Consolidated Financial Statements**

**March 31, 2003**

 

**A.****            Basis ofPresentation**

 

Firstwave Technologies, Inc. is a globalsoftware innovator thatprovides strategic, web-based customer relationship management (CRM) solutionsthat automate and optimize the way companies win, maintain and grow customerrelationships.  The Firstwave productline consists of the Firstwave CRM Product Suite; Takecontrol® andFirstwave for Unix.  The Firstwave CRMProduct Suite consists of the following four products:  Firstwave eCRM, Firstwave CRM 10, FirstwaveCORE IDE and Firstwave for Technology. Both eCRM and CRM 10 are web-basedapplications, the former being built with COM+ technology and the latter with..NET technology.  The CORE IDE is thetoolset supporting CRM 10.  TheFirstwave for Technology products were acquired in the Connect-Careacquisition, and are client-server based. In addition to the Firstwave CRM Product Suite, Firstwave also supportsTakecontrol ®, a client-server based product and Firstwave for Unix.

 

The accompanying unaudited consolidated financial statements have beenprepared in accordance with the instructions to Form 10-Q and Rule 10-01 ofRegulation S-X.  Accordingly, theconsolidated financial statements do not include all of the information andfootnotes required by accounting principles generally accepted in the UnitedStates and should be read in conjunction with the consolidated financialstatements contained in the Company’s Form 10-K/A for the period ended December31, 2002.  In the opinion of management,all adjustments (consisting only of normal recurring adjustments) considerednecessary for a fair presentation of the consolidated financial statements havebeen included.

 

The consolidated financial statements include the accounts of FirstwaveTechnologies, Inc. and its wholly owned subsidiaries, Connect-Care Inc. andFirstwave Technologies UK, Ltd.  Allintercompany transactions and balances have been eliminated in consolidation.

 

**B.****           ****Accounting Policies**

 

**Concentrationof credit risk and revenue**

The Company is subject to credit risk primarily dueto its trade receivables. The Company has credit risk due to the highconcentration of trade receivables through Firstwave UK, whose customer,Electronic Data Services, Ltd, represented 72% of the Company’s total revenuesfor first quarter 2003 and 59% of the Company’s total Accounts Receivableoutstanding at March 31, 2003.  If thiscustomer decreases its purchasing of the Company’s software and services,revenues would significantly decrease if not replaced with other customer accounts

 

**Revenuerecognition**

Revenue from software product sales is recognizedupon shipment of the product when the Company has a signed contract, the feesare fixed and determinable, no significant obligations remain and collection ofthe resulting receivable is probable. The Company accrues for estimated warranty costs at the time itrecognizes license revenue.  Servicesrevenue is recognized as services are performed.  Maintenance revenue is recognized ratably over the period ofcoverage.

 

The Company has arrangements with customers that provide for thedelivery of multiple elements, including software licenses, and services. TheCompany allocates and recognizes revenue related to each of the multipleelements based on vendor specific objective evidence of the fair value of eachelement. Vendor specific objective evidence is based on standard pricing foreach of the elements in our multiple element arrangements. Revenue associatedwith the various elements of multiple element arrangements is based on suchvendor-specific objective evidence as the price charged for each element is thesame as when the element would be sold separately from any other element.  Pricing does not vary by customer or byduration, or by requirements of the arrangement.

 

International revenues are primarily generated byFirstwave UK and independent distributors who offer licenses of the Company’sproducts in specific geographic areas. Under the terms of the Company’s international distributor agreements,international distributors collect license fees and maintenance revenues onbehalf of the Company, and remit 50% to 60% of standard license fees andmaintenance revenues they produce.  TheCompany recognizes international sales at the gross license amount, with theamount paid to the distributors reflected as a selling expense.  The Company’s international maintenance feesare reflected as maintenance revenues, with the amount retained by distributorsshown as a cost of maintenance revenue. There were no revenues derived from international distributors duringthe first quarter of 2003.

 

7

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Revenues from nonmonetary exchanges are recorded atthe fair value of the products and services provided or received, whichever ismore clearly evident.  There were nononmonetary exchanges during the first quarter of 2003.

 

Advanced billings for services and maintenancecontracts are recorded as deferred revenue on the Company’s balance sheet, withrevenue recognized as the services are performed and on a pro-rata basis formaintenance.

 

The Company provides an allowance for doubtfulaccounts based on management’s estimate of receivables that will beuncollectible.  The estimate is based onhistorical charge-off activity and current account status.

 

**Softwaredevelopment costs**

Capitalized software development costs consistprincipally of salaries, contract services, and certain other expenses relatedto development and modifications of software products capitalized in accordancewith the provisions of FAS 86, “Accounting for the Costs of Computer Softwareto be Sold, Leased, or Otherwise Marketed.” Capitalization of such costs begins only upon establishment oftechnological feasibility as defined in FAS 86 and ends when the resultingproduct is available for sale. The Company evaluates the establishment oftechnological feasibility based on the existence of a working model of thesoftware product.  Capitalized costs mayinclude costs related to product enhancements resulting in new features andincreased functionality as well as writing the code in a new programminglanguage.  In this case, as the versionenhancements are built on an already detailed design under an existing sourcecode, technological feasibility is established early for each version.  All costs incurred to establish thetechnological feasibility of software products are classified as research anddevelopment and are expensed as incurred.

 

The Company evaluates the realizability of unamortized capitalizedsoftware costs at each balance sheet date. Software development costs which are capitalized are subsequentlyreported at the lower of unamortized cost or net realizable value. If theunamortized capitalized software cost exceeds the net realizable value of theasset, the amount would be written off accordingly.  The net realizable value of the capitalized software developmentcosts is the estimated future gross revenues of the software product reduced bythe estimated future costs of completing and disposing of that product.Amortization of capitalized software costs is provided at the greater of theratio of current product revenue to the total of current and anticipatedproduct revenue or on a straight-line basis over the estimated economic life ofthe software, which is not more than three years.  It is possible that those estimates of anticipated productrevenues, the remaining estimated economic life of the product, or both couldbe reduced due to changing technologies. The amortization of software development costs is presented as a cost ofsoftware revenue in the Company’s financial statements.

 

8

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**Stock-BasedCompensation**

Effective for 2002, the Company adopted FAS 148,“Accounting for Stock-Based Compensation - Transition and Disclosure”, and itdid not have a material impact on the consolidated financial statements.  The Company has chosen to continue toaccount for stock-based compensation using the intrinsic value methodprescribed in Accounting Principles Board Opinion No. 25, “Accounting for StockIssued to Employees,” and related Interpretations and to elect the disclosureoption of FAS 123, “Accounting for Stock-Based Compensation.”   Accordingly, compensation cost for stockoptions is measured as the excess, if any, of the quoted market price of theCompany’s stock at the date of the grant over the amount an employee must payto acquire the stock.

 

The Company has adopted the disclosure only provisions of FAS 123,“Accounting for Stock-Based Compensation.” The following table illustrates the effect on net income and net incomeper share if the Company had applied the fair value recognition provisions ofSFAS No. 123 to stock-based employee awards.

 
|                                                                                               |   | **Quarter Ended  March 31** |   |
|----------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|
|                                                                                               |   | **2002**                    |   | **2003** |   |
| Net  income as reported                                                                            |   | $                           | 966    |   | $ | 724 |   |
|                                                                                               |   |                        |   |   |   |
| Stock  based employee compensation, net of related tax effects included in net  income as reported |   | —                      |   | — |   |
|                                                                                               |   |                        |   |   |   |
| Stock  based employee compensation, net of related tax effects under the fair value  based method  |   | 11                          |   | 129 |   |
| Net  income as adjusted                                                                            |   | $                           | 955    |   | $ | 595 |   |
|                                                                                               |   |                        |   |   |   |
| Earnings  per share:                                                                               |   |                        |   |   |   |
| Basic  - as reported                                                                               |   | $                           | .46    |   | $ | .30 |   |
| Basic  - as adjusted                                                                               |   | $                           | .45    |   | $ | .24 |   |
|                                                                                               |   |                        |   |   |   |
| Diluted  - as reported                                                                             |   | $                           | .33    |   | $ | .24 |   |
| Diluted  - as adjusted                                                                             |   | $                           | .33    |   | $ | .20 |   |

 

The variance in the compensation expense between first quarter 2002compared to first quarter 2003 is primarily the result of options that werecancelled during the first quarter of 2002 related to a Stock ExchangeProgram.  On March 19, 2002 the Companycompleted a Stock Exchange Program that offered each of its directors andemployees who held options under the Option Plan with an exercise price ofgreater than $10.00 the opportunity to surrender those options for cancellationin exchange for new options to be granted no sooner than six months and one dayafter cancellation.  The optionscancelled in March 2002 under this program totaled 81,684. The Company granted81,684 new options on September 20, 2002.

 

There is no tax benefit included in the stock-based employeecompensation expense determined under the fair-value-based method for the threemonths ended March 31, 2003 and March 31, 2002, as the Company established afull valuation allowance for its net deferred tax assets.

 

9

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**Basic and diluted net income per common share**

Basic net income per common share is based on the weighted averagenumber of shares of common stock outstanding during the period.  Stock options and convertible preferredstock are included in the diluted earnings per share calculation when they arenot antidilutive.  Net income applicableto common shareholders includes a charge for dividends related to the Company’soutstanding preferred stock.

 

Shown below is a reconciliation of the numerators and denominators ofthe basic and diluted per share computations for income from continuingoperations.

 
|                                     |   | **For Quarter Ended March 31, 2003** |   |
|------------------------------------------|--------|--------------------------------------|--------|
|                                     |   | **Income (000’s)  (Numerator)** |   | **Shares (000’s)  (Denominator)** |   | **Per Share  Amount** |   |
| Net  income                              |   | 779                                  |   |   |   |   |   |
| Less:  Preferred Stock Dividends         |   | (55                                  | )      |   |   |   |   |
|                                     |   |                                 |   |   |   |   |   |
| **Basic EPS**                            |   |                                 |   |   |   |   |   |
| Income  available to common shareholders |   | 724                                  |   | 2,430 |   | $ | 0.30 |   |
|                                     |   |                                 |   |   |   |   |   |
| **Effect of Dilutive Securities**        |   |                                 |   |   |   |   |   |
| Warrants                                 |   |                                 |   | 19 |   |   |   |
| Convertible  Preferred Stock             |   | 55                                   |   | 665 |   |   |   |
| Stock  Options                           |   |                                 |   | 185 |   |   |   |
|                                     |   | 55                                   |   | 869 |   |   |   |
| **Diluted EPS**                          |   |                                 |   |   |   |   |   |
| Income  available to common shareholders |   | 779                                  |   | 3,299 |   | $ | 0.24 |   |

 
|                                     |   | **For Quarter Ended March  31, 2002** |   |
|------------------------------------------|--------|---------------------------------------|--------|
|                                     |   | **Income (000’s)  (Numerator)**  |   | **Shares (000’s)  (Denominator)** |   | **Per Share  Amount** |   |
| Net  income                              |   | 1,032                                 |   |   |   |   |   |
| Less:  Preferred Stock Dividends         |   | (66                                   | )      |   |   |   |   |
|                                     |   |                                  |   |   |   |   |   |
| **Basic EPS**                            |   |                                  |   |   |   |   |   |
| Income  available to common shareholders |   | 966                                   |   | 2,100 |   | $ | 0.46 |   |
|                                     |   |                                  |   |   |   |   |   |
| **Effect of Dilutive Securities**        |   |                                  |   |   |   |   |   |
| Warrants                                 |   |                                  |   | 19 |   |   |   |
| Convertible  Preferred Stock             |   | 66                                    |   | 943 |   |   |   |
| Stock  Options                           |   |                                  |   | 46 |   |   |   |
|                                     |   | 66                                    |   | 1,008 |   |   |   |
| **Diluted EPS**                          |   |                                  |   |   |   |   |   |
| Income  available to common shareholders |   | 1,032                                 |   | 3,108 |   | $ | 0.33 |   |

 

10

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**Foreign currency translation**

The financial statements of the Company’s international subsidiary aretranslated into U.S. dollars at current exchange rates, except for revenues andexpenses, which are translated at average exchange rates during each reportingperiod.  Currency transaction gains orlosses, which are included in the results of operations, are insignificant forall periods presented.  Net exchangegains or losses resulting from the translation of assets and liabilities areincluded as a component of accumulated other comprehensive income inshareholders’ equity.

 

**Use of estimates**

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and the disclosure of contingent assets and liabilities at the dateof the financial statements and the reported amounts of revenues and expensesduring the reporting period.  Actualresults could differ from those estimates.

 

**Impairment of long-lived assets**

The Company evaluates impairment of long-lived assets whenever events orchanges in circumstances indicate that the carrying amount of such assets maynot be recoverable.  If the sum of theexpected future undiscounted cash flows is less than the carrying amount of theasset, an impairment loss would be recognized. Measurement of an impairment loss for long-lived assets would be basedon the fair value of the asset.

 

**Segmentreporting**

Management believes that it has only a single segment consisting of softwaresales with related services and support. The information presented in the consolidated statement of operationsreflects the revenues and costs associated with this segment that managementuses to make operating decisions and assess performance.

 

**C.****            Borrowings**

 

The Company has no outstanding long-term debt.

 

**D.****            Acquisition**

 

On March 3, 2003, Firstwave Technologies, Inc. (“Firstwave”), a Georgiacorporation, acquired Connect-Care, Inc. (“Connect-Care”), a Georgiacorporation that provides customer relationship management (CRM) softwaresolutions for software companies. Connect-Care was acquired pursuant to a Merger Agreement dated March 3,2003 (the “Merger Agreement”) by and among Firstwave, CC Subsidiary, Inc., awholly-owned subsidiary of Firstwave (“Merger Sub”), Connect-Care, and certainshareholders of Connect-Care.  Pursuantto the Merger Agreement, Merger Sub merged with and into Connect-Care, andConnect-Care, which was the surviving corporation in the Merger, became awholly-owned subsidiary of Firstwave, the results of Connect-Care’s operationshave been included in the Company’s financial statements since March 3, 2003.

 

In exchange for all outstanding shares of Connect-Care stock, Firstwaveissued 200,000 shares of Firstwave common stock to the shareholders ofConnect-Care and granted such shareholders certain registration rights.  Additional consideration of $300,000 in cashmay be payable if certain revenue goals, as set forth in Section 3.1 ofthe Merger Agreement, are attained. Such amount would be paid on or prior to the earlier of (i) thedate Firstwave files its Annual Report on Form 10-K with respect to thefiscal year ending December 31, 2003 or (ii) March 31, 2004.

 

The $300,000 earn-out provision of the merger agreement with Connect-Caremakes this payment contingent upon the attainment of certain total revenues,including license revenues and associated maintenance revenues that would berecognized according to SOP 97-2, during 2003 from March through December.  Such earn-out is contingent considerationbased upon future financial performance. Such revenue attainment is offset by any net accounts receivable shownas of February 28, 2003, not collected by December 31, 2003.  If the revenue targets are realized, the$300,000 will be paid in full.  If therevenue targets are partially realized, then the payout is payableratably.  If the revenue target is met,the payout will be accounted for on Firstwave’s financial statements as anincrease to the purchase price of the acquisition and an increase to intangibleassets.

 

The Company is accounting for the $300,000 as contingent considerationin accordance with paragraphs 25 through 28 of SFAS 141. Because the amount, ifany, of contingent consideration was not determinable at the acquisition date,no amount for the contingency will be recorded in the Company’s financialstatements until the contingency is resolved, or the consideration is issued orbecomes issuable. The Company expects that, should any amount of contingentconsideration be issuable, such amount would result in an additional element ofthe cost of acquiring Connect-Care.

 

11

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An analysis of each material asset acquiredand each material liability assumed from the acquisition of Connect-Care wascompleted to ensure accuracy of fair value. All line items represented fair value because of each item’s short-termnature.  The Company evaluated each assetand liability and the timing in which assets would be received and liabilitieswould be settled and determined that these amounts represented their fairvalues.

 

The following table summarizes the estimatedfair value of the assets acquired and liabilities assumed at the date ofacquisition.

 
| Current Assets        |   | $      | 771,660    |   |
|-----------------------|--------|--------|------------|--------|
| Property and Equip    |   | $      | 29,504     |   |
| Intangible Assets     |   | $      | 3,376,061  |   |
| Goodwill              |   | $      | —     |   |
| Total assets acquired |   | $      | 4,177,225  |   |
|                  |   |   |       |
| Current liabilities   |   | $      | (1,423,086 | )      |
|                  |   |   |       |
| Net assets acquired   |   | $      | 2,754,139  |   |

 

Of the $3,376,061 of acquired intangible assets, $300,000 was assignedas an estimated net realizable amount to the Connect-Care technology and$3,076,061 was assigned as an estimated value for customer relationships basedon potential future revenues that may be derived from such customerrelationships.  Both of these intangibleassets will be evaluated for impairment in accordance with FAS No. 142“Goodwill and Other Intangible Assets”.

 

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**Item 2.**

 

**FIRSTWAVE TECHNOLOGIES, INC.**

**Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

*The followingdiscussion should be read in conjunction with the Financial Statements andNotes thereto of the Company presented in the Company’s Annual Report on Form10-K/A for the year ended December 31, 2002. This section contains forward-looking statements that reflectmanagement’s expectations, estimates, and projections for future periods.  These statements may be identified by theuse of forward-looking words such as “may”, “will”, “believe”, “anticipate”,“estimate”, “expect”, “projects”, or “intends”.  Actual events and results may differ from the results anticipatedby the forward-looking statements. Factors that might cause such differences include, but are not limitedto, those items discussed under the caption “Certain Factors AffectingForward-Looking Statements” presented in the Company’s Annual Report on Form10-K/A for the year ended December 31, 2002.*

 

**Overview**

 

Firstwave Technologies, Inc. is a globalsoftware innovator thatprovides strategic, web-based customer relationship management (CRM) solutionsthat automate and optimize the way companies win, maintain and grow customerrelationships.  The Firstwave productline consists of the Firstwave CRM Product Suite; Takecontrol® andFirstwave for Unix.  The Firstwave CRMProduct Suite consists of the following four products:  Firstwave eCRM, Firstwave CRM 10, FirstwaveCORE IDE and Firstwave for Technology. Both eCRM and CRM 10 are web-basedapplications, the former being built with COM+ technology and the latter with..NET technology.  The CORE IDE is thetoolset supporting CRM 10.  TheFirstwave for Technology products were acquired in the Connect-Care acquisition,and are client-server based.  Inaddition to the Firstwave CRM Product Suite, Firstwave also supportsTakecontrol ®, a client-server based product and Firstwave for Unix.

 

**Results of Operations**

 

During the first quarter of 2003 we reported our sixth consecutivequarter of profitability. Total revenues increased 5.5% from $4,056,000 in thefirst quarter of 2002 to $4,281,000 in the first quarter of 2003. Softwarerevenues increased 120.7% from $728,000 in the first quarter of 2002 to$1,607,000 in the first quarter of 2003 primarily due to a large softwarelicense contract related to ourrelationship with a leading global services company, Electronic Data Services,Ltd.  Our software revenues aresignificantly dependent upon the timing of closing of license agreements.  Duringthe first quarter of 2003, we had a major concentration of software andservices revenue derived from our relationship with Electronic Data Services,Ltd. which contributed 71.9% of our total revenue for the quarter.  If this party decreases itspurchasing of our software and services, our revenues would significantlydecrease if not replaced with other customer accounts.  We are aggressively pursuing strategies totransition our revenue stream away from dependency on a few large customers toa more diverse customer base.  Ourrecent acquisition of Connect-Care assists in diversifying our customer base.

 

Services revenues decreased 25.6% from $2,875,000 in the first quarterof 2002 to $2,140,000 in the first quarter of 2003. During the first quarter of2002 we had a very large services engagement with Electronic Data Services,Ltd.  While we continued our servicesengagement with Electronic Data Services, Ltd during the first quarter of 2003,the scale of the services decreased compared to the services performed duringfirst quarter 2002.  Our servicesrevenues are subject to fluctuations based on variations of the length of andnumber of active service engagements in a given quarter.

 

Maintenancerevenues increased 18.1% from $448,000 in the first quarter of 2002 to $529,000in the first quarter of 2003.  Theincrease is due to additional revenues associated with the CRM product line andwith the addition of maintenance revenues from the Connect-Careacquisition.  Maintenance revenues arethe result of renewal agreements from previous software license sales as well asnew license agreements.

 

Costof software revenues decreased 10.2% from $323,000 in the first quarter of 2002to $290,000 in the first quarter of 2003. The decrease is primarily due to lower amortization of capitalizedsoftware as a result of previously capitalized versions of the software beingfully amortized.  We expect the cost ofsoftware to increase during the remainder of 2003 as we begin to amortize thelatest version of the product currently in development.  Cost of software revenues include amortizationof capitalized software costs, costs of third party software, media costs, anddocumentation materials.  Amortizationof capitalized software represented 70.5% of total cost of software revenueduring the first quarter of 2003 compared to 99.3% during first quarter 2002.

 

Costof revenues for services increased 20.0% from $794,000 in the first quarter of2002 to $953,000 in the first quarter of 2003 primarily due to increases inpayroll, outside consultants, and travel. Cost of revenues for services as a percentage of services revenuesincreased from 27.6% in the first quarter of 2002 to 44.5% in the first quarterof 2003 due to higher personnel costs relative to services revenue.  Cost of revenues for maintenance decreased13.5% from $163,000 in the first quarter of 2002 to $141,000 in the firstquarter of 2003 primarily due to lower royalty costs consistent with decreasedmaintenance revenues generated by international distributors.

 

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Sales and marketing expense increased 41.2% from $780,000 in the firstquarter of 2002 to $1,101,000 in the first quarter of 2003 primarily as theresult of increases in payroll costs, telemarketing services, and marketingmaterials.  During the remainder of2003, we anticipate marketing expenses to remain at this level as we continueto engage in a full range of marketing programs focused on generating qualifiedleads and market awareness of our products.

 

TheCompany’s product innovation and development expenditures, which includesamounts capitalized, increased 848.4% from $128,000 in the first quarter of2002 to $1,214,000 in the first quarter of 2003.  The increase is primarily related to increased payroll costs andincreased use of outside development contractors related to the development ofour latest version of the CRM product. Software development costs capitalized during the three months endedMarch 31, 2002 and March 31, 2003 were $28,000 and $975,000 respectively.   We believe development expenditures willremain consistent for the next quarter until such time as we release theversion currently in development.  Goingforward, we will continue to improve and enhance the product; however, weanticipate the development expenditures will be lower during the second half ofthe year.

 

Generaland administrative expenses decreased 9.3% from $863,000 in the first quarterof 2002 to $783,000 in the first quarter of 2003.  During the first quarter of 2002 we had a large write off of athird party software asset related to a change in the technology used for ourinternal web-site development.  Therewas no corresponding write off in first quarter of 2003.

 

Dividendson preferred stock decreased 73.7% from $66,000 in the first quarter of 2002 to$55,000 in the first quarter of 2003 due to the conversion of Series CConvertible Preferred Stock into common stock during 2002 and the first quarterof 2003.

 

Theabove factors combined to result in a 25.1% decrease in net income available tocommon shareholders from a net income of $966,000 in the first quarter of 2002to a net income of $724,000 in the first quarter of 2003, and a net income perbasic and diluted share of $0.46 and $0.33 respectively for the first quarterof 2002 compared to a net income per basic and diluted share of $0.30 and $0.24respectively, for the first quarter of 2003. At March 31, 2002 the number of basic weighted average sharesoutstanding was 2,100,000 compared to 2,430,000 at March 31, 2003.  The increase in basic weighted averageshares outstanding is primarily related to the conversion of Series CConvertible Preferred Shares into approximately 278,000 common shares.

 

**Balance Sheet**

 

Netaccounts receivable increased 53.7% from $2,406,000 at December 31, 2002 to$3,698,000 at March 31, 2003 primarily due to outstanding receivables relatedto our large UK services engagement and the addition of account receivablesrelated to the Connect-Care acquisition. Property and equipment decreased 4.1% from $738,000 at December 31, 2002to $708,000 at March 31, 2003, due to year to date depreciation offset by newasset purchases and the addition of Connect-Care fixed assets. Capitalizedsoftware increased 37.8% from $2,041,000 at December 31, 2002 to $2,812,000 atMarch 31, 2003 due to additional capitalization of $975,000 in developmentcosts net of $204,000 in amortization. Intangible assets were $3,376,000 at March 31, 2003 related to purchaseaccounting of the Connect-Care acquisition. Accounts payable increased 102%from $909,000 at December 31, 2002 to $1,836,000 at March 31, 2003 due toincreased expenses during the quarter, the addition of Connect-Care accountspayables and the timing of vendor payments. Deferred revenue increased 102.3% from $812,000 at December 31, 2002 to$1,643,000 at March 31, 2003 primarily due to the addition of Connect-Caredeferred maintenance and professional services revenues.  Accrued employee compensation and benefitsincreased 52.3% from $417,000 at December 31, 2002 to $635,000 at March 31,2003 primarily due to increased commissions payable consistent with increasedsoftware license revenue and the addition of Connect-Care accruals related toincentives, commissions, and vacation payable. Other accrued liabilities decreased 26.1% from $802,000 at December 31,2002 to $593,000 at March 31, 2003 primarily due to the timing of payment ofaccrued VAT in the UK.

 

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**Liquidity and CapitalResources**

 

Asof March 31, 2003, the balance of cash and cash equivalents was $3,557,000 comparedto $3,779,000 at December 31, 2002.  Wehave no outstanding long-term debt.

 

During the year 2002, 71.9% of our totalrevenue was attributed to our relationship with Electronic Data Services Ltd, aleading global services company.  During the first quarter of 2003, this samerelationship accounted for 71.9% of total revenues.  If this partydecreases its purchasing of our software and services, our revenues and cashposition would significantly decrease if not replaced with other customeraccounts.

 

OnJuly 30, 2002, Firstwave signed an agreement with Extreme Logic, a leadinge-business solutions provider, to provide a .Net-based workflow and scriptingengine and services to enhance our eCRM technology.  By licensing this proven technology, we feel the technology riskassociated with new development is diminished, we gain a time-to-marketadvantage, and the cost to develop is less than building the technologyin-house. The license fees paid to Extreme Logic were recorded as an asset onthe Company’s balance sheet and are being depreciated over a three-yearperiod.  The depreciation associatedtherewith is recorded as a Product Development expense.  The expense amount reflected on the IncomeStatement for 2002 was $87,500, and the amount expensed in first quarter 2003was $43,750. Quarterly depreciation in the amount of $43,750 will continuethrough September 2005.

 

Ourfuture capital requirements will depend on many factors, including our abilityto maintain positive cash flows, as well as the timing and extent of spendingto support product development efforts and expansion of sales and marketing,and market acceptance of our products. Our future capital needs will be highly dependent upon our ability tocontrol expenses and generate additional software license revenues, and anyprojections of future cash needs and cash flows are subject to substantialuncertainty.  If we are unable to fundexpenses from operations or obtain the necessary additional capital, we may berequired to reduce the scope of planned product development and sales andmarketing efforts, as well as reduce the size of current staff, all of whichcould have a material adverse effect on our business, financial condition, andour ability to reduce losses or generate profits.

 

Wehave no material commitments for capital expenditures.  We do not believe that inflation hashistorically had a material effect on our Company’s results of operations.

 

##### **Item 3. Quantitative and Qualitative Disclosures About Market Risk**

 

TheCompany is subject to market risk exposures of varying correlations andvolatilities, including interest rate risk and foreign exchange rate risk.  Currently, the Company maintains its cashposition primarily in money market funds and other bank accounts.  The Company does not currently engage inhedging activities or otherwise use derivatives to alter the interestcharacteristics of its financial assets. Although a decrease in interest rates could reduce our interest income,at this time management does not believe a change in interest rates willmaterially affect the Company’s financial position or results of operations.

 

Wedo not have any material credit facilities and, therefore, do not have asignificant risk due to potential fluctuations in interest rates for loans atthis time. Changes in interest rates could make it more costly to borrow moneyin the future and may impede our future acquisition and growth strategies ifmanagement determines that the costs associated with borrowing funds are toohigh to implement these strategies.

 

Theresults of operations of our wholly owned subsidiary located in Surrey, Englandare exposed to foreign exchange rate fluctuations as the financial results ofthis subsidiary are translated from the local currency to U.S. Dollars uponconsolidation.  Because of thesignificance of the operations of this subsidiary to our consolidatedoperations, as exchange rates vary, net sales and other operating results, whentranslated, may differ materially from our prior performance and ourexpectations.  In addition, because ofthe significance of our overseas operations, we could also be significantlyaffected by weak economic conditions in foreign markets that could reducedemand for our products and further negatively impact the results of our operationsin a material and adverse manner.  As aresult of these market risks, the price of our stock could declinesignificantly and rapidly.

 

The Company manages the risk by monitoring ona regular basis the fluctuations in foreign currency exchange rates as theyrelate to our UK Subsidiary, and takes action if the foreign currency exchangerate would result in a material impact to the Company’s financial statementsupon translation from the local currency, the British pound, to the US Dollar.  The action taken in these instances by theCompany is to move the currency from the UK Subsidiary to the Company’sheadquarters when doing so would be beneficial on the Company’s financialstatements.  The Company does not engagein any hedging activities.  As foreign currencyexchange rates vary, the fluctuations in revenues and expenses may materiallyimpact the financial statements upon consolidation.  A weaker US dollar would result in an increase to revenues andexpenses upon consolidation, and a stronger US dollar would result in adecrease to revenues and expenses upon consolidation. 

 

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**Item4.    Controls and Procedures**

 

Basedon their most recent evaluation, which was completed in consultation withmanagement within 90 days of the filing of this Form 10-Q, theCompany’s Chairman and Chief Executive Officer and Chief Financial Officerbelieve the design and operation of the Company’s disclosure controls andprocedures (as defined in Rules 13a-14 and 15d-14 promulgated under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”)) wereeffective as of the date of such evaluation in timely alerting the Company’smanagement to material information required to be included in thisForm 10-Q and other Exchange Act filings. There were no significant changes (including corrective actions withregard to significant deficiencies or material weaknesses) in the Company’sinternal controls or other factors that could significantly affect thesecontrols subsequent to the date of the evaluation described above.

 

**PART II. OTHER INFORMATION**

 

Item 1.   Legal Proceedings

Not Applicable

 

Item 2.   Changes in Securities

 

On March 3, 2003, Firstwave acquired Connect-Care, Inc.  This acquisition was accomplished byConnect-Care merging with a subsidiary of Firstwave, with Connect-Caresurviving the merger.  In connectionwith this acquisition and in consideration of the merger, Firstwave issued inthe aggregate 200,000 shares of its no par value common stock to theshareholders of Connect-Care.  Firstwaverelied upon the exemption set forth in Section 4(2) of the Securities Act forthe issuances to the Connect-Care shareholders based upon the fact that theacquisition was privately negotiated with a small number of sophisticated purchaserswho were familiar with the business and operations of Firstwave.

 

 

Item 3.   Defaults Upon SeniorSecurities

Not Applicable

 

Item 4.   Submission of Mattersto a Vote of Security Holders

Not Applicable

 

Item 5.   Other Information

Not Applicable

 

Item 6.   Exhibits and Reportson form 8-K

 

a.   Exhibit3(ii) Amended and Restated Bylaws of Firstwave Technologies, Inc. dated May 1,2003. 

Exhibit 99.1

 

b.   On March 4, 2003, Firstwavefiled a Current Report on Form 8-K with respect to its acquisition ofConnect-Care, Inc.

 

On March 7, 2003, Firstwave amended this Form 8-K, through the filingof a Form 8-K/A, in order to include the following financial statements ofConnect-Care, Inc.:

 

(i)    Balance Sheet as ofDecember 31, 2002;

(ii)   Statement of Operationsfor the year ended December 31, 2002;

(iii)  Statement of Changes inMembers’ Deficit for the year ended December 31, 2002; and

(iv)  Statement of Cash Flowsfor the year ended December 31, 2002.

 

The following unaudited pro forma condensed consolidated financialstatements of Firstwave and Connect-Care were also included in this 8-K/A:

(i)  Pro forma Condensed Consolidated Statement of Operations for the yearended December 31, 2002; and

(ii)  Pro forma CondensedConsolidated Balance Sheet as of December 31, 2002.

 

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**SIGNATURES**

 

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|              |   | FIRSTWAVE TECHNOLOGIES, INC.  |
|-------------------|--------|-------------------------------|
|              |   |                          |
|              |   |                          |
| DATE: May 9, 2003 |   | /s/ Judith A. Vitale          |   |
|              |   |                          |
|              |   | Judith A. Vitale              |
|              |   | Chief Financial Officer       |
|              |   | (Principal Financial Officer) |
|                   |        |                               |  |  |  |

 

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I,Richard T. Brock, Chief Executive Officer of Firstwave Technologies, Inc.,certify that:

 

1.  I have reviewed this quarterly report onForm 10-Q of Firstwave Technologies, Inc.;

 

2.  Based on my knowledge, this quarterly reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.  Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report;

 

4.  Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a) designed such disclosure controls and procedures to ensure thatmaterial information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this quarterly report is being prepared;

 

b) evaluated the effectiveness of the registrant’s disclosure controlsand procedures as of a date within 90 days prior to the filing date of thisquarterly report (the “Evaluation Date”); and

 

c) presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on our evaluationas of the Evaluation Date;

 

5. The registrant’s other certifying officers and Ihave disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

a) all significant deficiencies in the design or operation of internalcontrols which could adversely affect the registrant’s ability to record,process, summarize and report financial data and have identified for theregistrant’s auditors any material weaknesses in internal controls; and

 

b) any fraud, whether or not material, that involves management orother employees who have a significant role in the registrant’s internalcontrols; and

 

6.  The registrant’s other certifying officersand I have indicated in this quarterly report whether or not there weresignificant changes in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 
|   | Date:  May 9, 2003 |
|--------|-------------------------|
|   |
|   | /s/ Richard T. Brock    |   |
|   | Richard T. Brock        |
|        |                         |  |  |

 

18

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I,Judith A. Vitale, Chief Financial Officer of Firstwave Technologies, Inc.,certify that:

 

1.  I have reviewed this quarterly report onForm 10-Q of Firstwave Technologies, Inc.;

 

2.  Based on my knowledge, this quarterly reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.  Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report;

 

4.  Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a) designed such disclosure controls and procedures to ensure thatmaterial information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this quarterly report is being prepared;

 

b) evaluated the effectiveness of the registrant’s disclosure controlsand procedures as of a date within 90 days prior to the filing date of thisquarterly report (the “Evaluation Date”); and

 

c) presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on our evaluationas of the Evaluation Date;

 

5. The registrant’s other certifying officers and Ihave disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

a) all significant deficiencies in the design or operation of internalcontrols which could adversely affect the registrant’s ability to record,process, summarize and report financial data and have identified for theregistrant’s auditors any material weaknesses in internal controls; and

 

b) any fraud, whether or not material, that involves management orother employees who have a significant role in the registrant’s internalcontrols; and

 

6.  The registrant’s other certifying officersand I have indicated in this quarterly report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
|   | Date:  May 9, 2003 |
|--------|-------------------------|
|   |                    |
|   | /s/ Judith A. Vitale    |   |
|   | Judith A. Vitale        |
|        |                         |  |  |

 

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