================================================================================
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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                            ========================

                                   FORM 10 - K

                            ========================

(MARK ONE)
[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934 For the Fiscal Year Ended December 31, 2005.
OR
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______.

                          ARC Wireless Solutions, Inc.
                          ----------------------------
             (Exact name of registrant as specified in its charter)

                                      Utah
                                      ----
         (State or other jurisdiction of incorporation or organization)

             000-18122                              87-0454148
             ---------                              ----------
     (Commission File Number)          (IRS Employer Identification Number)

                             10601 West 48th Avenue
                        Wheat Ridge, Colorado, 80033-2660
                        ---------------------------------
           (Address of principal executive offices including zip code)

                                 (303) 421-4063
                                 --------------
              (Registrant's telephone number, including area code)

      Securities registered pursuant to Section 12(b) of the Exchange Act:
                                     (None)

      Securities registered pursuant to Section 12(g) of the Exchange Act:
                          $.0005 par value common stock

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 13(d) of the Act.
Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceeding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]

<PAGE>

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained in this form, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. To the best of registrants' knowledge, there are no
disclosures of delinquent filers required in response to Item 405 of Regulation
S-K.
Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large accelerated filer [ ]    Accelerated filer   [ ] Non-accelerated filer [X]


As of June 30, 2005, the Registrant's most recently completed second quarter,
the aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $12,371,000. This calculation is based upon the
average of the closing bid price of $.12 and ask price of $.12 of the stock on
June 30, 2005 as reported by OTC Bulletin Board. Without asserting that any
director or executive officer of the registrant, or the beneficial owner of more
than five percent of the registrant's common stock, is an affiliate, the shares
of which they are the beneficial owners have been deemed to be owned by
affiliates solely for this calculation.

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
Yes [ ] No [X]

The number of shares of the registrant's $.0005 par value common stock
outstanding as of February 24, 2006 was 154,300,191.

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                                        2
<PAGE>

                          ARC Wireless Solutions, Inc.
                 Form 10-K for the Year Ended December 31, 2005

                                Table of Contents

                                                                        Page No.
                                     PART I

Item 1.    Business.........................................................  4
Item 1a.   Risk Factors..................................................... 13
Item 2.    Properties....................................................... 15
Item 3.    Legal Proceedings................................................ 16
Item 4.    Submission of Matters to a Vote of Security Holders.............. 16

                                     PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder
           Matters and Issuer Purchases of Equity Securities ............... 16
Item 6.    Selected Consolidated Financial Data............................. 18
Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of Operation......................................... 18
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk....... 24
Item 8.    Financial Statements and Supplementary Data...................... 25
Item 9.    Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure......................................... 25
Item 9A.   Controls and Procedures.......................................... 25
Item 9B.   Other Information................................................ 25

                                    PART III

Item 10.   Directors and Executive Officers of the Registrant............... 26
Item 11.   Executive Compensation........................................... 29
Item 12.   Security Ownership of Certain Beneficial Owners and Management
           and Related Stockholder Matters.................................. 34
Item 13.   Certain Relationships and Related Transactions................... 36
Item 14.   Principal Accountant Fees and Services........................... 36

                                     Part IV

Item 15.   Exhibits, Financial Statement Schedules.......................... 37

Signatures ................................................................. 39



                                        3
<PAGE>

                                     PART I

Item 1. Business
----------------

                                    Overview
                                    --------

Our Company
-----------

We provide high quality, timely, cost effective wireless network component and
end-to-end wireless network solutions. Our Wireless Communications Solutions
Division designs, develops, manufactures, markets and sells a diversified line
of antennas and related wireless communication systems, including cellular base
station, mobile, cellular, conformal and flat panel antennas. Our Winncom
Technologies Corp subsidiary ("Wincomm") specializes in marketing, distribution
and service of wireless component and network solutions in support of both voice
and data applications, both domestically and internationally. Our Starworks
Wireless Inc. subsidiary ("Starworks") specializes in the design, marketing and
distribution of cable in the United States, primarily through OEMs and
third-party distributors, retailers and the Internet.

Principal Products
------------------

     Principal products of our Wireless Communications Solutions Division
include the following:

     Cellular Base Station Antennas
     ------------------------------

     Included in the acquisition of certain commercial assets from Ball
Aerospace & Technology Corp. ("BATC") in 2001 was the right to use BATC's
technology in the manufacturing of the line of base station antennas, which
consists of various models used in several frequency bands for cellular systems.
These cellular systems include several protocols and technologies such as AMPS,
GSM, PCS, GPRS, 2.5G and 3G. Our base station antennas are now being deployed in
some of the Cingular, Telefonica and Qwest mobile phone carrier networks as well
as other carrier networks across the United States and Latin America. We not
only supply our base station antenna products directly to the carriers, but
through other channels, such as Original Equipment Manufacturers ("OEMS") and
distributors. Our base station antenna products have been supplied to Alcatel,
Bechtel, General Dynamics, Tessco, Domital and Sprint North Supply. New base
station models are being designed to meet other carrier mobile 2.5G and 3G
requirements and other companies' fixed wireless high-speed Internet systems as
well.

     Portable Antennas
     -----------------

     Our portable antennas are unique yet flexible antenna systems that are used
to increase the antenna gain and product performance for a variety of wireless
devices. Typically, the product can be connected to a radio, cellular phone or
can be installed either directly in or on a computer or other device. We market
two primary portable antenna designs, the Freedom Antenna(R) and the "F"
antenna. The Freedom Antenna(R) and Freedom Antenna Plus(TM) are unique
broadband, patented antennas designed to work with cellular phones and other
mobile wireless devices in a frequency range of 800 MHz to 3 GHz. The "F"
Antenna is designed mainly to work with laptop computers and metering devises in
the 800 MHz to 900 MHz frequency range. The main design parameter of our mobile
antennas is flexibility, creating an antenna that will function in several
wireless applications or installations without requiring modification of the
fundamental design of the antenna. We market the portable antenna systems along
with our existing commercial wireless products to existing and new customers.

                                        4
<PAGE>

     Conformal Antennas
     ------------------

     A conformal antenna is one that is constructed so that it conforms
technically and physically to its product environment. We first introduced and
patented the disguised decal conformal antenna. This product, introduced in 1989
originally only for conventional automobile cellular phones, has been expanded
as an alternative to many conventional wire type antennas and has been expanded
to be used for numerous mobile applications, including domestic and
international cellular and law enforcement frequencies, passive repeaters,
vehicle tracking and GPS. The antenna is approximately 3 1/2"x 3 1/2"x 1/10"and
typically installs on the inside of the vehicle so that it is not detectable
from the outside of the vehicle. Several derivative products of this antenna
design have been developed for OEM and other special applications.

     Global Positioning System (GPS) Antennas
     ----------------------------------------

     We have developed proprietary, flat GPS antenna systems that integrates
with a GPS receiver. GPS receivers communicate with a constellation of
globe-orbiting satellites that will identify longitude and latitude coordinates
of a location. These satellite systems have been used for years by the military,
civilian and commercial boats, planes, for surveying, recreational hikers, and
more recently in vehicle tracking and asset management. Accurate to within
several feet, there are several types of GPS systems, some of which are the size
of a cellular phone and are very easy to use. We are currently marketing our GPS
antenna products on an OEM basis for the purposes of fleet management, asset
management and vehicle tracking systems.

     We have also developed a proprietary, patented, amplified GPS/Cellular
combination antenna that integrates with a GPS receiver. We currently are
selling this product to fleet and asset management companies on a worldwide
basis. Conventional GPS antenna systems are mounted on the exterior of a vehicle
or other asset, however our product can be mounted on the interior of an
automobile or truck, protecting the antenna from weather, theft and vandalism.

     Flat Panel Antennas
     -------------------

     Our flat panel antennas are flat antennas that are used for Wi-Fi(R) and
WiMAX and related technologies. The antenna design typically incorporates a
group of constituent antennas, all of which are equidistant from the center
point. These types of antennas are used to receive and/or transmit data, voice
and, in some cases, video from radio transmitters. We have developed, patented
and sold various versions of these antennas to private, commercial and
governmental entities. We added several new designs including 3.5GHz and 5.8GHz
flat panel antennas in 2004.

     Other Antennas
     --------------

     We are pursuing many new business opportunities for our antennas by
continuing to broaden and adapt existing technologies. We have designed and
currently manufacture antennas varying in frequencies up to 6 GHz. These
antennas use our newly developed antenna designs to provide inconspicuous
installation. In most cases our antennas are designed to be manufactured using
our proprietary design footprints. This allows us to better utilize our
engineering, technical and production staff, as well as existing tools, dies and
radomes for more than one product.

     Test Range
     ----------

     In 2005, the Company completed the construction of an antenna test range
for the purpose of testing RF antennas with a frequency range up to 6GHz. The
antennas test range consists of a Scientific Atlanta Model 2095 Microwave
Measurement System and 40 foot indoor anechoic test chamber. From time to time
the Company will rent the test range to other companies interested in testing
the performance of their finished wireless product.

                                       5
<PAGE>

Principal products of our Winncom subsidiary include the following:

     Unlicensed Wireless Products
     ----------------------------

     Unlicensed wireless products use frequencies that require a license to
manufacture but not a license to use. Winncom's primary products are the
Wi-Fi(R), WiMAX, and other license free products operating in the 2.4GHz to
5.8GHz and 60GHz frequency ranges for most license free standards. Any business
or consumer may use these products as long as they do not interfere with other
users. Winncom currently markets products manufactured by Alvarion, Axxcelera,
Bridgewave, Cisco, Proxim("Terabeam"), Motorola, Nomadix, Orthogon Systems,
Colubris and BellAir, all of which are leaders in the unlicensed communications
hardware market. These products are used in high-speed (up to 1Gb)
point-to-point and point-to-multi-point wireless networking applications,
including, among others, internet access, hot spots, local and wide area
networks (LAN/WAN), Voice Over IP (VoIP), telco applications and industrial
process automation and data acquisition.

     Licensed Wireless Products
     --------------------------

     Licensed wireless products require a Federal Communication Commission
("FCC") license to operate on a specific frequency in a geographic area. Winncom
distributes point-to-point microwave products including Alvarion, Avante
(Witcom) and Sagem. These microwave products are used as a backbone to connect
Service Providers cell sites or enterprise multiple locations for data and voice
applications.

     Voice Over Internet Protocol (VoIP)
     -----------------------------------

     VoIP allows voice communications to be placed over standard Internet
networks. This is critical for emerging Wireless Internet Service Providers so
they can offer complete voice and data service to generate revenue to compete
with DSL and Cable Modem service. Winncom distributes Avaya, Cisco, Lucent,
Multitech, Polycom and Sagem VoIP products and Broadvox VoIP solutions for
enterprise and residential markets. VoIP products combined with wireless
environment delivers complete communication solutions for users of mobile
devices such as PDAs, WEB PADs and Tablet PCs.

     Antennas
     --------

     Winncom sells both, customer premise equipment (CPE) and base station
antenna solutions as well as a full range of antennas for point-to-point and
point-to-multi-point applications. Winncom offers directional panel antennas, as
well as a variety of sectorized and omni-directional, amplified CPE antennas and
ethernet CPE antennas for wireless Internet access and various data and voice
applications.

     Accessories
     -----------

     Winncom is a full service value-added distributor, specializing in the
design and development of a host of accessory products. These products include
the amplifiers, 2.4GHz-5.8GHz, and 2.4GHz-5.8GHz frequency converters, filters,
power supplies, power cords, and environmental enclosures necessary for the
installation and optimum performance of a wireless network. The 2.4GHz to 5.8GHz
frequency converter, designed by Winncom engineers, enhances the deployment of
the readily available low-cost 2.4GHz wireless WAN/ LAN equipment sold by
Winncom. The main applications for this new solution include wireless Internet
access, campus wireless LANs and wireless spectrum WANs. The frequency converter
will provide additional transmission channels in the unlicensed spectrum
resulting in a considerable increase in bandwidth capacity. It also promotes
usage of the 5.8GHz spectrum to supplement network performance where the 2.4GHz
spectrum is saturated. The product is sold both domestically and
internationally.

                                       6
<PAGE>

     Network Infrastructure Product
     ------------------------------

     Winncom offers a complete line of high-performance voice and data
infrastructure and security products by AVAYA Communication, Cisco, Comet,
Lucent Technologies, Multitech, Polycom and Sagem. The virtual private network
systems (VPN) enable organizations of all sizes, from small businesses to large
enterprises and managed data service providers, to securely connect remote
users, branch offices, business partners, and customers, taking full advantage
of the cost savings and productivity enhancing benefits of virtual private
networks. The voice and data products are designed for the new generation of
network (NGN) architectures that cost-effectively integrate voice, video, and
data on a single infrastructure, while providing reliability, ubiquity, and
security to meet the challenges and dynamic requirements of the enterprise
business environment from converged networks to e-business solutions.

     Other Products
     --------------

     Winncom offers a wide range of copper, coaxial and fiber cables and cable
assembly products as well as lightning arrestors that are used in the
installation, extension and protection of wireless end-to-end systems. Winncom
also offers a variety of environmental enclosures for a broad range of wireless
products for outdoor applications.

     Winncom continuously evaluates new products, exploring the new markets and
pursues distribution alliances with manufacturers whose equipment complements
Winncom's product offerings as well as the development of Winncom's proprietary
products that include amplifiers, frequency converters, antennas, outdoor
enclosures and RF accessories.

Principal products of our Starworks subsidiary include the following:

     Cable and Related Components
     ----------------------------

     We design and market coaxial cable and related components through our
Starworks subsidiary. Starworks originally provided pre-packaged components,
primarily using cable, to the direct-to-home satellite dish industry. To
increase sales and customer satisfaction, the satellite programming industry
began offering professional installation with the purchase of a home satellite
dish, limiting the sales of pre-packaged components. Starworks has transformed
its business to provide installers and other OEM customers with components for
various wireless installations. Starworks' primary focus is no longer specific
to just the satellite industry but to the wireless industry in general, offering
bulk cable, jumper cables consisting of certain lengths of cable with connectors
pre-installed and related components. We are continuing our efforts to increase
our sales of cable and related products to complement our overall wireless
business.

Marketing and Distribution
--------------------------

     Our Wireless Communications Solutions Division markets its commercial line
of antennas directly to distributors, installers and retailers of antenna
accessories. Current distribution consists of several domestic and international
distributors, including several hundred active retail dealers. The Wireless
Communications Solutions Division also markets our diversified proprietary
designs to our existing and potential customers in the commercial, government
and retail market places. Potential customers are identified through trade
advertising, phone contacts, trade shows, and field visits. We provide
individual catalog and specification brochures describing existing products. The
same brochures are utilized to demonstrate our capabilities to develop related
products for OEM and other commercial customers. Our web site,
www.arcwireless.net, includes information about our products and background as
well as financial and other shareholder-oriented information. The web site,

                                       7
<PAGE>

among other things, is designed to encourage both existing and potential
customers to view us as a potential source for diversified wireless solutions.
Inquiries through the web site are pursued by our in-house and outside sales
personnel. To help customers get answers quickly about our products, we have
established a toll-free telephone number administered by our customer service
personnel from 8:00 a.m. to 5:00 p.m. mountain time. Many of our products are
also marketed internationally. We currently have numerous international
distributors marketing our products in several countries. We are currently
negotiating with various international manufacturers to manufacture our
proprietary products. This process can save duty and freight costs making us
more competitive.

     Winncom is a value added distributor that supports distribution of products
with internal sales, technical support, system design and feasibility studies,
installation and training. Winncom's customer base comprises networking value
added resellers ("VARs"), system integrators, ISPs, competitive local exchange
carriers ("CLECs") and incumbent local exchange carriers ("ILECs"). Winncom
promotes and supports the one-stop-source philosophy for wireless data
networking products and services. Consistent with our one-stop-source approach,
Winncom markets and sells a number of its own products as well as private label
products that fit into our marketing philosophy. We believe we have an advantage
over the competition due to our knowledge of wireless networking, better product
availability, in-house technical expertise and customer support and can turnkey
the implementation of most wireless network projects or applications.

     Winncom continuously expends its domestic and international marketing and
advertising efforts through print media, trade shows and via the Internet. The
main marketing focus is to expand the reseller base of customers, which are
active in medical, healthcare, enterprise, government, education and industrial
market segments. Winncom is also expanding its marketing efforts to sell service
providers and OEM markets. Additionally, Winncom continually expands its
wireless certification training programs, including vendor-authorized
certification for Value Added Resellers ("VARs"). Winncom provides wireless
awareness seminars for system integrators and consultant/design firms. We also
have alliances with our vendors that include road-shows,
authorization/certification programs, trade shows and advertising. Winncom's web
site has complete E-commerce capability, enabling customers to order and pay for
products online.

     Winncom's suppliers generally warrant the products they distribute and
allow returns of defective products, including those returned to us by our
customers. Winncom does not independently warrant the products they distribute;
however, they do warrant their services and the products that they build to
order from components purchased from other sources. Provision for estimated
warranty costs is recorded at the time of sale and periodically adjusted to
reflect actual experience. Historically, warranty expense has not been material.

     Winncom has written distribution agreements with many of its suppliers;
however, these agreements usually provide for nonexclusive distribution rights
and often include territorial restrictions that limit the countries in which
they can distribute the products. The agreements are also generally short term,
subject to periodic renewal, and often contain provisions permitting termination
by either party without cause upon relatively short notice. A supplier who
elects to terminate a distribution agreement generally will repurchase its
products carried in the distributor's inventory.

     In October 2004, Winncom entered into a "Frame" Agreement (Agreement of
Understanding) with Joint Stock Company Kazakhtelecom ("Kazakhtelecom"),
Kazakhstan's national telecommunications operator for the Republic of
Kazakhstan, that gives Winncom the right, subject to Winncom obtaining 100%
financing for the project upon terms and conditions acceptable to Kazakhtelecom,
and subject to a number of other matters, to undertake, on a turnkey basis,
development of a modern telecommunications infrastructure to be located on the
left bank of the City of Astana, Kazakhstan. With several competing bids,
Winncom was awarded the contract after several months of negotiations. The total
cost of the project is for a total of approximately $55,000,000.

                                       8
<PAGE>

     On May 9, 2005, the Export Import Bank of the United States ("Ex-Im Bank")
Board of Directors approved the majority of the financing for a project awarded
to Winncom Technologies Corp. ("Winncom") for the development of a modern
telecommunications infrastructure to be located on the left bank of the City of
Astana, Kazakhstan. The Ex-Im Bank is the official export credit agency of the
United States. Ex-Im Bank's mission is to assist in financing the export of U.S.
goods and services to international markets. In August 2005, Societe Generale
bank, New York, NY, committed to finance up to $11 million of the remaining
amount necessary for the previously announced turnkey telecommunications project
in Kazakhstan. Societe Generale New York, NY, would be the lender for the entire
$55 million to JSC Kazakhtelecom, of which the Ex-Im Bank of New York had
previously agreed to guarantee up to $48 million. The primary guarantor for
repayment of the $55 million would be Kazkommertsbank, Kazakhstan's largest
bank.

     In January 2006, the Ex-Im Bank guaranteed portion of financing totaling
approximately $48 million was closed and JSC Kazakhtelecom committed to the
balance of the $55 million tender to either pay directly to Winncom or through a
loan from other lenders.

     Societe Generale is lending the money to Kazkommertsbank on behalf of the
end user, JSC Kazakhtelecom. JSC Kazakhtelecom had approved the work program and
timeline for part of the project, submitted by Winncom earlier, which was a
prerequisite prior to the closing of the previously announced $2.3 million
financing for Winncom to accelerate the installation of the fiber optic cable.
Winncom completed the installation of the fiber optic cable in October, 2005.

     The first phase of the contract is expected to be completed by the end of
2006 and is expected to generate revenues of $18 to $22 million.

Production
----------

The Wireless Communications Solutions Division currently produces most of the
customized items that we use to manufacture our products excluding cable,
connectors and other generic components. We believe that this control over the
production process allows us to be more competitive, efficient and more
responsive to customers and allows us to take advantage of more opportunities in
the wireless communications market.

Winncom offers a wide variety of high performance wireless system accessories
including antennas, amplifiers, lightning arrestors, custom cable assemblies and
environmental enclosures, as well as wireless access points, bridges, routers,
client adapters, modems, T1/E1, and licensed microwave systems from leading
manufacturers.

Starworks produces all cable jumpers and assemblies internally. External
purchases include bulk cable, coaxial connectors, and packaging materials.

Research And Development
------------------------

Research and development ("R&D") costs are charged to operations when incurred
and are included in operating expenses. Except for salaries of engineering
personnel and contract engineering involved in R&D, other R&D costs have not
been material in 2005, 2004 and 2003. We spent approximately $315,000 $250,000
and $289,000 on R&D in 2005, 2004 and 2003, respectively. Our R&D personnel
develop products to meet specific customer, industry and market needs that we
believe compete effectively against products distributed by other companies.
Quality assurance programs are implemented into each development and
manufacturing project, and we enforce strict quality requirements on components
received from other manufacturing facilities.

                                       9
<PAGE>

Financial Information About Industry Segments.
----------------------------------------------

The Company has three reportable segments that are separate business units that
offer different products as follows: distribution of wireless communication
products, antenna manufacturing and cable products. Please see Note 10 to our
consolidated financial statements, included in this report.

Employees
---------

At December 31, 2005, we had 111 full time employees including 63 in
manufacturing and distribution, 16 in sales and customer support, 12 in
engineering and product development, and 20 in management and administration.
Our employees are not represented by any collective bargaining agreement and we
have never experienced a work slowdown or strike.

Competition
-----------

The market for wireless network components is highly competitive, and our
current and proposed products compete with products of larger companies that are
better financed, have established markets, and maintain larger sales
organizations and production capabilities. In marketing our products, we have
encountered competition from other companies, both domestic and international.
At the present time, our market share of the overall wireless network component
market is small. Our antenna products are designed to be unique and in some
cases are patented. Our products normally compete with other products
principally in the areas of price and performance. However, we believe that our
products work as well as or better than competing products and usually sell for
the same price or less. Additionally, we have demonstrated to our customers and
potential customers that we are a more reliable source than some competitors and
believe this is a distinct competitive advantage.

Government Regulations
----------------------

We are subject to government regulation of our business operations in general,
and the telecommunications industry also is subject to regulation by federal,
state and local regulatory and governmental agencies. Under current laws and the
regulations administered by the FCC, there are no federal requirements for
licensing antennas that only receive (and do not transmit) signals. We believe
that our antennas that are also used to transmit signals are in compliance with
current laws and regulations. Current laws and regulations are subject to change
and our operations may become subject to additional regulation by governmental
authorities. We can be significantly impacted by a change in either statutes or
rules.

Patents
-------

We currently hold 13 U.S. patents, which will remain valid until their
individual specific expiration dates. Kevin O. Shoemaker, our former Chief
Scientist, is the inventor of record for a patent valid through the year 2007,
for micro strip antennas and multiple radiator array antennas. Mr. Shoemaker
also is the inventor of record for a patent for a serpentine planar broadband
antenna that expires in 2011. In addition, Mr. Shoemaker and Mr. Randall P.
Marx, our Chief Executive Officer, are inventors of record for a patent covering
the process used to manufacture certain of our flat planar antennas, which
expires in 2016. Mr. Shoemaker is the inventor of record for a patent, which
expires in 2018, covering creating antennas from coaxial cable, and Mr.
Shoemaker and Mr. Marx are also the inventors of record for a patent for a
conformal antenna for a satellite dish, which expires in 2013, as well as for a
patent for conformal antenna assemblies, which expires in 2016. Mr. Shoemaker
and Mr. Marx each have permanently assigned to us all rights to these patents.

                                       10
<PAGE>

The former president of our subsidiary Starworks Wireless, Inc., David E.
McConnell, is the inventor of record for a patent for a coaxial cable connector,
which will expire in 2017, all rights to which are owned by the Company as a
result of the acquisition of Starworks Technologies Inc. on September 29, 2000.

In addition, Dr. Mohamed Sanad, a former Principal Consulting Engineer, is the
inventor of record for a patent that was designed for remote wireless metering,
which will expire in 2019. He is also the inventor of another patent used for
remote wireless metering as well as mobile data collection, which will expire in
2019. Dr. Sanad has permanently assigned to us all of the rights to the patent.

Raymond L. Lovestead, one of our former engineers, is the inventor of record for
our low cross-polarization microstrip patch radiator patent, which will expire
in 2021. Mr. Lovestead has permanently assigned to the Company all patent and
other rights in the products covered by this patent application and all other
products that have been developed while employed by us.

Dr. Donald A. Huebner, and Mr. Lovestead are the inventors of record for our
Ultra-Broadband Thin Planar antenna patent, which is used for our Freedom
Antenna(R) and will expire in 2022. Dr. Huebner is also one of our Directors.
Dr. Huebner has permanently assigned to the Company all patent and other rights
in the products covered by this utility patent.

Steven C. Olson, our Chief Technology Officer, is the inventor of record for our
Partially Shared Antenna Aperture patent, which will expire in 2023 and which is
currently used in some of our fixed wireless access antennas

Per the terms of the asset purchase agreement with BATC (see page 12) we have
also filed a utility patent application with Mr. Jeffrey A. Godard, currently an
engineer with BATC, and Mr. Olson as inventors of record, both of whom have
permanently assigned to us all patent and other rights to any commercial
products covered by this utility patent application. This patent application for
our Microstrip Fed Log antenna has been granted and will expire in 2022.

We have also filed a utility patent application with Mr. Olson, the inventor,
for technology which is for our Omni-Dualbase(TM) antenna. Mr. Olson has
permanently assigned to the Company all patent and other rights in the products
covered by this utility patent and patent application, and all other products
that have been and will be developed while employed by us.

We also have the exclusive commercial licensing rights to the following patents,
which were included as part of the asset purchase agreement to acquire certain
commercial assets from BATC in 2001: US6,121,929,US5,905,465, US6,239,751 and
US6,414,636.

We currently have seven trademarks, ANTENNAS AMERICA, AIRBASE, UNIPAK, FREEDOM
ANTENNA, EXSITE, OMNIBASE and PARITY that are registered marks. We also have in
use the following trademarks, which we anticipate will become registered: ARC
VLPA, DUALBASE, FREEDOM PLUS and FREEDOM ANTENNA PLUS.

We seek to protect our proprietary products, information and technology through
reliance on confidentiality provisions, and, when practical, the application of
patent, trademark and copyright laws. We cannot assure that these applications
will result in the issuance of patents, trademarks or copyrights of our
products, information or technology.

History
-------

We were organized under the laws of the State of Utah on September 30, 1987 for
the purpose of acquiring one or more businesses. Our prior name was Westflag
Corporation, which was formerly Westcliff Corporation. In January 1989, we
completed our initial public offering of 10,545,000 units at $.04 per unit,

                                       11
<PAGE>

resulting in net proceeds of approximately $363,000. (The number of units and
price per unit have been adjusted to reflect our one-for-four reverse split in
April 1989). Each unit consisted of one share of common stock, one Class A
Warrant and one Class B Warrant. All the Class A and Class B Warrants expired
without exercise and no longer exist. In April 1989, we effected a one-for-four
reverse split so that each four outstanding shares of common stock prior to the
reverse split became one share after the reverse split. Unless otherwise
indicated, all references in this Annual Report to the number of shares of our
common stock have been adjusted for the effect of the 1989 one-for-four reverse
split.

On April 12, 1989, we merged with Antennas America, Inc., a Colorado corporation
that had been formed in September 1988 and had developed an antenna design
technique that would permit the building of flat (as compared to parabolic)
antenna systems. Pursuant to the merger, Antennas America, Inc. was merged into
us, all the issued and outstanding stock of Antennas America, Inc. was converted
into 41,952,000 of our shares, and our name was changed to Antennas America,
Inc. In October 2000, we changed our name to ARC Wireless Solutions, Inc. ("ARC
Wireless" or the "Company") from Antennas America, Inc.

On May 24, 2000, we purchased, through our subsidiary, Winncom Technologies
Corp. ("Winncom"), the outstanding shares of Winncom Technologies, Inc. The
acquisition was accounted for as a purchase, and accordingly, the operations for
Winncom have been included in the Company's consolidated statement of operations
from May 24, 2000 (the date of acquisition) forward. We paid $12.7 million in
aggregate consideration, consisting of $3.7 million in cash, a $1.5 million
non-interest bearing promissory note payable 90 days from the closing date, a
$1.5 million non-interest bearing promissory note payable 180 days from the
closing date and $6.0 million in shares of our restricted common stock
(6,946,000 shares). The notes were paid in full by September 2000, with an
$85,000 negotiated early payment reduction.

On September 29, 2000, we purchased, through our subsidiary, Starworks Wireless
Inc. ("Starworks"), the outstanding shares of Starworks Technology, Inc. (a/k/a
The Kit Company). The acquisition was accounted for as a purchase. We paid $2.3
million in aggregate consideration in 2000, consisting of $0.8 million in cash
and $1.5 million in shares of our restricted common stock (1,959,000 shares). As
a result of a settlement agreement reached with the former shareholders of
Starworks Technology, Inc. in December 2001, 1,459,499 shares of our common
stock were returned to us and we received an option to purchase the remaining
500,000 shares of common stock at $.15 per share, which we exercised in January
2002.

On August 21, 2001, we purchased certain commercial assets of the wireless
communications product line from Ball Aerospace & Technology Corp. ("BATC"), a
subsidiary of Ball Corporation, for $925,000. Subsequent to the purchase, a
physical inventory was taken of the assets purchased and in accordance with the
purchase agreement Ball was required to refund approximately $85,000 of the
original purchase price as a result of there being less inventory than that
listed in the purchase agreement. The assets purchased consisted primarily of
raw materials inventory, finished goods inventory, production tooling equipment,
testing equipment and an exclusive license agreement to use patents related to
the wireless communications antenna products for commercial purposes.

Disclosure Regarding Forward-Looking Statements And Risk Factors
----------------------------------------------------------------

Forward-Looking Statements.
---------------------------

This Annual Report on Form 10-K includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical fact included in this Annual Report, including
without limitation under "Item 1: Business-Principal Products", "Marketing and

                                       12
<PAGE>

Distribution", "Production", "Research and Development", "Competition",
"Governmental Regulations" and "Patents", and "Item 7: Management's Discussion
and Analysis of Financial Condition and Results of Operation", regarding our
financial position, business strategy, plans and objectives of our management
for future operations and capital expenditures, and other matters, other than
historical facts, are forward-looking statements. Although we believe that the
expectations reflected in such forward-looking statements and the assumptions
upon which the forward-looking statements are based are reasonable, we can give
no assurance that such expectations will prove to have been correct.

Additional statements concerning important factors that could cause actual
results to differ materially from our expectations are disclosed in the
following "Risk Factors" section and elsewhere in this Annual Report. In
addition, the words "believe", "may", "will", "when", "estimate", "continue",
"anticipate", "intend", "expect" and similar expressions, as they relate to ARC
Wireless, our business or our management, are intended to identify
forward-looking statements. All written and oral forward-looking statements
attributable to us or persons acting on our behalf subsequent to the date of
this Annual Report are expressly qualified in their entirety by the following
Risk Factors.

Item 1a. Risk Factors.
----------------------

In addition to the other information contained in this Annual Report, the
following Risk Factors should be considered when evaluating the forward-looking
statements contained in this Annual Report:

1.   We have a history of prior losses and there is no assurance that our
     operations will be profitable in the future. From inception in September
     1987 through the fiscal year ended December 31, 1992, and again for the
     years ended December 31, 1998 through the fiscal year ended December 31,
     2001 and for the fiscal year ended December 31, 2003, we incurred losses
     from operations. We operated profitably during each of the fiscal years
     ended December 31, 1993 through 1997 and again for the fiscal years ended
     December 31, 2002, 2004 and 2005. Profits for some of these years were
     marginal, and we cannot be assured that our operations in the future will
     be profitable. See the financial statements included in Item 14 of this
     Annual Report on Form 10-K.

2.   Our industry encounters rapid technological changes and there is no
     assurance that our research and development activities can timely lead to
     new and improved products when the market demands them. We do business in
     the wireless communications industries. This industry is characterized by
     rapidly developing technology. Changes in technology could affect the
     market for our products and necessitate additional improvements and
     developments to our products. We cannot predict that our research and
     development activities will lead to the successful introduction of new or
     improved products or that we will not encounter delays or problems in these
     areas. The cost of completing new technologies to satisfy minimum
     specification requirements and/or quality and delivery expectations may
     exceed original estimates that could adversely affect operating results
     during any financial period.

3.   We rely on the protection of patents and certain manufacturing practices to
     protect our product designs and there is no assurance that these measures
     will be successful.. We attempt to protect our product designs by obtaining
     patents, when available, and by manufacturing our products in a manner that
     makes reverse engineering difficult. These protections may not be
     sufficient to prevent our competitors from developing products that perform
     in a manner that is similar to or better than our products. Competitors'
     successes may result in decreased margins and sales of our products.

4.   We have limited financial resources available that may restrict our ability
     to grow. Additional capital from sources other than our operating cash flow
     may be necessary to develop new products. We cannot predict that this
     financing will be available from any source.

                                       13
<PAGE>

5.   We face intense competition in our industry and there is no assurance that
     we will be able to adequately compete with our larger competitor. The
     communications and antenna industries are highly competitive, and we
     compete with substantially larger companies. These competitors have larger
     sales forces and more highly developed marketing programs as well as larger
     administrative staffs and more available service personnel. The larger
     competitors also have greater financial resources available to develop and
     market competitive products. The presence of these competitors could
     significantly affect any attempts to develop our business. However, we
     believe that we will have certain advantages in attempting to develop and
     market our products, including a more cost-effective technology, the
     ability to undertake smaller projects, and the ability to respond to
     customer requests more quickly than some larger competitors. We cannot be
     certain that these conclusions will prove correct.

6.   Our success depends on the availability of efficient labor and we cannot
     predict that we will continue to have access to this labor at an affordable
     cost. We produce and assemble our antenna and coaxial cable kit products at
     our own facilities and are dependent on efficient workers for these
     functions. We cannot predict that efficient workers will continue to be
     available to us at a cost consistent with our budget.

7.   The success of our business is highly dependent on key employees. We are
     highly dependent on the services of our executive management, including
     Randall P. Marx, our Chief Executive Officer and Gregory E. Raskin,
     Winncom's CEO. The loss of the services of any of our executive management
     could have a material adverse effect on us.

8.   We may incur significant costs in complying with new governmental
     regulations which affect our industry, and this may require us to divert
     funds we use for the development of our business and product . We are
     subject to government regulation of our business operations in general.
     Certain of our products are subject to regulation by the Federal
     Communications Commission ("FCC") because they are designed to transmit
     signals. Because current regulations covering our operations are subject to
     change at any time, and despite our belief that we are in substantial
     compliance with government laws and regulations, we may incur significant
     costs for compliance in the future.

9.   Historically, there has been an extremely limited public market for our
     shares and we cannot predict that the recent trading volume will be
     sustained. Historically, there has been an extremely limited public market
     for our shares. We cannot predict that the recent trading volume will be
     sustained. The prices of our shares are highly volatile. Due to the
     relatively low price of the shares, many brokerage firms may not effect
     transactions and may not deal with low priced shares, as it may not be
     economical for them to do so. This could have an adverse effect on
     sustaining the market for our shares. Further, we believe it is improbable
     that any investor will be able to use our shares as collateral in a margin
     account. For the foreseeable future, trading in the shares, if any, will
     occur in the over-the-counter market and the shares will be quoted on the
     OTC Bulletin Board. On February 24, 2006, the low bid price for the common
     stock was $0.12, the high asked price was $0.12 and the closing sale price
     was $0.12. Because of the matters described above, a holder of our shares
     may be unable to sell shares when desired, if at all.

10.  We have not paid any cash dividends with respect to our shares, and it is
     unlikely that we will pay any cash dividends on our shares in the
     foreseeable future. We currently intend that any earnings that we may
     realize will be retained in the business for further development and
     expansion.

11.  Other Risks. In addition, there are other risks, which if realized, in
     whole or in part, could have a material adverse effect on our business,
     financial condition and/or results of operations, including, without
     limitation:

          o    intense competition, regionally and internationally, including
               competition from alternative business models, such as
               manufacturer-to-end-user selling, which may lead to reduced

                                       14
<PAGE>

               prices, lower sales or reduced sales growth, lower gross margins,
               extended payment terms with customers, increased capital
               investment and interest costs, bad debt risks and product supply
               shortages;

          o    Termination of a supply or services agreement with a major
               supplier or customer or a significant change in supplier terms or
               conditions of sale;

          o    the continuation or worsening of the severe downturn in economic
               conditions (particularly purchases of technology products) and
               failure to adjust costs in a timely fashion in response to a
               sudden decrease in demand;

          o    losses resulting from significant credit exposure to reseller
               customers and negative trends in their businesses;

          o    reductions in credit ratings and/or unavailability of adequate
               capital;

          o    failure to attract new sources of business from expansion of
               products or services or entry into new markets;

          o    inability to manage future adverse industry trends;

          o    future periodic assessments required by current or new accounting
               standards resulting in additional charges;

          o    the distribution business is subject to the risk that the value
               of our inventory will be affected adversely by suppliers' price
               reductions or by technological changes affecting the usefulness
               or desirability of the products comprising the inventory.

          o    the loss of a distribution agreement with a major supplier or the
               loss of a major supplier, could have a material adverse impact on
               the business of Winncom. We have instituted in the past and
               continue to institute changes in our strategies, operations and
               processes to address these risk factors and to mitigate their
               impact on our results of operations and financial condition.
               However, no assurances can be given that we will be successful in
               these efforts.

Available Information.
----------------------

We make available free of charge on our website at www.arcwireless.net, our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K (including exhibits and supplementary schedules) and amendments to
those reports, filed or furnished under Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as soon as reasonably practicable after these reports are
electronically filed with, or furnished to, the Securities Exchange Commission.

Item 2. Properties
------------------

Our principal offices are located in Wheat Ridge, Colorado, where we lease
approximately 50,000 square feet of office and warehouse space for our corporate
offices and for the manufacture of antennas. This lease commenced on July 1,
2003 and expires on June 30, 2010.

In addition, we lease approximately 24,000 square feet of office and warehouse
space at our Winncom facility in Solon, Ohio, where we sell and distribute
component solutions for LAN/WAN communications systems. This lease expires in
December 31, 2010.

                                       15
<PAGE>

Item 3. Legal Proceedings
-------------------------

The Company and its subsidiaries are involved in various legal proceedings of a
nature considered normal in the course of its operations, principally accounts
receivable collections. While it is not feasible to predict or determine the
final outcome of these proceedings, management has reserved as an allowance for
doubtful accounts for that portion of the receivable it estimates will be
uncollectible. No litigation exists at December 31, 2005 or at the date of this
report that management believes will have a material impact on the financial
position or operations of the Company.

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

There have been no matters submitted to a vote of shareholders during the last
quarter of the year ended December 31, 2005


                                     PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
-------------------------------------------------------------------------

Our common stock is traded in the over-the-counter market, and prices for our
shares are quoted on the OTC Bulletin Board under the trading symbol "ARCS".
Because trading in our shares is so limited, prices can be highly volatile.

The table below represents the range of high and low sales prices for our common
stock during each of the quarters in the past two fiscal years as reported by
the OTC Bulletin Board. These over-the-counter quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessary
represent actual transactions.

                                  Common Stock
                                  ------------

                                                    Sales Price
                                                    -----------
           Quarter Ended                     High                Low
           -------------                     ----                ---
           March 31, 2004                    $.22                $.13
           June 30, 2004                      .17                 .09
           September 30, 2004                 .16                 .10
           December 31, 2004                  .21                 .12
           March 31, 2005                     .19                 .13
           June 30, 2005                      .16                 .10
           September 30, 2005                 .14                 .10
           December 31, 2005                  .13                 .09

On February 24, 2006 the closing sales price for our common stock was $0.12 and
the approximate number of our shareholders of record was 443. We have not
declared or paid any cash dividends on our common stock since our formation and
do not presently anticipate paying any cash dividends on our common stock in the
foreseeable future.

Recent Sales Of Unregistered Securities
---------------------------------------

For the year ended December 31, 2005, we recorded the issuance of 17,350 shares
of common stock to directors for outstanding obligations for directors' fees in
the amount of $2,050.

                                       16
<PAGE>

For the year ended December 31, 2005, the Company granted a total of 350,000
options, 100,000 to employees and 250,000 to outside directors. The securities
were issued pursuant to exemptions from registration set forth in Section 4(2)
of the Securities Act of 1933, as amended, and Regulation D promulgated
thereunder.

Equity Compensation Plan Information.
-------------------------------------

Securities authorized for issuance under our equity compensation plans as of
December 31, 2005 are as follows:
<TABLE>
<CAPTION>

                                   Equity Compensation Plan Table

                                       Number of securities to       Weighted average         Number of securities
                                       be issued upon exercise       exercise price of      remaining available for
                                       of outstanding options,     outstanding options,         future issuance
                                         warrants and rights        warrants and rights
                                                (a)                         (b)                       (c)
<S>                                          <C>                           <C>                     <C>
Equity compensation plans approved
by security holders                          2,525,000                     $.15                    6,267,000

Equity compensation plans not
approved by security holders                         0                        -                            -

Total                                        2,525,000                     $.15                    6,267,000







                                       17
<PAGE>

ITEM 6. Selected Consolidated Financial Data
--------------------------------------------

The following table sets forth selected consolidated financial data for each of
the Company's last five fiscal years. The results of operations for any period
are not necessarily indicative of the results to be expected for any future
period.

                                   Selected Annual Consolidated Data

                                                     For the Years Ended December 31,
                                -------------------------------------------------------------------------
                                    2005           2004           2003            2002           2001
                                ------------   ------------   ------------    ------------   ------------

Revenues                        $ 39,657,000   $ 35,662,000   $ 29,181,000    $ 30,205,000   $ 29,007,000
Gross Profit                       7,477,000      6,784,000      4,984,000       6,082,000      6,054,000
Income (loss) from operations      1,032,000        594,000       (473,000)        261,000     (2,611,000)
Net income (loss)               $  1,292,000   $    688,000   $   (285,000)   $    307,000   $ (2,801,000)
Earnings (loss) per share:
Basic and diluted               $       .008   $       .004   $      (.002)   $       .002   $      (.019)

                                -------------------------------------------------------------------------
                                    2005           2004           2003            2002           2001
                                ------------   ------------   ------------    ------------   ------------
Cash and cash equivalents       $    167,000   $    321,000   $    227,000    $    265,000   $    345,000
Working capital                    7,816,000      7,289,000      7,049,000       3,502,000      5,589,000
Total Assets                      33,490,000     22,493,000     22,740,000      23,455,000     24,001,000
Total Liabilities                 16,680,000      7,031,000      7,968,000       8,451,000      9,354,000
Stockholders' equity            $ 16,810,000   $ 15,462,000   $ 14,772,000    $ 15,004,000   $ 14,647,000


The following table sets forth selected unaudited consolidated financial data
for each of the Company's last eight fiscal quarters:

                                                                     2005
                                            December 31     September 30      June 30        March 31
                                            -----------     ------------      -------        --------
Net sales                                   $ 13,005,000    $ 10,468,000   $  8,108,000   $  8,076,000
Gross profit                                   2,247,000       1,984,000      1,834,000      1,412,000
Net income (loss)                           $    946,000    $    240,000   $    207,000   $   (101,000)
Net income (loss) per share                 $       .006    $       .002   $       .001   $      (.001)

                                                                     2004
                                            December 31     September 30      June 30        March 31
                                            -----------     ------------      -------        --------
Net sales                                   $ 10,065,000    $  8,973,000   $  9,561,000   $  7,063,000
Gross profit                                   1,781,000       1,878,000      1,768,000      1,357,000
Net income (loss)                           $    (53,000)   $    336,000   $    324,000   $     81,000
Net income (loss) per share                 $      (.001)   $       .002   $       .002   $       .001

</TABLE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
-------------------------------------------------------------------------------

Financial Condition

At December 31, 2005 we had approximately $7.8 million in working capital, which
is an improvement over working capital at December 31, 2004 of $7.3 million.
While there were significant increases in trade receivables ($3.6 million), and
construction in progress ($5.9 million), (related to the Kazakhtelecom Project
and new in 2005), and deferred tax assets ($516,000), these increases were
offset by increases in trade accounts payable, $8.2 million and construction
contract billings in excess of revenue $896,000(also new in 2005). Trade
payables were unusually high at the end of 2005 compared to 2004 because Winncom
purchased approximately $6 million in equipment related to the Kazakhtelecom
Project in December, 2005.

                                       18
<PAGE>

We had total assets of $33.5 million as of December 31, 2005 as compared with
$22.5 million as of December 31, 2005. The $11 million increase is primarily due
to increases in trade receivables and construction in progress discussed above.

Liabilities increased from $7.03 million at December 31, 2004 to $16.7 million
at December 31, 2005, or approximately $9.4 million primarily due to the
purchase of approximately $6 million in equipment in December 2005, borrowings
on the foreign line of credit of $1 million and billings in excess of cost of
$897,000 all related to the Kazakhtelecom Project.

We had net cash used in operating activities of $731,000 and $239,000 for the
years ended December 31, 2005 and 2003. We had net cash provided by operating
activities of $706,000 for the year ended December 31, 2004.

Management believes that continued profitable operations, current working
capital, new and renewed bank lines of credit, will be sufficient to allow the
Company to maintain its operations through December 31, 2006 and into the
foreseeable future.

Long Term Contract

In October 2004, Winncom entered into a "Frame" Agreement (Agreement of
Understanding) with Joint Stock Company Kazakhtelecom ("Kazakhtelecom"),
Kazakhstan's national telecommunications operator for the Republic of
Kazakhstan, that gives Winncom the right, subject to Winncom obtaining 100%
financing for the project upon terms and conditions acceptable to Kazakhtelecom,
and subject to a number of other matters, to undertake, on a turnkey basis,
development of a modern telecommunications infrastructure to be located on the
left bank of the City of Astana, Kazakhstan. With several competing bids,
Winncom was awarded the contract after several months of negotiations. The total
cost of the project is for a total of approximately $55,000,000.

On May 9, 2005, the Export Import Bank of the United States ("Ex-Im Bank") Board
of Directors approved the majority of the financing for a project awarded to
Winncom Technologies Corp. ("Winncom") for the development of a modern
telecommunications infrastructure to be located on the left bank of the City of
Astana, Kazakhstan. The Ex-Im Bank is the official export credit agency of the
United States. Ex-Im Bank's mission is to assist in financing the export of U.S.
goods and services to international markets. In August 2005, Societe Generale
bank, New York, NY, committed to finance up to $11 million of the remaining
amount necessary for the previously announced turnkey telecommunications project
in Kazakhstan. Societe Generale New York, NY, would be the lender for the entire
$55 million to JSC Kazakhtelecom, of which the Ex-Im Bank of New York had
previously agreed to guarantee up to $48 million. The primary guarantor for
repayment of the $55 million would be Kazkommertsbank, Kazakhstan's largest
bank.

In January 2006, the Ex-Im Bank guaranteed portion of financing totaling
approximately $48 million was closed and JSC Kazakhtelecom committed to the
balance of the $55 million tender to either pay directly to Winncom or through a
loan from other lenders.

Societe Generale is lending the money to Kazkommertsbank on behalf of the end
user, JSC Kazakhtelecom. JSC Kazakhtelecom had approved the work program and
timeline for part of the project, submitted by Winncom earlier, which was a
prerequisite prior to the closing of the previously announced $2.3 million
financing for Winncom to accelerate the installation of the fiber optic cable.
Winncom completed the installation of the fiber optic cable in October, 2005.

                                       19
<PAGE>

The first phase of the contract is expected to be completed by the end of 2006
and is expected to generate revenues of $18 to $22 million.

Off-Balance Sheet Arrangements
------------------------------

We do not have any off-balance sheet arrangements.

Contractual Obligations
<TABLE>
<CAPTION>

                                                        Payments Due By Period
                                             -------------------------------------------------
                                             Less than 1                           More than 5
                                   Total        Year        1-3 Years   3-5 Years     Years
                                   -----        ----        ---------   ---------     -----
<S>                             <C>          <C>           <C>          <C>           <C>
Lines of credit                 $4,357,000   $1,888,000    $2,469,000          -        -
Long-term debt                   $ 125,000    $ 125,000             -          -        -
Capital lease obligations (1)    $ 123,000     $ 78,000      $ 41,000    $ 4,000        -
Operating leases                $1,694,000    $ 329,000     $ 709,000   $656,000        -
Purchase obligations (2)        $4,852,000   $4,852,000             -          -        -
</TABLE>

(1) Obligation includes future payments of both principal and interest.

(2) Purchase obligations include agreements to purchase goods or services that
are enforceable and legally binding and that specify all significant terms,
including: fixed or minimum quantities to be purchased; fixed, minimum or
variable price provisions; and the approximate timing of the transaction.
Purchase obligations exclude agreements that are cancelable without penalty.

Results of Operations
---------------------

Fiscal Year Ended December 31, 2005 Compared To Fiscal Year Ended December 31,
2004
------------------------------------------------------------------------------

Total revenues increased 11.2% from $35.7 million for the year ended December
31, 2004 to $39.7 million for the year ended December 31, 2005. The $4 million
increase in revenues during the year ended December 31, 2005, is primarily
attributable to an increase in Winncom's revenues from $29.2 million for the
year ended December 31, 2004 to $32.9 million for the year ended December 31,
2005 and an increase in revenues from the Wireless Communications Solutions
Division from $6.4 million for the year ended December 31, 2004 to $6.6 million
for the year ended December 31, 2005. Sales increased for the year ended
December 31, 2005 at Winncom, boosted by sales to international customers of
approximately $1.4 million each in the first and third quarter of 2005 and the
commencement of the Kazakhtelecom construction contract that generated $2.6
million in contract revenue. This increase in sales occurred despite the
decrease in revenue in the second quarter of 2005, which was attributable to
Winncom's customers decreasing Proxim equipment orders due to their concern
related to the announcement by Proxim of its bankruptcy and pending sales of
assets, which was completed on July 27, 2005. The increase in revenues from the
Wireless Communication Solutions Division in 2005 compared to 2004 occurred
despite management's decision to withhold shipments and minimize the Company's
risk to a significant customer whose credit privileges were suspended due to
delinquent payments. The customer announced a recapitalization of its company
and shipments commenced again in June of 2005.

Gross profit margins were 18.8% and 19% for the year ended December 31, 2005 and
2004, respectively. The decrease in gross margin for the year ended December 31,
2005 as compared to the year ended December 31, 2004 is primarily the result of
a 13% increase in Winncoms revenue. Even though the Wireless Communications
Solutions Division sales were relatively flat, only a $200,000 increase
comparing 2005 to 2004, they contributed an additional $200,000 in gross margin
comparing 2005 to 2004. The Wireless Communications Solutions Division accounted
for only 16% of total revenues compared to the year ended December 31, 2005 as
compared to the year ended December 31, 2004 in which the Wireless

                                       20
<PAGE>

Communications Solutions Division sales accounted for 17% of total revenues.
Products from the Wireless Communications Solutions Division have a higher
margin than the products of Winncom or Starworks. In addition, Winncoms margins
were slightly lower in 2005 compared to 2004 as a result of the long term
construction contract revenue which has a lower margin that Winncoms normal
distribution revenue.

Selling, general and administrative expenses (SG&A) increased by $255,000 for
the year ended December 31, 2005 compared to the year ended December 31, 2004.
The increase in SG&A from 2004 to 2005 is primarily attributable to increases in
international marketing costs and compensation (including commissions and
bonuses). Due to the potential of wireless networking in international markets,
Winncom has been increasing its resources and marketing costs for its
international markets. International costs primarily include marketing,
advertising, trade shows, travel and outside services. SG&A as a percent of
revenue decreased from 17.4% for the year ended December 31, 2004 to 16.3% for
the year ended December 31, 2005. Salaries and wages remain the largest
component of SG&A, constituting 54.5% and 54% of the total for the year ended
December 31, 2005 and 2004, respectively.

Net interest expense was $284,000 for the year ended December 31, 2005 compared
to $300,000 for the year ended December 31, 2004. While the average balance
outstanding on the lines of credit and term loan decreased by 35% from $4
million for the year ended December 31, 2004 to $2.6 million for the year ended
December 31, 2005, the prime interest rate increased 40% from 5% at December 31,
2004 to 7% as of December 31, 2005. The reduction of the average line-of-credit
balance was primarily due to profitability and a decease in the average number
of days trade accounts receivable were outstanding.

We had an income tax benefit of $292,000 for the year ended December 31, 2005
compared to income tax expense of $53,000 for the year ended December 31, 2004.
The 2005 income tax benefit is comprised of two components, taxes currently
payable of approximately $198,000 offset by the restoration of net deferred tax
assets of approximately $490,000. Management estimated that in the fourth
quarter of 2005 that due to the likelihood of continued profitability the
valuation allowance on its net deferred tax assets of approximately $490,000 was
no longer considered necessary. In 2005, the Company used its remaining net
operating loss carry-forwards of approximately $412,000 to offset some taxable
income whereas in 2004 the Company used net operating loss carry-forwards to
offset all taxable income.

The Company had net income of $1,292,000 for the year ended December 31, 2005 as
compared to net income of $688,000 for the year ended December 31, 2004. As
discussed in the previous paragraph the Company had an income tax benefit of
$292,000 in 2005 compared to income tax expense of $53,000. Income before income
taxes rose 35% from $741,000 in 2004 to $1 million in 2005 mainly due to an 11%
increase in net revenues from 2004 to 2005 offset by a reduction in other income
in 2005, primarily a reduction of vendor early payment discounts of
approximately $200,000 due to Winncom suspending early payments to Proxim, its
largest vendor. Other income in 2005 also included a gain on sales of assets of
$60,000 for which there was none in 2004 and other income in 2004 included
collection of a previously written off account receivable of $15,000.

Fiscal Year Ended December 31, 2004 Compared To Fiscal Year Ended December 31,
2003
------------------------------------------------------------------------------

Revenues were $35.7 million and $29.2 million for the years ended December 31,
2004 and 2003, respectively. The $6.5 million increase in revenues for the year
ended December 31, 2004 compared with the year ended December 31, 2003 is
primarily due to a $5.6 million increase in Winncom's revenues, a $500,000
increase in the Wireless Communications Solutions Division's revenues, and a
$400,000 increase in Starworks' revenues.

Gross profit margins were 19% and 17.1% for the year ended December 31, 2004 and
December 31, 2003, respectively or an 11% increase. The higher gross margin for
the year ended December 31, 2004 compared with the year ended December 31, 2003
is primarily the result of higher margins from the Wireless Communications

                                       21
<PAGE>

Solutions Division whose margins increased from 35.6% to 43.5% as a result of
product mix even though the percentage of revenues from the Wireless
Communications Solutions Division compared to total revenues declined. For the
year ended December 31, 2004, the Wireless Communications Solutions Division
sales accounted for 17% of revenues as compared with the year ended December 31,
2003, in which the Wireless Communications Solutions Division sales accounted
for 19.2% of revenues.

Selling, general and administrative expenses (SG&A) were approximately $6.190
million for the year ended December 31, 2004 compared to $5.457 million for the
year ended December 31, 2003, an increase of approximately $733,000. Despite the
increase in SG&A, SG&A as a percent of revenue decreased from 18.7% for the year
ended December 31, 2003 to 17.4% for the year ended December 31, 2004. Salaries
and wages remain the largest component of SG&A, constituting 55% of the total
SG&A for the year ended December 31, 2004 and 51% for the year ended December
31, 2003. The total dollar amount of salaries and wages increased from $2.8
million for the year ended December 31, 2003 to $3.4 million for the year ended
December 31, 2004. Nearly half the increase in salaries and wages between 2003
and 2004 is due to increases in sales commissions as a result of the 22%
increase in revenues.

Net interest expense was $300,000 for the year ended December 31, 2004 compared
with $190,000 for the year ended December 31, 2003. The primary reason for the
increase in interest expense was due to accounts receivable factoring by the
Wireless Communications Solutions Division, which commenced in December 2003.
Interest expense from trade accounts receivable factoring was $113,000 in 2004
as compared to $13,000 in 2003. While the average balance outstanding on the
line of credit was lower in 2004 as compared to 2003, the lower balance was
offset by slightly higher interest rates. The average interest rate on the line
of credit was 4.8% for the year ended December 31, 2004 as compared with 4.625%
for the year ended December 31, 2003.

Other income in 2004 is primarily vendor early payment discounts that Winncom
has taken advantage of as a result of it's improved cash flow. Those early
payment discounts amounted to $373,000 in 2004 as compared to $63,000 in 2003.
Also included in other income for the year ended December 31, 2003 is a gain
from debt settlements of $148,000 and a refund of prior years' franchise taxes
of $220,000, none of which occurred in 2004.

The Company had net income of $688,000 for the year ended December 31, 2004 as
compared with a net loss of $285,000 for the year ended December 31, 2003. A 22
% increase in revenues as well as an 11% increase in gross margin, are the two
main factors that contributed to profitability in 2004. Also contributing to
profitability in 2004 was the fact that because of improved cash flow, Winncom
could take advantage of early vendor payment discounts which were approximately
$300,000 higher in 2004 as compared to 2003.

Critical Accounting Policies and Estimates

The Company's significant accounting policies are summarized in Note 1 of its
consolidated financial statements on Form 10-K. The preparation of financial
statements requires management to make estimates and assumptions that affect
amounts reported therein, including estimates about the effects of matters or
future events that are inherently uncertain. Policies determined to be critical
are those that have the most significant impact on the Company's financial
statements and require management to use a greater degree of judgment and/or
estimates. Actual results may differ from these estimates under different
assumptions or conditions.

Allowance for doubtful accounts: We continuously monitor payments from our
customers and maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. When we
evaluate the adequacy of our allowances for doubtful accounts, we take into
account various factors including our accounts receivable aging, customer

                                       22
<PAGE>

credit-worthiness, historical bad debts, and geographic risk. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. As of
December 31, 2005, our net accounts receivable balance was $7,706,000.

Inventory: Inventory is stated at the lower of cost or net realizable value.
Cost is based on a first-in, first-out basis. We review net realizable value of
inventory in detail on an on-going basis, with consideration given to
deterioration, obsolescence, and other factors. If actual market conditions are
less favorable than those projected by management, and our estimates prove to be
inaccurate, additional write-downs or adjustments to recognize additional cost
of sales may be required. As of December 31, 2005, our inventory balance was
$6,107,000.

Goodwill and other long-lived assets: We review the value of our long-lived
assets, including goodwill, for impairment whenever events or changes in
business circumstances indicate that the carrying amount of the assets may not
be fully recoverable or that the useful lives of these assets are no longer
appropriate. As of December 31, 2005, we had $10.9 million of goodwill and
intangible assets remaining on the balance sheet, the value of which we believe
is realizable based on market capitalization and estimated future cash flows.

Income Taxes: The Company accounts for income taxes pursuant to Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109)
which utilizes the asset and liability method of computing deferred income
taxes. The objective of the asset and liability method is to establish deferred
tax assets and liabilities for the temporary differences between the financial
reporting basis and the tax basis of the company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled. The current and deferred tax provision is allocated among members of
the consolidated group of the separate income tax return basis. Management
estimated that in the fourth quarter of 2005 that due to the likelihood of
continued profitability the valuation allowance on its net deferred tax assets
of approximately $490,000 was no longer considered necessary

Revenue Recognition - Percentage of Completion: Starting in 2005 the Company
commenced a long term construction contract and the Company follows the
percentage-of-completion method of accounting for contract revenue. Contracts
are considered complete upon completion of all essential contract work,
including support for integrated testing and customer acceptance. Under the
percentage-of-completion method, income is recognized on contracts as work
progresses based on the relationship between total contract revenues and total
estimated contract costs. The percentage of work completed is determined by
comparing the accumulated costs incurred to date with management's current
estimate of total costs to be incurred at contract completion. Revenue is
recognized on the basis of actual costs incurred plus the portion of income
earned. Contract costs include all direct material, subcontractor costs, and
labor costs and those indirect costs related to contract performance. Revisions
in profit estimates during the period of a contract are reflected in the
accounting period in which the revised estimates are made on the basis of the
stage of completion at the time. If estimated total costs on a contract indicate
a loss, the entire amount of the estimated loss is provided for currently.
Billings in excess of costs and estimated earnings on uncompleted contracts
represents billings to customers in excess of earned revenue and advances on
contracts.

On an on-going basis, management evaluates its estimates and judgments,
including those related to allowance for doubtful accounts, inventory valuations
and recoverability of intangible assets, including goodwill. Management bases
its estimates and judgments on historical experience and on various other
factors that are also believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources.
However, future events are subject to change and the best estimates and
assumptions routinely require adjustment. Our major operating assets are trade
and vendor accounts receivable, inventory, property and equipment and intangible
assets. Our reserve for doubtful accounts of $385,000 should be adequate for any

                                       23
<PAGE>

exposure to loss in our accounts receivable as of December 31, 2005. We have
also established reserves for slow moving and obsolete inventories and believe
the current reserve of $799,000 is adequate. We depreciate our property and
equipment over their estimated useful lives and we have not identified any items
that are impaired.

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which
is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No.
123(R) which is effective for the Company beginning January 1, 2006, supersedes
APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS
No. 95, Statement of Cash Flows.

SFAS No. 123(R) requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the income statement based on
their fair values. Pro-forma disclosure is no longer an alternative. The Company
has not yet completed its evaluation of the effect of SFAS No. 123(R) but
expects its adoption to have an effect on the financial statements similar to
the pro-forma effects reported in Note 1 to the Consolidated Financial
Statements under the caption above "Stock Based Compensation".

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, which revised
ARB 43, relating to inventory costs. This revision is to clarify the accounting
for abnormal amounts of idle facility expense, freight, handling costs and
wasted material (spoilage). This Statement requires that these items be
recognized as a current period charge regardless of whether they meet the
criterion specified in ARB 43. In addition, this Statement requires the
allocation of fixed production overheads to the costs of conversion be based on
normal capacity of the production facilities. SFAS No. 151 is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005. The
Company does not believe the adoption of SFAS No. 151 will have a material
impact on the Company's financial statements.

The FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, which changes the
guidance in APB Opinion 29, Accounting for Nonmonetary Transactions. This
Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges
of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. SFAS
No. 153 is effective during fiscal years beginning after June 15, 2005. The
Company does not believe the adoption of SFAS No. 153 will have a material
impact on the Company's financial statements.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections." SFAS No. 154 requires restatement of prior periods' financial
statements for changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. Also, SFAS No. 154 requires that retrospective application of a change
in accounting principle be limited to the direct effects of the change. SFAS No.
154 is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
-------------------------------------------------------------------

We have not used derivative financial instruments.

We are exposed to market risk through interest rates related to our lines of
credit and note payable to the banks which have variable interest rates equal to
existing bank prime rate (7.0% as of December 31, 2005) plus one-half percent to
two percent. The prime interest rate increased from 5.0% to 7.0% in 2005 and
increased to 5.25% in January 2005. An increase in the bank's prime interest
rates on the notes payable by an additional 2% in 2006 would increase our yearly

                                       24
<PAGE>

interest expense by approximately $52,000, assuming borrowed amounts remain
outstanding at 2005 average levels. Our management believes that fluctuation in
interest rates in the near term will not materially affect our consolidated
operating results, financial position or cash flow.

Item 8. Financial Statements and Supplementary Data
---------------------------------------------------

Information regarding Financial Statements and Supplementary Data appears on
pages F-1 through F-23 under the caption "Consolidated Balance Sheets,"
"Consolidated Statements of Operations," "Consolidated Statements of
Shareholders' Equity," "Consolidated Statements
of Cash Flows" and "Notes to Consolidated Financial Statements."

Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure
-----------------------------------------------------------------------

None

Item 9A. Controls and Procedures
--------------------------------

(a)  Evaluation of disclosure controls and procedures

     Based on an evaluation carried out under the supervision, and with the
participation of our management, including the Chief Executive Officer and the
Chief Financial Officer during the 90 day period prior to the filing of this
report, the Company's Chief Executive Officer and Chief Financial Officer
believe our disclosure controls and procedures, as defined in Securities
Exchange Act Rules 13a-14 and 15d-14, and as of the date of this report, are to
the best of their knowledge, effective.

(b)  Changes in internal controls

     Subsequent to the date of this evaluation, the Chief Executive Officer and
Chief Financial Officer are not aware of any significant changes in the
Company's internal controls, including any corrective actions with regard to
significant deficiencies and material weaknesses, or in other factors that could
significantly affect these controls to ensure that information required to be
disclosed by the Company, in reports that it files or submits under the
Securities Act of 1934, is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
regulations.

Item 9B Other Information
-------------------------

     None



                                       25
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant
-----------------------------------------------------------

Directors and Executive Officers.
---------------------------------

Our directors and executive officers are as follows:
----------------------------------------------------
<TABLE>
<CAPTION>

  Name                  Age   Position with the Company                        Director Since
  ----                  ---   -------------------------                        --------------
  <S>                   <C>                                                         <C>
  Randall P. Marx       53    Chief Executive Officer, Secretary, Director          1990

  Donald A. Huebner     60    Director                                              1998

  Robert E. Wade        59    Director                                              2005

  Sigmund A. Balaban    64    Director                                              1994

  Gregory E. Raskin     52    President, Director                                   2001

  Monty R. Lamirato     50    Chief Financial Officer, Treasurer                     -

  Steve C. Olson        49    Chief Technology Officer                               -
</TABLE>

Randall P. Marx. Mr. Marx became our Chief Executive Officer in February 2001
and has served as Director since May 1990. Mr. Marx served as Chief Executive
Officer from November 1991 until July 2000, as Treasurer from December 1994
until June 30, 2000 and as Director of Acquisitions from July 2000 until
February 2001. From 1983 until 1989, Mr. Marx served as President of THT Lloyd's
Inc., Lloyd's Electronics Corp. and Lloyd's Electronics Hong Kong Ltd.,
international consumer electronics companies. Lloyd's Electronics had domestic
revenues of $100 million and international revenues of $30 million with over 400
employees worldwide. As CEO and President of THT Lloyd's Inc., a $10 million
electronics holding company, Mr. Marx supervised the purchase of the Lloyd's
Electronics business from Bacardi Corp. in 1986. As CEO and President of Lloyd's
Electronics, Mr. Marx was directly responsible for all domestic and
international operations including marketing, financing, product design and
manufacturing with domestic offices in New Jersey and Los Angeles and
international offices in Hong Kong, Tokyo and Taipei.

Donald A. Huebner. Mr. Huebner was our Chief Scientist from July 2000 to January
2002 and has been a consulting engineer from January 2002 to the present. He has
served as a Director of the Company since 1998. Mr. Huebner served as Department
Staff Engineer with Lockheed Martin Astronautics in Denver, Colorado from 1986
to July 2000. In this capacity, Dr. Huebner served as technical consultant for
phased array and spacecraft antennas as well as other areas concerning antennas
and communications. Prior to joining Lockheed Martin, Dr. Huebner served in
various capacities with Ball Communication Systems and Hughes Aircraft Company.
Dr. Huebner also served as a part-time faculty member in the electrical
engineering departments at the University of Colorado at Boulder, California
State University at Northridge, and University of California, Los Angeles
("UCLA"). Dr. Huebner also has served as consultant to various companies,
including as a consultant to the Company from 1990 to the present. Dr. Huebner
received his Bachelor of Science in Electrical Engineering from UCLA in 1966 and
his Masters of Science in Electrical Engineering from UCLA in 1968. Dr. Huebner
received his Ph.D. from UCLA in 1972 and a Masters in Telecommunications from
the University of Denver in 1996. Dr. Huebner is a member of a number of
professional societies, including the Antennas And Propagation Society and
Microwave Theory And Technique Society of the Institute of Electrical and
Electronic Engineers.

                                       26
<PAGE>

Robert E. Wade. Mr. Wade became a Director in December 2005. A former bank
director, Mr. Wade currently serves as a member of the boards of directors of
mutual funds: Franklin Mutual Series Fund Inc. since 1996, Franklin Managed
Trust and Franklin Value Investors Trust since 2004. In March of 2005, Mr. Wade
was named Chairman of the Board of Franklin Mutual Series Fund Inc., having
previously served as Chairman of its Audit Committee. Mr. Wade also serves as a
director in several Templeton investment company funds. He has also been a
director of El Oro and Exploration Co. plc. since 2003. Mr. Wade is a practicing
attorney in New Jersey and is a trustee of the Newark Museum, Newark, NJ.

Sigmund A. Balaban. Mr. Balaban has served as Director since December 1994. Mr.
Balaban had served as Senior Vice President / Corporate Secretary, of Fujitsu
General America, Inc. of Fairfield, New Jersey, from 2000 until July of 2001
when he retired. Mr. Balaban was Vice President, Credit of Teknika Electronics
from 1986 to 1992 and was Senior Vice President and General Manager of Teknika
Electronics since 1992 to 2000. In October 1995, Teknika Electronics changed its
name to Fujitsu General America, Inc. Fujitsu General America, Inc. is a
subsidiary of Fujitsu General, Ltd., a Japanese multiline manufacturer.

Gregory E. Raskin. Mr. Raskin is President of the Company and CEO of Winncom. He
founded Winncom in 1995 and joined us coincident with the acquisition of Winncom
in May 2000. Mr. Raskin was elected as a Director of the Company in February
2001. Previous to Winncom, he was founder and President of a company that
introduced (and certified) Wireless LANs to former Soviet Block Countries. He
holds MS degrees in Electrical Engineering and Control System Engineering.

Monty R. Lamirato. Mr. Lamirato has been Chief Financial Officer and Treasurer
since June 2001. Prior to joining the Company Mr. Lamirato served as the VP
Finance for GS2.Net, Inc, an application service provider, from November 2000 to
May 2001, and from June 1999 to October 2000 he served as VP Finance for an
e-commerce retailer. From November 1993 to June 1999, Mr. Lamirato was President
and Shareholder of Monty R. Lamirato, PC, a business consulting firm. Mr.
Lamirato has been a certified public accountant in the State of Colorado since
1978.

Steven C. Olson. Mr. Olson serves as our Chief Technology Officer. Prior to
joining ARC Wireless in August 2001, Mr. Olson was employed at Ball Aerospace
for 14 years, including the last five years as Director of Engineering for
Ball's Wireless Communications Solutions Division. In this capacity Mr. Olson
led the development of new technologies, resulting in industry leading antenna
solutions for the wireless communications market. Before the Ball Wireless
Communications unit was formed, Mr. Olson developed Ball's high performance, low
cost AirBASE(R) antenna technology, specifically for use in its future
commercial wireless business. He received his Bachelors and Masters of Science
degrees in Electrical Engineering from the University of Utah in 1984 and 1985,
respectively. Audit Committee of the Board of Directors

The audit committee consists of three independent directors, Mr. Sigmund A.
Balaban, who is chairman of the committee, Mr. Robert E. Wade and Dr. Donald A.
Huebner. The responsibilities of the audit committee include overseeing our
financial reporting process, reporting the results of its activities to the
board, retaining and ensuring the independence of our auditors, approving
services to be provided by our auditors, reviewing our periodic filings with the
independent auditors prior to filing, and reviewing and responding to any
matters raised by the independent auditors in their management letter.

Audit Committee Financial Expert

The board of directors has determined that at least one member of the audit
committee, Mr. Sigmund A. Balaban, is an audit committee financial expert.

                                       27
<PAGE>

Audit Committee Charter

Our Board of Directors has adopted a written charter for the Audit Committee.
The Audit Committee will review and assess the adequacy of the Audit Committee
charter annually.

Compensation Committee

The Board of Directors currently has a Compensation Committee, consisting of Mr.
Robert E. Wade, the chairman of the compensation committee, Mr. Randall P. Marx,
Mr. Gregory E. Raskin and Mr. Sigmund A. Balaban, which met during the year
ended December 31, 2005 and 2004 but did not meet during the year ended December
31, 2003.

Nominating Committee

The Company does not currently have a standing nominating committee of the Board
of Directors because it believes that the nominating functions should be
relegated to the full Board. There have been no material changes to the
procedures by which security holders may recommend nominees to our Board of
Directors.

Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------

Section 16(a) of the Securities Act of 1934, as amended (the "Exchange Act")
requires our directors, executive officers and holders of more than 10% of our
common stock to file with the Securities and Exchange Commission initial reports
of ownership and reports of changes in ownership of common stock and other
equity securities of ours. We believe that during the year ended December 31,
2005, our officers, directors and holders of more than 10% of our common stock
complied with all Section 16(a) filing requirements. In making these statements,
we have relied upon the written representation of our directors and officers and
our review of the monthly statements of changes filed with us by our officers
and directors.

Code of Ethics
--------------

The Company endeavors to adhere to provide assurances to outside investors and
interested parties that the Company's officers, directors and principal
financial officer adhere to a reasonably responsible code of ethics and as such,
we have adopted a code of ethics that applies to our executive officers,
including Mr. Randall P. Marx, our Chief Executive Officer, Mr. Gregory E.
Raskin, our President, Mr. Monty R. Lamirato, our Chief Financial Officer, and
Mr. Steven C. Olson, our Chief Technology Officer.




                                       28
<PAGE>

Item 11. Executive Compensation
-------------------------------

Summary Compensation Table.

The following table sets forth in summary form the compensation of our Chief
Executive Officer and each other executive officer who received total salary and
bonus exceeding $100,000 during any of the three successive fiscal years ending
December 31, 2005 (the "Named Executive Officers").
<TABLE>
<CAPTION>

                                                                                         Long Term Compensation
                                                                            ------------------------------------------------
                                           Annual Compensation                      Awards                 Payouts
                                                                                    ------                 -------
                              -------------------------------------------
                                                                            Restricted   Securities
                                                             Other Annual     Stock      Underlying   LTIP       All Other
                              Fiscal     Salary     Bonus    Compensation     Awards      Options    Payouts    Compensation
Name and Principal Position    Year      ($) (1)    ($) (2)      ($) (3)        ($)          (#)     ($) (4)      ($) (5)
---------------------------    ----      -------    -------      -------        ---          ---     -------      -------
<S>                            <C>       <C>         <C>         <C>            <C>          <C>     <C>           <C>
Randall P. Marx                2005      235,000     50,000           0           0            0         0             0
Chief Executive Officer,
Secretary and Director         2004      195,000     90,000           0           0            0         0             0

                               2003      195,000          0           0           0            0         0             0

Gregory E. Raskin              2005      385,000     98,000           0           0            0         0             0
President, and Director
                               2004      321,000     90,000           0           0            0         0             0

                               2003      300,000     25,000           0           0            0         0             0

Monty R. Lamirato              2005     150,000      15,000           0           0            0         0             0
Chief Financial Officer and
Treasurer                      2004     135,000           0           0           0      500,000         0             0

                               2003     125,000      20,000           0           0            0         0             0

Steve C. Olson                 2005     175,000      49,000           0           0            0         0             0
Chief Technology Officer
                               2004     162,000      37,000           0           0      500,000         0             0

                               2003     155,000      16,000           0           0            0         0             0
</TABLE>

(1)  The dollar value of base salary (cash and non-cash) earned during the year
     indicated.

(2)  The dollar value of bonus (cash and non-cash) earned during the year
     indicated.

(3)  During the period covered by the Summary Compensation Table, we did not pay
     any other annual compensation not properly categorized as salary or bonus,
     including perquisites and other personal benefits, securities or property.

(4)  We do not have in effect any plan that is intended to serve as incentive
     for performance to occur over a period longer than one fiscal year except
     for our 1997 Stock Option and Compensation Plan.

(5)  All other compensation received that we could not properly report in any
     other column of the Summary Compensation Table including our annual
     contributions or other allocations to vested and unvested defined
     contribution plans, and the dollar value of any insurance premiums paid by,
     or on behalf of, the Company with respect to term life insurance for the
     benefit of the named executive officer, and, the full dollar value of the
     remainder of the premiums paid by, or on behalf of, us.


                                       29
<PAGE>

Option Grants in Last Fiscal Year
---------------------------------

There we no individual grants of stock options made to Named Executive Officers
during the fiscal year ended December 31, 2005.


Aggregated Option Exercises for Last Fiscal Year and Fiscal Year-End Option
Values
---------------------------------------------------------------------------

The following table provides certain summary information concerning stock option
exercises during the fiscal year ended December 31, 2005 by the Named Executive
Officers and the value of unexercised stock options held by the Named Executive
Officers as of December 31, 2005.
<TABLE>
<CAPTION>

                                    Aggregated Option Exercises
                              For Fiscal Year Ended December 31, 2005
                                  And Year-End Option Values (1)


                                                           Number of Securities        Value of Unexercised
                                                          Underlying Unexercised              In-the-
                                                          Options at Fiscal Year-        Money Options at
                                                                 End (#) (4)          Fiscal Year-End ($) (5)
                                                          ------------------------   -------------------------
                     Shares
                     Acquired on
      Name           Exercise (2)   Value Realized ($)   Exercisable  Unexercisable  Exercisable  Unexercisable
      ----           ------------   ------------------   -----------  -------------  -----------  -------------
                                    (3)
<S>                           <C>                   <C>   <C>                   <C>          <C>             <C>
Randall P. Marx                0                     0    1,000,000              0            0               0

Gregory E. Raskin              0                     0            0              0            0               0

Monty R. Lamirato              0                     0      500,000              0            0               0

Steve C. Olson                 0                     0      500,000              0            0               0
</TABLE>

(1)  No stock appreciation rights are held by any of the Named Executive
     Officers.

(2)  The number of shares received upon exercise of options during the year
     ended December 31, 2005.

(3)  With respect to options exercised during the year ended December 31, 2005,
     the dollar value of the difference between the option exercise price and
     the market value of the option shares purchased on the date of the exercise
     of the options.

(4)  The total number of unexercised options held as of December 31, 2005,
     separated between those options that were exercisable and those options
     that were not exercisable on that date.

(5)  For all unexercised options held as of December 31, 2005, the aggregate
     dollar value of the excess of the market value of the stock underlying
     those options over the exercise price of those unexercised options. These
     values are shown separately for those options that were exercisable, and
     those options that were not yet exercisable, on December 31, 2005. As
     required, the price used to calculate these figures was the closing sale
     price of the common stock at year's end, which was $0.10 per share on
     December 31, 2005.

Employee Retirement Plans, Long-Term Incentive Plans, and Pension Plans
-----------------------------------------------------------------------

Other than our 1997 Stock Option and Compensation Plan and 401(k) plan, we have
no employee retirement plan, long-term incentive plan or pension plan to serve
as incentive for performance to occur over a period longer than one fiscal year.

                                       30
<PAGE>

1997 Stock Option and Compensation Plan
---------------------------------------

In November 1997, the Board of Directors approved our 1997 Stock Option and
Compensation Plan (the "Plan"). Pursuant to the Plan, we may grant options to
purchase an aggregate of 5,000,000 shares of our common stock to key employees,
directors, and other persons who have or are contributing to our success. On
November 9, 2004, the shareholders approved to amend the 1997 Stock Option and
Compensation Plan to allow for an aggregate of 10,000,000 options to be granted
under "the Plan". The options granted pursuant to the Plan may be incentive
options qualifying for beneficial tax treatment for the recipient or they may be
non-qualified options. The Plan is administered by an option committee that
determines the terms of the options subject to the requirements of the Plan,
except that the option committee shall not administer the Plan with respect to
automatic grants of options to our directors who are not our employees. The
option committee may be the entire Board or a committee of the Board.

Through May 24, 2000, directors who were not also our employees ("Outside
Directors") automatically received options to purchase 250,000 shares pursuant
to the Plan at the time of their election as an Outside Director. These options
held by Outside Directors were not exercisable at the time of grant. Options to
purchase 50,000 shares became exercisable for each meeting of the Board of
Directors attended by each Outside Director on or after the date of grant of the
options to that Outside Director, but in no event earlier than six months
following the date of grant. The exercise price for options granted to Outside
Directors was equal to the closing price per share of our common stock on the
date of grant. All options granted to Outside Directors expired five years after
the date of grant. On the date that all of an Outside Director's options became
exercisable, options to purchase an additional 250,000 shares, which were
exercisable no earlier than six months from the date of grant, were
automatically granted to that Outside Director. On May 24, 2000, the Board of
Directors voted to (1) decrease the amount of options automatically granted to
Outside Directors from 250,000 to 25,000 options, and (2) decrease the amount of
exercisable options from 50,000 to 5,000 per meeting. The term of the outside
Director option granted in the future was lowered from five years to two years.
The other terms of the Outside Director options did not change. On July 5, 2002,
the Board of Directors voted to (1) increase the amount of options automatically
granted to Outside Directors from 25,000 to 125,000 options, and (2) increase
the amount of exercisable options from 5,000 to 25,000 per meeting. The other
terms of the Outside Director options did not change.

The Company granted a total of 250,000 options to Outside Directors under the
Plan during 2005 at exercise prices ranging from $.11 to $.15 per share.

The Company granted a total of 250,000 options to Outside Directors under the
Plan during 2004 and 2002, at an exercise price of $.16 and $.13 per share,
respectively. No options were granted during 2003.

As of December 31, 2005, there were 425,000 exercisable options outstanding
related to the grants to Outside Directors. Dr. Donald Huebner's employment
terminated on January 31, 2002 but he continues as a Director of the Company, as
such all of his options are disclosed as Outside Directors options.

In addition to Outside Directors grants, the Board of Directors may grant
incentive options to our key employees pursuant to the Plan. There were no
options granted in 2003 but in 2005 and 2004, the Board granted a total of
1,100,000 options under the Plan to employees with exercise prices ranging from
$.12 to $.15. As of December 31, 2005, there were 2,100,000 exercisable options
outstanding related to grants to employees, all of which were granted under the
Plan.

Compensation of Outside Directors
---------------------------------

Standard Arrangements. Outside Directors are paid $250 for each meeting of the
Board of Directors that they attend. For meetings in excess of four meetings per
year, Outside Directors receive $50 per meeting. Pursuant to the terms of the
1997 Stock Option and Compensation Plan, Outside Directors may elect to receive

                                       31
<PAGE>

payment of the meeting fee in the form of our restricted common stock at a rate
per share equal to the fair market value of the common stock on the date of the
meeting by informing our Secretary, Chief Executive Officer or President of that
election on or before the date of the meeting. Directors are also reimbursed for
expenses incurred in attending meetings and for other expenses incurred on our
behalf. In addition, each Outside Director receives options to purchase shares
of common stock (for details see the "1997 Stock Option And Compensation Plan"
section above).

Outside Directors vested 225,000, 200,000 and 100,000 stock options,
respectively, during fiscal years ended December 31, 2005, 2004 and 2003.
Outside Directors earned $2,050, $2,000 and $1,000, respectively in meeting
attendance fees in 2005, 2004 and 2003, respectively and were paid with the
issuance of 17,350 shares of restricted common stock in 2005, the issuance of
13,865 shares of restricted common stock in 2004 and 9,280 shares of restricted
common stock in 2003.

Other Arrangements. During the year ended December 31, 2005, no compensation was
paid to our Outside Directors other than pursuant to the standard compensation
arrangements described in the previous section. During the years ended December
31, 2005, 2004 and 2003 Mr. Sigmund Balaban, one of our outside directors was
paid $30,000, $30,000 and $30,000, respectively, in connection with his position
as Chairman of the Audit Committee.

Employment Contracts and Termination of Employment and Change-In-Control
Arrangements
------------------------------------------------------------------------

We entered into a new written three year employment agreement with Mr. Marx
effective January 2, 2004. In accordance with his employment agreement, Mr. Marx
is to receive an annual base salary of $195,000 in 2004, $235,000 in 2005 and
$245,000 in 2006. In addition, Mr. Marx can receive bonuses up to $90,000,
$100,000 and $150,000 in 2004, 2005 and 2006, respectively if certain net profit
goals are achieved. Mr. Marx earned a bonus of $50,000 for 2005 and $90,000 for
2004.

We entered into a written employment agreement with Mr. Marx effective January
2, 2002, which terminated on January 2, 2004. In accordance with his employment
agreement, Mr. Marx received an annual base salary of $195,000 in 2002 and 2003
and a bonus of $70,000 for 2002. He did not earn a bonus for 2003.

We entered into a written employment agreement with Gregory E. Raskin, President
of our Winncom subsidiary and beneficial owner of 2.7 percent of our stock, or
4,069,162 shares, effective May 24, 2000. The employment agreement was for the
period May 24, 2000 through May 31, 2002, at an annual base salary of $250,000.
Mr. Raskin also was eligible to earn bonuses of up to $500,000 over the term of
the agreement, based on Winncom's periodic attainment of certain revenues and
earnings objectives, no bonus was earned in 2001. Mr. Raskin also received
options to purchase 250,000 shares of our common stock at a price of $0.89 per
share from December 19, 2000 through May 24, 2002. We entered into an employment
agreement with Mr. Raskin effective as of June 1, 2002 with a term of two and
one-half years. Pursuant to the new agreement, Mr. Raskin is to receive an
annual base salary of $300,000 per year. Mr. Raskin was eligible to receive
bonuses for each of the years ending December 31, 2002, 2003 and 2004 of between
$50,000 and $300,000 depending upon Winncom achieving certain predetermined
revenues and EBIDTA goals for those periods. Mr. Raskin earned a bonus of
$25,000 and $50,000 for 2003 and 2002, respectively. In September 2004, we
entered into a new two and one-half year employment agreement with Mr. Raskin
effective October 1, 2004. Pursuant to the new agreement, Mr. Raskin is to
receive an annual base salary of $385,000 per year. Mr. Raskin was eligible to
receive bonus for the year ending December 31, 2004 between $25,000 and $90,000
depending upon Winncom achieving certain predetermined net income goals and Mr.
Raskin will earn a bonus of $10% of net income for the years ended December 31,
2005 and 2006. Mr. Raskin earned a bonus of $98,000, $90,000 and $25,000 for
2005, 2004 and 2003, respectively.

                                       32
<PAGE>

We entered into a new written employment agreement with Monty R. Lamirato, our
Chief Financial Officer and Treasurer, effective July 1, 2005 for the period
July 1, 2005 through June 30, 2007, at an annual base salary of $155,000. In
addition, Mr. Lamirato can earn a bonus of $15,000 in 2005 and 2006 if certain
net profit goals are achieved. Mr. Lamirato earned a bonus of $15,000 for 2005.

We entered into a written employment agreement with Monty R. Lamirato, our Chief
Financial Officer and Treasurer, effective July 1, 2004 for the period July 1,
2004 through June 30, 2005, at an annual base salary of $145,000. In addition,
Mr. Lamirato also received options to purchase 500,000 shares of our common
stock at $0.12 per share exercisable from July 1, 2004 to July 1, 2007.

We entered into a written employment agreement with Monty R. Lamirato, our Chief
Financial Officer and Treasurer, effective June 22, 2001. The employment
agreement is for the period June 22, 2001 through June 30, 2004, at an annual
base salary of $111,000, adjusted to $125,000 on July 1, 2002. Mr. Lamirato also
is eligible to earn bonuses of $35,000 or 3% of EBITDA (Earnings Before
Interest, Taxes, Depreciation and Amortization), whichever is greater, over the
term of the agreement. Mr. Lamirato earned a bonus of $20,000 for 2003. Mr.
Lamirato also received options to purchase 350,000 shares of our common stock at
prices ranging from $.14 to $0.33 per share exercisable from June 22, 2001
through June 30, 2004.

We entered into a new written employment agreement with Steven C. Olson, our
Chief Technology Officer, effective August 22, 2004. The employment agreement is
for the period August 22, 2004 through August 22, 2007 at an annual base salary
of $175,000. Mr. Olson also is eligible to earn bonuses, upon achieving certain
gross margin objectives, over the term of the agreement. Mr. Olson earned a
bonus of $49,000 in 2005 and $37,000 in 2004. Mr. Olson also received options to
purchase 500,000 shares of our common stock at a price of $0.12 per share from
August 22, 2004 through August 22, 2007.

We entered into a written employment agreement with Steven C. Olson, our Chief
Technology Officer, effective August 13, 2001. The employment agreement is for
the period August 13, 2001 through August 13, 2004 at an annual base salary of
$155,000. Mr. Olson also is eligible to earn bonuses, upon achieving certain
gross margin objectives, over the term of the agreement. Mr. Olson earned a
bonus of $16,000, in 2003. Mr. Olson also received options to purchase 500,000
shares of our common stock at a price of $0.27 per share from August 13, 2001
through August 13, 2004.

We have no compensatory plan or arrangement that results or will result from the
resignation, retirement, or any other termination of an executive officer's
employment with us or from a change-in-control or a change in an executive
officer's responsibilities following a change-in-control, except that the 1997
Stock Option and Compensation Plan provides for vesting of all outstanding
options in the event of the occurrence of a change-in-control.

Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------

The Compensation Committee is composed of our Chief Executive Officer/Secretary,
our President and two non-employee directors. None of these individuals served
as a member of the compensation committee of another entity, which has an
executive officer serving on the Compensation Committee of the Company. No
executive officer of the Company served as a director of another entity, which
had an executive officer serving on the Compensation Committee of the Company.
Finally, no executive officer of the Company served as a member of the
compensation committee of another entity, which had an executive officer serving
as a director of the Company.

                                       33
<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

The following table summarizes certain information as of February 24, 2006 with
respect to the beneficial ownership of our common stock by each director, by all
executive officers and directors as a group, and by each other person known by
us to be the beneficial owner of more than five percent of our common stock:

                                             Number of Shares          Percent
Name and Address of Beneficial Owner      Beneficially Owned (1)       of Class
------------------------------------      ----------------------       --------

Randall P. Marx                                9,480,111(2)               6.1%
ARC Wireless Solutions, Inc.
10601 West 48th Ave.
Wheat Ridge, CO  80033

Sigmund A. Balaban                             1,725,751(3)               1.1%
ARC Wireless Solutions, Inc.
10601 West 48th Ave.
Wheat Ridge, CO  80033

Donald A. Huebner                                296,715(4)                *
ARC Wireless Solutions, Inc.
10601 West 48th Ave.
Wheat Ridge, CO  80033

Robert E. Wade                                 3,467,000(9)               2.2%
ARC Wireless Solutions, Inc.
10601 West 48th Ave.
Wheat Ridge, CO  80033

Gregory E. Raskin                              4,069,162(5)               2.6%
ARC Wireless Solutions, Inc.
10601 West 48th Ave.
Wheat Ridge, CO  80033

Steve Olson                                      587,559(8)                 *
ARC Wireless Solutions, Inc.
10601 West 48th Ave.
Wheat Ridge, CO  80033

Monty R. Lamirato                                571,133(6)                 *
ARC Wireless Solutions, Inc.
10601 West 48th Ave.
Wheat Ridge, CO  80033

Michael Maness                                   237,313(7)                *
ARC Wireless Solutions, Inc.
10601 West 48th Ave.
Wheat Ridge, CO  80033

                                       34
<PAGE>

                                             Number of Shares          Percent
Name and Address of Beneficial Owner      Beneficially Owned (1)       of Class
------------------------------------      ----------------------       --------

Barry Nathanson                               11,798,559                  7.7%
6 Shore Cliff Place
Great Neck, NY  11023

Hudson River Investments, Inc.                11,603,225                  7.52%
Skelton Building, Main Street.
POB 3139 Road Town
Tortola, British Virgin Islands

Evansville Limited                             9,301,060                  6.03%
c/o Quadrant Management Inc.
40 West 57th Street, 20th Floor
New York, NY  10019

All officers and directors as a group         20,434,744(2)(3)(4)(5)(6)    13%
(eight persons)                                         (7)(8)(9)

* Less than one percent.

(1)  "Beneficial ownership" is defined in the regulations promulgated by the
     U.S. Securities and Exchange Commission as having or sharing, directly or
     indirectly (1) voting power, which includes the power to vote or to direct
     the voting, or (2) investment power, which includes the power to dispose or
     to direct the disposition, of shares of the common stock of an issuer. The
     definition of beneficial ownership includes shares underlying options or
     warrants to purchase common stock, or other securities convertible into
     common stock, that currently are exercisable or convertible or that will
     become exercisable or convertible within 60 days. Unless otherwise
     indicated, the beneficial owner has sole voting and investment power.

(2)  Includes 8,312,665 shares directly held by Mr. Marx, 98,984 shares in his
     ARC Wireless 401(k) account, 40,000 shares held by his spouse's IRA and
     28,463 shares owned beneficially through a 50% ownership of an LLC.
     Includes options to purchase 1,000,000 shares at $.18 per share until
     January 2, 2007, granted under the 1997 Stock Option and Compensation Plan
     all of which are currently exercisable. This does not include shares owned
     and warrants owned by the Harold and Theora Marx Living Trust, of which Mr.
     Marx's father is the trustee, as Mr. Marx disclaims beneficial ownership of
     these shares. This also does not include 155,000 shares owned by Warren E.
     Spencer Living Trust, of which Mr. Marx's mother-in-law is trustee, as Mr.
     Marx disclaims beneficial ownership of these shares.

(3)  Includes 1,450,751 shares directly held by Mr. Balaban and Outside Director
     options granted under the 1997 Stock Option and Compensation Plan to
     purchase 125,000 shares at $0.16 per share until February 26, 2006, options
     to purchase 125,000 shares at $0.15 per share until March 15, 2007 and
     option to purchase 25,000 at $.13 per share until February 21, 2008, all of
     which are currently exercisable.

(4)  Includes 96,715 shares directly held by Dr. Huebner and Outside Director
     options granted under the 1997 Stock Option and Compensation Plan to
     purchase 125,000 shares at $0.16 per share until February 26, 2006 and
     75,000 shares at $0.11 per share until November 1, 2007, all of which are
     currently exercisable.

(5)  Includes 3,898,389 shares directly held by Mr. Raskin and 170,773 shares
     beneficially owned by a partnership in which Mr. Raskin is a partner.

                                       35
<PAGE>

(6)  Consists of 71,133 shares in Mr. Lamirato's ARC Wireless 401(k) account and
     options to purchase 500,000 shares until July 1, 2007, all granted under
     the 1997 Stock Option and Compensation Plan all of which are currently
     exercisable.

(7)  Consists of 196,280 shares directly held by Mr. Maness and 41,033 shares in
     his ARC Wireless 401(k) account.

(8)  Consists of 87,559 shares in Mr. Olson's ARC Wireless 401(k) account and
     options to purchase 500,000 shares at $.16 per share until August 22, 2007,
     granted under the 1997 Stock Option and Compensation Plan and all of which
     are currently exercisable.

(9)  Includes 3,392,000 shares directly held by Mr. Wade, 50,000 shares held by
     his spouse and options to purchase 25,000 shares at $.13 per share until
     February 21, 2008, granted under the 1997 Stock Option and Compensation
     Plan and all of which are currently exercisable

Item 13. Certain Relationships and Related Transactions
-------------------------------------------------------

Other than the employment agreements describe above under the subheading
"--Employment Contracts and Termination of Employment and Change-In-Control
Arrangements", there have been no transactions involving the Company and any
director, officer of 5% or greater shareholder, or any of their respective
family members, involving a dollar amount in excess of $60,000.

Item 14. Principal Accountant Fees and Services
-----------------------------------------------

The Audit Committee reviews and determines whether specific projects or
expenditures with our independent registered public accounting firm (auditors),
HEIN & ASSOCIATES LLP potentially affect their independence. The Audit
Committee's policy requires that all services the Company's independent
registered public accounting firm (auditor) may provide to the Company,
including audit services and permitted audit-related services, be pre-approved
in advance by the Audit Committee. In the event that an audit or non-audit
service requires approval prior to the next scheduled meeting of the Audit
Committee, the auditor must contact the Chairman of the Audit Committee to
obtain such approval. The approval will be reported to the Audit Committee at
its next scheduled meeting.

The following table sets forth the aggregate fees billed to us by HEIN &
ASSOCIATES LLP for the years ended December 31, 2005, 2004 and 2003:

                                    2005            2004            2003
                                    ----            ----            ----
Audit fees                       $110,000(1)     $99,000(1)      $90,000(1)
Audit-related fees                     --(2)          --(2)           --(2)
Tax fees                           10,000(3)       9,000(3)       12,000(3)
All other fees                                        --              --
                                 ----------------------------------------
Total audit and non-audit fees   $120,000       $108,000        $102,000
                                 ========================================

(1)  Includes fees for professional services rendered for the audit of ARC's
     annual financial statements and review of ARC's annual report on Form 10-K
     for the year 2005, 2004 and 2003 and for reviews of the financial
     statements included in ARC's quarterly reports on Form 10-Q for the first
     three quarters of fiscal 2005, 2004 and 2003 and related SEC registration
     statements.

(2)  Includes fees billed for professional services rendered in fiscal 2005,
     2004 and 2003, in connection with acquisition planning and due diligence.

(3)  Includes fees billed for professional services rendered in fiscal 2005,
     2004 and 2003, in connection with tax compliance (including U.S. federal
     and state returns) and tax consulting.

                                       36
<PAGE>

Item 15. Exhibits, Financial Statement Schedules

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

         (1) Financial Statements

         Report of Independent Registered Public Accounting Firm............F-1

         Consolidated Balance Sheets at December 31, 2005 and 2004..........F-2

         Consolidated Statements of Operations for the Years Ended
                December 31, 2005, 2004 and 2003............................F-3

         Consolidated Statements of Changes in Stockholders' Equity
                for the Years Ended December 31, 2005, 2004 and 2003........F-4

         Consolidated Statements of Cash Flows for the Years Ended
                December 31, 2005, 2004 and 2003............................F-5

         Notes to Consolidated Financial Statements.........................F-6

         (2) Financial Statement Schedules

             Report of Independent Registered Public Accounting Firm on Schedule

           Schedule II
           -----------
           <TABLE>
           <CAPTION>

           Consolidated Valuation Accounts

                                               Balance,      Charges to Cost    Write-offs,    Balance, End
                                             Beginning of     and Expenses        Net of         of Year
                                                 Year                           Recoveries
           <S>                               <C>                 <C>            <C>              <C>
           Allowance for Doubtful Accounts
           Years Ended December 31,
           2005                              $ 502,000           233,000        (350,000)        $385,000
           2004                              $ 257,000           308,000        ( 63,000)        $502,000
           2003                              $ 987,000           193,000        (923,000)        $257,000


                                               Balance,      Charges to Cost
                                             Beginning of     and Expenses                     Balance, End
                                                 Year                           Write-offs       of Year
           Inventory Valuation
           Years Ended December 31,
           2005                              $712,000             87,000               -         $799,000
           2004                              $498,000            214,000               -         $712,000
           2003                              $382,000            116,000               -         $498,000


                                       37
</TABLE>
<PAGE>

         (3) Exhibits.

                                  EXHIBIT INDEX

Exhibit Number          Description
--------------          -----------

   3.1a        Articles of Incorporation of Westcliff Corporation, now known as
               Antennas America, Inc. (the "Company"), are incorporated herein
               by reference from the Company's Form S-18 Registration Statement
               dated December 1, 1987 (File No. 33-18854-D).

   3.1b        Articles of Amendment of the Company dated January 26, 1988 are
               incorporated herein by reference from the Company's
               Post-Effective Amendment No. 3 to Form S-18 Registration
               Statement dated December 5, 1989 (File No. 33-18854-D).

   3.1c        Articles and Agreement of Merger between the Company and Antennas
               America, Inc., a Colorado corporation, dated March 22, 1989, are
               incorporated herein by reference from the Company's
               Post-Effective Amendment No. 3 to Form S-18 Registration
               Statement dated December 5, 1989 (File No. 33-18854-D)

   3.1d        Amended And Restated Articles Of Incorporation dated October 11,
               2000 (5)

   3.2         Bylaws of the Company as amended and restated on March 25, 1998
               (6)

   10.1        Employment Agreement dated as of October 1, 1998 between the
               Company and Randall P. Marx is incorporated by reference from the
               Company's Annual Report on From 10-KSB for the year ended
               December 31, 1998 (File No. 000-18122)

   10.2        Promissory Note dated February 15, 1999 from the Company to Jasco
               Products Co., Inc. (2)

   10.3        Stock Option Agreement dated February 15, 1999 between the
               Company and Jasco Products Co., Inc. (2)

   10.4        Agreement between and among Winncom Technologies Inc., Winncom
               Technologies Corp. and the Company dated May 24, 2000 (3)

   10.5        Employment Agreement dated as of May 24, 2000 between Winncom
               Technologies Corp. and Gregory E. Raskin (5)

   10.6        Agreement between and among Starworks Technology, Inc., Starworks
               Wireless Inc. and the Company dated September 29, 2000 (4)

   10.7        Employment Agreement dated as of June 22, 2001 between ARC
               Wireless Solutions, Inc. and Monty R. Lamirato (7)

   10.8        Employment Agreement dated as of August 13, 2001 between ARC
               Wireless Solutions, Inc. and Steven C. Olson (7)

   10.9        Employment Agreement dated as of May 30, 2000 between ARC
               Wireless Solutions, Inc. (formerly Antennas America, Inc.) and
               Burton J. Calloway (7)

   10.10       Employment Agreement dated as of January 2, 2002 between the
               Company and Randall P. Marx. (8)

   10.11       Employment Agreement dated as of June 1, 2002 between Winncom
               Technologies Corp. and Gregory E. Raskin. (8)

   10.12       Employment Agreement dated as of July 1, 2002 between the Company
               and Monty R. Lamirato.(8)

   10.13       Employment Agreement effective January 2, 2004 between the
               Company and Randall P. Marx. (10)

   10.14       Employment Agreement effective October 1, 2004 between Winncom
               Technologies Corp. and Gregory E. Raskin. (10)

   10.15       Employment Agreement effective July 1, 2004 between the Company
               and Monty R. Lamirato. (10)

   10.16       Employment Agreement effective July 1, 2005 between the Company
               and Monty R. Lamirato.

   14.1        Code of Ethics (9)

   21          Subsidiaries of the Registrant

                                       38
<PAGE>

   31.1        Officers' Certifications of Periodic Report pursuant to Section
               302 of Sarbanes-Oxley Act of 2002

   32.1        Officers' Certifications of Periodic Report pursuant to Section
               906 of Sarbanes-Oxley Act of 2002

-------------------
(1)  Incorporated by reference from the Company's Form SB-2 Registration
     Statement dated June 8, 1998 (File No. 333-53453)
(2)  Incorporated by reference from the Company's Form SB-2 Registration
     Statement filed February 9, 2000 (File No. 333-96485)
(3)  Incorporated by reference from Exhibit 2.1 of the Company's Form 8-K filed
     on June 8, 2000
(4)  Incorporated by reference from Exhibit 2.1 of the Company's Form 8-K filed
     on October 13, 2000
(5)  Incorporated by reference from the Company's Form 10-KSB for December 31,
     2000 filed on April 2, 2001
(6)  Incorporated by reference from the Company's Form 10-KSB for December 31,
     1997 filed on March 31, 1998
(7)  Incorporated by reference from the Company's Form 10-KSB for December 31,
     2001 filed on April 1, 2002
(8)  Incorporated by reference from the Company's Form 10-KSB for December 31,
     2002 filed on March 28, 2003.
(9)  Incorporated by reference from the Company's Form 10-K for December 31,
     2003 filed on March 30, 2004
(10) Incorporated by reference from the Company's Form 10-K for December 31,
     2004 filed on March 30, 2005

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                      ARC Wireless Solutions, Inc.

Date:  March 15, 2006                 By: /s/ Randall P. Marx
                                      -------------------------------
                                      Randall P. Marx, Chief Executive Officer

Date:  March 15, 2006                 By: /s/ Monty R. Lamirato
                                      -------------------------------
                                      Monty R. Lamirato, Chief Financial Officer

In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant in the capacities and on the dates
indicated.

Date                                  Signatures
----                                  ----------

March 15, 2006                        /s/ Gregory E. Raskin
                                      -------------------------------
                                      Gregory E. Raskin, Director

March 15, 2006                        /s/ Sigmund A. Balaban
                                      -------------------------------
                                      Sigmund A. Balaban, Director

March 15, 2006                        /s/ Robert E. Wade
                                      -------------------------------
                                      Robert E. Wade, Director

March 15, 2006                        /s/ Donald A. Huebner
                                      -------------------------------
                                      Donald A. Huebner, Director


                                       39
<PAGE>



Reports of Independent Registered Public Accounting Firm


The Board of Directors
ARC Wireless Solutions, Inc.
Wheat Ridge, Colorado

We have audited the consolidated balance sheets of ARC Wireless Solutions, Inc.
and subsidiaries as of December 31, 2005 and 2004, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2005. Our audit also
included the consolidated financial statement schedules listed in the index at
Item 15. These consolidated financial statements and the consolidated financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and consolidated financial statement schedules based on our audits.

We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ARC Wireless
Solutions, Inc. and subsidiaries at December 31, 2005 and 2004, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2005, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the consolidated financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.


/s/ Hein & Associates LLP

Denver, Colorado
February 17, 2006



                                       F-1

<PAGE>
<TABLE>
<CAPTION>

                                  ARC Wireless Solutions, Inc.
                                   Consolidated Balance Sheets

                                                                               December 31,
                                                                           2005            2004
                                                                       ------------    ------------
<S>                                                                    <C>             <C>
Assets
Current assets:
   Cash and cash equivalents                                           $    167,000    $    321,000
   Accounts receivable trade, net of allowance for doubtful accounts
     of $385,000 and $502,000, respectively                               7,706,000       4,145,000
   Accounts receivable vendors                                              766,000         688,000
   Inventory, net                                                          6,107,00       5,624,000
   Construction in progress                                               5,900,000            --
   Deferred tax assets                                                      516,000            --
   Other current assets                                                     800,000         209,000
                                                                       ------------    ------------
Total current assets                                                     21,962,000      10,987,000

Property and equipment, net                                                 433,000         527,000

Other assets:
   Goodwill, net                                                         10,824,000      10,824,000
   Intangible assets, net                                                   103,000         113,000
   Other assets                                                             168,000          42,000
                                                                       ------------    ------------
Total assets                                                           $ 33,490,000    $ 22,493,000
                                                                       ============    ============

Liabilities and stockholders' equity
Current liabilities:
   Accounts payable                                                    $ 10,413,000    $  2,253,000
   Bank debt - current                                                    2,013,000         493,000
   Accrued expenses                                                         757,000         890,000
   Billings in excess of recognized income                                  897,000            --
   Current portion of capital lease obligations                              66,000          62,000
                                                                       ------------    ------------
Total current liabilities                                                14,146,000       3,698,000

Deferred tax liabilities                                                     26,000            --
Capital lease obligations, less current portion                              39,000          90,000
Bank debt, less current portion                                           2,469,000       3,243,000
                                                                       ------------    ------------
Total liabilities                                                        16,680,000       7,031,000
                                                                       ------------    ------------

Commitments (Notes 7 and 9)
Stockholders' equity: (Note 3)
   Common stock, par value $.0005;
      250,000,000 shares authorized; 156,262,000 and
      155,857,000 shares issued, respectively                                78,000          78,000
   Preferred stock, par value $.001;
      2,000,000 shares authorized; no shares issued and outstanding            --              --
   Additional paid-in capital                                            21,760,000      21,704,000
   Treasury stock (1,962,000 shares)                                     (1,195,000)     (1,195,000)
   Accumulated deficit                                                   (3,833,000)     (5,125,000)
                                                                       ------------    ------------
Total stockholders' equity                                               16,810,000      15,462,000
                                                                       ------------    ------------
Total liabilities and stockholders' equity                             $ 33,490,000    $ 22,493,000
                                                                       ============    ============

See accompanying notes to consolidated financial statements.

                                               F-2
<PAGE>

                                  ARC Wireless Solutions, Inc.
                              Consolidated Statements of Operations

                                                               Year Ended December 31,
                                                        2005            2004            2003
                                                    ------------    ------------    ------------

Sales, net                                          $ 37,025,000    $ 35,662,000    $ 29,181,000
Contract revenue                                       2,632,000            --              --
                                                    ------------    ------------    ------------
      Total revenue                                   39,657,000      35,662,000      29,181,000
                                                    ------------    ------------    ------------

Cost of sales                                         29,884,000      28,878,000      24,197,000
Contract cost of goods sold                            2,296,000            --              --
                                                    ------------    ------------    ------------
      Total cost of goods sold                        32,180,000      28,878,000      24,197,000
                                                    ------------    ------------    ------------

      Gross profit                                     7,477,000       6,784,000       4,984,000

Operating expenses:
   Selling, general and administrative expenses        6,445,000       6,190,000       5,457,000
                                                    ------------    ------------    ------------
Total operating expenses                               6,445,000       6,190,000       5,457,000
                                                    ------------    ------------    ------------
      Income (Loss) from operations                    1,032,000         594,000        (473,000)

Other income (expense):
   Interest expense                                     (284,000)       (300,000)       (190,000)
   Other income                                          252,000         447,000         444,000
                                                    ------------    ------------    ------------
      Total other income (expense)                       (32,000)        147,000         254,000
                                                    ------------    ------------    ------------

Income (Loss) before income taxes                      1,000,000         741,000        (219,000)
Less provision for income taxes (expense) benefit        292,000         (53,000)        (66,000)
                                                    ------------    ------------    ------------
Net income (loss)                                   $  1,292,000    $    688,000    $   (285,000)
                                                    ------------    ------------    ------------

Basic and diluted income (loss) per share           $       .008    $       .004    $      (.002)
                                                    ------------    ------------    ------------


See accompanying notes to consolidated financials statements.

                                               F-3
<PAGE>

                                       ARC Wireless Solutions, Inc.
                        Consolidated Statements of Changes in Stockholders' Equity
                                     (Shares and amounts in thousands)


                                              Common Stock      Additional       Treasury
                                          --------------------   Paid in           Stock          Accumulated
                                           Shares      Amount    Capital     Shares      Amount     Deficit
                                          --------    --------   --------   --------    --------    --------
Balances, January 1, 2003                  155,185    $     78   $ 21,649     (1,962)   $ (1,195)   $ (5,528)

Issuance of common stock to 401(K) Plan        649                     52
Common stock issued for directors' fees          9                      1
Net loss                                                                                                (285)
                                          --------    --------   --------   --------    --------    --------
Balances, December 31, 2003                155,843    $     78   $ 21,702     (1,962)   $ (1,195)   $ (5,813)

Common stock issued for directors' fees         14        --            2
Net income                                                                                               688
                                          --------    --------   --------   --------    --------    --------
Balances, December 31, 2004                155,857    $     78   $ 21,704     (1,962)   $ (1,195)   $ (5,125)
Issuance of common stock to 401(K) Plan        408                     57
Common stock issued for directors' fees         17                      2
Shares returned in settlement agreement        (20)                    (3)
Net income                                                                                             1,292
                                          --------    --------   --------   --------    --------    --------
Balances, December 31, 2005                156,262    $     78   $ 21,760     (1,962)   $ (1,195)   $ (3,833)
                                          ========    ========   ========   ========    ========    ========


See accompanying notes to consolidated financial statements.


                                                    F-4
<PAGE>

                                         ARC Wireless Solutions, Inc.
                                    Consolidated Statements of Cash Flows

                                                                                 Year Ended December 31,
                                                                            2005           2004           2003
                                                                        -----------    -----------    -----------

Operating activities
Net Income (loss)                                                       $ 1,292,000    $   688,000    $  (285,000)
Adjustments to reconcile net income (loss) to net cash provided
  by (used in) operating activities:
     Depreciation and amortization                                          227,000        251,000        286,000
     Provision for doubtful receivables                                     233,000        308,000        193,000
     Non-cash expense for issuance of stock and options                      (1,000)         2,000         53,000
     Provision for deferred income taxes                                   (490,000)          --             --
     Gain on debt settlements                                                  --             --         (148,000)
     Changes in operating assets and liabilities:
       Accounts receivable, trade and vendor                             (3,872,000)      (349,000)     1,170,000
       Inventory                                                           (483,000)       457,000       (684,000)
       Construction in progress                                          (5,900,000)          --             --
       Other current assets                                                (591,000)       (92,000)        14,000
       Accounts payable and accrued expenses                              8,084,000       (575,000)      (848,000)
       Billings in excess of recognized income                              896,000           --             --
       Other                                                               (126,000)        16,000         10,000
                                                                        -----------    -----------    -----------
Net cash provided by (used in) operating activities                        (731,000)       706,000       (239,000)

Investing activities
Patent acquisition costs                                                     (6,000)       (19,000)       (15,000)
Purchase of property and equipment                                         (100,000)      (164,000)      (158,000)
                                                                        -----------    -----------    -----------
Net cash used in investing activities                                      (106,000)      (183,000)      (173,000)

Financing activities
Repayment of notes payable - others and capital lease obligations           (63,000)      (513,000)       (21,000)
Net borrowings under line of credit agreements                              746,000         84,000        395,000
                                                                        -----------    -----------    -----------
Net cash provided by (used in) financing activities                         683,000       (429,000)       374,000
                                                                        -----------    -----------    -----------

Net increase (decrease) in cash                                            (154,000)        94,000        (38,000)
Cash, beginning of period                                                   321,000        227,000        265,000
                                                                        -----------    -----------    -----------
Cash, end of period                                                     $   167,000    $   321,000    $   227,000
                                                                        ===========    ===========    ===========

Supplemental disclosure of cash flow information:
  Cash paid for interest                                                $   284,000    $   328,000    $   190,000
  Cash paid for taxes                                                        44,000         51,000         79,000
Supplemental schedule of non-cash investing and financing activities:
  Purchase of assets under capital lease financing                      $    17,000    $    67,000    $   139,000


See accompanying notes to consolidated financial statements

                                                    F-5
</TABLE>
<PAGE>

                          ARC Wireless Solutions, Inc.
                   Notes to Consolidated Financial Statements
                                December 31, 2005


1. Organization and Summary of Significant Accounting Policies

Organization

The Company was organized under the laws of the State of Utah on September 30,
1987 for the purpose of acquiring one or more businesses, under the name of
Westflag Corporation, which was formerly Westcliff Corporation. In January 1989,
the Company completed its initial public offering.

In 1989, the Company merged with Antennas America, Inc., a Colorado corporation
that had been formed in September 1988. Pursuant to the merger, all the issued
and outstanding stock of Antennas America, Inc. was converted into 41,952,000
shares, and the Company name was changed to Antennas America, Inc. At the annual
shareholders meeting held on October 11, 2000, the shareholders voted to change
the Company's name to ARC Wireless Solutions, Inc. from Antennas America, Inc.
The Wireless Communications Solutions Division designs, develops, markets and
sells a diversified line of antennas and related wireless communication systems,
including base station panel antennas, conformal and phased array antennas,
distributed primarily through third party OEMs and distributors located in the
United States.

On May 24, 2000, the Company purchased, through its subsidiary, Winncom
Technologies, Corp. ("Winncom"), the outstanding shares of Winncom Technologies,
Inc. Winncom specializes in marketing, distribution and service, as well as
selected design, manufacturing and installation, of wireless component and
network solutions in support of both voice and data applications, primarily
through third party distributors located in the United States.

On September 29, 2000, the Company purchased, through its subsidiary, Starworks
Wireless Inc. ("Starworks"), the outstanding shares of Starworks Technology,
Inc. (a/k/a The Kit Company). Starworks specializes in the design,
manufacturing, marketing, distribution and service of direct-to-home dish
satellite installation kits in the United States, primarily through OEMs and
third-party distributors, retailers and the Internet.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of ARC
Wireless Solutions, Inc. ("ARC"), and its wholly-owned subsidiary corporations,
Winncom Technologies Corp. ("Winncom") and Starworks Wireless Inc. ("Kit"),
since their respective acquisition dates, after elimination of all material
intercompany accounts, transactions, and profits.

Basis of Presentation

The Company has experienced recurring losses, and has accumulated a deficit of
$3.8 million since inception in 1989. In 2005, 2004 and 2002 the Company
generated net income and in 2003 the Company generated a loss of $285,000. There
can be no assurance that the Company will achieve the desired result of net
income and positive cash flow from operations in future years. Management
believes that the current level of sales and current working capital and
available borrowings on existing bank lines of credit, together with additional
equity infusions that management believes would be available, will be sufficient
to allow the Company to maintain its operations through December 31, 2006.

                                       F-6
<PAGE>

                          ARC Wireless Solutions, Inc.
                   Notes to Consolidated Financial Statements
                                December 31, 2005


1. Organization and Summary of Significant Accounting Policies, continued

Use of Estimates

The preparation of the Company's consolidated financial statements in accordance
with generally accepted accounting principles of the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from these estimates.

Cash

The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. From time to
time the Company has cash balances in excess of Federally Insured amounts.

Fair Value of Financial Instruments

The Company's short-term financial instruments consist of cash, accounts
receivable, and accounts payable, accrued expenses and bank debt. The carrying
amounts of these financial instruments approximate fair value because of their
short-term maturities. Financial instruments that potentially subject the
Company to a concentration of credit risk consist principally of cash and
accounts receivable.

The Company does not hold or issue financial instruments for trading purposes
nor does it hold or issue interest rate or leveraged derivative financial
instruments.

Accounts Receivable

Trade receivables consist of uncollateralized customer obligations due under
normal trade terms requiring payment usually within 30 days of the invoice date.
Payments on trade receivables are applied to the earliest unpaid invoices.
Management reviews trades receivables periodically and reduces the carrying
amount by a valuation allowance that reflects management's best estimate of the
amount that may not be collectible.

Inventory

Inventory is valued at the lower of cost or market using standard costs that
approximate average cost. Inventories are reviewed periodically and items
considered to be slow moving or obsolete are reduced to estimated net realizable
value through an appropriate reserve. Inventory consists of the following at
December 31:

                                                2005               2004
                                            -----------        -----------
     Raw materials                          $   954,000        $   917,000
     Work in progress                           129,000            112,000
     Finished goods                           5,823,000          5,307,000
                                            -----------        -----------
                                              6,906,000          6,336,000
     Inventory reserve                         (799,000)          (712,000)
                                            -----------        -----------
     Net inventory                          $ 6,107,000        $ 5,624,000
                                            ===========        ===========

                                       F-7
<PAGE>

                          ARC Wireless Solutions, Inc.
                   Notes to Consolidated Financial Statements
                                December 31, 2005


1. Organization and Summary of Significant Accounting Policies, continued

Property and Equipment

Property and equipment are stated at acquired cost. The Company uses the
straight-line method over estimated useful lives of three to seven years to
compute depreciation for financial reporting purposes and accelerated methods
for income tax purposes. Leasehold improvements and leased equipment are
amortized over the lesser of the estimated useful lives or over the term of the
leases. Upon sale or retirement, the cost and related accumulated depreciation
of disposed assets are eliminated from the respective accounts and the resulting
gain or loss is included in the statements of operations. Property and equipment
consist of the following at December 31:

                                                  2005             2004
                                              -----------      -----------
     Machinery and equipment                  $ 1,166,000      $ 1,116,000
     Computer equipment and software              551,000          510,000
     Furniture and fixtures                       256,000          251,000
     Leasehold improvements                       132,000          132,000
                                              -----------      -----------
                                                2,105,000        2,009,000
     Accumulated depreciation                  (1,672,000)      (1,482,000)
                                              -----------      -----------
                                              $   433,000      $   527,000
                                              ===========      ===========

Depreciation expense, which includes amortization of fixed assets acquired
through capital leases, amounted to $211,000, $235,000 and $271,000 during the
years ended December 31, 2005, 2004 and 2003, respectively.

Patent Costs

Patent costs are stated at cost and amortized over ten years using the
straight-line method. Patent amortization expense amounted to $16,000, $16,000
and $15,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

Long-lived Assets

The carrying value of long-lived assets are reviewed annually; if at any time
the facts or circumstances at any of the Company's individual subsidiaries
indicate impairment of long-lived asset values, as a result of a continual
decline in performance or as a result of fundamental changes in a subsidiary's
market, a determination is made as to whether the carrying value of the
property's long-lived assets exceeds estimated realizable value.


                                       F-8
<PAGE>

                          ARC Wireless Solutions, Inc.
                   Notes to Consolidated Financial Statements
                                December 31, 2005


1. Organization and Summary of Significant Accounting Policies, continued

Intangible Assets

Intangible assets consist principally of purchased intangible assets and the
excess acquisition cost over the fair value of tangible and identified
intangible net assets of businesses acquired (goodwill). Purchased intangible
assets include developed technology, trademarks and trade names, assembled
workforces and distribution network. The Company continually evaluates whether
later events and circumstances have occurred that indicate the remaining
estimated useful life of goodwill may warrant revision or that the remaining
balance of goodwill may not be recoverable. When factors indicate that goodwill
should be evaluated for possible impairment, the Company uses an estimate of
future cash flows expected to result from the use of the assets in comparison
with the assets carrying amount in deciding whether the goodwill is recoverable.
Intangible assets, except goodwill, are being amortized using the straight-line
method over estimated useful lives ranging from 5 to 15 years.

                                                   2005            2004
                                              ------------    ------------

     Patents                                  $    241,000    $    235,000
     Goodwill                                   12,164,000      12,164,000
                                              ------------    ------------
                                                12,405,000      12,399,000
     Accumulated amortization                   (1,478,000)     (1,462,000)
                                              ------------    ------------
     Goodwill and intangible assets, net      $ 10,927,000    $ 10,937,000
                                              ============    ============

The Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" effective January 1, 2002. Pursuant to
SFAS No. 142, Goodwill and other indefinite lived intangible assets are no
longer amortized, but must be tested for impairment at least annually. The
Company has performed both the transitional impairment test and annual
impairment test required by SFAS No. 142, using certain valuation techniques,
and has determined that no impairment exists at this time. It is possible but
not predictable that a change in the Company's wireless business, market
capitalization, operating results or other factors could affect the carrying
value of goodwill or other intangible assets and cause an impairment write-off.

Revenue Recognition

Revenue is recorded when goods are shipped. The Company has established reserves
for anticipated sales returns based on historical return percentages as well as
specific identification and reserve of potential problem accounts. The Company
has several major commercial customers who incorporate the Company's products
into other manufactured goods, and returns from these customers have not been
significant. Additionally, returns related to retail sales have been immaterial
and within management's expectations.


                                       F-9
<PAGE>

                          ARC Wireless Solutions, Inc.
                   Notes to Consolidated Financial Statements
                                December 31, 2005


1. Organization and Summary of Significant Accounting Policies, continued

Revenue Recognition, continued

Starting in 2005 the Company commenced a long term construction contract and the
Company follows the percentage-of-completion method of accounting for contract
revenue. Contracts are considered complete upon completion of all essential
contract work, including support for integrated testing and customer acceptance.

Under the percentage-of-completion method, income is recognized on contracts as
work progresses based on the relationship between total contract revenues and
total estimated contract costs. The percentage of work completed is determined
by comparing the accumulated costs incurred to date with management's current
estimate of total costs to be incurred at contract completion. Revenue is
recognized based on applying the percentage against total contract costs.

Contract costs include all direct material and equipment, subcontractor costs,
and labor costs and those indirect costs related to contract performance.
Revisions in profit estimates during the period of a contract are reflected in
the accounting period in which the revised estimates are made on the basis of
the stage of completion at the time. If estimated total costs on a contract
indicate a loss, the entire amount of the estimated loss is provided for
currently.

Billings in excess of costs and estimated earnings on uncompleted contracts
represents billings to customers in excess of earned revenue and advances on
contracts.

Total contract revenue recognized for the year ended December 31, 2005 was
$2,632,000.

The following amounts relate to the aggregate of contracts in progress as of
December 31, 2005.

Costs incurred                            $ 9,429,000
Amounts billed                             (3,529,000)
                                          -----------
Construction in progress                  $ 5,900,000
                                          ===========


Amounts billed                            $ 3,529,000
Revenue recognized                         (2,632,000)
                                          -----------
Billings in excess of recognized income   $   897,000
                                          ===========

Shipping and Handling Costs

The Company classifies shipping and handling costs as a component of cost of
sales.

Research and Development

Research and development costs are charged to expense as incurred. Such expenses
were $315,000, $250,000 and $289,000 respectively, for the years ended December
31, 2005, 2004 and 2003.

                                      F-10
<PAGE>

                          ARC Wireless Solutions, Inc.
                   Notes to Consolidated Financial Statements
                                December 31, 2005


1. Organization and Summary of Significant Accounting Policies, continued

Advertising Costs

Advertising costs are charged to operations when the advertising is first shown.
Advertising costs charged to operations were $40,000, $22,000 and $105,000 in
2005, 2004 and 2003, respectively.

Product Warranty

The Company's vendors generally warrant the products distributed by the Company
and allow the Company to return defective products, including those that have
been returned to the Company by its customers. The Company does not
independently warrant the products it distributes. The Company does warranty
products it manufactures and records a provision for estimated warranty costs at
the time of the sale and periodically adjusts the provision to reflect actual
experience. Warranty expense was not material to the Company's consolidated
statements of operations for the years ended December 31, 2005, 2004 and 2003.

Income Taxes

The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109) which
utilizes the asset and liability method of computing deferred income taxes. The
objective of the asset and liability method is to establish deferred tax assets
and liabilities for the temporary differences between the financial reporting
basis and the tax basis of the Company's assets and liabilities at enacted tax
rates expected to be in effect when such amounts are realized or settled. The
current and deferred tax provision is allocated among the members of the
consolidated group on the separate income tax return basis.

Reclassifications

Certain balances in the prior year consolidated financial statements have been
reclassified in order to conform to the current year presentation. The
reclassifications had no effect on financial condition, gross profit, income
(loss) from operations or net income.

Stock Based Compensation

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123"), and Statement of Financial Accounting Standards No.
148, "Accounting for Stock-Based Compensation--Transition and Disclosure, an
amendment of FASB Statement No. 123," ("SFAS 148") encourages, but does not
require, companies to recognize compensation expense associated with stock-based
compensation plans over the anticipated service period based on the fair value
of the award on the date of grant. As allowed by SFAS 123 and SFAS 148, the
Company has elected to continue to report stock-based compensation in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and,
accordingly, no compensation expense has been recognized for options granted.

                                      F-11
<PAGE>

                          ARC Wireless Solutions, Inc.
                   Notes to Consolidated Financial Statements
                                December 31, 2005


1. Organization and Summary of Significant Accounting Policies, continued

Stock Based Compensation, continued

The following table illustrates the effect on net income (loss) and earnings
(loss) per share had compensation expense for the Company's plans been
determined using the fair value-based method:
<TABLE>
<CAPTION>

                                                                   Year Ended December 31,
                                                      -----------------------------------------------
                                                           2005             2004             2003
                                                      -------------    -------------    -------------
<S>                                                   <C>              <C>              <C>
     Net income (loss) as reported                    $   1,292,000    $     688,000    $    (285,000)
     Add: stock based compensation included in
     reported net income (loss)                                                                  --
     Deduct: Stock-based compensation cost under
     SFAS 123                                               (29,000)         (86,000)         (81,000)
                                                      -------------    -------------    -------------
     Pro forma net income (loss)                      $   1,263,000    $     602,000    $    (366,000)
                                                      =============    =============    =============

     Pro forma shares used in the calculation of
     pro forma net income (loss) per common share
     - basic and diluted                                154,125,000      153,888,000      153,400,000
     Reported net income (loss) per common share
     - basic and diluted                              $        .008    $        .004    $       (.002)
     Pro forma net income (loss) per common share
     - basic and diluted                              $        .008    $        .004    $       (.002)
</TABLE>

Pro forma information regarding net loss is required by SFAS 123, which also
requires that the information be determined as if the Company had accounted for
grants subsequent to December 31, 1994 under a method specified by SFAS 123.
Options granted were estimated using the Black-Scholes valuation model. The
following weighted average assumptions were used:

                                                  Year Ended December 31,
                                            ---------------------------------
                                               2005         2004         2003
                                               ----         ----         ----
     Volatility                             .80 - 1.02       1.04           -
     Expected life of options (in years)             2          2           -
     Dividend Yield                              0.00%      0.00%          -%
     Risk free interest rate                     3.75%       3.0%          -%


Net Income (Loss) Per Common Share

Basic earnings per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflect the potential
dilution of securities that could share in the earnings of the entity. For the
year ended December 31, 2005 and 2004 options and warrants totaling 2,525,000
and 4,252,000 shares, respectively were not included in the calculation of
diluted earnings per share because their effect is anti-dilutive. For the year
ended December 31, 2003 the Company incurred a net loss and stock options and
stock warrants, totaling 5,013,000 were not included in the computation of
diluted loss per share because their effect was anti-dilutive; therefore, basic
and fully diluted loss per share are the same for 2003.

                                      F-12
<PAGE>

                          ARC Wireless Solutions, Inc.
                   Notes to Consolidated Financial Statements
                                December 31, 2005


1. Organization and Summary of Significant Accounting Policies, continued

Net Income (Loss) Per Common Share, continued

The following table represents a reconciliation of the shares used to calculate
basic and diluted earnings per share for the respective periods indicated:
<TABLE>
<CAPTION>

                                                                    Year Ended December 31,
                                                             2005            2004            2003
                                                        -------------   -------------   -------------
<S>                                                     <C>             <C>             <C>
Numerator: Net Income (Loss)                            $   1,292,000   $     688,000   $    (285,000)
                                                        =============   =============   =============

Denominator:
Denominator for basic earnings per share - weighted
average shares                                            154,125,000     153,888,000     153,400,000
Effect of dilutive securities
  Employee stock options                                       75,000         111,000            --
  Common stock warrants                                          --              --              --
                                                        -------------   -------------   -------------
Denominator for diluted earnings per share - adjusted
weighted average shares and assumed conversion            154,200,000     153,999,000     153,400,000
                                                        =============   =============   =============

Basic earnings per share                                $        .008   $        .004   $       (.002)
                                                        =============   =============   =============

Diluted earnings per share                              $        .008   $        .004   $       (.002)
                                                        =============   =============   =============
</TABLE>

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which
is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No.
123(R) which is effective for the Company beginning January 1, 2006, supersedes
APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS
No. 95, Statement of Cash Flows.

SFAS No. 123(R) requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the income statement based on
their fair values. Pro-forma disclosure is no longer an alternative. The Company
has not yet completed its evaluation of the effect of SFAS No. 123(R) but
expects its adoption to have an effect on the financial statements similar to
the pro-forma effects reported in Note 1 to the Consolidated Financial
Statements under the caption above "Stock Based Compensation".

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, which revised
ARB 43, relating to inventory costs. This revision is to clarify the accounting
for abnormal amounts of idle facility expense, freight, handling costs and
wasted material (spoilage). This Statement requires that these items be
recognized as a current period charge regardless of whether they meet the
criterion specified in ARB 43. In addition, this Statement requires the
allocation of fixed production overheads to the costs of conversion be based on
normal capacity of the production facilities. SFAS No. 151 is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005. The
Company does not believe the adoption of SFAS No. 151 will have a material
impact on the Company's financial statements.

                                      F-13
<PAGE>

                          ARC Wireless Solutions, Inc.
                   Notes to Consolidated Financial Statements
                                December 31, 2005


Recent Accounting Pronouncements, continued

The FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, which changes the
guidance in APB Opinion 29, Accounting for Nonmonetary Transactions. This
Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges
of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. SFAS
No. 153 is effective during fiscal years beginning after June 15, 2005. The
Company does not believe the adoption of SFAS No. 153 will have a material
impact on the Company's financial statements.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections." SFAS No. 154 requires restatement of prior periods' financial
statements for changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. Also, SFAS No. 154 requires that retrospective application of a change
in accounting principle be limited to the direct effects of the change. SFAS No.
154 is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005.

2. Revolving Bank Loan Agreements and Notes Payable

On October 1, 2003 our subsidiary Winncom, executed a new $4,000,000
line-of-credit agreement with a bank with interest at prime plus .5% (7.5% at
December 31, 2005) due April 30, 2007 and converted $500,000 of the balance
outstanding under the line of credit at September 30, 2003 into a 36-month term
loan with monthly principal payments of $13,888 plus interest at prime plus .75%
(7.75% at December 31, 2005). The term loan will become due on October 26, 2006.

The agreement contains several covenants, which, among other things, require
that Winncom maintain certain financial ratios as defined in the line-of-credit
agreement. In addition, the agreement limits the payment of management fees by
Winncom to the Company, and also limits dividends and the purchase of property
and equipment. As of December 31, 2005 Winncom was in compliance with these
covenants.

In September 2005, Winncom entered into a one-year Line of Credit Agreement with
Kazkommertsbank for $2.3 million with an annual interest rate of 13% for the
purpose of funding a small portion of the Kazakhtelecom project specifically
project engineering and laying of fiber optic cable and telecommunication
equipment purchases necessary to be completed before winter to avoid project
delays. The Line of Credit Agreement was only entered into after Kazakhtelecom
agreed to fully guaranty the repayment of Winncom's borrowings under the Line of
Credit Agreement. Kazakhtelecom will repay the Line of Credit borrowings either
from the proceeds of the permanent project financing or from its own capital. In
September 2005, Winncom was advanced $1,334,000 under the Line of Credit
Agreement and that balance still remains at December 31, 2005


                                      F-14
<PAGE>

                          ARC Wireless Solutions, Inc.
                   Notes to Consolidated Financial Statements
                                December 31, 2005


2. Revolving Bank Loan Agreements and Notes Payable, continued

We entered into a financing agreement (the "WFBC Facility") with Wells Fargo
Business Credit, Inc. ("WFBC"), on December 9, 2003. The financing agreement was
for a term of one year and was renewable for additional one-year terms. The WFBC
Facility provided for the sale of accounts receivable by the Company to WFBC at
a 1% discount for the first 15 days and an additional .055 of 1% per day until
the account receivable is paid in full. Sales of accounts receivable and
advances under the WFBC Facility were subject to conditions and restrictions,
including, without limitation, accounts receivable eligibility restrictions,
verification, and approval. Obligations under the WFBC Facility were
collateralized by substantially all of the assets of the Company. Advances under
the WFBC Facility were made at the sole discretion of WFBC, even if the accounts
receivable offered by ARC for sale to WFBC satisfied all necessary conditions
and restrictions. WFBC was under no obligation to purchase accounts receivable
from the Company or to advance any funds or credit to the Company under the WFBC
Facility. This financing agreement was terminated on May 10, 2005.

On May 10, 2005 the Company entered into a new $1.5 million revolving
line-of-credit agreement (the "Credit Facility") with Citywide Banks. The new
Credit Facility has a maturity of one year, with interest at 2% over prime (9%
at December 31, 2005), contains covenants to maintain certain financial
statement ratios, and is collateralized by essentially all of the assets of ARC
Wireless Solutions, Inc ("ARC") and its wholly owned subsidiary, Starworks
Wireless Inc.("Starworks"), but excluding Winncom Technologies Corp. The
borrowing base is calculated on a percentage of trade accounts receivable and
inventory for ARC and Starworks combined. As of December 31, 2005 ARC was in
compliance with these covenants.


Revolving bank lines of credit and other bank debt at December 31, 2005 and 2004
consist of:

                                                 2005           2004
                                             -----------    -----------
     Bank line of credit - Winncom           $ 2,469,000    $ 3,118,000
     Foreign Bank line-of-credit - Winncom     1,334,000           --
     Bank term loan - Winncom                    125,000        292,000
     Bank Facility - ARC                         554,000        326,000
                                             -----------    -----------
                                               4,482,000      3.736,000
     Less current portion                     (2,013,000)      (493,000)
                                             -----------    -----------
     Long-term portion                       $ 2,469,000    $ 3,243,000
                                             ===========    ===========

3. Stockholders' Equity

In March 2002, the Company issued 200,000 shares of restricted common stock for
consulting services valued at $34,000. The consulting agreement provides that,
because it was cancelled in September 2002, 100,000 of these shares are required
to be returned to the Company. The consultant was claiming the right to retain
all 200,000 shares. In 2005 the consultant and the Company agreed to a
settlement whereby the consultant agreed to retain 80,000 shares of common
stock.

                                      F-15
<PAGE>

                          ARC Wireless Solutions, Inc.
                   Notes to Consolidated Financial Statements
                                December 31, 2005


3. Stockholders' Equity, continued

In November 1997, the Board of Directors approved our 1997 Stock Option And
Compensation Plan (the "Plan"). Pursuant to the Plan, we may grant options to
purchase an aggregate of 5,000,000 shares of our common stock to key employees,
directors, and other persons who have or are contributing to our success. In
November 2004, the shareholders approved to amend the Plan to increase the
aggragate number of option to be issued under the Plan from 5,000,000 to
10,000,000. The options granted pursuant to the Plan may be incentive options
qualifying for beneficial tax treatment for the recipient or they may be
non-qualified options. The Plan is administered by an option committee that
determines the terms of the options subject to the requirements of the Plan,
except that the option committee shall not administer the Plan with respect to
automatic grants of options to our directors who are not our employees. The
option committee may be the entire Board or a committee of the Board.

Through May 24, 2000, directors who were not also our employees ("Outside
Directors") automatically received options to purchase 250,000 shares pursuant
to the Plan at the time of their election as an Outside Director. These options
held by Outside Directors were not exercisable at the time of grant.

Options to purchase 50,000 shares became exercisable for each meeting of the
Board of Directors attended by each Outside Director on or after the date of
grant of the options to that Outside Director, but in no event earlier than six
months following the date of grant. The exercise price for options granted to
Outside Directors was equal to the closing price per share of our common stock
on the date of grant. All options granted to Outside Directors expired five
years after the date of grant. On the date that all of an Outside Director's
options became exercisable, options to purchase an additional 250,000 shares,
which were exercisable no earlier than six months from the date of grant, were
automatically granted to that Outside Director. On May 24, 2000, the Board of
Directors voted to (1) decrease the amount of options automatically granted to
Outside Directors from 250,000 to 25,000 options, and (2) decrease the amount of
exercisable options from 50,000 to 5,000 per meeting. The term of the outside
Director option granted in the future was lowered from five years to two years.
The other terms of the Outside Director options did not change. On July 5, 2002,
the Board of Directors voted to (1) increase the amount of options automatically
granted to Outside Directors from 25,000 to 125,000 options, and (2) increase
the amount of exercisable options from 5,000 to 25,000 per meeting. The other
terms of the Outside Director options did not change.

For the year ended December 31, 2005, the Company granted a total of 350,000
options at exercise prices ranging from $.11 to $.15 per share, 100,000 to
employees and 250,000 to outside directors.

The Company granted a total of 250,000 options to Outside Directors under the
Plan during 2004 and 2002, at an exercise price of $.16 and $.13 per share,
respectively.

                                      F-16
<PAGE>

                          ARC Wireless Solutions, Inc.
                   Notes to Consolidated Financial Statements
                                December 31, 2005


3. Stockholders' Equity, continued

The following table summarizes the option activity for 2005, 2004 and 2003:

                                                  Number of    Weighted Average
                                                   Shares     Exercise Price ($)
                                                  =========   ==================

       2003 Activity:
       Outstanding at beginning of year           4,060,000           0.504
       Granted                                            -
       Exercised                                          -
       Forfeited or expired                        (985,000)           0.23
                                                  ---------       ---------
       Outstanding at end of year                 3,075,000            0.21
                                                  =========       =========
       Exercisable at end of year                 3,075,000            0.21
                                                  =========       =========

       2004 Activity:
       Outstanding at beginning of year           3,075,000            0.21
       Granted                                    1,250,000            0.13
       Exercised                                          -
       Forfeited or expired                      (1,900,000)           0.16
                                                  ---------       ---------
       Outstanding at end of year                 2,425,000            0.15
                                                  =========       =========
       Exercisable at end of year                 2,375,000            0.15
                                                  =========       =========

       2005 Activity:
       Outstanding at beginning of year           2,425,000            0.16
       Granted                                      350,000            0.13
       Exercised                                          -
       Forfeited or expired                       (175,000)            0.14
                                                  ---------       ---------
       Outstanding at end of year                 2,600,000            0.15
                                                  =========       =========
       Exercisable at end of year                 2,525,000            0.15
                                                  =========       =========


At December 31, 2005, there are 2,525,000 options exercisable from $0.11 to
$0.18. These options expire between 2006 and 2008. The weighted average grant
date fair value of the options granted is $.075.

All option exercise prices were granted at market. The weighted average
remaining contractual life of options outstanding at the end of 2005, 2004 and
2003 were 1.23, 2.04 years and 1.33 years, respectively.

                                      F-17
<PAGE>

                          ARC Wireless Solutions, Inc.
                   Notes to Consolidated Financial Statements
                                December 31, 2005


4. Income Taxes

The Company records the income tax effect of transactions in the same year that
the transactions enter into the determination of income, regardless of when the
transactions are recognized for tax purposes. Income tax credits are used to
reduce the provision for income taxes in the year in which such credits are
allowed for tax purposes. Deferred taxes are provided to reflect the income tax
effects of amounts included for financial purposes in different periods than for
tax purposes, principally valuation allowances for inventory and trade
receivables for financial reporting purposes and accelerated depreciation for
income tax purposes. Income tax expense (benefit) for the years ended December
31, 2005, 2004 and 2003 is as follows:

                                          2005          2004         2003
                                       ---------     ---------    ---------
     Current                           $ 198,000     $  53,000    $  66,000
     Deferred                           (490,000)         --           --
                                       ---------     ---------    ---------
     Total (benefit) expense           $(292,000)    $  53,000    $  66,000
                                       =========     =========    =========

The Company had not recorded a liability for federal income taxes payable
currently, or for deferred taxes to future periods for 2004 and 2003 due to the
existence of substantial net operating loss carry-forward amounts available to
offset taxable income. For the year ended December 31, 2005 the Company utilized
all of its remaining net operating loss carry forwards of approximately $402,000
to offset some taxable income. As a result of the Company having positive income
for the years ended December 31, 2005 and 2004, management believes a valuation
allowance on its deferred tax assets is no longer necessary. The components of
the deferred taxes asset as of December 31 are as follows:

                                                     2005          2004
                                                   ---------     ---------
     Deferred tax assets (current):
         Net operating loss carry-forwards         $    --       $ 149,000
         Inventory reserve                           297,000       264,000
         Accrued expenses                             76,000        84,000
         Bad debt reserves                           143,000       186,000
         Property and equipment                         --           9,000
                                                   ---------     ---------
                                                     516,000       692,000
     Deferred tax liabilities (long-term):
         Property and equipment                      (14,000)         --
         Other assets                                (12,000)      (12,000)
         Property and equipment                         --
                                                   ---------     ---------
                                                     (26,000)      (12,000)

     Deferred tax assets                             490,000       680,000
     Valuation allowance                                --        (680,000)
                                                   ---------     ---------
     Net deferred tax assets                       $ 490,000     $    --
                                                   =========     =========


                                      F-18
<PAGE>

                          ARC Wireless Solutions, Inc.
                   Notes to Consolidated Financial Statements
                                December 31, 2005


4. Income Taxes, continued

A reconciliation of federal income taxes computed by multiplying pretax net loss
by the statutory rate of 35% to the provision for income taxes is as follows at
December 31:
<TABLE>
<CAPTION>

                                                           2005         2004         2003
                                                        ---------    ---------    ---------
<S>                                                     <C>          <C>          <C>
     Tax (benefit) expense computed at statutory rate   $ 350,000    $ 261,000    $ (97,000)
     State income tax                                      27,000       53,000       66,000
     Valuation allowance                                 (680,000)    (214,000)     105,000
     Effect of permanent differences                       (7,000)      (6,000)      (8,000)
     Other                                                 18,000      (41,000)        --
                                                        ---------    ---------    ---------
     Provision for income taxes expense (benefit)       $(292,000)   $  53,000    $  66,000
                                                        =========    =========    =========
</TABLE>

As of December 31, 2005, the Company determined that a valuation allowance was
not necessary as management believes that it is more likely than not that the
net deferred tax assets will be realized. As of December 31, 2004, and 2003, an
evaluation of the allowance determined that it was more likely than not that the
net operating loss asset may not be realized and therefore a valuation allowance
for the full amount was recorded. The valuation allowance decreased by $680,000
in 2005, $214,000 in 2004 and increased by $105,000 in 2003.

5. Sales to Major Customers

The Company had no sales in excess of 10% of its net sales to any unrelated
parties for the years ended December 31, 2005, 2004 and 2003 although the loss
of any significant customer(s) could have an adverse impact on our financial
condition.

6. Significant Suppliers

During 2005, the Company purchased approximately 37% of its product from two
vendors, in 2004, the Company purchased approximately 65% of its product from
four vendors and in 2003 the Company purchased approximately 65% of its product
from five vendors. The loss of any of these vendors could have a material
adverse impact on the operations of the Company.

7. Leasing Activities

The Company leases its facilities under operating leases through 2010. Minimum
future rentals payable under the leases are as follows:

                    2006                                 329,000
                    2007                                 345,000
                    2008                                 364,000
                    2009                                 379,000
                    2010                                 277,000
                                                      ----------
                                                      $1,694,000
                                                      ==========

Rent expense was $379,000, $373,000 and $406,000 for the years ended December
31, 2005, 2004 and 2003, respectively.

                                      F-19
<PAGE>

                          ARC Wireless Solutions, Inc.
                   Notes to Consolidated Financial Statements
                                December 31, 2005


7. Leasing Activities, continued

Certain of the Company's office space leases are structured to include scheduled
and specified rent increases over the lease term. The Company has recognized the
effect of these rent escalations and periods of free rent on a straight-line
basis over the lease terms.

Property, plant and equipment included the following amounts for leases that
have been capitalized at December 31, 2005 and December 31, 2004.

                                               2005         2004
                                            ---------    ---------

            Machinery and Equipment         $ 194,000    $ 177,000
            Computers and Software             83,000       83,000
            Furniture and Fixtures             13,000       13,000
                                            ---------    ---------
                                              290,000      273,000
            Less accumulated amortization    (131,000)     (93,000)
                                            ---------    ---------
                                            $ 159,000    $ 180,000
                                            =========    =========

The Company recorded amortization expense of $50,000, $39,000 and $20,000,
respectively, on assets recorded under capitalized leases for 2005, 2004 and
2003.

Future minimum lease payments under capital leases are as follows at December
31, 2005:

            2006                                       $ 78,000
            2007                                         31,000
            2008                                         10,000
            2009                                          4,000
            2010                                              -
                                                       --------
            Total minimum lease payments                123,000
            Amount representing interest                (18,000)
                                                       --------
            Present value of lease payments            $105,000
                                                       ========

8. Defined Contribution Plan

In November 1999, the Board of Directors approved the establishment of the
Antennas America, Inc. 401(k) Plan for employee contributions effective January
1, 2000. The name of the Plan was subsequently changed to the ARC Wireless
Solutions, Inc. 401(k) Plan. The Plan allows for discretionary matching in
Company common stock of employee contributions by the Company if the Company has
a profit for the preceding year. For the year ended December 31, 2004 the Board
of Directors approved a discretionary match in Company common stock, as such the
Company accrued $58,000 which represent the value of the employer matching
contribution. The 2004 matching contribution was paid in 2005 by the issuance of
407,488 shares of common stock. In September 2003 the Company contributed
649,278 shares of common stock, valued at $52,000, into the Company 401(k) Plan
as an employer matching contribution.

                                      F-20
<PAGE>

                          ARC Wireless Solutions, Inc.
                   Notes to Consolidated Financial Statements
                                December 31, 2005


9. Commitments

Purchase obligations include agreements to purchase goods or services that are
enforceable and legally binding and that specify all significant terms,
including: fixed or minimum quantities to be purchased; fixed, minimum or
variable price provisions; and the approximate timing of the transaction.
Purchase obligations exclude agreements that are cancelable without penalty. At
December 31, 2005 non-cancellable purchase obligations totaled approximately
$4,852,000.

We entered into a new employment agreement with our CEO, effective as of January
2, 2004, which terminates on January 2, 2007. Mr. Marx is to receive an annual
base salary of $195,000, $235,000 and $245,000 per year, respectively, during
the term of the agreement and is eligible to receive annual bonuses ranging from
$25,000 to $150,000 if the Company achieves certain predetermined net income
goals.

We entered into a new employment agreement with our President, effective as of
October 1, 2004 with a term of two and one-half years. Pursuant to the new
agreement, Mr. Raskin is to receive an annual base salary of $385,000 per year.
Mr. Raskin is eligible to receive bonuses for each of the years ending December
31, 2004, 2005 and 2006 of 10% of net income.

We entered into a new employment agreement with our Chief Financial Officer and
Treasurer, effective July 1, 2005. The employment agreement is for the period
July 1, 2005 through June 30, 2007, at an annual base salary of $155,000 and
during the term of the agreement and is eligible to receive an annual bonus of
$15,000 if the Company achieves certain predetermined net income goals.

The Company entered into a written employment agreement with our Chief
Technology Officer, effective August 22, 2004. The employment agreement is for
the period August 22, 2004 through August 22, 2007 at an annual base salary of
$175,000. Mr. Olson also is eligible to earn bonuses, upon achieving certain
gross margin objectives, over the term of the agreement.

10. Segment Information

The Company has three reportable segments that are separate business units that
offer different products as follows: distribution of wireless communication
products, antenna manufacturing and cable products. Each segment consists of a
single operating unit and the accounting policies of the reporting segments are
the same as those described in the summary of significant accounting policies.
Intersegment sales and transfers are recorded at cost plus an agreed upon
intercompany profit on intersegment sales and transfers.

The following table sets forth our net sales by geographic segment.

            North America         Eastern Europe     Total Net Sales
            -------------         --------------     ---------------
2005        $ 29,219,000           $10,438,000        $ 39,657,000
2004        $ 29,548,000            $6,114,000        $ 35,662,000
2003        $ 25,594,000            $3,587,000        $ 29,181,000

Sales in North America include the United States and Canada and sales in Eastern
Europe also include Russia, Kazakhstan and Uzbekistan.

                                      F-21
<PAGE>

                          ARC Wireless Solutions, Inc.
                   Notes to Consolidated Financial Statements
                                December 31, 2005


10. Segment Information, continued

Financial information regarding the Company's three operating segments for the
years ended December 31, 2005, 2004 and 2003 are as follows:
<TABLE>
<CAPTION>

                                         Distribution      Manufacturing        Cable        Corporate          Total
                                         ------------      -------------        -----        ---------          -----
<S>                           <C>         <C>                <C>               <C>            <C>            <C>
Net Sales                     2005        $32,920,000        $6,630,000        420,000        (313,000)      $39,657,000
                              2004         29,213,000         6,433,000        379,000        (363,000)       35,662,000
                              2003         23,563,000         5,904,000         21,000        (307,000)       29,181,000

Net Income (Loss)             2005            765,000         1,390,000        (34,000)       (829,000)      $ 1,292,000
                              2004          1,046,000           710,000        (56,000)     (1,012,000)          688,000
                              2003            488,000           (45,000)        84,000        (812,000)         (285,000)

Income (Loss) before Income   2005            948,000           914,000        (34,000)       (828,000)        1,000,000
Taxes                         2004          1,099,000           710,000        (56,000)     (1,012,000)          741,000
                              2003            554,000           (45,000)        84,000        (812,000)         (219,000)

Identifiable Assets           2005         31,188,000         3,730,000        192,000      (1,620,000)       33,490,000
                              2004         20,650,000         3,320,000        250,000      (1,727,000)       22,493,000
                              2003         20,698,000         3,472,000        260,000      (1,690,000)       22,740,000

Capital Expenditures          2005             25,000            75,000              -               -           100,000
                              2004             88,000            76,000              -               -           164,000
                              2003             13,000           145,000              -               -           158,000

Depreciation and              2005             40,000           184,000          3,000               -           227,000
Amortization                  2004             50,000           199,000          2,000               -           251,000
                              2003             41,000           243,000          2,000               -           286,000

Interest Expense              2005            161,000           123,000              -               -           284,000
                              2004            186,000           114,000              -               -           300,000
                              2003            177,000            13,000              -               -           190,000

Corporate represents the operations of the parent Company, including segment
eliminations.

11. Items Affecting Fourth Quarter Results of Operations

During the fourth quarter ended December 31, 2005 the Company determined that a
valuation allowance for net deferred tax assets was not necessary as management
believes that it is more likely than not that the net deferred tax assets will
be realized. The effect of this was to increase net income by $490,000 for the
fourth quarter 2005.

                                      F-22
</TABLE>