UNITED
        STATES
 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
        ENDED June 30, 2005
 
   COMMISSION
        FILE
        NUMBER 0-21202
 
 **FIRSTWAVE
        TECHNOLOGIES, INC.**
 (Exact
        name of
        Registrant as specified in its charter)
 
 
 
 **Georgia**
              **58-1588291**(State
                  of
                  incorporation)
              (IRS
                  Employer
                  ID #)
  
 
 **2859
        Paces
        Ferry Road, Suite 1000**
 **Atlanta,
        GA
        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 the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for the past 90 days.
 Yes **X** No __
 
 
 Indicate
        by check
        mark whether the registrant is an accelerated filer (as defined in Rule 12b-2
        of
        the Exchange Act).
 Yes__
        No **X**
 
 Indicate
        the number
        of shares outstanding of each of the issuer’s classes of common stock, as of the
        latest practicable date.
 
 Outstanding
        as
        of August 11, 2005:
 
 Common
        Stock, no
        par value 2,728,723
        shares
 
   1
 Index
  **FIRSTWAVE
        TECHNOLOGIES, INC.**
 
 **FORM
        10-Q**
 
 **For
        the
        quarter ended June 30, 2005**
 
 
 **Index**
 
 
 Page
                  No.**Part
                  I. Financial Information**Item
                  1. Financial StatementsConsolidated
                  Balance Sheet - December 31, 2004
                  and
                June
                    30, 2005
              3Consolidated
                  Statement of Operations - For the Three and Six
                  Months
                Ended
                    June 30, 2004 and June 30,
                    2005
              4Consolidated
                  Statement of Changes in Shareholders' Equity
                  -
                For
                    the Six Months Ended June 30,
                    2005
              5Consolidated
                  Statement of Cash Flows - For the Six
                  Months
                Ended
                    June 30, 2004 and June 30,
                    2005
              6Notes
                  to Consolidated Financial
                  Statements
              7Item
                  2.  Management's Discussion and Analysis of
              15Financial
                  Condition and Results of
                  OperationsItem
                  3. Quantitative and Qualitative Disclosures
                  About Market Risk
              17Item
                  4. Controls and Procedures
              18**Part
                  II. Other Information**
              18Item
                  6. Exhibits
              19
 
 2
 Index






**Part
        I. FINANCIALINFORMATION**
 
 **Item
        1. FinancialStatements**




**FIRSTWAVE
                  TECHNOLOGIES, INC.****Consolidated
                  BalanceSheet****(in
                  thousands)****Dec
                  31,**
              
              **June
                  30,****2004**
              
              **2005****(Unaudited)****ASSETS****Current
                  assets****Cash
                  and cash equivalents**
              
              
              
              
              $
              1,286
              
              $
              552**Accounts
                  receivable: less allowance for****doubtful
                  accounts of $61 and $38, respectively**
              
              
              
              
              
              605
              
              
              275**Note
                  receivable, current**
              
              
              
              
              
              0
              
              
              370**Other
                  prepaid expenses**
              
              
              
              
              
              565
              
              
              488**Total
                  current assets**
              
              
              
              
              
              2,456
              
              
              1,685**Property
                  and equipment, net**
              
              
              
              
              
              264
              
              
              133**Software
                  development costs, net**
              
              
              
              
              
              1,095
              
              
              713**Intangible
                  assets**
              
              
              
              
              
              800
              
              
              686**Goodwill**
              
              
              
              
              
              1,658
              
              
              1,121**Note
                  Receivable**
              
              
              
              
              
              0
              
              
              1,023**Total
                  assets**
              
              
              
              
              $
              6,273
              
              $
              5,361**LIABILITIES
                  AND SHAREHOLDERS' EQUITY****Current
                  liabilities****Accounts
                  payable**
              
              
              
              
              $
              581
              
              $
              521**Deferred
                  revenue**
              
              
              
              
              
              1,351
              
              
              1,005**Accrued
                  employee compensation and benefits**
              
              
              
              
              
              156
              
              
              103**Dividends
                  payable**
              
              
              
              
              
              46
              
              
              63**Other
                  accrued liabilities**
              
              
              
              
              
              290
              
              
              33**Total
                  current liabilities**
              
              
              
              
              
              2,424
              
              
              1,725**Shareholders'
                  equity**
              
              
              
              
              
              3,849
              
              
              3,636**Total
                  liabilities and shareholders' equity**
              
              
              
              
              $
              6,273
              
              $
              5,361






**The
        accompanying notes are an integral part of these financial
        statements.**
   3
 Index




**FIRSTWAVE
                  TECHNOLOGIES, INC.****Consolidated
                  Statementof Operations****(in
                  thousands, except per share amounts)****(unaudited)****For
                  the Three Months Ended**
              
              **For
                  the Six Months Ended****June
                  30,**
              
              **June
                  30,**
              
              **June
                  30,**
              
              **June
                  30,****2004**
              
              **2005**
              
              **2004**
              
              **2005****Net
                  Revenues****Software**
              
              $
              72
              
              $
              91
              
              $
              316
              
              $
              173**Services**
              
              
              118
              
              
              177
              
              
              740
              
              
              377**Maintenance**
              
              
              641
              
              
              506
              
              
              1,305
              
              
              1,085**Other**
              
              
              7
              
              
              19
              
              
              28
              
              
              39838
              
              
              793
              
              
              2,389
              
              
              1,674**Cost
                  and Expenses****Cost
                  of revenues****Software**
              
              
              318
              
              
              211
              
              
              690
              
              
              415**Services**
              
              
              267
              
              
              183
              
              
              552
              
              
              406**Maintenance**
              
              
              93
              
              
              73
              
              
              212
              
              
              152**Other**
              
              
              4
              
              
              11
              
              
              18
              
              
              24**Sales
                  and marketing**
              
              
              426
              
              
              178
              
              
              954
              
              
              342**Product
                  development**
              
              
              313
              
              
              194
              
              
              673
              
              
              388**General
                  and administrative**
              
              
              343
              
              
              390
              
              
              866
              
              
              7761,764
              
              
              1,240
              
              
              3,965
              
              
              2,503**Operating
                  loss**
              
              
              (926
              )
              
              (447
              )
              
              (1,576
              )
              
              (829
              )**Interest
                  income/(expense), net**
              
              
              (4
              )
              
              7
              
              
              (5
              )
              
              67**Loss
                  from continuing operations before taxes**
              
              
              (930
              )
              
              (440
              )
              
              (1,581
              )
              
              (762
              )**Income
                  taxes**
              
              
              0
              
              
              0
              
              
              0
              
              
              0**Loss
                  from continuing operations**
              
              
              (930
              )
              
              (440
              )
              
              (1,581
              )
              
              (762
              )**Income/(Loss)
                  from discontinued operations**
              
              
              788
              
              
              (29
              )
              
              307
              
              
              (457
              )**Gain
                  on sale of discontinued operations**
              
              
              -
              
              
              327
              
              
              -
              
              
              327**Net
                  Income/(Loss) from discontinued operations**
              
              
              788
              
              
              298
              
              
              307
              
              
              (130
              )**Net
                  Loss**
              
              
              (142
              )
              
              (142
              )
              
              (1,274
              )
              
              (892
              )**Dividends
                  on preferred stock**
              
              
              (58
              )
              
              (71
              )
              
              (113
              )
              
              (142
              )**Net
                  loss applicable to common shareholders**
              
              $
              (200
              )
              $
              (213
              )
              $
              (1,387
              )
              $
              (1,034
              )**Income/(Loss)
                  per common share - Basic and Diluted****Income/(Loss)
                  from continuing operations**
              
              $
              (0.36
              )
              $
              (0.19
              )
              $
              (0.63
              )
              $
              (0.33
              )**Income/(Loss)
                  from discontinued operations**
              
              
              0.29
              
              
              0.11
              
              
              0.11
              
              
              (0.05
              )**Net
                  income/(loss) per common share**
              
              $
              (0.07
              )
              $
              (0.08
              )
              $
              (0.52
              )
              $
              (0.38
              )**Weighted
                  average shares - Basic and Diluted**
              
              
              2,682
              
              
              2,710
              
              
              2,676
              
              
              2,698




**The
      accompanying notes are an integral part of these financial
      statements.**






4
 Index






**Consolidated
                  Statement of Changesin Shareholders'
                  Equity****(In
                  thousands, except share data)****(unaudited)****For
                  the Six Months Ended June 30, 2005****Accumulated****Other****Common
                  Stock**
              
              **Preferred
                  Stock**
              
              **Additional**
              
              **Compre-**
              
              **compre-****paid-in**
              
              **hensive**
              
              **hensive**
              
              **Accumulated****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **capital**
              
              **loss**
              
              **loss**
              
              **Deficit**
              
              **Total****Balance
                  at December 31, 2004**
              
              
              2,693,993
              
              $
              13
              
              
              34,020
              
              $
              3,011
              
              $
              25,485
              
              
              
              
              $
              (754
              )
              $
              (23,906
              )
              $
              3,849**Exercise
                  of common stock options**
              
              
              4,051
              
              
              
              
              
              
              
              
              
              
              
              35
              
              
              
              
              
              
              
              
              
              
              
              35**Issuance
                  of common stock**
              
              
              30,343
              
              
              
              
              
              
              
              
              
              
              
              32
              
              
              
              
              
              
              
              
              
              
              
              32**Dividends**
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (142
              )
              
              
              
              
              
              
              
              
              
              
              (142
              )**Comprehensive
                  loss****Net
                  loss**
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (892
              )
              
              
              
              
              (892
              )
              
              (892
              )**Foreign
                  currency translation adjustment**
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              754
              
              
              754
              
              
              
              
              
              754**Comprehensive
                  loss**
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (138
              )**Balance
                  at June 30, 2005**
              
              
              2,728,387
              
              $
              13
              
              
              34,020
              
              $
              3,011
              
              $
              25,410
              
              
              
              
              $
              0
              
              $
              (24,798
              )
              $
              3,636






**The
        accompanying notes are an integral part of these financial
        statements.**
   5
 Index






**FIRSTWAVE
                  TECHNOLOGIES, INC.****Consolidated
                  Statementof Cash Flows****(in
                  thousands)****(unaudited)****For
                  the Six Months Ended****June
                  30, 2004**
              
              **June
                  30, 2005****Cash
                  flows provided by/(used in) operating activities**
              
              $
              (1,181
              )
              $
              (899
              )**Cash
                  flows from investing activities****Software
                  development costs**
              
              
              (94
              )
              
              0**Purchases
                  of property and equipment, net**
              
              
              (86
              )
              
              (13
              )**Sale
                  of UK subsidiary**
              
              
              0
              
              
              256**Net
                  cash provided by/(used in) investing activities**
              
              
              (180
              )
              
              243**Cash
                  flows from financing activities****Proceeds
                  from issuance of common stock**
              
              
              5
              
              
              37**Proceeds
                  from issuance of preferred stock**
              
              
              680
              
              
              0**Payment
                  of dividends on preferred stock**
              
              
              (111
              )
              
              (125
              )**Net
                  cash used in financing activities**
              
              
              574
              
              
              (88
              )**Foreign
                  currency translation adjustment**
              
              
              (56
              )
              
              10**Decrease
                  in cash and cash equivalents**
              
              
              (843
              )
              
              (734
              )**Cash
                  and cash equivalents, beginning of period**
              
              
              2,704
              
              
              1,286**Cash
                  and cash equivalents, end of period**
              
              $
              1,861
              
              $
              552**Supplemental
                  disclosure of cash flow information****Cash
                  paid for income taxes**
              
              $
              0
              
              $
              0**Cash
                  paid for interest**
              
              $
              11
              
              $
              0




**The
        accompanying notes are an integral part of these financial
        statements.**
   6
 Index




**FIRSTWAVE
        TECHNOLOGIES, INC.**
 **Notesto
        Consolidated Financial Statements**
 **June
        30,
        2005**
 
 
 **1.** **Description
        of Business and Basis of Presentation**
 
 ***Description
        of the Company***
 Headquartered
        in Atlanta, Georgia, Firstwave Technologies, Inc. (“Firstwave” or “the Company”)
        is a
        provider of strategic CRM solutions specifically designed for the High
        Technology industry. Firstwave’s solutions provide companies with fit-to-purpose
        features that are designed to optimize how companies win, maintain and grow
        customer and organizational relationships while improving the overall customer
        experience. Firstwave’s corporate and product mission
        reflects our customer-first commitment: To develop and integrate the best
        software solutions to manage customer interactions and information. Firstwave
        supports several product lines: Firstwave CRM (includes eCRM and v.10 products),
        Firstwave Technology and TakeControl.
 
 ***Basis
        of Presentation***
 The
        accompanying unaudited consolidated financial statements have been prepared
        in
        accordance with accounting principles generally accepted in the United States
        for interim financial information and with the instructions to Form 10-Q
        and
        Rule 10-01 of Regulation S-X. Accordingly, the consolidated financial statements
        do not include all of the information and footnotes required by accounting
        principles generally accepted in the United States for complete financial
        statements and should be read in conjunction with the consolidated financial
        statements contained in the Company’s Form 10-K for the period ended December
        31, 2004. In the opinion of management, all adjustments (consisting only
        of
        normal recurring adjustments) considered necessary for a fair presentation
        of
        the consolidated financial statements have been included.
 
 The
        consolidated balance sheet at December 31, 2004 has been derived from the
        audited consolidated financial statements for the Company at that date, but
        does
        not include all of the information and footnotes required by accounting
        principles generally accepted in the United States for complete financial
        statements.
 
 On
        June
        3, 2005, Firstwave Technologies, Inc. (the “Company”) entered into a Stock
        Purchase Agreement (the “Agreement”) with AllAboutTickets LLC (the “Buyer”)
        doing business as First Sports International. Pursuant to the Agreement,
        effective May 1, 2005, the Company sold to Buyer all of the issued share
        capital
        of Firstwave Technologies UK, Ltd., a subsidiary of the Company, located
        at The
        Pavillion, 1 Atwell Place, Thames Ditton, Surrey, England, KT7 ONF (the
“Target”). The Company has also entered into a License Agreement (the “License
        Agreement”) with Buyer and Target, dated June 3, 2005, pursuant to which it
        granted to Buyer a non-exclusive, non-transferable, non-assignable, limited
        worldwide and revocable license to use, modify, recompile, reproduce, distribute
        and maintain the object code version of certain portions of its software
        and the
        Source Code materials relating to that software for use only in the “sports
        industry,” as defined in the License Agreement. Both the Stock Purchase
        Agreement and the License Agreement were filed with the Securities and Exchange
        Commission as Exhibits to Form 8-K on June 9, 2005. This sale of the Company’s
        UK Subsidiary has been treated as a discontinued operation in the accompanying
        unaudited consolidated financial statements.
 
 The
        consolidated financial statements include the accounts of Firstwave
        Technologies, Inc. and its wholly owned subsidiary, Connect-Care, Inc., and,
        where appropriate, its former subsidiary, Firstwave Technologies UK, Ltd.,
        up
        until the effective date (May 1, 2005) of its sale. All intercompany
        transactions and balances have been eliminated in consolidation.
  **2.**  **Use
        of Estimates and Critical Accounting Policies**
 
 ***Use
        of Estimates***
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States requires management to make estimates
        and assumptions that affect the reported amounts of assets and liabilities
        and
        the disclosure of contingent assets and liabilities at the date of the financial
        statements and the reported amounts of revenues and expenses during the
        reporting period. Examples of estimates that require management’s judgment
        include revenue recognition, accounts receivable reserve, valuation of
        long-lived assets and intangible assets, and goodwill. Management bases its
        estimates on historical experience and on other various factors that are
        believed to be reasonable under the circumstances. All accounting estimates
        and
        the basis for these estimates are discussed among the Company’s senior
        management and members of the Audit Committee. Actual results could differ
        from
        those estimates.
 
 ***Critical
        Accounting Policies***
 The
        Company believes that the following accounting policies are critical to
        understanding the consolidated financial statements:
  7
 Index
  
 ·  Revenue
        Recognition
 ·  Capitalization
        of Software Development Costs
 ·  Intangible
        Assets
 
 **3.**  **Summary
        of Significant Accounting Policies**
 
 ***Revenue
        recognition***
 The
        Company recognizes revenue in accordance with Statement of Position (SOP)
        97-2,
“Software Revenue Recognition,” as amended by SOP 98-9, and related
        interpretations.
 
 Revenue
        from software product sales (other than ticketing and fan memberships described
        below) is recognized upon shipment of the product when the Company has a
        signed
        contract, the fees are fixed and determinable, no significant obligations
        remain
        and collection of the resulting receivable is probable. The Company accrues
        for
        estimated warranty costs at the time it recognizes revenue.
 
 The
        Company’s products are licensed on a per-user model, except for hosting
        services. In accordance with Paragraph 8 of SOP 97-2, license revenues under
        the
        per-user model are recognized under the Company’s revenue recognition polices
        when revenue recognition criteria are met. Hosting services are priced as
        a
        monthly or yearly fixed amount based upon number of users, and are recognized
        ratably by month over the period of service. Hosting services revenues are
        consolidated into services revenues on the Company’s financial statements.
 
 The
        Company has agreements with customers, whereby it will recognize revenue
        at a
        future date. This type of agreement is mostly found in the Company’s prior
        Sports business, where the Company recognized revenue based on a per-ticket
        or
        per-fan membership basis after the actual event occurred. The amount the
        Company
        would receive per ticket or membership was variable, but was pre-determined
        in
        the terms of the agreements. Although tickets may have been sold in advance
        of
        the event, the Company would recognize these revenues after the event occurred.
        Ticketing revenue is consolidated into software revenues on the Company’s
        financial statements.
 
 Services
        revenue is recognized as services are performed. Our software product is
        able to
        function independently in a customer’s environment without additional services.
        Our training, implementation, and customization services are optional services
        to our customers and are not necessary for the functioning of the software
        product. Our software is offered as a stand-alone product. It can be implemented
        with minimal services. The essential functionality of the software, such
        as
        database support and maintenance, preparation of marketing campaigns, and
        standard workflow, is functional and can be utilized by the customer upon
        installation as intended by the customer. At a customer’s request, the software
        can also be implemented with additional services, such as data conversion
        and
        workflow modifications, which are not significant to the functionality of
        the
        software, but rather tailor features to most effectively function in the
        customer’s environment.
 
 The
        revenue for the customization or implementation services is recognized as
        the
        services are provided and earned. Revenue is allocated to software and services
        based on vendor specific objective evidence of fair values. Because the software
        is a stand-alone product that can be used for the customer’s purpose upon
        installation, and because any services performed have insignificant effect
        on
        the functionality of the software, services revenues are accounted for
        separately from Software Revenues in accordance with Paragraph 69 of SOP
        97-2.  The
        Company has not recorded any unbilled receivables related to implementation
        and
        customization service revenues, and the Company has accounted for any
        implementation and customization service revenues that have been billed as
        the
        services were performed, in accordance with Paragraphs 65 and 66 of SOP 97-2.
 
 The
        Company has arrangements with customers that provide for the delivery of
        multiple elements, including software licenses and services. The Company
        allocates and recognizes revenue related to each of the multiple elements
        based
        on vendor specific objective evidence of the fair value of each element and
        when
        there are no undelivered elements essential to the functionality of the
        delivered element. Vendor specific objective evidence is based on standard
        pricing for each of the elements in our multiple element arrangements. Revenue
        associated with the various elements of multiple element arrangements is
        based
        on such vendor specific objective evidence as the price charged for each
        element
        is the same as when the element would be sold separately from any other element.
        Standard pricing does not vary by customer or by duration, or by requirements
        of
        the arrangement.
 
 International
        revenues were primarily generated by Firstwave UK, prior to the sale of the
        UK
        Subsidiary, and independent distributors who offer licenses of the Company's
        non-sports products in specific geographic areas. Under the terms of the
        Company's international distributor agreements, international distributors
        collect license fees and maintenance revenues on behalf of the Company, and
        remit 50% to 60% of standard license fees and maintenance revenues they produce.
        Pursuant to EITF 99-19, the Company recognizes these distributor sales at
        the
        gross license amount because the Company retains title to the products, holds
        the risk and rewards of ownership, such as risk of loss for collection, and
        responsibility for providing the product to the customer. The Company is
        responsible for establishing and maintaining the pricing of the product and
        performs any source code changes to the product. The independent distributors
        are considered agents of the Company and work on a commission basis.
        The
  8
 Index
  commissions
        paid are reflected as a selling expense in the Company’s financial statements.
        The maintenance fees generated by distributor revenues are reflected as
        maintenance revenues, with the amount retained by distributors shown as a
        cost
        of maintenance revenue. Revenues from non-monetary exchanges are recorded
        at the
        fair value of the products and services provided or received, whichever is
        more
        clearly evident. There were no non-monetary transactions in the second quarter
        of 2005.
 
 Maintenance
        revenue is recognized on a **** pro
        rata
        basis over the term of the maintenance agreements. Advanced
        billings for services and maintenance contracts are recorded as deferred
        revenue
        on the Company's balance sheet, with revenue recognized as the services are
        performed and on a pro-rata basis over the term of the maintenance agreements.
 
 The
        Company provides an allowance for doubtful accounts based on management’s
        estimate of receivables that will be uncollectible. The estimate is based
        on
        historical charge-off activity and current account status. Accounts Receivable
        are stated at invoiced amounts.
 
 Prior
        to
        the sale of the UK Subsidiary, the Company’s US accounting management oversaw
        reporting procedures in the United Kingdom and monitored their transactions
        on a
        timely basis. The US management reviewed transactions and sales contracts
        as
        such transactions and sales occurred to ensure that revenues were recognized
        under the Company’s revenue recognition policy and that expenses and other
        transactions are reported in accordance with accounting principles generally
        accepted in the United States. Management of the UK subsidiary reported directly
        to US management, with US management substantially involved in all aspects
        of UK
        operations. As such, US management had established procedures to insure that
        international revenues were recognized properly and on a timely
        basis.
 
 **Software
        development costs**
 Capitalized
        software development costs consist principally of salaries, contract services,
        and certain other expenses related to development and modifications of software
        products capitalized in accordance with the provisions of SFAS 86, "Accounting
        for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.”
        Capitalization of such costs begins only upon establishment of technological
        feasibility as defined in SFAS 86 and ends when the resulting product is
        available for sale. The Company evaluates the establishment of technological
        feasibility based on the existence of a working model of the software product.
        Capitalized costs may include costs related to product enhancements resulting
        in
        new features and increased functionality as well as writing the code in a
        new
        programming language. In this case, as the version enhancements are built
        on an
        already detailed design under an existing source code, technological feasibility
        is established early for each version. All costs incurred to establish the
        technological feasibility of software products are classified as research
        and
        development and are expensed as incurred.
 
 The
        Company evaluates the realizability of unamortized capitalized software costs
        at
        each balance sheet date. Software development costs which are capitalized
        are
        subsequently reported at the lower of unamortized cost or net realizable
        value.
        If the unamortized capitalized software cost exceeds the net realizable value
        of
        the asset, the amount would be written off accordingly. The net realizable
        value
        of the capitalized software development costs is the estimated future gross
        revenues of the software product reduced by the estimated future costs of
        completing and disposing of that product. Amortization of capitalized software
        costs is provided at the greater of the ratio of current product revenue
        to the
        total of current and anticipated product revenue or on a straight-line basis
        over the estimated economic life of the software, which is not more than
        three
        years. It is possible that those estimates of anticipated product revenues,
        the
        remaining estimated economic life of the product, or both could be reduced
        due
        to changing technologies. The amortization of software development costs
        is
        presented as a cost of software revenue in the Company’s financial
        statements.
 
 **Goodwill
        and other intangibles**
 In
        accordance with SFAS 142 “Goodwill and Other Intangible Assets,” intangible
        assets with indefinite useful lives must be tested periodically for impairment.
        Examples of matters requiring management’s judgment regarding the existence of
        impairment of an intangible asset, and the resulting fair value, would include
        management’s assessment of adverse changes in legal factors, market conditions,
        loss of key personnel or the sale of a significant portion of a reporting
        unit.
        If the fair value of the intangible asset is determined to be less than the
        carrying value, the Company would record an impairment loss. SFAS 142 prescribes
        a two-phase approach for impairment testing of goodwill. The first phase
        screens
        for impairment, while the second phase (if necessary) measures the impairment.
 
 During
        the second quarter of 2005, the Company completed the sale of its UK Subsidiary,
        Firstwave Technologies UK Ltd. We allocated $488,187 of goodwill to this
        component that was sold. The resulting amount of goodwill was then evaluated
        at
        the end of the second quarter of 2005, and it was determined there was no
        impairment of recorded goodwill.
  9
 Index
  
 **Concentration
        of credit risk**
 The
        Company is subject to credit risk primarily due to its trade receivables
        and its
        note receivable. The Company has credit risk due to the high concentration
        of
        trade receivables through certain customers. The customer accounts receivable
        that represented more than 10% of total accounts receivable are shown
        below.
 
 **Dec
                    31,**
                
                **Jun
                    30,****2004**
                
                **2005**Argos,
                    Ltd
                
                
                13.8%
                
                
                0.0%CapGemini
                    UK
                
                
                12.6%
                
                
                0.0%Sungard
                    HTE,
                    Inc.
                
                
                15.0%
                
                
                6.3%Manhattan
                    Associates
                
                
                1.6%
                
                
                18.2%Northrop
                    Grumman
                
                
                0.2%
                
                
                10.0%
 
 **Significant
        Customers**
 The
        table below identifies customers who contributed more than 10% of total revenue
        from continuing operations for each period shown.
 
 **For
                    the Three Months Ended****Jun
                    30,**
                
                **Jun
                    30,****2004**
                
                **2005**Electronic
                    Data Systems, Ltd.
                
                
                12.1%
                
                
                7.2%
 
 For
        a
        more detailed description of the information presented in the table above,
        see
        the discussion under the heading “Results of Operations” in Item 2 “Management’s
        Discussion and Analysis of Financial Condition and Results of
        Operations.”
 
 **Stock-based
        compensation**
 Effective
        for 2002, the Company adopted SFAS 148, “Accounting for Stock-Based Compensation
        - Transition and Disclosure,” which did not have a material impact on the
        consolidated financial statements. The Company has chosen to continue to
        account
        for stock-based compensation using the intrinsic value method prescribed
        in
        Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
        to
        Employees," and related Interpretations and to elect the disclosure option
        of
        SFAS 123, "Accounting for Stock-Based Compensation.” Accordingly, compensation
        cost for stock options is measured as the excess, if any, of the quoted market
        price of the Company's stock at the date of the grant over the amount an
        employee must pay to acquire the stock.
 
 The
        Company has adopted the disclosure-only provisions of SFAS 123, "Accounting
        for
        Stock-Based Compensation." The following table illustrates the effect on
        net
        loss and net loss per share if the Company had applied the fair value
        recognition provisions of SFAS 123 to stock-based employee awards (in thousands,
        except per share data):
 **For
                    the Three Months Ended**
                
                **For
                    the Six Months Ended****June
                    30, 2004**
                
                **June
                    30, 2005**
                
                **June
                    30, 2004**
                
                **June
                    30, 2005**Net
                    loss
                    applicable to commonshareholders,
                    as reported
                
                $
                (200
                )
                $
                (213
                )
                $
                (1,387
                )
                $
                (1,034
                )Stock
                    based
                    employee compensation, net of relatedtax
                    effects
                    under the fair value based method
                
                
                522
                
                
                522
                
                
                694
                
                
                542Net
                    loss
                    applicable to commonshareholders,
                    as adjusted
                
                $
                (722
                )
                $
                (735
                )
                $
                (2,081
                )
                $
                (1,576
                )Loss
                    per
                    share:Basic
                    - as
                    reported
                
                $
                (0.07
                )
                $
                (0.08
                )
                $
                (0.52
                )
                $
                (0.38
                )Basic
                    - as
                    adjusted
                
                $
                (0.27
                )
                $
                (0.27
                )
                $
                (0.78
                )
                $
                (0.58
                )Diluted
                    - as
                    reported
                
                $
                (0.07
                )
                $
                (0.08
                )
                $
                (0.52
                )
                $
                (0.38
                )Diluted
                    - as
                    adjusted
                
                $
                (0.27
                )
                $
                (0.27
                )
                $
                (0.78
                )
                $
                (0.58
                )
 
  The
        fair
        value of each option grant is estimated on the date of grant using the
        Black-Scholes option-pricing model with the following weighted-average
        assumptions used for the quarters ended June 30, 2004 and June 30, 2005,
        respectively: dividend yield of 0% for both quarters; expected volatility
        of
        130% and 126%, and risk-free interest rate of 3.72% and 3.87%. For the six
        month
        period ended June 30, 2004 and June 30, 2005, respectively, the assumptions
        used were dividend yield of 0% for both years, average expected volatility
        of
        132% and 127%, and average risk-free interest rate of 3.36% and
        3.88%.
  10
 Index
  There
        was no reduction in pro forma stock-based employee compensation from the
        quarter
        ended June 30, 2004 to the quarter ended June 30, 2005,  and
        for
        the six months ended June 30, there was a decrease from $694,000 in 2004
        to
        $542,000 in 2005. The year to date decrease of $152,000 was the result of
        cancellations of stock options due to staff resignations of certain long-term
        employees, offset by the acceleration of vesting of all outstanding options.
 
 There
        is
        no tax benefit included in the pro forma stock-based employee compensation
        expense determined under the fair-value-based method for the three and six
        month
        periods ended June 30, 2004 and June 30, 2005, as the Company established
        a full
        valuation allowance for its net deferred tax assets.
 
 In
        the
        second quarter of 2005, the Board of Directors of the Company voted to
        immediately vest all outstanding unvested options held by employees and
        directors of the Company. We believe that the Company would have had to record
        significant non-monetary compensation expense once SFAS 123(R) is adopted
        in
        2006. This adoption of SFAS 123(R) would have had a material impact on the
        Company’s financial performance, commencing in 2006, which can now be avoided by
        the Company’s decision.
  **Basic
        and diluted net loss per common share**
 Basic
        net loss per common share is based on the weighted average number of shares
        of
        common stock outstanding during the period. Stock options and convertible
        preferred stock are included in the diluted earnings per share calculation
        when
        they are not antidilutive. Net loss applicable to common shareholders includes
        a
        charge for dividends related to the Company’s outstanding preferred stock.
 
 Shown
        below is a reconciliation of the numerators and denominators of the basic
        and
        diluted loss per share computations. (in thousands, except per share data):
 **For
                    the Three Months Ended**
                
                **For
                    the Six Months Ended****June
                    30, 2005**
                
                **June
                    30, 2005**Income
                
                Shares
                
                Per
                    Share
                
                Income
                
                Shares
                
                Per
                    Share(Numerator)
                
                (Denominator)
                
                Amount
                
                (Numerator)
                
                (Denominator)
                
                AmountNet
                    loss
                
                $
                (142
                )
                
                
                
                
                
                
                $
                (892
                )Less:
                    Preferred Stock Dividends
                
                
                (71
                )
                
                
                
                
                
                
                
                (142
                )**Basic
                    EPS**Loss
                    applicable to common shareholders
                
                $
                (213
                )
                
                2,710
                
                $
                (0.08
                )
                $
                (1,034
                )
                
                2,698
                
                $
                (0.38
                )**Effect
                    of Dilutive Securities**(1)Warrants
                
                
                
                
                
                19
                
                
                
                
                
                
                
                
                19Convertible
                    Preferred Stock
                
                
                71
                
                
                898
                
                
                
                
                
                142
                
                
                898Stock
                    Options
                
                
                
                
                
                242
                
                
                
                
                
                
                
                
                24271
                
                
                1,159
                
                
                
                
                
                142
                
                
                1,159**Diluted
                    EPS**Loss
                    applicable to common shareholders
                
                $
                (213
                )
                
                2,710
                
                $
                (0.08
                )
                $
                (1,034
                )
                
                2,698
                
                $
                (0.38
                )
  **For
                    the Three Months Ended**
                
                **For
                    the Six Months Ended****June
                    30, 2004**
                
                **June
                    30, 2004**Income
                
                Shares
                
                Per
                    Share
                
                Income
                
                Shares
                
                Per
                    Share(Numerator)
                
                (Denominator)
                
                Amount
                
                (Numerator)
                
                (Denominator)
                
                AmountNet
                    loss
                
                $
                (142
                )
                
                
                
                
                
                
                $
                (1,274
                )Less:
                    Preferred Stock Dividends
                
                
                (58
                )
                
                
                
                
                
                
                
                (113
                )**Basic
                    EPS**Loss
                    applicable to common shareholders
                
                $
                (200
                )
                
                2,682
                
                $
                (0.07
                )
                $
                (1,387
                )
                
                2,676
                
                $
                (0.52
                )**Effect
                    of Dilutive Securities**(1)Warrants
                
                
                
                
                
                19
                
                
                
                
                
                
                
                
                19Convertible
                    Preferred Stock
                
                
                58
                
                
                703
                
                
                
                
                
                113
                
                
                684Stock
                    Options
                
                
                
                
                
                18
                
                
                
                
                
                
                
                
                2458
                
                
                740
                
                
                
                
                
                113
                
                
                727**Diluted
                    EPS**Loss
                    applicable to common shareholders
                
                $
                (200
                )
                
                2,682
                
                $
                (0.07
                )
                $
                (1,387
                )
                
                2,676
                
                $
                (0.52
                )(1)
                    Not
                    included because anti-dilutive
 11
 Index
  
 **Foreign
        currency translation**
 The
        financial statements of the Company's former international subsidiary are
        translated into U.S. dollars at current exchange rates, except for revenues
        and
        expenses, which are translated at average exchange rates during each reporting
        period. Currency transaction gains or losses are included in the results
        of
        discontinued operations in the Company’s financial statements (See Note 4). Net
        exchange gains or losses resulting from the translation of assets and
        liabilities of the UK subsidiary are included as a component of accumulated
        other comprehensive loss in shareholders' equity.
  **Impairment
        of long-lived assets**
 The
        Company evaluates impairment of long-lived assets whenever events or changes
        in
        circumstances indicate that the carrying amount of such assets may not be
        recoverable. If the sum of the expected future undiscounted cash flows is
        less
        than the carrying amount of the asset, an impairment loss would be recognized.
        Measurement of an impairment loss for long-lived assets would be based on
        the
        fair value of the asset.
 
 **Segment
        reporting**
 Management
        believes that the Company has only a single segment consisting of software
        sales
        with related services and support. The information presented in the consolidated
        statement of operations reflects the revenues and costs associated with this
        segment that management uses to make operating decisions and assess performance.
 
 **4.**  **Discontinued
        Operations**
 
 On
        June
        3, 2005, Firstwave Technologies, Inc. (the “Company”) entered into a Stock
        Purchase Agreement (the “Agreement”) with AllAboutTickets LLC (the “Buyer”)
        doing business as First Sports International. The Company sold its UK Subsidiary
        to re-focus on the high technology market and to direct its efforts away
        from
        the Sports business that was concentrated in the UK market. Pursuant to the
        Agreement, effective May 1, 2005, the Company sold to Buyer all of the issued
        share capital of Firstwave Technologies UK, Ltd., a subsidiary of the Company,
        located at The Pavillion, 1 Atwell Place, Thames Ditton, Surrey, England,
        KT7
        ONF (the “Target”). The Company has also entered into a License Agreement (the
“License Agreement”) with Buyer, dated June 3, 2005, pursuant to which it
        granted to Buyer a non-exclusive, non-transferable, non-assignable, limited
        worldwide and revocable license to use, modify, recompile, reproduce, distribute
        and maintain the object code version of certain portions of its software
        and the
        Source Code materials relating to that software for use only in the “sports
        industry,” as defined in the License Agreement. Both the Stock Purchase
        Agreement and the License Agreement were filed with the Securities and Exchange
        Commission under Form 8-K on June 9, 2005.
 
 The
        total price was $2,214,000, of which $256,000 in cash was received at closing,
        $1,620,000 is due under a non-interest bearing Promissory Note that calls
        for
        payments to be made over a maximum of three years, and $338,000 is due as
        software revenues are achieved by the Buyer and which will reimburse the
        Company
        for certain prepaid royalties.
 
 The
        promissory note in the amount of $1,620,000 is payable in five installments.
        The
        short-term portion of the note is $370,000, is payable prior to June 30,
        2006,
        and has been classified as a current asset on the Balance Sheet. The long-term
        portion of the note is $1,250,000, is payable in installments, and is classified
        as a non-current asset on the Balance Sheet. Under the License Agreement,
        Buyer
        will pay quarterly royalty amounts to the Company if such royalty amounts
        exceed
        the quarterly payments due under the Promissory Note, and such amounts will
        be
        applied to the uncollected balance of the note receivable. In accordance
        with
        APB 21,”Interest on Receivables and Payables,” imputed interest was calculated
        at 8%, resulting in an unamortized discount at May 31, 2005 totaling $233,000
        and recorded as a direct reduction from the face amount of the note. In June
        of
        2005, $6,000 was amortized, resulting in a balance of $227,000 in imputed
        interest as of June 30, 2005.
 
 The
        sale
        of the UK subsidiary included $79,000 of total assets, consisting of accounts
        receivable, prepaid assets, furniture and equipment. The total liabilities
        sold
        were $67,000, consisting of accounts payable, taxes payable, benefits payable
        and deferred revenue. Net income/(loss) from discontinued operations was
        ($130,000) for the first six months of 2005 and $307,000 for the first six
        months of 2004. Total revenues from discontinued operations were
        $342,000 and $1,637,000 for the first six months of 2005 and 2004,
        respectively.
 
 As
        a
        result of the sale of the UK Subsidiary, the Company recognized a pre-tax
        gain
        of $327,000 in the second quarter of 2005, which is combined and reported
        as
        income/(loss) from discontinued operations in the Consolidated Income
        Statements.
 
  12
 Index
  
 **5.**  **Goodwill
        and Intangibles**
 
 The
        Company has $686,000 of Intangible Assets and $1,121,000 of Goodwill as a
        result
        of acquisitions in 1998 and 2003.
 
 In
        accordance with SFAS 142 “Goodwill and Other Intangible Assets,” intangible
        assets with indefinite useful lives must be tested periodically for impairment.
        Examples of matters requiring management’s judgment regarding the existence of
        impairment of an intangible asset, and the resulting fair value, would include
        management’s assessment of adverse changes in legal factors, market conditions,
        loss of key personnel or the sale of a significant portion of a reporting
        unit.
        If the fair value of the intangible asset is determined to be less than the
        carrying value, the Company would record an impairment loss. SFAS 142 prescribes
        a two-phase approach for impairment testing of goodwill. The first phase
        screens
        for impairment, while the second phase (if necessary) measures the impairment.
 
 During
        the second quarter of 2005, the Company completed the sale of its UK Subsidiary,
        Firstwave Technologies UK Ltd. We allocated $488,187 of goodwill to this
        component that was sold. The resulting amount of goodwill was then evaluated
        at
        the end of the second quarter of 2005 and it was determined there was no
        impairment of recorded goodwill.
  The
        weighted average amortization period for the intangible assets with definite
        lives is six years. There are no significant residual values in the intangible
        assets. The Company began amortization of the above-mentioned intangible
        assets
        relating to the acquisitions effective April 1, 2003, recording $57,000 in
        amortization expense in the second quarter of 2005 and $114,000 in the six
        months ended June 30, 2005.
 
 The
        following table presents details of intangible assets with definite lives
        (in
        thousands):
 
 **December
                    31, 2004**
                
                **June
                    30, 2005**Gross
                    carrying
                
                Accumulated
                
                Gross
                    carrying
                
                Accumulatedamount
                
                amortization
                
                amount
                
                amortizationAmortizable
                    intangible assetsConnect-Care
                    Technology
                
                $
                300
                
                $
                175
                
                $
                300
                
                $
                225Connect-Care
                    Customer Relationships
                
                
                900
                
                
                225
                
                
                900
                
                
                289Total
                
                $
                1,200
                
                $
                400
                
                $
                1,200
                
                $
                514Aggregrate
                    Amortization ExpenseFor
                    the six
                    months ended June 30, 2005
                
                $
                114For
                    year
                    ended December 31, 2005
                
                $
                229For
                    year
                    ended December 31, 2006
                
                $
                154For
                    year
                    ended December 31, 2007
                
                $
                129For
                    year
                    ended December 31, 2008
                
                $
                129For
                    year
                    ended December 31, 2009
                
                $
                129For
                    year
                    ended December 31, 2010
                
                $
                30
 
   **6** .  **Borrowings**
 
 At
        June
        30, 2005, the Company had no borrowings. At June 30, 2004, the Company had
        $500,000 in borrowings, and had paid $13,000 in interest expense for the
        six
        months ended June 30, 2004. The Company repaid its $500,000 of borrowings
        on
        December 30, 2004.
 
 **7.**  **Related
        Party Transactions** ****
 
 The
        former President and COO of the Company, who resigned from the Company on
        March
        22, 2005, was paid dividends of $675 in the second quarter of 2005 and $1,350
        for the six months ended June 30, 2005 related to his $30,000 investment
        in
        Series D Convertible Preferred Stock from June of 2004, which former President
        and COO of the Company is also the Chairman of the Buyer of the UK Subsidiary.
        The Chairman and CEO of the Company earned $50,625 in the second quarter
        and
        $101,250 for the six months ended June 30, 2005 for dividends related to
        his
        $2,250,000 investment in Series A Convertible Preferred Stock, Series B
        Convertible Preferred Stock, and Series C Convertible Preferred
        Stock.
  13
 Index
  
 **8.**  **Impact
        of Recently Issued Accounting Standards**
 
 In
        December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based
        Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) will require companies to measure
        all employee stock-based compensation awards using a fair value method and
        record such expense in its financial statements. In addition, the adoption
        of
        SFAS No. 123(R) requires additional accounting and disclosure related to
        the
        income tax and cash flow effects resulting from share-based payment
        arrangements. SFAS No. 123(R) is effective as of the first annual reporting
        period beginning after December 15, 2005. The Company is currently evaluating
        the impact that the adoption of SFAS No. 123(R) will have on its financial
        position, results of operations and cash flows. The cumulative effect of
        adoption, if any, will be measured and recognized in the statement of operations
        on the date of adoption.
 
 In
        April
        2005, the Securities and Exchange Commission’s Office of the Chief Accountant
        and its Division of Corporation Finance has released Staff Accounting Bulletin
        (SAB) No. 107 to provide guidance regarding the application of FASB Statement
        No. 123 (revised 2004), “Share-Based Payment”, Statement No. 123(R) covers a
        wide range of share-based compensation arrangements including share options,
        restricted share plans, performance-based awards, share appreciation rights,
        and
        employee share purchase plans. SAB 107 provides interpretive guidance related
        to
        the interaction between Statement No. 123(R) and certain SEC rules and
        regulations, as well as the staff’s views regarding the valuation of share-based
        payment arrangements for public companies. SAB 107 also reminds public companies
        of the importance of including disclosures within filings made with the SEC
        relating to the accounting for share-based payment transactions, particularly
        during the transition to the Statement No. 123(R).
 
 
 
 
 
  14
 Index
  **Item
        2. Management’sDiscussion and Analysis of Financial Condition
        and
        Results of Operations**
 
 *The
        following discussion should be read in conjunction with the Financial Statements
        and Notes thereto of the Company presented in the Company’s Annual Report on
        Form 10-K for the year ended December 31, 2004. This Report contains
        forward-looking statements that reflect management’s expectations, estimates,
        and projections for future periods based on information (financial and
        otherwise) available to management as of the end of the period covered by
        this
        Quarterly Report. These statements may be identified by the use of
        forward-looking words such as “may”, “will”, “believe”, “anticipate”,
“estimate”, “expect”, “projects”, or “intends”. Actual events and results may
        differ from the results anticipated by the forward-looking statements. Factors
        that might cause such differences include, but are not limited to, those
        items
        discussed under the caption "Certain Factors Affecting Forward-Looking
        Statements" presented in the Company’s Annual Report on Form 10-K for the year
        ended December 31, 2004 and other factors discussed in the Company’s press
        releases and other Reports filed with the Securities and Exchange
        Commission.*
 
 **Overview**
 Headquartered
        in Atlanta, Georgia, Firstwave Technologies, Inc. (“Firstwave” or “the Company”)
        is a
        provider of strategic CRM solutions specifically designed for the High
        Technology industry. Firstwave’s solutions provide companies with fit-to-purpose
        features that are designed to optimize how companies win, maintain and grow
        customer and organizational relationships while improving the overall customer
        experience. Firstwave’s corporate and product mission
        reflects our customer-first commitment: To develop and integrate the best
        software solutions to manage customer interactions and information. Firstwave
        supports several products: Firstwave CRM, Firstwave Technology and
        TakeControl.
 
 **Results
        of Continuing Operations**
 On
        June
        3, 2005, Firstwave Technologies, Inc. (the “Company”) entered into a Stock
        Purchase Agreement (the “Agreement”) with AllAboutTickets LLC (the “Buyer”)
        doing business as First Sports International. Pursuant to the Agreement,
        effective May 1, 2005, the Company sold to Buyer all of the issued share
        capital
        of Firstwave Technologies UK, Ltd., a subsidiary of the Company. The Company
        sold its UK Subsidiary to re-focus on the high technology market and to direct
        its efforts away from the Sports business that was concentrated in the UK
        market. The Company has no further commitments or contingencies with respect
        to
        the UK Subsidiary. We believe that by concentrating on the high technology
        market to increase prospects for our solutions in our pipeline with targeted
        companies and on companies looking to license our technology for use in their
        solutions offerings, we may begin to increase our revenue stream. This
        Management’s Discussion and Analysis of Financial Condition compares the
        Company’s results from continuing operations.
 
 Total
        revenues decreased 5.4% from $838,000 in the second quarter of 2004 to $793,000
        in the second quarter of 2005 primarily due to decreased maintenance revenues.
        For the six months ended June 30, 2005, total revenues decreased 29.9% from
        $2,389,000 in 2004 to $1,674,000 in 2005 due to decreases in software, services
        and maintenance revenue.
 
 Software
        revenues increased 26.4% from $72,000 in the second quarter of 2004 to $91,000
        in the second quarter of 2005. For the six months ended June 30, 2005, software
        revenue decreased 45.3% from $316,000 in 2004 to $173,000 in 2005. During
        the
        first quarter of 2004, we recognized two large software license agreements
        with
        Manhattan Associates, Inc. and SmartMail, LLC. Our software revenues remain
        significantly dependent upon the size and timing of closing of license
        agreements.
 
 Services
        revenues increased 50.0% from $118,000 in the second quarter of 2004 to $177,000
        in the second quarter of 2005, primarily as a result of renewed focus on
        selling
        to existing non-sports CRM customers. For the six months ended June 30, 2005,
        services revenues decreased 49.1% from $740,000 in 2004 to $377,000 in 2005.
        This decrease was primarily due to a decrease in services engagements. Our
        services revenues are subject to fluctuations based on variations in the
        length
        of and number of active service engagements in a given quarter.
 
 Maintenance
        revenues decreased 21.1% from $641,000 during the second quarter of 2004
        to
        $506,000 in the second quarter of 2005. For the six months ended June 30,
        2005,
        maintenance decreased 16.9% from $1,305,000 in 2004 to $1,085,000 in 2005.
        Maintenance revenues are the result of renewal agreements from previous software
        license sales as well as new license agreements. The decreases were primarily
        due to reduced new software licenses and non-renewals of maintenance
        agreements.
 
 Cost
        of
        software revenues decreased 33.6% from $318,000 in the second quarter of
        2004 to
        $211,000 in the second quarter of 2005 and for the six months ended June
        30,
        2005, decreased 39.9% from $690,000 in 2004 to $415,000 in 2005. Cost of
        software revenues includes amortization of capitalized software costs, costs
        of
        third party software, media costs, and documentation materials. The decrease
        is
        primarily due to a decrease in amortization expense related to the write-off
        of
        two product lines in the fourth quarter of 2004, resulting in lower amortization
        expense in 2005. Cost of software as a percentage of software revenues decreased
        from 441.7% in the second quarter of 2004 to 231.9% in the second quarter
        of
        2005, primarily due to the decrease in software revenues and a decrease in
        amortization expense in costs of revenues.
  15
 Index
  
 
 Cost
        of
        revenues for services decreased 31.5% from $267,000 in the second quarter
        of
        2004 to $183,000 in the second quarter of 2005 and for the six months ended
        June
        30, 2005, decreased 26.4% from $552,000 in 2004 to $406,000 in 2005. The
        decrease is primarily due to decreases in payroll, resulting from a reduction
        in
        the number of services personnel, and payroll related costs, including travel
        expenses, consistent with decreased services revenues. The cost of revenues
        for
        services as a percentage of services revenues decreased from 226.3% in the
        second quarter of 2004 to 103.4% in the second quarter of 2005.
 
 Cost
        of
        revenues for maintenance decreased 21.5% from $93,000 in the second quarter
        of
        2004 to $73,000 in the second quarter of 2005 and for the six months ended
        June
        30, 2005, decreased 28.3% from $212,000 in 2004 to $152,000 in 2005. These
        decreases are due to decreases in payroll costs associated with a reduction
        in
        the number of maintenance personnel. The cost of revenues for maintenance
        as a
        percentage of maintenance revenue remained constant at 14.5% in the second
        quarter of 2004 and 14.4% in the second quarter of 2005.
 
 Sales
        and marketing expense decreased 58.2% from $426,000 in the second quarter
        of
        2004 to $178,000 in the second quarter of 2005 and for the six months ended
        June
        30, 2005, decreased 64.2% from $954,000 in 2004 to $342,000 in 2005. The
        decreases are the result of decreases in payroll expenses associated with
        a
        reduction in the number of personnel, telemarketing costs, and costs relating
        to
        investor relations.
  The
        Company’s product innovation and development expenditures, which includes
        amounts capitalized, decreased 38.0% from $313,000 in the second quarter
        of 2004
        to $194,000 in the second quarter of 2005 and for the six months ended June
        30,
        2005, decreased 42.3% from $673,000 in 2004 to $388,000. The decreases are
        primarily related to decreases in payroll costs associated with staff
        reductions, and reductions associated with fewer outside contractors. Software
        development costs capitalized during the three and six months ended June
        30,
        2004 were $20,000 and $94,000 respectively. There were no development costs
        capitalized during the second quarter of 2005 or for the six months ended
        June
        30, 2005. A net realizable analysis was performed at June 30, 2005 in accordance
        SFAS 86. It was determined that the unamortized capitalized software does
        not
        exceed its net realizable value; therefore, no impairment loss was
        recorded.
 
 General
        and administrative expenses increased 13.7% from $343,000 in the second quarter
        of 2004 to $390,000 in the second quarter of 2005 and for the six months
        ended
        June 30, decreased 10.4% from $866,000 in 2004 to $776,000 in 2005. These
        changes were primarily due to reduced payroll costs associated with a reduction
        in personnel and decreased rent, offset by increased professional services
        and
        changes to the allowance for doubtful accounts.
  Income
        from discontinued operations was $788,000 for the second quarter of 2004,
        compared to $298,000 for the second quarter of 2005. For the six months ended
        June 30, 2004, income from discontinued operations was $307,000 compared
        to a
        loss of $130,000 for the six months ended June 30, 2005.
 
 Dividends
        on preferred stock increased 22.4% from $58,000 in the second quarter of
        2004 to
        $71,000 in the first quarter of 2005 and for the six months ended June 30,
        dividends increased from $113,000 in 2004 to $142,000 in 2005. These increases
        were related to the issuance of shares of Series D Convertible Preferred
        Stock
        in June of 2004 for a purchase price of $700,000.
 
 The
        above factors combined to result in a net loss of $213,000 in the second
        quarter
        of 2005 compared to a net loss of $200,000 in the second quarter of 2004.
        Net
        loss per basic and diluted share was $0.07 for the second quarter of 2004
        compared to a net loss of $0.08 per basic and diluted share for the second
        quarter of 2005. Year to date, the net loss applicable to common shareholders
        was $1,387,000 for the six months ended June 30, 2004, or $0.52 per basic
        and
        diluted share, compared to a net loss of $1,034,000 for the six months ended
        June 30, 2005, or $0.38 per basic and diluted share. At June 30, 2004, the
        number of basic weighted average shares outstanding was 2,682,000 compared
        to
        2,710,000 at June 30, 2005.
 
 In
        the
        second quarter of 2005, the Board of Directors of the Company voted to
        immediately vest all outstanding unvested options held by employees and
        directors of the Company. We believe that the Company would have had to record
        significant non-monetary compensation expense once SFAS 123(R) is adopted
        in
        2006. This adoption of SFAS 123(R) would have had a material impact on the
        Company’s financial performance, commencing in 2006, which can now be avoided by
        the Company’s decision.
 
 **Balance
        Sheet**
 
 Net
        accounts receivable decreased 54.5% from $605,000 at December 31, 2004 to
        $275,000 at June 30, 2005, primarily due to lower software license and services
        revenues invoiced. Property and equipment decreased 49.6% from $264,000 at
        December 31, 2004 to $133,000 at June 30, 2005 as a result of the sale of
        the UK
        Subsidiary and year-to-date depreciation partially offset by new asset
        purchases. Capitalized software development decreased 34.9% from $1,095,000
        at
        December 31, 2004 to $713,000 at June 30, 2005 due to year-to-date amortization
  16
 Index
  expense
        of $382,000. Intangible assets decreased 14.3% from $800,000 at December
        31,2004
        to $686,000 at June 30, 2005 due to $114,000 in year-to-date amortization
        expense.
 
 As
        a
        result of the sale of the UK Subsidiary, a note receivable in the amount
        of
        $1,620,000 was received.  The short-term portion of the note is $370,000,
        is payable prior to June 30, 2006, and has been classified as a current asset
        on
        the Balance Sheet. The long-term portion of the note is $1,250,000, is payable
        in installments, and is classified as a non-current asset on the Balance
        Sheet.
        In accordance with APB 21,”Interest on Receivables and Payables,” imputed
        interest, which was calculated at 8%, resulted in an unamortized discount
        at May
        31, 2005 totaling $233,000 and recorded as a direct reduction from the face
        amount of the note. In June of 2005, $6,000 was amortized, resulting in a
        balance of $227,000 in imputed interest as of June 30, 2005.
 
 Accounts
        payable decreased 10.3% from $581,000 at December 31, 2004 to $521,000 at
        June
        30, 2005 primarily due to the reduction in expenses. Deferred revenue decreased
        25.6% from $1,351,000 at December 31, 2004 to $1,005,000 at June 30, 2005
        due to
        reductions in and the timing of billing for annual maintenance renewals.
        Accrued
        employee compensation and benefits decreased 34.0% from $156,000 at December
        31,
        2005 to $103,000 at June 30, 2005 primarily as a result of staff reductions.
        Other accrued liabilities decreased 88.6% from $290,000 at December 31, 2004
        to
        $33,000 at June 30, 2005 primarily as a result of the sale of the UK Subsidiary
        related to elimination of accrued Value Added Tax and employee
        incentives.
 
 **Liquidity
        and Capital Resources**
 
 As
        of
        June 30, 2005, the balance of cash and cash equivalents was $552,000 compared
        to
        $1,286,000 at December 31, 2004.
 
 Our
        future capital requirements will depend on many factors, including our ability
        to obtain positive cash flows, market acceptance of our products, and the
        timing
        and extent of spending to support product development efforts and expansion
        of
        sales and marketing. Our future capital needs will be highly dependent upon
        our
        ability to control expenses and generate additional software license revenues,
        and any projections of future cash needs and cash flows are subject to
        substantial uncertainty. If we are unable to fund expenses from operations
        or
        obtain the necessary additional capital, we may be required to reduce the
        scope
        of planned product development and sales and marketing efforts, as well as
        further reduce the size of current staff, all of which could have a material
        adverse effect on our business, financial condition, and ability to reduce
        losses or generate profits.
 
 We
        have
        no material commitments for capital expenditures. We do not believe that
        inflation has historically had a material effect on our Company's results
        of
        operations.
 
 **Discontinued
        Operations**
 
 On
        June
        3, 2005, Firstwave Technologies, Inc. (the “Company”) entered into a Stock
        Purchase and Sale Agreement (the “Agreement”) with AllAboutTickets LLC (the
“Buyer”) doing business as First Sports International. Pursuant to the
        Agreement, effective May 1, 2005, the Company sold to Buyer all of the issued
        share capital of Firstwave Technologies UK, Ltd., a subsidiary of the Company,
        located at The Pavillion, 1 Atwell Place, Thames Ditton, Surrey, England,
        KT7
        ONF (the “Target”). The Company has also entered into a License Agreement (the
“License Agreement”) with Buyer and Target, dated June 3, 2005, pursuant to
        which it granted to Buyer a non-exclusive, non-transferable, non-assignable,
        limited worldwide and revocable license to use, modify, recompile, reproduce,
        distribute and maintain the object code version of certain portions of its
        software and the Source Code materials relating to that software for use
        only in
        the “sports industry”, as defined in the License Agreement. Both the Stock
        Purchase and Sale Agreement and the License Agreement were filed with the
        Securities and Exchange Commission under Form 8-K on June 9, 2005, and are
        incorporated herein by reference.
 
 The
        total purchase price for the sale was $2,214,000, of which $256,000 in cash
        was
        paid at closing, $1,620,000 is payable under a non-interest bearing Promissory
        Note that calls for payments to be made over a maximum of three years, and
        $338,000 is to be paid as software revenues are achieved to reimburse the
        Company for certain prepaid royalties.
 
 As
        a
        result of the sale of the UK Subsidiary, the Company recognized a pre-tax
        gain
        of $327,000 in the second quarter of 2005, which is recorded separately below
        income/(loss) from discontinued operations in the Consolidated Income
        Statements.
 
 
 **Item
        3. Quantitativeand Qualitative Disclosures
        About Market
        Risk**
  The
        Company is subject to market risk exposures of varying correlations and
        volatilities, including interest rate risk and foreign exchange rate risk.
        Currently, the Company maintains its cash position in money market funds
        and
        other bank accounts. The Company does not currently engage in hedging activities
        or otherwise use derivatives to alter
  17
 Index
  the
        interest characteristics 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 will materially affect the Company's
        financial position or results of operations.
 
 
 **Item
        4.**  **Controlsand
        Procedures**
 
 Based
        on
        their most recent evaluation, which was completed in consultation with
        management as of the end of the period covered by the filing of this
        Form 10-Q, the Company’s Chairman and Chief Executive Officer and Chief
        Financial Officer believe the design and operation of the Company’s disclosure
        controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
        promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
        Act”)) were effective as of the date of such evaluation in timely alerting the
        Company’s management to material information required to be included in this
        Form 10-Q and other Exchange Act filings.
 
 
 **PART
        II. OTHERINFORMATION**
 
 Item
                1.
              LegalProceedings
 Not
        Applicable
 
 Item
                2.
              Changes
                  in Securities
 Not
        Applicable
 
 Item
                3.
              Defaults
                  Upon Senior Securities
 Not
        Applicable
 
 Item
                4.
              Submission
                  of Matters to a Vote of Security
                  Holders
 
 The
        Annual Meeting of Shareholders was held on May 31, 2004, in Atlanta, Georgia,
        at
        which the following matters were submitted to a vote of the
        shareholders:
  1.
              Votes
                  cast for or withheld regarding the election of one (1) Director
                  for a term
                  of one year.
 Name
                    of
                    Nominee
                Votes
                    For
                
                Votes
                    Withheld
                
                Non-votesI.
                    Sigmund
                    Mosley, Jr.
                2,882,120
                
                107,645
                
                16,667
 
 The
                    nominee for director was elected by a
                    majority.
 
 
 2.
              Votes
                  cast for the approval of the company’s 2005 stock incentive plan
                  increasing the number of shares available by 300,000, from 516,667
                  to
                  816,667.
 
 Votes
                    For
                
                Votes
                    Against
                
                Abstain
                
                Non-votes825,518
                
                262,651
                
                4,632
                
                1,913,630
 
 The
        requirement to approve this proposal was the affirmative vote of the
        shareholders having a majority of the voting power of all shares present,
        in
        person or by proxy, and voted at the Annual Meeting. Therefore the motion
        to
        approve the Company’s 2005 Stock Incentive Plan was adopted.
 
 3.
              Ratification
                  of selection of Cherry, Bekaert & Holland, L.L.P. as Company’s
                  independent auditors.
 
 The
        ratification was adopted by a majority.
 
 Votes
                    For
                
                Votes
                    Against
                
                Abstain2,996,085
                
                5,728
                
                4,619
 
 Item
                5.
              Other
                  Information
 Not
        Applicable
 
  18
 Index
  Item
                6.
              Exhibits
 Exhibit
        31.1 Certification of Periodic Report by the Chief Executive Officer pursuant
        to
        Rule 13a-14(a) of the Securities Exchange Act of 1934.
  Exhibit
        31.2 Certification of Periodic Report by the Chief Financial Officer pursuant
        to
        Rule 13a-14(a) of the Securities Exchange Act of 1934.
 
 Exhibit
        32 Certification of Chief Executive Officer and Chief Financial Officer pursuant
        to 18 U.S.C. Section 1350.
 
 
 
 
 
 
 
 
 **SIGNATURES**
 
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
   FIRSTWAVE
                    TECHNOLOGIES, INC.DATE: August
                  11, 2005
                By:
                /s/ Judith
                  A. VitaleJudith
                    A. Vitale
                  Chief
                    Financial Officer
                  (Principal
                    Financial Officer)
 
    19