<PAGE>   1
                                    FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [FEE REQUIRED]

     For the fiscal year ended December 31, 2000.

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

     For the transition period from ________to_________.

                         Commission File Number: 0-21202
                                                 -------

                         FIRSTWAVE(R)TECHNOLOGIES, INC.
                         ------------------------------
             (Exact name of registrant as specified in its charter)


GEORGIA                                                              58-1588291
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(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)


2859 PACES FERRY ROAD, SUITE 1000, ATLANTA, GEORGIA                       30339
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(Address of principal executive offices)                              (Zip Code)


       Registrant's telephone number, including area code: (770) 431-1200
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          Securities registered pursuant to Section 12(b) of the Act:

                                      NONE
                                      ----

          Securities registered pursuant to Section 12(g) of the Act:

                           COMMON STOCK, NO PAR VALUE
                           --------------------------
                                (Title of Class)

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 20, 2001: approximately $5,408,338.

Number of shares of Common Stock outstanding as of March 20, 2001: 6,294,994.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on May 14, 2001 are incorporated by reference into Part
III of this Report. Other than those portions specifically incorporated by
reference herein, the 2000 Annual Report to Shareholders and the Proxy Statement
for the Annual Meeting of Shareholders to be held on May 14, 2001 are not deemed
to be filed as part of this Report.
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                                     PART I

ITEM 1. BUSINESS

This section and other parts of this Form 10-K contain forward-looking
statements that involve uncertainties and risk. Firstwave(R) Technologies,
Inc.'s results may differ from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, those items discussed below under the caption "Certain Factors
Effecting Forward-Looking Statements" and the details in "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

GENERAL

Firstwave Technologies, Inc. provides Internet-based customer relationship
management (eCRM) solutions. Firstwave offers powerful applications that
optimize the sales, marketing and customer service functions through a series of
solutions. The Company supports three product lines: Firstwave eCRM,
Takecontrol(R), and Firstwave for Unix.

The Firstwave eCRM Suite is an Internet-based relationship management solution
that consists of three integrated applications: eMarketing, eSales, and
eService. Designed to facilitate better and more profitable relationships with
customers, the Firstwave eCRM suite increases effectiveness in finding qualified
prospects, molding prospects into sales and retaining valuable customers. The
sales application was released as Netgain(TM) Sales in September 1998 and the
marketing and support applications were integrated with the sales application to
form one integrated application, Firstwave eCRM, in December 1999. Takecontrol
is a Microsoft(R) Windows-based, integrated client/server CRM solution that
meets the need to automate marketing, sales and customer service operations for
companies in multiple industries. The Firstwave for Unix product line is a
traditional UNIX, character-based CRM solution.

COMPANY STRATEGY

Firstwave continues its vision of creating a totally Internet-based CRM platform
that leverages the Internet to bring value to companies by lowering their total
cost of ownership while enhancing their relationships with customers, prospects
and partners. Unlike web-based systems, web-enabled or client server CRM
applications historically are costly and take months to implement, are expensive
to maintain and do not provide the flexibility within the product that is
demanded today. Additionally, users of traditional CRM products find them
complex and difficult to use, resulting in a low user acceptance rate. Firstwave
strives to create a user-friendly environment for its users, offering a web site
address to hit over the Internet for application access and an easy web-based
interface once inside the application.

Firstwave's Internet-based applications are also extended to a customer's
channel and business partners outside the internal offices with granular
security measures in place allowing those partners to see only what that company
chooses to allow them to see. Web-enabled or client server CRM applications have
limited partner capabilities.

Management believes that the future of CRM applications must be built around the
Internet (tying in all customer management functions including marketing, sales
and support), be designed with the ability to customize a product to fit a
company or partner's needs and have the ability to be remotely hosted. In the
past few years Firstwave has dedicated its development resources to accomplish
that vision.

The Company's Internet-based product suite, Firstwave eCRM, provides marketing,
sales and support capabilities using Internet technologies. Users can market to
targets utilizing campaign management functionality within the eMarketing
application and turn them over as leads to the sales team. The sales team, using
the eSales application, can then manage their opportunities and accounts
efficiently with added value in order to close sales. Those new customers are
then managed through the eService


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application, where any support issues can be tracked and resolved quickly and
effectively by using a customized knowledge base and escalation procedures.

Firstwave has also developed a tool set, eWorkbench, that allows for extensive
customizations to the Firstwave eCRM product suite. Management believes this
tool set is one of the strongest and most effective in the industry. Features of
eWorkbench include the ability to set security levels for different users
including sales representatives, marketing representatives, customer support
personnel and business partners outside the company and the capability to change
the look and feel of the application. Business objects within the application
are also easily changed within eWorkbench.

Management's belief in the rise of the Application Service Provider (ASP) model
has led to the development of an ASP optimized-architecture. This architecture
allows ASPs to host multiple companies and multiple applications on a single
server, a critical requirement for the success of the ASP model. Management
believes that more companies, especially in Firstwave's target market of
mid-size companies, may choose to have Firstwave eCRM hosted remotely using a
lease vs. purchase approach. The Company has begun marketing its products for
this model, which when implemented, should provide recurring revenue for the
Company and eliminate many of the difficulties a company has in implementing and
maintaining a software application in-house.

The architecture is built on Microsoft technologies and includes support for
Oracle databases. In addition to offering support for multiple database
technologies, Firstwave offers a plug-in based architecture allowing for a
flexible approach to supporting new client types (including wireless clients),
changing business logic and new data sources. The Company remains dedicated to
its existing customers of Firstwave eCRM, Takecontrol and Firstwave for UNIX and
continues to pursue best-of-breed distributors on a global level while staying
on the cutting edge of the world's most current technologies, including database
managers and operating systems.

PROVIDING VALUE AND ENHANCEMENTS TO EXISTING CUSTOMERS

As a core business strategy, Firstwave is committed to its existing customers by
providing value through post-sales consulting, training, support services and
product enhancements. Impeccable customer service is critical to the success of
Firstwave and its reputation as a customer-centric company in the CRM industry.
The Company seeks to differentiate itself from its competitors not only through
product features and technology, but also through an often-overlooked yet
critical business function - customer service.

LEVERAGE STRATEGIC ALLIANCES

The CRM solutions delivered by the Company are a combination of Firstwave's
direct selling efforts and those of various strategic alliance partners. By
leveraging the expertise of our partners, the Company hopes to focus on its core
competency of providing innovative web based solutions. The Company's goal is to
select strategic partners who are "best in-class" providers of hardware,
software, telephony, and consulting.

BUSINESS PARTNER SUPPORT

The Firstwave Business Partner program is designed to allow the Company to
achieve its goals by accommodating any opportunity regardless of size or
complexity. The Company wants to ensure our partners are well equipped with the
skills and tools necessary to help them tackle any of these opportunities.


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INTERNATIONAL OPERATIONS

In addition to its corporate headquarters in Atlanta, Georgia, Firstwave
maintains an office in London, England.

SOFTWARE PRODUCTS

FIRSTWAVE ECRM SUITE
Firstwave's eCRM Suite is the next wave of Customer Relationship Management. It
addresses the needs of extended enterprises by providing a central point to
manage the variety of channels through which a company's customers, partners,
value-added resellers, distributors, prospects and employees communicate. The
eCRM application suite is a web-based application that can be rapidly deployed
and highly customized. The Company believes that Internet technology, the
ability for a product to be customized easily and a quick implementation of a
CRM application are essential criteria for success in today's CRM marketplace.
Firstwave eCRM's object-oriented, open architecture, eFramework, has a
significant impact on usability, customization and deployment of the eCRM
product suite. Metadata technology is used to configure the application and to
capture customizations. This means that Firstwave eCRM is able to support users'
business processes without changing underlying source code.

Firstwave eSales extends the sales team to include inside users, mobile users,
remote users and indirect channel partners. It allows a company's extended sales
organization to manage existing customers and prospects for new business and
encourages cross-selling and up-selling opportunities. The current status of a
company's sales pipeline can be traced real-time and customized reports can be
created to provide senior management with information needed to make key
decisions. As in eMarketing, data accumulated through the eSales application is
available to users of other applications within the eCRM suite.

Firstwave eMarketing delivers critical marketing information as part of the
comprehensive web-based suite. It empowers a company's marketing organization to
target an audience, manage campaigns, generate qualified leads and turn them
over to sales to close deals, thereby synthesizing its marketing with sales and
support data for a single secure and synchronized view of customers, channels,
prospects and partners.

Firstwave eService delivers critical support information as part of its
web-based suite. It enhances the support process and revenue stream by
facilitating one-call issue resolution, allowing better opportunities for
cross-selling and up-selling to existing customers and enhancing the maintenance
collection process. eService tracks issues and enhancements, manages and
supports customer needs and service agreements and provides for the escalation
of issues to more senior support levels.

U.DIALOG
u.Dialog introduces a communication component to Firstwave eCRM. It is an engine
that works with the CRM database to take action or prompt an action. u.Dialog
does more than just record data and report history. It can be implemented to
escalate critical issues, conducts automatic customer dialog through a web site
and makes sales and marketing efforts more effective, and more efficient. It
turns information into intelligence, giving a company the critical information
it needs.

Firstwave eCRM manages the wide scope of information associated with
Relationship Management, while u.Dialog can be implemented to ensure that all of
the daily tasks (e-mails, faxes, pages, reminder notices, phone calls,
reporting) associated with sales, marketing and support are completed in a
continuous and consistent manner. It can be implemented to automate many of the
repetitive, desk-bound tasks that can easily fall through the cracks and leave a
customer unhappy or a prospect ignored.


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TAKECONTROL
The Takecontrol suite consists of customer relationship management systems
designed to optimize sales, marketing and customer service operations through
delivering high functional solutions.

Takecontrol Sales creates a virtual sales environment through linking field and
office personnel into a powerful sales team by automating account and
opportunity management procedures. Management tools include a report writing
facility, scheduling features, full account and contact details, and graphical
analysis tools.

Takecontrol Marketing pinpoints marketing opportunities to support and enhances
differing marketing campaigns. Specializing on capturing the information
required from prospects and customers, it delivers key facilities such as call
scripting, mail merge, order taking, and activity scheduling to provide a
compilation of simplified, yet precise, information.

Takecontrol Customer Support establishes a support center that builds customer
satisfaction and loyalty by providing support team members with instant access
to customer information to quickly log and trouble-shoot problems while
shortening response times. It also identifies the trends of calls received
within the support center to enable future improvements based on customer
feedback.

FIRSTWAVE FOR UNIX
Firstwave for Unix is a character based Unix system that addresses the complete
sales cycle and includes modules for account management, telemarketing, and
customer service. Firstwave for Unix's open architecture, modular design and use
of relational databases provide an integrated approach to enterprise-wide
information management.

SERVICES

The Company seeks to differentiate itself from other providers of marketing,
sales and support software by offering an array of specialized professional
services on a fee basis. Firstwave's services consist of (1) education and
training services, (2) implementation and customizations, and (3) customer
support services.

EDUCATION AND TRAINING

Firstwave's comprehensive customer training program is designed to accommodate
the diverse needs of its customers. Courses are held at the Company's Atlanta
headquarters, its London, England office and at customer sites upon request.
Firstwave charges its customers for education and training services on a
per-attendee basis with a minimum daily charge. For classes conducted at
customer sites, the Company charges a per-day rate for a set number of
attendees.

The current curriculum for Firstwave eCRM consists of Firstwave End User
Training, System Administrator Training and Customization Training (Level 1 and
Level 2). The classes may be conducted at Firstwave, the customer site or via
the Internet. End User Training is intended for individuals who will use any
application within the Firstwave eCRM suite. System Administrator Training is
for technical and administrative professionals who will be required to setup,
maintain and administer the Firstwave eCRM application. Customization Training
is for technical and administrative professionals who will be responsible for
the customization of Firstwave eCRM. In order for distributors or customers to
become fully certified application integrators, they must attend all training
sessions, including both levels of Customization Training.


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IMPLEMENTATION AND CUSTOMIZATIONS

Firstwave's Professional Services Organization (PSO) is chartered to facilitate
the customers' successful implementation and utilization of Firstwave products
and to accelerate the implementation process. Firstwave uses its professional
services organization as a logical extension of its sales force and believes
that its professional services organization differentiates the Company from most
of its competitors. Typical services provided include systems analysis and
design, installation planning and coordination, database configuration, screen
and report tailoring, application development, data conversion, systems
interconnectivity, project management training and other special processing
requirements related to the implementation of Firstwave eCRM. Standard
professional services are offered to clients during the initial sales process
and professional services can be contracted for assistance with future
enhancement projects. Pricing is determined by the scope of the client
requirements.

CUSTOMER SUPPORT

Management believes that the emphasis the Company places on the customer support
function further differentiates it from most other sales and marketing software
providers. Customer support is offered as part of an annual maintenance fee and,
therefore, generally is not charged separately on an hourly or other basis.

SOURCES OF REVENUES, PRICING AND MATERIAL TERMS FOR LICENSING AGREEMENTS

Software revenues consist of license fees for Firstwave eCRM, Takecontrol and
Firstwave for Unix. The Company also receives revenues from third-party software
and various distributor agreements. Customers generally pay a license fee for
the software based upon the number of licensed users. Firstwave eCRM also offers
customers several pricing alternatives that reflect the various ways it may be
deployed across the Internet throughout the extended enterprise. Perpetual
licenses are available on a per user model. Subscription pricing through remote
hosting services will provide organizations the opportunity to deploy the
application without the need for a high capital outlay. Remote hosting services
will also allow organizations to deploy the applications without the need for
internal hardware infrastructure or system administrative capabilities.
Takecontrol and Firstwave for Unix offer a pricing model based on concurrent
users.

The second component of the Company's revenues is services, which consists of
professional consulting and training services. Consulting services are charged
on an hourly basis and billed weekly pursuant to customer work orders. Training
services are charged on a per-attendee basis with a minimum daily charge. For
classes conducted at customer sites, the Company charges a per-day rate for a
set number of attendees. Actual travel expenses are billed as incurred.

The Company's maintenance revenues are derived from the provision of: (1)
customer support in the form of customer services via communication channels,
and (2) updates and enhancements of products and related documentation provided
on a when and if available basis. Customers are provided maintenance and support
for an annual fee. This fee is billed monthly, quarterly, or annually and is
subject to changes in pricing upon 90 days' notice to the customer.

CUSTOMERS

The Company markets its products as a cross-industry solution for those
companies looking for an integrated marketing, sales and support solution.
Systems have been installed in many industries, including technology,
manufacturing, financial services, communications, travel, hospitality and
retail. The Company has licensed its products to users located in 13 countries.
Currently, 139 customers representing over 11,000 users subscribe to maintenance
services.


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SALES AND MARKETING

The Company markets and sells its product and services through direct sales and
is opening indirect channels to the North American marketplace. International
marketing and selling is accomplished by direct selling through the Company's
United Kingdom office and with limited results indirectly through Firstwave
distributors in other countries. The North American Sales department, overseen
by a senior level sales executive, consists of Business Development
Representatives (BDR) and Account Executives (AE). The BDRs initiate contact
with leads and qualify them using the telephone and the Internet as primary
tools. Qualified leads are turned over to AEs. The Firstwave sales team conducts
an Internet demonstration of the product, scopes the requirements of the
potential customer with professional services, assists in providing a cost
justification for the purchase and provides references before closing business.

The Company's marketing department is responsible for generating leads and
promoting brand awareness and mind share among CRM industry professionals and
companies seeking a solution from this market. Primary marketing functions
include web-based direct marketing, traditional direct marketing, advertising,
public and analyst relations and other Internet-based marketing initiatives.

Additionally, the Marketing department is responsible for product positioning
and strategy, general product marketing activities, market research and
competitive analysis, and provides competitive customer and prospect input into
the Company's product development efforts.

PRODUCT INNOVATION AND DEVELOPMENT

The Company plans to further the growth of Firstwave eCRM by using it as a basis
for companies wanting to incorporate an Internet-based, integrated CRM solution
into their business processes. Firstwave's architecture, eFramework, with its
object orientation, adherence to Microsoft standards, incorporation of emerging
web technologies and ASP optimization, facilitates this approach. The Internet
technology embedded within eFramework also allows information residing in
Firstwave eCRM to be accessed by wireless devices. Relational database
management systems supported by Firstwave are Microsoft SQL Server, Oracle and
MSDE.

To address flexibility, eFramework utilizes a component based architecture with
standard tools. Firstwave has provided the market with a solution that is easily
modified and adaptable to changing times. eFramework from Firstwave is built on
COM+ and XML, allowing for easy customization and the management of upwardly
compatible changes. Plug-ins at each of the application layers allow support for
new client types, changing business logic and data sources.

To address scalability, Firstwave has implemented eFramework as an N-tier
stateless architecture. N-tier refers to the fact that processing is split
between three layers of the application, and multiple servers can be used as
demands for application resources grow. Stateless refers to the fact that
application components are called when needed and do not use system resources
unless they are required for an active function. Older designs were made up of
application code that was constantly active, although only portions of it were
actually being utilized.

To address new business processes, Firstwave has introduced a business logic
plug-in model, and also an automation engine, u.Dialog, to facilitate
communication as it relates to business processes. The automation engine of
u.Dialog has been designed to be independent or "decoupled" from any specific
communication, event tracking or record management techniques, and will continue
to evolve as communication and data management methods are updated and
incorporated into business practices. Utilizing the u.Dialog Service Engine at
the core of the product, external and internal events are monitored, and
procedures are called and executed as required. This architecture allows
Firstwave to incorporate new methods and technologies as the industry evolves.


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COMPETITION

The Company faces competition from a multitude of software vendors, including
existing CRM vendors, new web-based CRM vendors and ERP vendors who have
penetrated the CRM industry through acquisitions or product development.

The primary competitors for the Company are Onyx, Pivotal and Interact
(SalesLogix). These companies have a middle market focus and offer comprehensive
"full solution" packages which include marketing, sales, and support. These
companies also have integrated some Internet technology into their products and
have customization capabilities within their product sets. The ASP model is also
being evaluated by the afore-mentioned companies.

YouCentric, formerly SalesVision, and Silknet are other CRM vendors who are
viewed as competitors of the Company due to the Internet technology used in
their products. Both companies have an upper-tier market strategy compared to
the Company's middle market focus with its product. Siebel Systems, due to its
large international presence and market share, is also a competitor of the
Company. There are also hundreds of vendors addressing the needs evident in this
industry, including specialists who provide cross-industry solutions and
vertically focused solutions, such as pharmaceuticals or finance.

The Company competes on product flexibility, Internet technology, product
intuitiveness, off-site hosting options, distributor strategies, value, and
heavy emphasis on customer and partner service and support. Management believes
the Company competes favorably with respect to these factors. There can be no
assurance that the Company will be able to achieve the innovative product
development and marketshare necessary to maintain competitive advantage.

PROPRIETARY RIGHTS AND LICENSES

The Company depends upon a combination of trade secret, copyright and trademark
laws, license agreements, non-disclosure and other contractual provisions with
customers and employees to protect its proprietary rights in its products. The
Company also maintains confidentiality agreements with its employees. Because
the Company's product allows customers to customize their applications without
altering the source code, the source code for the Company's products is neither
licensed nor provided to customers, although the company has contractually
agreed in certain instances to have its source code held in escrow by a third
party. Notwithstanding these precautions, it may be possible for unauthorized
persons to copy aspects of the Company's products or to obtain information that
the Company regards as proprietary. There can be no assurance that these
protections will be adequate or that the Company's competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technology.

EMPLOYEES

As of March 30, 2001, the Company employed 66 persons, including 15 sales and
marketing professionals, 27 service and support representatives, 13
administrative personnel and 11 persons involved in product innovation and
development. Management believes that the Company's future growth and success
will rely on its ability to retain and attract highly skilled and motivated
personnel in all areas of its operations.


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CERTAIN FACTORS EFFECTING FORWARD-LOOKING STATEMENTS

CAPITAL REQUIREMENTS AND LIQUIDITY CONCERNS.

The Company requires significant amounts of capital to fund its business
operations and product development efforts. The rate at which the Company's
capital is utilized is affected by the operational and developmental costs
incurred and the Company's ability to generate sales and maintenance revenues.
The Company has experienced negative cash flow from operations for several years
and expects to experience negative cash flow from operations for the near
future.

The Company continues to evaluate alternative means of financing to meet its
needs on terms that are attractive to the Company. The Company currently
anticipates that it will need to raise additional capital to fund operations
during 2001. From time to time the Company has considered and discussed various
financing alternatives and expects to continue such efforts to raise additional
funds. The Company cannot be certain that additional financing will be available
to it on favorable terms when required, or at all. The report of the Company's
independent auditors contains a statement expressing substantial doubt regarding
the Company's ability to continue as a going concern.

If the Company is unable to obtain the necessary additional capital, it may be
required to reduce the scope of planned product development and sales and
marketing efforts, as well as reduce the size of current staff, all of which
could have a material adverse effect on its business, financial condition and
the Company's ability to reduce losses or generate profits.

In the past, the Company has funded its operating losses and working capital
needs through cash flow from operations and from the proceeds of equity
offerings and debt financing. Changes in equity markets in the past year have
adversely affected the Company's ability to raise equity financing and have
adversely affected the markets for debt financing. If the Company raises
additional funds through the issuance of equity, equity-linked or debt
securities, those securities may have rights, preferences or privileges senior
to those of the rights of its common stock and, in light of the Company's
current market capitalization, the Company's shareholders may experience
substantial dilution.

NEW PRODUCTS AND TECHNOLOGICAL CHANGE The market for software and hardware
support services is characterized by rapid technological advances, changes in
customer requirements and frequent new product introductions and enhancements.
The Company's future success depends upon its ability to enhance its current
products and develop new products that maintain technological leadership,
address the increasingly sophisticated needs of customers and achieve broad
market acceptance. In particular, management believes that the Company must
continue to respond quickly to customer needs for additional functionality and
to ongoing advances in hardware, operating systems and telecommunications. Any
failure to anticipate or respond rapidly to technological advances, new products
and enhancements and changes in customer requirements could have a material
adverse effect on the Company's competitive position or render certain of its
products obsolete or less marketable than available alternatives. In addition,
the Company is subject to the risks generally associated with new product
introductions and applications, including lack of market acceptance, delays in
development or failure of products to perform as expected. In order to introduce
and market new or enhanced products successfully with minimal disruption in
customer purchasing patterns, the Company must manage the transition from
existing products. There can be no assurance that the Company will be successful
in developing and marketing, on a timely basis, product enhancements or products
that respond to technological advances by others, that its new products will
adequately address the changing needs of the market or that it will successfully
manage product transitions. Further, the inability to generate sufficient cash
from operations or financing activities to develop or obtain improved products
and technologies could have a material adverse effect on the Company's results
of operations and financial condition.

RISKS OF PRODUCT DEVELOPMENT Software products as complex as those offered by
the Company may contain undetected errors or failures when first introduced or
when new versions are released. If software errors are discovered after
introduction, the Company could experience delays or lost revenues


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during the period required to correct these errors. There can be no assurance
that, despite internal testing and testing by current and potential customers,
errors will not be found in new products or releases after commencement of
commercial shipments, resulting in loss of or delay in market acceptance,
additional and unexpected expenses to fund further product development or to add
programming personnel to complete a development project, and loss of revenue
because of the inability to sell the new product on a timely basis, any one or
more of which could have a material adverse effect on the Company.

DEPENDENCE ON PROPRIETARY TECHNOLOGY The Company relies on a combination of
trade secrets, copyright and trademark laws, non-disclosure and other
contractual provisions and technical measures to protect its proprietary rights
in certain of its products. There can be no assurance that these protections
will be adequate or that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to its
technologies.

COMPETITION The market for the Company's products is characterized by
significant price competition, and management expects that the Company will face
increasing pricing pressures from its current competitors. Moreover, because
there are low barriers to entry into the software market, the Company believes
that competition will increase in the future. Accordingly, there can be no
assurance that the Company will be able to provide products that compare
favorably with the products of its competitors or that competitive pressures
will not require the Company to reduce its prices. Any material reduction in the
price of its products would negatively affect gross margins as a percentage of
new revenue and would require the Company to increase software unit sales in
order to maintain net revenues.

FACTORS AFFECTING OPERATING RESULTS; POTENTIAL FLUCTUATIONS IN QUARTERLV RESULTS
The Company's quarterly operating results have in the past and may in the future
vary or decrease significantly depending on factors such as revenue from
software sales, the timing of new product and service announcements, changes in
pricing policies by the Company and its competitors, market acceptance of new
and enhanced versions of its products, the size and timing of significant
orders, changes in operating expenses, changes in the Company's strategy,
personnel changes, the introduction of alternative technologies, the effect of
potential acquisitions and general economic factors. The Company has limited or
no control over many of these factors. The Company's expense levels are based,
in part, on its expectations as to future revenues. If revenue levels are below
expectations, the Company may be unable or unwilling to reduce expenses
proportionately and operating results are likely to be adversely affected. As a
result, management believes that period-to-period comparisons of the Company's
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance. Due to all these factors, it is
likely that in some future quarter the Company's operating results will be below
the expectations of public market analysts and investors. In such event, the
price of the Company's common stock will likely be adversely affected.

THE COMPANY'S COMMON STOCK MAY BE DELISTED FROM THE NASDAQ NATIONAL MARKET
SYSTEM IF IT DOES NOT MAINTAIN CERTAIN LISTING STANDARDS. The general market
condition for securities of technology companies, including the Company, has
been severely depressed in recent quarters. At several times during recent
months, the price of the Company's common stock has traded at or below $1.00 per
share. The rules of Nasdaq require, among other things, that the Company's
common stock maintain a minimum bid price of $1.00 per share. In light of the
market conditions for technology stocks in general, and the Company's recent
operating history specifically, the Company cannot assure that the bid price for
its common stock will not drop and remain below the $1.00 per share requirement.
In addition, the Company cannot assure that it will be able to meet the other
requirements for continued listing on the Nasdaq National Market system,
including the requirements relating to net tangible assets and market
capitalization. If the Company is unable to continue to satisfy these criteria,
Nasdaq may begin procedures to remove the Company's common stock from the Nasdaq
National Market system. If the Company's common stock is delisted from the
Nasdaq National Market system, an active trading market for the common stock may
no longer exist, and the ability of shareholders to buy and sell shares of the
Company's common stock may be materially impaired. In addition, the delisting of
the Company's common stock could adversely affect its ability to raise
additional equity financing.


                                       10
<PAGE>   11

ISSUANCE OF PREFERRED STOCK The Company's Board of Directors has the authority
to issue up to 1,000,000 shares of preferred stock and to fix the rights,
preferences, privileges and restrictions, including voting rights, of these
shares without any further vote or action by the Company's shareholders. The
Company issued 20,000 shares of Series A Redeemable Convertible Preferred Stock
in April 1999 and 7,020 shares of Series B Redeemable Convertible Preferred
Stock in November 2000. The Company received $2,000,000 and
$702,000,respectively, related to these offerings. The Board of Directors has
fixed the rights, preferences, privileges and restrictions, including voting
rights, of these Series A and Series B preferred shares. The rights of the
holders of the Company's common stock are subject to, and may be adversely
affected by, the rights of the holders of Series A and Series B Redeemable
Convertible Preferred Stock and any other preferred stock that may be issued in
the future. The issuance of the Series A and Series B Redeemable Convertible
Preferred Stock and any future issuances of other classes of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire a majority of the Company's outstanding voting
stock, thereby delaying, deferring or preventing a change in control of the
Company. Furthermore, the Series A and Series B Redeemable Convertible Preferred
Stock has other rights, including economic rights, senior to the Company's
common stock, and as a result, the issuance of such stock may have a material
adverse effect on the market value of the Company's common stock. Any future
issuances of other classes of preferred stock may have other rights, including
economic rights, senior to the Company's common stock, and as a result, the
issuance of such stock could have a material adverse effect on the market value
of the Company's common stock. The Company may in the future adopt other
measures that may have the effect of delaying, deferring or preventing a change
in control of the Company. Some of these measures may be adopted without any
further vote or action by the Company's shareholders. The Company has no present
plans to adopt any such measures.

ITEM 2. PROPERTIES.

As of December 31, 2000, the Company's headquarters and principal operations
were located in approximately 25,000 square feet of leased office space. The
office building is located in metropolitan Atlanta, Georgia. The Company also
has operations located outside London, England in approximately 6,000 square
feet of leased office space.

ITEM 3. LEGAL PROCEEDINGS.

From time to time, the Company may be involved in litigation relating to claims
arising out of its operations in the normal course of business. As of the date
of this Report, the Company was not engaged in any legal proceedings that are
expected, individually or in the aggregate, to have a material adverse effect on
the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None


                                       11
<PAGE>   12

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

The Company's Common Stock trades on the NASDAQ Stock Market, Inc.

The following table shows the price range of the Company's Common Stock (high
and low close information) for the indicated fiscal quarters as reported by
NASDAQ. The prices represent quotations between dates and do not necessarily
represent actual transactions and do not include retail mark-ups, mark-downs or
commissions.

<TABLE>
<CAPTION>
2000      First       Second      Third       Fourth        1999      First       Second      Third      Fourth
----------------------------------------------------        ----------------------------------------------------
<S>       <C>         <C>         <C>         <C>           <C>       <C>         <C>         <C>        <C>
High      $18.19      $11.94      $ 5.25      $ 3.13        High      $ 3.25      $ 2.50      $ 8.63      $ 4.25
Low       $ 3.19      $ 3.03      $ 2.06      $ 0.88        Low       $ 1.75      $ 1.38      $ 1.50      $ 1.94
----------------------------------------------------        ----------------------------------------------------
</TABLE>

As of December 31, 2000 there were approximately 89 shareholders of record and
approximately 4,379 persons or entities that hold common stock in nominee name.
There were no common stock dividends declared during 2000 or 1999.

ITEM 6.  SELECTED FINANCIAL DATA.

The following table sets forth selected financial data about the Company for
each of the last five fiscal years. The information presented below has been
derived from the Company's audited Financial Statements.

<TABLE>
<CAPTION>
                                                                 For the Year Ended December 31,
                                                             (In thousands, except per share amounts)

                                                 2000           1999          1998           1997           1996
                                              --------------------------------------------------------------------
<S>                                           <C>            <C>            <C>            <C>            <C>
Net revenues                                  $  9,503       $ 11,193       $ 14,537       $ 15,848       $ 23,222
Loss before income taxes                        (3,144)        (1,912)        (3,034)        (1,377)       (10,115)
Income tax (provision) benefit                  (2,852)           (40)           (91)          (133)         1,055
Net loss                                        (5,996)        (1,952)        (3,125)        (1,510)        (9,060)
Net loss applicable to common shareholders      (6,116)        (2,075)        (3,125)        (1,510)        (9,060)
Basic and diluted net loss per share             (1.02)         (0.40)         (0.61)         (0.30)         (1.81)
Total assets                                     9,307         12,023         11,322         14,286         18,367
Total non current liabilities                       --             --             --             --            125
Common stock subject to repurchase                  --             --             --            300             --
Redeemable preferred stock                       1,702          2,000             --             --             --
Basic and diluted weighted average
  shares outstanding                             6,011          5,250          5,125          5,035          5,000
</TABLE>


                                       12
<PAGE>   13

ITEM 7. 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 elsewhere herein.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated selected financial data
and the percentages of the Company's net revenues represented by each line item
presented. It also sets forth the percentage change in each line item presented
from 1999 to 2000. Certain percentage columns do not add to 100% due to
rounding.

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                          ------------------------------------------------------       % Change
(in thousands)                              2000                          1999                       1999 to 2000
-----------------------------------------------------------------------------------------------------------------
<S>                                       <C>               <C>         <C>               <C>        <C>
Revenues
  Software                                $  2,680           28.2%      $  2,430           21.7%         10.3%
  Services                                   2,964           31.2%         3,422           30.6%        -13.4%
  Maintenance                                3,625           38.1%         4,923           44.0%        -26.4%
  Other                                        234            2.5%           418            3.7%        -44.0%
                                          --------                      --------
       Net revenues                          9,503          100.0%        11,193          100.0%        -15.1%
                                          --------                      --------

Costs and expenses
  Cost of revenues
       Software                              1,031           10.8%           920            8.2%         12.1%
       Services                              2,295           24.2%         2,400           21.4%         -4.4%
       Maintenance                           1,556           16.4%         1,494           13.3%          4.1%
       Other                                   184            1.9%           395            3.5%        -53.4%
  Sales and marketing                        4,223           44.4%         3,612           32.3%         16.9%
  Product development                          844            8.9%         1,618           14.5%        -47.8%
  General & administrative                   2,578           27.1%         2,789           24.9%         -7.6%

                                          --------                      --------
Operating loss                              (3,208)         -33.8%        (2,035)         -18.2%         57.6%
                                          --------                      --------
Interest income net                             64            0.7%           123            1.1%        -48.0%
                                          --------                      --------
Loss before income taxes                  $ (3,144)         -33.1%      $ (1,912)         -17.1%         64.4%
                                          --------                      --------
</TABLE>

In general, competition in the software industry has increasingly been
characterized by shortening product cycles. No assurance can be given that the
Company will be immune to this trend. If the product cycle for the Company's
systems proves to be shorter than management anticipates, the Company's pricing
structure and revenues could be impaired. In addition, in order to remain
competitive, the Company may be required to expend a greater percentage of its
revenues on product innovation and development than has historically been the
case. In either case, the Company's gross profit margins and results of
operations could be materially adversely affected.


                                       13
<PAGE>   14

2000 COMPARED TO 1999

During the year ended December 31, 2000, the Company continued to invest
financial and human resources in the development and enhancement of Firstwave
eCRM. Releases during 2000 delivered improvement to product functionality,
performance and scalability. Although total revenues decreased in 2000, software
revenues increased over 1999. Although the Company expects a decline in software
revenues for the first quarter of 2001, the Company hopes to increase software
revenues to stimulate increases in related maintenance and services revenues for
the remainder of 2001. In the interim, the Company responded to the lower
revenues by streamlining the business and implementing cost cutting initiatives
including a first quarter 2001 plan which included decreases in certain
marketing expenses and personnel reductions.

Total revenues decreased 15.1% from $11,193,000 in 1999 to $9,503,000 in 2000
mainly due to decreases in maintenance and services revenues. Software revenue
increased 10.3% from $2,430,000 in 1999 to $2,680,000 in 2000 primarily as a
result of increased sales related to Firstwave eCRM. Revenues from international
software licenses increased 5.6% from $1,321,000 in 1999 to $1,395,000 in 2000,
and increased as a percentage of total revenues from 11.8% in 1999 to 14.7% in
2000 due to increased software sales by Firstwave UK. Total revenues from
international sources, which includes maintenance, software license fees and
customizations remained fairly consistent at 54.8% of total revenues in 2000
compared to 52.5% in 1999. Revenues from Firstwave UK contributed 71% of total
international revenues with the remaining 29% derived from international
distributors.

Services revenues decreased 13.4% from $3,422,000 in 1999 to $2,964,000 in 2000.
The decrease in services revenue is primarily due to decreased demand for
customization and consulting projects related to the Takecontrol product line.
Maintenance revenues decreased 26.4% from $4,923,000 in 1999 to $3,625,000 in
2000 primarily as the result of cancellations of maintenance agreements of
customers who were using the Takecontrol and Firstwave for Unix product lines.
Maintenance revenues are the result of renewal agreements from previous software
license sales as well as new license agreements.

Costs of software revenues increased 12.1% from $920,000 in 1999 to $1,031,000
in 2000 and, as a percentage of software revenues increased slightly to 38.5% in
2000 compared to 37.9% in 1999. Costs of software revenues include costs of
third-party software, amortization of capitalized software, and costs of
packaging, media and documentation materials. Amortization of capitalized
software represented 87.4% of total cost of software during 2000.

Costs of revenues for services decreased 4.4% from $2,400,000 in 1999 to
$2,295,000 in 2000. The decrease is related to decreases in the number of
service personnel and related costs due to changes implemented by management as
a result of lower demand for service engagements related to the Takecontrol
product line. Costs of revenues for services as a percentage of services
revenues increased to 77.4% in 2000 compared to 70.1% in 1999. Costs of revenues
for maintenance increased 4.1% from $1,494,000 in 1999 to $1,556,000 in 2000.
The increase in maintenance cost is primarily attributed to increased payroll
and related expenses to ramp up personnel to support the eCRM suite, offset
partially by decreased royalty costs related to decreased maintenance revenues
generated by international distributors. Costs of revenues for maintenance as a
percentage of maintenance revenues increased from 30.3% in 1999 to 42.9% in
2000.

Sales and marketing expenses increased 16.9% from $3,612,000 in 1999 to
$4,223,000 in 2000, and increased as a percentage of total revenues from 32.3%
in 1999 to 44.4% in 2000. The increase is primarily due to increased marketing
activities to promote the eCRM suite and renew investor interest.

The Company's product innovation and development expenditures, which includes
amounts capitalized, decreased 30.8% from $3,479,000 in 1999 to $2,407,000 in
2000, and decreased as a percentage of total revenues from 31.1% in 1999 to
25.3% in 2000. Software development costs capitalized decreased from $1,861,000
in 1999 to $1,563,000 in 2000. These development expenditures are related to
continued development of Firstwave eCRM. Enhancements during 2000 include
rewriting the underlying


                                       14
<PAGE>   15

architecture to support better scalability and interoperability. The Company
expects that these improvements to Firstwave eCRM will further improve the
product's viability in the CRM market.

General and administrative expenses decreased 7.6% from $2,789,000 in 1999 to
$2,578,000 in 2000 primarily due to lower administrative expenses related to the
UK office including decreased payroll and related benefit costs.

Net interest income decreased 48.0% from $123,000 in 1999 to $64,000 in 2000 due
to fluctuations in invested cash balances and the addition of interest expense
related to borrowings in 2000.

Income tax expense increased from $40,000 in 1999 to $2,852,000 in 2000 due to
the increase in the Company's valuation allowance for deferred tax asset. A full
valuation allowance was provided due to the uncertainty regarding its
realization.

The Series A and B Preferred Stock contain a mandatory redemption feature
whereby the sale, lease, exchange or transfer of all or substantially all of the
assets of the Company are regarded as liquidation events. Consistent with the
classification of the Series B Preferred Stock, the Company has revised the
consolidated financial statements as of December 31, 1999 to present the Series
A Preferred Stock subject to mandatory redemption features as Redeemable
Preferred Stock outside of shareholders' equity.

1999 COMPARED TO 1998

The year ended December 31, 1999 was a year of transition for the Company, from
a software company that was dependent on its legacy product, Takecontrol, to an
Internet business being driven by its web-based product, Firstwave eCRM
(formerly known as Netgain Sales). Although the year began with declining
revenues from existing product lines, the Company had innovative new products in
development which were released throughout the year. During 1999 the Company
gained industry recognition, new business partners, renewed investor interest,
and a growing revenue stream from a suite of new products.

Total revenues decreased 23.0% from $14,537,000 in 1998 to $11,193,000 in 1999
mainly due to decreases in software and services revenues. Software revenue
decreased 31.1% from $3,528,000 in 1998 to $2,430,000 in 1999 primarily as a
result of declining sales related to the Takecontrol product and a slower than
expected ramp-up in sales related to the Firstwave eCRM product. Also, the
Company chose to price the new product at introductory prices resulting in a
lower average deal price compared to the Takecontrol product. Revenues from
international software licenses decreased 53.6% from $2,848,000 in 1998 to
$1,321,000 in 1999, and decreased as a percentage of total revenues from 19.6%
in 1998 to 11.8% in 1999 due to decreased sales by International distributors.
During 1999 international license revenues were primarily from system expansions
of existing Takecontrol customers. Although international license revenue
decreased, total revenues from international sources, which includes
maintenance, software license fees and customizations remained consistent at
52.5% of total revenues in 1999 compared to 52.7% in 1998, due to additional
revenues provided by Firstwave UK. During 1999 Firstwave UK was a wholly owned
subsidiary for the entire twelve month period compared to eight months during
1998 following the April 30, 1998 acquisition.

Services revenues decreased 32.0% from $5,035,000 in 1998 to $3,422,000 in 1999.
The decrease in services revenue is consistent with the decrease in software
license revenue as the Company typically provides separate implementation and
training services at the time of software sales. Maintenance revenues remained
strong in 1999 with a decrease of only 9.4% from $5,431,000 in 1998 to
$4,923,000 in 1999 primarily as the result of declining sales of the Takecontrol
product.

Costs of software revenues increased 23.7% from $744,000 in 1998 to $920,000 in
1999 and, as a percentage of software revenues, increased from 21.1% in 1998 to
37.9% in 1999. The increases were primarily due to increased amortization costs
in 1999 related to releases of Firstwave eCRM. Costs of


                                       15
<PAGE>   16

software revenues include costs of third-party software, amortization of
capitalized software, and costs of packaging, media and documentation materials.

Costs of revenues for services decreased 32.7% from $3,566,000 in 1998 to
$2,400,000 in 1999. The decrease is related to decreases in the number of
service personnel and related costs due to changes implemented by management as
a result of lower services and license revenues. Costs of revenues for services
as a percentage of services revenues remained constant at 70.1% in 1999 compared
to 70.8% in 1998. Costs of revenues for maintenance decreased 9.1% from
$1,643,000 in 1998 to $1,494,000 in 1999. The decrease in maintenance cost is
primarily due to decreased royalty costs related to decreased maintenance
revenues generated by international distributors. Costs of revenues for
maintenance as a percentage of maintenance revenues remained constant at 30.3%.

Sales and marketing expenses decreased 39.6% from $5,983,000 in 1998 to
$3,612,000 in 1999, and decreased as a percentage of total revenues from 41.2%
in 1998 to 32.3% for 1999. The decrease is primarily due to decreases in sales
commissions to third party distributors as a result of decreased software
license revenues. The Company has also made changes to its marketing plan,
decreasing costs in trade shows and travel by using the Company's website and
other automated approaches to obtain sales leads.

The Company's product innovation and development expenditures, which includes
amounts capitalized, increased 52.6% from $2,280,000 in 1998 to $3,479,000 in
1999, and increased as a percentage of total revenues from 15.7% in 1998 to
31.1% in 1999. Software development costs capitalized increased from $200,000 in
1998 to $1,861,000 in 1999. These increases are related to continued development
of Firstwave eRM. The Company expects that the additional versions of Firstwave
eCRM will further improve the product's viability in the CRM market.

General and administrative expenses decreased 13.7% from $3,233,000 in 1998 to
$2,789,000 in 1999 primarily due to lower administrative expenses related to
overall reduced staff levels and decreases in professional services and bad debt
expense. The year over year decrease is inclusive of the additional costs
associated with maintaining the London office and demonstrates the Company's
effective implementation of cost cutting initiatives.

Interest income decreased 30.9% from $178,000 in 1998 to $123,000 in 1999 due to
fluctuations in invested cash balances.

BALANCE SHEET

Net accounts receivable decreased 8.4% from $1,937,000 at December 31, 1999 to
$1,774,000 at December 31, 2000 primarily due to decreased US receivables.
Property and equipment decreased 22.2% from $922,000 at December 31, 1999 to
$717,000 at December 31, 2000 due to year-to-date depreciation and disposals,
offset by additional fixed asset purchases. Intangible assets, which represents
goodwill related to the 1998 acquisition of Firstwave UK and the 1997
acquisition of Netgain Corporation, decreased 34.7% from $476,000 at December
31, 1999 to $311,000 at December 31, 2000 due to amortization. Capitalized
software increased 34.5% from $1,918,000 at December 31, 1999 to $2,580,000 at
December 31, 2000 due to additional capitalization of $1,563,000 in development
costs net of $901,000 in amortization. Deferred tax asset decreased 100% from
$2,821,000 at December 31, 1999 to zero at December 31, 2000 due to the increase
in the valuation allowance to fully reserve the entire net deferred tax asset
balance. Accounts payable increased 19.1% from $570,000 at December 31, 1999 to
$679,000 at December 31, 2000 due to increased marketing expenses and the timing
of their payments. Deferred revenue decreased 31.1% from $1,519,000 at December
31, 1999 to $1,047,000 at December 31, 2000 due to decreased annual maintenance
billings. Accrued employee compensation and benefits increased 24.9% from
$173,000 at December 31, 1999 to $216,000 at December 31, 2000 due to additional
vacation pay and commissions earned by employees. Dividends payable at December
31, 2000 were $113,000 related to Series A convertible preferred stock, compared
to $123,000 payable at December 31, 1999.


                                       16
<PAGE>   17

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2000, the Company had cash and cash equivalents of
$1,281,000. As of March 31, 2001, the balance of cash, cash equivalents and
investments was $857,000. The Company has implemented several measures in an
effort to reduce the Company's expenses and to help the Company preserve cash.
In addition, the Company is actively pursuing additional long-term equity and/or
debt financing.

The Company's future capital requirements will depend on many factors, including
its ability to increase revenue levels and reduce costs of operations to
generate positive cash flows, as well as the timing and extent of spending to
support product development efforts and expansion of sales and marketing, and
market acceptance of the Company's products. As a result, it will likely be
necessary for the Company to raise additional capital. Although the Company has
historically been able to satisfy its cash requirements, there can be no
assurance that efforts to obtain sufficient financing for operations will be
successful in the future. The Company's future capital needs will be highly
dependent upon the Company's ability to control expenses and generate additional
software license revenues, and any projections of future cash needs and cash
flows are subject to substantial uncertainty. The ability to raise additional
capital may be negatively impacted in the event the Company does not maintain
Nasdaq listing requirements. If the Company is unable to obtain the necessary
additional capital, it may be required to reduce the scope of planned product
development and sales and marketing efforts, as well as reduce the size of
current staff, all of which could have a material adverse effect on its
business, financial condition, and the Company's ability to reduce losses or
generate profits.

During the fourth quarter of 2000, the Company issued $702,000 in Series B
redeemable convertible preferred stock to investors, including the Company's
President and its Chairman of the Board.

On December 19, 2000, the Company and a commercial bank executed a line of
credit in the amount of $1,750,000, which expires December 18, 2001, bears
interest at the prime rate plus 1.5%, and is secured by the assets of the
Company. The availability of this line of credit is based on a portion of the
Company's outstanding accounts receivable balance. Debt issue costs associated
with this line of credit include warrants issued to the lender. The fair value
of the warrants and other debt issue costs is being amortized over the life of
the loan agreement. As of December 31, 2000 $636,000 was outstanding on this
line of credit. In the first quarter of 2001 the Company paid down $410,000 of
this line of credit balance. At March 31, 2001 the Company had $226,000
outstanding under the line, which was the maximum amount available under the
line based on the Company's eligible accounts receivable balance as of such
date. The Company will have additional amounts available provided it increases
its eligible account receivable amounts. At December 31, 2000, the Company was
in default of a certain financial covenant contained in the line of credit
agreement. As a result of this noncompliance, the amounts outstanding on the
line of credit are payable upon demand.

While the Company is aggressively pursuing additional sources of capital and
taking steps to improve its sales efforts, there can be no assurance that the
Company will be successful in its efforts to obtain additional funding
resources, generate sufficient cash from operations, or achieve future
profitability.

On February 12, 2001 the Company executed a promissory note with its President
and Chief Executive Officer in the amount of $750,000. The note bears interest
at 9% and is payable in full with interest on January 15, 2002. The note is
secured by a junior lien on all of the Company's assets, subordinate to the
Company's bank line of credit.

During the second quarter of 2000, the Company and a commercial bank executed a
line of credit in the amount of $1,500,000. At December 31, 2000, there was
$1,500,000 outstanding on this line of credit which bears interest at the prime
rate, is effective through June 30, 2001 and is secured by a $1,500,000 US
Treasury bill owned by the Company. The Company's former $3,000,000 line of
credit expired September 15, 2000. At the time of expiration, there were no
borrowings against the $3,000,000 line of credit.


                                       17
<PAGE>   18

During the third quarter of 2000, the Company executed a promissory note with a
commercial bank in the amount of $700,000. At December 31, 2000, the amount due
on the promissory note was $700,000 plus accrued interest. The note bears
interest at 7.94%, is payable in full with interest on January 5, 2001, and is
secured by a $700,000 certificate of deposit owned by the Company. The Company
renewed the promissory note on January 5, 2001 with the same terms, payable in
full with accrued interest on April 15, 2001. Based on the terms of the
borrowing agreements, the US Treasury bill and certificate of deposit are
restricted in their usage and are classified as restricted cash in the
consolidated balance sheet.
During April 2001, the Company liquidated the US Treasury bill and the
certificate of deposit and paid off the related debt obligations.

The Company capitalized $1,563,000 in software development costs during 2000, as
compared to $1,861,000 during 1999. These amounts relate to continued
development and enhancement to the Company's products.

The Company has no material commitments for capital expenditures. Management
does not believe that inflation has historically had a material effect on the
Company's results of operations.

TAXES

As of December 31, 2000, the Company had alternative minimum tax credit and
general business tax credit carryforwards of approximately $43,000 and $245,000,
which will expire in 2008 through 2011. The Company also has net operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $24,939,000. The carryforwards expire at various dates beginning
2009 through 2015. The Internal Revenue Code contains provisions that limit the
use in any future period of net operating loss and tax credit carryforwards upon
the occurrence of specific events. In 2000 the Company increased its valuation
allowance by $2,821,000 to fully reserve its entire net deferred tax asset
balance as a result of uncertainties regarding its realization.

QUARTERLY FINANCIAL DATA (UNAUDITED)

The table below sets forth certain unaudited operating results for each of the
eight quarters in the two-year period ended December 31, 2000. This information
has been prepared by the Company on the same basis as the Financial Statements
appearing elsewhere in this document and includes all adjustments necessary to
present fairly this information when read in conjunction with the Company's
Financial Statements and Notes thereto. The Company's operating results for any
one quarter are not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
                                                                    QUARTER ENDED
                            3/31/00      6/30/00     9/30/00      12/31/00     3/31/99      6/30/99      9/30/99     12/31/99
                            -------------------------------------------------------------------------------------------------
                                                        (in thousands, except per share amounts)
<S>                         <C>          <C>         <C>          <C>          <C>          <C>          <C>         <C>
Net revenues                $ 2,569      $ 2,710     $ 2,177      $ 2,047      $ 3,462      $ 2,700      $ 2,543      $ 2,488
Operating loss                 (793)        (855)       (722)        (838)        (854)        (397)        (433)        (351)
Net loss                       (770)        (831)       (720)      (3,675)        (840)        (396)        (402)        (314)
Net loss applicable to
 common shareholders           (815)        (861)       (743)      (3,697)        (840)        (426)        (447)        (362)
Basic and diluted
 loss per share               (0.14)       (0.14)      (0.12)       (0.59)       (0.16)       (0.08)       (0.08)       (0.06)
</TABLE>


                                       18
<PAGE>   19

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Information included under Item 14 (a) (1) and (2)



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Firstwave Technologies, Inc:

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 38 present fairly, in all material
respects, the financial position of Firstwave Technologies, Inc. and its
subsidiary (the "Company") at December 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under 14(a)2 on page
38 presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 6, the Company has revised the consolidated financial
statements as of December 31, 1999 to present $2,000,000 of preferred stock
subject to mandatory redemption features as Redeemable Preferred Stock outside
of shareholders' equity.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses and negative
cash flows from operations that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.



PricewaterhouseCoopers LLP
Atlanta, GA
April 16, 2001


                                       19
<PAGE>   20
FIRSTWAVE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                                                     DECEMBER 31,
                                                                                              2000                   1999
<S>                                                                                        <C>                     <C>
ASSETS
 Current assets
   Cash and cash equivalents                                                               $  1,281                $  2,029
   Restricted cash                                                                            2,200                      --
   Investment securities, held to maturity                                                       --                   1,631
   Accounts receivable, less allowance for doubtful
     accounts of $287 and $345                                                                1,774                   1,937
   Deferred tax asset                                                                            --                     200
   Prepaid expenses and other assets                                                            444                     289
                                                                                           --------                --------
       Total current assets                                                                   5,699                   6,086

 Property and equipment, net                                                                    717                     922
 Software development costs, net                                                              2,580                   1,918
 Goodwill                                                                                       311                     476
 Deferred tax asset                                                                              --                   2,621
                                                                                           --------                --------
                                                                                           $  9,307                $ 12,023
                                                                                           ========                ========

LIABILITIES AND SHAREHOLDERS' EQUITY
 Current liabilities
   Accounts payable                                                                        $    679                $    570
   Sales tax payable                                                                            127                     152
   Deferred revenue                                                                           1,047                   1,519
   Accrued employee compensation and benefits                                                   216                     173
   Borrowings                                                                                 2,836                      --
   Dividends payable                                                                            113                     123
   Other accrued liabilities                                                                     61                      78
                                                                                           --------                --------
       Total current liabilities                                                              5,079                   2,615
                                                                                           --------                --------

 Redeemable Preferred Stock
   Preferred stock, no par value; 1,000,000 shares authorized; 20,000
     shares issued; 17,020 and 20,000 shares outstanding;
     $100 per share liquidation preference                                                    1,702                   2,000
                                                                                           --------                --------

 Commitments and contingencies

 Shareholders' equity
   Common stock, par value, $.0019 per share; 10,000,000
     shares authorized; 6,288,472 and 5,740,283 shares
     issued and outstanding                                                                      12                      11
   Additional paid-in capital                                                                22,587                  21,451
   Cumulative translation account                                                               (28)                     (5)
   Accumulated deficit                                                                      (20,045)                (14,049)
                                                                                           --------                --------
                                                                                              2,526                   7,408
                                                                                           --------                --------

                                                                                           $  9,307                $ 12,023
                                                                                           --------                --------
</TABLE>


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


                                       20
<PAGE>   21
FIRSTWAVE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>

                                                                      For the year ended
                                                                          December 31,
                                                            2000               1999               1998
                                                          --------           --------           --------
<S>                                                       <C>                <C>                <C>
Net revenues
  Software                                                $  2,680           $  2,430           $  3,528
  Services                                                   2,964              3,422              5,035
  Maintenance                                                3,625              4,923              5,431
  Other                                                        234                418                543
                                                          --------           --------           --------
                                                             9,503             11,193             14,537
Costs and expenses
  Cost of revenues
    Software                                                 1,031                920                744
    Services                                                 2,295              2,400              3,566
    Maintenance                                              1,556              1,494              1,643
    Other                                                      184                395                500
  Sales and marketing                                        4,223              3,612              5,983
  Product development                                          844              1,618              2,080
  General and administrative                                 2,578              2,789              3,233
                                                          --------           --------           --------
      Operating loss                                        (3,208)            (2,035)            (3,212)

Interest income, net                                            64                123                178
                                                          --------           --------           --------
      Loss before income taxes                              (3,144)            (1,912)            (3,034)

Income tax provision                                        (2,852)               (40)               (91)
                                                          --------           --------           --------
      Net loss                                              (5,996)            (1,952)            (3,125)
                                                          --------           --------           --------

Dividends on preferred stock                                  (120)              (123)                --
                                                          --------           --------           --------
      Net loss applicable to common shareholders          $ (6,116)          $ (2,075)          $ (3,125)
                                                          --------           --------           --------
Basic and diluted net loss per share                      $  (1.02)          $  (0.40)          $  (0.61)
                                                          --------           --------           --------

Basic and diluted weighted average
  shares outstanding                                         6,011              5,250              5,125
                                                          --------           --------           --------
</TABLE>


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


                                       21
<PAGE>   22
FIRSTWAVE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA]


<TABLE>
<CAPTION>

                                                                              Unrealized   Compre-  Accumulated
                                                  Common Stock     Additional gain/(loss)   hensive   other
                                                -----------------    paid-in  on investment income  comprehensive   Accumulated
                                                Shares     Amount    capital  securities    (loss)  income/(loss)  deficit  Total
                                                ------     ------  --------------------------------------------------------------
<S>                                            <C>         <C>     <C>        <C>           <C>      <C>           <C>      <C>
Balance at December 31, 1997                   5,033,027    $   9    $19,329   $   (14)        --          --   $ (8,972) $ 10,352

Exercise of common stock options                  34,511       --        112        --         --          --         --       112
Employee stock purchases                           6,081       --         19        --         --          --         --        19
Issuance of stock options                             --       --          7        --         --          --         --         7
Issuance of stock in connection
  with Netgain acquisition                        77,703        1        346        --         --          --         --       347
Realized loss on investment
  securities                                          --       --         --        14         --          --         --        14
Comprehensive loss
Net loss                                              --       --         --        --     (3,125)         --     (3,125)   (3,125)
Foreign currency translation adjustment               --       --         --        --         34          34         --        34
                                                                                          -------
  Comprehensive loss                                                                       (3,091)
                                                                                          =======
                                              ----------------------------------------              ------------------------------
Balance at December 31, 1998                   5,151,322       10     19,813        --                     34     (12,097)   7,760

Exercise of common stock options                  84,066                 243        --         --          --         --       243
Employee stock purchases                           4,895                   9        --         --          --         --         9
Issuance of stock and warrants                   500,000        1      1,509        --         --          --         --     1,510
Dividends                                                               (123)                                                 (123)

Comprehensive loss
Net loss                                              --       --         --        --     (1,952)         --     (1,952)   (1,952)
Foreign currency translation adjustment               --       --         --        --        (39)        (39)        --       (39)
                                                                                          -------
  Comprehensive loss                                                                      $(1,991)
                                                                                          =======

                                              ----------------------------------------              ------------------------------
Balance at December 31, 1999                   5,740,283       11     21,451        --                     (5)   (14,049)    7,408

Exercise of common stock options                  60,374                 196        --         --          --         --       196
Employee stock purchases                           2,379                   8        --         --          --         --         8
Conversion of Series A Preferred to Common       485,436        1        999                                                 1,000
Issuance of warrants                                  --       --         46        --         --          --         --        46
Dividends                                                               (113)                                                 (113)

Comprehensive loss
Net loss                                              --       --         --        --     (5,996)         --     (5,996)   (5,996)
Foreign currency translation adjustment               --       --         --        --        (23)        (23)        --       (23)
                                                                                          -------
  Comprehensive loss                                                                      $(6,019)
                                                                                          =======

                                              ----------------------------------------              ------------------------------
Balance at December 31, 2000                   6,288,472    $  12    $22,587   $    --              $     (28)  $(20,045)  $ 2,526
                                              ----------    -----    -------   -------              ---------   --------   -------
</TABLE>



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


                                       22
<PAGE>   23
FIRSTWAVE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                               For the year ended
                                                                                     December 31,
                                                                         2000             1999            1998
<S>                                                                  <C>               <C>               <C>
Cash flows from operating activities
 Net loss                                                            $(5,996)          $(1,952)          $(3,125)
 Adjustments to reconcile net loss to net cash
   used in operating activities
     Depreciation and amortization                                     1,620             1,670             1,741
     (Gain)/loss on disposal of fixed assets                              (1)               71               (13)
     Interest on investments                                             (22)               --                --
     Provision for bad debts                                             (47)               81                83
     Stock compensation                                                   --                10                 7
     Deferred tax asset                                                2,821                --                --
     Changes in assets and liabilities (net of acquisition)
       Accounts receivable                                               210             1,119              (182)
       Prepaid expenses and other assets                                (155)              (94)              121
       Accounts payable                                                  109              (783)              146
       Accrued restructuring                                              --                --              (325)
       Sales tax payable                                                 (25)             (112)                2
       Deferred revenue                                                 (472)              (62)             (114)
       Accrued employee compensation and benefits                         43              (111)             (361)
       Other accrued liabilities                                         (17)               --                59
                                                                     -------           -------           -------
            Total adjustments                                          4,064             1,789             1,164
                                                                     -------           -------           -------
            Net cash used in operating activities                     (1,932)             (163)           (1,961)
                                                                     -------           -------           -------
Cash flows from investing activities
 Software development costs                                           (1,563)           (1,861)             (200)
 Business acquisitions                                                    --                --              (246)
 Purchases of property and equipment,net                                (383)             (309)             (496)
 Purchase of investment securities                                      (493)           (1,631)           (9,394)
 Proceeds from sale of investment securities                           2,146                --             9,408
                                                                     -------           -------           -------
            Net cash used in investing activities                       (293)           (3,801)             (928)
                                                                     -------           -------           -------
Cash flows from financing activities
 Proceeds from issuance of redeemable preferred stock                    702             2,000                --
 Proceeds from issuance of common stock                                   46             1,500                --
 Exercise of common stock options                                        196               243               112
 Proceeds from employee stock purchase plan                                8                 9                19
 Proceeds from borrowings                                              2,836                --                --
 Purchase of investments used to secure borrowings                    (2,200)               --                --
 Payment of dividends on redeemable preferred stock                     (123)               --                --
                                                                     -------           -------           -------
            Net cash provided by financing activities                  1,465             3,752               131
                                                                     -------           -------           -------
Effect of exchange rate changes on cash                                   12                (4)               34
Net decrease in cash                                                    (748)             (216)           (2,724)
Cash and cash equivalents, beginning of year                           2,029             2,245             4,969
                                                                     -------           -------           -------
Cash and cash equivalents, end of year                               $ 1,281           $ 2,029           $ 2,245
                                                                     -------           -------           -------

Supplemental disclosure of cash flow information
 Cash paid for interest                                              $    61           $    --           $     1
                                                                     -------           -------           -------
 Cash paid for income taxes                                          $    30           $    40           $    91
                                                                     -------           -------           -------
</TABLE>


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


                                       23
<PAGE>   24
FIRSTWAVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS


1.       DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Firstwave Technologies, Inc. (the "Company") is a provider of Internet
         customer relationship management solutions. The Firstwave eCRM
         (Internet-based Customer Relationship Management) Suite is an
         integrated, Internet-based suite of applications created to fulfill and
         manage the e-business relationship needs of a company in the areas of
         sales, marketing, and support.

         BASIS OF PRESENTATION AND LIQUIDITY CONSIDERATIONS
         The accompanying financial statements have been prepared on a basis
         which assumes that the Company will continue as a going concern and
         which contemplates the realization of assets and the satisfaction of
         liabilities and commitments in the normal course of business. The
         Company has suffered recurring losses and negative cash flows from
         operations that raise substantial doubt about its ability to continue
         as a going concern. The Company is attempting to raise additional
         capital and is in the process of reducing certain discretionary
         spending. Although management continues to pursue these plans in
         addition to generating revenues from its software products, there is no
         assurance that the Company will be successful in generating sufficient
         revenues or obtaining financing on terms acceptable to the Company.

         The Company's future capital requirements will depend on many factors,
         including its ability to increase revenue levels and reduce costs of
         operations to generate positive cash flows, as well as the timing and
         extent of spending to support product development efforts and expansion
         of sales and marketing, and market acceptance of the Company's
         products. As a result, it will likely be necessary for the Company to
         raise additional capital. Although the Company has historically been
         able to satisfy its cash requirements, there can be no assurance that
         efforts to obtain sufficient financing for operations will be
         successful in the future. The Company's future capital needs will be
         highly dependent upon the Company's ability to control expenses and
         generate additional software license revenues, and any projections of
         future cash needs and cash flows are subject to substantial
         uncertainty. The ability to raise additional capital may be negatively
         impacted in the event the Company does not maintain Nasdaq listing
         requirements. If the Company is unable to obtain the necessary
         additional capital, it may be required to reduce the scope of planned
         product development and sales and marketing efforts, as well as reduce
         the size of current staff, all of which could have a material adverse
         effect on its business, financial condition, and the Company's ability
         to reduce losses or generate profits.

         While the Company is aggressively pursuing additional sources of
         capital and taking steps to improve its sales efforts, there can be no
         assurance that the Company will be successful in its efforts to obtain
         additional funding resources, generate sufficient cash from operations,
         or achieve future profitability.

         REVENUE RECOGNITION
         Revenue from software product sales 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. Services revenue is
         recognized as services are performed. Maintenance revenue is recognized
         on a pro rata basis over the term of the maintenance agreements.

         International revenues are primarily generated by Firstwave UK and
         independent distributors who offer licenses of the Company's products
         in specific geographic areas. Under the terms of the Company's
         international distributor agreements, international distributors
         collect license fees and maintenance revenues on behalf of the Company,
         and generally remit 50% to 60% of standard license fees and maintenance
         revenues they produce. The Company recognizes international sales at
         the gross license amount, with the amount paid to the distributors
         reflected as a selling expense. The Company's international maintenance
         fees are reflected as maintenance revenues, with the amount retained by
         distributors shown as a cost of maintenance revenue.



                                       24
<PAGE>   25
FIRSTWAVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS


         Revenues from nonmonetary exchanges are recorded at the fair value of
         the products and services provided or received, whichever is more
         clearly evident.

         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 for
         maintenance.

         CONSOLIDATION
         The consolidated financial statements include the accounts of Firstwave
         Technologies, Inc. and its wholly owned subsidiary, Firstwave
         Technologies UK, Ltd. All significant intercompany transactions and
         balances have been eliminated in consolidation. Certain prior year
         amounts have been reclassified to conform to the current year
         presentation.

         USE OF ESTIMATES
         The preparation of financial statements in conformity with generally
         accepted accounting principles 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. Actual results could
         differ from those estimates.

         CONCENTRATION OF CREDIT RISK
         Financial instruments that potentially subject the Company to
         concentration of credit risk consist primarily of investment securities
         and trade receivables. The Company invests in commercial paper and US
         Treasury Bills. Credit risk from concentration of trade receivables is
         minimized as a result of the diverse nature of the Company's customer
         base.

         CASH AND CASH EQUIVALENTS
         Cash and cash equivalents include all highly liquid investment
         instruments with an original maturity of three months or less.

         RESTRICTED CASH
         Restricted cash represents a US Treasury Bill and a Certificate of
         Deposit used to secure certain of the Company's debt obligations.

         INVESTMENT SECURITIES
         In accordance with FAS 115, "Accounting for Certain Investments in Debt
         and Equity Securities," the Company classifies its investment
         securities as held-to-maturity based on their intent and ability to
         hold the securities. Accordingly, the Company recorded the investment
         securities at cost.

         PROPERTY AND EQUIPMENT
         Property and equipment are recorded at cost less accumulated
         depreciation and amortization. Depreciation and amortization for
         financial reporting purposes are recorded using the straight-line
         method over estimated useful lives ranging from three to six years.
         Expenditures for maintenance and repairs are charged to expense as
         incurred.

         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 FAS 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 FAS 86 and ends when the resulting product is available
         for sale. All costs incurred to establish the technological feasibility
         of software products are classified as research and development and are
         expensed as incurred.



                                       25
<PAGE>   26
FIRSTWAVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS

         Software development costs which are capitalized are subsequently
         reported at the lower of unamortized cost or net realizable value.
         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.

         INCOME TAXES
         The Company accounts for income taxes utilizing the liability method
         and deferred income taxes are determined based on the estimated future
         tax effects of differences between the financial reporting and income
         tax basis of assets and liabilities given the provisions of the enacted
         tax laws. A valuation allowance is provided if, based upon the weight
         of available evidence, it is more likely than not that some or all of
         the deferred tax assets will not be realized.

         STOCK-BASED COMPENSATION
         The Company has chosen to continue to account for stock-based
         compensation using the intrinsic value method prescribed in Accounting
         Principles Board Opinion No. 25, "Accounting for Stock Issued to
         Employees," and related Interpretations and to elect the disclosure
         option of FAS 123, "Accounting for Stock-Based Compensation".
         Accordingly, compensation cost for stock options is measured as the
         excess, if any, of the quoted market price of the Company's stock at
         the date of the grant over the amount an employee must pay to acquire
         the stock.

         FOREIGN CURRENCY TRANSLATION
         The financial statements of the Company's international subsidiary are
         translated into U.S. dollars at current exchange rates, except for
         revenues and expenses, which are translated at average exchange rates
         during each reporting period. Currency transaction gains or losses,
         which are included in the results of operations, are insignificant for
         all periods presented. Net exchange gains or losses resulting from the
         translation of assets and liabilities are included as a component of
         accumulated other comprehensive income in shareholders' equity.

         BASIC AND DILUTED NET LOSS PER COMMON SHARE
         Basic net loss per common share is based on the weighted average number
         of shares of common stock outstanding during the period. Stock options
         and convertible preferred stock would have been included in the diluted
         net loss per share calculation had they not been antidilutive. Net loss
         applicable to common shareholders includes a charge for dividends
         related to the Company's outstanding redeemable convertible preferred
         stock. The total number of common shares that would have been included
         in the Company's computation of diluted loss per share if they had been
         dilutive was 637,489 in 2000, 40,532 in 1999 and 153,691 in 1998.

         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.

         RECENT ACCOUNTING PRONOUNCEMENTS
         In December 1999, the Securities and Exchange Commission issued Staff
         Accounting Bulletin No. 101, Revenue Recognition in Financial
         Statements ("SAB 101"). This bulletin summarizes certain of the Staff's
         views in the application of generally accepted accounting principles to
         revenue recognition in financial statements. The Company's adoption of
         SAB 101, effective first quarter 2000, did not have a material impact
         on the consolidated financial statements.

         In March 2000, the Financial Accounting Standards Board issued
         Interpretation No. 44, Accounting for Certain Transactions Involving
         Stock Compensation, an interpretation of APB Opinion No. 25


                                       26
<PAGE>   27
FIRSTWAVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS

         (the "Interpretation"). The Interpretation addresses questions dealing
         with APB 25 implementation practice issues. The Company's adoption of
         the Interpretation did not have a material impact on the consolidated
         financial statements.

         In June 1998, the Financial Accounting Standards Board issued Statement
         of Financial Accounting Standards No. 133, Accounting for Derivative
         Instruments and Hedging Activities ("SFAS 133"). SFAS 133 establishes
         accounting and reporting standards for derivative instruments,
         including certain derivative instruments embedded in other contracts
         and for hedging activities. This statement is effective for financial
         statements for all fiscal quarters of all fiscal years beginning after
         June 15, 2000. The Company intends to adopt this statement when
         required and does not expect the adoption of SFAS 133 to have a
         material impact on the consolidated financial statements.


2.       ACQUISITIONS

         On April 30, 1998 the Company acquired its largest international
         distributor, Co-cam UK. Based in London, Co-cam UK now operates as
         Firstwave Technologies UK, Ltd. The transaction was an asset purchase
         from PMS Creative Ltd., a wholly owned subsidiary of Policy Management
         Systems Corporation. The purchase price of approximately $426,000 was
         payable in cash in four quarterly installments beginning July 31, 1998
         after an initial payment at closing of approximately $85,000. The
         excess of cost over the estimated fair value of the net assets acquired
         was $455,000 (including cost of acquisition of approximately $180,000)
         and was accounted for as goodwill which is being amortized over five
         years.

         The following presents the unaudited pro forma consolidated results of
         operations as if the acquisition had occurred as of January 1, 1998 (in
         thousands, except per share data):

<TABLE>
<CAPTION>
                                                      DECEMBER 31, 1998
                                                              Unaudited
<S>                                                            <C>
         Revenues                                               $15,489
         Net loss                                                (3,345)
         Basic and diluted net loss per share                      (.65)
</TABLE>


3.       PROPERTY AND EQUIPMENT

         Property and equipment are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                                    2000            1999
<S>                                                              <C>             <C>
         Computer hardware and other equipment                   $ 2,467         $ 3,377
         Furniture and fixtures                                    1,022           1,037
         Purchased software                                        1,277           1,106
                                                                 -------         -------
                                                                   4,766           5,520
         Less:  Accumulated depreciation and amortization         (4,049)         (4,598)
                                                                 -------         -------
                                                                 $   717         $   922
                                                                 =======         =======
</TABLE>

         Depreciation and amortization of property and equipment totaled
         approximately $576,000, $808,000, and $1,119,000, in 2000, 1999, and
         1998, respectively.


                                       27
<PAGE>   28

FIRSTWAVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS


4.       PRODUCT DEVELOPMENT EXPENSES

         Product development expenses are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                         2000          1999          1998
<S>                                                    <C>           <C>           <C>
       Total development expenses                      $2,407        $3,479        $2,280
       Less:  Additions to capitalized software
         development before amortization                1,563         1,861           200
                                                       ------        ------        ------
       Product development expenses                    $  844        $1,618        $2,080
                                                       ======        ======        ======
</TABLE>


         The activity in the capitalized software development account is
         summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                     2000            1999            1998
<S>                                               <C>             <C>             <C>
         Balance at beginning of year, net        $ 1,918         $   770         $ 1,089
         Additions                                  1,563           1,861             200
         Amortization expense                        (901)           (713)           (519)
                                                  -------         -------         -------
         Balance at end of year, net              $ 2,580         $ 1,918         $   770
                                                  =======         =======         =======
</TABLE>


5.       BORROWINGS

         During the second quarter of 2000, the Company executed a line of
         credit with a commercial bank in the amount of $1,500,000. At December
         31, 2000 there was $1,500,000 plus accrued interest outstanding on the
         new line of credit. This new line of credit bears interest at the prime
         rate, is effective through June 30, 2001 and is secured by a $1,500,000
         US Treasury bill owned by the Company. As discussed in Note 14, on
         April 5, 2001 the Company liquidated its $1,500,000 US Treasury bill
         and paid off the related $1,500,000 line of credit. The Company's
         former $3,000,000 line of credit expired September 15, 2000. At the
         time of expiration, there were no borrowings against the $3,000,000
         line of credit.

         During the third quarter of 2000, the Company executed a promissory
         note with a commercial bank in the amount of $700,000. At December 31,
         2000 the amount due on the promissory note was $700,000 plus accrued
         interest. The note bears interest at 7.94%, is payable in full with
         interest on January 5, 2001, and is secured by a $700,000 certificate
         of deposit owned by the Company. The Company renewed this note on
         January 5, 2001, at the same rate, for an additional 100 days. As
         discussed in Note 14, on April 16, 2001 the Company liquidated its
         $700,000 certificate of deposit and paid off the related $700,000
         promissory note.

         Based on the terms of the borrowing agreements, the US Treasury bill
         and certificate of deposit are restricted in their usage and are
         classified as restricted cash in the consolidated balance sheet.

         During the fourth quarter of 2000, the Company executed a line of
         credit with a commercial bank for $1,750,000 which expires December 18,
         2001, bears interest at the prime rate plus 1.5%, and is secured by the
         assets of the Company. The availability of this line of credit is based
         on a portion of the Company's outstanding accounts receivable balance.
         Debt issue costs associated


                                       28
<PAGE>   29

FIRSTWAVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS

         with this line of credit include warrants issued to the lender. The
         fair value of the warrants and other debt issue costs is being
         amortized over the life of the loan agreement. As of December 31, 2000,
         there was $636,000 plus accrued interest outstanding on this line. At
         December 31, 2000, the Company was in default of a certain financial
         covenant contained in the line of credit agreement. As a result of
         this noncompliance, the amounts outstanding on the line of credit are
         payable upon demand.


6.       REDEEMABLE PREFERRED STOCK

         During the fourth quarter of 2000, the Company issued 7,020 shares of
         Series B Redeemable Convertible Preferred Stock in a private placement.
         The Company received $702,000 in November 2000 related to this
         offering. The Preferred Stock has voting rights and accumulates
         dividends at a rate of 9% payable in cash or stock annually when
         declared by the Board of Directors and are convertible into Common
         Stock of the Company at anytime after May 15, 2001, at a conversion
         rate of $2.70 per share of Common Stock. The preferred stock has a
         liquidation preference of $100 per share plus all accrued and unpaid
         dividends. At December 31, 2000, there were no dividends payable
         related to this offering, but net loss applicable to common
         shareholders included a charge for $7,000 in dividends related to the
         Series B convertible preferred stock.

         During the second quarter of 1999, the Company issued 20,000 shares of
         Series A Redeemable Convertible Preferred Stock in a private placement.
         The Company received $1,000,000 in March 1999 and $1,000,000 in April
         1999 related to this offering. The Preferred Stock has voting rights
         and accumulates dividends at a rate of 9% payable in cash or stock
         annually when declared by the Board of Directors and are convertible
         into Common Stock of the Company at anytime after April 25, 2000, at a
         conversion rate of $2.06 per share of Common Stock. The preferred stock
         has a liquidation preference of $100 per share plus all accrued and
         unpaid dividends and becomes redeemable at $100 per share at the option
         of the Board of Directors after April 26, 2001. During 2000, 10,000
         shares of this offering were converted to 485,436 shares of common
         stock pursuant to the original terms of the preferred stock. At
         December 31, 2000, there were $113,000 dividends payable related to the
         Series A convertible preferred stock.

         The Series A and B Preferred Stock contain a mandatory redemption
         feature whereby the sale, lease, exchange or transfer of all or
         substantially all of the assets of the Company are regarded as
         liquidation events. Consistent with the classification of the Series B
         Preferred Stock, the Company has revised the consolidated financial
         statements as of December 31, 1999 to present the Series A Preferred
         Stock subject to mandatory redemption features as Redeemable Preferred
         Stock outside of shareholders' equity.


7.       SHAREHOLDERS' EQUITY

         During the third quarter of 1999, the Company issued, in a private
         placement to an institutional accredited investor, 500,000 unregistered
         restricted shares of authorized Common Stock at $3.00 per share for an
         aggregate amount of $1,500,000.


                                       29
<PAGE>   30

FIRSTWAVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS


8.       INCOME TAXES

         The Company's income tax expense principally results from a write-off
         of the deferred tax asset of $2,821,000, through an increase in the
         valuation allowance.

         The components of the provision for income taxes are as follows (in
         thousands):

<TABLE>
<CAPTION>
                                           YEAR ENDED DECEMBER 31,
                                 2000                1999             1998
       <S>                     <C>                 <C>              <C>
       Current
          Foreign              $   30              $   40           $   91

       Deferred
          Federal               2,821                  --               --
          State                    --                  --               --
          Foreign                  --                  --               --
                               ------              ------           ------
                               $2,851              $   40           $   91
                               ======              ======           ======
</TABLE>


         The difference between the provision for income taxes at the statutory
         federal income tax rate of 34% and the Company's effective tax rate is
         as follows:


<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                             2000            1999           1998
       <S>                                                 <C>             <C>            <C>
       Federal statutory tax rate                          -34.0%          -34.0%         -34.0%
       State income taxes, net of federal benefit           -3.8%           -4.0%          -3.1%
       Change in valuation allowance                       140.3%           30.1%          32.2%
       Foreign income taxes                                  1.1%            2.1%           2.9%
       Other                                                 0.2%            7.9%           4.9%
                                                           -----           -----          -----
                                                           103.8%            2.1%           2.9%
                                                           =====           =====          =====
</TABLE>


                                       30
<PAGE>   31
FIRSTWAVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS

At December 31, 2000 and 1999, deferred tax (assets) liabilities are comprised
of the following (in thousands):

<TABLE>
<CAPTION>
                                                                     YEAR ENDED
                                                                     DECEMBER 31,
                                                                 2000             1999
                                                               ---------        ---------
       <S>                                                     <C>              <C>
       Gross deferred tax liabilities
           Capitalization of software development costs        $     921        $     728
           Depreciation                                              238              231
           Other                                                      76               93
                                                               ---------        ---------
                                                                   1,235            1,052
                                                               ---------        ---------
        Gross deferred tax assets
           Foreign tax credit carryforwards                           --             (327)
           Net operating loss carryforwards                       (9,708)          (8,046)
           Tax credit carryforwards                                 (288)            (288)
           In process research and development                      (211)            (229)
           Allowance for doubtful accounts receivable                (99)            (151)
           Accrued expenses                                          (14)             (50)
           Other                                                      --              (72)
                                                               ---------        ---------
                                                                 (10,320)          (9,163)
           Valuation allowance                                     9,085            5,290
                                                               ---------        ---------
                                                                  (1,235)          (3,873)
               Net deferred tax assets                                --           (2,821)
        Less:  Current portion                                        --              200
                                                               ---------        ---------
                                                               $      --        $  (2,621)
                                                               ---------        ---------
</TABLE>



        The Company also has alternative minimum tax credit and general business
        tax credit carryforwards of approximately $43,000 and $245,000,
        respectively, which will expire in years 2008 through 2011. At December
        31, 2000 the Company has U.S. net operating loss carryforwards of
        approximately $24,939,000 which expire in years 2009 through 2015.

        FAS 109 specifies that deferred tax assets are to be reduced by a
        valuation allowance if it is more likely than not that some portion or
        all of the deferred tax assets will not be realized. A valuation
        allowance has been provided for those net operating loss carryforwards
        and foreign tax credits which are estimated to expire before they are
        utilized. Management's estimate of the valuation allowance could be
        affected in the near term based on results of operations in future
        periods.


9.      STOCK OPTION PLANS

        In February 1993, the Board of Directors adopted a Stock Option Plan
        (the "Option Plan"). The Company has reserved 1,200,000 shares of common
        stock for issuance under the Option Plan. Pursuant to the terms of the
        Option Plan, a committee of the Board of Directors is authorized to
        grant options to employees of the Company who are eligible to receive
        options under the Option Plan. The committee is further authorized to
        establish the exercise price, which for incentive stock options will be
        equal to the fair market value of the stock at the date of grant. A
        portion of the options granted vest on the first anniversary of the date
        of grant and the remainder vest over a two to five-year period
        thereafter as specified by the individual grant agreements. Vesting may
        accelerate based on Company performance criteria or change of control as
        specified by the


                                       31
<PAGE>   32

FIRSTWAVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS

        individual grant agreements. Options previously granted to
        non-management directors under a formula, as specified by the Option
        Plan, become exercisable in one-fourth increments on the first, second,
        third and fourth anniversaries of the date of grant. Options expire ten
        years after the date of grant.

        At December 31, 2000, 167,172 options were available for grant and
        805,723 options were outstanding related to the Option Plan.

        The Company has adopted the disclosure only provisions of FAS 123,
        "Accounting for Stock-Based Compensation." Had compensation cost for the
        Company's stock option grants described above been determined based on
        the fair value at the grant date for awards in 2000, 1999 and 1998
        consistent with the provisions of FAS 123, the Company's net loss and
        loss per share would have been reduced to the pro forma amounts
        indicated below (in thousands):

<TABLE>
<CAPTION>
                                                                             YEAR ENDED
                                                                             DECEMBER 31,
                                                                2000              1999             1998
        <S>                                               <C>               <C>               <C>
        Net loss applicable to common shareholders
           As reported                                    $  (6,116)        $  (2,075)        $  (3,125)
           Pro forma                                         (6,555)           (2,267)           (3,478)

        Net loss per share
           Basic and diluted
             As reported                                  $   (1.02)        $    (.40)        $    (.61)
             Pro forma                                        (1.09)            (0.43)            (0.68)
</TABLE>


        The fair value of each option grant and the employees' purchase rights
        is estimated on the date of grant using the Black-Scholes option-pricing
        model with the following weighted-average assumptions used in 2000, 1999
        and 1998, respectively: dividend yield of 0% for all years; expected
        volatility of 134%, 92% and 71%, risk-free interest rate ranging from
        4.78% to 6.32% and expected life of 4.5 years for grants in all years
        and 90 days for stock purchase rights for all quarters.

        In accordance with FAS 123, for the years ended December 31,1999 and
        1998, $10,000 and $7,000 respectively, was recorded to expense related
        to options and warrants granted to non-employees. There was no
        corresponding activity in 2000.


                                       32
<PAGE>   33

FIRSTWAVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS

         A summary of stock option activity is as follows:

<TABLE>
<CAPTION>
                                                              EXERCISE      WEIGHTED      WEIGHTED
                                                               PRICE      AVG EXERCISE    AVERAGE
                                                SHARES        PER SHARE       PRICE      FAIR VALUE
                                                                  $             $            $

         <S>                                  <C>            <C>          <C>            <C>
         Outstanding at December 31, 1997      1,029,876     2.31 - 4.94      3.20
           Granted                               461,500     1.88 - 5.00      3.53          2.10
           Exercised                             (34,511)           3.25      3.25
           Canceled or expired                  (399,818)    2.50 - 5.00      3.48
                                              ----------

         Outstanding at December 31, 1998      1,057,047     1.88 - 5.00      3.35
           Granted                               634,200     1.59 - 5.00      3.26          2.31
           Exercised                             (67,398)    2.56 - 5.00      3.14
           Canceled or expired                (1,000,402)    1.59 - 5.00      3.22
                                              ----------

         Outstanding at December 31, 1999        623,447     1.59 - 5.00      3.49

           Granted                               518,500     1.31 - 18.19     4.50          3.89
           Exercised                             (60,624)    1.88 -  5.00     3.22
           Canceled or expired                  (275,600)    1.88 - 16.19     4.35
                                              ----------

         Outstanding at December 31, 2000        805,723     1.31 - 18.19     3.86
                                              ==========

         Options exercisable
           at December 31, 2000                  151,147                      3.71
                                              ==========
</TABLE>

         The following table summarizes information about stock options
outstanding at December 31, 2000:

<TABLE>
<CAPTION>
                                       OPTIONS OUTSTANDING                   OPTIONS EXERCISABLE
                                   NUMBER      WEIGHTED                        NUMBER
                              OUTSTANDING       AVERAGE     WEIGHTED      OUTSTANDING      WEIGHTED
                                       AT     REMAINING      AVERAGE               AT       AVERAGE
                             DECEMBER 31,   CONTRACTUAL     EXERCISE     DECEMBER 31,      EXERCISE
                                     2000          LIFE        PRICE             2000         PRICE
         <S>                 <C>            <C>             <C>          <C>               <C>
         $1.31 - $ 3.38         304,048         8.79         $2.36           53,673          $2.54
         $3.50 - $ 4.75         290,675         8.38          3.98           83,724           4.26
         $4.94 - $18.18         211,000         8.99          5.86           13,750           4.99
                                -------                                     -------
         $1.31 - $18.18         805,723         8.69          3.86          151,147           3.71
                                =======                                     =======
</TABLE>


                                       33
<PAGE>   34

FIRSTWAVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS

10.      COMMITMENTS AND CONTINGENCIES

         The Company leases office space, equipment and automobiles under
         noncancelable lease agreements expiring on various dates through 2005.
         At December 31, 2000, future minimum rentals for noncancelable leases
         are as follows (in thousands):

<TABLE>
<CAPTION>
                                            MINIMUM
         YEAR ENDING                         ANNUAL
         DECEMBER 31,                       RENTALS
         <S>                                <C>
         2001                               $ 1,027
         2002                                 1,011
         2003                                   988
         2004                                   839
         2005                                   533
                                            -------
                                            $ 4,398
                                            =======
</TABLE>

         Net rent expense under these and other agreements was approximately
         $960,000, $1,056,000, and $619,000 for the years ended December 31,
         2000, 1999 and 1998, respectively. Rent expense was offset by rental
         income from subleased office space in the amounts of $46,000 and
         $295,000, for the years ended December 31, 1999 and 1998, respectively.
         There was no corresponding rental income in 2000.

         The Company is subject to legal proceedings and claims which may arise
         in the ordinary course of its business. In the opinion of management,
         the amount of the ultimate liability with respect to these actions will
         not materially affect the financial position of the Company.

11.      EMPLOYEE BENEFIT PLANS

         401(K) PLAN

         Effective August 1, 1991, the Company established a defined
         contribution plan (the "401(k) Plan") which qualifies under Section
         401(k) of the Internal Revenue Code for the benefit of eligible
         employees and their beneficiaries. Employees may elect to contribute up
         to 20% of their annual compensation to the 401(k) Plan. For each
         payroll period, the Company matches 30% of the lesser of (1) the
         participants' contribution or (2) 5% of the participants' compensation.
         In addition, the Company may make discretionary annual contributions.
         For the years ended December 31, 2000, 1999 and 1998, the Company made
         matching contributions of approximately $35,500, $34,500 and $59,100,
         respectively, to the 401(k) Plan and no discretionary contributions.

         EMPLOYEE STOCK PURCHASE PLAN

         The Company has reserved 70,000 shares of common stock for issuance
         under its Employee Stock Purchase Plan ("ESPP"). The ESPP was designed
         to qualify as an employee stock purchase plan under Section 423 of the
         Internal Revenue Code. The ESPP provides that eligible employees may
         contribute up to 10% of their base earnings each quarter for an option
         to purchase the Company's common stock. The exercise price of the
         option was 85% of the lower of the fair market value of the common
         stock at either the beginning or end of the quarter. Effective April 1,
         1998, the exercise price is 85% of the fair market value of the common
         stock on the last business day of each quarter. No compensation expense
         is recorded in connection with this plan. During 2000 and 1999, 2,129
         and 4,895 shares, respectively, were issued under the ESPP. At December
         31, 2000, 55,756 shares had been issued cumulatively under the plan and
         options to purchase 4,822 shares were outstanding.


                                       34
<PAGE>   35

FIRSTWAVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS

12.      SEGMENT INFORMATION

         During June 1997, the Financial Accounting Standards Board issued
         Financial Accounting Standard No. 131 - "Disclosures about Segments of
         an Enterprise and Related Information" (FAS 131). The statement
         requires detailed disclosures surrounding operating segments and
         certain enterprise-wide disclosures. Management believes that it has
         only a single segment consisting of software sales with related
         services and support. The enterprise-wide disclosures required by FAS
         131 are presented below. The Company exports its products through
         agreements with international distributors to whom it grants
         territorial rights.

         A summary of international revenues, including the Company's UK
         subsidiary, by geographic area is as follows (in thousands):

<TABLE>
<CAPTION>
                                                          YEAR ENDED
                                                        DECEMBER 31,
                                              2000            1999            1998

         <S>                              <C>             <C>             <C>
         United States                    $  4,300        $  5,318        $  6,877
         Europe                              4,249           5,026           6,341
         South America                         418              50             714
         Australia and New Zealand             303             787             501
         Asia                                  233              --              68
         South Africa                           --              12              36
                                          --------        --------        --------
                                          $  9,503        $ 11,193        $ 14,537
                                          ========        ========        ========
</TABLE>

         Long-lived assets of the Company are located primarily in the United
         States. However, as a result of the Co-cam acquisition (Note 2), fixed
         assets of $126,000, or 17.6% of the consolidated balance, are located
         in the United Kingdom.

13.      RELATED PARTY TRANSACTIONS

         During 1998, the Company incurred expense of $147,000 related to a
         third party software provider whose President was a member of the Board
         of Directors of the Company through April 1998. The 1998 payments were
         made according to a contract dated January 1, 1998. This thirty-month
         contract requires payments of royalties on a quarterly basis with a
         minimum payment of $36,750 per quarter.

         During the second quarter of 1999, the Company issued 20,000 shares of
         Series A Redeemable Convertible Preferred Stock in a private placement
         to two officers. The Company received $1,000,000 in March 1999 and
         $1,000,000 in April 1999 related to this offering.

         During the fourth quarter of 2000, the Company issued 7,020 shares of
         Series B Redeemable Convertible Preferred Stock in a private placement.
         5,250 shares of this offering, representing $525,000, were issued to an
         officer and a director of the Company.

         The Company's Chairman of the Board is also a member of the Board of
         Directors of one of the Company's lenders.


                                       35
<PAGE>   36

FIRSTWAVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS

14.      SUBSEQUENT EVENTS

         On February 12, 2001 the Company executed a promissory note with its
         President and Chief Executive Officer in the amount of $750,000. The
         note bears interest at 9% and is payable in full with interest on
         January 15, 2002. The note is secured by a junior lien on all of the
         Company's assets, subordinate to the Company's bank line of credit.

         During the first quarter of 2001, the Company paid down $410,000 on the
         revolving line of credit.

         On April 5, 2001, the Company liquidated its $1,500,000 US Treasury
         bill and paid off the related $1,500,000 line of credit.

         On April 16, 2001, the Company liquidated its $700,000 certificate of
         deposit and paid off the related $700,000 promissory note.


                                       36
<PAGE>   37

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

NONE.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required by this item is incorporated by reference to
information under the caption "Election of Directors - Director Nominee
Biographical Information", "- Executive Officers" and "- Compliance with Section
16(a) of the Securities Exchange Act of 1934" of the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on May 14, 2001.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this item is incorporated by reference to
information under the captions "Election of Directors - Additional Information
Concerning the Board of Directors" and "Executive Compensation" (exclusive of
the subsections entitled "Compensation Committee Report on Executive
Compensation" and "Performance Graph") in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on May 14, 2001.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by this item is incorporated by reference to
information under the caption "Beneficial Ownership of Common Stock" in the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
May 14, 2001.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this item is incorporated by reference to
information under the caption "Executive Compensation - Compensation Committee
Interlocks and Insider Participation" and "Certain Transactions" in the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
May 14, 2001.


                                       37
<PAGE>   38

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.

         (a)      The following documents are filed as part of this report:

                  1.       Financial Statements
                           -        Report of Independent Accountants
                           -        Consolidated Balance Sheet at December 31,
                                    2000 and December 31, 1999
                           -        Consolidated Statement of Operations for the
                                    three years ended December 31, 2000
                           -        Consolidated Statement of Changes in
                                    Shareholders' Equity for the three years
                                    ended December 31, 2000
                           -        Consolidated Statement of Cash Flows for the
                                    three years ended December 31, 2000
                           -        Notes to Financial Statements

                  2.       Financial Statement Schedules
                           -        Schedule II - Valuation and Qualifying
                                    Accounts, for the three years ended December
                                    31, 2000


                                       38
<PAGE>   39

3.       Exhibits

<TABLE>
<S>      <C>
3.1      Amended and Restated Articles of Incorporation of the Company.(1)

3.2      Amended and Restated By-laws of the Company (incorporated herein by
         reference to Exhibit 3(b)()of the Company's Registration Statement on
         Form S-8 (Registration No. 333-55939)).

3.3      Articles of Amendment dated April 26, 1999 setting forth the
         designation of the Series A Redeemable Preferred Stock.

3.4      Articles of Amendment dated November 15, 2000 setting forth the
         designation of the Series B Redeemable Preferred Stock.

4.1      See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
         Articles of Incorporation and Amended and Restated By-Laws of the
         Company defining rights of holders of Common Stock of the Company.

10.3     Lease dated January 30, 1988 between the Company and Atlanta Overlook
         Associates #3 concerning the Company's principal offices located at
         2859 Paces Ferry Road, Atlanta, GA, as amended by that certain First
         Amendment of Office Building Lease dated as of December 27, 1988 and as
         further amended by that certain Second Amendment of Office Building
         Lease dated as of October 2, 1989.(1)

10.4     Firstwave Technologies, Inc. Amended and Restated 1993 Stock Option
         Plan (incorporated herein by reference to Exhibit 4(a) of the Company's
         Registration Statement on Form S-8 (Registration No. 333-55939)).(7)

10.5     Tax Indemnification Agreement dated February 4, 1993 among the Company
         and certain of its shareholders.(2)

10.6     Form of Selective Distribution Agreement for International
         Distributors.(1)

10.7     Form of Software License Agreement.(1)

10.9     Computer Software License Marketing Agreement dated December 21, 1987
         between the Company and Co-Cam Computer Services, Pty. Ltd.(1)

10.10    Third Amendment to Lease Agreement dated as of March 10, 1993 between
         the Company and State of California Public Employees Retirement System
         relating to the Company's principal offices located at 2859 Paces Ferry
         Road, Atlanta, GA.(2)

10.11    Fourth Amendment to Lease Agreement dated as of June 24, 1993 between
         the Company and State of California Public Employees Retirement System
         relating to the Company's principal offices located at 2859 Paces Ferry
         Road, Atlanta, GA.(2)

10.12    Fifth Amendment to Lease Agreement dated as of March 22, 1994 between
         the Company and State of California Public Employees Retirement System
         relating to the Company's principal offices located at 2859 Paces Ferry
         Road, Atlanta, GA.(2)

10.13    Sixth Amendment to Lease Agreement dated as of September 22, 1994
         between the Company and State of California Public Employees Retirement
         System relating to the Company's principal offices located at 2859
         Paces Ferry Road, Atlanta, GA.(3)

10.14    Firstwave Technologies, Inc. Employee Stock Purchase Plan.
         (incorporated herein by reference to Exhibit 4(a) of the Company's
         Registration Statement on Form S-8 (Registration No. 333-55971)(7)

10.15    Option Agreement, dated July 25, 1997, between the Company and
         Netgain Corporation.(4)

10.17    Seventh Amendment to Lease Agreement dated as of January 20, 1998
         between the Company and State of California Public Employees Retirement
         System relating to the Company's principal offices located at 2859
         Paces Ferry Road, Atlanta, GA.(6)

10.18    Eighth Amendment to Lease Agreement dated as of May 8, 1998 between the
         Company and State of California Public Employees Retirement System
         relating to the Company's principal offices located at 2859 Paces Ferry
         Road, Atlanta, GA.(5)
</TABLE>


                                       39
<PAGE>   40


<TABLE>
<S>      <C>
10.19    First Amendment to Firstwave Technologies, Inc. 1993 Stock Option Plan
         (incorporated herein by reference to Exhibit 4(c) of the Company's
         Registration Statement on Form S-8 (Registration No. 333-55939)).(7)

10.20    First Amendment to Firstwave Technologies, Inc. Employee Stock Purchase
         Plan (incorporated herein by reference to Exhibit 4(b) of the Company's
         Registration Statement on Form S-8 (Registration No. 333-55971)).(7)

10.21    Board of Directors Compensation Plan (incorporated herein by reference
         to Exhibit 4(b) of the Company's Registration Statement on Form S-8
         (Registration No. 333-55939).(7)

10.22    Ninth Amendment to Lease Agreement dated as of February 3, 2000
         between the Company and National Office Partners Limited Partnership
         relating to the Company's principal offices located at 2859 Paces Ferry
         Road, Atlanta, GA.(8)

10.23    Tenth Amendment to Lease Agreement dated as of February 28, 2000
         between the Company and National Office Partners Limited Partnership
         relating to the Company's principal offices located at 2859 Paces Ferry
         Road, Atlanta, GA.(8)

10.24    Loan and Security Agreement in the amount of $1,500,000 dated June 28,
         2000 by the Company in favor of Silicon Valley Bank.

10.25    Promissory Note in the amount of $700,000 dated January 5, 2001 by
         the Company in favor of Bank of America.

10.26    Loan and Security Agreement in the amount of up to $1,750,000 dated
         December 19, 2000 by the Company in favor of Silicon Valley Bank

10.27    Promissory Note in the amount of $750,000 dated February 12, 2001 by
         the Company in favor of Richard T. Brock.

13       2000 Annual Report to Shareholders.

23       Consent of Independent Accountants. See page immediately preceding
         the signature page to this Report.
</TABLE>

(1)   Incorporated herein by reference to exhibit of the same number in the
Company's Registration Statement on Form S-1 (Registration No. 33-57984).

(2)   Incorporated herein by reference to exhibit of the same number in the
Company's Form 10-K for the year ended December 31, 1993.

(3)   Incorporated herein by reference to exhibit of the same number in the
Company's Form 10-K for the year ended December 31, 1994.

(4)   Incorporated herein by reference to exhibit of the same number in the
Company's Form 10-Q for the quarter ended June 30, 1997.

(5)   Incorporated herein by reference to exhibit of the same number in the
Company's Form 10-K for the year ended December 31, 1998.

(6)   Incorporated herein by reference to exhibit of the same number in the
Company's Form 10-K for the year ended December 31, 1997.

(7)   Management contract or compensatory plan or arrangement required to be
filed pursuant to Item 14(c) of Form 10-K.

(8)   Incorporated herein by reference to exhibit of the same number in the
Company's Form 10-K for the year ended December 31, 1999.


(b)      Form 8-K:
         None


                                       40
<PAGE>   41

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                      FOR THE YEAR ENDED DECEMBER 31, 2000
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                         BALANCE AT                                BALANCE AT
                                         BEGINNING     CHARGED TO     ACCOUNTS         END
                                             OF        COSTS AND      WRITTEN          OF
          DESCRIPTION                      PERIOD       EXPENSES    OFF/RELEASED     PERIOD
          -----------                    ----------    ----------   ------------   ----------

<S>                                      <C>           <C>          <C>            <C>
Allowance for doubtful accounts            $  345        $   57        $  115        $  287
                                           ------        ------        ------        ------

Tax asset valuation allowance              $5,290        $3,795        $    0        $9,085
                                           ------        ------        ------        ------
</TABLE>

                      FOR THE YEAR ENDED DECEMBER 31, 1999
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                         BALANCE AT                                BALANCE AT
                                         BEGINNING     CHARGED TO     ACCOUNTS        END
                                             OF        COSTS AND      WRITTEN          OF
          DESCRIPTION                      PERIOD       EXPENSES    OFF/RELEASED     PERIOD
          -----------                    ----------    ----------   ------------   ----------

<S>                                      <C>           <C>          <C>            <C>
Allowance for doubtful accounts            $  425        $   81        $  161        $  345
                                           ------        ------        ------        ------

Tax asset valuation allowance              $4,717        $  573        $    0        $5,290
                                           ------        ------        ------        ------
</TABLE>

                      FOR THE YEAR ENDED DECEMBER 31, 1998
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                         BALANCE AT                                BALANCE AT
                                         BEGINNING     CHARGED TO     ACCOUNTS        END
                                             OF        COSTS AND      WRITTEN          OF
          DESCRIPTION                      PERIOD       EXPENSES    OFF/RELEASED     PERIOD
          -----------                    ----------    ----------   ------------   ----------

<S>                                      <C>           <C>          <C>            <C>
Allowance for doubtful accounts            $  703        $   66        $  344        $  425
                                           ------        ------        ------        ------

Tax asset valuation allowance              $3,710        $1,007        $    0        $4,717
                                           ------        ------        ------        ------
</TABLE>


                                       41
<PAGE>   42

                       CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference the Registration Statement
on Form S-3 (No. 333-46319) and the Registration Statements on Form S-8 (No.
33-66456, No. 33-75374, No. 33-88304, No. 333-55939 and No. 333-55971) of
Firstwave Technologies, Inc. of our report dated April 16, 2001 relating to the
financial statements and financial statement schedule, which appears in this
Form 10-K.

PricewaterhouseCoopers LLP
Atlanta, Georgia
April 17, 2001


                                       42
<PAGE>   43

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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:  April 16, 2001               By: /s/  Richard T. Brock
                                        ----------------------------------------
                                        Richard T. Brock
                                        President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.


Date: April 16, 2001                /s/ Richard T. Brock
                                    --------------------------------------------
                                    Richard T. Brock
                                    President and Chief Executive Officer
                                    (Principal Executive Officer)


Date: April 16, 2001                /s/ Judith A. Vitale
                                    --------------------------------------------
                                    Judith A. Vitale
                                    Vice President Finance and Administration
                                    (Principal Financial and Accounting Officer)


Date: April 16, 2001                /s/ James R. Porter
                                    --------------------------------------------
                                    James R. Porter
                                    Chairman


Date: April 16, 2001                /s/ Roger A. Babb
                                    --------------------------------------------
                                    Roger A. Babb
                                    Director


Date: April 16, 2001                /s/ John F. Keane
                                    --------------------------------------------
                                    John F. Keane
                                    Director



Date: April 16, 2001                /s/ Michael T. McNeight
                                    --------------------------------------------
                                    Michael T. McNeight
                                    Director


                                       43