---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM
10  Q

QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934.

For  the
quarterly period ended March 31, 2006.

000-18122(Commission
File Number)

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

|UTAH                            | 87-0454148
|------------------------------- | ----------
|(State or other jurisdiction of |           
|incorporation or organization)  |           
|                                |           

10601
West 48th AvenueWheat Ridge, Colorado, 80033-2163(Address
of principal executive offices including zip code)

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

Not
Applicable(Former
Name or Former Address, if Changed Since Last Report)

Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the 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 [  ]

Indicate by
check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes [  ]  No  [ X ]

As of May 1,
2006, the Registrant had 154,300,191 shares outstanding of its $.0005 par value common
stock.

---



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ARC
Wireless Solutions, Inc.

Quarterly
Report on FORM 10-Q For The Period Ended

March
31, 2006

Table of
Contents

PART
I. FINANCIAL INFORMATION

|             |  |                                                                           
|------------ |  | --------------------------------------------------------------------------
|Item 1       |  | Financial Statements                                                      
|             |  | Condensed Consolidated Balance Sheets as of March 31, 2006 (unaudited)    
|             |  | and December 31, 2005                                                     
|             |  | Condensed Consolidated Statements of Operations for the Three Months Ended
|             |  | March 31, 2006 and 2005 (unaudited)                                       
|             |  | Condensed Consolidated Statements of Cash Flows for the Three Months Ended
|             |  | March 31, 2006 and 2005 (unaudited)                                       
|             |  | Notes to Consolidated Financial Statements                                
|Item 2       |  | Managements Discussion and Analysis of Financial                         
|             |  | Condition and Results of Operations                                       
|Item 3       |  | Quantitative and Qualitative Disclosures About Market Risk                
|Item 4       |  | Controls and Procedures                                                   
|             |  | PART II. OTHER INFORMATION                                                
|Item 1       |  | Legal Proceedings                                                         
|Item 2       |  | Unregistered Sales of Equity Securities and Use of Proceeds               
|Item 6       |  | Exhibits                                                                  
|Signatures   |  |                                                                           
|Exhibit 31.1 |  |                                                                           
|Exhibit 31.2 |  |                                                                           
|Exhibit 32.1 |  |                                                                           

2



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Part I.   
FINANCIAL INFORMATIONItem 1.     Financial Statements

ARC Wireless
Solutions, Inc.Condensed Consolidated Balance Sheets

|                                                | March 31,2006(unaudited) | December 31,     2005     *
|----------------------------------------------- | ------------------------ | ---------------------------
|Assets                                          |                          |                            
|Current assets:                                 |                          |                            
|Cash and equivalents                            |                          | $   3,249,000              
|Accounts receivable  trade, net                |                          | 15,602,000                 
|Accounts receivable  vendors, net              |                          | 548,000                    
|Inventory, net                                  |                          | 7,041,000                  
|Construction in progress                        |                          | 8,104,000                  
|Deferred tax assets                             |                          | 574,000                    
|Other current assets                            |                          | 320,000                    
|                                                |                         
|Total current assets                            |                          | 35,438,000                 
|                                                |                         
|                                                |                          |                            
|Property and equipment, net                     |                          | 443,000                    
|                                                |                         
|                                                |                          |                            
|Other assets:                                   |                          |                            
|Goodwill, net                                   |                          | 10,824,000                 
|Intangible assets, net                          |                          | 107,000                    
|Deposits                                        |                          | 168,000                    
|                                                |                         
|Total assets                                    |                          | $ 46,980,000               
|                                                |                         
|                                                |                          |                            
|Liabilities and stockholders equity            |                          |                            
|Current liabilities:                            |                          |                            
|Accounts payable                                |                          | $   6,859,000              
|Bank debt  current                             |                          | 2,101,000                  
|Accrued expenses                                |                          | 718,000                    
|Billings in excess of recognized income         |                          | 19,379,000                 
|Current portion of capital lease obligations    |                          | 66,000                     
|                                                |                         
|Total current liabilities                       |                          | 29,123,000                 
|                                                |                          |                            
|Deferred tax liabilities                        |                          | 26,000                     
|Capital lease obligations, less current portion |                          | 19,000                     
|Bank debt, less current portion                 |                          | 968,000                    
|                                                |                         
|Total liabilities                               |                          | 30,136,000                 
|                                                |                         
|                                                |                          |                            
|Commitments                                     |                          |                            
|Stockholders equity:                           |                          |                            
|Common stock                                    |                          | 78,000                     
|Preferred stock                                 |                          |                           
|Additional paid-in capital                      |                          | 21,764,000                 
|Treasury stock                                  |                          | (1,195,000                 
|Accumulated deficit                             |                          | (3,803,000                 
|                                                |                         
|Total stockholders equity                      |                          | 16,844,000                 
|                                                |                         
|Total liabilities and stockholders equity      |                          | $ 46,980,000               
|                                                |                         
|                                                |                          |                            
|                                                |                          |                            

* These numbers
were derived from the audited financial statements for the year ended December 31, 2005.See accompanying notes.

3



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ARC
Wireless Solutions, Inc.Condensed Consolidated Statements of Operations

|                                             | Three months ended March 31, |                
|-------------------------------------------- | ---------------------------- | ---------------
|
|
|Sales, net                                   |                              | $   8,949,000  
|Contract revenue                             |                              | 2,803,000      
|                                             |                             
|Total revenue                                |                              | 11,752,000     
|                                             |                             
|                                             |                              |                
|Cost of sales                                |                              | 7,492,000      
|Cost of contract revenue                     |                              | 2,593,000      
|                                             |                             
|                                             |                              | 10,085,000     
|                                             |                             
|                                             |                              |                
|Gross profit                                 |                              | 1,667,000      
|                                             |                              |                
|Operating expenses:                          |                              |                
|Selling, general and administrative expenses |                              | 1,691,000      
|                                             |                             
|Loss from operations                         |                              | (24,000        
|                                             |                              |                
|Other income (expense):                      |                              |                
|Interest expense, net                        |                              | (65,000        
|Other income                                 |                              | 79,000         
|                                             |                             
|Total other income (expense)                 |                              | 14,000         
|                                             |                             
|Loss before income taxes                     |                              | (10,000        
|                                             |                              |                
|(Provision) Benefit for income taxes         |                              | 40,000         
|                                             |                             
|Net Income (loss)                            |                              | $        30,000
|                                             |                             
|                                             |                              |                
|Net income (loss) per share  basic          |                              | *              
|                                             |                             
|Net income (loss) per share  diluted        |                              | *              
|                                             |                             
|                                             |                              |                

See
accompanying notes.

* Less than
$.001 per share

4



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ARC
Wireless Solutions, Inc.Condensed Consolidated Statements of Cash Flows

|                                                                   | Three months ended March 31, |                
|------------------------------------------------------------------ | ---------------------------- | ---------------
|
|
|Operating activities                                               |                              |                
|Net income (loss)                                                  |                              | $        30,000
|Adjustments to reconcile net income (loss) to net cash provided by |                              |                
|Operating activities:                                              |                              |                
|Depreciation and amortization                                      |                              | 46,000         
|Provision for doubtful accounts                                    |                              | 76,000         
|Non-cash expense (charge) for issuance of stock and options        |                              | 4,000          
|Changes in operating assets and liabilities:                       |                              |                
|Accounts receivable, trade and vendor                              |                              | (7,754,000     
|Inventory                                                          |                              | (934,000       
|Construction in progress                                           |                              | (2,204,000     
|Prepaids and other current assets                                  |                              | 480,000        
|Deferred taxes                                                     |                              | (58,000        
|Other assets                                                       |                              |               
|Billings in excess of recognized income                            |                              | 18,482,000     
|Accounts payable and accrued expenses                              |                              | (3,593,000     
|                                                                   |                             
|Net cash provided by operating activities                          |                              | 4,575,000      
|                                                                   |                             
|                                                                   |                              |                
|Investing activities                                               |                              |                
|Patent acquisition costs                                           |                              | (8,000         
|Purchase of plant and equipment                                    |                              | (52,000        
|                                                                   |                             
|Net cash used in investing activities                              |                              | (60,000        
|                                                                   |                             
|                                                                   |                              |                
|Financing activities                                               |                              |                
|Net Repayment of line of credit and capital lease obligations      |                              | (1,433,000     
|                                                                   |                             
|Net cash used in financing activities                              |                              | (1,433,000     
|                                                                   |                             
|                                                                   |                              |                
|Net change in cash                                                 |                              | 3,082,000      
|Cash, beginning of period                                          |                              | 167,000        
|                                                                   |                             
|Cash, end of period                                                |                              | $   3,249,000  
|                                                                   |                             
|                                                                   |                              |                
|Supplemental cash flow information:                                |                              |                
|Cash paid for interest                                             |                              | $        65,000
|                                                                   |                              |                
|                                                                   |                              |                

See
accompanying notes.

5



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ARC
Wireless Solutions, Inc.

Notes
to Condensed Consolidated Financial StatementsMarch 31,
2006

Note  1.   
Basis of Presentation

The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In
the opinion of management, all adjustments considered necessary for a fair
presentation have been included. For further information, refer to the financial
statements and footnotes thereto included in the Companys Annual Report on
Form 10-K for the year ended December 31, 2005.

The
Company operates in three business segments which are identified as
distribution, manufacturing and cable offering a wide variety of wireless
component and network solutions to service providers, systems integrators, value
added resellers, businesses and consumers, primarily in the United States.

Operating
results for the three months ended March 31, 2006 are not necessarily indicative
of the results that may be expected for the year ended December 31, 2006 or any
future period.

Reclassifications

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

Use of
Estimates

The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates and such
differences may be material to the financial statements.

Consolidation
Policy

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

Share Based
Compensation

On
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123(R) (SFAS 123(R)) related to accounting for share-based payments and,
accordingly, the Company is now recording compensation expense for share-based
awards based upon an assessment of the grant date fair value for stock options
and restricted stock awards. Prior to 2006, share based compensation was
accounted for in accordance with Accounting Principles Board Opinion No. 25. We
are using the modified prospective method of adoption, which allows us to apply
SFAS 123(R) on a going-forward basis rather than restating prior periods.

Stock
compensation expense for stock options is recognized on a straight-line basis
over the vesting period of the award. The Company accounts for stock options as
equity awards.

6



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The
following table summarizes share-based compensation expense recorded in general
and administrative expenses during each period presented:

|                                       | March 31, 2006
|-------------------------------------- | --------------
|Stock options                          |               
|                                       |               
|Total share-based compensation expense |               
|                                       |               

Prior
to January 1, 2006 the Company followed APB Opinion No. 25 and related
interpretations in accounting for its stock options and grants since the
alternative fair market value accounting provided for under Statement of
Financial Accounting Standards (SFAS) No. 123 (SFAS No.
123) required use of grant valuation models that were not developed for
use in valuing employee stock options and grants. Under APB Opinion No. 25,
if the exercise price of the Companys stock grants and options equals or
exceeds the fair value of the underlying stock on the date of grant, no
compensation expenses are recognized.

If
compensation cost for the Companys stock-based compensation plans had been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS No. 123, then the Companys
net loss and per share amounts for the three months ended March 31, 2005, would
have been adjusted to the pro forma amounts indicated below:

|                                                                      | March 31, 2005
|--------------------------------------------------------------------- | --------------
|Net loss as reported                                                  |               
|Add: stock based compensation included in reported net loss           |               
|Deduct: Stock-based compensation cost under SFAS 123                  |               
|                                                                      |               
|Pro forma net loss                                                    |               
|                                                                      |               
|                                                                      |               
|Pro forma basic and diluted net loss per share:                       |               
|Pro forma  shares used in the  calculation  of pro forma net loss per |               
|common share- basic                                                   |               
|Pro forma  shares used in the  calculation  of pro forma net loss per |               
|common share- diluted                                                 |               
|Reported net loss per common share  basic and diluted                |               
|                                                                      |               
|Pro forma net loss per common share  basic and diluted               |               
|                                                                      |               

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

7



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Stock
option activity was as follows:

|                           | Number ofShares | Weighted AverageExercise Price ($)
|-------------------------- | --------------- | ----------------------------------
|                           |                 |                                   
|Balance at January 1, 2006 |                 | 2,600,000                         
|Granted                    |                 | 250,000                           
|Exercised                  |                 |                                  
|Forfeited or expired       |                 | (250,000                          
|                           |                 |                                   
|Balance at March 31, 2006  |                 | 2,600,000                         
|                           |                 |                                   
|                           |                 |                                   

The following
table presents information regarding options outstanding as of March 31, 2006:

|                                                                  | 
|----------------------------------------------------------------- | 
|Weighted average contractual remaining term - options outstanding | 
|Aggregate intrinsic value - options outstanding                   | 
|Options exercisable                                               | 
|Weighted average exercise price - options exercisable             | 
|Aggregate intrinsic value - options exercisable                   | 
|Weighted average contractual remaining term - options exercisable | 
|                                                                  | 

There was no
intrinsic  value for options  outstanding or options  exercisable  since no options we
exercised  during the quarter ended  March 31, 2006.

The following
weighted average assumptions were used:

|                                    | Three Months EndedMarch 31, 2006 | Three Months EndedMarch 31, 2005
|----------------------------------- | -------------------------------- | --------------------------------
|Volatility                          |                                  |                                 
|Expected life of options (in years) |                                  | 2                               
|Dividend Yield                      |                                  | 0                               
|Risk free interest rate             |                                  | 6                               
|Per share value of options granted  |                                  | $                               

As of March
31, 2006, future compensation costs related to nonvested stock options is
$14,500. Management anticipates that this cost will be recognized over a
weighted average period of 1.18 years.

Note 2.   
Earnings Per Share

SFAS
128 provides for the calculation of Basic and Dilutive earnings (loss) per
share. Basic earnings (loss) per share includes no dilution and is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted earnings (loss) per share
reflects the potential dilution of securities that could share in the earnings
of the entity. For the quarter ended March 31, 2005, the Company incurred a net
loss and stock options and stock warrants totaling 2,176,000 were not included
in the computation of diluted loss per share because their effect was
anti-dilutive. Therefore, basic and fully diluted loss per share are the same
for the quarter ended March 31, 2005.

8



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

|                                           | Three Months EndedMarch 31, 2006 | Three Months EndedMarch 31, 2005
|------------------------------------------ | -------------------------------- | --------------------------------
|
|                                           |                                  |                                 
|Numerator: Net Income (Loss)               |                                  | $            30,000             
|                                           |                                  |                                 
|                                           |                                  |                                 
|Denominator:                               |                                  |                                 
|Denominator for basic earnings per share  |                                  |                                 
|weighted average shares                    |                                  | 154,300,000                     
|Effect of dilutive securities              |                                  |                                 
|Employee stock options                     |                                  | 49,000                          
|Common stock warrants                      |                                  |                                
|                                           |                                  |                                 
|Denominator for diluted earnings per share |                                  |                                 
| adjusted weighted average shares and     |                                  |                                 
|assumed conversion                         |                                  | 154,349,000                     
|                                           |                                  |                                 
|                                           |                                  |                                 
|Basic earnings (loss) per share            |                                  | *                               
|                                           |                                  |                                 
|                                           |                                  |                                 
|Diluted earnings (loss) per share          |                                  | *                               
|                                           |                                  |                                 
|                                           |                                  |                                 

*  Less than
$.001 per share

Note 3.   
Inventory

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

|                  | March 31, 2006 | December 31, 2005
|----------------- | -------------- | -----------------
|
|Raw materials     |                | $        960,000 
|Work in progress  |                | 116,000          
|Finished goods    |                | 6,816,000        
|                  |                |                  
|                  |                | 7,892,000        
|Inventory reserve |                | (851,000         
|                  |                |                  
|Net inventory     |                | $     7,041,000  
|                  |                |                  
|                  |                |                  

Note 4.   Revolving Bank Loan Agreements and Notes Payable

On  October 1,
2003 our subsidiary Winncom, executed a new $4,000,000 line-of-credit  agreement with a
bank with interest at prime plus .5% (8.25% at March 31, 2006)  due April 30, 2007 and
converted $500,000 of the balance outstanding under the  line of credit at September 30,
2003 into a 36-month term loan with monthly  principal payments of $13,888 plus interest
at prime plus .75% (8.50% at March  31, 2006). The term loan will become due on October
26, 2006. Substantially all the assets of Winncom are collateral on the line of credit and the term loan.

The
October 1, 2003 line of credit agreement contains several covenants, which,
among other things, require that Winncom maintain certain financial ratios as
defined in the agreement. In addition, the agreement limits the payment of
management fees by Winncom to the Company, and also limits dividends and the
purchase of property and equipment. As of March 31, 2006 Winncom was in
compliance with these covenants.

9



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In  September
2005, Winncom entered into a one-year Line of Credit Agreement with  Kazkommertsbank for
$2.3 million with an annual interest rate of 13% for the  purpose of funding a small
portion of the Kazakhtelecom project, specifically  project engineering, laying of fiber
optic cable and telecommunication equipment  purchases necessary to be completed before
winter to avoid project delays. The  Line of Credit Agreement was only entered into after
Kazakhtelecom agreed to  fully guarantee the repayment of Winncoms borrowings under
the Line of  Credit Agreement. The Line of Credit Agreement is only collateralized by the
guarantee of Kazakhtelecom and Kazakhtelecom will repay the Line of Credit  borrowings
either from the proceeds of the permanent project financing or from  its own capital. In
September 2005, Winncom was advanced $1,334,000 under the  Line of Credit Agreement and
that balance still remains at March 31, 2006 and  December 31, 2005.

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

On May  10,
2005 the Company entered into a new $1.5 million revolving line-of-credit  agreement (the
Credit Facility) with Citywide Banks. The new Credit  Facility has a maturity
of one year, with interest at 2% over prime (9.75% at  March 31, 2006), contains
covenants to maintain certain financial statement  ratios, and is collateralized by
essentially all of the assets of ARC and its  wholly owned subsidiary, Starworks Wireless
Inc.(Starworks), but  excluding Winncom Technologies Corp. The borrowing base
is calculated on a  percentage of trade accounts receivable and inventory for ARC and
Starworks  combined. As of March 31, 2006 and December 31, 2005, ARC was in compliance
with  these covenants.

Revolving
bank lines of credit and other bank debt at March 31, 2006 and December 31, 2005
consist of:

|                                      | March 31,2006 | December 31,2005
|------------------------------------- | ------------- | ----------------
|
|                                      |               |                 
|Bank line of credit  Winncom         |               | $    968,000    
|Foreign bank line of credit  Winncom |               | 1,334,000       
|Bank term loan  Winncom              |               | 83,000          
|Bank Facility  ARC                   |               | 684,000         
|                                      |               |                 
|                                      |               | 3,069,000       
|Less current portion                  |               | (2,101,000      
|                                      |               |                 
|Long-term portion                     |               | $    968,000    
|                                      |               |                 
|                                      |               |                 

Note 5.   Equity
Transactions

For
the quarter ended March 31, 2005, the Company recorded the issuance of 3,332
shares of common stock to directors for outstanding obligations for accrued
directors fees in the amount of $500. In addition, during the quarter
ended March 31, 2005, 20,000 shares of common stock were cancelled in a dispute
regarding shares issued for consulting fees in 2001.

10



---

Note 6.   Recent
Accounting Pronouncements

In May  2005,
the FASB issued SFAS No. 154, Accounting Changes and Error  Corrections, a
replacement of APB No. 20, Accounting Changes,and SFAS No. 3, Reporting
Accounting Changes in Interim Financial  Statements. SFAS No. 154 changes
the requirements for the  accounting for, and reporting of, a change in accounting
principle. Previously, voluntary changes in accounting principles were  generally
required to be recognized by way of a cumulative effect adjustment  within net income
during the period of the change. SFAS No. 154 requires  retrospective application to
prior periods financial statements, unless it  is impracticable to determine either
the period-specific effects or the  cumulative effect of the change. SFAS No.
154 is effective for  accounting changes made in fiscal years beginning after December 15,
2005;  however, the statement does not change the transition provisions of any existing
accounting pronouncements. The adoption of SFAS No. 154 did not have a  material
effect on the Companys financial position, cash flows, or results  of operations.

On  February 23,
2006, the FASB issued Staff Position No. FAS 123(R)-4,  Classification of Options or
Similar Instruments Issued as Employee  Compensation That Allow for Cash Settlement Upon
the Occurrence of a Contingent  Event (FSP No. FAS 123(R)-4). FSP
No. FAS 123(R)-4  requires that an award of stock options or similar instruments that
otherwise  meet the criteria for equity classification, but contains a cash settlement
feature that can require the entity to settle the award in cash only upon the  occurrence
of a contingent event that is outside the employees control,  should be classified
as a liability only when the event is probable of  occurring. FSP No. FAS 123(R)-4 is
effective for the Companys first  reporting period beginning after February 3,
2006. The Companys  management does not believe that the adoption of FSP No. FAS
123(R)-4 will have  a material effect on the Companys financial position, cash
flows, or  results of operations.

Note 7.   
Industry Segment Information

SFAS  No. 131
Disclosure about Segments of an Enterprise and Related  Information requires
that the Company disclose certain information about  its operating segments where
operating segments are defined as components of an  enterprise about which separate
financial information is available that is  evaluated regularly by the chief operating
decision maker in deciding how to  allocate resources and in assessing performance.
Generally, financial  information is required to be reported on the basis that is used
internally for  evaluating segment performance and deciding how to allocate resources to
segments.

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

Financial
information regarding the Companys three operating segments for the  quarters ended
March 31, 2006 and 2005 are as follows:

|                    |  | Distribution | Manufacturing | Cable          | Corporate | Total       
|------------------- |  | ------------ | ------------- | -------------- | --------- | ------------
|Net Sales           |  | 2006         |               | $ 10,203,000   |           | $ 1,505,000 
|                    |  | 2005         |               | $   6,989,000  |           | $ 1,092,000 
|                    |  |              |               |                |           |             
|Net Earnings (Loss) |  | 2006         |               | $      321,000 |           | $    (45,000
|                    |  | 2005         |               | $      125,000 |           | $    (28,000
|                    |  |              |               |                |           |             
|Earnings (Loss)     |  |              |               |                |           |             
|before Income Taxes |  | 2006         |               | $      335,000 |           | $    (99,000
|                    |  | 2005         |               | $      133,000 |           | $    (28,000
|                    |  |              |               |                |           |             
|Identifiable Assets |  | 2006         |               | $ 44,666,000   |           | $ 3,575,000 
|                    |  | 2005         |               | $ 20,685,000   |           | $ 3,091,000 
|                    |  |              |               |                |           |             

11



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

Approximately
$4.7 million or 40% of the sales for the quarter ended March 31, 2006  represented
foreign sales in Eastern Europe which includes Russia, Kazakhstan  and Uzbekistan. The
increase in foreign sales is due to the long term  construction contract in Kazakhstan.

Approximately
$1.2 million or 14% of the sales for the quarter ended March 31, 2005
represented foreign sales in Eastern Europe which includes Russia, Kazakhstan
and Uzbekistan.

Note 8.   
Kazakhstan Project

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

The  first
phase of the contract is expected to be completed in 2006 and is expected  to generate
revenues of approximately $28 million of which $2.6 million has  already been recognized
in 2005.

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

Under  the
percentage-of-completion method, income is recognized on contracts as work  progresses
based on the relationship between total contract revenues and total  estimated contract
costs. The percentage of work completed is determined by  comparing the accumulated labor costs
incurred to date with managements current  estimate of total labor costs to be incurred
at contract completion. Revenue is  recognized based on applying the percentage against
total of contract costs. At  March 31, 2006 a significant amount of equipment was purchased
and shipped to  the contract site, but only a small portion had been installed during the
quarter ended March 31, 2006, thus the uninstalled portion of the equipment was  excluded
from the calculation of accumulated costs in measuring contract  progress and
recognizable contract revenue.

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

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

Total  contract
revenue recognized for the three months ended March 31, 2006 and 2005  was $2,803,000 and
$0, respectively.

12



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The  following
amounts relate to the aggregate of contracts in progress as of March  31, 2006 and
December 31, 2005.

|                                        | March 31, 2006 | December 31, 2005 
|--------------------------------------- | -------------- | ------------------
|
|Costs incurred to date                  |                | $      12,993,000 
|Contract costs recognized in 2005       |                | (2,296,000        
|Contract costs recognized in 2006       |                | (2,593,000        
|                                        |                |                   
|Construction in progress                |                | $        8,104,000
|                                        |                |                   
|                                        |                |                   
|Amounts billed                          |                | $      24,814,000 
|Revenue recognized in 2005              |                | (2,632,000        
|Revenue recognized in 2006              |                | (2,803,000        
|                                        |                |                   
|Billings in excess of recognized income |                | $      19,379,000 
|                                        |                |                   
|                                        |                |                   

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

Results of
Operations

Total revenues
were $11.7 million and $8.1 million for the three-month periods ended  March 31, 2006 and
2005, respectively. The increase in revenues during the three  months ended March 31,
2006 compared to the three months ended March 31, 2005 is  attributable to 1) long term
contract revenue of $2.8 million related to the  Kazakhtelecom project in Kazakhstan for
which there was no comparable revenue in  2005; and 2) an increase in revenues from
distribution activities from our  subsidiary, Winncom, from $7 million for the quarter
ended March 31, 2005 to  $7.4 million for the quarter ended March 31, 2006; 3) an increase
in revenues from  our Wireless Communications Solutions Division from $1.1 million for
the quarter  ended March 31, 2005 to $1.5 million for the quarter ended March 31, 2006
and 4) an  increase in revenues from our subsidiary, Starworks, from $61,000 for the
quarter ended March 31, 2005 to $150,000 for the quarter ended March 31, 2006.  Revenues
from the Wireless Communication Solutions Division in the first quarter  of 2005 were
reduced primarily as a result of managements decision to  withhold shipments and
minimize the Companys risk to a significant  customer whose credit privileges were
suspended due to delinquent payments. The  customer had a recapitalization of its company
and shipments were reinstated in  the third quarter of 2005.

Gross  profit
margin was 14.2% and 17.5% for the three-months ended March 31, 2006 and  March 31, 2005,
respectively. The decrease in gross margin for the quarter ended  March 31, 2006 as
compared to the quarter ended March 31, 2005 is primarily the  result of 1) lower margins
on Winncoms long term construction contract  relative to their distribution
business margins and 2) lower margins at the  Wireless Communications Solutions Division
due to a change in product mix and  the costs associated with the introduction and
manufacturing of several new  products, whose products have a higher margin than the
products of Winncom or  Starworks. The lower margins on the long term construction
contract are offset  by the fact that no additional selling, general and administrative
expenses are  incurred to support this contract. For the quarter ended March 31, 2006,
the  Wireless Communications Solutions Division sales accounted for 12.9% of revenues
compared to the quarter ended March 31, 2005 in which the Wireless  Communications
Products Division sales accounted for 12.4% of revenues.

Selling,
general and administrative expenses (SG&A) increased by $107,000 for the  three
months ended March 31, 2006 compared to March 31, 2005 with most of the  increase due to
salaries and wages. SG&A as a percent of total revenues  decreased from 17.4% for the
three months ended March 31, 2005 to 14.4% for the  three months ended March 31, 2006.
Salaries and wages, including commissions,  remain the largest component of SG&A
constituting 54.3% and 51.5% of the  total SG&A for the quarters ended March 31, 2006
and 2005, respectively.

13



---

Net  interest
expense was $65,000 for the three months ended March 31, 2006 compared  to $69,000 for
the three months ended March 31, 2005. The average balance  outstanding on all lines of
credit and term loans was $3.3 million ($2 million,  excluding the international line of
credit) for the quarter ended March 31, 2006  compared to $2.9 million for the quarter
ended March 31, 2005 and the prime  interest rate was 7.75% for the quarter ended March
31, 2006 as compared to  5.75% for the quarter ended March 31, 2005. Included in the
average balance of  all lines of credit and term loan at March 31, 2006 is an
international line of  credit for the Kazakhtelecom project that had an average balance
of $1.3 million  during the quarter ended March 31, 2006. The interest on this
international line  of credit is included in contract costs and not interest expense,
therefore to  make interest expense for the quarter ended March 31, 2006 comparable to
the  quarter ended March 31, 2005, the international line of credit should be  excluded
from the average balance outstanding. Excluding the average balance  outstanding on the
international line of credit from the average balance  outstanding on all lines of credit
and term loan, the average is only $2 million  for the quarter ended March 31, 2006
compared to $2.9 million for the quarter  ended March 31, 2005.

Other  income
primarily includes vendor early payment discounts except for the quarter  ended March 31,
2005, other income included a gain on sale of assets of $61,000  and there were no gains
in 2006.

The  Company
had net income of $30,000 for the quarter ended March 31, 2006 as  compared to a net loss
of $101,000 for the quarter ended March 31, 2005. While  overall revenues increased by
$3.7 million from 2005 to 2006, primarily due to  contract revenue of $2.8 million, there
was a decrease in gross margin from  17.5% in 2005 to 14.2% in 2006, an increase in SG&A
expenses of $107,000 and  an $83,000 decrease in other income. In addition, in 2006, the
provision for  income taxes was a benefit of $40,000 due to an increase in deferred
income tax  assets.

Financial
Condition

The  net cash
provided by operating activities was $4.6 million for the quarter ended  March 31, 2006,
and $1.1 million for the quarter ended March 31, 2005. The net  cash from operations in
2006 was primarily due to billings to Kazakhtelecom in  accordance with the construction
contract, a majority of which was paid by the  customer, in excess of construction costs.
Much of these payments were used to  reduce trade accounts payable by $3.6 million, and
our end of the quarter cash  balance also increased $3 million from December 31, 2005.
The net cash from  operations in 2005 was primarily due to a substantial decrease in
inventory and  an increase in accounts payable, partially offset by an increase in
accounts  receivable during the quarter. For the quarter ended March 31, 2005, Winncom
reduced its stocking inventories by approximately $900,000, increased trade  accounts
payable by $1.1 million, and accounts receivable increased by only  $340,000, despite a
25% increase in revenue. Accounts payable increased because  of a 25% increase in sales
rather than a deterioration of the aging of accounts  payable.

The  net cash
used in investing activities was $60,000 for the quarter ended March  31, 2006 compared
to $21,000 for the quarter ended March 31, 2005, primarily the  result of expenditures
for patents and equipment.

For  the
quarter ended March 31, 2006, the Company was able to pay down its lines of  credit and
other bank debt by nearly $1.4 million, resulting in the net cash  used in financing
activities as shown on the consolidated statements of cash  flows for the quarter. This
was largely made possible by collection of contract  billings in advance of incurring
contract costs. For the quarter ended March 31,  2005 the Company was able to pay down
its lines of credit and other bank debt by  nearly $1 million, resulting in the net cash
used in financing activities as  shown on the consolidated statements of cash flows for
the quarter. By reducing  inventory by nearly $900,000, the Company was able to use those
proceeds to  reduce bank debt.

The  Companys
working capital at March 31, 2006 was $6.3 million compared to  $7.8 million at December
31, 2005. The decrease as of March 31, 2006 is  primarily due to the deferral of contract
billings in excess of net increases in  contract receivables and contract costs. The
Kazakhstan contract allows Winncom  to pre-bill in excess of the contract costs incurred
and their estimated  earnings on contract costs incurred. The collection of contract
billings in  excess of the contact costs has allowed the Company to reduce both trade
accounts payable and lines of credit.

14



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On  October 1,
2003 our subsidiary Winncom, executed a new $4,000,000 line-of-credit  agreement with a
bank with interest at prime plus .5% (8.25% at March 31, 2006)  due April 30, 2007 and
converted $500,000 of the balance outstanding under the  line of credit at September 30,
2003 into a 36-month term loan with monthly  principal payments of $13,888 plus interest
at prime plus .75% (8.50% at March  31, 2006). The term loan will become due on October
26, 2006.

The  agreement
contains several covenants, which, among other things, require that  Winncom maintain
certain financial ratios as defined in the line-of-credit  agreement. In addition, the
agreement limits the payment of management fees by  Winncom to the Company, and also
limits dividends and the purchase of property  and equipment. As of March 31, 2006
Winncom was in compliance with these  covenants.

In  September
2005, Winncom entered into a one-year Line of Credit Agreement with  Kazkommertsbank for
$2.3 million with an annual interest rate of 13% for the  purpose of funding a small
portion of the Kazakhtelecom project, specifically  project engineering, laying of fiber
optic cable and telecommunication equipment  purchases necessary to be completed before
winter to avoid project delays. The  Line of Credit Agreement was only entered into after
Kazakhtelecom agreed to  fully guaranty the repayment of Winncoms borrowings under
the Line of  Credit Agreement. Kazakhtelecom will repay the Line of Credit borrowings
either  from the proceeds of the permanent project financing or from its own capital. In
September 2005, Winncom was advanced $1,334,000 under the Line of Credit  Agreement and
that balance still remains at March 31, 2006 and December 31,  2005.

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

On May  10,
2005 the Company entered into a new $1.5 million revolving line-of-credit  agreement (the
Credit Facility) with Citywide Banks. The new Credit  Facility has a maturity
of one year, with interest at 2% over prime (9.75% at  March 31, 2006), contains
covenants to maintain certain financial statement  ratios, and is collateralized by
essentially all of the assets of ARC and its  wholly owned subsidiary, Starworks Wireless
Inc.(Starworks), but  excluding Winncom Technologies Corp. The borrowing base
is calculated on a  percentage of trade accounts receivable and inventory for ARC and
Starworks  combined. As of March 31, 2006 and December 31, 2005, ARC was in compliance
with  these covenants.

Management
believes that current working capital and available borrowings on new and  existing bank
lines of credit, together with additional equity infusions that  management believes will
be available, will be sufficient to allow the Company  to maintain its operations through
December 31, 2006 and into the foreseeable  future.

15



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Forward-Looking
Statements

This
Quarterly Report on Form 10-Q includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical fact included in this Quarterly
Report, including Item 2: Managements Discussion and Analysis of
Financial Condition and Results of Operation, regarding our financial
position, business strategy, plans and objectives of our management for future
operations and capital expenditures, and other matters, other than historical
facts, are forward-looking statements. Although we believe that the expectations
reflected in such forward-looking statements and the assumptions upon which the
forward-looking statements are based are reasonable, we can give no assurance
that such expectations will prove to have been correct.

Additional
statements concerning important factors that could cause actual results to  differ
materially from our expectations were disclosed in Item 1a, Risk  Factors on
our Form 10-K for the year ended December 31, 2005. There have  been no material changes
to the Companys risk factors from those disclosed  in the Companys 2005
Annual Report on Form 10-K.

Item 3.   
Quantitative and Qualitative Disclosures About Market Risk

We  have not
used derivative financial instruments.

We are  exposed
to market risk through interest rates related to our notes payable to  the banks which
has a variable interest rate equal to the existing bank prime  rate (7.75% as of March
31, 2006) plus one-half to two percent. The prime  interest rate increased from 5.75% to
7.75% between March 31, 2005 and March 31,  2006. An increase in the banks prime
interest rates on the various notes  payable by 1% would increase our yearly interest
expense by approximately  $20,000, assuming borrowed amounts remain outstanding at the
average balance for  the quarter ended March 31, 2006. Our management believes that
fluctuation in  interest rates in the near term will not materially affect our
consolidated  operating results, financial position or cash flow.

Item 4.   
Controls and Procedures

The  Company
maintains a set of disclosure controls and procedures that are designed  to ensure that
information required to be disclosed in the reports filed by the  Company under the
Securities Exchange Act of 1934, as amended is recorded,  processed, summarized and
reported within the time periods specified in the  SECs rules and forms. As of the
end of the quarterly period covered by  this report, the Company carried out an
evaluation, under the supervision of the  Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the  design and operation of our disclosure controls and
procedures pursuant to Rule  13a-14 of the Exchange Act. Based on that evaluation, the
Chief Executive  Officer and Chief Financial Officer concluded that our disclosure
controls and  procedures are effective.

There  have
been no significant changes in the Companys internal controls or  other factors
that could significantly affect those controls subsequent to the  date of their
evaluation, including any corrective actions with regard to  significant deficiencies and
material weaknesses.

16



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PART
II. OTHER INFORMATION

Item 1.   
Legal Proceedings

The  Company
and its subsidiaries are involved in various legal proceedings of a  nature considered
normal in the course of its operations. These are principally  accounts receivable
collections. While it is not feasible to predict or  determine the final outcome of these
proceedings, management has reserved as an  allowance for doubtful accounts for that
portion of the accounts receivable it  estimates will be uncollectible.

Item 1A.   
Risk Factors

Additional
statements concerning important factors that could cause actual results to  differ
materially from our expectations were disclosed in Item 1a. Risk  Factors of
our Form 10-K for the fiscal year ending December 31, 2005.  There have been no material
changes from the risk factors previously disclosed  in our Form 10-K for fiscal year
ended December 31, 2005.

Item 2.   
Unregistered Sales of Equity Securities and Use of Proceeds

On  March 15,
2005, the Company recorded the issuance of 3,332 shares of common  stock to directors for
accrued directors fees in the amount of $500. These  shares were issued pursuant to
exemptions from registration set forth in Section  4(2) of the Securities Act of 1933, as
amended, and Regulation D promulgated  thereunder.

Item 6.   
Exhibits

Exhibit No.     
Description

|31.1 |  | Certifications
of the Chief Executive  Officer and Chief Financial Officer pursuant to Section 302  of
the Sarbanes-Oxley Act of 2002
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------

|31.2 |  | Certifications
of the Chief Executive  Officer and Chief Financial Officer pursuant to Section 302  of
the Sarbanes-Oxley Act of 2002
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------

|32.1 |  | Certifications
of Chief  Executive  Officer  and Chief  Financial  Officer  pursuant  to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17



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SIGNATURE

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

| | ARC
WIRELESS SOLUTIONS, INC.
| | ----------------------------

Date:   May 12,
2006

| | By:    /S/   
Randall P. MarxRandall P. MarxChief Executive Officer
| | -------------------------------------------------------------------

Date:   May 12,
2006

| | By:    /S/   Monty
R. LamiratoMonty R. LamiratoChief Financial Officer
| | ----------------------------------------------------------------------

18