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, 2006








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, Suite 400**


**Atlanta,
      GA 30328**


(Address
      of principal executive offices)





**770-250-0349**


(Telephone
      number of registrant)


(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 o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.





Large
      accelerated filer o     Accelerated
      filer o     Non-accelerated
      filer **x**





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).





Yes
o****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 9, 2006:





Common
      Stock, no par value 2,868,302 shares










**FIRSTWAVE
      TECHNOLOGIES, INC.**





**FORM
      10-Q**





**For
      the quarter ended September 30, 2006**





**Index**





Page
                No.**Part
                I.**
            **Financial
                Information**Item
                1.
            Financial
                Statements (unaudited)Condensed
                Consolidated Balance Sheets - December 31, 2005
                and
                September 30, 2006
            3Condensed
                Consolidated Statements of Operations - For the
                Three and Nine months Ended September 30, 2005 and 2006
            4Condensed
                Consolidated Statement of Changes in Shareholders’
                Equity -
                For the Nine months Ended September 30, 2006
            5Condensed
                Consolidated Statements of Cash Flows - For
                the Nine months Ended September 30, 2005 and 2006
            6Notes
                to Condensed 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
            19Item
                5.
            Effect
                of New Accounting Pronouncements
            19**Part
                II.**
            **Other
                Information**
            20Item
                1A
            Risk
                Factors
            20Item
                6.
            Exhibits
            20Signatures
            21Exhibit
                Index
            22




2
 **Part
        I. FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





**FIRSTWAVE
      TECHNOLOGIES, INC.**


**Condensed
      Consolidated Balance Sheets**


**(in
      thousands)**





**December
                31,**
              **2005**
            
            **September
                30,**
              **2006****(unaudited)****ASSETS****Current
                assets****Cash
                and cash equivalents**
            
            $
            360
            
            $
            963**Accounts
                receivable, less allowance for doubtful accounts of $43 and $38,
                respectively**
            
            
            399
            
            
            317**Note
                receivable, current**
            
            
            300
            
            
            500**Prepaid
                expenses**
            
            
            475
            
            
            473**Total
                current assets**
            
            
            1,534
            
            
            2,253**Property
                and equipment, net**
            
            
            82
            
            
            55**Investment**
            
            
            50
            
            
            15**Software
                development costs, net**
            
            
            363
            
            
            —**Intangible
                assets**
            
            
            572
            
            
            450**Goodwill**
            
            
            593
            
            
            593**Note
                receivable**
            
            
            1,065
            
            
            558**Total
                assets**
            
            $
            4,259
            
            $
            3,924**LIABILITIES
                AND SHAREHOLDERS’
                EQUITY****Current
                liabilities****Accounts
                payable**
            
            $
            302
            
            $
            213**Deferred
                revenue**
            
            
            1,117
            
            
            750**Accrued
                employee compensation and benefits**
            
            
            99
            
            
            59**Dividends
                payable**
            
            
            46
            
            
            47**Other
                accrued liabilities**
            
            
            32
            
            
            22**Total
                current liabilities**
            
            
            1,596
            
            
            1,091**Shareholders’
                equity**
            
            
            2,663
            
            
            2,833**Total
                liabilities and shareholders’ equity**
            
            $
            4,259
            
            $
            3,924





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


3


**FIRSTWAVE
      TECHNOLOGIES, INC.**


**Condensed
      Consolidated Statements of Operations**


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


**(unaudited)**





**For
                the Three Months Ended**
            
            **For
                the Nine Months Ended****September
                30,**
              **2005**
            
            **September
                30,**
              **2006**
            
            **September
                30,**
              **2005**
            
            **September
                30,**
              **2006****Net
                Revenues****Software**
            
            $
            241
            
            $
            59
            
            $
            414
            
            $
            648**Services**
            
            
            199
            
            
            98
            
            
            576
            
            
            212**Maintenance**
            
            
            481
            
            
            420
            
            
            1,566
            
            
            1,274**Other**
            
            
            7
            
            
            6
            
            
            46
            
            
            6928
            
            
            583
            
            
            2,602
            
            
            2,140**Cost
                and Expenses****Cost
                of revenues****Software**
            
            
            199
            
            
            12
            
            
            614
            
            
            397**Services**
            
            
            155
            
            
            88
            
            
            561
            
            
            92**Maintenance**
            
            
            88
            
            
            113
            
            
            240
            
            
            470**Other**
            
            
            6
            
            
            6
            
            
            30
            
            
            6**Sales
                and marketing**
            
            
            93
            
            
            109
            
            
            435
            
            
            190**Product
                development**
            
            
            187
            
            
            74
            
            
            575
            
            
            224**General
                and administrative**
            
            
            349
            
            
            204
            
            
            1,125
            
            
            667**Goodwill
                Impairment**
            
            
            528
            
            
            —
            
            
            528
            
            
            —1,605
            
            
            605
            
            
            4,108
            
            
            2,045**Operating
                Income (loss)**
            
            
            (677
            )
            
            (22
            )
            
            (1,506
            )
            
            95**Gain
                (loss) on Investment**
            
            
            
            
            
            (51
            )
            
            —
            
            
            (51
            )**Interest
                income**
            
            
            20
            
            
            29
            
            
            87
            
            
            78**Income
                (loss) from continuing operations before income
                taxes**
            
            
            (657
            )
            
            (44
            )
            
            (1,419
            )
            
            122**Income
                taxes**
            
            
            —
            
            
            —
            
            
            —
            
            
            —**Income
                (loss) from continuing operations**
            
            
            (657
            )
            
            (44
            )
            
            (1,419
            )
            
            122**Income
                (loss) from discontinued operations**
            
            
            —
            
            
            —
            
            
            (457
            )
            
            —**Gain
                on sale of discontinued operations**
            
            
            —
            
            
            —
            
            
            327
            
            
            —**Net
                income (loss) from discontinued operations**
            
            
            —
            
            
            —
            
            
            (130
            )
            
            —**Net
                Income (loss)**
            
            
            (657
            )
            
            (44
            )
            
            (1,549
            )
            
            122**Dividends
                on preferred stock**
            
            
            (71
            )
            
            (70
            )
            
            (213
            )
            
            (212
            )**Net
                Income (loss) applicable to common shareholders**
            
            $
            (728
            )
            $
            (114
            )
            $
            (1,762
            )
            $
            (90
            )**Income
                (loss) per common share - Basic****Income
                (loss) from continuing operations**
            
            $
            (0.27
            )
            $
            (0.04
            )
            $
            (0.60
            )
            $
            (0.03
            )**Income
                (loss from discontinued operations**
            
            
            —
            
            
            —
            
            
            (0.05
            )
            
            —**Net
                income (loss) per common share- Basic**
            
            $
            (0.27
            )
            $
            (0.04
            )
            $
            (0.65
            )
            $
            (0.03
            )**Income
                (loss) per common share - Diluted****Income
                (loss) from continuing operations**
            
            $
            (0.27
            )
            $
            (0.04
            )
            $
            (0.60
            )
            $
            (0.03
            )**Income
                (loss) from discontinued operations**
            
            
            —
            
            
            —
            
            
            (0.05
            )
            
            —**Net
                Income (loss) per common share - Diluted**
            
            $
            (0.27
            )
            $
            (0.04
            )
            $
            (0.65
            )
            $
            (0.03
            )**Weighted
                average shares - Basic**
            
            
            2,729
            
            
            2,868
            
            
            2,704
            
            
            2,774**Weighted
                average shares - Diluted**
            
            
            2,729
            
            
            2,868
            
            
            2,704
            
            
            2,774





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


4


**FIRSTWAVE
      TECHNOLOGIES, INC.**


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


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


**(unaudited)**





**For
      the Nine Months Ended September 30, 2006**





****
            ****
            **Common
                Stock**
            ****
            **Preferred
                Stock**
            ****
            ****
            ****
            ****
            ****
            ****
            ****
            ****
            ****
            ****
            ********
            ****
            **Shares**
            ****
            **Amount**
            ****
            **Shares**
            ****
            **Amount**
            ****
            **Additional**
              **paid-in**
              **capital**
            ****
            **Comprehensive**
              **income**
            ****
            **Accumulated**
              **Other**
              **comprehensive**
              **loss**
            ****
            **Accumulated**
              **Deficit**
            ****
            **Total****Balance
                at December 31, 2005**
            
            
            2,729,135
            
            $
            13
            
            
            34,020
            
            $
            3,011
            
            $
            25,269
            
            
            
            
            $
            (16
            )
            $
            (25,614
            )
            $
            2,663**Exercise
                of common stock options**
            
            
            64,167
            
            
            
            
            
            
            
            
            
            
            
            95
            
            
            
            
            
            
            
            
            
            
            
            95**Issuance
                of common stock in exchange **for
                services rendered****
            
            
            65,000
            
            
            
            
            
            
            
            
            
            
            
            127
            
            
            
            
            
            
            
            
            
            
            
            127**Conversion
                of preferred stock**
            
            
            10,000
            
            
            
            
            
            (300
            )
            
            (30
            )
            
            30
            
            
            
            
            
            
            
            
            
            
            
            —**Dividends
                on preferred stock**
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (212
            )
            
            
            
            
            
            
            
            
            
            
            (212
            )**Stock
                option expense**
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            22
            
            
            
            
            
            
            
            
            
            
            
            22**Comprehensive
                income****Net
                income**
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            122
            
            
            
            
            
            122
            
            
            122**Unrealized
                loss on equity securities: available-for-sale**
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            —
            
            
            16
            
            
            
            
            
            16**Comprehensive
                income**
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            122**Balance
                at end of period**
            
            
            2,868,302
            
            $
            13
            
            
            33,720
            
            $
            2,981
            
            $
            25,331
            
            
            
            
            $
            —
            
            $
            (25,492
            )
            $
            2,833





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


5


**FIRSTWAVE
      TECHNOLOGIES, INC.**


**Condensed
      Consolidated Statements of Cash Flows**


**(in
      thousands)**


**(unaudited)**





**For
                the Nine Months Ended****September
                30,**
              **2005**
            
            **September
                30,**
              **2006****Cash
                flows provided by/(used in) operating activities**
            
            $
            (899
            )
            $
            719**Cash
                flows from investing activities****Purchases
                of property and equipment**
            
            
            (13
            )
            
            —**Sale
                of Sports Business**
            
            
            256
            
            
            —**Net
                cash provided by investing activities**
            
            
            243
            
            
            —**Cash
                flows from financing activities****Proceeds
                from options exercised**
            
            
            37
            
            
            95**Proceeds
                from issuance of common stock**
            
            
            —
            
            
            —**Payment
                of dividends on preferred stock**
            
            
            (125
            )
            
            (211
            )**Net
                cash used in financing activities**
            
            
            (88
            )
            
            (116
            )**Foreign
                currency translation adjustment**
            
            
            10
            
            
            —**Increase/(decrease)
                in cash and cash equivalents**
            
            
            (734
            )
            
            603**Cash
                and cash equivalents, beginning of period**
            
            
            1,286
            
            
            360**Cash
                and cash equivalents, end of period**
            
            $
            552
            
            $
            963**Supplemental
                disclosure of cash flow information****Cash
                paid for income taxes**
            
            $
            —
            
            $
            —**Cash
                paid for interest**
            
            $
            —
            
            $
            —**Supplemental
                disclosure of non-cash investing and financing activities****Issuance
                of common stock in exchange for services rendered**
            
            $
            —
            
            $
            127





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


6


**FIRSTWAVETECHNOLOGIES,
      INC.**


**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2006**


**(Unaudited)**





**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 demand
      generation, lead leakage and revenue retention solutions built on top of the
      Company’s suite of CRM (Customer Relationship Management) products. Firstwave’s
      solutions increase visibility throughout the sales cycle, keeping customer
      pipelines perpetually full of qualified leads, their prospects warm, and their
      customers loyal. With 20 years of sales management software, Firstwave’s modular
      internet marketing, sales lead and customer management solutions, customers
      achieve results at every opportunity. Firstwave supports several product lines:
      The Wave Series of Internet Based Products, Firstwave CRM (includes eCRM and
      v.10 products), Firstwave Technology and TakeControl.





***Basis
      of Presentation***


The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America for interim financial information and with the
      instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the
      condensed consolidated financial statements do not include all of the
      information and footnotes required by accounting principles generally accepted
      in the United States of America 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, 2005. In the opinion of
      management, all adjustments (consisting only of normal recurring adjustments)
      considered necessary for a fair presentation of the unaudited condensed
      consolidated financial statements have been included.





The
      condensed consolidated balance sheet at December 31, 2005 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 of America for complete
      financial statements.





On
      June
      3, 2005, Firstwave entered into a Stock Purchase Agreement (the “Agreement”)
      with AllAboutTickets LLC (the “Buyer”) now 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 condensed
      consolidated financial statements.





On
      October 10, 2005, the Company entered into a three-year OEM/Outsourcing
      Agreement with M1 Global Solutions, Inc. (“M1 Global”), 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 is a non-exclusive reseller
      of
      Firstwave products. Firstwave retains all maintenance revenues and pays M1
      Global a quarterly 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. In July of 2006, M1 Global Solutions, Inc. (“M1 Global”)
      and Firstwave made changes to its OEM/Outsourcing Agreement. The changes involve
      immaterial modifications to the parties’ relationship concerning the ongoing
      development, maintenance and support of Firstwave products, the quarterly
      payments from Firstwave in consideration of M1 providing support services to
      Firstwave’s customers, and the royalty payments from M1 Global to Firstwave.


7


On
      May 2,
      2006, the Company completed an IP Assignment Agreement for its .Net Integrated
      Development Environment (“IDE”) tool with Galactus Software. Under the
      Agreement, Galactus assumes ownership of the IDE tool, while Firstwave has
      the
      exclusive right to use and license the software in the CRM Market. The
      purchase price for the assignment was Five Hundred Thousand Dollars ($500,000)
      and, as directed by the agreement, was paid by cashier’s check on the Assignment
      Effective Date of May 2, 2006. Complete details of the agreement were filed
      with
      the Securities and Exchange Commission under Form 8-K on May 5, 2006.





On
      May
      31, 2006, Firstwave entered into an agreement with ListK that granted Firstwave
      the right to use ListK’s marketing lists, custom marketing list generation
      capabilities, and email delivery capabilities in exchange for a royalty and
      services prepayment of $97,500 payable in unregistered Firstwave common stock.
      Fifty thousand shares of common stock were issued representing the royalty
      payment, calculated on the closing price of Firstwave stock at May 31, 2006,
      the
      contract closing date. Future royalty and service payments to ListK will be
      made
      partially in cash and partially in additional unregistered stock after the
      initial prepayment has been applied to amounts due for royalties and services
      delivered. As of September 30, 2006 there were no other transactions with ListK
      that affected the royalty and service prepayments. Firstwave has no future
      performance commitments regarding the prepayment agreement.





The
      condensed 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 of America 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, investment(s) and intangible assets, and goodwill. Management
      bases its estimates on historical experience and on various other factors that
      are believed to be reasonable under the circumstances. All accounting estimates
      and the basis for these estimates are discussed among the Company’s senior
      management and members of the Audit Committee. Actual results could differ
      from
      those estimates.





***Critical
      Accounting Policies***


The
      Company believes that the following accounting policies are critical to
      understanding the condensed consolidated financial statements:


·
            Revenue
                Recognition


·
            Capitalization
                of Software Development Costs


·
            Valuation
                of Intangible Assets





**3.**  **Summary
      of Significant Accounting Policies**





***Revenue
      recognition***


The
      Company recognizes revenue, where applicable, 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 licenses 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. 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
      Statements of Operations.


8


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.





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.





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.





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.





***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 Statement of Financial
      Accounting Standards 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


There
      was
      no capitalized software development balance at September 30, 2006 due to
      year-to-date amortization expense and the assignment of the Net Integrated
      Development Environment Tool to Galactus in May 2006.





***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. The first phase screens for
      impairment, while the second phase (if necessary) measures the impairment.
      Goodwill and Other Intangible Assets were evaluated for impairment at the end
      of
      the third quarter of 2006 in accordance with SFAS 142 “Goodwill and Other
      Intangible Assets,” and it was determined there was no instance of impairment of
      recorded Goodwill or Other Intangible Assets.





***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.




**December
                    31, 2005**
                
                **September
                    30, 2006**Argos,
                    Ltd
                16.4%
                
                0.0%Barclaycard
                    IT
                10.0%
                
                0.0%CapGemini
                    UK
                14.2%
                
                0.0%M1
                    Global Solutions
                10.9%
                
                0.0%Manhattan
                    Associates
                0.0%
                
                22.4%Northrop
                    Grumman
                0.17%
                
                0.0%




***Significant
      Customers***


For
        the
        nine months ended September 30, 2005, 2 of our customers contributed more
        than
        10% of total revenue, and for the nine months ended September 30, 2006, one
        customer, Galactus, contributed 19.2% of total revenues.
 
 ***Basic
        and diluted net income (loss) per common share***
 Basic
        net
        income (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 income (loss) applicable to common shareholders
        includes a charge for dividends related to the Company’s outstanding preferred
        stock.
  The
        potentially dilutive common shares relate to options granted under the Company’s
        stock compensation plans and convertible preferred shares. The Company has
        excluded all outstanding stock options to purchase common stock from the
        calculation of diluted earnings per share at September 30, 2006 and at September
        30, 2005 because all such securities are antidilutive.
 
 Preferred
        shares convertible to shares of common stock outstanding but not included
        in the
        computation of diluted EPS were 898,000 for the three and nine month period
        ending September 30, 2005 and 815,000 for the three and nine month period
        ending
        September 30, 2006.
 10
 Shown
        below is a reconciliation of the numerators and denominators of the basic
        and
        diluted income (loss) per share computations. (in thousands, except per share
        data):




**For
                  the Three Months Ended**
                **September
                  30, 2006**
              
              **For
                  the Nine Months Ended**
                **September
                  30, 2006****Income**
                **(Numerator)**
              
              **Shares**
                **(Denominator)**
              
              **Per
                  Share**
                **Amount**
              
              **Income**
                **(Numerator)**
              
              **Shares**
                **(Denominator)**
              
              **Per
                  Share**
                **Amount**Net
                  income(loss)
              
              $
              (44
              )
              
              
              
              
              
              
              $
              122Less:
                  Preferred Stock Dividends
              
              
              (70
              )
              
              
              
              
              
              
              
              (212
              )**Basic
                  EPS**Loss
                  applicable to common shareholders
              
              $
              (114
              )
              
              2,868
              
              $
              (0.04
              )
              $
              (90
              )
              
              2,774
              
              $
              (0.03
              )**Effect
                  of Anti-Dilutive Securities**Convertible
                  Preferred Stock
              
              
              71
              
              
              815
              
              
              
              
              
              142
              
              
              815Stock
                  Options
              
              
              
              
              
              27
              
              
              
              
              
              
              
              
              27**Diluted
                  EPS**Loss
                  applicable to common shareholders
              
              $
              (114
              )
              
              2,868
              
              $
              (0.04
              )
              $
              (90
              )
              
              2,774
              
              $
              (0.03
              )
   **For
                    the Three Months Ended**
                  **September
                    30, 2005**
                
                **For
                    the Nine Months Ended**
                  **September
                    30, 2005****Income**
                  **(Numerator)**
                
                **Shares**
                  **(Denominator)**
                
                **Per
                    Share**
                  **Amount**
                
                **Loss**
                  **(Numerator)**
                
                **Shares**
                  **(Denominator)**
                
                **Per
                    Share**
                  **Amount**Net
                    loss
                
                $
                (142
                )
                
                
                
                
                
                
                $
                (1,549
                )Less:
                    Preferred Stock Dividends
                
                
                (71
                )
                
                
                
                
                
                
                
                (213
                )**Basic
                    EPS**Loss
                    applicable to common shareholders
                
                $
                (213
                )
                
                2,710
                
                $
                (0.08
                )
                $
                (1,762
                )
                
                2,698
                
                $
                (0.65
                )**Effect
                    of Anti-Dilutive Securities**Warrants
                
                
                
                
                
                19
                
                
                
                
                
                
                
                
                19Convertible
                    Preferred Stock
                
                
                71
                
                
                898
                
                
                
                
                
                142
                
                
                898Stock
                    Options
                
                
                
                
                
                242
                
                
                
                
                
                
                
                
                24271
                
                
                1,159
                
                
                
                
                
                142
                
                
                1,159**Diluted
                    EPS**Loss
                    applicable to common shareholders
                
                $
                (213
                )
                
                2,710
                
                $
                (0.08
                )
                $
                (1,762
                )
                
                2,698
                
                $
                (0.65
                )
  ***Impairment
          of long-lived assets***
 The
          Company evaluates impairment of long-lived assets whenever events or changes
          in
          circumstances indicate that the carrying amount of such assets may not
          be
          recoverable. If the sum of the expected future undiscounted cash flows
          is less
          than the carrying amount of the asset, an impairment loss would be recognized.
          Measurement of an impairment loss for long-lived assets would be based
          on the
          fair value of the asset.
 
 ***Segment
          reporting***
 Management
          believes that the Company has only a single segment consisting of software
          sales
          with related services and support. The information presented in the condensed
          consolidated statement of operations reflects the revenues and costs associated
          with this segment that management uses to make operating decisions and
          assess
          performance.
 
 ***Cash
          and Cash Equivalents***
 Cash
          and
          cash equivalents include amounts on deposit with financial institutions
          and
          money market investments with original maturities of less than ninety
          days.
 
 11
 **4.**  **Discontinued
          Operations**
 
 On
          June
          3, 2005, Firstwave entered into the Stock Purchase Agreement with
          AllAboutTickets LLC (“Buyer”), now doing business as First Sports International,
          as described in 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 condensed 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. The Company had previously prepaid $338,000
          of
          royalties to a third party, the benefit of which was sold in the transaction
          and
          included in the purchase price. The buyer is paying the company for the
          use of
          such prepaid royalties as software revenue is achieved by the buyer.
 
 As
          of
          September 30, 2006, the remaining balance of the promissory note is $1,175,000
          and is payable in installments. The short-term portion of the note, $500,000,
          is
          payable prior to June 30, 2007, and has been classified as a current asset
          on
          the Balance Sheet. The long-term portion of the note, $675,000, 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 against the final payment
          due
          on the note. 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 2006, $116,000 was amortized, resulting
          in
          a balance of $117,000 in unamortized discount as of September 30, 2006.
          As of
          September 30, 2006, the receivable from the buyer relating to the prepaid
          royalty balance sold was $238,000.
 
 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. There was no activity from discontinued operations
          for the
          first nine months ended September 30, 2006 and a loss of $457,000 for the
          nine
          months ended September 30, 2005. As a result of the sale of the UK Subsidiary,
          the Company recognized a pre-tax gain of $327,000 in the second quarter
          of
          2005.
 
 **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, the first phase screens for
          impairment, while the second phase (if necessary) measures the impairment.
 
 As
          of
          September 30, 2006, the Company had $450,000 of Intangible Assets and $593,000
          of Goodwill as a result of acquisitions in 1998 and 2003, after subsequent
          amortization expense and impairment charges. Goodwill and Other Intangible
          Assets were evaluated for impairment at the end of the third quarter of
          2006 in
          accordance with SFAS 142 “Goodwill and Other Intangible Assets,” and it was
          determined there was no instance of impairment of recorded Goodwill or
          Other
          Intangible Assets.
  The
          weighted average amortization period for the intangible assets with finite
          useful 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.
 12
 The
          following table presents details of intangible assets with finite lives
          (in
          thousands):


**December
                    31, 2005**
                
                **September
                    30, 2006****Gross
                    carrying**
                  **amount**
                
                **Accumulated**
                  **amortization**
                
                **Gross
                    carrying**
                  **amount**
                
                **Accumulated**
                  **amortization**Amortizable
                    intangible assetsConnect-Care
                    Technology
                
                $
                300
                
                $
                275
                
                $
                300
                
                $
                300Connect-Care
                    Customer Relationships
                
                
                900
                
                
                354
                
                
                900
                
                
                450Total
                
                $
                1,200
                
                $
                629
                
                $
                1,200
                
                $
                750Aggregrate
                    Amortization ExpenseFor
                    the Nine months ended September 30, 2006
                
                $
                121Estimated
                    Amortization ExpenseFor
                    the three months ended December 31, 2006
                
                $
                33For
                    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. Stock-Based
        Compensation**
  ***Stock
        Incentive Plan***
 In
        May
        2005 the shareholders of Firstwave Technologies, Inc. approved the Company’s
        2005 Stock incentive Plan which provides for the granting of options and
        other
        types of awards for shares of our Company’s common stock for the Company’s
        employees, directors, advisors and consultants. There was an aggregate of
        428,258 shares remaining available for issuance under the Company’s stock
        incentive plan at September 30, 2006. Stock options granted to date generally
        have had an exercise price per share equal to the closing market value per
        share
        of the common stock on the day before the grant and expire in ten years from
        the
        date of grant. Some of these options become exercisable in annual increments
        over a four-year period beginning one year from the grant date while others
        became immediately exercisable upon their grant.
  ***Accounting
        for Share-Based Compensation***
 Effective
        January 1, 2006, we adopted Statement of Financial Accounting Standards No.
        123(R) (“SFAS 123(R)”), which requires the measurement of compensation expense
        for all share-based awards made to employees and directors based on estimated
        fair values on the date of grant and recognition of compensation expense
        over
        the expected vesting period. We adopted SFAS 123(R) using the modified
        prospective transition method, and accordingly, prior period results have
        not
        been restated. Under the transition method, compensation cost recognized
        on or
        after January 1, 2006 includes: (a) compensation cost for all share-based
        awards
        granted prior to, but not yet vested as of January 1, 2006, based on the
        grant
        date fair value estimated in accordance with the original provisions of SFAS
        123, and (b) compensation cost for all share-based awards granted on or after
        January 1, 2006, based on the grant date fair value estimated in accordance
        with
        SFAS 123(R). No stock-based compensation expense related to stock options
        was
        recognized in the Statement of Operations for options granted during periods
        prior to January 1, 2006, as all stock options granted prior to such date
        were
        fully vested as of December 31, 2005. The Company did not grant any stock
        options during the three months ended March 31, 2006. Based on the above,
        in
        accordance with SFAS 123(R), no compensation expense was recorded in the
        three
        months ended March 31, 2006. During the three months ended September 30,
        2006,
        the Company granted 152,500 stock options, resulting in option compensation
        expense of $291,000 over the vesting period of the options of which $20,000
        was
        recorded during the three months ended September 30, 2006. For the nine months
        ended September 30, 2006, the company granted a total of 174,500 stock options,
        resulting in option compensation expense of $330,000 over the vesting period
        of
        the options, of which $22,000 was recorded during the nine months ending
        September 30, 2006. The recorded compensation expense did not have an impact
        on
        basic or diluted earnings per share for the nine and three months ended
        September 30, 2006. The Company does not anticipate the recognition of
        compensation expense under SFAS 123R in future periods for options currently
        outstanding to have a material impact on its results of operation or financial
        position.
 
 The
        fair
        value of each option award is estimated on the date of grant using the
        Black-Scholes option pricing model. Expected volatility of 120.56%, an interest
        rate at date of grant of 5.10%, and an expected life of 6 years were used
        for
        calculating the fair value of the options granted during the three months
        ended
        September 30, 2006.
 
 Effective
        January 1, 2006, expected volatilities are based on historical volatility
        of our
        stock. We also use historical data to estimate the term that options are
        expected to be outstanding and the forfeiture rate of options granted. The
        interest rate is based on the U.S. Treasury rates. Using these assumptions,
        the
        weighted average fair value of the stock options granted during the three
        months
        ended September 30, 2006 is $1.76. The total value of the award is expensed
        on a
        straight line basis over the vesting period. As of September 30, 2006,
        unrecognized compensation cost related to unvested stock option awards totaled
        $292,613 and is expected to be recognized over a weighted average period
        of 4
        years.
 
 On
        November 10, 2005, the Financial Accounting Standards Board (“FASB”) issued FASB
        Staff Position No FAS 123(R)-3 (“FSP 123(R)-3”), Transition Election Related to
        Accounting for Tax Effects of Share-Based Payment Awards. We have adopted
        the
        transition method provided in FSP 123(R)-3 for calculating the tax effects
        of
        stock-based compensation expense. We use the “with and without” approach, which
        compares the actual income taxes payable for the period to the amount of
        tax
        payable that would have been incurred absent the deduction for employee
        share-based awards in excess of the amount of compensation expense recognized
        for financial reporting. As a result of this approach, tax net operating
        loss
        carryforwards not generated from share-based awards in excess of expense
        recognized for financial reporting are considered utilized before the current
        period’s share-based compensation expense deduction. As a result of this
        accounting treatment, no tax expense was recorded during the three months
        ended
        September 30, 2006. Stock compensation expense reduced income before income
        taxes by $20,000 and is recorded directly to Additional Paid in Capital.
        After
        all tax net loss carryforwards are utilized, we will incur an income tax
        benefit
        which will be credited to equity.
 13
 For
        periods prior to January 1, 2006, SFAS 123 required disclosure of the pro
        forma amount of net income and per share amounts including the amount of
        fair
        value based compensation expense that would have been recognized in those
        periods had compensation expense been recorded. The following table includes
        the
        impact on net income and per share amounts for the nine and three months
        ended
        September 30, 2005 had the Company recognized fair value compensation costs
        for
        the period:
  **For
                    the Nine Months Ended**
                
                **For
                    the Three Months Ended****September,
                    2005**
                
                **September,
                    2005****(unaudited)**
                
                **(unaudited)**Net
                    loss applicable to common shareholders, as reported
                
                $
                (1,034
                )
                $
                (213
                )Stock
                    based employee compensation, net of related tax effects under
                    the fair
                    value based method
                
                
                542
                
                
                522Net
                    loss applicable to common shareholders, as adjusted
                
                $
                (1,576
                )
                $
                (735
                )Loss
                    per share:Basic
                    - as reported
                
                $
                (0.38
                )
                $
                (0.08
                )Basic
                    - as adjusted
                
                $
                (0.58
                )
                $
                (0.27
                )Diluted
                    - as reported
                
                $
                (0.38
                )
                $
                (0.08
                )Diluted
                    - as adjusted
                
                $
                (0.58
                )
                $
                (0.27
                )Weighted
                    average common shares outstanding
                
                
                2,698,000
                
                
                2,710,000
  ***Stock
          Options***
 The
          following table summarizes the activity with respect to the stock options
          of the
          Company for the nine months ended September 30, 2006.
 Number
                    of Shares
                
                Exercised
                    Price Per ShareOutstanding
                    at December 31, 2005
                333,586
                
                $1.47
                    - $16.50Granted
                182,000
                
                $1.95
                    - $2.18Exercised
                (64,167)
                
                $1.32
                    - $1.71ForfeitedExpired
                (9,917)
                
                $1.51
                    - $2.16Outstanding
                    at September 30, 2006
                441,502
                
                $1.47
                    - $16.50


**7.**  **Related
        Party Transactions** ****
 
 The
        former President and COO of the Company, who resigned from the Company on
        March
        22, 2005, invested $30,000 in Series D Convertible Preferred Stock in June
        of
        2004. In addition, he is the General Manager of First Sports, the buyer of
        the
        Company’s UK Subsidiary as detailed above in Item 1, Basis of Presentation. On
        May 1, 2006, Mr. Simmons converted his Series D Convertible Preferred Stock
        into 10,000 shares of the Company’s common stock; therefore, there were no
        dividends paid to Mr. Simmons in the third quarter of 2006. For the nine
        months ended September 30, 2006, $1,475.00 in dividends were paid to
        Mr. Simmons.
 14
 The
        Chairman and CEO of the Company earned $50,625 in the third quarter of 2006
        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. **** For
        the
        nine months ended September 30, 2006, $151,875.00 in dividends were earned
        by
        the Chairman and CEO of the Company. ****
 
 **8.** **Income
        Taxes**
 
 During
        the third quarter of 2006, the Company made no tax provision for income tax
        expense due to its tax net loss carryforwards which were fully reserved at
        December 31, 2005. The Company has U.S. net operating loss carryforwards
        of
        approximately $27,000,000 which expire in years 2009 through 2019.
 
 **10.** **Recent
        Accounting Pronouncements**
  In
        June
        2006, the Financial Accounting Standards Board (“FASB”) issued Financial
        Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes — an
        Interpretation of FASB Statement No. 109.” FIN 48 addresses the accounting for
        uncertainty in income taxes recognized in an enterprise’s financial statements
        in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48
        prescribes specific criteria for the financial statement recognition and
        measurement of the tax effects of a position taken or expected to be taken
        in a
        tax return. This interpretation also provides guidance on derecognition of
        previously recognized tax benefits, classification of tax liabilities on
        the
        balance sheet, recording interest and penalties on tax underpayments, accounting
        in interim periods, and disclosure requirements. FIN 48 is effective for
        fiscal
        periods beginning after December 15, 2006. The Company is currently assessing
        the impact, if any, that the adoption of FIN 48 will have on its financial
        statements.
 15
 **Item
        2. Management’s Discussion 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, 2005. 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, 2005 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 demand
        generation, lead leakage and revenue retention solutions built on top of
        the
        Company’s suite of CRM (Customer Relationship Management) products. Firstwave’s
        solutions increase visibility throughout the sales cycle, keeping customer
        pipelines perpetually full of qualified leads, their prospects warm, and
        their
        customers loyal. With 20 years of sales management software, Firstwave’s modular
        internet marketing, sales lead and customer management solutions, customers
        achieve results at every opportunity. Firstwave supports several product
        lines:
        The Wave Series of Internet Based Products, Firstwave CRM (includes eCRM
        and
        v.10 products), Firstwave Technology and TakeControl.
 
 On
        October 10, 2005, the Company entered into a three-year OEM/Outsourcing
        Agreement and a licensing agreement with M1 Global Solutions, Inc. (“M1
        Global”), an Atlanta-based technology company. Under the terms of the
        agreements, 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 is a non-exclusive reseller of Firstwave products.
        Firstwave retains all maintenance revenues. In July of 2006, M1 Global
        Solutions, Inc. (“M1 Global”) and Firstwave made changes to its OEM/Outsourcing
        Agreement. The changes involve immaterial modifications to the parties’
relationship concerning the ongoing development, maintenance and support
        of
        Firstwave products, the quarterly payments from Firstwave in consideration
        of M1
        providing support services to Firstwave’s customers, and the royalty payments
        from M1 Global to Firstwave. Firstwave paid to M1 Global $154,315 in each
        of the
        first and second quarters of 2006, and $92,149 in the third quarter of 2006,
        in
        consideration for M1 Global providing support services to Firstwave customers.
 
 On
        May 2,
        2006, the Company completed an IP Assignment Agreement for its .Net Integrated
        Development Environment (“IDE”) tool with Galactus Software, an application
        platform conversion company. Under the Agreement, Galactus assumes ownership
        of
        the IDE tool, while Firstwave has the exclusive right to use and license
        the
        software in the CRM Market. The
        purchase price for the assignment was Five Hundred Thousand Dollars ($500,000)
        and, as directed by the agreement, was paid by cashier’s check on the Assignment
        Effective Date of May 2, 2006. Complete details of the agreement were filed
        with
        the Securities and Exchange Commission under Form 8K on May 5, 2006.
  **Results
        of Continuing Operations**
 
 On
        June
        3, 2005, Firstwave entered into a Stock Purchase Agreement (the “Agreement”)
        with AllAboutTickets LLC doing business as First Sports International (“First
        Sports”). Under the terms of the Agreement, the Company sold to First Sports all
        of the issued share capital of Firstwave Technologies UK, Ltd., a subsidiary
        of
        the Company. The total purchase price for the shares of stock was $2,214,000,
        of
        which $256,000 was paid at closing, $1,620,000 is being paid pursuant to
        a
        promissory note and $338,000 is paid as software revenues are achieved to
        reimburse the Company for certain prepaid royalties. 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 and Results of
        Operations compares the Company’s results from continuing operations.
 
 Total
        revenues decreased 37.2% from $928,000 in the third quarter of 2005 to $583,000
        in the third quarter of 2006 due to decreases in all revenue lines. For the
        nine
        months ended September 30, 2006 total revenues decreased 17.8% to $2,140,000
        from $2,602,000 for the nine months ended September 30, 2005, due to decreases
        in services and maintenance revenues offset by an increase in software
        revenues.
 16
 Software
        revenues decreased 75.5% from $241,000 in the third quarter of 2005 to $59,000
        in the third quarter of 2006 due to fewer software license agreements closed
        during the third quarter of 2006. For the nine months ended September 30,
        2006,
        software revenues increased 56.5% to 648,000 from $414,000 for the nine months
        ended September 30, 2005, due to a one-time transaction of $500,000 in software
        license revenues in the second quarter of 2006. Our software revenues remain
        significantly dependent upon the size and timing of closing of license
        agreements.
 
 Services
        revenues decreased 50.8% from $199,000 in the third quarter of 2005 to $98,000
        in the third quarter of 2006. For the nine months ended September 30, 2006,
        services revenues decreased 63.2% to $212,000 from $576,000 for the nine
        months
        ended September 30, 2005. These decreases are primarily the result of our
        outsourcing agreement with M1 Global and a focus on existing CRM customers
        while
        the M1 Global product is in development. 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 12.7% from $481,000 during the third quarter of 2005 to
        $420,000 in the third quarter of 2006. For the nine months ended September
        30,
        2006, maintenance revenues decreased 18.6% to $1,274,000 from $1,566,000
        for the
        nine months ended September 30, 2005. Maintenance revenues are the result
        of
        renewal agreements from previous software license sales as well as new license
        agreements. The decreases were due to reduced renewals of maintenance agreements
        from existing customers and reduced new software licenses.
 
 Cost
        of
        software revenues decreased 94.1% from $199,000 in the third quarter of 2005
        to
        $12,000 in the third quarter of 2006 and for the nine months ended September
        30,
        2006 decreased 35.3% to $397,000 from $614,000 for the nine months ended
        September 30, 2005. Cost of software revenues includes amortization of
        capitalized software costs, costs of third party software, media costs, and
        documentation materials. These decreases are due to a lower amortization
        expense
        related to three product lines being fully amortized in 2005. Cost of software
        as a percentage of software revenues decreased from 82.6% in the third quarter
        of 2005 to 20.3% in the third quarter of 2006. The decrease relates to a
        decrease in amortization expense relating to the amortization of software
        development costs (see Note 3 to the unaudited condensed consolidated financial
        statements).
 
 Cost
        of
        revenues for services decreased 43.2% from $155,000 in the third quarter
        of 2005
        to $88,000 in the third quarter of 2006 and for the nine months ended September
        30, 2006 decreased 83.6% to $92,000 from $561,000 for the nine months ended
        September 30, 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, as a result of the outsourcing
        agreement with M1 Global whereby M1 is providing the services to customers.
        The
        cost of revenues for services as a percentage of services revenues increased
        from 77.9% in the third quarter of 2005 to 89.8% in the third quarter of
        2006.
 
 Cost
        of
        revenues for maintenance increased 28.4% from $88,000 in the third quarter
        of
        2005 to $113,000 in the third quarter of 2006, and for the nine months ended
        September 30, 2006 increased 95.8% to $470,000 from $240,000 for the nine
        months
        ended September 30, 2005. The increase is the result of quarterly fees paid
        to
        M1 Global under the outsourcing arrangement for the support of our domestic
        customers, and the fees paid to First Sports for the support of our U.K.
        CRM
        customers. The cost of revenues for maintenance as a percentage of maintenance
        revenue increased from 18.3% in the third quarter of 2005 to 26.9% in the
        third
        quarter of 2006.
 
 Sales
        and
        marketing expense increased 17.2% from $93,000 in the third quarter of 2005
        to
        $109,000 in the third quarter of 2006. This increase is due to added sales
        and
        marketing activity in the third quarter. For the nine months ended September
        30,
        2006, decreased 56.3% to $190,000 from $435,000 for the nine months ended
        September 30, 2005. The decrease is a result of decreases in payroll expenses
        associated with a reduction in the number of personnel, personnel costs,
        and
        telemarketing costs, as a result of the outsourcing agreement with M1 Global.
 
 The
        Company’s product innovation and development expenditures decreased 60.4% from
        $187,000 in the third quarter of 2005 to $74,000 in the third quarter of
        2006
        and for the nine months ended September 30, 2006 decreased 61.0% to $224,000
        from $575,000 for the nine months ended September 30, 2005. The decreases
        are
        primarily related to decreases in payroll costs associated with staff
        reductions, and reductions associated with fewer outside contractors. No
        development costs have been capitalized during 2005 or 2006.
 17
 General
        and administrative expenses decreased 41.5% from $349,000 in the third quarter
        of 2005 to $204,000 in the third quarter of 2006 and for the nine months
        ended
        September 30, 2006, decreased 40.7% from $1,125,000 in 2005 to $667,000 in
        2006.
        These changes were primarily due to reduced payroll costs associated with
        a
        reduction in personnel and decreased rent expense. As a result of our
        relationship with M1 Global, we anticipate that general and administrative
        expense will continue at these decreased levels as a result of the reduced
        cost
        related to staffing and overhead.
 
 There
        was
        no loss from discontinued operations for the three months ended September
        30,
        2005 and for the nine months ended September 30, 2005 the loss from discontinued
        operations was $130,000. There was no activity from discontinued operations
        during the three and nine months ended September 30, 2006.
 
 Dividends
        on preferred stock were $71,000 for the three months ended September 30,
        2005,
        and $70,000 for the three months ended September 30, 2006, and for the nine
        months ended September 30, 2005, dividends were $213,000 and $212,000 for
        the
        nine months ended September 30, 2006.
 
 The
        above
        factors combined to result in a net loss applicable to common shareholders
        of
        $114,000 in the third quarter of 2006 compared to a net loss applicable to
        common shareholders of $728,000 in the third quarter of 2005. Net loss per
        basic
        and diluted share was $0.04 for third quarter of 2006 compared to a net loss
        per
        basic and diluted share of $0.27 for the third quarter of 2005. For the nine
        months ended September 30, 2006, the net loss applicable to common shareholders
        was $90,000, or $0.03 per basic and diluted share, compared to a net loss
        of
        $1,762,000, or $0.65 per basic and diluted share for the nine months ended
        September 30, 2005. For the three months ended September 30, 2006, the number
        of
        basic and diluted weighted average shares outstanding was 2,868,000 compared
        to
        2,729,000 basic and diluted outstanding shares for the three months ended
        September 30, 2005. For the nine months ended September 30, 2006 the number
        of
        basic and diluted weighted average shares outstanding was 2,774,000.
 
 **Balance
        Sheet**
 Cash
        and
        cash equivalents of $963,000 at September 30, 2006 increased 167.5% from
        the
        cash and cash equivalents balance of $360,000 at December 31, 2005. The increase
        is primarily due to the elimination of certain expenses as a result of the
        outsourcing agreement with M1 Global, the cash received from FSI of $300,000
        in
        June of 2006 as payment on the note receivable, and the $500,000 cash received
        from the closing of the Galactus agreement in the second quarter of 2006.
 
 Net
        accounts receivable decreased 20.6% from $399,000 at December 31, 2005 to
        $317,000 at September 30, 2006, primarily due to lower software license and
        services revenues invoiced and outstanding as of September 30, 2006. Prepaid
        expenses decreased slightly from $475,000 at December 31, 2005 to $473,000
        at
        September 30, 2006. Property and equipment, net decreased 32.9% from $82,000
        at
        December 31, 2005 to $55,000 at September 30, 2006 as a result of year-to-date
        depreciation. Capitalized software development costs were $363,000 at December
        31, 2005 while there was no capitalized software development balance at
        September 30, 2006 due to year-to-date amortization expense and the assignment
        of the Net Integrated Development Environment Tool to Galactus. Intangible
        assets decreased 21.3% from $572,000 at December 31, 2005 to $450,000 at
        September 30, 2006 due to year-to-date amortization expense.
 
 As
        a
        result of the sale in 2005 of the Company’s UK Subsidiary, a note receivable in
        the amount of $1,620,000 was received. At September 30, 2006 the portion
        of the
        note payable due prior to June 30, 2007 was $500,000 and is recorded as a
        current asset on the Balance Sheet. The long-term portion of the note is
        $675,000, payable in installments, and is recorded as a non-current asset
        on the
        Balance Sheet. During the third quarter of 2006, FSI paid $19,299 to Firstwave
        against its prepaid royalties. No payments were due from FSI against the
        note
        receivable during the three months ended September 30, of 2006. Total payments
        against the note receivable since the effective date are $673,615. 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 2006, $116,000 has been amortized, resulting in a balance
        of $117,000 in unamortized discount as of September 30, 2006.
  Accounts
        payable decreased 29.5% from $302,000 at December 31, 2005 to $213,000 at
        September 30, 2006 due to payment of the majority of aged accounts payable
        prior
        to September 30, 2006. **** Deferred
        revenue decreased 32.9% from $1,117,000 at December 31, 2005 to $750,000
        at
        September 30, 2006 due to reductions in and the timing of billing for annual
        maintenance renewals. Accrued employee compensation and benefits decreased
        40.4%
        from $99,000 at December 31, 2005 to $59,000 at September 30, 2006, primarily
        as
        a result of the elimination of staff salary accruals relating to the decrease
        in
        the number of personnel. Other accrued liabilities decreased 31.3% from $32,000
        at December 31, 2005 to $22,000 at September 30, 2006 due to the lower sales
        tax
        payable.
 18
 **Liquidity
        and Capital Resources**
 
 Cash
        and
        cash equivalents of $963,000 at September 30, 2006 increased 167.5% from
        the
        cash and cash equivalents balance of $360,000 at December 31, 2005. The increase
        is primarily due to the elimination of certain expenses as a result of the
        outsourcing agreement with M1 Global, the cash received from FSI of $300,000
        in
        June of 2006 as payment on the note receivable, and the $500,000 cash received
        from the closing of the Galactus agreement in the second quarter of 2006.
        The
        Company carries no debt.
 
 Our
        future capital requirements will depend on many factors, including our ability
        to generate positive cash flows, to collect the note receivable from First
        Sports, to realize royalty revenues from the M1 Global relationship, to retain
        our maintenance revenues from existing customers, to control expenses, and
        to
        generate additional revenues from other sources. Any projections of future
        cash
        needs and cash flows are subject to substantial uncertainty. 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 (“Buyer”), now doing business as First Sports International,
        that is detailed under Note 1, Basis of Presentation, to the unaudited condensed
        consolidated financial statements. 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 condensed consolidated financial
        statements.
 
 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. The Company
        had previously prepaid $338,000 of royalties to a third party, the benefit
        of
        which was sold in the transaction and included in the purchase price. The
        buyer
        is paying the company for the use of such prepaid royalties as software revenue
        is achieved by the buyer.
 
 **Item
        3.Quantitative and Qualitative Disclosures About Market
        Risk**
  The
        Company is subject to market risk exposures of varying correlations and
        volatilities, primarily relating to interest rate risk. 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.** **Controls
        and Procedures**
 
 Based
        on
        the 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, Chief Executive Officer and Principal Financial Officer
        believes 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.
  **Item
        5.Effect of New Accounting
        Pronouncements**
 
 In
        December 2004, the Financial Accounting Standards Board issued Statement
        of
        Financial Accounting Standards (“SFAS”) No. 123 (revised 2004),
“Share-Based Payment,” (SFAS No. 123(R)), which became effective
        January 1, 2006 for the Company. See Note 6 for the impact on the
        Company’s consolidated financial statements from the adoption of SFAS
        No. 123(R).
 19
 **PART
        II.OTHER INFORMATION**
  Item
        1A.Risk
        Factors
 There
        were no material changes to the risk factors disclosed in the Company’s Form 10K
        for the year ended December 31, 2005 as filed with the Securities and Exchange
        Commission..
 
 Item
        6.  Exhibits
 The Exhibits to this Report on Form 10Q are listed in the accompanying Exhibit
        Index .
 20
 **SIGNATURE**
 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.(Registrant)Date:
                November 14, 2006
              
              /s/
                Richard T. BrockRichard
                  T. Brock
                Chief
                  Executive Officer and
                Principal
                  Accounting Officer
 21
 EXHIBIT
          INDEX
 
 Exhibit
                    Number
                
                DescriptionExhibit
                    31.1
                
                Certification
                    of Periodic Report by theChief
                    Executive Officer and Principal Financial Officerpursuant 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.
        22