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 September 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 #)
  
 
 **5775
          Glenridge Drive NE, Bldg E**
 **Atlanta,
          GA
          30328**
 (Address
        of
        principal executive offices)
  **770-250-0349**
 (Telephone
          number
          of registrant)
 
 **2859
          Paces
          Ferry Road, Suite 1000**
 **Atlanta,
          GA
          30339**
 (Former
          address, if
          changed from last report)
 
 
 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
        by check
        mark whether the registrant is a shell company (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 November 10, 2005:
 
 Common
        Stock, no
        par value  2,729,135
        shares
 
 Index
 
 
 **FIRSTWAVE
        TECHNOLOGIES, INC.**
 
 **FORM
        10-Q**
 
 **For
        the
        quarter ended September 30, 2005**
  
 **Index**
 
 
 Page
                  No.**Part
                  I. Financial Information**Item
                  1. Financial StatementsConsolidated
                  Balance Sheet - December 31, 2004 and
                  September 30, 2005
              3Consolidated
                  Statement of Operations - For the Three and Nine
                  Months Ended September 30, 2004 and September 30, 2005
              4Consolidated
                  Statement of Changes in Shareholders' Equity -
                  For the Nine Months Ended September 30, 2005
              5Consolidated
                  Statement of Cash Flows - For the Nine
                  Months Ended September 30, 2004 and September 30, 2005
              6Notes
                  to Consolidated Financial
                  Statements
              7Item
                  2. Management's Discussion and Analysis of Financial
                  Condition and Results of Operations
              16Item
                  3. Quantitative and Qualitative Disclosures
                  About Market Risk
              19Item
                  4. Controls and Procedures
              19**Part
                  II. Other Information**
              19Item
                  6. Exhibits
              20
 
 2
 Index
 
 **Part
        I. FINANCIALINFORMATION**
 
 **Item
        1. FinancialStatements**
  **FIRSTWAVE
                    TECHNOLOGIES, INC.****Consolidated
                    BalanceSheet****(in
                    thousands)****Dec
                    31,**
                
                **Sep
                    30,****2004**
                
                **2005****(Unaudited)****ASSETS****Current
                    assets****Cash
                    and cash equivalents**
                
                $
                1,286
                
                $
                298**Accounts
                      receivable: less allowance for****doubtful
                      accounts of $61 and $38, respectively**
                
                
                605
                
                
                499**Note
                    receivable, current**
                
                
                0
                
                
                335**Other
                    prepaid expenses**
                
                
                565
                
                
                541**Total
                    current assets**
                
                
                2,456
                
                
                1,673**Property
                    and equipment, net**
                
                
                264
                
                
                91**Software
                    development costs, net**
                
                
                1,095
                
                
                537**Intangible
                    assets**
                
                
                800
                
                
                629**Goodwill**
                
                
                1,658
                
                
                593**Note
                    receivable**
                
                
                0
                
                
                1,044**Total
                    assets**
                
                $
                6,273
                
                $
                4,567**LIABILITIES
                    AND SHAREHOLDERS' EQUITY****Current
                    liabilities****Accounts
                    payable**
                
                $
                581
                
                $
                481**Deferred
                    revenue**
                
                
                1,351
                
                
                978**Accrued
                    employee compensation and benefits**
                
                
                156
                
                
                106**Dividends
                    payable**
                
                
                46
                
                
                63**Other
                    accrued liabilities**
                
                
                290
                
                
                30**Total
                    current liabilities**
                
                
                2,424
                
                
                1,658**Shareholders'
                    equity**
                
                
                3,849
                
                
                2,909**Total
                    liabilities and shareholders' equity**
                
                $
                6,273
                
                $
                4,567**The
                    accompanying notes are an integral part of these financial
                    statements.**
  
 3
 Index
  **FIRSTWAVE
                    TECHNOLOGIES, INC.****ConsolidatedStatement
                    of
                    Operations****(in
                    thousands, except per share amounts)****(unaudited)****For
                    the Three Months Ended**
                
                **For
                    the Nine Months Ended****Sep
                    30,**
                
                **Sep
                    30,**
                
                **Sep
                    30,**
                
                **Sep
                    30,****2004**
                
                **2005**
                
                **2004**
                
                **2005****Net
                    Revenues****Software**
                
                $
                373
                
                $
                241
                
                $
                690
                
                $
                414**Services**
                
                
                161
                
                
                199
                
                
                901
                
                
                576**Maintenance**
                
                
                586
                
                
                481
                
                
                1,891
                
                
                1,566**Other**
                
                
                11
                
                
                7
                
                
                39
                
                
                461,131
                
                
                928
                
                
                3,521
                
                
                2,602**Cost
                    and Expenses****Cost
                    of revenues****Software**
                
                
                321
                
                
                199
                
                
                1,011
                
                
                614**Services**
                
                
                305
                
                
                155
                
                
                858
                
                
                561**Maintenance**
                
                
                93
                
                
                88
                
                
                305
                
                
                240**Other**
                
                
                11
                
                
                6
                
                
                29
                
                
                30**Sales
                    and marketing**
                
                
                376
                
                
                93
                
                
                1,329
                
                
                435**Product
                    development**
                
                
                260
                
                
                187
                
                
                933
                
                
                575**General
                    and administrative**
                
                
                367
                
                
                349
                
                
                1,233
                
                
                1,125**Charge
                    for goodwill impairment**
                
                
                0
                
                
                528
                
                
                0
                
                
                5281,733
                
                
                1,605
                
                
                5,698
                
                
                4,108**Operating
                    loss**
                
                
                (602
                )
                
                (677
                )
                
                (2,177
                )
                
                (1,506
                )**Interest
                    income/(expense), net**
                
                
                (5
                )
                
                20
                
                
                (11
                )
                
                87**Loss
                    from continuing operations before taxes**
                
                
                (607
                )
                
                (657
                )
                
                (2,188
                )
                
                (1,419
                )**Income
                    taxes**
                
                
                0
                
                
                0
                
                
                0
                
                
                0**Loss
                    from continuing operations**
                
                
                (607
                )
                
                (657
                )
                
                (2,188
                )
                
                (1,419
                )**Income/(Loss)
                    from discontinued operations**
                
                
                (110
                )
                
                -
                
                
                197
                
                
                (457
                )**Gain
                    on sale of discontinued operations**
                
                
                -
                
                
                -
                
                
                -
                
                
                327**Net
                    Income/(Loss) from discontinued operations**
                
                
                (110
                )
                
                -
                
                
                197
                
                
                (130
                )**Net
                    Loss**
                
                
                (717
                )
                
                (657
                )
                
                (1,991
                )
                
                (1,549
                )**Dividends
                    on preferred stock**
                
                
                (71
                )
                
                (71
                )
                
                (184
                )
                
                (213
                )**Net
                    loss applicable to common shareholders**
                
                $
                (788
                )
                $
                (728
                )
                $
                (2,175
                )
                $
                (1,762
                )**Income/(Loss)
                    per common share - Basic and Diluted****Income/(Loss)
                    from continuing operations**
                
                $
                (0.25
                )
                $
                (0.27
                )
                $
                (0.88
                )
                $
                (0.60
                )**Income/(Loss)
                    from discontinued operations**
                
                
                (0.04
                )
                
                -
                
                
                0.07
                
                
                (0.05
                )**Net
                    income/(loss) per common share**
                
                $
                (0.29
                )
                $
                (0.27
                )
                $
                (0.81
                )
                $
                (0.65
                )**Weighted
                    average shares - Basic and Diluted**
                
                
                2,694
                
                
                2,729
                
                
                2,680
                
                
                2,704**The
                    accompanying notes are an integral part of these financial
                    statements.**
  4
 Index
 **FIRSTWAVE
                    TECHNOLOGIES, INC.****ConsolidatedStatement
                    of Changes in Shareholders'
                    Equity****(In
                    thousands, except share data)****(unaudited)****For
                    the Nine Months Ended September 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**
                
                
                16,051
                
                
                
                
                
                
                
                
                
                
                
                35
                
                
                
                
                
                
                
                
                
                
                
                35**Issuance
                    of common stock**
                
                
                18,343
                
                
                
                
                
                
                
                
                
                
                
                32
                
                
                
                
                
                
                
                
                
                
                
                32**Dividends**
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (212
                )
                
                
                
                
                
                
                
                
                
                
                (212
                )**Comprehensive
                    loss****Net
                    loss**
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                ($1,549
                )
                
                
                
                
                (1,549
                )
                
                (1,549
                )**Foreign
                    currency translation adjustment**
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                754
                
                
                754
                
                
                
                
                
                754**Comprehensive
                    loss**
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                ($795
                )**Balance
                    at end of period**
                
                
                2,728,387
                
                $
                13
                
                
                34,020
                
                $
                3,011
                
                $
                25,340
                
                
                
                
                $
                0
                
                
                ($25,455
                )
                $
                2,909**The
                    accompanying notes are an integral part of these financial
                    statements.**
  5
 Index
  **FIRSTWAVE
                    TECHNOLOGIES, INC.****ConsolidatedStatement
                    of Cash
                    Flows****(in
                    thousands)****(unaudited)****For
                    the Nine Months Ended****September
                    30,**
                
                **September
                    30,****2004**
                
                **2005****Cash
                    flows provided by/(used in) operating activities**
                
                
                ($1,724
                )
                
                ($1,081
                )**Cash
                    flows from investing activities****Software
                    development costs**
                
                
                (94
                )
                
                0**Purchases
                    of property and equipment, net**
                
                
                (87
                )
                
                (15
                )**Sale
                    of UK subsidiary**
                
                
                0
                
                
                256**Net
                    cash provided by/(used in) investing activities**
                
                
                (181
                )
                
                241**Cash
                    flows from financing activities****Proceeds
                    from issuance of common stock**
                
                
                5
                
                
                37**Proceeds
                    from issuance of preferred stock**
                
                
                678
                
                
                0**Payment
                    of dividends on preferred stock**
                
                
                (179
                )
                
                (195
                )**Net
                    cash used in financing activities**
                
                
                504
                
                
                (158
                )**Foreign
                    currency translation adjustment**
                
                
                (30
                )
                
                10**Decrease
                    in cash and cash equivalents**
                
                
                (1,431
                )
                
                (988
                )**Cash
                    and cash equivalents, beginning of period**
                
                
                2,704
                
                
                1,286**Cash
                    and cash equivalents, end of period**
                
                $
                1,273
                
                $
                298**Supplemental
                    disclosure of cash flow information****Cash
                    paid for income taxes**
                
                $
                0
                
                $
                0**Cash
                    paid for interest**
                
                $
                17
                
                $
                0**The
                    accompanying notes are an integral part of these financial
                    statements.**
 
 6
 Index
 
 **FIRSTWAVE
        TECHNOLOGIES, INC.**
 **Notesto
        Consolidated Financial Statements**
 **September
        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 year 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 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.
 
 ***Subsequent
        Event***
 On
        October 10, 2005, the Company entered into a three-year OEM/Outsourcing
        Agreement with M1 Global Solutions, Inc., an Atlanta-based technology company.
        Under the terms of the agreement, both Firstwave and M1 Global are contributing
        to the ongoing development, maintenance and support of Firstwave products;
        M1
        Global has licensed the Firstwave CRM database schema to develop its future
        products; Firstwave is outsourcing its Professional Services and Support
        functions to M1 Global; and M1 Global will be a non-exclusive reseller of
        Firstwave products. Firstwave will retain all maintenance revenues and pay
        to M1
        Global $154,315 per quarter in consideration for M1 Global providing support
        services to Firstwave customers. The
        agreement
        provides that M1 Global will also pay royalty commissions to Firstwave. Both
        the
        OEM/Outsourcing Agreement and the License Agreement were filed with the
        Securities and Exchange Commission under Form 8-K on October 14,
        2005.
 
 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.


7
 Index
 
 
 ***Critical
        Accounting Policies***
 The
        Company
        believes that the following accounting policies are critical to understanding
        the consolidated financial statements:
 ·  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.
 
 
 8
 Index
  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.
 
 Independent
        distributors and primarily Firstwave UK, prior to the sale of the UK Subsidiary,
        who offer licenses of the Company’s non-sports products in specific geographic
        areas, generate international revenues, consisting primarily of maintenance
        revenues from non-sports customers in the UK. 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 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 for 2005 through
        September 30, 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 designed 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.
 
 
 9
 Index
  **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.
 
 Goodwill
        was
        evaluated at September 30, 2005 for impairment during the third quarter of
        2005
        in accordance with SFAS No. 142. The fair value was estimated using the expected
        net present value of future cash flows. As a result of this evaluation, it
        was
        determined that there was an impairment of goodwill, and the second phase
        was
        required. The second phase resulted in the Company recording a non-cash
        impairment charge of $528,000 to write-off a portion of the carrying value
        of
        goodwill.
 
 **Concentration
        of credit risk**
 The
        Company is
        subject to credit risk primarily due to its trade receivables and its note
        receivable. The note receivable from AllAboutTickets LLC is more fully detailed
        in Note 4, Discontinued Operations. 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,**
                
                **Sep
                    30,****2004**
                
                **2005**Argos,
                    Ltd
                
                
                13.8
                %
                
                0.0
                %CapGemini
                    UK
                
                
                12.6
                %
                
                0.0
                %KCI
                    Therapeutic Services, Inc.
                
                
                0.0
                %
                
                28.5
                %Manhattan
                    Associates
                
                
                1.6
                %
                
                19.9
                %Sungard
                    HTE,
                    Inc.
                
                
                15.0
                %
                
                3.3
                %
 
 **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****Sep
                    30,**
                
                **Sep
                    30,****2004**
                
                **2005**M1
                    Global
                    Solutions, Inc.
                
                
                0.0
                %
                
                16.0
                %Medi-Flex
                
                
                0.3
                %
                
                10.7
                %The
                    Football
                    Association
                
                
                16.2
                %
                
                0.0
                %
 
 The
        M1 Global
        Solutions, Inc. relationship is explained in detail under Note 1, Subsequent
        Events.
 
 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):
 
 10
 Index
 
 
 **For
                    the Three Months Ended**
                
                **For
                    the Nine Months Ended****Sep
                    30, 2004**
                
                **Sep
                    30, 2005**
                
                **Sep
                    30, 2004**
                
                **Sep
                    30, 2005**Net
                    loss
                    applicable to commonshareholders,
                    as reported
                
                $
                (788
                )
                $
                (728
                )
                $
                (2,175
                )
                $
                (1,762
                )Stock
                    based
                    employee compensation, net of relatedtax
                    effects
                    under the fair value based method
                
                
                150
                
                
                24
                
                
                844
                
                
                566Net
                    loss
                    applicable to commonshareholders,
                    as adjusted
                
                $
                (938
                )
                $
                (752
                )
                $
                (3,019
                )
                $
                (2,328
                )Loss
                    per
                    share:Basic
                    - as
                    reported
                
                $
                (0.29
                )
                $
                (0.27
                )
                $
                (0.81
                )
                $
                (0.65
                )Basic
                    - as
                    adjusted
                
                $
                (0.35
                )
                $
                (0.28
                )
                $
                (1.13
                )
                $
                (0.86
                )Diluted
                    - as
                    reported
                
                $
                (0.29
                )
                $
                (0.27
                )
                $
                (0.81
                )
                $
                (0.65
                )Diluted
                    - as
                    adjusted
                
                $
                (0.35
                )
                $
                (0.28
                )
                $
                (1.13
                )
                $
                (0.86
                )
 
 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 September 30, 2004 and September 30, 2005, respectively:
        dividend yield of 0% for both quarters; expected volatility of 128% and 124%,
        and risk-free interest rate of 3.51% and 4.04%. For the nine month period
        ended
        September 30, 2004 and September 30, 2005, respectively, the assumptions
        used
        were dividend yield of 0% for both years, average expected volatility of
        130%
        and 126%, and average risk-free interest rate of 3.41% and 3.93%.
 
 There
        was a
        decrease in pro forma stock-based employee compensation for the quarters
        ended
        September 30 from $150,000 in 2004 to $24,000 in 2005,  and
        for the nine
        months ended September 30, there was a decrease from $844,000 in 2004 to
        $566,000 in 2005. The decreases of $136,000 for the quarter and $278,000
        for the
        nine months were primarily the result of cancellations of stock options due
        to
        staff resignations.
 
 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 nine month
        periods ended September 30, 2004 and September 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.
 
 11
 Index
  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 Nine Months Ended****September
                    30, 2005**
                
                **September
                    30, 2005**Income
                
                Shares
                
                Per
                    Share
                
                Income
                
                Shares
                
                Per
                    Share(Numerator)
                
                (Denominator)
                
                Amount
                
                (Numerator)
                
                (Denominator)
                
                AmountNet
                    loss
                
                $
                (657
                )
                
                
                
                
                
                
                $
                (1,549
                )Less:
                    Preferred Stock Dividends
                
                
                (71
                )
                
                
                
                
                
                
                
                (213
                )**Basic
                    EPS**Loss
                    applicable to common shareholders
                
                $
                (728
                )
                
                2,729
                
                $
                (0.27
                )
                $
                (1,762
                )
                
                2,704
                
                $
                (0.65
                )**Effect
                    of Dilutive Securities**(1)Warrants
                
                
                
                
                
                19
                
                
                
                
                
                
                
                
                19Convertible
                    Preferred Stock
                
                
                71
                
                
                898
                
                
                
                
                
                213
                
                
                898Stock
                    Options
                
                
                
                
                
                242
                
                
                
                
                
                
                
                
                24271
                
                
                1,159
                
                
                
                
                
                213
                
                
                1,159**Diluted
                    EPS**Loss
                    applicable to common shareholders
                
                $
                (728
                )
                
                2,729
                
                $
                (0.27
                )
                $
                (1,762
                )
                
                2,704
                
                $
                (0.65
                )(1)
                    Not
                    included because anti-dilutive**For
                    the Three Months Ended**
                
                
                **For
                    the Nine Months Ended****September
                    30, 2004**
                
                
                **September
                    30, 2004**Income
                
                
                Shares
                
                
                Per
                    Share
                
                
                Income
                
                
                Shares
                
                
                Per
                    Share(Numerator)
                
                
                (Denominator)
                
                
                Amount
                
                
                (Numerator)
                
                
                (Denominator)
                
                
                AmountNet
                    loss
                
                $
                (717
                )
                
                
                
                
                
                
                $
                (1,991
                )Less:
                    Preferred Stock Dividends
                
                
                (71
                )
                
                
                
                
                
                
                
                (184
                )**Basic
                    EPS**Loss
                    applicable to common shareholders
                
                $
                (788
                )
                
                2,694
                
                
                (0.29
                )
                $
                (2,175
                )
                
                2,680
                
                $
                (0.81
                )**Effect
                    of Dilutive Securities**(1)Warrants
                
                
                
                
                
                19
                
                
                
                
                
                
                
                
                19Convertible
                    Preferred Stock
                
                
                71
                
                
                898
                
                
                
                
                
                184
                
                
                755Stock
                    Options
                
                
                
                
                
                3
                
                
                
                
                
                
                
                
                2571
                
                
                920
                
                
                
                
                
                184
                
                
                799**Diluted
                    EPS**Loss
                    applicable to common shareholders
                
                $
                (788
                )
                
                2,694
                
                
                (0.29
                )
                $
                (2,175
                )
                
                2,680
                
                $
                (0.81
                )(1)
                    Not
                    included because anti-dilutive
  **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.
 
  12
 Index
  **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 entered into the Stock Purchase Agreement with AllAboutTickets
          LLC that is detailed under Note 1, Basis of Presentation. 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. This sale of the Company’s UK Subsidiary has been treated as a
          discontinued operation in the accompanying unaudited consolidated financial
          statements. The total price for the stock purchase transaction 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.
 
 As
        of September 30, 2005, the remaining balance of the promissory note is
        $1,585,000 payable in installments. The short-term portion of the note is
        $335,000, is payable prior to September 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. Through September 2005,
        $27,000 was amortized, resulting in a balance of $206,000 in imputed interest
        as
        of September 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 nine months of 2005 and $197,000 for the first nine months
        of
        2004. Total revenues from discontinued operations were $341,000 and
        $2,172,000 for the first nine months of 2005 and 2004,
        respectively.
 
 As
        a result of the sale of the UK Subsidiary, the Company has recognized a pre-tax
        gain of $327,000 in 2005, which is combined and reported as income/(loss)
        from
        discontinued operations in the Consolidated Income Statements.
 
 **5.**  **Goodwill
        and 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.
 
 Goodwill
        was
        evaluated at September 30, 2005 for impairment during the third quarter of
        2005
        in accordance with SFAS No. 142. The fair value was estimated using the expected
        net present value of future cash flows. Based on lower-than-expected operating
        results as a result of this evaluation, it was determined that there was
        an
        impairment of goodwill, and the second phase was required. The second phase
        resulted in the Company recording a non-cash impairment charge of $528,000
        to
        write-off a portion of the carrying value of goodwill. As of September 30,
        2005,
        the Company had $629,000 of Intangible Assets and $593,000 of Goodwill as
        a
        result of acquisitions in 1998 and 2003, including subsequent amortization
        expense and impairment charges.
  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 third quarter of 2005 and $171,000 in the nine months ended
        September 30, 2005.
 
 
 13
 Index
 
 The
        following table
        presents details of intangible assets with definite lives (in
        thousands):
 
 **December
                    31, 2004**
                **September
                    30, 2005**Gross
                    carrying
                
                Accumulated
                
                Gross
                    carrying
                
                Accumulatedamount
                
                amortization
                
                amount
                
                amortizationAmortizable
                    intangible assetsConnect-Care
                    Technology
                
                $
                300
                
                $
                175
                
                $
                300
                
                $
                250Connect-Care
                    Customer Relationships
                
                
                900
                
                
                225
                
                
                900
                
                
                321Total
                
                $
                1,200
                
                $
                400
                
                $
                1,200
                
                $
                571Aggregrate
                    Amortization ExpenseFor
                    the Nine
                    months ended September 30, 2005
                
                $
                171Estimated
                    Amortization ExpenseFor
                    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
        September 30, 2005, the Company had no borrowings. At September 30, 2004,
        the
        Company had $500,000 in borrowings, and had paid $21,000 in interest expense
        for
        the nine months ended September 30, 2004. The Company repaid its $500,000
        of
        borrowings under the Line of Credit and carried no debt as of December 31,
        2004.
        The Company subsequently canceled the Line of Credit.
 
 
 **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 third quarter of 2005 and $2,025
        for the
        nine months ended September 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 third quarter and $151,875
        for the nine months ended September 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.
 
 On
        October 10, 2005, the Company entered into a three-year OEM/Outsourcing
        Agreement with M1 Global Solutions, Inc., an Atlanta-based technology company.
        Details of this transaction are presented in Note 1, Subsequent
        Events.
 
 **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 has evaluated the impact
        that the adoption of SFAS No. 123(R) will have on its financial position,
        results of operations and cash flows. The Board of Directors voted in the
        Second
        Quarter of 2005 to i mmediately
        vest all
        outstanding unvested options to avoid this impact. Therefore, the Company
        believes the adoption of SFAS No. 123(R) will not have a material impact
        to its
        future results of operations based on the existing grants of options. However,
        the impact from the allocation of future share-based payments will depend
        upon
        levels and other factors of such share-based payments as determined by the
        Board
        of Directors.
 
 14
 Index
 
 
 In
        April 2005, the Securities and Exchange Commission’s Office of the Chief
        Accountant and its Division of Corporation Finance 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).
 
 
 15
 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.
 
 On
        October 10, 2005, the Company entered into a three-year OEM/Outsourcing
        Agreement with M1 Global Solutions, Inc., an Atlanta-based technology company.
        Under the terms of the agreement, both Firstwave and M1 Global are contributing
        to the ongoing development, maintenance and support of Firstwave products;
        M1
        Global has licensed the Firstwave CRM database schema to develop its future
        products; Firstwave is outsourcing its Professional Services and Support
        functions to M1 Global; and M1 Global will be a non-exclusive reseller of
        Firstwave products. Firstwave will retain all maintenance revenues and pay
        to M1
        Global $154,315 per quarter in consideration for M1 Global providing support
        services to Firstwave customers. The agreement provides that M1 Global will
        pay
        royalty commissions to Firstwave.
 
 **Results
        of
        Continuing Operations**
 
 On
        June 3, 2005, Firstwave 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. This Management’s
        Discussion and Analysis of Financial Condition compares the Company’s results
        from continuing operations.
 
 Total
        revenues
        decreased 17.9% from $1,131,000 in the third quarter of 2004 to $928,000
        in the
        third quarter of 2005 primarily due to decreased software and maintenance
        revenues. Total revenues decreased 26.1% from $3,521,000 for the nine months
        ended September 30, 2004 to $2,602,000 for the same period in 2005 due to
        decreases in software, services and maintenance revenue.
 
 Software
        revenues
        decreased 35.4% from $373,000 in the third quarter of 2004 to $241,000 in
        the
        third quarter of 2005. Software revenue decreased 40.0% from $690,000 for
        the
        nine months ended September 30, 2004 to $414,000 for the same period in 2005.
        During the nine months ended September 30, 2004, we recognized three large
        software license agreements with Manhattan Associates, Inc., SmartMail, LLC,
        and
        Northrop Grumman; while during the nine months ended September 30, 2005 we
        recognized just one large software license with M1 Global Solutions. Our
        software revenues remain significantly dependent upon the size and timing
        of
        closing of license agreements.
 
 Services
        revenues
        increased 23.6% from $161,000 in the third quarter of 2004 to $199,000 in
        the
        third quarter of 2005. This increase is primarily the result of a focus on
        existing CRM customers. Services revenues decreased 36.1% from $901,000 for
        the
        nine months ended September 30, 2004 to $576,000 for the same period 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 17.9% from $586,000 during the third quarter of 2004 to
        $481,000 in the third quarter of 2005. Maintenance revenues decreased 17.2%
        from
        $1,891,000 for the nine months ended September 30, 2004 to $1,566,000 for
        the
        same period 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 renewals of maintenance agreements
        from
        existing customers and reduced new software licenses.
 
 16
 Index
 
 
 Cost
        of software
        revenues decreased 38.0% from $321,000 in the third quarter of 2004 to $199,000
        in the third quarter of 2005. Cost of software revenues decreased 39.3% from
        $1,011,000 for the nine months ended September 30, 2004 to $614,000 for the
        same
        period 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 86.1% in the third quarter
        of
        2004 to 82.6% in the third quarter of 2005, primarily due to a decrease in
        amortization expense in costs of revenues.
 
 Cost
        of revenues
        for services decreased 49.2% from $305,000 in the third quarter of 2004 to
        $155,000 in the third quarter of 2005. Cost of revenue for services decreased
        34.6% from $858,000 for the nine months ended September 30, 2004 to $561,000
        for
        the same period 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 189.4% in the third quarter of 2004 to 77.9% in the third
        quarter
        of 2005.
 
 Cost
        of revenues
        for maintenance decreased 5.4% from $93,000 in the third quarter of 2004
        to
        $88,000 in the third quarter of 2005. Cost of revenues for maintenance decreased
        21.3% from $305,000 for the nine months ended September 30, 2004 to $240,000
        for
        the same period 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 increased
        from
        15.9% in the third quarter of 2004 to 18.3% in the third quarter of 2005.
 
 Sales
        and marketing
        expense decreased 75.3% from $376,000 in the third quarter of 2004 to $93,000
        in
        the third quarter of 2005. Sales and Marketing expense decreased 67.3% from
        $1,329,000 for the nine months ended September 30, 2004 to $435,000 for the
        same
        period 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 sports sponsorships in the U.S.
  The
        Company’s
        product innovation and development expenditures, which includes amounts
        capitalized, decreased 28.1% from $260,000 in the third quarter of 2004 to
        $187,000 in the third quarter of 2005. Product innovation and development
        expenditures decreased 38.4% from $933,0000 for the nine months ended September
        30, 2004 to $575,000 for the same period in 2005. 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 nine months ended September 30, 2004 were $94,000,
        there
        were no capitalized costs during the third quarter of 2004. No development
        costs
        were capitalized during the third quarter of 2005 or for the nine months
        ended
        September 30, 2005. A net realizable analysis was performed at September
        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 decreased 4.4% from $367,000 in the third quarter
        of
        2004 to $349,000 in the third quarter of 2005. General and administrative
        expenses decreased 8.6% from $1,233,000 for the nine months ended September
        30,
        2004 to $1,125,000 for the same period 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.
 
 A
        non-cash charge for goodwill impairment amounting to $528,000 in the third
        quarter of 2005 was the result of an evaluation conducted in accordance with
        SFAS No. 142 as explained in Note #5 to our consolidated financial statements.
  Loss
        from
        discontinued operations was $110,000 for the third quarter of 2004. There
        was no
        activity from discontinued operations during the third quarter of 2005. Income
        from discontinued operations was $197,000 for the nine months ended September
        30, 2004 compared to a loss of $130,000 for the nine months ended September
        30,
        2005.
 
 Dividends
        on
        preferred stock were unchanged at $71,000 in both the third quarter of 2004
        and
        of 2005. Dividends on preferred stock increased from $184,000 for the nine
        months ended September 30, 2004 to $213,000 for the same period 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 $728,000 (after the $528,000 non-cash
        charge
        for goodwill impairment) in the third quarter of 2005 compared to a net loss
        of
        $788,000 in the third quarter of 2004. Net loss per basic and diluted share
        was
        $0.29 for the third quarter of 2004 compared to a net loss of $0.27 per basic
        and diluted share for the third quarter of 2005. Year to date, the net loss
        applicable to common shareholders was $2,175,000 for the nine months ended
        September 30, 2004, or $0.81 per basic and diluted share, compared to a net
        loss
        of $1,762,000 for the nine months ended September 30, 2005, or $0.65 per
        basic
        and diluted share. At September 30, 2004, the number of basic weighted average
        shares outstanding was 2,694,000 compared to 2,729,000 at September 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 the Company believes
          can now be avoided by the Company’s decision.
 
 17
 Index
 
 **Balance
        Sheet**
 
 Net
        accounts
        receivable decreased 17.5% from $605,000 at December 31, 2004 to $499,000
        at
        September 30, 2005, primarily due to lower software license and services
        revenues invoiced. Property and equipment decreased 65.5% from $264,000 at
        December 31, 2004 to $91,000 at September 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 51.0% from $1,095,000
        at
        December 31, 2004 to $537,000 at September 30, 2005 due to year-to-date
        amortization expense of $558,000. Intangible assets decreased 21.4% from
        $800,000 at December 31,2004 to $629,000 at September 30, 2005 due to $171,000
        in year-to-date amortization expense.
 
 In
        accordance with SFAS No. 142 “Goodwill and Other Intangible Assets”, intangible
        assets with indefinite useful lives must be tested periodically for impairment.
        Examples of Management’s judgment regarding the existence of impairment of an
        intangible asset and the resulting fair value, would include management’s
        estimates of future net cash flows and assessment of adverse changes in legal
        factors, market conditions, or loss of key personnel. If the fair value of
        the
        intangible asset were determined to be less than the carrying value, the
        Company
        would record an impairment loss. SFAS No. 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. Goodwill was
        evaluated at September 30, 2005 for impairment during the third quarter of
        2005
        in accordance with SFAS No. 142. The fair value was estimated using the expected
        net present value of future cash flows. As a result of this evaluation, it
        was
        determined that there was an impairment of goodwill, and the second phase
        was
        required. The second phase resulted in the Company recording a non-cash
        impairment charge of $528,000 to write-off a portion of the carrying value
        of
        goodwill.
 
 As
        a result of the sale of the UK Subsidiary, a note receivable in the amount
        of
        $1,620,000 was received.  At September 30, 2005 the portion of the note
        payable prior to September 30, 2006 was $335,000 and was 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. Through September of 2005, $27,000 was amortized, resulting
        in a balance of $206,000 in imputed interest as of September 30, 2005.
 
 Accounts
        payable
        decreased 17.2% from $581,000 at December 31, 2004 to $481,000 at September
        30,
        2005 primarily due to the reduction in expenses. Deferred revenue decreased
        27.6% from $1,351,000 at December 31, 2004 to $978,000 at September 30, 2005
        due
        to reductions in and the timing of billing for annual maintenance renewals.
        Accrued employee compensation and benefits decreased 32.1% from $156,000
        at
        December 31, 2005 to $106,000 at September 30, 2005 primarily as a result
        of
        staff reductions. Other accrued liabilities decreased 89.7% from $290,000
        at
        December 31, 2004 to $30,000 at September 30, 2005 primarily related to the
        elimination of Value Added Tax and employee incentives as a result of the
        sale
        of the UK Subsidiary.
 
 **Liquidity
        and Capital Resources**
 
 As
        of September 30, 2005, the balance of cash and cash equivalents was $298,000
        compared to $1,286,000 at December 31, 2004.
 
 On
        October 10, 2005, the Company entered into a three-year OEM/Outsourcing
        Agreement with M1 Global Solutions, Inc., an Atlanta-based technology company.
        Under the terms of the agreement, both Firstwave and M1 Global are contributing
        to the ongoing development, maintenance and support of Firstwave products;
        M1
        Global has licensed the Firstwave CRM database schema to develop its future
        products; Firstwave is outsourcing its Professional Services and Support
        functions to M1 Global; and M1 Global will be a non-exclusive reseller of
        Firstwave products. Firstwave will retain all maintenance revenues and pay
        to M1
        Global $154,315 per quarter in consideration for M1 Global providing support
        services to Firstwave customers. The agreement provides that M1 Global will
        also
        pay royalty commissions to Firstwave. Both the OEM/Outsourcing Agreement
        and the
        License Agreement were filed with the Securities and Exchange Commission
        under
        Form 8-K on October 14, 2005.
  Our
        future capital
        requirements will depend on many factors, including our ability to obtain
        positive cash flows, to collect our note receivable from First-Sports
        International, to realize royalty revenues from the M1 Global transaction
        referenced above, to retain our maintenance revenues from existing customers,
        to
        control expenses, and to generate additional revenues from other sources.
 
 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 entered into the Stock Purchase Agreement with
        AllAboutTickets LLC that is detailed under Note 1, Basis of Presentation.
        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. This sale of the Company’s UK Subsidiary has been
        treated as a discontinued operation in the accompanying unaudited consolidated
        financial statements.
  18
 Index
 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 through September 30, 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,
        primarily relating to interest 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
        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. UnregisteredSales of Equity Securities
        and Use of
        Proceeds
 Not
        Applicable
 
 Item
        3. DefaultsUpon Senior Securities
 Not
        Applicable
 
 Item
        4. Submissionof Matters to a Vote of Security
        Holders
 Not
        Applicable
 
 Item
        5. OtherInformation
 Not
        Applicable
 
 
 19
 Index
 
 Item
        6. Exhibits
  Exhibit
                  10.1
              Licensing
                  Agreement between Firstwave Technologies, Inc. and M1 Global Solutions,
                  Inc.dated
                  September 30, 2005 (incorporated by reference to Exhibit 10.1 of
                  Form 8-K
                  filed on October 14, 2005).Exhibit
                  10.2
              OEM/Outsourcing
                  Agreement between Firstwave Technologies, Inc. and M1 Global Solutions,
                  Inc. Dated October 10, 2005 (incorporated by reference to Exhibit
                  10.1 of
                  Form 8-K filed on October 14, 2005).Exhibit
                  10.3
              Stock
                  Purchase Agreement between Firstwave Technologies, Inc and
                  AllAboutTickets, LLC dated June 3, 2005 ((incorporated by reference
                  to
                  Exhibit 10.1 of Form 8-K filed on June 9, 2005).Exhibit
                  31.1
              Certification
                  of Periodic Report by theChief
                  Executive Officerpursuant to
                  Rule 13a-14(a) of the Securities Exchange Act of 1934.Exhibit
                  31.2
              Certification
                  of Periodic Report by the Principal Financial Officer pursuant
                  to Rule
                  13a-14(a) of the Securities Exchange Act of 1934.Exhibit
                  32
              Certification
                  of Chief Executive Officer and Principal 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:
                  November 11, 2005/s/
                  David
                  G. KaneDavid
                  G.
                  KaneController(Principal
                  Financial Officer)
 
 
 
      20