SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED ~~MARCH 31,~~SEPTEMBER 30, 2003

COMMISSION FILE NUMBER 0-21202

FIRSTWAVE TECHNOLOGIES, INC.

(Exact name of Registrant as specified in its charter)

~~GEORGIA~~Georgia		58-1588291

(State of incorporation)		(IRS Employer ~~Identification~~ID #)

~~2859 Paces Ferry Road, Suite 1000~~
~~Atlanta, Georgia 30339~~
~~(Address of principal executive offices)~~

~~(770-431-1200)~~
~~(Telephone number of registrant)~~

2859 Paces Ferry Road, Suite 1000
Atlanta, GA 30339
(Address of principal executive offices)

770-431-1200
(Telephone number of registrant)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

~~YES~~
Yes  xý   NO       o
No  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange ~~Act.)~~ Act).

~~YES~~
Yes o NO ý
No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Outstanding as of November 12, 2003:

Common Stock, no par value 2,671,866 shares

FIRSTWAVE TECHNOLOGIES, INC.

FORM 10-Q

For the quarter ended September 30, 2003

Index

		~~Outstanding as of May 9, 2003~~Page No.

Part I. Financial Information

Item 1. Financial Statements

	~~Common Stock, no par value~~	~~2,629,500 Shares~~

~~FIRSTWAVE® TECHNOLOGIES, INC.~~

~~FORM 10-Q~~

~~For the quarter ended March~~Consolidated Balance Sheet - December 31, 2002 and September 30, 2003

~~Index~~

~~Part I~~		~~Financial Information~~3

	~~Item 1.~~Consolidated Statement of Operations - For the Three and Nine Months Ended September 30, 2002 and September 30, 2003		~~Financial Statements~~4

	Consolidated ~~Balance Sheet~~Statement of Changes in Shareholders’ Equity - ~~December 31, 2002 and March 31,~~For the Nine Months Ended September 30, 2003	5

	Consolidated Statement of ~~Operations~~Cash Flows - For the ~~Three~~Nine Months Ended ~~March 31,~~ September 30, 2002 and ~~March 31,~~September 30, 2003	6

~~Consolidated Statement of Changes in Shareholders’ Equity -~~ ~~For the Three Months Ended March 31, 2003~~

~~Consolidated Statement of Cash Flows - For the Three Months Ended~~ ~~March 31, 2002 and March 31, 2003~~

Notes to Consolidated Financial Statements	7

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.			Quantitative and Qualitative Disclosures About Market Risk	18

Item 4. Controls and Procedures		18

~~Controls and Procedures~~Part II. Other Information

~~Part II.~~Item 6. Exhibits and Reports on Form 8-K		19

~~Other Information~~Item 10. Exhibits – Material Contracts		19

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FIRSTWAVE TECHNOLOGIES, INC.

Consolidated Balance Sheet

(in thousands)
(unaudited)

	Dec 31, 2002		Sept 30, 2003

ASSETS
Current assets:
Cash and cash equivalents	$	3,779	$	2,834
Accounts receivable, less allowance for doubtful accounts of $88 and $386, respectively		2,406		1,570
Prepaid expenses and other assets		664		1,143

Total current assets		6,849		5,547
Property and equipment, net		738		570
Software development costs, net		2,041		3,012
Intangible assets		0		1,086
Goodwill		175		2,390

	$	9,803	$	12,605

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	909	$	785
Deferred revenue		812		1,191
Accrued employee compensation and benefits		417		508
Borrowings		0		500
Dividends payable		42		41
Other accrued liabilities		802		394

Total current liabilities		2,982		3,419
Shareholders’ equity		6,821		9,186

	$	9,803	$	12,605

Dec 31,
2002

Mar 31,
2003

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$
3,779

$
3,557

Accounts receivable, less allowance for doubtful accounts of $88 and $388, respectively

2,406

3,698

Prepaid expenses and other assets

664

687

Total current assets

6,849

7,942

Property and equipment, net

738

708

Software development costs, net

2,041

2,812

Intangible assets

0

3,376

Goodwill

175

173

$
9,803

$
15,011

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$
909

$
1,836

Deferred revenue

812

1,643

Accrued employee compensation and benefits

417

635

Dividends payable

42

41

Other accrued liabilities

802

593

Total current liabilities

2,982

4,748

Shareholders’ equity

6,821

10,263

$
9,803

$
15,011

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

FIRSTWAVE TECHNOLOGIES, INC.

Consolidated Statement of ~~Income~~Operations

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

	For the Three Months Ended						For the Nine Months Ended

	Sept 30, 2002			Sept 30, 2003			Sept 30, 2002			Sept 30, 2003

Net Revenues
Software	$	405		$	640		$	1,784		$	3,019
Services		2,325			1,045			7,740			4,702
Maintenance		407			668			1,258			1,887
Other		4			16			16			32

		3,141			2,369			10,798			9,640

Cost and Expenses
Cost of revenues
Software		281			386			928			865
Services		759			786			2,465			2,535
Maintenance		118			181			398			494
Other		4			16			16			32
Sales and marketing		791			991			2,435			3,068
Product development		213			507			480			1,013
General and administrative		475			630			1,638			1,851

		2,641			3,497			8,360			9,858

Operating income/(loss)		500			(1,128	)		2,438			(218	)
Interest income		17			8			41			28

Income/(loss) before income taxes		517			(1,120	)		2,479			(190	)
Income taxes		0			0			0			(1	)

Net income/(loss)	$	517		$	(1,120	)	$	2,479		$	(191	)

Dividends on preferred stock		(62	)		(55	)		(192	)		(165	)

Net income/(loss) applicable to common shareholders	$	455		$	(1,175	)	$	2,287		$	(356	)

Basic:
Earnings/(loss) per share	$	0.21		$	(0.44	)	$	1.07		$	(0.14	)

Weighted average shares		2,212			2,660			2,132			2,547

Diluted:
Earnings/(loss) per share	$	0.16		$	(0.44	)	$	0.79		$	(0.14	)

Weighted average shares		3,200			2,660			3,143			2,547

~~(unaudited)~~

For the Three Months Ended

Mar 31,
2002

Mar 31,
2003

Net Revenues

Software

$
728

$
1,607

Services

2,875

2,140

Maintenance

448

529

Other

5

5

4,056

4,281

Cost and Expenses

Cost of revenues

Software

323

290

Services

794

953

Maintenance

163

141

Other

5

5

Sales and marketing

780

1,101

Product development

100

239

General and administrative

863

783

3,028

3,512

Operating income

1,028

769

Interest income

4

11

Income before income taxes

1,032

780

Income taxes

0

(1
)
Net income

$
1,032

$
779

Dividends on preferred stock

(66
)
(55
)

Net income applicable to common shareholders

$
966

$
724

Basic:

Earnings per share

$
0.46

$
0.30

Weighted average shares

2,100

2,430

Diluted:

Earnings per share

$
0.33

$
0.24

Weighted average shares

3,108

3,299

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

FIRSTWAVE TECHNOLOGIES, INC.

Consolidated Statement of Changes in Shareholders’ Equity

(In thousands, except share data)
(unaudited)

~~(unaudited)~~

For the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2003

											Add’l paid-in capital			Compre- hensive loss			Accumulated Other compre- hensive loss			Accumulated Deficit			Total
	Common Stock				Preferred Stock

	Shares		Amount		Shares			Amount

Balance at December 31, 2002		2,328,713	$	12		29,020		$	2,483		$	22,950		$	0		$	(131	)	$	(18,493	)	$	6,821
Exercise of common stock options		55,580		1								231												232
Issuance of common stock		3,444										40												40
Shares issued for Connect Care acquisition		200,000										2,535												2,535
Conversion of Series C Preferred Stock to common stock		83,333				(2,000	)		(150	)		150												0
Dividends												(165	)											(165	)
Comprehensive loss:
Net loss															(191	)					(191	)		(191	)
Foreign currency translation adjustment															(86	)		(86	)					(86	)

Comprehensive loss															(277	)


Balance at September 30, 2003		2,671,070	$	13		27,020		$	2,333		$	25,741					$	(217	)	$	(18,684	)	$	9,186

Add’l
paid-in
capital

Compre-
hensive
income

Accumulated
Other
comprehensive
loss

Accumulated
Deficit

Total

Common Stock

Preferred Stock
Shares

Amount

Shares

Amount

Balance at December 31, 2002

2,328,713

$
12

29,020

$
2,483

$
22,950

$
0

$
(131
)
$
(18,493
)
$
6,821

Exercise of common stock options

15,579

59

59

Employee stock purchases

0

Shares issued for Connect Care acquisition

200,000

0

2,630

2,630

Conversion of Series C Preferred Stock to Common

83,333

(2,000
)
(150
)
150

0

Dividends

(55
)
(55
)

Comprehensive income:

Net income

779

779

779

Foreign currency translation adjustment

29

29

29

Accumulated comprehensive loss

808

Balance at March 31, 2003

2,627,625

$
12

27,020

$
2,333

$
25,789

$
(102
)
$
(17,769
)
$
10,263

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

FIRSTWAVE TECHNOLOGIES, INC.

Consolidated Statement of Cash Flows

(in thousands)
(unaudited)

	For the Nine Months Ended

		Sept 30, 2002			Sept 30, 2003

Cash flows provided by operating activities	$	3,517		$	616

Cash flows from investing activities
Software development costs		(581	)		(1,722	)
Purchases of property and equipment		(690	)		(89	)
Acquisition of Connect-Care		0			(225	)

Net cash used in investing activities		(1,271	)		(2,036	)

Cash flows from financing activities
Proceeds from issuance of common stock		5			232
Proceeds from borrowings		0			500
Payment of dividends on preferred stock		(372	)		(166	)

Net cash provided by/(used in) financing activities		(367	)		566

Foreign currency translation adjustment		(76	)		(91	)

Increase/(decrease) in cash and cash equivalents		1,803			(945	)
Cash and cash equivalents, beginning of period		1,860			3,779

Cash and cash equivalents, end of period	$	3,663		$	2,834

Supplemental disclosure of cash flow information
Cash paid for income taxes	$	0		$	1

Cash paid for interest	$	0		$	0

Supplemental schedule of noncash investing and financing activities:

The Company acquired Connect-Care, Inc. in a transaction whereby Connect Care merged into a subsidiary of the Company in exchange for 200,000 shares of Firstwave common stock. At the time of the acquisition, Connect Care had liabilities of $624,244 which, by virtue of the merger, became liabilities of our new wholly-owned subsidiary,Connect-Care, Inc.

~~(unaudited)~~

For the Three Months Ended

March 31, 2002

March 31, 2003

Cash flows provided by operating activities

$
682

$
868

Cash flows from investing activities

Software development costs

(28
)
(975
)
Purchases of property and equipment

(57
)
(54
)
Acquisition of Connect-Care

0

(98
)
Net cash used in investing activities

(85
)
(1,127
)

Cash flows from financing activities

Proceeds from issuance of common stock

0

59

Payment of dividends on preferred stock

(227
)
(56
)
Net cash provided by/(used in) financing activities

(227
)
3

Foreign currency translation adjustment

40

34

Increase/(decrease) in cash and cash equivalents

410

(222
)
Cash and cash equivalents, beginning of period

1,860

3,779

Cash and cash equivalents, end of period

$
2,270

$
3,557

Supplemental disclosure of cash flow information

Cash paid for income taxes

$
0

$
1

Cash paid for interest

$
0

$
0

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

FIRSTWAVE TECHNOLOGIES, INC.

Notes to Consolidated Financial Statements
September 30, 2003

~~March 31, 2003~~
1.
A.~~Basis of Presentation~~
~~Firstwave Technologies, Inc. is a global software innovator~~ that provides strategic, web-based customer relationship management (CRM) solutions that automate and optimize the way companies win, maintain and grow customer relationships. The Firstwave product line consists of the Firstwave CRM Product Suite; Takecontrol^®and Firstwave for Unix. The Firstwave CRM Product Suite consists of the following four products: Firstwave eCRM, Firstwave CRM 10, Firstwave CORE IDE and Firstwave for Technology. Both eCRM and CRM 10 are web-based applications, the former being built with COM+ technology and the latter with ..NET technology. The CORE IDE is the toolset supporting CRM 10. The Firstwave for Technology products were acquired in the Connect-Care acquisition, and are client-server based. In addition to the Firstwave CRM Product Suite, Firstwave also supports Takecontrol^®~~, a client-server based product and Firstwave for Unix.~~
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States and should be read in conjunction with the consolidated financial statements contained in the Company’s Form 10-K/A for the period ended December 31, 2002. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the consolidated financial statements have been included.
The consolidated financial statements include the accounts of Firstwave Technologies, Inc. and its wholly owned subsidiaries, Connect-Care Inc. and Firstwave Technologies UK, Ltd. All intercompany transactions and balances have been eliminated in consolidation.
B.~~Accounting Policies~~
~~Concentration of credit risk and revenue~~
The Company is subject to credit risk primarily due to its trade receivables. The Company has credit risk due to the high concentration of trade receivables through Firstwave UK, whose customer, Electronic Data Services, Ltd, represented 72% of the Company’s total revenues for first quarter 2003 and 59% of the Company’s total Accounts Receivable outstanding at March 31, 2003. If this customer decreases its purchasing of the Company’s software and services, revenues would significantly decrease if not replaced with other customer accounts
~~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 license revenue. Services revenue is recognized as services are performed. Maintenance revenue is recognized ratably over the period of coverage.
The Company has arrangements with customers that provide for the delivery of multiple elements, including software licenses, and services. The Company allocates and recognizes revenue related to each of the multiple elements based on vendor specific objective evidence of the fair value of each element. Vendor specific objective evidence is based on standard pricing for each of the elements in our multiple element arrangements. Revenue associated with the various elements of multiple element arrangements is based on such vendor-specific objective evidence as the price charged for each element is the same as when the element would be sold separately from any other element. Pricing does not vary by customer or by duration, or by requirements of the arrangement.
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 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. There were no revenues derived from international distributors during the first quarter of 2003.
Description of Business and Basis of Presentation

Description of the Company
Firstwave^® Technologies, Inc. is a global provider of strategic, industry-focused, CRM software solutions that automate and optimize how companies win, maintain and grow customer relationships. The Firstwave product line consists of the Firstwave CRM Product Suite, which provides focused solutions to the following four industries: software and technology, sports and entertainment, manufacturing and the public sector. The Firstwave CRM Product Suite includes Firstwave eCRM^®, Firstwave IDE^®and Firstwave for Technology. Firstwave eCRM is a web-based application, built with COM+ technology or .NET technology. Firstwave IDE is the toolset supporting Firstwave eCRM. In addition to the Firstwave CRM Product Suite, Firstwave also provides and supports Takecontrol^®, a client-server based product, and Firstwave for UNIX^®.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with the consolidated financial statements contained in the Company’s Form 10-K/A for the period ended December 31, 2002. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the consolidated financial statements have been included.
The consolidated balance sheet at December 31, 2002 has been derived from the audited consolidated financial statements for the Company at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
The consolidated financial statements include the accounts of Firstwave Technologies, Inc. and its wholly owned subsidiaries, Connect-Care, Inc. and Firstwave Technologies UK, Ltd. All intercompany transactions and balances have been eliminated in consolidation.
2.
Use of estimates and Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Critical Accounting Policies
The Company believes that the following accounting policies are critical to understanding the consolidated financial statements:
     •     Revenue Recognition
     •     Capitalization of Software Development Costs
     •     Intangible Assets
3.
Summary of Significant Accounting Policies
Revenue recognition
The Company recognizes revenue in accordance with Statement of Position (SOP) 97-2, “Software Revenue Recognition”, as amended by SOP 98-9, and related interpretations.
Revenue from software product sales 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 license revenue. Services revenue is recognized as services are performed. Maintenance revenue is recognized ratably over the period of coverage.

Revenues from nonmonetary exchanges are recorded at the fair value of the products and services provided or received, whichever is more clearly evident. There were no nonmonetary exchanges during the first quarter of 2003.
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.
The Company provides an allowance for doubtful accounts based on management’s estimate of receivables that will be uncollectible. The estimate is based on historical charge-off activity and current account status.
~~Software development costs~~
Capitalized software development costs consist principally of salaries, contract services, and certain other expenses related to development and modifications of software products capitalized in accordance with the provisions of 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. The Company evaluates the establishment of technological feasibility based on the existence of a working model of the software product. Capitalized costs may include costs related to product enhancements resulting in new features and increased functionality as well as writing the code in a new programming language. In this case, as the version enhancements are built on an already detailed design under an existing source code, technological feasibility is established early for each version. All costs incurred to establish the technological feasibility of software products are classified as research and development and are expensed as incurred.
The Company evaluates the realizability of unamortized capitalized software costs at each balance sheet date. Software development costs which are capitalized are subsequently reported at the lower of unamortized cost or net realizable value. If the unamortized capitalized software cost exceeds the net realizable value of the asset, the amount would be written off accordingly. The net realizable value of the capitalized software development costs is the estimated future gross revenues of the software product reduced by the estimated future costs of completing and disposing of that product. Amortization of capitalized software costs is provided at the greater of the ratio of current product revenue to the total of current and anticipated product revenue or on a straight-line basis over the estimated economic life of the software, which is not more than three years. It is possible that those estimates of anticipated product revenues, the remaining estimated economic life of the product, or both could be reduced due to changing technologies. The amortization of software development costs is presented as a cost of software revenue in the Company’s financial statements.

The Company has arrangements with customers that provide for the delivery of multiple elements, including software licenses and services. The Company allocates and recognizes revenue related to each of the multiple elements based on vendor specific objective evidence of the fair value of each element. Vendor specific objective evidence is based on standard pricing for each of the elements in our multiple element arrangements. Revenue associated with the various elements of multiple element arrangements is based on such vendor-specific objective evidence, because the price charged for each element is the same as when the element would be sold separately from any other element. Pricing does not vary by customer, by duration, or by requirements of the arrangement.
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 remit to the Company 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 sales and marketing 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. There have been no revenues derived from independent international distributors during 2003.
Revenues from nonmonetary exchanges are recorded at the fair value of the products and services provided or received, whichever is more clearly evident. There have been no nonmonetary exchanges during 2003.
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.
The Company provides an allowance for doubtful accounts based on management’s estimate of receivables that may become uncollectible. The estimate is based on historical charge-off activity and current account status.
Software development costs
Capitalized software development costs consist principally of salaries, contract services, and certain other expenses related to development and modifications of software products capitalized in accordance with the provisions of SFAS 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.” Capitalization of such costs begins only upon establishment of technological feasibility as defined in SFAS 86 and ends when the resulting product is available for sale. The Company evaluates the establishment of technological feasibility based on the existence of a working model of the software product. Capitalized costs may include costs related to product enhancements resulting in new features and increased functionality as well as writing the code in a new programming language. Since the version enhancements are built on an already detailed design under an existing source code, technological feasibility is established early for each version. All costs incurred to establish the technological feasibility of software products are classified as research and development and are expensed as incurred.
The Company evaluates the realizability of unamortized capitalized software costs at each balance sheet date. Software development costs which are capitalized are subsequently reported at the lower of unamortized cost or net realizable value. If the unamortized capitalized software cost exceeds the net realizable value of the asset, the amount would be written off accordingly. The net realizable value of the capitalized software development costs is the estimated future gross revenues of the software product reduced by the estimated future costs of completing and disposing of that product. Amortization of capitalized software costs is provided at the greater of the ratio of current product revenue to the total of current and anticipated product revenue or on a straight-line basis over the estimated economic life of the software, which is not more than three years. It is possible that those estimates of anticipated product revenues, the remaining estimated economic life of the product, or both could be reduced due to changing technologies. The amortization of software development costs is presented as a cost of software revenue in the Company’s financial statements.
8

~~Stock-Based Compensation~~
Effective for 2002, the Company adopted FAS 148, “Accounting for Stock-Based Compensation - Transition and Disclosure”, and it did not have a material impact on the consolidated financial statements. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations and to elect the disclosure option of 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.
The Company has adopted the disclosure only provisions of FAS 123, “Accounting for Stock-Based Compensation.” The following table illustrates the effect on net income and net income per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee awards.

Quarter Ended
March 31

2002

2003

Net income as reported

$
966

$
724

Stock based employee compensation, net of related tax effects included in net income as reported

—

—

Stock based employee compensation, net of related tax effects under the fair value based method

11

129

Net income as adjusted

$
955

$
595

Earnings per share:

Basic - as reported

$
.46

$
.30

Basic - as adjusted

$
.45

$
.24

Diluted - as reported

$
.33

$
.24

Diluted - as adjusted

$
.33

$
.20

The variance in the compensation expense between first quarter 2002 compared to first quarter 2003 is primarily the result of options that were cancelled during the first quarter of 2002 related to a Stock Exchange Program. On March 19, 2002 the Company completed a Stock Exchange Program that offered each of its directors and employees who held options under the Option Plan with an exercise price of greater than $10.00 the opportunity to surrender those options for cancellation in exchange for new options to be granted no sooner than six months and one day after cancellation. The options cancelled in March 2002 under this program totaled 81,684. The Company granted 81,684 new options on September 20, 2002.
There is no tax benefit included in the stock-based employee compensation expense determined under the fair-value-based method for the three months ended March 31, 2003 and March 31, 2002, as the Company established a full valuation allowance for its net deferred tax assets.

Impairment of Intangible Assets
In accordance with SFAS No 142 “Goodwill and Other Intangible Assets”, intangible assets with indefinite useful lives must be tested periodically for impairment. Examples of Management’s judgment regarding the existence of impairment of an intangible asset and the resulting fair value, would include management’s assessment of adverse changes in legal factors, market conditions, or loss of key personnel. If the fair value of the intangible asset is determined to be in excess of the carrying value, the Company would record an impairment loss.
Concentration of credit risk and revenue
The Company is subject to credit risk primarily due to its trade receivables. The Company has credit risk due to the high concentration of trade receivables through Firstwave UK, whose customer, Electronic Data Services, Ltd, represented 72% of the Company’s total revenues for the first quarter of 2003, 47% of the Company’s total revenues for the second quarter of 2003, and 62% of the Company’s total revenues for the third quarter of 2003. This customer also accounted for 59% of the Company’s total Accounts Receivable outstanding at March 31, 2003, 42% of the Company’s total Accounts Receivable outstanding at June 30, 2003, and 67% of the Company’s total Accounts Receivable outstanding at September 30, 2003. If this customer decreases its purchasing of the Company’s software and services, revenues would significantly decrease if not replaced with other customer accounts.
Stock-Based Compensation
Effective for 2002, the Company adopted SFAS 148, “Accounting for Stock-Based Compensation - Transition and Disclosure,” which did not have a material impact on the consolidated financial statements. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations and to elect the disclosure option of SFAS 123, “Accounting for Stock-Based Compensation.” Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s stock at the date of the grant over the amount an employee must pay to acquire the stock.
The Company has adopted the disclosure-only provisions of SFAS 123, “Accounting for Stock-Based Compensation.” The following table illustrates the effect on net income and net income per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee awards, (in thousands, except for per share data).

For the Three Months Ended
Sept 30,

For the Nine Months Ended
Sept 30,

2002

2003

2002

2003

Net income/(loss) as reported

$
455

$
(1,175
)
$
2,287

$
(356
)
Stock based employee compensation, net of related tax effects included in net income as reported

—

—

—

—

Stock based employee compensation, net of related tax effects under the fair value based method

456

171

537

448

Net income/(loss) as adjusted

$
(1
)
$
(1,346
)
$
1,750

$
(804
)

Earnings/(loss) per share:

Basic - as reported

$
0.21

$
(0.44
)
$
1.07

$
(0.14
)

Basic - as adjusted

(0.00
)
$
(0.51
)
$
0.82

$
(0.32
)

Diluted - as reported

$
0.16

$
(0.44
)
$
0.79

$
(0.14
)

Diluted - as adjusted

(0.00
)
$
(0.51
)
$
0.62

$
(0.32
)

9

~~Basic and diluted net income per common share~~
Basic net income per common share is based on the weighted average number of shares of common stock outstanding during the period. Stock options and convertible preferred stock are included in the diluted earnings per share calculation when they are not antidilutive. Net income applicable to common shareholders includes a charge for dividends related to the Company’s outstanding preferred stock.
~~Shown below is a reconciliation of the numerators and denominators of the basic and diluted per share computations for income from continuing operations.~~

For Quarter Ended March 31, 2003

Income (000’s)
(Numerator)

Shares (000’s)
(Denominator)

Per Share
Amount

Net income

779

Less: Preferred Stock Dividends

(55
)

Basic EPS

Income available to common shareholders

724

2,430

$
0.30

Effect of Dilutive Securities

Warrants

19

Convertible Preferred Stock

55

665

Stock Options

185

55

869

Diluted EPS

Income available to common shareholders

779

3,299

$
0.24

For Quarter Ended March 31, 2002

Income (000’s)
(Numerator)

Shares (000’s)
(Denominator)

Per Share
Amount

Net income

1,032

Less: Preferred Stock Dividends

(66
)

Basic EPS

Income available to common shareholders

966

2,100

$
0.46

Effect of Dilutive Securities

Warrants

19

Convertible Preferred Stock

66

943

Stock Options

46

66

1,008

Diluted EPS

Income available to common shareholders

1,032

3,108

$
0.33

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for the quarters ended September 30, 2002 and September 30, 2003, respectively; dividend yield of 0% for both quarters; expected volatility of 149% and 141%, and risk-free interest rate of 3.82% and 3.14%. For the nine month periods ended September 30, 2002 and September 30, 2003, respectively, the assumptions used were dividend yield of 0% for both periods; average expected volatility of 149% and 144%, and average risk-free interest rate of 3.82% and 2.87%.
The decrease in the compensation expense from $456,000 in the third quarter of 2002 compared to $171,000 in the third quarter of 2003 is primarily due to options issued in the third quarter of 2002 related to a Stock Exchange Program. On March 19, 2002 the Company completed a Stock Exchange Program that offered each of its directors and employees who held options under the Option Plan with an exercise price of greater than $10.00 the opportunity to surrender those options for cancellation in exchange for new options to be granted no sooner than six months and one day after cancellation. The options cancelled in March 2002 under this program totaled 81,684. The Company granted 81,684 new options on September 20, 2002. Options are issued at the market price of the Company’s common stock at the date of grant.
There is no tax benefit included in the stock-based employee compensation expense determined under the fair-value-based method for the three and nine month periods ended September 30, 2003 and September 30, 2002, as the Company established a full valuation allowance for its net deferred tax assets.
Basic and diluted net income per common share
Basic net income per common share is based on the weighted average number of shares of common stock outstanding during the period. Stock options and convertible preferred stock are included in the diluted earnings per share calculation when they are not antidilutive. Net income applicable to common shareholders includes a charge for dividends related to the Company’s outstanding preferred stock.
Shown below is a reconciliation of the numerators and denominators of the basic and diluted per share computations for income from continuing operations.

For Quarter Ended Sept 30, 2003

For Nine Months Ended Sept 30, 2003

Income (000’s)
(Numerator)

Shares (000’s)
(Denominator)

Per Share
Amount

Income (000’s)
(Numerator)

Shares (000’s)
(Denominator)

Per Share
Amount

Net income/(loss)

(1,120
)

(191
)

Less: Preferred Stock Dividends

(55
)

(165
)

Basic EPS

Income available to common shareholders

(1,175
)

2,660

$
(0.44
)

(356
)

2,547

$
(0.14
)
Effect of Dilutive Securities

Warrants

19

19

Convertible Preferred Stock

55

665

165

665

Stock Options

61

132

55
(1)

745
(1)

165
(1)

816
(1)

Diluted EPS

Income available to common shareholders

(1,175
)

2,660

$
(0.44
)

(356
)

2,547

$
(0.14
)
(1) Not included because anti-dilutive

10

~~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.
~~Use of estimates~~
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
~~Impairment of long-lived assets~~
The Company evaluates impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss would be recognized. Measurement of an impairment loss for long-lived assets would be based on the fair value of the asset.
~~Segment reporting~~
Management believes that it has only a single segment consisting of software sales with related services and support. The information presented in the consolidated statement of operations reflects the revenues and costs associated with this segment that management uses to make operating decisions and assess performance.
C.~~Borrowings~~
~~The Company has no outstanding long-term debt.~~
D.~~Acquisition~~
On March 3, 2003, Firstwave Technologies, Inc. (“Firstwave”), a Georgia corporation, acquired Connect-Care, Inc. (“Connect-Care”), a Georgia corporation that provides customer relationship management (CRM) software solutions for software companies. Connect-Care was acquired pursuant to a Merger Agreement dated March 3, 2003 (the “Merger Agreement”) by and among Firstwave, CC Subsidiary, Inc., a wholly-owned subsidiary of Firstwave (“Merger Sub”), Connect-Care, and certain shareholders of Connect-Care. Pursuant to the Merger Agreement, Merger Sub merged with and into Connect-Care, and Connect-Care, which was the surviving corporation in the Merger, became a wholly-owned subsidiary of Firstwave, the results of Connect-Care’s operations have been included in the Company’s financial statements since March 3, 2003.
In exchange for all outstanding shares of Connect-Care stock, Firstwave issued 200,000 shares of Firstwave common stock to the shareholders of Connect-Care and granted such shareholders certain registration rights. Additional consideration of $300,000 in cash may be payable if certain revenue goals, as set forth in Section 3.1 of the Merger Agreement, are attained. Such amount would be paid on or prior to the earlier of (i) the date Firstwave files its Annual Report on Form 10-K with respect to the fiscal year ending December 31, 2003 or (ii) March 31, 2004.
The $300,000 earn-out provision of the merger agreement with Connect-Care makes this payment contingent upon the attainment of certain total revenues, including license revenues and associated maintenance revenues that would be recognized according to SOP 97-2, during 2003 from March through December. Such earn-out is contingent consideration based upon future financial performance. Such revenue attainment is offset by any net accounts receivable shown as of February 28, 2003, not collected by December 31, 2003. If the revenue targets are realized, the $300,000 will be paid in full. If the revenue targets are partially realized, then the payout is payable ratably. If the revenue target is met, the payout will be accounted for on Firstwave’s financial statements as an increase to the purchase price of the acquisition and an increase to intangible assets.
The Company is accounting for the $300,000 as contingent consideration in accordance with paragraphs 25 through 28 of SFAS 141. Because the amount, if any, of contingent consideration was not determinable at the acquisition date, no amount for the contingency will be recorded in the Company’s financial statements until the contingency is resolved, or the consideration is issued or becomes issuable. The Company expects that, should any amount of contingent consideration be issuable, such amount would result in an additional element of the cost of acquiring Connect-Care.

For Quarter Ended Sept 30, 2002

For Nine Months Ended Sept 30, 2002

Income (000’s)
(Numerator)

Shares (000’s)
(Denominator)

Per Share
Amount

Income (000’s)
(Numerator)

Shares (000’s)
(Denominator)

Per Share
Amount

Net income

517

2,479

Less: Preferred Stock Dividends

(62
)

(192
)

Basic EPS

Income available to common shareholders

455

2,212

$
0.21

2,287

2,132

$
1.07

Effect of Dilutive Securities

Warrants

19

19

Convertible Preferred Stock

62

831

192

884

Stock Options

138

108

62

988

192

1,011

Diluted EPS

Income available to common shareholders

517

3,200

$
0.16

2,479

3,143

$
0.79

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 are included in the results of operations as general and administrative expenses in the Company’s financial statements. 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.
Impairment of long-lived assets
The Company evaluates impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss would be recognized. Measurement of an impairment loss for long-lived assets would be based on the fair value of the asset.
Segment reporting
Management believes that the Company has only a single segment consisting of software sales with related services and support. The information presented in the consolidated statement of operations reflects the revenues and costs associated with this segment that management uses to make operating decisions and assess performance.
4.
Borrowings
On July 29, 2003, the Company signed a “Revolving Facility” loan with RBC Centura whereby the Company may borrow up to $1,000,000. The Company borrowed $500,000 against the line of credit effective September 30, 2003. The Revolving Facility bears interest at a variable rate equal to the one month London Interbank Offered Rate (LIBOR) plus 300 basis points, or the “RBC Centura Prime Rate” plus 0.50%, at Borrower’s option. The first $500,000 of the Revolving Facility is available on a non-formula basis. Once advances under the Revolving Facility exceed $500,000, any advances are based on a borrowing base of 75% of eligible accounts receivable and a certified borrowing base report. The loan is secured by the assets of the Company. The Company must comply with certain financial covenants per the terms of the agreement. As of September 30, 2003, the Company was in compliance with all required covenants.
5.
Acquisition
On March 3, 2003, Firstwave Technologies, Inc. (“Firstwave”), a Georgia corporation, acquired Connect-Care, Inc. (“Connect-Care”), a Georgia corporation that provides customer relationship management (CRM) software solutions for software companies. Connect-Care was acquired pursuant to a Merger Agreement dated March 3, 2003 (the “Merger Agreement”) by and among Firstwave, CC Subsidiary, Inc., a wholly-owned subsidiary of Firstwave (“Merger Sub”), Connect-Care, and certain shareholders of Connect-Care. Pursuant to the Merger Agreement, Merger Sub merged with and into Connect-Care, and Connect-Care, which was the surviving corporation in the Merger, became a wholly-owned subsidiary of Firstwave. The results of Connect-Care’s operations have been included in the Company’s financial statements since March 3, 2003.
11

An analysis of each material asset acquired and each material liability assumed from the acquisition of Connect-Care was completed to ensure accuracy of fair value. All line items represented fair value because of each item’s short-term nature. The Company evaluated each asset and liability and the timing in which assets would be received and liabilities would be settled and determined that these amounts represented their fair values.
~~The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition.~~
Current Assets

$
771,660

Property and Equip

$
29,504

Intangible Assets

$
3,376,061

Goodwill

$
—

Total assets acquired

$
4,177,225

Current liabilities

$
(1,423,086
)

Net assets acquired

$
2,754,139

Of the $3,376,061 of acquired intangible assets, $300,000 was assigned as an estimated net realizable amount to the Connect-Care technology and $3,076,061 was assigned as an estimated value for customer relationships based on potential future revenues that may be derived from such customer relationships. Both of these intangible assets will be evaluated for impairment in accordance with FAS No. 142 “Goodwill and Other Intangible Assets”.

In exchange for all outstanding shares of Connect-Care stock, Firstwave issued 200,000 shares of Firstwave common stock to the shareholders of Connect-Care and granted such shareholders certain registration rights. Additional consideration of $300,000 in cash may be payable if certain revenue goals, as set forth in Section 3.1 of the Merger Agreement, are attained. Such amount would be paid on or prior to the earlier of (i) the date Firstwave files its Annual Report on Form 10-K with respect to the fiscal year ending December 31, 2003 or (ii) March 31, 2004.
The $300,000 earn-out provision of the merger agreement with Connect-Care makes this payment contingent upon the attainment of certain total revenues, including license revenues and associated maintenance revenues that would be recognized according to SOP 97-2, during 2003 from March through December. Such earn-out is contingent consideration based upon future financial performance. Such revenue attainment is offset by any net accounts receivable shown as of February 28, 2003, not collected by December 31, 2003. If the revenue targets are realized, the $300,000 will be paid in full. If the revenue targets are partially realized, then the payout is payable ratably. If the revenue target is met, the payout will be accounted for on Firstwave’s financial statements as an increase to the purchase price of the acquisition and an increase to goodwill.
The Company is accounting for the $300,000 as contingent consideration in accordance with paragraphs 25 through 28 of SFAS 141. Because the amount, if any, of contingent consideration was not determinable at the acquisition date, no amount for the contingency will be recorded in the Company’s financial statements until the contingency is resolved, or the consideration is issued or becomes issuable. The Company expects that, should any amount of contingent consideration be issuable, such amount would result in an additional element of the cost of acquiring Connect-Care.
An analysis of each material asset acquired and each material liability assumed from the acquisition of Connect-Care was completed to ensure accuracy of fair value. All line items represented fair value because of each item’s short-term nature. The Company evaluated each asset and liability and the timing in which assets would be received and liabilities would be settled and determined that these amounts represented their fair values.
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition.

Current Assets

$
771,660

Property and Equipment

$
29,504

Intangible Assets

$
1,200,000

Goodwill

$
2,209,762

Total assets acquired

$
4,210,926

Current liabilities

$
(1,425,408
)

Net assets acquired

$
2,785,518

Of the $3,409,762 of acquired intangible assets, $300,000 was assigned as an estimated fair value of the Connect-Care technology, $900,000 was assigned as an estimated fair value for customer relationships based on potential future revenues that may be derived from such customer relationships and the remaining balance of $2,209,762 was assigned to goodwill with an indefinite life. We believe this goodwill reflects such matters as (but not limited to) personnel that we obtained in the acquisition, new customer opportunities that we will have as a result of our involvement with the acquired customers, relationships we will develop through the acquisition, and expertise and name recognition we will receive through this acquisition. Goodwill will be evaluated periodically for impairment in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets.”
During the third quarter of 2003 an additional $4,792 in acquisition costs were recorded related to the Connect-Care acquisition.
12

The following table summarizes the comprehensive purchase price, including net liabilities assumed and costs to date related to the acquisition.

Purchase Price

$
2,630,000

200,000 shares at $13.15

Net liabilities assumed

$
624,244

Cost of acquisition to date

$
155,518

Comprehensive purchase price

$
3,409,762

The primary objective of the Connect-Care acquisition was to acquire the customer relationships of the customer base of Connect-Care and, to a lesser degree, to acquire utilization of Connect-Care technology. The Connect-Care technology asset consists of the source code for the Connect-Care product. We believe we will continue to derive revenue from licensing this product to new and existing customers. The customer relationship asset represents the existing customer base of Connect-Care which we believe will continue to contribute revenue from the purchase of additional licenses of the Connect-Care product, purchase of additional service engagements, and renewals of annual maintenance agreements. We also expect that some of the existing active customers or former customers may transition to the Firstwave eCRM product. Of the $3,409,762 purchase price, $300,000 was assigned as an estimated fair value to the intangible asset Connect-Care technology with an estimated useful life of three years, $900,000 was assigned as an estimated fair value to the intangible asset Connect-Care customer relationships with an estimated useful life of seven years, and $2,209,762 was assigned to goodwill. The weighted average amortization period for these intangible assets is six years. There are no significant residual values in the intangible assets. The Company began amortization of the intangible assets effective April 1, 2003, recording $57,141 in amortization expense in both the second and third quarters of 2003. Goodwill will be evaluated for impairment in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets.” There was no change in the carrying amount of goodwill during the third quarter of 2003.
The following table presents details of Acquired Intangible Assets:

December 31, 2002

September 30, 2003

Gross carrying
amount

Accumulated
amortization

Gross carrying
amount

Accumulated
amortization

Amortized intangible assets

Connect-Care Technology

—

—

300,000

50,000

Connect-Care Customer Relationships

—

—

900,000

64,282

Total

—

—

1,200,000

114,282

Aggregrate Amortization Expense

For the Nine months ended September 30, 2003

114,282

Estimated Amortization Expense

For year ended December 31, 2003

171,429

For year ended December 31, 2004

228,571

For year ended December 31, 2005

228,571

For year ended December 31, 2006

153,571

For year ended December 31, 2007

128,571

13
The following table presents the unaudited pro forma consolidated results of operations as if the acquisition had occurred as of January 1 of each year presented, (in thousands, except per share data).

Quarter Ended

Nine Months Ended

Sept 30,
2002

Sept 30,
2003

Sept 30,
2002

Sept 30,
2003

Revenues

$
4,237

$
2,369

$
12,736

$
9,987

Net Income

$
538

$
(1,175
)
$
1,822

$
(780
)
Earnings per share

Basic

$
0.22

$
(0.44
)
$
0.78

$
(0.30
)
Diluted

$
0.18

$
(0.44
)
$
0.60

$
(0.30
)

6.
Subsequent Events
During the third quarter of 2003, the Company continued work on a material services project which was required to be delivered by September 30, 2003. Because the Company did not meet that delivery date, it was required to deliver the project by October 31, 2003. The Company did deliver the project on October 31, 2003, and the customer began acceptance testing.
14
Item 2.
FIRSTWAVE TECHNOLOGIES, INC.

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Financial Statements and Notes thereto of the Company presented in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2002. This section contains forward-looking statements that reflect management’s expectations, estimates, and projections for future periods. These statements may be identified by the use of forward-looking words such as “may”, “will”, “believe”, “anticipate”, “estimate”, “expect”, “projects”, or “intends”. Actual events and results may differ from the results anticipated by the forward-looking statements. Factors that might cause such differences include, but are not limited to, those items discussed under the caption “Certain Factors Affecting Forward-Looking Statements” presented in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2002.

~~Overview~~

Overview
Firstwave^® Technologies, Inc. is a global ~~software innovator~~ ~~that provides~~provider of strategic, ~~web-based customer relationship management (CRM)~~industry-focused, CRM software solutions that automate and optimize ~~the way~~how companies win, maintain and grow customer relationships. The Firstwave product line consists of the Firstwave CRM Product ~~Suite; Takecontrol~~Suite, which provides focused solutions to the following four industries: software and technology, sports and entertainment, manufacturing and the public sector. The Firstwave CRM Product Suite includes Firstwave eCRM^®, Firstwave IDE^®and Firstwave for ~~Unix. The Firstwave CRM Product Suite consists of the following four products:~~Technology. Firstwave eCRM ~~Firstwave CRM 10, Firstwave CORE IDE and Firstwave for Technology. Both eCRM and CRM 10 are~~is a web-based ~~applications, the former being~~application, built with COM+ technology ~~and the latter with ..NET~~or .NET technology. ~~The CORE~~Firstwave IDE is the toolset supporting ~~CRM 10. The~~ Firstwave ~~for Technology products were acquired in the Connect-Care acquisition, and are client-server based.~~eCRM. In addition to the Firstwave CRM Product Suite, Firstwave also provides and supports Takecontrol^®, a client-server based product, and Firstwave for ~~Unix.~~UNIX^®.

Results of Operations

~~During the first quarter of 2003 we reported our sixth consecutive quarter of profitability.~~ Total revenues ~~increased 5.5%~~decreased 24.6% from ~~$4,056,000~~$3,141,000 in the ~~first~~third quarter of 2002 to ~~$4,281,000~~$2,369,000 in the ~~first quarter of 2003. Software revenues increased 120.7% from $728,000 in the first quarter of 2002 to $1,607,000 in the first~~third quarter of 2003 primarily due to a ~~large~~decrease in services revenues. For the nine month period ended September 30th, total revenues decreased 10.7% from $10,798,000 in 2002 to $9,640,000 in 2003.

Software revenues increased 58.0% from $405,000 in the third quarter of 2002 to $640,000 in the third quarter of 2003. For the nine month period ended September 30th, software revenues increased 69.2% from $1,784,000 in 2002 to $3,019,000 in 2003. These increases are primarily due to software license ~~contract related to our relationship~~agreements entered into with ~~a leading global services company,~~ Electronic Data Services, Ltd. during the first and third quarters of 2003. Our software revenues are significantly dependent upon the timing of closing of license ~~agreements. During the first quarter~~agreements and current quarterly results may not be indicative of 2003, we had a major concentration of software and services revenue derived from our relationship with Electronic Data Services, Ltd. which contributed 71.9% of our total revenue for the quarter. If this party decreases its purchasing of our software and services, our revenues would significantly decrease if not replaced with other customer accounts. We are aggressively pursuing strategies to transition our revenue stream away from dependency on a few large customers to a more diverse customer base. Our recent acquisition of Connect-Care assists in diversifying our customer base.

future performance.

Services revenues decreased ~~25.6%~~55.1% from ~~$2,875,000~~$2,325,000 in the ~~first~~third quarter of 2002 to ~~$2,140,000~~$1,045,000 in the ~~first~~third quarter of 2003 and, for the nine month period ended September 30th, decreased 39.3% from $7,740,000 in 2002 to $4,702,000 in 2003. During ~~the first quarter of~~ 2002 we had a ~~very large~~significant services engagement with Electronic Data Services, Ltd. While we continued our services engagement with Electronic Data Services, Ltd during ~~the first quarter of~~ 2003, the scale of the services decreased compared to ~~the services performed during first quarter~~ 2002. Our services revenues are subject to fluctuations based on variations of the length of and number of active service engagements in a given quarter.

During the third quarter of 2003, we continued to have a concentration of revenue derived from our relationship with Electronic Data Services, Ltd. During 2003, this customer contributed 72% of our total revenue for the first quarter, 47% of total revenue during the second quarter, and 62% of total revenue during the third quarter. If this customer decreases its purchasing of our software and services, our revenues would significantly decrease if not replaced with other customer accounts. We are pursuing strategies to continue to transition our revenue stream away from dependency on a few large customers to a more diverse customer base. The acquisition of Connect-Care has assisted in diversifying our customer base.

Maintenance revenues increased ~~18.1%~~64.1% from ~~$448,000~~$407,000 in the ~~first~~third quarter of 2002 to ~~$529,000~~$668,000 in the ~~first~~third quarter of 2003 and, for the nine month period ended September 30th, increased 50.0% from $1,258,000 in 2002 to $1,887,000 in 2003. The increase is due to ~~additional revenues associated with the CRM product line and with~~ the addition of maintenance revenues from the Connect-Care ~~acquisition.~~acquisition and additional revenues associated with the CRM product line. Maintenance revenues are the result of renewal agreements from previous software license sales as well as new license agreements.

The Connect-Care acquisition brought a customer base to Firstwave with recurring maintenance revenues and the potential for software license upgrades and additional services engagements. These revenues will be recognized in accordance with SOP 97-2 and in the same manner as previously recognized on Connect-Care’s financial statements. In addition, the nature of the costs associated with these revenues is similar to the nature of Firstwave’s costs of revenues (i.e., labor associated with performing the services and maintenance work), and we do not anticipate price increases. There are no materials or inventory to consider with respect to cost of revenues.

Cost of software revenues ~~decreased 10.2%~~increased 37.4% from ~~$323,000~~$281,000 in the ~~first~~third quarter of 2002 to ~~$290,000~~$386,000 in the ~~first~~third quarter of 2003 due to increased amortization expense related to the June 30, 2003 release of Firstwave CRM Version 10 and Firstwave IDE. For the nine month period ended September 30^th,cost of software revenues decreased 6.8% from $928,000 in 2002 to $865,000 in 2003. The decrease is ~~primarily~~ due to lower amortization expense related to full amortization of ~~capitalized~~previous versions of our software, ~~as a result of previously capitalized versions~~partially offset by higher amortization expense related to the most recent version of the software ~~being fully amortized. We expect the cost of software to increase during the remainder of 2003 as we begin to amortize the latest version of the product currently in development.~~released on June 30, 2003. Cost of software revenues ~~include~~includes amortization of capitalized software costs, costs of third party software, media costs, and documentation materials. ~~Amortization~~Cost of software as a percentage of software revenue decreased from 69.4% in the third quarter of 2002 to 60.3% the third quarter of 2003 primarily due to the decrease in amortization of capitalized software ~~represented 70.5% of total cost of~~expense detailed above in conjunction with an increase in software revenue ~~during~~resulting in an increase in the ~~first quarter of 2003 compared to 99.3% during first quarter 2002.~~

software revenue margin.

Cost of revenues for services increased ~~20.0%~~3.6% from ~~$794,000~~$759,000 in the ~~first~~third quarter of 2002 to ~~$953,000~~$786,000 in the ~~first~~third quarter of ~~2003~~2003. This increase is primarily due to increases in payroll and payroll related costs associated with additional employees resulting from the Connect-Care acquisition, offset by decreases in costs for outside consultants and ~~travel. Cost~~travel expenses consistent with decreased services revenues. The cost of revenues for services as a percentage of services revenues increased from ~~27.6%~~32.7% in the ~~first~~third quarter of 2002 to ~~44.5%~~75.2% in the ~~first quarter of 2003 due to higher personnel costs relative to services revenue. Cost of revenues for maintenance decreased 13.5% from $163,000 in the first quarter of 2002 to $141,000 in the first~~third quarter of 2003 primarily due to certain fixed personnel costs, which at lower ~~royalty~~revenue levels result in a decrease in the services revenue margin. For the nine month period ended September 30th, cost of revenues for services increased 2.8% from $2,465,000 in 2002 to $2,535,000 in 2003 primarily due to increased payroll costs.

Cost of revenues for maintenance increased 53.4% from $118,000 in the third quarter of 2002 to $181,000 in the third quarter of 2003, and for the nine month period ended September 30th, increased 24.1% from $398,000 in 2002 to $494,000 in 2003. The increase is primarily due to increased payroll costs related to the Connect-Care acquisition. This increase is consistent with ~~decreased~~increased maintenance ~~revenues generated by international distributors.~~

revenue.

Sales and marketing expense increased ~~41.2%~~25.3% from ~~$780,000~~$791,000 in the ~~first~~third quarter of 2002 to ~~$1,101,000~~$991,000 in the ~~first~~third quarter of 2003 ~~primarily as~~and, for the nine month period ended September 30th, increased 26.0% from $2,435,000 in 2002 to $3,068,000 in 2003. The increases are the result of increases in payroll costs, ~~telemarketing services,~~commission expenses and marketing materials. During the remainder of 2003, we anticipate marketing expenses to remain at this level as we continue to engage in a full range of marketing programs focused on generating qualified leads and market awareness of our products.

travel expenses.

The Company’s product innovation and development expenditures, which includes amounts capitalized, increased ~~848.4%~~14.3% from ~~$128,000~~$630,000 in the ~~first~~third quarter of 2002 to ~~$1,214,000~~$720,000 in the ~~first~~third quarter of 2003. For the nine month period ended September 30th, product development expenditures increased 157.8% from $1,061,000 in 2002 to $2,735,000 in 2003. The increase is primarily related to increased payroll costs and ~~increased use of~~fees associated with outside ~~development~~ contractors related to the development of our latest version of the CRM product. Software development costs capitalized during the three and nine months ended ~~March 31,~~September 30, 2002 were $417,000 and ~~March 31,~~$581,000 respectively, and for the three and nine months ended September 30, 2003 were ~~$28,000~~$213,000 and ~~$975,000~~$1,722,000 respectively. We believe total product innovation and development expenditures will ~~remain consistent~~decrease somewhat from these levels for the next quarter until such time as we release the version currently in development. Going forward, we will continue to improve and enhance the product; however, we anticipate the development expenditures will be lower during the second halfremainder of the ~~year.~~

year, but if the Company pursues other development opportunities, these expenses could increase.

General and administrative expenses ~~decreased 9.3%~~increased 32.6% from ~~$863,000~~$475,000 in the ~~first~~third quarter of 2002 to ~~$783,000~~$630,000 in the ~~first~~third quarter of 2003 and, for the nine month period ended September 30th, increased 13.0% from $1,638,000 in 2002 to $1,851,000 in 2003. ~~During the first quarter~~These increases were primarily due to amortization of ~~2002 we had a large write off of a third party software asset~~intangible assets related to ~~a change~~the Connect-Care acquisition and increased personnel resulting in ~~the technology used for our internal web-site development. There was no corresponding write off in first quarter of 2003.~~

increased payroll and payroll related costs.

Dividends on preferred stock decreased ~~73.7%~~11.3% from ~~$66,000~~$62,000 in the ~~first~~third quarter of 2002 to $55,000 in the ~~first~~third quarter of 2003 due to the conversion of Series C Convertible Preferred Stock, held by an outside investor, into common stock during the second half of 2002 and the first quarter of 2003.

The above factors combined to result in a ~~25.1%~~358.2% decrease in net income available to common shareholders from a net income of ~~$966,000~~$455,000 in the ~~first~~third quarter of 2002 to a net ~~income~~loss of ~~$724,000~~$1,175,000 in the ~~first~~third quarter of 2003, and a net income per basic and diluted share of ~~$0.46~~$0.21 and ~~$0.33~~$0.16 respectively, for the ~~first~~third quarter of 2002 compared to a net ~~income~~loss of $.044 per basic and diluted share ~~of $0.30 and $0.24 respectively,~~ for the ~~first~~third quarter of 2003. At ~~March 31,~~September 30, 2002 the number of basic weighted average shares outstanding ~~was 2,100,000~~were 2,212,000 compared to ~~2,430,000~~2,660,000 at ~~March 31,~~September 30, 2003. The increase in basic weighted average shares outstanding is primarily related to the conversion of Series C Convertible Preferred Shares, held by an outside investor, into approximately 278,000 common ~~shares.~~shares and the issuance of 200,000 shares related to the Connect-Care acquisition.

Balance Sheet

Net accounts receivable ~~increased 53.7%~~decreased 34.8% from $2,406,000 at December 31, 2002 to ~~$3,698,000~~$1,570,000 at ~~March 31,~~September 30, 2003 primarily due to the collection of outstanding receivables related to ~~our~~a large UKlicense agreement and two large services ~~engagement and~~agreements invoiced during December 2002, offset by the addition of ~~account~~current receivables related to customers obtained in the Connect-Care acquisition. The allowance for doubtful accounts increased 338.6% from $88,000 at December 31, 2002 to $386,000 at September 30, 2003 primarily due to the Connect-Care acquisition. At the date of acquisition, Connect-Care had a general reserve for bad debt of $66,534 and an additional reserve of $229,342 related to a customer dispute in arbitration. The amount in dispute was fully reserved due to the uncertainty of the recoverability of the receivable. Other assets increased 72.1% from $664,000 at December 31, 2002 to $1,143,000 at September 30, 2003 primarily due to an increase in prepaid expenses related to the deferral of costs associated with the material services project that has continued into the fourth quarter of 2003 and the prepayment of third party license royalties. Property and equipment decreased ~~4.1%~~22.8% from $738,000 at December 31, 2002 to ~~$708,000~~$570,000 at ~~March 31,~~September 30, 2003, due to ~~year to date~~year-to-date depreciation offset by new asset purchases and the addition of Connect-Care fixed assets. Capitalized software increased ~~37.8%~~47.6% from $2,041,000 at December 31, 2002 to ~~$2,812,000~~$3,012,000 at ~~March 31,~~September 30, 2003 due to additional capitalization of ~~$975,000~~$1,722,000 in development costs related to Firstwave CRM Version 10 and Firstwave IDE, less $751,000 in year-to-date amortization expense. Intangible assets of $1,086,000 at September 30, 2003 relate to the $1,200,000 acquisition of Connect-Care technology and customer relationship intangibles, net of ~~$204,000~~$114,000 in ~~amortization. Intangible assets were $3,376,000~~amortization expense. Goodwill increased 1265.7% from $175,000 at ~~March~~December 31, 2002 to $2,390,000 at September 30, 2003 ~~related~~due to ~~purchase accounting of~~ the Connect-Care acquisition. Accounts payable ~~increased 102%~~decreased 13.6% from $909,000 at December 31, 2002 to ~~$1,836,000~~$785,000 at ~~March 31,~~September 30, 2003 due to ~~increased expenses during~~ the ~~quarter,~~decrease of payables related to outside consultants offset by current payables related to the ~~addition of~~ Connect-Care ~~accounts payables and the timing of vendor payments.~~acquisition. Deferred revenue increased ~~102.3%~~46.7% from $812,000 at December 31, 2002 to ~~$1,643,000~~$1,191,000 at ~~March 31,~~September 30, 2003 primarily due to ~~the addition of Connect-Care~~ deferred maintenance and professional services ~~revenues.~~revenues acquired in the Connect-Care acquisition. Accrued employee compensation ~~and benefits~~ increased ~~52.3%~~21.8% from $417,000 at December 31, 2002 to ~~$635,000~~$508,000 at ~~March 31,~~September 30, 2003 ~~primarily~~ due to increased ~~commissions payable consistent with increased software license revenue~~vacation and incentive compensation accruals related to the addition of employees from the Connect-Care ~~accruals related~~acquisition. Borrowings at September 30, 2003 were $500,000 due to ~~incentives, commissions, and vacation payable.~~the initial draw on the Company’s Line of Credit with RBC Centura. The Company had no borrowings at December 31, 2002. Other accrued liabilities decreased ~~26.1%~~50.9% from $802,000 at December 31, 2002 to ~~$593,000~~$394,000 at ~~March 31,~~September 30, 2003 primarily due to ~~the timing of payment~~a decrease of accrued VAT payable in the ~~UK.~~UK consistent with decreased revenue.

Liquidity and Capital Resources

As of ~~March 31,~~September 30, 2003, the balance of cash and cash equivalents was ~~$3,557,000~~$2,834,000 compared to $3,779,000 at December 31, 2002. ~~We have no outstanding long-term debt.~~

During the year 2002, 71.9% of our total revenue was attributed to our relationship with Electronic Data Services Ltd, a leading global services company. During the first ~~quarter~~nine months of 2003, this same relationship accounted for ~~71.9%~~61.9% of total revenues. If this party decreases its purchasing of our software and services, our revenues and cash position would significantly decrease if not replaced with other customer accounts.

On July 29, 2003, the Company signed a “Revolving Facility” loan with RBC Centura whereby the Company may borrow up to $1,000,000. The Company borrowed $500,000 against the line of credit effective September 30, ~~2002, Firstwave signed an agreement~~2003. The Revolving Facility bears interest at a variable rate equal to the one month London Interbank Offered Rate (LIBOR) plus 300 basis points, or the “RBC Centura Prime Rate” plus 0.50%, at Borrower’s option. The first $500,000 of the Revolving Facility is available on a non-formula basis. Once advances under the Revolving Facility exceed $500,000, any advances are based on a borrowing base of 75% of eligible accounts receivable and a certified borrowing base report. The loan is secured by the assets of the Company. The Company must comply with Extreme Logic, a leading e-business solutions provider, to provide a .Net-based workflow and scripting engine and services to enhance our eCRM technology. By licensing this proven technology, we feelcertain financial covenants per the ~~technology risk associated~~terms of the agreement. As of September 30, 2003, the Company was in compliance with new development is diminished, we gain a time-to-market advantage, and the cost to develop is less than building the technology in-house. The license fees paid to Extreme Logic were recorded as an asset on the Company’s balance sheet and are being depreciated over a three-year period. The depreciation associated therewith is recorded as a Product Development expense. The expense amount reflected on the Income Statement for 2002 was $87,500, and the amount expensed in first quarter 2003 was $43,750. Quarterly depreciation in the amount of $43,750 will continue through September 2005.

all required covenants.

Our future capital requirements will depend on many factors, including our ability to ~~maintain~~obtain positive cash flows, ~~as well as~~market acceptance of our products, and the timing and extent of spending to support product development efforts and expansion of sales and ~~marketing, and market acceptance of our products.~~marketing. Our future capital needs will be highly dependent upon our ability to control expenses and generate additional software license revenues, and any projections of future cash needs and cash flows are subject to substantial uncertainty. IfAt the end of the third quarter of 2003, we implemented cost-cutting measures throughout the organization, which were structured so they should have little or no impact on our ability to deliver license revenues and maintain customer satisfaction. However, if we are unable to fund expenses from operations or obtain the necessary additional capital, we may be required to reduce the scope of planned product development and sales and marketing efforts, as well as reduce the size of current staff, all of which could have a material adverse effect on our business, financial condition, and ~~our~~ ability to reduce losses or generate profits.

We have no material commitments for capital expenditures. We do not believe that inflation has historically had a material effect on our Company’s results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is subject to market risk exposures of varying correlations and volatilities, including interest rate risk and foreign exchange rate risk. Currently, the Company maintains its cash position primarily in money market funds and other bank accounts. The Company does not currently engage in hedging activities or otherwise use derivatives to alter the interest characteristics of its financial assets. Although a decrease in interest rates could reduce our interest income, at this time management does not believe a change in interest rates will materially affect the Company’s financial position or results of operations.

WeThe Company has a variable interest rate on the current line of credit which bears interest at the London Interbank Offered Rate (“LIBOR”) plus 3.00%. Due to the amount of the borrowings and the short term nature of the debt, we do not ~~have any material credit facilities and, therefore, do not~~believe we have a significant risk due to potential fluctuations in interest rates for loans at this time. Changes in interest rates could make it more costly to borrow money in the future and may impede our future acquisition and growth strategies if management determines that the costs associated with borrowing funds are too high to implement these strategies.

The results of operations of our wholly owned subsidiary located in Surrey, England are exposed to foreign exchange rate fluctuations as the financial results of this subsidiary are translated from the local currency to U.S. Dollars upon consolidation. Because of the significance of the operations of this subsidiary to our consolidated operations, as exchange rates vary, net sales and other operating results, when translated, may differ materially from our prior performance and our expectations. In addition, because of the significance of our overseas operations, we could also be significantly affected by weak economic conditions in foreign markets that could reduce demand for our products and further negatively impact the results of our operations in a material and adverse manner. As a result of these market risks, the price of our stock could decline significantly and rapidly.

The Company manages the risk by monitoring on a regular basis the fluctuations in foreign currency exchange rates as they relate to our UK Subsidiary, and takes action if the foreign currency exchange rate would result in a material impact to the Company’s financial statements upon translation from the local currency, the British pound, to the US Dollar. The action taken in these instances by the Company is to move the currency from the UK Subsidiary to the Company’s headquarters when doing so would be beneficial on the Company’s financial statements. The Company does not engage in any hedging activities. As foreign currency exchange rates vary, the fluctuations in revenues and expenses may materially impact the financial statements upon consolidation. A weaker US dollar would result in an increase to revenues and expenses upon consolidation, and a stronger US dollar would result in a decrease to revenues and expenses upon consolidation.

Item 4. Controls and Procedures

Based on their most recent evaluation, which was completed in consultation with management ~~within 90 days~~as of the end of the period covered by the filing of this Form 10-Q, the Company’s Chairman and Chief Executive Officer and Chief Financial Officer believe the design and operation of the Company’s disclosure controls and procedures (as defined in Rules ~~13a-14~~13a-15(e) and ~~15d-14~~15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective as of the date of such evaluation in timely alerting the Company’s management to material information required to be included in this Form 10-Q and other Exchange Act filings. There were no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in the Company’s internal controls or other factors that could significantly affect these controls subsequent to the date of the evaluation described above.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Not Applicable

Item 2. Changes in Securities
Not Applicable

On March 3, 2003, Firstwave acquired Connect-Care, Inc. This acquisition was accomplished by Connect-Care merging with a subsidiary of Firstwave, with Connect-Care surviving the merger. In connection with this acquisition and in consideration of the merger, Firstwave issued in the aggregate 200,000 shares of its no par value common stock to the shareholders of Connect-Care. Firstwave relied upon the exemption set forth in Section 4(2) of the Securities Act for the issuances to the Connect-Care shareholders based upon the fact that the acquisition was privately negotiated with a small number of sophisticated purchasers who were familiar with the business and operations of Firstwave.

Item 3. Defaults Upon Senior Securities

Not Applicable

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

Not Applicable

Item 5. Other Information
	Not Applicable

Item 6. Exhibits and Reports on ~~form~~Form 8-K

a. ~~Exhibit 3(ii) Amended and Restated Bylaws of Firstwave Technologies, Inc. dated May 1, 2003.~~		Exhibit ~~99.1~~31.1 Certification of Periodic Report by the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

		Exhibit 31.2 Certification of Periodic Report by the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

		Exhibit 32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

b. ~~On March 4, 2003,~~		Reports of Form 8-K filed during the quarter ended September 30, 2003:

		Firstwave filed a ~~Current Report~~Form 8-K/A on ~~Form~~May 1, 2003, June 10, 2003 and July 14, 2003. These Forms 8-K/A’s amended the 8-K filed on March 4, 2003, with respect to its acquisition of Connect-Care, Inc.

		On ~~March 7,~~July 11, 2003, Firstwave ~~amended this~~filed a current report on Form 8-K ~~through~~with the ~~filing~~press release of ~~a Form 8-K/A, in order to include the following~~July 11, 2003 reporting preliminary financial ~~statements of Connect-Care, Inc.:~~ ~~(i) Balance Sheet as of December 31, 2002;~~ ~~(ii) Statement of Operations~~results for the ~~year ended December 31, 2002;~~ ~~(iii) Statement~~second quarter of ~~Changes in Members’ Deficit~~2003.

		On July 29, 2003, Firstwave filed a current report on Form 8-K with the press release of July 29, 2003 reporting actual financial results for the ~~year ended December 31, 2002; and~~ ~~(iv) Statement~~second quarter of ~~Cash Flows for~~2003.

Item 10. Exhibits – Material Contracts

10.30		Secured Loan Agreement in the ~~year ended December 31, 2002.~~amount of up to $1,000,000 dated July 29, 2003 by the Company in favor of RBC Centura.
		~~The following unaudited pro forma condensed consolidated financial statements~~
10.31		Commercial Promissory Note in the amount of ~~Firstwave and Connect-Care were also included~~up to $1,000,000 dated July 29, 2003 by the Company in ~~this~~ ~~8-K/A:~~ ~~(i) Pro forma Condensed Consolidated Statement~~favor of ~~Operations for the year ended December 31, 2002; and~~RBC Centura.

~~(ii) Pro forma Condensed Consolidated Balance Sheet as of December 31, 2002.~~

SIGNATURES

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

FIRSTWAVE TECHNOLOGIES, INC.


DATE: November 12, 2003	/s/ Judith A. Vitale

	Judith A. Vitale Chief Financial Officer (Principal Financial Officer)
		~~FIRSTWAVE TECHNOLOGIES, INC.~~

~~DATE: May 9, 2003~~

~~/s/ Judith A. Vitale~~

~~Judith A. Vitale~~

~~Chief Financial Officer~~

~~(Principal Financial Officer)~~

~~I, Richard T. Brock, Chief Executive Officer of Firstwave Technologies, Inc., certify that:~~

~~1. I have reviewed this quarterly report on Form 10-Q of Firstwave Technologies, Inc.;~~

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

~~b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and~~

~~c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;~~

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

~~b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and~~

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

	~~Date: May 9, 2003~~

		~~/s/ Richard T. Brock~~
		~~Richard T. Brock~~

~~I, Judith A. Vitale, Chief Financial Officer of Firstwave Technologies, Inc., certify that:~~

~~1. I have reviewed this quarterly report on Form 10-Q of Firstwave Technologies, Inc.;~~

~~c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;~~

~~b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and~~

	~~Date: May 9, 2003~~

		~~/s/ Judith A. Vitale~~
		~~Judith A. Vitale~~

	Dec 31, 2002		Mar 31, 2003
			(unaudited)

ASSETS

Current assets:
Cash and cash equivalents	$	3,779	$	3,557
Accounts receivable, less allowance for doubtful accounts of $88 and $388, respectively	2,406		3,698
Prepaid expenses and other assets	664		687
Total current assets	6,849		7,942

Property and equipment, net	738		708
Software development costs, net	2,041		2,812
Intangible assets	0		3,376
Goodwill	175		173
	$	9,803	$	15,011

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	909	$	1,836
Deferred revenue	812		1,643
Accrued employee compensation and benefits	417		635
Dividends payable	42		41
Other accrued liabilities	802		593
Total current liabilities	2,982		4,748

Shareholders’ equity	6,821		10,263
	$	9,803	$	15,011

	For the Three Months Ended
	Mar 31, 2002			Mar 31, 2003

Net Revenues
Software	$	728		$	1,607
Services	2,875			2,140
Maintenance	448			529
Other	5			5
	4,056			4,281
Cost and Expenses
Cost of revenues
Software	323			290
Services	794			953
Maintenance	163			141
Other	5			5
Sales and marketing	780			1,101
Product development	100			239
General and administrative	863			783
	3,028			3,512

Operating income	1,028			769

Interest income	4			11
Income before income taxes	1,032			780
Income taxes	0			(1		)
Net income	$	1,032		$	779

Dividends on preferred stock	(66		)	(55		)

Net income applicable to common shareholders	$	966		$	724

Basic:
Earnings per share	$	0.46		$	0.30
Weighted average shares	2,100			2,430

Diluted:
Earnings per share	$	0.33		$	0.24
Weighted average shares	3,108			3,299

									Add’l paid-in capital		Compre- hensive income		Accumulated Other comprehensive loss			Accumulated Deficit			Total
	Common Stock			Preferred Stock
	Shares	Amount		Shares		Amount

Balance at December 31, 2002	2,328,713	$	12	29,020		$	2,483		$	22,950	$	0	$	(131	)	$	(18,493	)	$	6,821

Exercise of common stock options	15,579								59										59

Employee stock purchases	0

Shares issued for Connect Care acquisition	200,000	0							2,630										2,630

Conversion of Series C Preferred Stock to Common	83,333			(2,000	)	(150		)	150										0

Dividends																(55		)	(55		)

Comprehensive income:
Net income											779					779			779
Foreign currency translation adjustment											29		29						29
Accumulated comprehensive loss											808

Balance at March 31, 2003	2,627,625	$	12	27,020		$	2,333		$	25,789			$	(102	)	$	(17,769	)	$	10,263

	For the Three Months Ended
	March 31, 2002				March 31, 2003

Cash flows provided by operating activities	$		682		$		868

Cash flows from investing activities
Software development costs	(28			)	(975			)
Purchases of property and equipment	(57			)	(54			)
Acquisition of Connect-Care	0				(98			)
Net cash used in investing activities	(85			)	(1,127			)

Cash flows from financing activities
Proceeds from issuance of common stock	0				59
Payment of dividends on preferred stock	(227			)	(56			)
Net cash provided by/(used in) financing activities	(227			)	3

Foreign currency translation adjustment	40				34

Increase/(decrease) in cash and cash equivalents	410				(222			)
Cash and cash equivalents, beginning of period	1,860				3,779
Cash and cash equivalents, end of period	$		2,270		$		3,557

Supplemental disclosure of cash flow information
Cash paid for income taxes	$	0			$	1
Cash paid for interest	$		0		$		0

1. A.~~Basis of Presentation~~ ~~Firstwave Technologies, Inc. is a global software innovator~~ that provides strategic, web-based customer relationship management (CRM) solutions that automate and optimize the way companies win, maintain and grow customer relationships. The Firstwave product line consists of the Firstwave CRM Product Suite; Takecontrol^®and Firstwave for Unix. The Firstwave CRM Product Suite consists of the following four products: Firstwave eCRM, Firstwave CRM 10, Firstwave CORE IDE and Firstwave for Technology. Both eCRM and CRM 10 are web-based applications, the former being built with COM+ technology and the latter with ..NET technology. The CORE IDE is the toolset supporting CRM 10. The Firstwave for Technology products were acquired in the Connect-Care acquisition, and are client-server based. In addition to the Firstwave CRM Product Suite, Firstwave also supports Takecontrol^®~~, a client-server based product and Firstwave for Unix.~~ The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States and should be read in conjunction with the consolidated financial statements contained in the Company’s Form 10-K/A for the period ended December 31, 2002. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the consolidated financial statements have been included. The consolidated financial statements include the accounts of Firstwave Technologies, Inc. and its wholly owned subsidiaries, Connect-Care Inc. and Firstwave Technologies UK, Ltd. All intercompany transactions and balances have been eliminated in consolidation. B.~~Accounting Policies~~ ~~Concentration of credit risk and revenue~~ The Company is subject to credit risk primarily due to its trade receivables. The Company has credit risk due to the high concentration of trade receivables through Firstwave UK, whose customer, Electronic Data Services, Ltd, represented 72% of the Company’s total revenues for first quarter 2003 and 59% of the Company’s total Accounts Receivable outstanding at March 31, 2003. If this customer decreases its purchasing of the Company’s software and services, revenues would significantly decrease if not replaced with other customer accounts ~~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 license revenue. Services revenue is recognized as services are performed. Maintenance revenue is recognized ratably over the period of coverage. The Company has arrangements with customers that provide for the delivery of multiple elements, including software licenses, and services. The Company allocates and recognizes revenue related to each of the multiple elements based on vendor specific objective evidence of the fair value of each element. Vendor specific objective evidence is based on standard pricing for each of the elements in our multiple element arrangements. Revenue associated with the various elements of multiple element arrangements is based on such vendor-specific objective evidence as the price charged for each element is the same as when the element would be sold separately from any other element. Pricing does not vary by customer or by duration, or by requirements of the arrangement. 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 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. There were no revenues derived from international distributors during the first quarter of 2003.	Description of Business and Basis of Presentation

	Description of the Company
	Firstwave^® Technologies, Inc. is a global provider of strategic, industry-focused, CRM software solutions that automate and optimize how companies win, maintain and grow customer relationships. The Firstwave product line consists of the Firstwave CRM Product Suite, which provides focused solutions to the following four industries: software and technology, sports and entertainment, manufacturing and the public sector. The Firstwave CRM Product Suite includes Firstwave eCRM^®, Firstwave IDE^®and Firstwave for Technology. Firstwave eCRM is a web-based application, built with COM+ technology or .NET technology. Firstwave IDE is the toolset supporting Firstwave eCRM. In addition to the Firstwave CRM Product Suite, Firstwave also provides and supports Takecontrol^®, a client-server based product, and Firstwave for UNIX^®.

	Basis of Presentation
	The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with the consolidated financial statements contained in the Company’s Form 10-K/A for the period ended December 31, 2002. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the consolidated financial statements have been included.

	The consolidated balance sheet at December 31, 2002 has been derived from the audited consolidated financial statements for the Company at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

	The consolidated financial statements include the accounts of Firstwave Technologies, Inc. and its wholly owned subsidiaries, Connect-Care, Inc. and Firstwave Technologies UK, Ltd. All intercompany transactions and balances have been eliminated in consolidation.

2.	Use of estimates and Critical Accounting Policies

	*Use of Estimates*
	The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

	*Critical Accounting Policies*
	The Company believes that the following accounting policies are critical to understanding the consolidated financial statements:
	• Revenue Recognition
	• Capitalization of Software Development Costs
	• Intangible Assets

3.	Summary of Significant Accounting Policies

	*Revenue recognition*
	The Company recognizes revenue in accordance with Statement of Position (SOP) 97-2, “Software Revenue Recognition”, as amended by SOP 98-9, and related interpretations.

	Revenue from software product sales 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 license revenue. Services revenue is recognized as services are performed. Maintenance revenue is recognized ratably over the period of coverage.

	The Company has arrangements with customers that provide for the delivery of multiple elements, including software licenses and services. The Company allocates and recognizes revenue related to each of the multiple elements based on vendor specific objective evidence of the fair value of each element. Vendor specific objective evidence is based on standard pricing for each of the elements in our multiple element arrangements. Revenue associated with the various elements of multiple element arrangements is based on such vendor-specific objective evidence, because the price charged for each element is the same as when the element would be sold separately from any other element. Pricing does not vary by customer, by duration, or by requirements of the arrangement.

	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 remit to the Company 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 sales and marketing 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. There have been no revenues derived from independent international distributors during 2003.

	Revenues from nonmonetary exchanges are recorded at the fair value of the products and services provided or received, whichever is more clearly evident. There have been no nonmonetary exchanges during 2003.

	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.

	The Company provides an allowance for doubtful accounts based on management’s estimate of receivables that may become uncollectible. The estimate is based on historical charge-off activity and current account status.

	*Software development costs*
	Capitalized software development costs consist principally of salaries, contract services, and certain other expenses related to development and modifications of software products capitalized in accordance with the provisions of SFAS 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.” Capitalization of such costs begins only upon establishment of technological feasibility as defined in SFAS 86 and ends when the resulting product is available for sale. The Company evaluates the establishment of technological feasibility based on the existence of a working model of the software product. Capitalized costs may include costs related to product enhancements resulting in new features and increased functionality as well as writing the code in a new programming language. Since the version enhancements are built on an already detailed design under an existing source code, technological feasibility is established early for each version. All costs incurred to establish the technological feasibility of software products are classified as research and development and are expensed as incurred.

	The Company evaluates the realizability of unamortized capitalized software costs at each balance sheet date. Software development costs which are capitalized are subsequently reported at the lower of unamortized cost or net realizable value. If the unamortized capitalized software cost exceeds the net realizable value of the asset, the amount would be written off accordingly. The net realizable value of the capitalized software development costs is the estimated future gross revenues of the software product reduced by the estimated future costs of completing and disposing of that product. Amortization of capitalized software costs is provided at the greater of the ratio of current product revenue to the total of current and anticipated product revenue or on a straight-line basis over the estimated economic life of the software, which is not more than three years. It is possible that those estimates of anticipated product revenues, the remaining estimated economic life of the product, or both could be reduced due to changing technologies. The amortization of software development costs is presented as a cost of software revenue in the Company’s financial statements.

	Quarter Ended March 31
	2002		2003
Net income as reported	$	966	$	724

Stock based employee compensation, net of related tax effects included in net income as reported	—		—

Stock based employee compensation, net of related tax effects under the fair value based method	11		129
Net income as adjusted	$	955	$	595

Earnings per share:
Basic - as reported	$	.46	$	.30
Basic - as adjusted	$	.45	$	.24

Diluted - as reported	$	.33	$	.24
Diluted - as adjusted	$	.33	$	.20

	*Impairment of Intangible Assets*
	In accordance with SFAS No 142 “Goodwill and Other Intangible Assets”, intangible assets with indefinite useful lives must be tested periodically for impairment. Examples of Management’s judgment regarding the existence of impairment of an intangible asset and the resulting fair value, would include management’s assessment of adverse changes in legal factors, market conditions, or loss of key personnel. If the fair value of the intangible asset is determined to be in excess of the carrying value, the Company would record an impairment loss.

	*Concentration of credit risk and revenue*
	The Company is subject to credit risk primarily due to its trade receivables. The Company has credit risk due to the high concentration of trade receivables through Firstwave UK, whose customer, Electronic Data Services, Ltd, represented 72% of the Company’s total revenues for the first quarter of 2003, 47% of the Company’s total revenues for the second quarter of 2003, and 62% of the Company’s total revenues for the third quarter of 2003. This customer also accounted for 59% of the Company’s total Accounts Receivable outstanding at March 31, 2003, 42% of the Company’s total Accounts Receivable outstanding at June 30, 2003, and 67% of the Company’s total Accounts Receivable outstanding at September 30, 2003. If this customer decreases its purchasing of the Company’s software and services, revenues would significantly decrease if not replaced with other customer accounts.

	*Stock-Based Compensation*
	Effective for 2002, the Company adopted SFAS 148, “Accounting for Stock-Based Compensation - Transition and Disclosure,” which did not have a material impact on the consolidated financial statements. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations and to elect the disclosure option of SFAS 123, “Accounting for Stock-Based Compensation.” Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s stock at the date of the grant over the amount an employee must pay to acquire the stock.

	The Company has adopted the disclosure-only provisions of SFAS 123, “Accounting for Stock-Based Compensation.” The following table illustrates the effect on net income and net income per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee awards, (in thousands, except for per share data).

	For the Three Months Ended Sept 30,						For the Nine Months Ended Sept 30,

	2002			2003			2002		2003

Net income/(loss) as reported	$	455		$	(1,175	)	$	2,287	$	(356	)
Stock based employee compensation, net of related tax effects included in net income as reported		—			—			—		—
Stock based employee compensation, net of related tax effects under the fair value based method		456			171			537		448

Net income/(loss) as adjusted	$	(1	)	$	(1,346	)	$	1,750	$	(804	)

Earnings/(loss) per share:
Basic - as reported	$	0.21		$	(0.44	)	$	1.07	$	(0.14	)

Basic - as adjusted		(0.00	)	$	(0.51	)	$	0.82	$	(0.32	)

Diluted - as reported	$	0.16		$	(0.44	)	$	0.79	$	(0.14	)

Diluted - as adjusted		(0.00	)	$	(0.51	)	$	0.62	$	(0.32	)

	For Quarter Ended March 31, 2003
	Income (000’s) (Numerator)		Shares (000’s) (Denominator)	Per Share Amount
Net income	779
Less: Preferred Stock Dividends	(55	)

Basic EPS
Income available to common shareholders	724		2,430	$	0.30

Effect of Dilutive Securities
Warrants			19
Convertible Preferred Stock	55		665
Stock Options			185
	55		869
Diluted EPS
Income available to common shareholders	779		3,299	$	0.24

	For Quarter Ended March 31, 2002
	Income (000’s) (Numerator)		Shares (000’s) (Denominator)	Per Share Amount
Net income	1,032
Less: Preferred Stock Dividends	(66	)

Basic EPS
Income available to common shareholders	966		2,100	$	0.46

Effect of Dilutive Securities
Warrants			19
Convertible Preferred Stock	66		943
Stock Options			46
	66		1,008
Diluted EPS
Income available to common shareholders	1,032		3,108	$	0.33

	The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for the quarters ended September 30, 2002 and September 30, 2003, respectively; dividend yield of 0% for both quarters; expected volatility of 149% and 141%, and risk-free interest rate of 3.82% and 3.14%. For the nine month periods ended September 30, 2002 and September 30, 2003, respectively, the assumptions used were dividend yield of 0% for both periods; average expected volatility of 149% and 144%, and average risk-free interest rate of 3.82% and 2.87%.

	The decrease in the compensation expense from $456,000 in the third quarter of 2002 compared to $171,000 in the third quarter of 2003 is primarily due to options issued in the third quarter of 2002 related to a Stock Exchange Program. On March 19, 2002 the Company completed a Stock Exchange Program that offered each of its directors and employees who held options under the Option Plan with an exercise price of greater than $10.00 the opportunity to surrender those options for cancellation in exchange for new options to be granted no sooner than six months and one day after cancellation. The options cancelled in March 2002 under this program totaled 81,684. The Company granted 81,684 new options on September 20, 2002. Options are issued at the market price of the Company’s common stock at the date of grant.

	There is no tax benefit included in the stock-based employee compensation expense determined under the fair-value-based method for the three and nine month periods ended September 30, 2003 and September 30, 2002, as the Company established a full valuation allowance for its net deferred tax assets.

	*Basic and diluted net income per common share*
	Basic net income per common share is based on the weighted average number of shares of common stock outstanding during the period. Stock options and convertible preferred stock are included in the diluted earnings per share calculation when they are not antidilutive. Net income applicable to common shareholders includes a charge for dividends related to the Company’s outstanding preferred stock.

	Shown below is a reconciliation of the numerators and denominators of the basic and diluted per share computations for income from continuing operations.

	For Quarter Ended Sept 30, 2003									For Nine Months Ended Sept 30, 2003

	Income (000’s) (Numerator)			Shares (000’s) (Denominator)			Per Share Amount			Income (000’s) (Numerator)			Shares (000’s) (Denominator)			Per Share Amount

Net income/(loss)		(1,120	)								(191	)
Less: Preferred Stock Dividends		(55	)								(165	)

Basic EPS
Income available to common shareholders		(1,175	)		2,660		$	(0.44	)		(356	)		2,547		$	(0.14	)
Effect of Dilutive Securities
Warrants					19									19
Convertible Preferred Stock		55			665						165			665
Stock Options					61									132

		55	(1)		745	(1)					165	(1)		816	(1)
Diluted EPS
Income available to common shareholders		(1,175	)		2,660		$	(0.44	)		(356	)		2,547		$	(0.14	)
(1) Not included because anti-dilutive

	For Quarter Ended Sept 30, 2002							For Nine Months Ended Sept 30, 2002

	Income (000’s) (Numerator)			Shares (000’s) (Denominator)		Per Share Amount		Income (000’s) (Numerator)			Shares (000’s) (Denominator)		Per Share Amount

Net income		517							2,479
Less: Preferred Stock Dividends		(62	)						(192	)

Basic EPS
Income available to common shareholders		455			2,212	$	0.21		2,287			2,132	$	1.07
Effect of Dilutive Securities
Warrants					19							19
Convertible Preferred Stock		62			831				192			884
Stock Options					138							108

		62			988				192			1,011
Diluted EPS
Income available to common shareholders		517			3,200	$	0.16		2,479			3,143	$	0.79

	*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 are included in the results of operations as general and administrative expenses in the Company’s financial statements. 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.

	*Impairment of long-lived assets*
	The Company evaluates impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss would be recognized. Measurement of an impairment loss for long-lived assets would be based on the fair value of the asset.

	*Segment reporting*
	Management believes that the Company has only a single segment consisting of software sales with related services and support. The information presented in the consolidated statement of operations reflects the revenues and costs associated with this segment that management uses to make operating decisions and assess performance.

4.	Borrowings

	On July 29, 2003, the Company signed a “Revolving Facility” loan with RBC Centura whereby the Company may borrow up to $1,000,000. The Company borrowed $500,000 against the line of credit effective September 30, 2003. The Revolving Facility bears interest at a variable rate equal to the one month London Interbank Offered Rate (LIBOR) plus 300 basis points, or the “RBC Centura Prime Rate” plus 0.50%, at Borrower’s option. The first $500,000 of the Revolving Facility is available on a non-formula basis. Once advances under the Revolving Facility exceed $500,000, any advances are based on a borrowing base of 75% of eligible accounts receivable and a certified borrowing base report. The loan is secured by the assets of the Company. The Company must comply with certain financial covenants per the terms of the agreement. As of September 30, 2003, the Company was in compliance with all required covenants.

5.	Acquisition

	On March 3, 2003, Firstwave Technologies, Inc. (“Firstwave”), a Georgia corporation, acquired Connect-Care, Inc. (“Connect-Care”), a Georgia corporation that provides customer relationship management (CRM) software solutions for software companies. Connect-Care was acquired pursuant to a Merger Agreement dated March 3, 2003 (the “Merger Agreement”) by and among Firstwave, CC Subsidiary, Inc., a wholly-owned subsidiary of Firstwave (“Merger Sub”), Connect-Care, and certain shareholders of Connect-Care. Pursuant to the Merger Agreement, Merger Sub merged with and into Connect-Care, and Connect-Care, which was the surviving corporation in the Merger, became a wholly-owned subsidiary of Firstwave. The results of Connect-Care’s operations have been included in the Company’s financial statements since March 3, 2003.

Current Assets	$	771,660
Property and Equip	$	29,504
Intangible Assets	$	3,376,061
Goodwill	$	—
Total assets acquired	$	4,177,225

Current liabilities	$	(1,423,086	)

Net assets acquired	$	2,754,139

	In exchange for all outstanding shares of Connect-Care stock, Firstwave issued 200,000 shares of Firstwave common stock to the shareholders of Connect-Care and granted such shareholders certain registration rights. Additional consideration of $300,000 in cash may be payable if certain revenue goals, as set forth in Section 3.1 of the Merger Agreement, are attained. Such amount would be paid on or prior to the earlier of (i) the date Firstwave files its Annual Report on Form 10-K with respect to the fiscal year ending December 31, 2003 or (ii) March 31, 2004.

	The $300,000 earn-out provision of the merger agreement with Connect-Care makes this payment contingent upon the attainment of certain total revenues, including license revenues and associated maintenance revenues that would be recognized according to SOP 97-2, during 2003 from March through December. Such earn-out is contingent consideration based upon future financial performance. Such revenue attainment is offset by any net accounts receivable shown as of February 28, 2003, not collected by December 31, 2003. If the revenue targets are realized, the $300,000 will be paid in full. If the revenue targets are partially realized, then the payout is payable ratably. If the revenue target is met, the payout will be accounted for on Firstwave’s financial statements as an increase to the purchase price of the acquisition and an increase to goodwill.

	The Company is accounting for the $300,000 as contingent consideration in accordance with paragraphs 25 through 28 of SFAS 141. Because the amount, if any, of contingent consideration was not determinable at the acquisition date, no amount for the contingency will be recorded in the Company’s financial statements until the contingency is resolved, or the consideration is issued or becomes issuable. The Company expects that, should any amount of contingent consideration be issuable, such amount would result in an additional element of the cost of acquiring Connect-Care.

	An analysis of each material asset acquired and each material liability assumed from the acquisition of Connect-Care was completed to ensure accuracy of fair value. All line items represented fair value because of each item’s short-term nature. The Company evaluated each asset and liability and the timing in which assets would be received and liabilities would be settled and determined that these amounts represented their fair values.

	The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition.

Current Assets	$	771,660
Property and Equipment	$	29,504
Intangible Assets	$	1,200,000
Goodwill	$	2,209,762

Total assets acquired	$	4,210,926

Current liabilities	$	(1,425,408	)

Net assets acquired	$	2,785,518

	Of the $3,409,762 of acquired intangible assets, $300,000 was assigned as an estimated fair value of the Connect-Care technology, $900,000 was assigned as an estimated fair value for customer relationships based on potential future revenues that may be derived from such customer relationships and the remaining balance of $2,209,762 was assigned to goodwill with an indefinite life. We believe this goodwill reflects such matters as (but not limited to) personnel that we obtained in the acquisition, new customer opportunities that we will have as a result of our involvement with the acquired customers, relationships we will develop through the acquisition, and expertise and name recognition we will receive through this acquisition. Goodwill will be evaluated periodically for impairment in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets.”

	During the third quarter of 2003 an additional $4,792 in acquisition costs were recorded related to the Connect-Care acquisition.

Purchase Price	$	2,630,000	200,000 shares at $13.15
Net liabilities assumed	$	624,244
Cost of acquisition to date	$	155,518

Comprehensive purchase price	$	3,409,762

	The primary objective of the Connect-Care acquisition was to acquire the customer relationships of the customer base of Connect-Care and, to a lesser degree, to acquire utilization of Connect-Care technology. The Connect-Care technology asset consists of the source code for the Connect-Care product. We believe we will continue to derive revenue from licensing this product to new and existing customers. The customer relationship asset represents the existing customer base of Connect-Care which we believe will continue to contribute revenue from the purchase of additional licenses of the Connect-Care product, purchase of additional service engagements, and renewals of annual maintenance agreements. We also expect that some of the existing active customers or former customers may transition to the Firstwave eCRM product. Of the $3,409,762 purchase price, $300,000 was assigned as an estimated fair value to the intangible asset Connect-Care technology with an estimated useful life of three years, $900,000 was assigned as an estimated fair value to the intangible asset Connect-Care customer relationships with an estimated useful life of seven years, and $2,209,762 was assigned to goodwill. The weighted average amortization period for these intangible assets is six years. There are no significant residual values in the intangible assets. The Company began amortization of the intangible assets effective April 1, 2003, recording $57,141 in amortization expense in both the second and third quarters of 2003. Goodwill will be evaluated for impairment in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets.” There was no change in the carrying amount of goodwill during the third quarter of 2003.

	The following table presents details of Acquired Intangible Assets:

	December 31, 2002				September 30, 2003

	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization

Amortized intangible assets
Connect-Care Technology		—		—		300,000		50,000
Connect-Care Customer Relationships		—		—		900,000		64,282

Total		—		—		1,200,000		114,282

Aggregrate Amortization Expense
For the Nine months ended September 30, 2003		114,282
Estimated Amortization Expense
For year ended December 31, 2003		171,429
For year ended December 31, 2004		228,571
For year ended December 31, 2005		228,571
For year ended December 31, 2006		153,571
For year ended December 31, 2007		128,571

	Quarter Ended					Nine Months Ended

		Sept 30, 2002		Sept 30, 2003			Sept 30, 2002		Sept 30, 2003

Revenues	$	4,237	$	2,369		$	12,736	$	9,987
Net Income	$	538	$	(1,175	)	$	1,822	$	(780	)
Earnings per share
Basic	$	0.22	$	(0.44	)	$	0.78	$	(0.30	)
Diluted	$	0.18	$	(0.44	)	$	0.60	$	(0.30	)

6.	Subsequent Events

	During the third quarter of 2003, the Company continued work on a material services project which was required to be delivered by September 30, 2003. Because the Company did not meet that delivery date, it was required to deliver the project by October 31, 2003. The Company did deliver the project on October 31, 2003, and the customer began acceptance testing.