UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
  FORM
10 - Q
 
 
 [ x
      ]
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
quarterly period ended September 30, 2009
 
 OR
 
 [   ]
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
transition period from ___________________________
 
 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)
              (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)
  Not
Applicable
 (Former Name, Former Address and
Former Fiscal Year, 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 Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X  No ___
 
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Date 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  ___   No X
 
 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
[  ]                     Accelerated
filer
[  ]                       Non-accelerated
filer
[  ] Smaller
reporting company [X]
  Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes     No X
 
 As of
November 1, 2009, the Registrant had 3,091,000 shares outstanding of its $.0005
par value common stock.
  
  2
   ARC
Wireless Solutions, Inc.
 
 Quarterly
Report on FORM 10-Q For The Period Ended
 
 September
30, 2009
 
 TABLE OF
CONTENTS
   PART
      I.  FINANCIAL INFORMATIONItem
      1.
                Financial
      StatementsCondensed
      Consolidated Balance Sheets as of September 30, 2009
      (unaudited)and
      December 31, 2008
                4Condensed
      Consolidated Statements of Operations for the Three and Nine Months
      EndedSeptember
      30, 2009 and 2008 (unaudited)
                5Condensed
      Consolidated Statements of Cash Flows for the Nine Months
      EndedSeptember
      30, 2009 and 2008 (unaudited)
                6Notes
      to Condensed Consolidated Financial Statements
                7Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition andResults
      of Operations
                15Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                17Item
      4.
                Controls
      and Procedures
                18PART
      II.  OTHER INFORMATIONItem
      1.
                Legal
      Proceedings
                18Item
      1A.
                Risk
      Factors
                18Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                18Item
      3.
                Defaults
      Upon Senior Securities
                18Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                19Item
      5.
                Other
      Information
                19Item
      6.
                Exhibits
                20Signatures
                21Exhibit
      31.1
                22Exhibit
      31.2
                23Exhibit
      32.1
                24
 
 3
 Part
I.  FINANCIAL INFORMATION
 Item
1.  Financial Statements
 
 ARC
Wireless Solutions, Inc.
 Condensed
Consolidated Balance Sheets
 (in
thousands, except for share and per share amounts)
 
 September
      30,
              
              
              December
      31,2009
              
              
              2008(unaudited)
              
              
              *AssetsCurrent
      assets:Cash and
    equivalents
              
              $
              12,015
              
              
              $
              12,943Accounts receivable – trade,
      net
              
              
              529
              
              
              
              867Inventory, net
              
              
              1,168
              
              
              
              1,107Net
      assets of discontinued operations (Note 2)
              
              
              1
              
              
              
              16Other current
    assets
              
              
              63
              
              
              
              49Total
      current assets
              
              
              13,776
              
              
              
              14,982Property
      and equipment, net
              
              
              323
              
              
              
              381Other
      assets:Intangible assets,
    net
              
              
              122
              
              
              
              124Deposits
              
              
              54
              
              
              
              33Total
      assets
              
              $
              14,275
              
              
              $
              15,520Liabilities
      and stockholders’ equityCurrent
      liabilities:Accounts
      payable
              
              $
              642
              
              
              $
              832Accrued
      severance
              
              
              -
              
              
              
              451Accrued expenses
              
              
              353
              
              
              
              450Net
      liabilities of discontinued operations (Note 2)
              
              
              -
              
              
              
              8Current portion of capital lease
      obligations
              
              
              107
              
              
              
              86Total
      current liabilities
              
              
              1,102
              
              
              
              1,827Capital
      lease obligations, less current portion
              
              
              25
              
              
              
              77Total
      liabilities
              
              
              1,127
              
              
              
              1,904Stockholders’
      equity:Preferred
      stock, $.001 par value, 2,000,000 authorized, none issued and
      outstanding
              
              
              -
              
              
              
              -Common
      stock, $.0005 par value, 250,000,000
      authorized,   3,091,000 outstanding in 2009 and 2008,
      respectively.
              
              
              2
              
              
              
              2Additional
      paid-in capital
              
              
              20,759
              
              
              
              20,735Accumulated
deficit
              
              
              (7,613
              )
              
              
              (7,121
              )Total
      stockholders’ equity
              
              
              13,148
              
              
              
              13,616Total
      liabilities and stockholders’ equity
              
              $
              14,275
              
              
              $
              15,520
 
 *
These numbers were derived from the audited financial statements for the year
ended December 31, 2008.    See accompanying
notes.
 4
 ARC
Wireless Solutions, Inc.
 Condensed
Consolidated Statements of Operations
 (Unaudited,
in thousands except for share and per share amounts)
 
 
 Three
      Months Ended
                September
      30,
              
              
              Nine
      Months Ended
                September
      30,2009
              
              
              2008
              
              
              2009
              
              
              2008Sales,
      net
              
              $
              1,089
              
              
              $
              2,270
              
              
              $
              3,403
              
              
              $
              5,878Cost
      of sales
              
              
              800
              
              
              
              1,459
              
              
              
              2,157
              
              
              
              3,674Gross
      profit
              
              
              289
              
              
              
              811
              
              
              
              1,246
              
              
              
              2,204Operating
      expenses:Selling,
      general and administrative expenses
              
              
              513
              
              
              
              856
              
              
              
              1,786
              
              
              
              2,727Loss
      from continuing operations
              
              
              (224
              )
              
              
              (45
              )
              
              
              (540
              )
              
              
              (523
              )Other
      income (expense):Interest and other expense,
      net
              
              
              (1
              )
              
              
              (10
              )
              
              
              (9
              )
              
              
              (41
              )Other income
              
              
              15
              
              
              
              78
              
              
              
              63
              
              
              
              300Total
      other income
              
              
              14
              
              
              
              68
              
              
              
              54
              
              
              
              259Income
      (loss) from continuing operations before income taxes
              
              
              (210
              )
              
              
              23
              
              
              
              (486
              )
              
              
              (264
              )Provision
      for income taxes
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Income
      (loss) from continuing operations
              
              $
              (210
              )
              
              $
              23
              
              
              $
              (486
              )
              
              $
              (264
              )Income
      (loss) from discontinued operations
              
              
              10
              
              
              
              (12
              )
              
              
              (4
              )
              
              
              (28
              )Net
      income (loss)
              
              $
              (200
              )
              
              $
              11
              
              
              $
              (490
              )
              
              $
              (292
              )Net
      income (loss) per share – continuing operations – basic and
      diluted
              
              $
              (.07
              )
              
              $
              .00
              
              
              $
              (.16
              )
              
              $
              (.09
              )Net
      income (loss) per share – discontinued operations – basic and
      diluted
              
              $
              .00
              
              
              $
              (.00
              )
              
              $
              (.00
              )
              
              $
              (.00
              )Net
      income (loss) per share – basic and diluted
              
              $
              (.07
              )
              
              $
              .00
              
              
              $
              (.16
              )
              
              $
              (.09
              )Weighted
      average shares – basic and diluted
              
              
              3,091,000
              
              
              
              3,091,000
              
              
              
              3,091,000
              
              
              
              3,091,000
 
 See accompanying
notes.
 
 5
 ARC
Wireless Solutions, Inc.
 Condensed
Consolidated Statements of Cash Flows
 (Unaudited,
in thousands)
 
 
 Nine
      Months Ended September 30,2009
              
              
              2008Operating
      activitiesNet
      loss from continuing operations
              
              $
              (486
              )
              
              $
              (264
              )Adjustments
      to reconcile net loss from continuing operations to net cash provided by
      (used in) operating activities:Depreciation
      and amortization
              
              
              180
              
              
              
              147Non-cash
      stock compensation
              
              
              24
              
              
              
              26Provision
      for doubtful accounts
              
              
              -
              
              
              
              57Changes
      in operating assets and liabilities:Accounts
      receivable, trade
              
              
              338
              
              
              
              120Inventory
              
              
              (61
              )
              
              
              123Prepaids
      and other current assets
              
              
              (14
              )
              
              
              24Other
      assets
              
              
              (22
              )
              
              
              5Accounts
      payable and accrued severance expenses
              
              
              (737
              )
              
              
              (9
              )Net
      cash provided by (used in) continuing operations
              
              
              (778
              )
              
              
              229Net
      cash provided by discontinued operations
              
              
              3
              
              
              
              6Net
      cash provided by (used in) operating activities
              
              
              (775
              )
              
              
              235Investing
      activitiesPatent
      acquisition costs
              
              
              (10
              )
              
              
              (30
              )Purchase
      of plant and equipment
              
              
              (110
              )
              
              
              (83
              )Net
      cash used in investing activities, continuing operations
              
              
              (120
              )
              
              
              (113
              )Financing
      activitiesNet
      advances from line of credit
              
              
              -
              
              
              
              3,304Net
      repayment of line of credit and capital lease obligations
              
              
              (33
              )
              
              
              (3,635
              )Net
      cash used in financing activities, continuing operations
              
              
              (33
              )
              
              
              (331
              )Net
      decrease in cash
              
              
              (928
              )
              
              
              (209
              )Cash
      and cash equivalents, beginning of period
              
              
              12,943
              
              
              
              14,931Cash
      and cash equivalents, end of period
              
              $
              12,015
              
              
              $
              14,722Supplemental
      cash flow information:Cash paid for interest,
      continuing operations
              
              $
              9
              
              
              $
              41Issuance
      of stock for accrued fees, continuing operations
              
              $
              -
              
              
              $
              3Acquisition
      of property and equipment through capital lease
              
              $
              -
              
              
              $
              103
  See accompanying
notes.
 6
 ARC
Wireless Solutions, Inc.
 Notes
to Condensed Consolidated Financial Statements
 September
30, 2009
 
 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, the accompanying unaudited
consolidated condensed financial statements contain all of the normal recurring
adjustments necessary to present fairly the financial position of the Company as
of September 30, 2009, the results of its operation and its cash flows for the
three and nine months then ended. 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, 2008.
 
 During
the periods presented in the unaudited consolidated condensed financial
statements, the Company operated in one business segment which is identified as
Manufacturing which offers a wide variety of wireless components and network
solutions to service providers, systems integrators, value added resellers,
businesses and consumers, primarily in the United States.
 
 Operating
results for the three and nine months ended September 30, 2009 are not
necessarily indicative of the results to be expected for the full year or any
future period.
 
 Principles
of Consolidation
 
 The
accompanying consolidated condensed financial statements include the accounts of
ARC Wireless Solutions, Inc. ("ARC"), and its wholly-owned subsidiary
corporations, Starworks Wireless Inc. ("Starworks") and ARC Wireless Hong Kong
Limited, ("ARCHK"). In 2008, management determined it was no longer profitable
to operate Starworks and operations were terminated, therefore, Starworks has
been accounted for as a discontinued operation for all periods presented. See
Note 2 – Discontinued Operations for further discussion. All material
intercompany accounts, transactions, and profits have been eliminated in
consolidation.
 
 Basis
of Presentation
 
 The
Company has experienced recurring losses and has accumulated a deficit of
approximately $7.6 million since inception in 1989. There can be no assurance
that the Company will achieve the desired result of net income and positive cash
flow from operations in future years. Management believes that current working
capital will be sufficient to allow the Company to maintain its operations
through December 31, 2009.
 
 Use
of Estimates
 
 The
preparation of the Company’s consolidated condensed financial statements in
accordance with generally accepted accounting principles of the United States of
America requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from these estimates.
 
 Cash
and Cash Equivalents
 
 The
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents. From time to time, the
Company has cash balances in excess of federally insured amounts. The Company
maintains its cash balances with several financial institutions. As of September
30, 2009, the Company’s total cash balance exceeded the Federal Deposit
Insurance Corporation limitation for coverage of $250,000, effective October 3,
2008 to December 31, 2009, by approximately $11 million. The Company reduces its
exposure to credit risk by maintaining such balances with financial institutions
that have high credit ratings.
 
 7
 Fair
Value of Financial Instruments
 
 The
Company’s short-term financial instruments consist of cash, money market
accounts, accounts receivable, accounts payable and accrued expenses. The
carrying amounts of these financial instruments approximate fair value because
of their short-term maturities.  Financial instruments that
potentially subject the Company to a concentration of credit risk consist
principally of cash and accounts receivable.
 
 The
Company does not hold or issue financial instruments for trading purposes nor
does it hold or issue interest rate or leveraged derivative financial
instruments.
 
 Accounts
Receivable
 
 Trade
receivables consist of uncollateralized customer obligations due under normal
trade terms which normally require payment within 30 days of the invoice
date.  Management reviews trade receivables periodically and reduces
the carrying amount by a valuation allowance that reflects management's best
estimate of the amount that may not be collectible. The allowance for doubtful
accounts was $460 thousand at both September 30, 2009 and December 31, 2008. Bad
debt expense was $28 thousand and $57 thousand for the three and nine months
ended September 30, 2008. There was no bad debt expense during the 2009
periods.
 
 Income
Taxes
 
 The
Company accounts for income taxes pursuant to Accounting Standards
Codification (“ASC”) 740, Income Taxes,which utilizes
the asset and liability method of computing deferred income taxes. The objective
of this method is to establish deferred tax assets and liabilities for any
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities at enacted tax rates expected to be in
effect when such amounts are realized or settled. The current and deferred tax
provision is allocated among the members of the consolidated group on the
separate income tax return basis.
 
 ASC 740
also provides detailed guidance for the financial statement recognition,
measurement and disclosure of uncertain tax positions recognized in the
financial statements. Tax positions must meet a “more-likely-than-not”
recognition threshold at the effective date to be recognized. During the three
and nine months ended September 30, 2009 and 2008, we recognized no adjustments
for uncertain tax positions.
 
 We
recognize interest and penalties related to uncertain tax positions in income
tax expense. No interest and penalties related to uncertain tax positions were
accrued at September 30, 2009 and December 31, 2008.
  The tax
years 2003 through 2007 remain open to examination by the major taxing
jurisdictions in which we operate. We expect no material changes to unrecognized
tax positions within the next twelve months.
 
 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, or net
loss.
 
 8
 
 Note
2. Discontinued Operations
 
 In 2008
we determined it was no longer profitable to operate Starworks and operations
were terminated, therefore, Starworks has been accounted for as a discontinued
operation for all periods presented, and the results of operations have been
excluded from continuing operations in the accompanying consolidated condensed
financial statements of operations and cash flows for all periods
presented.
  Information
related to the discontinued operations for the three and nine months ended
September 30, 2009 and 2008 are as follows (in thousands):
 
 Three
      Months Ended
                September
      30,
              
              
              Nine
      Months Ended
                September
      30,2009
              
              
              2008
              
              
              2009
              
              
              2008Sales,
      net
              
              $
              -
              
              
              $
              14
              
              
              $
              1
              
              
              $
              27Total
      revenue
              
              
              -
              
              
              
              14
              
              
              
              1
              
              
              
              27Cost
      of sales
              
              
              (7
              )
              
              
              26
              
              
              
              1
              
              
              
              55Total
      cost of goods sold
              
              
              (7
              )
              
              
              26
              
              
              
              1
              
              
              
              55Gross
      income (loss)
              
              
              7
              
              
              
              (12
              )
              
              
              -
              
              
              
              (28
              )Operating
      expenses:Selling,
      general and administrative expenses
              
              
              (3
              )
              
              
              -
              
              
              
              4
              
              
              
              -Income
      (loss) from operations
              
              
              10
              
              
              
              (12
              )
              
              
              (4
              )
              
              
              (28
              )Other
      income (expense):Interest expense,
    net
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Other income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
      other income (expense)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Income
      (loss) before income taxes
              
              
              10
              
              
              
              (12
              )
              
              
              (4
              )
              
              
              (28
              )Provision
      for income taxes
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      income (loss)
              
              $
              10
              
              
              $
              (12
              )
              
              $
              (4
              )
              
              $
              (28
              )
 
 Note
3. Share-Based Compensation
 
 In 2006,
the Company adopted ASC 718, Stock Compensation, related
to accounting for share-based payments and, accordingly, the Company records
compensation expense for share-based awards based upon an assessment of the
grant date fair value for stock options and restricted stock
awards.
 
 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.
 
 9
  The
following table summarizes share-based compensation expense recorded in selling,
general and administrative expenses during each period presented (in
thousands):
 
 Three Months Ended
              
              
              Nine Months EndedSeptember 30, 2009
              
              
              September 30, 2008
              
              
              September 30, 2009
              
              
              September 30, 2008Stock
      options
              
              
              $8
              
              
              
              $8
              
              
              
              $24
              
              
              
              $26Total
      share-based compensation expense
              
              
              $8
              
              
              
              $8
              
              
              
              $24
              
              
              
              $26
 
 Stock
option activity was as follows:
 
 Number
      of
                Shares
              
              
              Weighted
      Average
                Exercise
      Price ($)Balance
      at January 1, 2009
              
              
              47,500
              
              
              
              $5.38Granted
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -Forfeited
      or expired
              
              
              7,500
              
              
              
              5.25Balance
      at September 30, 2009
              
              
              40,000
              
              
              
              $5.40
 
 The
following table presents information regarding options outstanding and
exercisable as of September 30, 2009:
 
 Weighted
      average contractual remaining term - options outstanding
              7.98Aggregate
      intrinsic value - options outstanding
              -Options
      exercisable
              16,000Weighted
      average exercise price – options exercisable
              $5.40Aggregate
      intrinsic value - options exercisable
              -Weighted
      average contractual remaining term - options exercisable
              7.98
 
 There
were no options granted or exercised during the three or nine months ended
September 30, 2009.
 
 As of
September 30, 2009, future compensation costs related to nonvested stock options
was $72 thousand.  Management anticipates that this cost will be
recognized over a weighted average period of three years.
 
 Note
4. Earnings 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 periods where the Company has incurred a net loss, stock options
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 those periods.
 
 10
  The
following table represents a reconciliation of the shares used to calculate
basic and diluted earnings (loss) per share for the respective periods indicated
(in thousands, except per share amounts):
 
  Three
      Months Ended September 30,
                
                
                Nine
      Months Ended September 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Net
      income (loss) from continuing operations
                
                $
                (210
                )
                
                $
                23
                
                
                $
                (486
                )
                
                $
                (264
                )Net
      income (loss) from discontinued operations
                
                
                10
                
                
                
                (12
                )
                
                
                (4
                )
                
                
                (28
                )Net
      income (loss) from continuing operations
                
                $
                (200
                )
                
                $
                11
                
                
                $
                (490
                )
                
                $
                (292
                )Continuing
      Operations:Denominator
      for basic earnings per share - weighted average shares
                
                
                3,091
                
                
                
                3,091
                
                
                
                3,091
                
                
                
                3,091Effect
      of dilutive securitiesEmployee
      stock options
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Denominator
      for diluted earnings per share - weighted average shares and assumed
      conversion
                
                
                3,091
                
                
                
                3,091
                
                
                
                3,091
                
                
                
                3,091Basic
      and diluted income (loss) per share, continuing operations
                
                $
                (0.07
                )
                
                $
                0.00
                
                
                $
                (0.16
                )
                
                $
                (0.09
                )Discontinued
      Operations:Denominator
      for basic earnings per share - weighted average shares
                
                
                3,091
                
                
                
                3,091
                
                
                
                3,091
                
                
                
                3,091Effect
      of dilutive securitiesEmployee
      stock options
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Denominator
      for diluted earnings per share - weighted average shares and assumed
      conversion
                
                
                3,091
                
                
                
                3,091
                
                
                
                3,091
                
                
                
                3,091Basic
      and diluted income (loss) per share, discontinued
    operations
                
                $
                0.00
                
                
                $
                (0.00
                )
                
                $
                (0.00
                )
                
                $
                (0.00
                )Net
      income (loss):Denominator
      for basic earnings per share - weighted average shares
                
                
                3,091
                
                
                
                3,091
                
                
                
                3,091
                
                
                
                3,091Effect
      of dilutive securitiesEmployee
      stock options
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Denominator
      for diluted earnings per share - weighted average shares and assumed
      conversion
                
                
                3,091
                
                
                
                3,091
                
                
                
                3,091
                
                
                
                3,091Basic
      and diluted income (loss) per share
                
                $
                (0.07
                )
                
                $
                0.00
                
                
                $
                (0.16
                )
                
                $
                (0.09
                )
 
 11
 
 Note
5.  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 amounts (in thousands):
 
 September
      30,
              
              
              December
      31,2009
              
              
              2008Raw
      materials
              
              $
              366
              
              
              $
              267Work
      in progress
              
              
              9
              
              
              
              32Finished
      goods
              
              
              793
              
              
              
              8081,168
              
              
              
              1,107Inventory
      reserve
              
              
              -
              
              
              
              -Net
      inventory
              
              $
              1,168
              
              
              $
              1,107
 
 Note
6.  Revolving Bank Loan Agreements
 
 On May 1,
2009, the Company’s $1.5 million revolving line-of-credit agreement (the "Credit
Facility") with Citywide Bank matured.  The Credit Facility was not
renewed by the Company. The Company had no outstanding debt balance at September
30, 2009.
  Note
7.  Equity Transactions
 
 There
were no equity transactions during the nine months ended September 30,
2009.
 
 Note
8. Related Party Transaction
 
 In
January 2009, the Company 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.
("Brean"), an entity that, together with a current director of the Company,
beneficially owns approximately 576,000 shares, or approximately 18%, of the
Company's common stock. The Company’s current Chief Executive Officer has been a
Managing Director at Quadrant Management, Inc. since 2005.
 
 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 which have been provided by the
Advisor since November 2008 and for the ongoing services to be provided, ARC has
agreed to pay the following: 1) an initial cash fee of $250 thousand upon
signing the Agreement in January 2009; 2) during 2009, ARC will pay an annual
fee of the greater of (i) $250 thousand 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 initial restructuring fee of $250
thousand was included in accrued liabilities at December 31, 2008 and was paid
in January 2009. Total expenses accrued for the nine months ended September 30,
2009 were $187 thousand. The Agreement will expire on December 31,
2013.
 
 12
  Note
9.  Recent Accounting Pronouncements
  In
December 2007, FASB issued guidance related to Business Combinations under ASC
805, Business
Combinations, and guidance related to the accounting and reporting of
noncontrolling interest under FASB ASC 810-10-65-1, Consolidation. This guidance
significantly changes the accounting for and reporting of business combination
transactions and noncontrolling (minority) interests in consolidated financial
statements. This guidance became simultaneously effective January 1, 2009. We
did not have any business combinations in the first nine months of 2009;
therefore, the adoption of this guidance did not impact our Consolidated
Condensed Financial Statements during this period.
  In
February 2008, the FASB issued guidance under ASC 820, Fair Value Measurements and
Disclosures. This guidance delayed the effective date of the guidance
under ASC 820 to fiscal years beginning after November 15, 2008 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis, at least annually. The adoption of ASC 820 and its application to our
nonfinancial assets and liabilities on January 1, 2009 did not have a material
impact on our Consolidated Condensed Financial Statements.
 
 In May
2009, the FASB issued guidance related to subsequent events under ASC 855-10,
Subsequent Events. This
guidance sets forth the period after the balance sheet date during which
management or a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure, the circumstances under which an
entity should recognize events or transactions occurring after the balance sheet
date, and the disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. It requires disclosure
of the date through which an entity has evaluated subsequent events and the
basis for that date, whether that date represents the date the financial
statements were issued or were available to be issued. This guidance is
effective for interim and annual periods ending after June 15, 2009. We adopted
ASC 855-10 as of June 30, 2009 and have included the required disclosures in our
Consolidated Condensed Financial Statements. See Note 12 – Subsequent Events for
additional information.
  In June
2009, the FASB issued an amendment to ASC 810-10, Consolidation. This guidance
amends ASC 810-10-15 to replace the quantitative-based risks and rewards
calculation for determining which enterprise has a controlling financial
interest in a VIE with a primarily qualitative approach focused on identifying
which enterprise has the power to direct the activities of a VIE that most
significantly impact the entity’s economic performance. It also requires ongoing
assessments of whether an enterprise is the primary beneficiary of a VIE and
requires additional disclosures about an enterprise’s involvement in VIEs. This
guidance is effective as of the beginning of the reporting entity’s first annual
reporting period that begins after November 15, 2009 and earlier adoption is not
permitted. We are currently evaluating the potential impact, if any, of the
adoption of this guidance will have on our Consolidated Condensed Financial
Statements.
 
 In June
2009, the FASB issued Accounting Standards Update No. 2009-01 which amends ASC
105, Generally Accepted
Accounting Principles. This guidance states that the ASC will become the
source of authoritative U.S. GAAP recognized by the FASB to be applied by
nongovernmental entities. Once effective, the Codification’s content will carry
the same level of authority. Thus, the U.S. GAAP hierarchy will be modified to
include only two levels of U.S. GAAP: authoritative and non-authoritative. This
is effective for financial statements issued for interim and annual periods
ending after September 15, 2009. We adopted ASC 105 as of September 30, 2009 and
thus have incorporated the new Codification citations in place of the
corresponding references to legacy accounting pronouncements.
 
 In August
2009, the FASB issued Accounting Standards Update No. 2009-05, Measuring Liabilities at Fair Value,
which amendsASC 820, Fair Value Measurements and
Disclosures. This Update provides clarification that in circumstances for
which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure the fair value using one or
more of the following techniques: a valuation technique that uses the quoted
price of the identical liability or similar liabilities when traded as an asset,
which would be considered a Level 1 input, or another valuation technique that
is consistent with ASC 820. This Update is effective for the first reporting
period (including interim periods) beginning after issuance. We adopted this
guidance as of September 30, 2009, which did not have a material impact on our
Consolidated Condensed Financial Statements.
 
 13
 Note
10.  Concentration of Credit Risk
 
 One
customer accounted for approximately 17% and 10% of the Company’s net sales for
the nine months ended September 30, 2009 and 2008, respectively. A reduction,
delay or cancellation of orders from this customer or the loss of this customer
could significantly reduce the Company’s revenues and operating results. We
cannot provide assurance that this customer or any of our current customers will
continue to place orders, that orders by existing customers will continue at
current or historical levels or that we will be able to obtain orders from new
customers.
 
 Note
11.  Industry Segment Information
 
 ASC 280,
Segment Reporting,
requires that we disclose certain information about our operating segment 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 one
reportable segment, Manufacturing, which is a separate business unit that offers
a variety of wireless components and network solutions to service providers,
system integrators, value added resellers, businesses and consumers, primarily
in the United States.
 
 Note
12.  Subsequent Events
 
 We have
evaluated events after the date of these financial statements, September 30,
2009, through November 13, 2009, the date that these financial statements were
available to be issued. There were no material subsequent events as of that
date.
 
 14
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations
 
 The
following discussion is intended to assist you in understanding our business and
the results of our operations.  It should be read in conjunction with
the Consolidated Condensed Financial Statements and the related notes that
appear elsewhere in this report as well as our Annual Report on Form 10-K for
the year ended December 31, 2008. Certain statements made in our discussion may
be forward looking.  Forward-looking statements involve risks and
uncertainties and a number of factors could cause actual results or outcomes to
differ materially from our expectations. These risks, uncertainties, and other
factors include, among others, the risks described in our Annual Report on Form
10-K for the fiscal year ended December 31, 2008 filed with the Securities and
Exchange Commission, as well as other risks described in this Quarterly
Report.  Unless the context requires otherwise, when we refer to “we,”
“us” and “our,” we are describing ARC Wireless Solutions, Inc. and its
consolidated subsidiaries on a consolidated basis.
 
 BUSINESS
OVERVIEW
 
 Unfavorable
changes in domestic and global economic conditions had an adverse effect on our
sales revenue during the first nine months of 2009 as compared to the prior year
period.  Many of our large customers experienced surplus inventories
due to weakened sales of their products, thereby reducing orders for our
products in the first nine months of 2009.  If economic conditions do
not improve in the future, our revenue could continue to be adversely affected.
We continue to focus on cutting our operational and general costs in order to
improve our gross margins until demand rebounds.  We have no debt
outstanding, and we have a cash balance of approximately $12 million at
September 30, 2009.
 
 Results
of Continuing Operations for the Three Months Ended September 30, 2009 and
2008
 
 Total
revenues were approximately $1.1 million and $2.3 million for the three month
periods ended September 30, 2009 and 2008, respectively. The decrease in
revenues during the three months ended September 30, 2009 compared to the three
months ended September 30, 2008 is primarily attributable to decreased sales of
our 3.5 GHz and our Global Positioning Systems (GPS) antennas in our Wireless
Communications Solutions.   We expect sales of our Broadband and
GPS products to closely trend with future economic global
conditions.
 
 Gross
profit margins were 27% and 36% for the three months ended September 30, 2009
and 2008, respectively. The 9% decrease in gross margin is due to lower revenue
resulting from decreased sales volumes, lower margin on product sales to one GPS
customer, non-recurring costs related to employee expenses and timing
differences between manufacturing a custom product order and the recognition of
revenue of such product.  We expect gross margins to improve as we
fully complete our manufacturing transition to our ARC Hong Kong
facilities.
 
 Selling,
general and administrative expenses (SG&A) decreased 40% to $513 thousand in
the third quarter 2009 as compared to $856 thousand in the prior year
period.  SG&A as a percent of total revenues increased from 38%
for the three months ended September 30, 2008 to 47% for the three months ended
September 30, 2009. Salaries and wages, including commissions, remains the
largest component of SG&A costs, constituting 36% of the total SG&A
costs for the three months ended September 30, 2009 and 62% for the three months
ended September 30, 2008. While the majority of the overall decrease in SG&A
is related to decreased personnel and salary costs as compared to the prior year
period, we are continuing our efforts to streamline our operations and reduce
costs in other areas such as office costs, public company and other
administrative expenses.
 
 Net
interest expense decreased from $10 thousand for the three months ended
September 30, 2008 to approximately $1 thousand for the current quarterly period
primarily related to decreased amounts outstanding during the period under our
Credit Facility with Citywide Bank.  At September 30, 2009, we had no
debt outstanding.  Our Credit Facility expired on May 1, 2009 and is
no longer outstanding.
 
 15
 Other
income decreased during the third quarter 2009 to approximately $15 thousand as
compared to $78 thousand in the third quarter 2008. The decline in interest
income is primarily due to a decline in our cash balances along with a decline
in interest rates on money market funds where a significant portion of the funds
are invested.
 
 There is
no provision for income taxes for both the three months ended September 30, 2009
and 2008, due to our net losses for both periods.
 
 Results
of Discontinued Operations for the Three Months Ended September 30, 2009 and
2008 (See Note 2, Discontinued Operations for the detailed operating results of
the discontinued operations)
 
 Discontinued
operations for the three months ended September 30, 2009 and 2008 represent the
operations of our subsidiary, Starworks Wireless. There were no revenues for the
three months ended September 30, 2009 and $14 thousand in revenues for the three
months ended September 30, 2008. However, during the third quarter 2009, we had
inventory adjustments which resulted in income from discontinued operations in
the third quarter 2009 of $10 thousand compared to a loss from discontinued
operations of $12 thousand for the same period in 2008.
 
 Results
of Continuing Operations for the Nine Months Ended September 30, 2009 and
2008
 
 Total
revenues were approximately $3.4 million and $5.9 million for the nine month
periods ended September 30, 2009 and 2008, respectively. The decrease in
revenues during the nine months ended September 30, 2009 compared to the nine
months ended September 30, 2008 is primarily attributable to decreased sales of
our 3.5 GHz and our Global Positioning Systems (GPS) antennas in our Wireless
Communications Solutions. We expect sales of our Broadband and GPS products to
closely trend with future economic global conditions.
 
 Gross
profit margins were 37% for both the nine months ended September 30, 2009 and
2008, respectively. We expect gross margins to begin to improve as we fully
complete our manufacturing transition to our ARC Hong Kong
facilities.
 
 Selling,
general and administrative expenses (SG&A) decreased 35% to $1.8 million in
the first nine months of 2009 as compared to $2.7 million in the prior year
period. SG&A as a percent of total revenues increased from 46% for the nine
months ended September 30, 2008 to 52% for the nine months ended September 30,
2009 due to decreased sales volume. Salaries and wages, including commissions,
remains the largest component of SG&A costs, constituting 34% of the total
SG&A costs for the nine months ended September 30, 2009 and 55% for the nine
months ended September 30, 2008.  The majority of the overall decrease
in SG&A is related to reductions in personnel and salary costs as compared
to the prior year period; we are also continuing our efforts to streamline our
operations and reduce our office costs, public company and other administrative
expenses.
 
 Net
interest expense decreased from $41 thousand for the nine months ended September
30, 2008 to approximately $9 thousand for the current year period primarily
related to decreased amounts outstanding during the period under our Credit
Facility with Citywide Bank.  At September 30, 2009, we had no debt
outstanding. Our Credit Facility expired on May 1, 2009 and is no longer
outstanding.
 
 Other
income decreased during the first nine months of 2009 to approximately $63
thousand as compared to $300 thousand in the first nine months of 2008. The
decline in interest income is primarily due to a decline in our cash balances
along with a decline in interest rates on money market funds where a significant
portion of the funds are invested.
 
 There is
no provision for income taxes for both the nine months ended September 30, 2009
and 2008, due to our net losses for both periods.
 
 16
 Results
of Discontinued Operations for the Nine Months Ended September 30, 2009 and 2008
(See Note 2, Discontinued Operations for the detailed operating results of the
discontinued operations)
 
 Discontinued
operations for the nine months ended September 30, 2009 and 2008 represent the
operations of our subsidiary, Starworks Wireless. Revenues for the nine months
ended September 30, 2009 were only $1 thousand compared to revenues of $27
thousand for the nine months ended September 30, 2008 resulting in a loss from
discontinued operations in 2009 of $4 thousand compared to a loss from
discontinued operations of $28 thousand for 2008.
 
 Financial
Condition
   September
      30,
                
                
                December
      31,(Thousands
      of dollars)
                
                2009
                
                
                2008Current
      ratio (1)
                
                12.50
      to 1
                
                
                8.20
      to 1Working
      capital (2)
                
                $
                12,674
                
                
                $
                13,155Total
      debt
                
                $
                -
                
                
                $
                -Total
      cash less debt
                
                $
                12,015
                
                
                $
                12,943Stockholders'
      equity
                
                $
                13,148
                
                
                $
                13,616Total
      liabilities to equity
                
                0.09
      to 1
                
                
                0.14
      to 1
  (1)Current ratio is calculated as
current assets divided by current liabilities.
 
 (2)Working capital is the difference
between current assets and current liabilities.
 
 We have a
cash balance of $12 million at September 30, 2009 and hold no debt
outstanding.  We believe that we have the ability to provide for our
remaining 2009 operational needs through projected operating cash flow and cash
on hand.
 
 The net
cash used by operating activities from continuing operations was $778 thousand
for the nine months ended September 30, 2009 compared to net cash provided by
operating activities from continuing operations of $229 thousand for the nine
months ended September 30, 2008. The primary reason for the change is the cash
used to reduce in accounts payable and accrued severance expenses by $737
thousand during the 2009 period.
 
 The net
cash used in investing activities from continuing operations was $120 thousand
for the nine months ended September 30, 2009 compared to $113 thousand for the
nine months ended September 30, 2008, primarily the result of expenditures for
provisional and regular patent filings, on going patent and trademark fees and
manufacturing equipment purchases for our China production operation. The new
provisional and regular patent filings were associated with our broadband
wireless technologies.
 
 Net cash
used in financing activities from continuing operations for the nine months
ended September 30, 2009 was $33 thousand compared to $331 thousand for the nine
months ended September 30, 2008. The decrease in the net cash used is primarily
the result of the expiration of the Company’s line of credit in May
2009.
  Item
3.  Quantitative and Qualitative Disclosures About Market
Risk
 
 We have
not used derivative financial instruments.
 
 We are no
longer exposed to market risk through interest rates related to our line of
credit as the line of credit expired in May 2009.
 
 17
 Item
4.  Controls and Procedures
 
 Evaluation
of Disclosure Controls and Procedures
 
 We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our filings with the Securities and
Exchange Commission (SEC) are recorded, processed, summarized and reported
within the time period specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to management, including our chief
executive and acting chief financial officer, or persons performing similar
functions, as appropriate, to allow timely decisions regarding required
disclosure based on the definition of “disclosure controls and procedures” as
defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”).
 
 As of the
end of the period covered by this report, and under the supervision and with the
participation of our management, including our Chief Executive Officer and the
person performing the similar function as Chief Financial Officer, we evaluated
the effectiveness of the design and operation of these disclosure controls and
procedures.  Based on this evaluation and subject to the foregoing,
our Chief Executive Officer and acting Chief Financial Officer concluded that
our disclosure controls and procedures were effective.
 
 Changes
in Internal Control over Financial Reporting
 
 There
have been no significant changes in the Company’s internal control over
financial reporting identified in connection with the evaluation discussed above
that occurred during the period ended September 30, 2009 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
 
 
 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,
2008.  There have been no material changes from the risk factors
previously disclosed in our Form 10-K for the fiscal year ended December 31,
2008.
 
 Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds
 
 None
 
 Item
3. Defaults Upon Senior Securities
 
 None
 
 18
 Item
4. Submission of Matters to a Vote of Security Holders
 
 None
 
 Item
5. Other Information
 
 None.
 
 
 19
 Item
6.   Exhibits
 
 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)10.2
              Stock
      Purchase Agreement, by and among Bluecoral limited, Winncom Technologies
      Corp. and the Company dated as of July 28, 2006 (3)10.3
              Escrow
      Agreement, dated July 28, 2006, by and among the Company, Bluecoral
      Limited and Consumer Title Services, LLC (3)10.4
              Employment
      Agreement effective January 31, 2008 between the Company and Randall P.
      Marx (4)10.5
              Employment
      Agreement effective November 1, 2007 between the Company and Monty R.
      Lamirato (5)10.6
              Employment
      Agreement effective November 1, 2007 between the Company and Steve C.
      Olson (5)10.7
              Employment
      Agreement effective November 1, 2007 between the Company and Richard L.
      Anderson (5)31.1
              Officers’
      Certifications of Periodic Report pursuant to Section 302 of
      Sarbanes-Oxley Act of 200231.2
              Officers’
      Certifications of Periodic Report pursuant to Section 302 of
      Sarbanes-Oxley Act of 200232.1
              Officers’
      Certifications of Periodic Report pursuant to Section 906 of
      Sarbanes-Oxley Act of 200299.1
              Nominating
      Policies and Procedures
 
 (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 the Company’s Form 8-K/A filed on August 2,
      2006.
 (4)
              Incorporated
      by reference from the Company’s Form 8-K filed on February 7,
      2008.
 (5)
              Incorporated
      by reference from the Company’s Form 8-K filed on November 8,
      2007.
 
 
 20
  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
  ARC
      WIRELESS SOLUTIONS, INC.Date:  November
      13, 2009
                By:
                /s/ Jason
      YoungJason
      Young
                  Chief
      Executive OfficerDate:  November
      13, 2009
                By:
                /s/
      Steve OlsonSteve
      Olson
                  Chief
      Technology Officer
  
 21