UNITED
        STATES
 SECURITIES
        AND EXCHANGE COMMISSION
 Washington,
        DC 20549
 
 FORM
        10-Q
   QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE
        SECURITIES EXCHANGE ACT OF 1934
 
 FOR
        THE
        QUARTER ENDED June 30, 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 __
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer.
  Large accelerated filer __
              Accelerated filer __
              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
        __  No **X**
 
 Indicate
        the number of shares outstanding of each of the issuer’s classes of common
        stock, as of the latest practicable date.
 
 Outstanding
        as of August 11, 2006:
 
 Common
        Stock, no par value  2,868,302
        shares
  
 **FIRSTWAVE
        TECHNOLOGIES, INC.**
 
 **FORM
        10-Q**
 
 **For
        the quarter ended June 30, 2006**
  **Index**
  Page
                  No.**Part
                I.**
              **Financial
                Information**Item 1.
              Financial StatementsCondensed Consolidated Balance Sheets - December
                  31,
                  2005and (unaudited) June 30, 2006
              3Condensed
                  Consolidated Statements of Operations (unaudited) - Forthe
                  Three and Six Months Ended June 30, 2005 and 2006
              4Condensed Consolidated Statement of Changes
                  in
                  Shareholders' Equity(unaudited)
                  - For the Six Months Ended June 30, 2006
              5Condensed
                  Consolidated Statements of Cash Flows (unaudited) -For
                  the Six Months Ended June 30, 2005 and 2006
              6Notes to Condensed Consolidated Financial
                  Statements
              7Item 2.
              Management's Discussion and Analysis
                  ofFinancial
                  Condition and Results of Operations
              15Item 3.
              Quantitative and Qualitative Disclosures about
                  Market
                  Risk
              18Item 4.
              Controls and Procedures
              18**Part II.**
              **Other Information**
              19Item 1A
              Risk Factors
              19Item 2.
              Unregistered Sales of Equity Securities
              19Item 4.
              Submission of Matters to a Vote of Security
                  Holders
              19Item 6.
              Exhibits
              21Signatures
              
              21Exhibit Index
              
              22







2





**Part
      I. FINANCIAL INFORMATION**





**Item
      1. Financial Statements**




**FIRSTWAVE
                  TECHNOLOGIES, INC.****Condensed
                  Consolidated Balance Sheets (unaudited)****(in
                  thousands)****December
                  31,**
              
              **June
                  30,****2005**
              
              **2006****ASSETS****Current
                  assets****Cash
                  and cash equivalents**
              
              
              
              
              $
              360
              
              $
              916**Accounts
                  receivable, less allowance for****doubtful
                  accounts of $43 and $31, respectively**
              
              
              
              
              
              399
              
              
              253**Note
                  receivable, current**
              
              
              
              
              
              300
              
              
              500**Prepaid
                  expenses**
              
              
              
              
              
              475
              
              
              616**Total
                  current assets**
              
              
              
              
              
              1,534
              
              
              2,285**Property
                  and equipment, net**
              
              
              
              
              
              82
              
              
              60**Investments**
              
              
              
              
              
              50
              
              
              17**Software
                  development costs, net**
              
              
              
              
              
              363
              
              
              -**Intangible
                  assets**
              
              
              
              
              
              572
              
              
              482**Goodwill**
              
              
              
              
              
              593
              
              
              593**Note
                  receivable**
              
              
              
              
              
              1,065
              
              
              537**Total
                  assets**
              
              
              
              
              $
              4,259
              
              $
              3,974**LIABILITIES
                  AND SHAREHOLDERS' EQUITY****Current
                  liabilities****Accounts
                  payable**
              
              
              
              
              $
              302
              
              $
              49**Deferred
                  revenue**
              
              
              
              
              
              1,117
              
              
              911**Accrued
                  employee compensation and benefits**
              
              
              
              
              
              99
              
              
              45**Dividends
                  payable**
              
              
              
              
              
              46
              
              
              46**Other
                  accrued liabilities**
              
              
              
              
              
              32
              
              
              45**Total
                  current liabilities**
              
              
              
              
              
              1,596
              
              
              1,096**Shareholders'
                  equity**
              
              
              
              
              
              2,663
              
              
              2,878**Total
                  liabilities and shareholders' equity**
              
              
              
              
              $
              4,259
              
              $
              3,974


**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 Six Months Ended****June
                    30,**
                
                **June
                    30,**
                
                **June
                    30,**
                
                **June
                    30,****2005**
                
                **2006**
                
                **2005**
                
                **2006****Net
                    Revenues****Software**
                
                $
                91
                
                $
                542
                
                $
                173
                
                $
                589**Services**
                
                
                177
                
                
                20
                
                
                377
                
                
                114**Maintenance**
                
                
                506
                
                
                396
                
                
                1,085
                
                
                854**Other**
                
                
                19
                
                
                -
                
                
                39
                
                
                -793
                
                
                958
                
                
                1,674
                
                
                1,557**Cost
                    and Expenses****Cost
                    of revenues****Software**
                
                
                211
                
                
                212
                
                
                415
                
                
                385**Services**
                
                
                183
                
                
                2
                
                
                406
                
                
                4**Maintenance**
                
                
                73
                
                
                179
                
                
                152
                
                
                357**Other**
                
                
                11
                
                
                -
                
                
                24
                
                
                -**Sales
                    and marketing**
                
                
                178
                
                
                28
                
                
                342
                
                
                81**Product
                    development**
                
                
                194
                
                
                73
                
                
                388
                
                
                150**General
                    and administrative**
                
                
                390
                
                
                210
                
                
                776
                
                
                4631,240
                
                
                704
                
                
                2,503
                
                
                1,440**Operating
                    Income (loss)**
                
                
                (447
                )
                
                254
                
                
                (829
                )
                
                117**Interest
                    income**
                
                
                7
                
                
                27
                
                
                67
                
                
                49**Income
                    (loss) from continuing operations before income
                    taxes**
                
                
                (440
                )
                
                281
                
                
                (762
                )
                
                166**Income
                    taxes**
                
                
                -
                
                
                -
                
                
                -
                
                
                -**Income
                    (loss) from continuing operations**
                
                
                (440
                )
                
                281
                
                
                (762
                )
                
                166**Loss
                    from discontinued operations**
                
                
                (29
                )
                
                -
                
                
                (457
                )
                
                -**Income
                    on sale of discontinued operations**
                
                
                327
                
                
                -
                
                
                327
                
                
                -**Income
                    (loss) from discontinued operations**
                
                
                298
                
                
                -
                
                
                (130
                )
                
                -**Net
                    Income (loss)**
                
                
                (142
                )
                
                281
                
                
                (892
                )
                
                166**Dividends
                    on preferred stock**
                
                
                (71
                )
                
                (71
                )
                
                (142
                )
                
                (142
                )**Net
                    Income (loss) applicable to common shareholders**
                
                $
                (213
                )
                $
                210
                
                $
                (1,034
                )
                $
                24**Income/(loss)
                    per common share - Basic****Income/(loss)
                    from continuing operations**
                
                $
                (0.19
                )
                $
                0.08
                
                $
                (0.33
                )
                $
                0.01**Income/(loss)
                    from discontinued operations**
                
                
                0.11
                
                
                -
                
                
                (0.05
                )
                
                -**Net
                    income/(loss) per common share- Basic**
                
                $
                (0.08
                )
                $
                0.08
                
                $
                (0.38
                )
                $
                0.01**Income/(loss)
                    per common share - Diluted****Income/(loss)
                    from continuing operations**
                
                $
                (0.19
                )
                $
                0.07
                
                $
                (0.33
                )
                $
                0.01**Income/(loss)
                    from discontinued operations**
                
                
                0.11
                
                
                -
                
                
                (0.05
                )
                
                -**Net
                    Income/(loss) per common share - Diluted**
                
                $
                (0.08
                )
                $
                0.07
                
                $
                (0.38
                )
                $
                0.01**Weighted
                    average shares - Basic**
                
                
                2,710
                
                
                2,784
                
                
                2,698
                
                
                2,749**Weighted
                    average shares - Diluted**
                
                
                2,710
                
                
                2,811
                
                
                2,698
                
                
                2,776
 **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 Six Months Ended June 30, 2006****Accumulated****Other****Common
                    Stock**
                
                **Preferred
                    Stock**
                
                **Additional**
                
                **Compre-**
                
                **compre-****paid-in**
                
                **hensive**
                
                **hensive**
                
                **Accumulated****Shares**
                
                **Amount**
                
                **Shares**
                
                **Amount**
                
                **capital**
                
                **income**
                
                **loss**
                
                **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**
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (142
                )
                
                
                
                
                
                
                
                
                
                
                (142
                )**Stock
                    option expense**
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2
                
                
                
                
                
                
                
                
                
                
                
                2**Comprehensive
                    income****Net
                    income**
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                166
                
                
                
                
                
                166
                
                
                166**Unrealized
                    loss on equity securities:**
                  **available-for-sale**
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (33
                )
                
                (33
                )
                
                
                
                
                (33
                )**Comprehensive
                    income**
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                133**Balance
                    at end of period**
                
                
                2,868,302
                
                $
                13
                
                
                33,720
                
                $
                2,981
                
                $
                25,381
                
                
                
                
                $
                (49
                )
                $
                (25,448
                )
                $
                2,878
   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 Six Months Ended****June
                      30,**
                  
                  **June
                      30,****2005**
                  
                  **2006****Cash
                      flows provided by/(used in) operating activities**
                  
                  $
                  (899
                  )
                  $
                  603**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**Payment
                      of dividends on preferred stock**
                  
                  
                  (125
                  )
                  
                  (142
                  )**Net
                      cash used in financing activities**
                  
                  
                  (88
                  )
                  
                  (47
                  )**Foreign
                      currency translation adjustment**
                  
                  
                  10
                  
                  
                  -**Increase/(decrease)
                      in cash and cash equivalents**
                  
                  
                  (734
                  )
                  
                  556**Cash
                      and cash equivalents, beginning of period**
                  
                  
                  1,286
                  
                  
                  360**Cash
                      and cash equivalents, end of period**
                  
                  $
                  552
                  
                  $
                  916**Supplemental
                      disclosure of cash flow information****Cash
                      paid for income taxes**
                  
                  $
                  -
                  
                  $
                  -**Cash
                      paid for interest**
                  
                  $
                  -
                  
                  $
                  -**Supplemental
                      disclosure of non-cash investing****and
                      financing activities****Proceeds
                      from issuance of common stock in****exchange
                      for services rendered**
                  
                  $
                  -
                  
                  $
                  127
 **The
            accompanying notes are an integral part of these condensed consolidated
            financial statements.**
  6
 **FIRSTWAVE
          TECHNOLOGIES, INC.**


**Notes
      to Condensed Consolidated Financial Statements**


**June
      30, 2006**


**(Unaudited)**





**1.**  **Description
      of Business, Basis of Presentation and subsequent
      event**





***Description
      of the Company***


Headquartered
      in Atlanta, Georgia, Firstwave Technologies, Inc. (“Firstwave” or “the Company”)
      is a
      provider of strategic customer relationship management solutions. Firstwave’s
      solutions provide companies with fit-to-purpose features that are designed
      to
      optimize how companies win, maintain and grow customer and organizational
      relationships while improving the overall customer experience. Firstwave’s
      corporate and product mission
      reflects our customer-first commitment: To develop and integrate the best
      software solutions to manage customer interactions and information. Firstwave
      supports several product lines: Firstwave CRM (includes eCRM and v.10 products),
      Firstwave Technology and TakeControl.





***Basis
      of Presentation***


The
        accompanying unaudited condensed consolidated financial statements have been
        prepared in accordance with accounting principles generally accepted in the
        United States for interim financial information and with the instructions
        to
        Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the condensed
        consolidated financial statements do not include all of the information and
        footnotes required by accounting principles generally accepted in the United
        States for complete financial statements and should be read in conjunction
        with
        the consolidated financial statements contained in the Company’s Form 10-K for
        the year ended December 31, 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 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 will be a non-exclusive
      reseller of Firstwave products. Firstwave will retain all maintenance revenues
      and pay to M1 Global $154,315 per quarter in consideration for M1 Global
      providing support services to Firstwave customers. The
      agreement provides that M1 Global will also pay royalty commissions to
      Firstwave. Both the OEM/Outsourcing Agreement and the License Agreement were
      filed with the Securities and Exchange Commission under Form 8-K on October
      14,
      2005.(See subsequent event below)




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 8K 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 June 30, 2006 there were no 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.




***Subsequent
      event***


In
      July
      of 2006, M1 Global Solutions, Inc. (“M1 Global”) and Firstwave agreed to make
      changes to its OEM/Outsourcing Agreement signed October 10, 2005. 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.





**2.** **Use
      of Estimates and Critical Accounting Policies**





***Use
      of Estimates***


The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      the disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. Examples of estimates that require management’s judgment
      include revenue recognition, accounts receivable reserve, valuation of
      long-lived assets and intangible assets, and goodwill. Management bases its
      estimates on historical experience and on 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 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.




8




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.





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.




9




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.
      There was no capitalized software development balance at June 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 second 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**
              
              **June
                  30, 2006**Argos,
                  Ltd
              
              
              16.4%
              
              
              0.0%Barclaycard
                  IT
              
              
              10.0%
              
              
              13.5%CapGemini
                  UK
              
              
              14.2%
              
              
              0.0%EDS
              
              
              0.0%
              
              
              11.8%M1
                  Global Solutions
              
              
              10.9%
              
              
              17.1%Northrop
                  Grumman
              
              
              0.17%
              
              
              11.2%




***Significant
      Customers***


For
      the
      six months ended June 30, 2005, none of our customers contributed more than
      10%
      of total revenue, and for the six months ended June 30, 2006; Galactus
      contributed 33% of our 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. Weighted average
      options to purchase shares of common stock outstanding but not included in
      the
      computation of diluted EPS were 242,000 for the six month period ending June
      30,
      2005 and 136,000 for the six month period ending June 30, 2006. These options
      were not included in the computation of diluted EPS because the options’
exercise price was greater than the average market price of the common
      shares.




10




Preferred
      shares convertible to shares of common stock outstanding but not included in
      the
      computation of diluted EPS were 898,000 for the six month period ending June
      30,
      2005 and 815,000 for the six month period ending June 30, 2006.




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**
              
              **For
                  the Six Months Ended****June
                  30, 2006**
              
              **June
                  30, 2006**Income
              
              Shares
              
              Per
                  Share
              
              Income
              
              Shares
              
              Per
                  Share(Numerator)
              
              (Denominator)
              
              Amount
              
              (Numerator)
              
              (Denominator)
              
              AmountNet
                  income
              
              $
              281
              
              
              
              
              
              
              
              $
              166Less:
                  Preferred Stock Dividends
              
              
              (71
              )
              
              
              
              
              
              
              
              (142
              )**Basic
                  EPS**Income
                  applicable to common shareholders
              
              $
              210
              
              
              2,784
              
              $
              0.08
              
              $
              24
              
              
              2,749
              
              $
              0.01**Effect
                  of Anti-Dilutive Securities**Convertible
                  Preferred Stock
              
              
              71
              
              
              815
              
              
              
              
              
              142
              
              
              815**Effect
                  of Dilutive Securities**Stock
                  Options
              
              
              
              
              
              27
              
              
              
              
              
              
              
              
              27**Diluted
                  EPS**Income
                  applicable to common shareholders
              
              $
              210
              
              
              2,811
              
              $
              0.07
              
              $
              24
              
              
              2,776
              
              $
              0.01(1)
                  Not included because anti-dilutive**For
                  the Three Months Ended**
              
              
              **For
                  the Six Months Ended****June
                  30, 2005**
              
              
              **June
                  30, 2005**Income
              
              
              Shares
              
              
              Per
                  Share
              
              
              Loss
              
              
              Shares
              
              
              Per
                  Share(Numerator)
              
              
              (Denominator
              )
              
              Amount
              
              
              (Numerator)
              
              
              (Denominator)
              
              
              AmountNet
                  loss
              
              $
              (142
              )
              
              
              
              
              
              
              $
              (892
              )Less:
                  Preferred Stock Dividends
              
              
              (71
              )
              
              
              
              
              
              
              
              (142
              )**Basic
                  EPS**Loss
                  applicable to common shareholders
              
              $
              (213
              )
              
              2,710
              
              $
              (0.08
              )
              $
              (1,034
              )
              
              2,698
              
              $
              (0.38
              )**Effect
                  of Dilutive Securities**Warrants
              
              
              
              
              
              19
              
              
              
              
              
              
              
              
              19Convertible
                  Preferred Stock
              
              
              71
              
              
              898
              
              
              
              
              
              142
              
              
              898Stock
                  Options
              
              
              
              
              
              242
              
              
              
              
              
              
              
              
              24271
              
              
              1,159
              
              
              
              
              
              142
              
              
              1,159**Diluted
                  EPS**Loss
                  applicable to common shareholders
              
              $
              (213
              )
              
              2,710
              
              $
              (0.08
              )
              $
              (1,034
              )
              
              2,698
              
              $
              (0.38
              )




***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, that is detailed
        under Note 1, Basis of Presentation. The Company sold its UK Subsidiary to
        re-focus on the high technology market and to direct its efforts away from
        the
        Sports business that was concentrated in the UK market. Pursuant to the
        Agreement, effective May 1, 2005, the Company sold to Buyer all of the issued
        share capital of Firstwave Technologies UK, Ltd., a subsidiary of the Company.
        This sale of the Company’s UK Subsidiary has been treated as a discontinued
        operation in the accompanying unaudited 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
        June 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 June 2006, $95,000 was amortized, resulting in
        a
        balance of $138,000 in unamortized discount as of June 30, 2006. As of June
        30,
        2006, the receivable from the buyer relating to the prepaid royalty balance
        sold
        was $227,385.


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 six months ended June 30, 2006 and a loss of $457,000 for the six months
      ended June 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
      June 30, 2006, the Company had $482,000 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 second 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**
              
              **June
                  30, 2006**Gross
                  carrying
              
              Accumulated
              
              Gross
                  carrying
              
              Accumulatedamount
              
              amortization
              
              amount
              
              amortizationAmortizable
                  intangible assetsConnect-Care
                  Technology
              
              $
              300
              
              $
              275
              
              $
              300
              
              $
              300Connect-Care
                  Customer Relationships
              
              
              900
              
              
              354
              
              
              900
              
              
              418Total
              
              $
              1,200
              
              $
              629
              
              $
              1,200
              
              $
              718Aggregrate
                  Amortization ExpenseFor
                  the Six months ended June 30, 2006
              
              $
              89Estimated
                  Amortization ExpenseFor
                  the six months ended December 31, 2006
              
              $
              65For
                  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
      580,758 shares remaining available for issuance under the Company’s stock
      incentive plan at June 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 of 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 June 30, 2006, the
      Company granted 22,000 stock options, resulting in option compensation expense
      of $38,696 over the vesting period of the options of which $2,400 was recorded
      during the three months ended June 30, 2006. The recorded compensation expense
      did not have an impact on basic or diluted earnings per share for the six and
      three months ended June 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.





13




The
        fair
        value of each option award is estimated on the date of grant using the
        Black-Scholes option pricing model. Expected volatility of 123.45%, 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
        June 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 June 30, 2006 is $38,696. The total value of the award is expensed on
      a
      straight line basis over the vesting period. As of June 30, 2006, unrecognized
      compensation cost related to unvested stock option awards totaled $36,696 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
      June 30, 2006. Stock compensation expense reduced net income before taxes by
      $2,400 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.




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 six and three months ended
      June 30, 2005 had the Company recognized fair value compensation costs for
      the
      period:




**For
                  the Six**
                **Months
                  Ended**
              
              **For
                  the Three Months Ended****June
                  30, 2005**
              
              **June
                  30, 2005****(unaudited)**
              
              **(unaudited)**Net
                  loss applicable to commonshareholders,
                  as reported
              
              $
              (1,034
              )
              $
              (213
              )Stock
                  based employee compensation, net of relatedtax
                  effects under the fair value based method
              
              
              542
              
              
              522Net
                  loss applicable to commonshareholders,
                  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 sharse outstanding
              
              
              2,698,000
              
              
              2,710,000basic
                  and diluted.




14




***Stock
        Options***
 The
        following table summarizes the activity with respect to the stock options
        of the
        Company for the six months ended June 30, 2006.






Number
                    of Shares
                
                Exercised
                    Price Per ShareOutstanding
                    at December 31, 2005
                
                333,586
                
                $1.47
                    - $16.50Granted
                
                22,000
                
                $1.98Exercised
                
                (64,167)
                
                $1.32
                    - $1.71ForfeitedExpired
                
                (4,417)
                
                $1.51Outstanding
                    at June 30, 2006
                
                287,002
                
                $1.47
                    -$16.50


**7****.****Borrowings**





On
      the
      balance sheet dates of December 31, 2005 and June 30, 2006, the Company had
      no
      borrowings.





**8.** **Related
      Party Transactions** ****




The
      former President and COO of the Company, who resigned from the Company on March
      22, 2005, was paid dividends of $575 in the second quarter of 2006 related
      to
      his $30,000 investment in Series D Convertible Preferred Stock from 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 he converted his Series D Convertible Preferred Stock into 10,000
      shares of the Company’s common stock. The Chairman and CEO of the Company earned
      $50,625 in the second 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.





**9.** **Income
      Taxes**




During
        the second quarter of 2006, the Company made no tax provision for income
        tax
        expense due to its tax net loss carryforwards which were fully reserved for
        at
        December 31, 2005. The Company has U.S. net operating loss carryforwards
        of
        approximately $23,300,000 which expire in years 2009 through 2019.




**10.  
      Re** **cent
      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 strategic customer relationship management (“CRM”) solutions. .
      Firstwave’s solutions provide companies with fit-to-purpose features that are
      designed to optimize how companies win, maintain and grow customer and
      organizational relationships while improving the overall customer experience.
      Firstwave’s corporate and product mission
      reflects our customer-first commitment: To develop and integrate the best
      software solutions to manage customer interactions and information. Firstwave
      supports several product lines: Firstwave CRM (includes eCRM and v.10 products),
      Firstwave Technology and TakeControl.





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. Firstwave paid to M1 Global $154,315
      in the first and second 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 Entuition Software, an application
      platform conversion company, now known as 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 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 increased 20.8% from $793,000 in the second quarter of 2005 to $958,000
      in the second quarter of 2006 due to increased software revenues from the
      Assignment Agreement with Galactus. For the six months ended June 30, 2006
      total
      revenues decreased 7.0% to $1,557,000 from $1,674,000 for the six months ended
      June 30, 2005 due to decreases in services and maintenance revenue offset by
      an
      increase in software revenues.




16




Software
      revenues increased 495.6% from $91,000 in the second quarter of 2005 to $542,000
      in the second quarter of 2006 due to the one-time license revenue from the
      Assignment Agreement with Galactus. For the six months ended June 30, 2006,
      software revenues increased 240.5% to $589,000 from $173,000 for the six months
      ended June 30, 2005 Our software revenues remain significantly dependent upon
      the size and timing of closing of license agreements.





Services
      revenues decreased 88.7% from $177,000 in the second quarter of 2005 to $20,000
      in the second quarter of 2006. For the six months ended June 30, 2006, services
      revenues decreased 69.8% to $114,000 from $377,000 for the six months ended
      June
      30, 2005. This decrease is 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 21.7% from $506,000 during the second quarter of 2005 to
      $396,000 in the second quarter of 2006. For the six months ended June 30, 2006,
      maintenance revenues decreased 21.3% to $854,000 from $1,085,000 for the six
      months ended June 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 increased 0.5% from $211,000 in the second quarter of 2005
      to
      $212,000 in the second quarter of 2006 and for the six months ended June 30,
      2006 decreased 7.2% to $385,000 from $415,000 for the six months ended June
      30,
      2005. Cost of software revenues includes amortization of capitalized software
      costs, costs of third party software, media costs, and documentation materials.
      The decrease is due to a decrease in amortization expense related to three
      product lines being fully amortized in 2005. Cost of software as a percentage
      of
      software revenues decreased from 232% in the second quarter of 2005 to 39%
      in
      the second quarter of 2006. The decrease relates to an increase in amortization
      expense relating to the amortization of software development costs (see Note
      3)
      and an increase in software revenues which is slightly offset by the costs
      associated with the Galactus agreement.





Cost
      of
      revenues for services decreased 98.9% from $183,000 in the second quarter of
      2005 to $2,000 in the first quarter of 2006 and for the six months ended June
      30, 2006 decreased 99.0% to $4,000 from $406,000 for the six months ended June
      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. As a result of our
      relationship with M1 Global, we anticipate that the cost of revenues for
      services will remain low as a result of the elimination of costs related to
      personnel. The cost of revenues for services as a percentage of services
      revenues decreased from 103.4% in the second quarter of 2005 to 8.29% in the
      second quarter of 2006.





Cost
      of
      revenues for maintenance increased 145.2% from $73,000 in the second quarter
      of
      2005 to $179,000 in the second quarter of 2006, and for the six months ended
      June 30, 2006 increased 134.9% to $357,000 from $152,000 for the six months
      ended June 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 14.4% in the second quarter of 2005 to 45.2% in the
      second quarter of 2006 .





Sales
      and
      marketing expense decreased 84.3% from $178,000 in the second quarter of 2005
      to
      $28,000 in the second quarter of 2006 and for the six months ended June 30,
      2006, decreased 76.3% to $81,000 from $342,000 for the six months ended June
      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 62.4% from
      $194,000 in the second quarter of 2005 to $73,000 in the second quarter of
      2006
      and for the six months ended June 30, 2006 decreased 61.3% to $150,000 from
      $388,000 for the six months ended June 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
      were
      capitalized during the second quarter of 2005 or 2006.




17




General
        and administrative expenses decreased 46.2% from $390,000 in the second quarter
        of 2005 to $210,000 in the second quarter of 2006 and for the six months
        ended
        June 30, 2006, decreased 40.3% from $776,000 in 2005 to $463,000 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
        to
        decrease as a result of the reduced cost related to staffing and
        overhead.
 
 Loss
        from
        discontinued operations for the three months ended June 30, 2005 was $29,000
        and
        for the six months ended June 30, 2005 the loss from discontinued operations
        was
        $457,000. There was no activity from discontinued operations during the first
        or
        second quarters of 2006.
  Dividends
        on preferred stock were unchanged at $71,000 for both the second quarter
        of 2005
        and 2006 and $142,000 for both the six month periods ended June 30, 2005
        and
        June 30, 2006.
 
 The
        above
        factors combined to result in a net income applicable to common shareholders
        of
        $210,000 in the second quarter of 2006 compared to a net loss applicable
        to
        common shareholders of $213,000 in the second quarter of 2005. Net income
        per
        basic share was $0.08 and $0.07 per diluted share for the second quarter
        of 2006
        compared to a net loss of $0.08 per basic and diluted share for the second
        quarter of 2005. For the six months ended June 30, 2006, the net income
        applicable to common shareholders was $24,000, or $0.01 per basic and diluted
        share, compared to a net loss of $1,034,000, or $0.38 per basic and diluted
        share for the six months ended June 30, 2005. For the three months ended
        June
        30, 2006, the number of basic weighted average shares outstanding was 2,784,000
        and the number of diluted weighted average shares outstanding was 2,811,000
        compared to 2,710,000 both basic and diluted outstanding shares for the three
        months ended June 30, 2005. For the six months ended June 30, 2006 the number
        of
        basic weighted average shares outstanding was 2,749,000 and the number of
        diluted weighted average shares was 2,776,000 compared to 2,698,000 basic
        and
        diluted weighted average shares outstanding at June 30, 2005.
 
 **Balance
        Sheet**
 Cash
        and
        cash equivalents of $916,000 increased 154.4% 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 and the cash received from the closing of the Galactus agreement.
 
 Net
        accounts receivable decreased 36.6% from $399,000 at December 31, 2005 to
        $253,000 at June 30, 2006, primarily due to lower software license and services
        revenues invoiced and outstanding as of June 30, 2006. Prepaid expenses
        increased 30.0% from $475,000 at December 31, 2005 to $618,000 at June 30,
        2006,
        primarily due to an increase in prepaid licenses under the Agreement with
        ListK
        offset by the amortization of prepaid expenses. Property and equipment, net
        decreased 26.8% from $82,000 at December 31, 2005 to $60,000 at June 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 June 30, 2006 due to year-to-date amortization expense
        and the assignment of the Net Integrated Development Environment Tool to
        Galactus. Intangible assets decreased 15.7% from $572,000 at December 31,
        2005
        to $482,000 at June 30, 2006 due to $90,000 in 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 June 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 second quarter of 2006, FSI paid $375,000 to Firstwave
        against its promissory note and prepaid royalties. 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 June of 2006, $95,000 has been amortized, resulting in a balance
        of
        $138,000 in unamortized discount as of June 30, 2006.
 
 Accounts
        payable decreased 83.8% from $302,000 at December 31, 2005 to $49,000 at
        June
        30, 2006 due to payment of the majority of aged accounts payable prior to
        June
        30, 2006. **** Deferred
        revenue decreased 18.4% from $1,117,000 at December 31, 2005 to $911,000
        at June
        30, 2006 due to reductions in and the timing of billing for annual maintenance
        renewals. Accrued employee compensation and benefits decreased 54.5% from
        $99,000 at December 31, 2005 to $45,000 at June 30, 2006 primarily as a result
        of the elimination of staff salary accruals. Other accrued liabilities increased
        40.6% from $32,000 at December 31, 2005 to $45,000 at June 30, 2006 due to
        the
        accrual of preferred stock dividends at June 30, 2006 **.**




18




**Liquidity
      and Capital Resources**





As
      of
      June 30, 2006, the Company had cash and cash equivalents of $916,000, an
      increase of 154.4% 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, and the cash
      received from the closing of the Galactus agreement. 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. 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
      their most recent evaluation, which was completed in consultation with
      management as of the end of the period covered by the filing of this
      Form 10-Q, the Company’s Chairman and Chief Executive Officer and Principal
      Financial Officer believe the design and operation of the Company’s disclosure
      controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
      promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”)) were effective as of the date of such evaluation in timely alerting the
      Company’s management to material information required to be included in this
      Form 10-Q and other Exchange Act filings.





**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
      1.        Legal Proceedings


None.





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
      2.        Unregistered Sales of Equity
      Securities and Use of Proceeds


The
      securities were offered and issued in reliance upon Section 4(2) of the
      Securities Act of 1933 and Regulation D promulgated pursuant to such Act on
      the
      basis that the offering involved a limited offering to a single, accredited
      investor which represented to the Company that it was acquiring the shares
      for investment purposes and not with a view to resale.




Item
      3.        Defaults Upon Senior
      Securities


None.





Item
      4.        Submission of Matters to a Vote of
      Security Holders





The
      Annual Meeting of Shareholders was held on June 5 th ,
      2006,
      in Atlanta, Georgia, at which the following matters were submitted to a vote
      of
      the shareholders:





1.
            Votes
                cast for or against the deletion of the “super majority” amendment


Votes
                  For
              
              Votes
                  Against
              
              Abstain3,184,536
              
              27,944
              
              1,116


The
      motion to amend the company’s amended and restated articles of incorporation was
      approved.





2.
            Votes
                cast for or withheld regarding the election of three (3)
                Directors




Name
                  of Nominee
              
              Votes
                  For
              
              Votes
                  WithheldSigmund
                  Mosley Jr.
              
              3,194,568
              
              19,028Roger
                A. Babb
              
              3,194,568
              
              19,028Richard
                T. Brock
              
              3,194,568
              
              19,028


The
      nominees for directors were elected by a majority.





3.
            Ratification
                of selection of Cherry, Bekaert & Holland, L.L.P. as the Company’s
                independent auditors




Votes
                  For
              
              Votes
                  Against
              
              Abstain2,444,553
              
              8,293
              
              760,750




The
      ratification was adopted by a majority.





Item
      5.        Other Information


None.




Item
      6.        Exhibits


The
      Exhibits to this Report on Form 10Q are listed in the accompanying Exhibit
      Index .




20




**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.




FIRSTWAVE
              TECHNOLOGIES, INC.DATE: August
              14, 2006
            By:
            /s/ Steven
              R.
              DeerwesterSteven
              R. DeerwesterController(Principal Financial
              Officer)











21




EXHIBIT
      INDEX




Exhibit
                Number
            DescriptionExhibit
                31.1
            Certification of Periodic Report by the Chief
                Executive Officerpursuant to Rule 13a-14(a) of the Securities Exchange Act of
                1934.Exhibit
                31.2
            Certification of Periodic Report by the Principal
                Financial Officer pursuant to Rule 13a-14(a) ofthe
                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