UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549










FORM
10 – K/A


Amendment
No. 1







(MARK
ONE)


x
            ANNUAL
      REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
the Fiscal Year Ended December 31, 2009


OR


 ̈
                  TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES   EXCHANGE ACT OF 1934For
      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 o
      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 o
      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 preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.


Yes x
      No o





Indicate
by checkmark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such
files).


Yes x
      No o





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 o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer , a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer”
  and “small reporting company” in Rule 12b-2 of the  Exchange
Act. (Check one):




Large
accelerated filer o
          Accelerated filer o    
        Non-accelerated filer
o




Smaller
reporting company x




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


Yes o    
    No x




As of
June 30, 2009, the last business day of 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 $7 million. This calculation
is based upon the average of the bid and ask price of $2.25 of the stock on June
30, 2009 as reported by NASDAQ. 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.





The
number of shares of the registrant’s $.0005 par value common stock outstanding
as of January 31, 2010 was 3,091,350 .





DOCUMENTS
INCORPORATED BY REFERENCE





None.








Explanatory
Note:




ARC
Wireless Solutions, Inc. (the “Company”) is filing this Amendment No. 1 on form
10-K/A (the “Amended Report”) to our Annual Report on Form 10-K for the Period
ended December 31, 2009, which was originally filed on March 19, 2010 (the “10-K
Report”) for the purpose of including Part III, Items 10 through 14.  Our
definitive proxy statement for our 2010 Annual Meeting of Stockholders will not
be filed with the SEC within 120 days after the end of our fiscal year ended
December 31, 2009; therefore, we are filing this Amended Report to provide the
incorporated information within the required time period.





Pursuant
to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, each item
of the 10-K Report that is amended by this Amended Report is also restated in
its entirety, and this Amended Report is accompanied by an updated consent on
Exhibit 23.0 from our independent registered public accounting firm and
currently dated certifications on Exhibit 31.1, 31.2, 32.1 and 32.2. The 10-K
Report was amended to: (i) delete the reference on the cover of the 10-K Report
to the incorporation by reference of the registrant’s definitive proxy statement
into Part III of the 10- K Report; (ii) revise Part III, Items 10 through 14 of
the 10-K Report to include information previously omitted from the 10-K Report;
and (iii) revise the Exhibit Index to reflect the filing of the updated consent
and the new certifications.





Except as
described above, no other changes have been made to the 10-K Report. The 10-K
Report continues to speak as of March 19, 2010, the date of the filing of the
10-K Report, and other than expressly indicated in this Amended Report, we have
not updated the disclosures contained therein to reflect any events which
occurred at a date subsequent to March 19, 2010. Accordingly, this Amended
Report should be read in conjunction with the 10-K Report and our other reports
filed with the SEC subsequent to the filing of the 10-K Report, including any
amendments to those filings.


2





ARC
Wireless Solutions, Inc.


Form
10-K for the Year Ended December 31, 2009





Table
of Contents




PART
      IIIItem
      10.
                Directors
      and Executive Officers of the Registrant
                4Item
      11.
                Executive
      Compensation
                8Item
      12.
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                17Item
      13.
                Certain
      Relationships and Related Transactions
                19Item
      14.
                Principal
      Accountant Fees and Services
                20Part
      IVItem
      15.
                Exhibits,
      Financial Statement Schedules
                21Signatures
                22


3




PART III





Item 10.  Directors,
Executive Officers and Corporate Governance





The
following sets forth the Company’s Board of Directors as of April 20,
2010:




Name
                
                Age
                
                Position with the Company
                
                Expiration of Term as
                  Director
                
                Initial Date as DirectorJason
      T. Young
                
                31
                
                Chief
      Executive Officer and Chairman of the Board
                
                Next
      Annual Meeting
                
                Appointed
      to the Board October 2008Viktor
      Nemeth
                
                34
                
                Director
                  Chairman
      of the Audit Committee Chairman of the Compensation
    Committee
                
                Next
      Annual Meeting
                
                Appointed
      to the Board: November 2008Marco
      Vega
                
                40
                
                Director
                
                Next
      Annual Meeting
                
                Appointed
      to the Board: November 2008Javier
      Baz
                
                56
                
                Director
                  Audit
      Committee Member Compensation Committee Member
                
                Next
      Annual Meeting
                
                Appointed
      to the Board: January 2009Lynn
      Wunderman
                
                55
                
                Director
                  Audit
      Committee Member Compensation Committee Member
                
                Next
      Annual Meeting
                
                Appointed
      to the Board: April
2010





Jason Young. Mr. Young became
a Director in October 2008, and he became Chairman of the Board and Chief
Executive Officer of the Company in November 2008. Since 2005, Mr. Young has
been a Managing Director at Quadrant Management, Inc., where he is responsible
for making investments in US and emerging market companies, where he frequently
serves in active Management or Director level roles. He has been an Investment
Committee Member of the Carret Global India Fund of Hedge Funds since 2005. In
2008 Mr. Young became a member of the Investment Committee of the Vanterra
Advantage Fund. From 2000 to 2005, Mr. Young worked for Merrill Lynch in the
Investment Banking Group and later in the Global Principal Investment Group. In
1999, he was an Analyst at Helicon Capital Management, a hedge fund and private
equity investment firm. He holds a BA in International Economics from UCLA.
Because of his employment with Quadrant Management, Inc., which is under common
control with the Brean Murray Carret Group, Inc., Mr. Young is deemed to be
under control of the Brean Murray Carret Group, Inc.





Viktor Nemeth. Mr. Nemeth
became a Director in November 2008, and he currently serves on the Company's
Audit Committee and the Company's Compensation Committee. Between January 2008
and October 2008, Mr. Nemeth served as the Chief Revenue Officer of
Bid4Spots.com, Inc., an entity that hosts weekly online auctions of radio
airtime to allow advertisers and broadcasters to transact unsold airtime. From
March 2000 through December 2007, Mr. Nemeth worked for Yahoo Inc. and
predecessor companies Overture Services and GoTo.com in a variety of corporate
development, business development, and sales & marketing roles. Mr. Nemeth
holds a BA in Business-Economics with a Minor in Accounting from
UCLA.




Marco Vega. Mr. Vega became a
Director in November 2008. Since March 2003, Mr. Vega has been the Chief
Operating Officer of Carret Asset Management, LLC, where he is responsible for
the accounting, operations and compliance functions of the U.S. Securities and
Exchange Commission registered investment advisor. Mr. Vega also assumed the
role of Chief Operating Officer for Quadrant Management, Inc. in April 2010. Mr.
Vega formerly served as the President of Carret Securities LLC, and he now
serves on the Board of Advisors to Brean Murray Carret & Co., LLC, a
boutique investment bank. Mr. Vega frequently serves in active management-or
director-level roles. Because of his employment by Carret Asset Management, LLC,
which is under common control with the Brean Murray Carret Group, Inc., Mr. Vega
is deemed to be under control of the Brean Murray Carret Group, Inc. Mr. Vega
holds a BS in accounting and an MBA from St. John's University.





Javier Baz.   Mr.
Baz became a Director in January of 2009.  Mr. Baz is currently a private
investor.  From 2005 to 2006, he was a Director and later Chairman of
Lifeline Therapeutics.  From January of 1994 through March 2004, Mr. Baz
was responsible for several business areas at Trust Company of the West, a Los
Angeles, California based investment management firm. Among his responsibilities
he was chief investment officer and group head of the firm’s Private Client
Services Group, a unit with $7 billion in clients’ assets under management. He
also was the chief investment officer for Trust Company of the West’s publicly
traded fixed income and equity strategies investing outside of the United States
in Europe, Japan, Asia Pacific and Latin America. From 1995 through 2001 Mr. Baz
chaired the Trust Company of the West’s committee responsible for overseeing
regional allocation of emerging markets and international equity strategies.
Before joining Trust Company of the West in 1994, Mr. Baz established Condor
Asset Management in Greenwich, Connecticut as a broker-dealer and asset
management firm, and worked with Merrill Lynch, First Boston International,
McKinsey & Co., and the Mexico City branch of Citibank N.A. Mr. Baz has a
bachelor of science degree in economics from the Wharton School of the
University of Pennsylvania (which he received in 1976) and a masters of business
administration from the Kellogg School at Northwestern University (which he
received in 1981).


4





Lynn Wunderman.Ms.
Wunderman became a Director in April of 2010. Ms. Wunderman is a seasoned
marketing professional with over 30 years experience in direct marketing,
database marketing, communications, consulting and general management. Over the
years, she has launched three successful companies, two continuing non-profit
organizations, and counseled some of the largest advertisers in the
industry.  From 1999 until 2005, she was the President and CEO of
I-Behavior. Since 2006 she has served as the Principal of the Wunderman Group.
Since 2009, she has also served as the Chairman of Webdweller, a technology
start-up.  Ms. Wunderman has served on a number of advisory boards,
including Convergent Mobile, Grandparents.com, Permuto, Zadspace and the Hudson
Valley Center for Innovation.





Other
Executive Officers





Name
            
            Age
            
            Position with the Company
            
            Initial Date as OfficerSteven
      C. Olson
            
            53
            
            Chief
      Technology Officer and
              Acting
      Chief Financial Officer
            
            2001





Steven C. Olson. Mr. Olson
serves as our Chief Technology Officer and Acting
Chief Financial Officer. Prior to joining the Company 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. Prior to Ball
Aerospace, Mr. Olson was employed at Hughes Aircraft Group. He received his
Bachelors and Masters of Science degrees in Electrical Engineering from the
University of Utah in 1984 and 1985, respectively.





Each of
our officers serves at the pleasure of the Board of Directors. There are no
family relationships among our officers and directors.





Board
Meetings





The Board
of Directors met four times during the fiscal year ended December 31, 2009, and
each director participated in 100% of the meetings. The Board of Directors does
not maintain a formal policy regarding the manner in which shareholders may
communicate with the Board.  The Board intends to adopt such a formal
policy in the near future.





The
Company encourages each member of the Board of Directors to attend the Annual
Meeting of Shareholders, but does not require any member to do so. Two of the
directors attended the Company’s last Annual Meeting of Shareholders, held on
December 16th, 2009.





Board
Independence





We are
currently subject to corporate governance standards defining the independence of
our directors imposed by the NASDAQ Capital Market's requirements for
independent directors (Rule 5605(a)(2) of the Marketplace Rules of The NASDAQ
Stock Market LLC). On November 12, 2008, the Company's Board elected Viktor
Nemeth and Marco Vega to serve on the Board of Directors and on January 21, 2009
Mr. Javier Baz and Amit Chatwani were elected to serve on the Board of
Directors. Mr. Nemeth, Mr. Baz and Lynn Wunderman qualify as independent
directors in accordance with the standards imposed by the NASDAQ Capital
Market's requirements for independent directors (Rule 5605(a)(2) of the
Marketplace Rules of The NASDAQ Stock Market LLC); under this definition, Mr.
Chatwani qualified as an independent director prior to his resignation in March
of 2010.





Audit
Committee of the Board of Directors





On
January 21, 2009 Mr. Javier Baz and Mr. Amit Chatwani were elected to the Board
of Directors and were appointed to serve on the Audit Committee. Mr. Chatwani
served as an independent director in this capacity until his resignation in
March of 2010. Mr. Baz continues to serve as an independent director in this
position. Lynn Wunderman joined the Audit Committee in April of 2010.  The
responsibilities of the audit committee include overseeing our financial
reporting process, reporting the results of the Committee’s 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. The Audit
Committee met five times during fiscal 2009, which was attended by all committee
members.





Audit
Committee Financial Expert





Mr.
Javier Baz has been designated to be the Company’s audit committee financial
expert.





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.


5





Compensation
Committee




The Board
of Directors currently has a Compensation Committee.  On January 21, 2009
Mr. Viktor Nemeth was designated to serve as the Chairman of the Compensation
Committee. On January 21, 2009 Mr. Javier Baz and Mr. Amit Chatwani were elected
to the Board of Directors and were appointed to serve on the Compensation
Committee. Mr. Chatwani resigned from this position in March 2010.  Mr.
Lynn Wunderman was appointed to the Compensation Committee in April 2010.
The Compensation Committee has a charter which is located on the Company’s
website at www.arcwireless.net. The Compensation Committee held three formal
meetings during fiscal 2009, which was attended by all committee
members.





Nominating
Committee: Nominating Policies and Procedures





The
Company does not currently have a standing nominating committee of the Board of
Directors because it believes that the nominating functions should be conducted
by the full Board of Directors.





On June
30, 2008 the Board of Directors amended and restated its Policies and Procedures
for Nominations of Director Candidates (the “Nomination Policies”), which are
attached hereto as Appendix A, that have been in effect since January 1, 2009.
Director nominations are made to the Board of Directors by independent
directors, constituting a majority of the Board of Directors’ independent
directors, in a vote in which only independent directors vote. It is the policy
of the Board of Directors that each candidate recommended for nomination and
election to the Board (each, a “Nominee”), regardless of whether such Nominee is
recommended by a shareholder of the Company, the Board or any other person,
shall be approved by a majority of the independent directors of the
Board.





In
general, the Board believes that certain minimum qualifications must be met by
each Nominee for the Board, as well as meeting the applicable independence
standards required by the Securities Exchange Commission (the “SEC”) and federal
securities laws. The Board believes that Nominees must reflect a Board that is
comprised of directors (i) a majority of whom are independent (as determined
under the aforementioned SEC director qualification standards); (ii) who are of
high integrity; (iii) who have qualifications that will increase the overall
effectiveness of the Board; and (iv) who meet other requirements as may be
required by applicable rules, such as financial literacy or financial expertise
with respect to Audit Committee members. In evaluating the qualifications of the
Nominees, the Board considers many factors, including issues of leadership
ability, career success, character, judgment, independence, background, age,
expertise, diversity and breadth of experience, length of service, other
commitments and the like. The Board evaluates such factors, among others, and
does not assign any particular weight or priority to any of these factors. Also,
the Board considers the suitability of each Nominee, including the current
members of the Board, in light of the current size and composition of the
Board.





Unless
and until otherwise subsequently determined by the Board, the number of
directors of the Company at any time shall be the number of directors that the
Board nominated for election at the most recently-held annual meeting of
shareholders, increased by the number of directors, if any, that the Board
appointed subsequent to the most recently-held annual meeting of shareholders
and also increased by the number of directors, if any, whose term as a director
did not expire at the most recently-held annual meeting of
shareholders.





The Board
shall consider recommendations for Nominees to the Board from shareholders (an
“Eligible Shareholder”) holding a minimum of $2,000 in market value, or 1%, of
the Company's voting common stock, which stock is held through the date of the
meeting electing directors, and which Eligible Shareholder complies with the
nomination notice procedures set forth in the Nomination Policies. Nominees
recommended by Eligible Shareholders (hereinafter referred to as “Shareholder
Candidates”) will be evaluated by the Board on the same basis as Nominees that
may be identified by the Board, management or, if the Board permits, a search
firm.





For a
Shareholder Candidate to be considered by the Board, the Eligible Shareholder
and the Shareholder Candidate must comply with the procedures set forth in the
Nomination Policies. Recommendations for Shareholder Candidate(s) to the Board
of Directors from an Eligible Shareholder must be directed in writing to ARC
Wireless Solutions, Inc., Attn: Executive Vice-President, at the Company's
principal offices at 10601 West 48th Avenue, I-70 Frontage Road North, Wheat
Ridge, Colorado 80033-2660. The specific recommendations should include the
information set forth in the Nomination Policies, which are attached hereto as
Appendix A and incorporated herein by reference.





For a
recommendation of a Shareholder Candidate to be properly brought before the
Board by an Eligible Shareholder, the Eligible Shareholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, an Eligible Shareholder’s notice must be delivered to the Corporate
Secretary not less than one hundred and twenty (120) days prior to the first
(1st) anniversary of the preceding year’s annual meeting. In the event that the
date of the annual meeting is advanced by more than thirty (30) days or delayed
by more than sixty (60) days from the anniversary date of the preceding year’s
annual meeting, the notice by the Eligible Shareholder must be delivered not
later than the close of business on the later of the sixtieth (60th) day prior
to such annual meeting or the tenth (10th) day following the day on which public
announcement of the date of such annual meeting is first made.





The
Secretary of the Corporation will provide a copy of the Nominating Policies and
Procedures upon a request in writing from the Eligible
Shareholder.


6





Code
of Ethics





The
Company endeavors to adhere to provide assurances to outside investors and
interested parties that the Company's officers, directors, and employees adhere
to a reasonably responsible code of ethics and as such, we have adopted a Code
of Ethics, which was amended on November 7, 2006, that applies to all officers,
directors and employees of the Company. The Code is posted on the Company’s
website at www.arcwireless.net/investor_relations.





Corporate
Governance Documents





On the
Company’s Corporate Governance Web site at
www.arcwireless.net/investor_relations, shareholders can access the Company’s
Audit Committee Charter, Compensation Committee Charter, and Code of Ethics for
members of the Board of Directors and officers. Copies of these documents are
available to shareholders without charge upon request to the Corporate Secretary
at the Company’s principal address.





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. Based solely on our review of the copies of such forms we
received, we believe that during the year ended December 31, 2009, all such
filing requirements applicable to our officers and directors were complied with,
except that reports were filed late by the following persons:




Name
                        
                        Number of
                          Late Reports
                        
                        
                        Transactions
                          Not Timely Reported
                        
                        
                        Known Failures to
                          File a Required
                          Form (a)Jason
      Young
                          Chief
      Executive Officer
                          Chairman
      of the Board of Directors
                        
                        
                        2
                        
                        
                        
                        2
                        
                        
                        
                        -Viktor
      Nemeth
                          Director
                        
                        
                        1
                        
                        
                        
                        1
                        
                        
                        
                        -Marco
      Vega
                          Director
                        
                        
                        1
                        
                        
                        
                        1
                        
                        
                        
                        -Javier
      Baz
                          Director
                        
                        
                        1
                        
                        
                        
                        1
                        
                        
                        
                        -Amit
      Chatwani
                          Director
                        
                        
                        1
                        
                        
                        
                        1
                        
                        
                        
                        -Paul
      Rini
                          10%
      Shareholder
                        
                        
                        1
                        
                        
                        
                        1
                        
                        
                        
                        -Evansville
      Limited
                          10%
      shareholder
                        
                        
                        1
                        
                        
                        
                        1
                        
                        
                        
                        -Brean
      Murray Carret Group, Inc.
                          10%
      shareholder
                        
                        
                        1
                        
                        
                        
                        1
                        
                        
                        
                        -





(a) The
Company has only recently become aware of the delinquent filing of Form 3s and
Form 4s by current and former officers, directors, and 10% owners.  The
Company intends to take action to rectify this situation for the current
officers, directors and 10% shareholders within the next ten (10)
days.


7





Item 11. Executive
Compensation





EXECUTIVE
COMPENSATION





Compensation
Discussion and Analysis





This
Compensation Discussion and Analysis addresses the aspects of our compensation
programs and explains our compensation philosophy, policies, and practices, with
respect to our named executive officers, including our chief executive officer,
chief financial officer, executive vice-president, and chief technology officer,
which we collectively refer to as our named executive officers, or NEOs.





Oversight
of Executive Compensation Program





The
Compensation Committee of our Board of Directors oversees our executive
compensation programs. Each member of the Compensation Committee is an
“independent director” as defined by the federal securities laws and in Rule
5605(a)(2) of the Marketplace Rules of The NASDAQ Stock Market LLC.  The
Compensation Committee met three times during 2009, and works closely with
executive management, primarily our chief executive officer (“CEO”), in
assessing compensation levels. The Compensation Committee is empowered to advise
management and make recommendations to the Board of Directors with respect to
the compensation and other employment benefits of executive officers and key
employees of the Company. The Compensation Committee also administers the
Company's compensation plans for executive officers and employees.





The
Compensation Committee regularly reviews the Company’s compensation programs to
ensure that remuneration levels and incentive opportunities are competitive and
reflect performance. Factors taken into account in assessing the compensation of
individual officers include the officer’s performance and contribution to the
Company, experience, strategic impact, external equity or market value, internal
equity or fairness, and retention priority.  The various components of the
compensation programs for executive officers are discussed below in Elements of
Executive Compensation Program.





Objectives
of Executive Compensation and What the Programs are Designed to
Reward





The
Company’s executive compensation program is designed to integrate compensation
with the achievement of our short-term and long-term business objectives and to
assist us in attracting, motivating and retaining the highest quality executive
officers and rewarding them for superior performance. Different programs are
geared to short-term and longer-term performance with the goal of increasing
stockholder value over the long term.





We
believe that the compensation of our executive officers should reflect their
success in attaining key operating objectives, such as growth or maintenance of
market position, development of new products and marketplaces, meeting
established goals for operating earnings and earnings per share, maintenance and
development of customer relationships and long-term competitive advantage. We
also believe that executive compensation should reflect achievement of
individual goals established for specific executive officers, as well as
specific achievements by such individuals over the course of the year such as
development of specific products or customer relationships or agreements or
executing or integrating acquisitions and strategic arrangements. We believe
that the performance of the executives in managing our Company, considered in
light of general economic and specific Company, industry and competitive
conditions, should be the basis for determining their overall compensation. We
also believe that their compensation should not generally be based on the
short-term performance of our stock, whether favorable or unfavorable, but
rather that the price of our stock will, in the long-term, reflect our operating
performance, and ultimately, the management of the Company by our executives.





Compensation
Consultants





In
determining competitive levels of compensation, the Compensation Committee
considers publicly available information regarding the compensation of executive
officers of other comparable U.S. investor-owned companies. The Compensation
Committee also considers recommendations made by the CEO regarding compensation
for other NEOs and key employees.





Elements
of Executive Compensation Program





Compensation
elements include:





·
            base
      salary;


·
            annual
      cash or equity incentive awards;


·
            long-term
      equity incentive compensation; and


·
            other
      health, welfare and pension
benefits.


8





Base
Salary





Base
salary is designed to provide competitive levels of base compensation to our
executives based on their experience, duties and scope of
responsibilities.  We pay base salaries because it provides a base
compensation that is required to recruit and retain executives of the quality
that we must employ to ensure the success of our Company.  Our executive
base salaries are typically adjusted in accordance with the NEO’s employment
agreement on an annual basis.





Annual Cash or Equity
Incentive Awards





Annual
incentive compensation is designed to provide competitive levels of compensation
based on experience, duties and scope of responsibilities.  Incentive
awards are influenced by the Company’s profitability and achievement of planned
profitability, as well as other factors. The Compensation Committee uses the
annual incentive compensation to motivate and reward the NEOs for the
achievement and over-performance of our critical financial and strategic
goals.





Long-Term Equity Incentive
Compensation





Long-term
equity awards were granted to our executives from our 1997 Stock Option and
Compensation Plan, (“1997 Plan”) until September 2007, when the shareholders of
the Company approved the new 2007 Stock Incentive Plan (the “2007 Plan”). The
Compensation Committee granted awards under the 1997 Plan and the 2007 Plan in
order to align the interests of the NEOs with our stockholders, and to motivate
and reward the NEOs to increase the stockholder value of the Company over the
long term. The Compensation Committee does not have a regular schedule for
awarding equity-based compensation and the timing of such awards is subject to
the discretion of the Compensation Committee but generally is awarded as part of
entering into employment agreements. We do not backdate options or grant
options retroactively or stock options with a so-called “reload” feature. In
addition, we do not plan to coordinate grants of options so that they are made
before the announcement of favorable information, or after the announcement of
unfavorable information.





Compensation
paid to each executive officer, including a stock bonus, was based on the
Compensation Committee’s review and consideration of aggregate levels of
compensation paid to executives of comparable companies and the individual
qualitative contributions and performance of each executive officer. In 2007,
the Compensation Committee issued a stock option award of 40,000 shares to Steve
C. Olson, our Chief Technology Officer under the 2007 Plan.  No stock
options were issued in 2009.





Other Health, Welfare and
Retirement Benefits





Health
and Welfare Benefits





All
full-time employees, including our NEOs, may participate in our health and
welfare benefit programs, including medical, dental and vision care coverage,
disability insurance, and life insurance. We provide these benefits to meet the
health and welfare needs of employees and their families.





Retirement
Benefits





Our
employees, including the NEO’s, are eligible to participate in our 401(k)
contributory defined contribution plan (“401(k) Plan”). Each employee may
make before-tax contributions of up to 25% of their base salary up to current
Internal Revenue Service limits. We provide this plan to help our employees save
some amount of their cash compensation for retirement in a tax efficient manner.
The Company may make discretionary matching contributions, however in 2006 the
Company did not provide participants with a matching contribution. Commencing
January 1, 2007, the Company amended its 401(k) Plan to make a Safe Harbor
Contribution of 3% of a participant’s cash compensation.





Pension
Benefits and Nonqualified Deferred Compensation





We do not
currently provide pension arrangements or post-retirement health coverage for
our executives or employees, although we may consider such benefits in the
future. In addition, we do not provide any nonqualified defined contribution or
other deferred compensation plans, although we may consider such benefits in the
future.





Employment
Agreements and Other Post-Employment Payments





All of
our NEOs were parties to employment agreements until their resignations in
November 2008, which provided for salaries and certain bonus payments as well as
rights to certain payments upon termination for cause. These employment
agreements also had change of control provisions that would require payments in
the event of termination of employment, which are described in greater detail
below. Only one NEO, Mr. Steve Olson, is still party to an agreement which
provides for salaries and certain bonus payments as well as rights to certain
payments upon termination for cause. Mr. Jason T. Young, is not party to an
employment agreement and has no current compensation arrangement with the
Company.


9





These
employment agreements also have change of control provisions that would require
payments in the event of termination of employment, which are described in
greater detail below.





Tax
Implications of Executive Compensation





We do not
currently intend to award compensation that would result in a limitation on the
deductibility of a portion of such compensation pursuant to Section 162(m) of
the Internal Revenue Code of 1986, as amended, other than awards that may be
exercised under the 1997 Plan or be made under the 2007 Plan; however, we may in
the future decide to authorize other compensation in excess of the limits of
Section 162(m) if it determines that such compensation is in the best interests
of the Company.





Although
deductibility of compensation is preferred, tax deductibility is not a primary
objective of our compensation programs. We believe that achieving our
compensation objectives set forth above is more important than the benefit of
tax deductibility and we reserve the right to maintain flexibility in how we
compensate our executive officers that may result in limiting the deductibility
of amounts of compensation from time to time.





Compensation Committee
Report





The
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis with management and, based on the review and discussions, the
Compensation Committee recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in the Company’s Annual Report
on Form 10-K.





Viktor
Nemeth


Javier
Baz


Lynn
Wunderman


10





Summary
Compensation Table for 2009





Name and Principal
                Position
              
              Year
              
              Salary
                ($)
              
              
              Bonus
                ($)
              
              
              Stock
                Awards
                ($)(2)
              
              
              Option
                Awards
                ($)(2)
              
              
              Non-Equity
                Incentive Plan
                Compensation
                ($)
              
              
              Change in
                Pension
                Value and
                Nonqualified
                Deferred
                Compensation
                Earnings ($)
              
              
              All Other
                Compensation
                ($)(3)
              
              
              Total
                ($)(a)
              
              (b)
              
              (c)
              
              
              (d)
              
              
              (e)
              
              
              (f)
              
              
              (g)
              
              
              (h)
              
              
              (i)
              
              
              (j)Jason
      T. Young,
              
              2009
              
              
              25,250
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              25,250Chair,
      Chief
              
              2008
              
              
              6,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,000Executive
      Officer,Secretary
      (1)Randall
      P. Marx,
              
              2009
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -former Chair, Chief
              
              2008
              
              
              287,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              328,000
              
              
              
              615,000Executive
      Officer,SecretaryMonty R. Lamirato,
              
              2009
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -former
      Chief
              
              2008
              
              
              154,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              123,846
              
              
              
              277,846Financial
      Officer,TreasurerSteven
      C. Olson,
              
              2009
              
              
              225,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              225,000
              (4)Chief
      Technology
              
              2008
              
              
              215,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              215,000Officer
      and
                  Acting
      Chief Financial OfficerRichard
      A.
              
              2009
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Anderson,
      former
              
              2008
              
              
              110,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              120,000
              
              
              
              230,000Executive
      VicePresident





(1)
            Mr.
      Young was appointed as a director in October 2008 and was appointed as the
      Company’s Chairman of the Board, Chief Executive Officer in November 2008.
      Mr. Young received no compensation as an employee during 2008; he was owed
      $6,000 for his services as a director during 2008, which was paid in
      2009.  Mr. Young received $25,250 in fees for his services as a
      director during 2009.  The Company may compensate Mr. Young in the
      future.


(2)
            The
      amounts in columns (e) and (f) reflect the dollar amounts
      recognized in each of 2007 and 2006 for financial statement reporting
      purposes in accordance with FAS 123R with respect to stock awards and
      stock options granted in each such year, and the dollar amount required to
      be recognized in each such year in accordance with FAS 123R. These options
      were granted pursuant to the 2007 Stock Incentive Plan described
      above.


(3)
            The
      amounts in the column titled “All Other Compensation” for 2008 include
      accrued severance obligations for Randall P. Marx, Monty R. Lamirato, and
      Richard A. Anderson, who resigned in November 2008. Such payments were
      made by the Company from November 2008 through May
  2009.


(4)
            Mr.
      Olson’s salary for the year 2009 was $225,000, of which he deferred
      $10,000 to be received in 2010.


11





Grants
of Plan-Based Awards




Name and Principal Position
                
                Grant Date
                
                
                Estimated Future Payouts Under
                  Equity Incentive Plan Awards
                
                
                All
                  Other
                  Stock
                  Awards:
                  Number of
                  Shares of
                  Stock or
                  Units 4
                  (#)
                
                
                All Other
                  Option
                  Awards:
                  Number of
                  Securities
                  Underlying
                  Options
                  (#)
                
                
                Exercise or
                  Base Price
                  of
                  Option
                  Awards
                  ($/Sh)
                
                
                Grant Date
                  Fair Value
                  of Awards
                  ($)Threshold
                  $
                
                
                Target
                  $
                
                
                Maximum
                  $Jason
      T. Young, Chair, Chief Executive Officer, Secretary
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Randall
      P. Marx, Former Chair, Chief Executive Officer, Secretary
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Monty
      R. Lamirato, Former Chief Financial Officer, Treasurer
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Steven
      C. Olson, Chief Technology Officer and Acting Chief Financial
      Officer
                
                9/21/07
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                40,000
                (1)
                
                $
                5.40
                
                
                $
                134,000





(1) These
options we granted pursuant to the 2007 Stock Incentive Plan.





There
were no stock Equity Incentive Plan awards granted to the executive officers
with respect to the years ended December 31, 2009 and 2008 other than those
noted above. In addition, no options were exercised by the executive
officers during the years ended December 31, 2009 and 2008.





Outstanding
Equity Awards at Fiscal Year-End





The
following table sets forth information on outstanding option and stock awards
held by the named executive officers as of December 31, 2009, including the
number of shares underlying both exercisable and unexercisable portions of each
stock option as well as the exercise price and the expiration date of each
outstanding option.




Option Awards
                        
                        
                        Stock AwardsName
                        
                        Number
                          of
                          Securities
                          Underlying
                          Unexercised
                          Options
                          (#)
                          Exercisable
                        
                        
                        Number
                          of
                          Securities
                          Underlying
                          Unexercised
                          Options
                          (#)
                          Unexercisable
                          (1)
                        
                        
                        Equity
                          Incentive
                          Plan
                          Awards:
                          Number
                          of
                          Securities
                          Underlying
                          Unexercised
                          Unearned
                          Options
                          (#)
                        
                        
                        Option
                          Exercise
                          Price
                          ($)
                        
                        
                        Option
                          Expiration
                          Date
                        
                        
                        Number
                          of
                          Shares
                          or Units
                          of Stock
                          That
                          Have
                          Not
                          Vested
                          (2)(3)
                        
                        
                        Market
                          Value
                          of Shares
                          or Units
                          of Stock
                          That Have
                          Not
                          Vested
                          ($)
                        
                        
                        Equity
                          Incentive Plan
                          Awards:
                          Number of
                          Unearned
                          Shares, Units
                          or Other
                          Rights That
                          Have Not
                          Vested
                          (#)
                        
                        
                        Equity
                          Incentive
                          Plan Awards:
                          Market or
                          Payout Value
                          of Unearned
                          Shares, Units
                          or Other
                          Rights That
                          Have Not
                          Vested
                          ($)(a)
                        
                        (b)
                        
                        
                        (c)
                        
                        
                        (d)
                        
                        
                        (e)
                        
                        
                        (f)
                        
                        
                        (g)
                        
                        
                        (h)
                        
                        
                        (i)
                        
                        
                        (j)Jason
      T. Young
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Steven
      C. Olson
                        
                        
                        24,000
                        (a)
                        
                        
                        16,000
                        (a)
                        
                        
                        -
                        
                        
                        $
                        5.40
                        
                        
                        9/21/2017
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -





(a)
            These
      options were granted pursuant to the 2007 Equity Incentive Plan. The
      options vests at a rate of 20% per year with vesting dates of 12/31/07,
      12/31/08, 12/31/09, 12/31/10, 12/31/11. These total 40,000 options are
      reported in the Summary Compensation and the Grant of Plan Based Awards
      Table.


12





Director
Compensation for the Year Ended December 31, 2009





The table
below summarizes the compensation paid by the Company to directors for the year
ended December 31, 2009:





Director
Compensation for the Year Ended December 31, 2009




(a)
                    
                    (b)
                    
                    
                    (c)
                    
                    
                    (d)
                    
                    
                    (e)
                    
                    
                    (f)
                    
                    
                    (g)
                    
                    
                    (h)Name(1)
                    
                    Fees Earned
                      or
                      Paid in Cash
                      ($)
                    
                    
                    Stock
                      Awards
                      ($) (1)
                    
                    
                    Option
                      Awards
                      ($)(2)
                    
                    
                    Non-Equity
                      Incentive Plan
                      Compensation
                      ($)
                    
                    
                    Change in
                      Pension Value
                      and
                      Nonqualified
                      Deferred
                      Compensation
                      Earnings
                    
                    
                    All Other
                      Compensation
                      ($)
                    
                    
                    Total ($) (5)Jason
      T. Young
                    
                    $
                    25,000
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    25,000Viktor
      Nemeth
                    
                    $
                    40,000
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    40,000Marco
      Vega
                    
                    $
                    25,000
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    25,000Javier
      Baz
                    
                    $
                    37,765
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    37,765Amit
      Chatwani (3)
                    
                    $
                    37,765
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    37,765Lynn Wunderman (4)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -





(1)
            Reflects
      the dollar amount recognized and expensed for financial statement
      reporting purposes for the year ended December 31, 2008 in accordance
      with FAS 123R, and thus may include amounts from awards granted in and
      prior to 2009.


(2)
            Reflects
      the dollar amount recognized for financial statement reporting purposes
      for the year ended December 31, 2009 in accordance with FAS 123R, and
      thus includes amounts from options granted in and prior to
      2009.


(3)
            Mr.
      Chatwani resigned from the Board of Directors in March
    2010.


(4)
            Ms.
      Wunderman was appointed to the Board of Directors in April
      2010.


(5)
            In
      addition to the director fees mentioned above, some of the directors
      received payments in 2009 for fees which were owed to them for their
      services as a director during 2008. Particularly, Mr. Young received
      $6,000, Mr. Nemeth received $5,000, and Mr. Vega received $3,125 in fees
      for their services as directors rendered during
  2008.




Compensation
Committee Interlocks and Insider Participation




No member
of the Compensation Committee was an officer or former officer of the Company or
had any material relationship or transactions with the Company and no officer of
the Company sits on the compensation committee or other body that has the power
to establish the compensation of any member of the Compensation
Committee.




2007
Stock Incentive Plan





The
following paragraphs provide a summary of the principal features of the 2007
Plan and its operation.





Shares Available for
Issuance





The 2007
Plan provides that no more than 300,000 shares of our common stock may be issued
for awards. If there is any change in the Company’s common stock by reason of
any stock exchange, merger, consolidation, reorganization, recapitalization,
stock dividend, reclassification, split-up, combination of shares or otherwise,
then the Board, or any Option Committee, shall make proportionate adjustments to
the maximum number and kind of securities (i) available for issuance under the
2007 Plan; (ii) available for issuance as incentive stock options or
non-qualified stock options; (iii) that may be subject to awards received by any
participant; (iv) that may be subject to different types of awards; (v) that are
subject to any outstanding award; and (vi) the price of each
security.





The 2007
Plan provides that shares covered by an award will not count against the shares
available for issuance under the 2007 Plan until they are actually issued and
delivered to a participant.  If an award granted under the 2007 Plan
lapses, expires, terminates or is forfeited, surrendered or canceled without
having been fully exercised or without the issuance of all the shares subject to
the award, the shares covered by such award will again be available for use
under the 2007 Plan.





Eligibility





Awards
may be made to any employee, officer, director of the Company and its related
companies or other persons who provide services to the Company and its related
companies.


13





Administration





The 2007
Plan is administered by the Option Committee, which shall consist of the Board
or a committee of the Board as the Board may from time to time
designate.





Types of
Awards





Stock Options. The Option
Committee may grant, either incentive stock options, which comply with Section
422 of the Internal Revenue Code, or nonqualified stock options. The Option
Committee sets option exercise prices and terms, except that the exercise price
of an incentive stock option may be no less than 100% of the fair market value
of the shares on the date of grant. At the time of grant, the Option Committee
in its sole discretion will determine when stock options are exercisable and
when they expire, except that the term of a stock option cannot exceed ten
years.





Restricted Stock Awards. The
Option Committee may grant awards of restricted stock under the 2007 Plan. These
shares may be subject to restrictions on transferability, risk of forfeiture and
other restrictions as determined by the Option Committee. As a condition to a
grant of an award of restricted stock, the Option Committee may require or
permit a participant to elect that any cash dividends paid on a share of
Restricted Stock be automatically reinvested in additional shares of restricted
stock or applied to the purchase of additional awards under the 2007 Plan.
Unless otherwise determined by the Option Committee, stock distributed in
connection with a stock split or stock dividend, and other property distributed
as a dividend, shall be subject to restrictions and a risk of forfeiture to the
same extent as restricted stock with respect to which such stock or other
property has been distributed.





Restricted Stock Unit Awards.
The Option Committee may grant awards of Restricted Stock Units under the 2007
Plan. A “Restricted Stock Unit” is a grant valued in terms of common stock, but
common stock is not issued at the time of grant. After participants who receive
awards of Restricted Stock Units satisfy applicable vesting requirements, the
Company will distribute shares or the cash equivalent of the number of shares
used to value the Unit. If the participant does not meet the requirements prior
to the end of the vesting period, the Units will be forfeited to the Company.
Vesting requirements may be met by the passage of time or by either Company or
individual performance. Restricted Stock Units shall be subject to such
restrictions (which may include a risk of forfeiture) as determined by the
Option Committee, which restrictions may lapse at the expiration of the deferral
period or at other times determined by the Option Committee.





Amendment and Termination of
the 2007 Plan





The Board
of Directors or the Option Committee may amend, alter or discontinue the 2007
Plan, except that if any applicable statute, rule or regulation requires
shareholder approval with respect to any amendment of the 2007 Plan, then to the
extent so required, shareholder approval will be obtained. No amendment may
impair the right of a participant under an outstanding agreement. The 2007 Plan
will terminate on August 2, 2017.





Federal Income Tax
Consequences





The
following is a summary of the material United States federal income tax
consequences to us and to recipients of certain awards under the 2007 Plan. The
summary is based on the Internal Revenue Code and the U.S. Treasury regulations
promulgated thereunder in effect as of the date of this Proxy Statement, all of
which may change with retroactive effect. The summary is not intended to be a
complete analysis or discussion of all potential tax consequences that may be
important to recipients of awards under the 2007 Plan.





Nonqualified Stock Options. A
recipient will not have any income at the time a nonqualified stock option is
granted, nor will the Company be entitled to a deduction at that time. 
When a nonqualified stock option is exercised, the recipient generally will
recognize ordinary income (whether the option price is paid in cash or by
surrender of shares of Company stock), in an amount equal to the excess of the
fair market value of the shares to which the option exercise pertains over the
option price.





Incentive Stock
Options. A recipient will not have any income at the time an
incentive stock option (“ISO”) is granted.  Furthermore, a recipient will
not have regular taxable income at the time the ISO is exercised. However, the
excess of the fair market value of the shares at the time of exercise over the
option price will be a preference item that could create an alternative minimum
tax liability for the recipient. If a recipient disposes of the shares acquired
on exercise of an ISO after the later of two years after the grant of the ISO or
one year after exercise of the ISO, the gain recognized by the recipient (i.e.,
the excess of the proceeds received over the option price), if any, will be
long-term capital gain eligible for favorable tax rates under the Internal
Revenue Code. Conversely, if the recipient disposes of the shares within two
years of the grant of the ISO or within one year of exercise of the ISO, the
disposition will generally be a “disqualifying disposition”, and the recipient
will recognize ordinary income in the year of the disqualifying disposition
equal to the lesser of (i) the excess of the fair market value of the stock on
the date of exercise over the option price and (ii) the excess of the amount
received for the shares over the option price. The balance of the gain or loss,
if any, will be long-term or short-term capital gain, depending on how long the
shares were held.


14





Restricted Stock and Restricted
Stock Units. With respect to a grant of restricted stock or Restricted
Stock Units, the participant will recognize ordinary income at the time of
vesting or payout equal to the fair market value (on the vesting or payout date)
of the shares or cash received minus any amount paid. For restricted stock only,
a participant instead may elect to be taxed at the time of grant.





The
Company generally will be entitled to a tax deduction in connection with an
award under the 2007 Plan in an amount equal to the ordinary income realized by
a participant at the time the participant recognizes such income, provided that
the deduction is not disallowed by Section 162(m) or otherwise limited by the
Internal Revenue Code.





In 2007,
options to purchase a total of 40,000 shares were granted to an officer at an
exercise price of $5.40. No options were granted to directors in 2007 from the
2007 Plan and no options were granted in 2008 or 2009 under the 2007
Plan.





1997 Stock Option and
Compensation Plan





In
November 1997, the Board of Directors approved our 1997 Stock Option and
Compensation Plan (the “1997 Plan”). Pursuant to the 1997 Plan, options were
authorized to be granted to purchase an aggregate of 100,000 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
amendments to the 1997 Stock Option and Compensation Plan to allow for an
aggregate of 200,000 options to be granted under the 1997 Plan. The options
granted pursuant to the 1997 Plan could have been incentive options qualifying
for beneficial tax treatment for the recipient or they could have been
non-qualified options. The 1997 Plan was administered by an option committee
that determined the terms of the options subject to the requirements of the 1997
Plan, except that the option committee did not administer the 1997 Plan with
respect to automatic grants of options to our directors who were not our
employees.  The option committee could have been the entire Board or a
committee of the Board. The 1997 Stock Option and Compensation Plan expired in
November 2007.





Through
May 24, 2000, directors who were not also our employees (“Outside Directors”)
automatically received options to purchase 5,000 shares pursuant to the 1997
Plan at the time of their election as an Outside Director. These Outside
Directors options were not exercisable at the time of grant. Options to purchase
1,000 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 5,000 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
5,000 to 500 options, and (2) decrease the amount of exercisable options from
1,000 to 100 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 500 to 2,500 options, and (2) increase the amount of
exercisable options from 100 to 500 per meeting. The other terms of the Outside
Director options did not change.





The
Company granted a total of 7,500 options to Outside Directors under the 1997
Plan during 2007 at exercise prices ranging from $4.80 to $5.47 per share. The
Company granted a total of 5,000 options to Outside Directors under the 1997
Plan during 2006 at an exercise price of $6.50 per share. The Company granted a
total of 5,000 options to Outside Directors under the 1997 Plan during 2005 at
exercise prices ranging from $5.50 to $7.50 per share.





As of
December 31, 2008, there were 6,000 exercisable options outstanding related to
the grants to former Outside Directors. These options expired February 12,
2009.





In
addition to Outside Directors grants, the Board of Directors may grant incentive
options to our key employees pursuant to the 1997 Plan. In 2007 and 2006, the
Board did not grant any options to employees under the 1997 Plan. In 2005, the
Board granted a total of 2,000 options under the Plan to employees with an
exercise price of $7.50. These options expired in 2008.





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





Effective
February 1, 2008, the Company’s Board of Directors approved an employment
agreement between the Company and Randall P. Marx, the Company’s Chief Executive
Officer (CEO), effective as of January 31, 2008. The employment agreement was
recommended to the Board by the Compensation Committee. The agreement provided
for annual compensation of $250,000 in 2007, $275,000 in 2008, and $300,000 in
2009. On November 18, 2008 Mr. Marx resigned his position as CEO. In connection
with Mr. Marx’s resignation, on November 18, 2008, the Company and Mr. Marx
reached an agreement for compensation of Mr. Marx that would replace the
compensation and other benefits to which Mr. Marx could be entitled under his
January 31, 2008 employment agreement with the Company. Pursuant to this new
agreement, Mr. Marx will be compensated $327,500 through December 31, 2009 as
payment in full for his salary and accrued vacation, and he will receive health
benefits from the Company through December 31, 2009. Under the terms of this
agreement, Mr. Marx is not entitled to receive any other compensation or
benefits to which he otherwise would have been entitled under his January 31,
2008 employment agreement. Mr. Marx also agreed to provide telephonic consulting
services to the Company.


15





Effective
November 1, 2007, the Company entered into a two year employment agreement with
Mr. Monty R. Lamirato as the Company’s Chief Financial Officer, which position
he had served in since June 2001. The agreement provided for annual compensation
of $165,000 in the first year and $175,000 in the second year. On November 26,
2008, Monty R. Lamirato, the Company’s Chief Financial Officer and Treasurer,
resigned from his positions with the Company. In connection with Mr. Lamirato’s
resignation, Mr. Lamirato and the Company executed a separation agreement
pursuant to which Mr. Lamirato was paid $115,000 through May 26, 2009 for all
compensation and other benefits to which he otherwise would have been entitled
under his November 7, 2007 employment agreement. Under the terms of this
agreement, Mr. Lamirato agreed to provide consulting services to the Company
through October 31, 2009. Furthermore, Mr. Lamirato was paid $8,846 in
additional pay in that year.





Effective
November 1, 2007, the Company entered into a three year employment agreement
with Mr. Richard A. Anderson, as the Company’s Executive Vice President. The
agreement provided for annual compensation of $125,000. On November 26, 2008,
Richard L. Anderson, the Company’s Executive Vice President, resigned from his
position with the Company. In connection with his resignation, Mr. Anderson and
the Company executed a separation agreement pursuant to which Mr. Anderson was
paid $120,000 through May 26, 2009, and received health benefits from the
Company through June 30, 2009, both as payment for all compensation and other
benefits to which he otherwise would have been entitled under his November 7,
2007 employment agreement. Mr. Anderson also agreed to provide consulting
services to the Company through December 31, 2009.





Effective
November 1, 2007, the Company entered into a five year employment agreement with
Mr. Steven C. Olson, as President and Chief Technology Officer of the Company’s
Wireless Communications Solutions Division. Mr. Olson has been with the Company
since 2001. The agreement provides for annual base compensation of $200,000 in
2007, increasing annually to $245,000 in 2011. Mr. Olson shall also be entitled
to bonuses ranging from $5,000 to $100,000 annually contingent upon the Wireless
Communications Solutions Division achieving certain net income targets. Mr.
Olson earned a bonus of $7,500 for 2007. We previously entered into a written
employment agreement with Mr. Olson, effective August 22, 2004. The employment
agreement was for the period August 22, 2004 through August 22, 2007 at an
annual base salary of $175,000. Mr. Olson also was eligible to earn bonuses,
upon achieving certain gross margin objectives, over the term of the agreement.
Mr. Olson did not receive a bonus in 2006. Mr. Olson also received options to
purchase 10,000 shares of our common stock at a price of $6.00 per share from
August 22, 2004 through August 22, 2007. Mr. Olson also received options to
purchase 40,000 shares of our common stock on August 21, 2007. These options
vest at a rate of 20% per year with vesting dates of 12/31/07, 12/31/08,
12/31/09, 12/31/10, and 12/31/11.





The
following table shows what the potential payments upon termination or a change
of control of the Company are for Mr. Olson:





Scenario
                  
                  Mr. OlsonIf
      early retirement occurred at December 31, 2009
                  
                  
                  -If
      termination for cause occurred at December 31, 2009
                  
                  
                  -If
      termination without cause occurred at December 31, 2009
                  
                  $
                  225,000If
      “termination for Good Reason” occurred at December 31, 2009
      (1)
                  
                  $
                  225,000If
      death or disability occurred as of December 31, 2009
                  
                  
                  -





(1)           The
provisions governing “Good Reason” are described in Mr. Olson’s Employment
Agreement, which has been filed with the U.S. Securities and Exchange Commission
as Exhibit 10.3 to the Form 8-K filed on November 8, 2007.  Such Form 8-K,
and the Exhibits thereto, are incorporated herein by reference thereto. 
Such Form 8-K and Mr. Olson’s Employment Agreement are publicly available at the
U.S. Securities and Exchange Commission’s website www.sec.gov.





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 2007
Stock Incentive Plan and 1997 Stock Option and Compensation Plan provides
for vesting of all outstanding options in the event of the occurrence of a
change-in-control.


16





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





SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT





The
number of shares beneficially owned includes shares of Common Stock with respect
to which the persons named below have either investment or voting power. A
person is also deemed to be the beneficial owner of a security if that person
has the right to acquire beneficial ownership of that security within 60 days
through the exercise of an option or through the conversion of another security.
Except as noted, each beneficial owner has sole investment and voting power with
respect to the Common Stock.





Common
Stock not outstanding that is subject to options or other convertible securities
or rights is deemed to be outstanding for the purpose of computing the
percentage of Common Stock beneficially owned by the person holding such options
or other convertible securities or rights, but is not deemed to be outstanding
for the purpose of computing the percentage of Common Stock beneficially owned
by any other person.





The
following table summarizes certain information as of April 20, 2010, except as
noted below, 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. As of April 20, 2010, 3,091,350 shares of our Common Stock
were issued and outstanding.





Name
      and Address of Beneficial Owner
                              
                              Number
      of Shares
                                Beneficially
      Owned (1)
                              
                              
                              Percent
      of ClassRandall
      P. Marx
                                ARC
      Wireless Solutions, Inc.
                                10601
      West 48th Ave.
                                Wheat
      Ridge, CO  80033
                              
                              
                              167,165
                              (5)
                              
                              
                              5.41
                              %Steven
      C. Olson
                                ARC
      Wireless Solutions, Inc.
                                10601
      West 48th Ave.
                                Wheat
      Ridge, CO  80033
                              
                              
                              17,751
                              (3)
                              
                              
                              *Paul
      J. Rini
                                7376
      Johnnycake Rd
                                Mentor,
      Ohio 44060
                              
                              
                              438,004
                              (6)
                              
                              
                              14.17
                              %Jason
      Young
                                ARC
      Wireless Solutions, Inc.
                                10601
      West 48th Ave.
                                Wheat
      Ridge, CO  80033
                              
                              
                              576,269
                              (2)(7)
                              
                              
                              18.64
                              %Brean
      Murray Carret Group, Inc.
                                40
      West 57th Street, 20th Floor
                                New
      York, NY  10019
                              
                              
                              576,269
                              (4)(7)
                              
                              
                              18.64
                              %Viktor
      Nemeth
                                ARC
      Wireless Solutions, Inc.
                                10601
      West 48th Ave.
                                Wheat
      Ridge, CO  80033
                              
                              
                              0
                              
                              
                              
                              *Marco
      Vega
                                ARC
      Wireless Solutions, Inc.
                                10601
      West 48th Ave.
                                Wheat
      Ridge, CO  80033
                              
                              
                              0
                              
                              
                              
                              *Javier
      Baz
                                ARC
      Wireless Solutions, Inc.
                                10601
      West 48th Ave.
                                Wheat
      Ridge, CO  80033
                              
                              
                              0
                              
                              
                              
                              *




17




Lynn
      Wunderman
                      ARC
      Wireless Solutions, Inc.
                      10601
      West 48th Ave.
                      Wheat
      Ridge, CO  80033
                    
                    
                    0
                    
                    
                    
                    *All
      officers and directors as a group (6 persons)
                    
                    
                    594,020
                    (2)(3)(7)
                    
                    
                    19.21
                    %





* 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)
            Consists
      of 576,269 shares beneficially owned by the Brean Murray Carret Group,
      Inc. Mr. Young is deemed to share voting and investment power over the
      shares beneficially owned by the Brean Murray Carret Group,
      Inc.


(3)
            Consists
      of 1,751 shares in Mr. Olson's ARC Wireless 401(k) account and options to
      purchase 16,000 shares at $5.41 per share until September 21, 2017,
      granted under the 2007 Stock Incentive Plan which are currently
      exercisable.


(4)
            Consists
      of 576,269 shares beneficially owned by Brean Murray Carret Group, Inc.
      Mr. Young, the Company's Chief Executive Officer and Chairman of the
      Board, serves as a representative of Brean Murray Carret Group, Inc. and
      he holds voting and investment power over these
  shares.


(5)
            Includes
      163,816 shares directly held by Randall Marx, the Company's former Chief
      Executive Officer and Chairman of the Board, 1,980 shares in his ARC
      Wireless 401(k) account, 800 shares held by his spouse's IRA and 570
      shares owned beneficially through a 50% ownership of an LLC. This does not
      include 2,170 shares 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 3,100 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.


(6)
            Consists
      of shares owned by Mr. Paul J. Rini as reported on February 1,
      2010.


(7)
            The
      shares owned by Brean Murray Carret Group, Inc. are included three times
      in the table in accordance with the rules governing disclosure of
      beneficial ownership. In addition to being shown as owned by Brean Murray
      Carret Group, Inc., these same shares are included as being beneficially
      owned by Jason Young and by all officers and directors as a
      group.


18


Item 13. Certain
Relationships and Related Transactions and Director
Independence





We do not employ specific written procedures for the
review, approval or ratification of related party transactions involving our
directors, officers and employees or their family members, but we consider such
transactions on a case-by-case basis.




On
January 23, 2009 we entered into a financial advisory engagement (the
“Agreement”) with Quadrant Management, Inc. (the “Advisor”). Quadrant
Management, Inc. is under common control with Brean Murray Carret Group, Inc.,
an entity that beneficially owns 575,763, or 18.63%, of the Company's common
stock. Mr. Young, the Company’s current Chief Executive Officer, has been a
Managing Director at Quadrant Management, Inc. since 2005, where he is
responsible for making investments in US and emerging market companies, and
where he frequently serves in active management- or director-level
roles.




Pursuant
to the Agreement, the Advisor will provide to ARC financial advisory and
business consulting services, including restructuring services.




In
consideration for the restructuring services provided by the Advisor since
November 2008 and for the ongoing services to be provided, ARC will pay the
following: 1) an initial cash fee of $250,000 upon signing the Agreement; 2) an
annual fee of the greater of (i) $250,000, or (ii) 20% of any increase in
reported earnings before interest, taxes, depreciation and amortization after
adjusting for one-time and non-recurring items (“EBITDA”) for the current
financial year over preceding year, or (iii) 20% of reported EBITDA for the
current financial year; and 3) all reasonable out-of-pocket expenses incurred by
Advisor in performing services under the Agreement.




The
Agreement will expire on December 31, 2013.





Except as
set forth herein, during the fiscal year ended December 31, 2009 and during the
interim period since the end of fiscal year 2009, there were no transactions
between the Company and its directors, executive officers or known holders of
greater than five percent of the Company's Common Stock in which the amount
involved exceeded $120,000 and in which any of the foregoing persons had or will
have a direct or indirect material interest.


19


Item 14. Principal
Accounting Fees and Services





The Audit
Committee reviews and determines whether specific projects or expenditures with
our independent registered public accounting firm (auditor), 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. Any
approval will be reported to the Audit Committee at its next scheduled
meeting.




Audit
Fees





The
following table sets forth the aggregate fees billed to us for the years ended
December 31, 2009, 2008 and 2007:




2009
                        
                        
                        2008
                        
                        
                        2007Audit
      fees
                        
                        $
                        63,850
                        (1)
                        
                        $
                        91,000
                        (1)
                        
                        $
                        78,000
                        (1)Audit-related
      fees
                        
                        
                        —
                        (2)
                        
                        
                        —
                        (2)
                        
                        
                        —
                        (2)Tax
      fees
                        
                        $
                        5,000
                        (3)
                        
                        
                        18,000
                        (3)
                        
                        
                        22,000
                        (3)All
      other fees
                        
                        
                        
                        
                        
                        
                        —
                        
                        
                        
                        —Total
      audit and non-audit fees
                        
                        $
                        68,850
                        
                        
                        $
                        109,000
                        
                        
                        $
                        100,000





(1)
            Includes
      fees for professional services rendered for the audit of our annual
      financial statements and review of our Annual Report on Form 10-K for the
      year 2009, 2008 and 2007 and for reviews of the financial statements
      included in our quarterly reports on Form 10-Q for the first three
      quarters of fiscal 2009, 2008 and 2007 and related SEC registration
      statements.





(2)
            Includes
      fees billed for professional services rendered in fiscal 2009, 2008 and
      2007, in connection with acquisition planning and due
      diligence.





(3)
            Includes
      fees billed for professional services rendered in fiscal 2009, 2008 and
      2007, in connection with tax compliance (including U.S. federal and state
      returns) and tax consulting.


20




PART
IV





Item 15.  Exhibits,
Financial Statement Schedules





EXHIBIT INDEX


Exhibit
                    Number
                  
                  Description3.1
                  
                  Amended
      and Restated Articles of Incorporation dated October 11, 2000
      (1)3.2
                  
                  Bylaws
      of the Company as amended and restated on March 25, 1998
    (2)10.1
                  
                  Agreement
      between and among Winncom Technologies Inc., Winncom Technologies Corp.
      and the Company dated May 24, 2000 (3)10.2
                  
                  Stock
      Purchase Agreement, by and among Bluecoral limited, Winncom Technologies
      Corp. and the Company dated as of July 28, 2006 (4 )10.3
                  
                  Escrow
      Agreement, dated July 28, 2006, by and among the Company, Bluecoral
      Limited and Consumer Title Services, LLC (4)10.4
                  
                  Employment
      Agreement effective January 31, 2008 between the Company and Randall P.
      Marx (5)10.5
                  
                  Employment
      Agreement effective November 1, 2007 between the Company and Monty R.
      Lamirato (6)10.6
                  
                  Employment
      Agreement effective November 1, 2007 between the Company and Steve C.
      Olson (6)10.7
                  
                  Employment
      Agreement effective November 1, 2007 between the Company and Richard L.
      Anderson (6)10.8
                  
                  Separation
      Agreement effective November 18, 2008 between the Company and Randall P.
      Marx (8)10.9
                  
                  Separation
      Agreement effective November 26, 2008 between the Company and Monty R.
      Lamirato (8)10.10
                  
                  Separation
      Agreement effective November 26, 2008 between the Company and Richard L.
      Anderson (8)14.1
                  
                  Amended
      and Restated Code of Ethics (7)21.1
                  
                  Subsidiaries
      of the Registrant (9)31.1
                  
                  Certification
      of Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
                  
                  Certification
      of Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
                  
                  Certification
      of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2
                  
                  Certification
      of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.99.1
                  
                  Nominating
      Policies and Procedures
(10)







(1)
            Incorporated
      by reference from the Company’s Form 10-KSB for December 31, 2000 filed on
      April 2, 2001.


(2)
            Incorporated
      by reference from the Company’s Form 10-KSB for December 31, 1997 filed on
      March 31, 1998.


(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 the Company’s Form 8-K/A filed on August 2,
      2006.


(5)
            Incorporated
      by reference from the Company’s Form 8-K filed on February 7,
      2008.


(6)
            Incorporated
      by reference from the Company’s Form 8-K filed on November 8,
      2007.


(7)
            Incorporated
      by reference from the Company's Form 8-K filed on November 13,
      2006.


(8)
            Incorporated
      by reference from the Company’s Form 8-K filed on December 3,
      2008.


(9)
            Incorporated
      by reference from the Company’s Form 10-K for December 31, 2009 filed on
      March 19, 2010.


(10)
            Incorporated
      by reference from the Company’s Schedule 14A filed with the Securities and
      Exchange Commission on December 1,
2009.


21





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




ARC
      Wireless Solutions, Inc.Date:  April
      30, 2010
                    By:
                    /s/ Jason
      T. YoungName:    Jason
      T. Young
                      Title:      Principal
      Executive OfficerDate:  April
      30, 2010
                    By:
                    /s/
      Steve OlsonName:    Steve
      Olson,
                      Title:      Chief
      Technology Officer,
                      Acting Principal Financial Officer and
                      Acting
      Principal Accounting Officer





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





Date
              
              Signatures/s/ Jason T.
      YoungApril
      30, 2010
              
              Jason
      T. Young, Director/s/ Viktor
      NemethApril
      30, 2010
              
              Viktor
      Nemeth, Director/s/ Marco VegaApril
      30, 2010
              
              Marco
      Vega, Director/s/ Javier BazApril
      30, 2010
              
              Javier
      Baz, Director/s/ Lynn WundermanApril
      30, 2010
              
              Lynn
      Wunderman, Director


22