<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-QSB

        [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 2006

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934



                        COMMISSION FILE NUMBER: 000-27467

                               ERF WIRELESS, INC.
              Exact name of Registrant as specified in its charter



        NEVADA                                                  76-0196431
        ------                                                  ----------
State of Incorporation                                         IRS Employer
                                                           Identification Number

  2911 South Shore Boulevard, Suite 100, League City, Texas 77573   281-538-2101
  ---------------------------------------------------------------   ------------
           Address and telephone number of principal executive offices


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 filing
requirements for the past 90 days. Yes [ X ] No [ ]

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

The number of shares of common stock of the registrant outstanding at May 18,
2006, was 11,437,759.

Transactional Small Business Disclosure Format (check one): Yes [ ] No [ X ]

                                       1

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<TABLE>

                                   PART I - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

                                        ERF WIRELESS, INC.
                                     CONSOLIDATED BALANCE SHEETS
                                MARCH 31, 2006, AND DECEMBER 31, 2005
                                 ($ in thousands except share data)

                                                               MARCH 31,     DECEMBER 31,
                                                                 2006            2005
                                                              (UNAUDITED)
                                                              -----------    -----------
<S>                                                             <C>           <C>
                                              ASSETS

Current assets
  Cash and cash equivalents                                     $ 1,153       $   602
  Accounts receivable, net                                          252            85
  Inventories                                                        85           139
  Cost in excess of billings                                        173            --
  Prepaid expenses                                                  330           423
                                                                -------       -------
    TOTAL CURRENT ASSETS                                          1,993         1,249
                                                                -------       -------

PROPERTY AND EQUIPMENT
  Operating equipment                                               543           465
  Less accumulated depreciation                                     (87)          (63)
                                                                -------       -------
    TOTAL PROPERTY AND EQUIPMENT                                    456           402
                                                                -------       -------

OTHER INTANGIBLE ASSETS, NET                                        394           436
OTHER ASSETS                                                          3             3
                                                                -------       -------

TOTAL ASSETS                                                    $ 2,846       $ 2,090
                                                                =======       =======

                            LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES:
  Accounts payable                                              $   615       $   163
  Accrued expenses                                                  221           203
  Derivative liabilities                                            400         1,143
  Notes payable and current portion of long-term debt             2,007           809
  Deferred revenue                                                    9           307
                                                                -------       -------
    TOTAL CURRENT LIABILITIES                                     3,252         2,625
                                                                -------       -------

  Long-term notes payable                                           140           204
  Deferred revenue                                                   21            23
                                                                -------       -------
    TOTAL LONG-TERM LIABILITIES                                     161           227
                                                                -------       -------
TOTAL LIABILITIES                                               $ 3,413       $ 2,852
                                                                =======       =======

COMMITMENTS AND CONTINGENT LIABILITIES

SHAREHOLDERS' DEFICIT:
  Preferred stock - $.001 par value
    Authorized 25,000,000 shares
    Issued and outstanding at March 31, 2006 and
    December 31, 2005, 4,135,464 and 4,173,530, respectively          4             4
  Common stock - $.001 par value
    Authorized 475,000,000 shares
    Issued and outstanding at March 31, 2006, and
    December 31, 2004, 10,403,840 and 7,645,031, respectively        10             8
  Additional paid in capital                                      6,529         5,491
  Accumulated deficit                                            (7,110)       (6,265)
                                                                -------       -------
    TOTAL SHAREHOLDERS' DEFICIT                                    (567)         (762)
                                                                -------       -------

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT                     $ 2,846       $ 2,090
                                                                =======       =======


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                 2

<PAGE>

                               ERF WIRELESS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  FOR THE PERIODS ENDED MARCH 31, 2006 AND 2005
                                   (Unaudited)
              ($ in thousands except share data and loss per share)


                                            For the three months ended March 31,
                                            ------------------------------------
                                                   2006           2005
                                                 -------         -------
Sales:
   Products                                      $   662         $    18
   Services                                          187              69
   Other                                              13              22
                                                 -------         -------
Total sales                                          862             109
                                                 -------         -------

Costs of goods sold:
   Products and integration services                 542              33
   Rent and maintenance                               15              --
   Depreciation                                        5              --
   Other cost                                         12              --
                                                 -------         -------
Total costs of goods sold                            574              33
                                                 -------         -------
Gross profit                                         288              76
                                                 -------         -------

Operating expenses:
   Selling, general and administrative             1,548             537
   Depreciation and amortization                      61               6
                                                 -------         -------
Total operating expenses                           1,609             543
                                                 -------         -------

Loss from operations                              (1,321)           (467)
                                                 -------         -------

Other income/(expenses):
   Interest income                                     1              --
   Interest (expense)                               (138)             --
   Derivative income (expense)                       743              --
                                                 -------         -------
Total other income (expense)                         606              --
                                                 -------         -------

Net loss                                         $  (715)        $  (467)
                                                 =======         =======


Deemed dividend related to beneficial
     conversion feature of preferred stock          (130)           (237)

                                                 =======         =======
Net loss applicable to common shareholders       $  (845)        $  (704)
                                                 =======         =======

Net loss per common share:
   Basic                                         $ (0.08)        $ (0.10)
   Diluted                                       $ (0.08)        $ (0.10)

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       3

<PAGE>

                                                 ERF WIRELESS, INC.
                              CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                        FOR THE PERIODS ENDED MARCH 31, 2006 (UNAUDITED), AND DECEMBER 31, 2005
                                                  ($ in thousands)
                                                                                                                             Total
                                                                                                                Accumulated  Share-
                                                        Common Stock      Preferred Stock  Additional             Compre-   holders'
                                                      ----------------   -----------------   Paid in   Retained   hensive   Equity
                                                      Shares    Value    Shares     Value    Capital   Earnings   Income   (Deficit)
                                                      -------  -------   -------   -------   -------   -------   -------    -------
Total shareholders' equity                              4,487  $     5     2,331   $     2   $ 1,523   $(1,512)  $    --    $    18
   as of December 31, 2004

Net loss                                                   --       --        --        --        --    (3,411)       --     (3,411)

New stock issued to shareholders:
Conversion of preferred stock to common stock           2,756        3      (147)                 (3)       --
For services, compensation and liabilities                260       --        --        --     1,099        --        --      1,099
For retirement of debt and conversion of convertible                --     1,990         2     1,340        --        --      1,342
        preferred stock of employment contracts                     --
Beneficial conversion value - deemed dividend on                                               1,342    (1,342)       --
      preferred stock                                               --
Proceeds from sale of common stock, net                   142       --        --        --       190        --        --        190
                                                      -------  -------   -------   -------   -------   -------   -------    -------

Total shareholders' deficit                             7,645        8     4,174         4     5,491    (6,265)       --       (762)
   as of December 31, 2005


Net loss                                                   --       --        --        --        --      (715)       --       (715)

New stock issued to shareholders:
Conversion of preferred stock to common stock           2,329        2      (126)       --        (2)       --        --         --
For services, compensation and liabilities                178       --        --        --       328        --        --        328
For retirement of debt                                    102       --        --        --       184        --        --        184
For retirement of debt and conversion of convertible       --       --        87        --       130        --        --        130
        preferred stock of employment contracts
Beneficial conversion value - deemed dividend on           --       --        --        --       130      (130)       --         --
      preferred stock
Stock based compensation                                   --       --        --        --       173        --        --        173
Proceeds from sale of common stock, net                   150       --        --        --        95        --        --         95
                                                      -------  -------   -------   -------   -------   -------   -------    -------
Total shareholders' deficit
   as of March 31, 2006 (unaudited)                    10,404  $    10     4,135   $     4   $ 6,529   $(7,110)  $    --    $  (567)
                                                      =======  =======   =======   =======   =======   =======   =======    =======


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                                                4

<PAGE>

                               ERF WIRELESS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE PERIODS ENDED MARCH 31, 2006 AND 2005,
                                   (Unaudited)
                                ($ in thousands)

                                                     For the Three Months Ended
                                                     --------------------------
                                                        March 31,   March 31,
                                                          2006        2005
                                                        -------     -------
Cash flows from operating activities
Net loss                                                $  (715)    $  (467)
                                                        -------     -------
Adjustments to reconcile net loss to net cash
    used by operating activities:
  Amortization of debt discount                             108          --
  Depreciation and amortization                              66           6
  Stock issued for interest expense                          36          --
  Stock issued for services rendered                        277         155
  Stock based compensation                                  173          --
  Derivative (income) expense                              (743)         --
  Allowance for doubtful accounts                            --          --
  (Increase) in accounts receivable, net                   (167)        (11)
  (Increase)/decrease in inventories                         54          (2)
  (Increase)/decrease in prepaid expenses                    90          (1)
  (Increase) in cost in excess of billings                 (173)         --
  Increase in accounts payable                              452          40
  Increase in accrued expenses                               43          --
  Decrease in deferred revenue                             (300)         --
                                                        -------     -------
    Total Adjustment                                        (84)        187
                                                        -------     -------
Net cash used by operating activities                      (799)       (280)
                                                        -------     -------

Cash flows from investing activities
  Purchase of property and equipment                        (78)        (91)
                                                        -------     -------
Net cash used by investing activities                       (78)        (91)
                                                        -------     -------

Cash flows from financing activities
  Proceeds from notes payable                             1,239           0
  Payment of debt obligations                               (11)         --
  Proceeds from investor loans                              130         373
  Proceeds from sale of common stock, net                    70          --
                                                        -------     -------
Net cash provided by financing activities                 1,428         373
                                                        -------     -------

Net increase/(decrease) in cash                             551           2
Cash at the beginning of the period                         602           6
                                                        -------     -------
Cash at the end of the period                           $ 1,153     $     8
                                                        =======     =======

Supplemental disclosure of cash flow information:
Net cash paid during the year for:
  Interest                                              $     2     $    --
  Income taxes                                          $    --     $    --

Supplemental non-cash investing activities (See Notes 6 and 15) and changes in
shareholders equity.

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>

                                       5

<PAGE>

                               ERF WIRELESS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 1 - BASIS OF PRESENTATION

NATURE OF THE COMPANY

ERF Wireless, Inc. (the Company), provides wireless communications products and
services including the Company's core focus of providing enterprise-class
wireless broadband services. The Company has formed four operating divisions to
provide solutions and services to different segments of the wireless industry.
The Company's Enterprise Network Services Division was formed to serve
enterprise customers, private entities, cities, unincorporated municipalities
and the general public. The Company's Bundled Wireless Services Division was
formed to provide wireless broadband products and services, including Internet,
voice, data, security and video services, and is in the early stages of building
or acquiring a seamless wireless broadband network throughout North America to
serve private entities, cities, municipalities and the general public. The
Company's Wireless Messaging Services Division provides wireless broadband
system design and implementation, manufactures and supplies high-power
infrastructure equipment for the wireless messaging industry and owns and
operates a wide-area wireless messaging service (one- and two-way cellular and
paging retail). The Company's Network Operations Services Division provides the
overall day-to-day operations, maintenance, upgrading, 24/7 monitoring and
expansion of all wireless broadband networks that the Company constructs,
acquires, maintains and administers.

BASIS OF ACCOUNTING

The accompanying unaudited interim financial statements of the Company have been
prepared in accordance with accounting principles generally accepted in the
United States of America and the rules of the Securities and Exchange Commission
("SEC"), and should be read in conjunction with the audited financial statements
and notes thereto contained in the Company's annual filing dated December 31,
2005, filed with the SEC on Form 10-KSB. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position and the results of operations for the interim
periods presented have been reflected herein. The results of operations for
interim periods are not necessarily indicative of the results to be expected for
the full year.


PRINCIPLES OF CONSOLIDATION

All significant inter-company accounts and transactions have been eliminated in
consolidation.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the balance sheet. Actual results could differ from
those estimates.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and all highly liquid financial
instruments with purchased maturities of three months or less.

SECURITIES HELD FOR RESALE

Investments in public companies are classified as available-for-sale and are
adjusted to their fair market value with unrealized gains and losses, net of
tax, recorded as a component of accumulated comprehensive income. Upon
disposition of these investments, the specific identification method is used to
determine the cost basis in computing realized gains or losses, which are
reported in other income and expense. Declines in value that are judged to be
other than temporary are reported in other comprehensive income and expense.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Earnings are charged with a provision for doubtful accounts based on a current
review of collectibility of accounts receivable. Accounts deemed uncollectible
are applied against the allowance for doubtful accounts.

                                       6

<PAGE>

                               ERF WIRELESS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


DEFERRED REVENUES

Revenues that are billed in advance of services being completed are deferred
until the conclusion of the period of the service for which the advance billing
relates. Deferred revenues are included on the balance sheet in current and
long-term liabilities until the service is performed and then recognized in the
period in which the service is completed. The Company's deferred revenues
consist of billings in advance of services being rendered for its wireless
broadband, banking network monitoring and maintenance and wireless messaging
customers and, accordingly, are deferred and recognized monthly as earned. The
Company had deferred revenues in current and long-term liabilities of $30,000
and $330,000 as of March 31, 2006, and December 31, 2005, respectively.

ADVERTISING COSTS

Advertising costs are expensed when incurred. For the periods ended March 31,
2006 and 2005, the Company expensed $19,000 and $16,000, respectively.

STOCK-BASED COMPENSATION

In December 2004, FASB issued a revision to SFAS 123 (also known as SFAS 123R)
that amends existing accounting pronouncements for share-based payment
transactions in which an enterprise receives employee and certain non-employee
services in exchange for (a) equity instruments of the enterprise or (b)
liabilities that are based on the fair value of the enterprise's equity
instruments or that may be settled by the issuance of such equity instruments.
SFAS 123R eliminates the ability to account for share-based compensation
transactions using APB 25 and generally requires such transactions be accounted
for using a fair-value-based method. SFAS 123R's effective date would be
applicable for awards that are granted, modified, become vested, or settled in
cash in interim or annual periods beginning after December 15, 2005. SFAS 123R
includes three transition methods: a prospective method, a modified prospective
method and a retroactive method. The Company adopted SFAS 123R in the fourth
quarter of the fiscal year ending December 31, 2005.

DERIVATIVE INSTRUMENTS

In connection with the sale of debt or equity instruments, the Company may sell
options or warrants to purchase our common stock. In certain circumstances,
these options or warrants may be classified as derivative liabilities, rather
than as equity. Additionally, the debt or equity instruments may contain
embedded derivative instruments, such as embedded derivative features which in
certain circumstances may be required to be bifurcated from the associated host
instrument and accounted for separately as a derivative instrument liability.

The Company's derivative instrument liabilities are re-valued at the end of each
reporting period, with changes in the fair value of the derivative liability
recorded as charges or credits to income in the period in which the changes
occur. For options, warrants and bifurcated embedded derivative features that
are accounted for as derivative instrument liabilities, the Company estimates
fair value using either quoted market prices of financial instruments with
similar characteristics or other valuation techniques. The valuation techniques
require assumptions related to the remaining term of the instruments and
risk-free rates of return, our current common stock price and expected dividend
yield, and the expected volatility of our common stock price over the life of
the option. Because of the limited trading history for our common stock, the
Company estimates the future volatility of its common stock price based on not
only the history of its stock price but also the experience of other entities
considered comparable to the Company.

INVENTORIES

Inventories are valued at the lower of cost or market. The cost is determined by
using the average cost method. Inventories consist of the following items, in
thousands:


                                   March 31,  December 31,
                                     2006         2005
                                  ----------- -----------
          Raw material            $       22  $      125
          Finished goods                  63          14
                                  ----------- -----------
                                  $       85  $      139
                                  =========== ===========

                                       7

<PAGE>

                               ERF WIRELESS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation. Major
renewals and improvements are capitalized; minor replacements, maintenance and
repairs are charged to current operations. Depreciation is computed by applying
the straight-line method over the estimated useful lives which are generally
three to seven years.

Impairment losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. No
impairment losses have been recorded since inception.

INTANGIBLE ASSETS

Intangible assets are amortized using methods that approximate the benefit
provided by the utilization of the assets. The Company continually evaluates the
amortization period and carrying basis of intangible assets to determine whether
subsequent events and circumstances warrant a revised estimated useful life or
reduction in value.

LONG-LIVED ASSETS

We review our long-lived assets, which include intangible assets subject to
amortization, for recoverability whenever events or changes in circumstances
indicate that the carrying amount of such long-lived asset or group of
long-lived assets (collectively referred to as "the asset") may not be
recoverable. Such circumstances include, but are not limited to:

         o        a significant decrease in the market price of the asset;

         o        a significant change in the extent or manner in which the
                  asset is being used;

         o        a significant change in the business climate that could affect
                  the value of the asset;

         o        a current period loss combined with projection of continuing
                  loss associated with use of the asset;

         o        a current expectation that, more likely than not, the asset
                  will be sold or otherwise disposed of before the end of its
                  previously estimated useful life.

We continually evaluate whether such events and circumstances have occurred.
When such events or circumstances exist, the recoverability of the asset's
carrying value shall be determined by estimating the undiscounted future cash
flows (cash inflows less associated cash outflows) that are directly associated
with and that are expected to arise as a direct result of the use and eventual
disposition of the asset. To date, no such impairment has occurred. To the
extent such events or circumstances occur that could affect the recoverability
of our long-lived assets, we may incur charges for impairment in the future.

REVENUE RECOGNITION

The Company's revenue is generated primarily from the sale of wireless
communications products and services on a nationwide basis, including providing
enterprise-class wireless broadband services. The Company recognizes revenue
when persuasive evidence of an arrangement exists, delivery has occurred, the
sales price is fixed or determinable, and collectibility is probable.

The Company records revenues from its fixed-price, long-term contracts using the
percentage-of-completion method. Revenues are recorded based on construction
costs incurred to date as a percentage of estimated total cost at completion.
The percentage-of-completion, determined by using total costs incurred to date
as a percentage of estimated total costs at completion, reflects the actual
physical completion of the project. This method of revenue recognition is used
because management considers total cost to be the best available measure of
progress on the contracts.

The Company recognizes product sales generally at the time the product is
shipped. Concurrent with the recognition of revenue, the Company provides for
the estimated cost of product warranties and reduces revenue for estimated
product returns. Sales incentives are generally classified as a reduction of
revenue and are recognized at the later of when revenue is recognized or when
the incentive is offered. Shipping and handling costs are included in cost of
goods sold.

                                       8

<PAGE>

                               ERF WIRELESS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


The Company's suppliers generally warrant the products distributed by the
Company and allow returns of defective products, including those that have been
returned to the Company by its customers. The Company does not independently
warrant the products that it distributes, but it does provide warranty services
on behalf of the supplier.

INCOME TAXES

Income taxes are computed using the asset and liability method. Under the asset
and liability method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets
and liabilities and are measured using the currently enacted tax rates and laws.
A valuation allowance is provided for the amount of deferred tax assets that,
based on available evidence, are not expected to be realized.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash and cash equivalents,
inventory, accounts receivable and debt. The carrying amount of these financial
instruments approximates fair value due either to length of maturity or interest
rates that approximate prevailing market rates unless otherwise disclosed in
these consolidated financial statements.

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is defined as all changes in shareholders' equity,
exclusive of transactions with owners, such as capital instruments.
Comprehensive income (loss) includes net income or loss, changes in certain
assets and liabilities that are reported directly in equity such as translation
adjustments on investments in foreign subsidiaries, changes in market value of
certain investments in securities and certain changes in minimum pension
liabilities.

BENEFICIAL CONVERSION

Equity instruments that contain a beneficial conversion feature are recorded as
a deemed dividend to the holders of the convertible equity instruments. The
deemed dividend associated with the beneficial conversion is calculated as the
difference between the fair value of the underlying common stock less the
proceeds that have been received for the equity instrument limited to the value
received. The beneficial conversion amount is recorded as a reduction on the
carrying value of the equity instrument and an increase to additional
paid-in-capital.

BASIC LOSS PER SHARE

The Company is required to provide basic and dilutive earnings (loss) per common
share information.

The basic net loss per common share is computed by dividing the net loss
applicable to common stockholders by the weighted average number of common
shares outstanding.

Diluted net loss per common share is computed by dividing the net loss
applicable to common stockholders, adjusted on an "as if converted" basis, by
the weighted average number of common shares outstanding plus potential dilutive
securities. For the periods ended March 31, 2006, and March 31, 2005, potential
dilutive securities had an anti-dilutive effect and were not included in the
calculation of diluted net loss per common share.

RECENT ACCOUNTING PRONOUNCEMENTS

There have been no material changes to the recent accounting pronouncements as
previously reported in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2005.

                                       9

<PAGE>

                               ERF WIRELESS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 2 - ACCOUNTS RECEIVABLE

Accounts receivable consists of the following (in thousands):

                                          March 31,       December 31,
                                            2006             2005
                                        ------------     ------------
Accounts receivable                     $       253      $        86
Allowance for doubtful accounts                  (1)              (1)
                                        ------------     ------------
Accounts receivable, net                $       252      $        85
                                        ============     ============



NOTE 3 - PROPERTY AND EQUIPMENT:

Components of property, plant, and equipment, consist of the following items (in
thousands):

                                           March 31,             December 31,
                                             2006                   2005
                                         --------------         -------------
Automobile                               $          47          $         42
Operating equipment                                231                   211
Office furniture and equipment                      72                    72
Leasehold improvements                              49                    17
Computer equipment                                 106                    85
Land                                                38                    38
                                         --------------         -------------
  Total property, plant and equipment              543                   465
   Less accumulated depreciation                   (87)                  (63)
                                         --------------         -------------
  Net property, plant and equipment      $         456          $         402
                                         ==============         =============


Depreciation expense was approximately $24,000 and $6,000 for the three months
ended March 31, 2006 and 2005, respectively.

NOTE 4 - OTHER INTANGIBLES

Other intangible assets consist of the following (in thousands):

                                                        March 31, 2006
                          Weighted       ---------------------------------------
                          Average          Gross
                       Useful Life (in    Carrying     Accumulated  Net Carrying
                           years)          Amount     Amortization     Amount
                       ---------------   ---------    ------------  ------------

Customer relationships      3.0          $    261      $     58       $    203
Workforce in place          3.0               125            28             97
Non-compete agreement       3.0               100            22             78
Developed technology        3.0                20             4             16
                                         ---------     ---------      ---------
                                         $    506      $    112       $    394
                                         =========     =========      =========

Intangible assets are amortized using methods that approximate the benefit
provided by the utilization of the assets. Customer relationships, workforce in
place, non-compete agreements and developed technology is amortized on a
straight-line basis. We continually evaluate the amortization period and
carrying basis of intangible assets to determine whether subsequent events and
circumstances warrant a revised estimated useful life or reduction in value.

Total amortization of intangibles was $42,000 and $0 for the three months ended
March 31, 2006 and 2005, respectively. The estimated amortization expense for
the three years will be $169,000 for years 2006 and 2007 and $99,000 in 2008.

                                       10

<PAGE>

                               ERF WIRELESS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 5 - DEBT CONVERSION

To date the Company has been funded by various Investors under the terms of a
Debt Conversion and Funding Agreement dated September 30, 2004, an Addendum to
Debt Conversion and Funding Agreement dated December 31, 2004, and a Second
Addendum to Debt Conversion and Funding Agreement dated July 1, 2005. During the
three months ended March 31, 2006, the Company was obligated to issue 86,667
shares of its Series A Preferred Stock for the conversion of $130,000 in debt
owed to these same Investors. The $130,000 of cash was received during the three
months ended March 31, 2006, and recorded as debt when initially received and
then converted to Series A Preferred Stock at the respective quarter ending
March 31, 2006. The advances are unsecured, bear no interest and are classified
as long-term investor advances until such time as they are converted into equity
pursuant to the Debt Conversion and Funding Agreements. The Company recorded a
deemed dividend on the beneficial conversion of the 86,667 shares of Series A
Preferred Stock that was limited to the amount of consideration received
totaling $130,000 in the three months ended March 31, 2006.

The Company was obligated to issue one share of Series A Convertible Preferred
Stock for every Fifty Cents ($0.50) in claims converted. The terms of the
agreement did not change in the addendum to Debt Conversion and Funding
Agreement with the exception of the incremental funding provision providing for
an incremental $750,000 in funding through the period ending March 31, 2006. The
Company was obligated to issue one share of Series A Convertible Preferred Stock
for every One Dollar and Fifty Cents ($1.50) in claims converted under the
Second Addendum to Debt Conversion and Funding Agreement. The Company had
$28,767 remaining available against the Second Addendum to Debt Conversion and
Funding Agreement at March 31, 2006.

NOTE 6 - CAPITAL STOCK, WARRANTS AND OPTIONS

The total number of shares of stock of all classes which the Company shall have
the authority to issue is five hundred million (500,000,000), of which twenty
five million (25,000,000) shall be shares of Preferred Stock with a par value of
$.001 per share ("Preferred Stock"), and four hundred seventy five million
(475,000,000) shall be shares of Common Stock with a par value of $.001 per
share ("Common Stock").

COMMON STOCK

As of March 31, 2006, the Company had 10,403,840 shares of its $.001 par value
common stock issued and outstanding.

During the three months ended March 31, 2006, the Company issued 280,000 shares
of common stock for services rendered against consulting agreements valued at
$218,000, interest expense of $36,000 settlement expense of $10,000, other
services of $49,000, notes payable of $184,000 and $15,000 for prepayment of
future services. The Company valued the 280,000 shares at the closing market
price on the date of issuance of such shares.

PREFERRED STOCK

The Company has 5,000,000 shares of Series A Preferred Stock authorized of which
4,135,464 shares were issued and outstanding as of March 31, 2006. The Series A
Preferred Stock is convertible at holder's option at one preferred share for
18.676347 shares Common Stock and has a 2:1 liquidation preference. The holder
of Series A Preferred Stock is required to give a 65-day notice of conversion to
the company. With respect to the Series A Preferred Stock outstanding at March
31, 2006, the Company would be required to issue 77,235,361 shares of its Common
Stock if all of the holders fully converted. However, during the 4th quarter
2005, all of the Series A holders entered into a Series A Conversion Restriction
Agreement whereby all Series A holders, as a group, are prohibited from
converting more than 5% of the total outstanding (as of September 30, 2005)
Series A holdings in any one calendar quarter. Additionally, the Company had
$28,767 of funding remaining against the Second Addendum to Debt Conversion and
Funding Agreement dated July 1, 2005, providing for the issuance of 500,000
shares of Series A for the conversion of $750,000 in debt. If the Company
borrowed the remaining $28,767, it would be required to issue 358,175 shares of
Common Stock.

WARRANTS

The Company had warrants and options outstanding to purchase 1,703,343 shares as
of March 31, 2006.

                                       11

<PAGE>

                               ERF WIRELESS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Warrants for 880,000 shares were issued by the Company in June 2003.
Specifically, the Company sold 120,000 shares of Common Stock for $25,000 to an
accredited investor pursuant to the exemption provided by Regulation D of the
Securities Act and issued such a warrant to purchase 880,000 shares of Common
Stock at an exercise price of $0.20 per share expiring December 31, 2007. The
Company attributed no value to these warrants in the June 2003 period in which
they were issued, given that the warrants had an exercise price of $0.20 per
share as compared to the market value of $0.01 per share in June 2003 on a total
volume of 300 shares traded in the open market in June 2003.

Warrants for 191,672 shares of common stock at $5.00 per share and warrants for
191,672 shares at $7.50 per share were issued by the Company during the 2nd, 4th
quarter of 2005 and 1st quarter 2006. Specifically, the Company sold 191,672
shares of Common Stock for $287,500 to accredited investors pursuant to the
exemption provided by Regulation D of the Securities Act and issued such
warrants to purchase 191,672 shares of Common Stock at $5.00 per share and
191,672 shares of common stock at $7.50 per share expiring August 2007. The
Company attributed no value to these warrants in the quarters in which they were
issued.

Warrants for 389,999 at $3.57 per share were issued by the Company in September
2005 and November 2005. Specifically, the Company issued convertible notes for
$1,500,000 to accredited investors pursuant to the exemption provided by
Regulation D of the Securities Act and issued such warrants to purchase 389,999
shares of Common Stock at $3.57 per share, subject to adjustment upon issuance
of shares or warrants below market, expiring September 2010. See Note 10 for
valuation and marked-to-market activity.

Options for 150,000 at $1.38 per share were issued by the Company in March 2006.
Specifically, the Company issued these options to an officer and employee
pursuant to milestones contained in their employment contracts. See Note 12 for
the description of each employee's contract term.

The following table summarizes options/warrants that are issued, outstanding and
exercisable.

<TABLE>
<S>     <C>
                                          Options/Warrants
                                        Issued & Outstanding           Options/Warrants Exercisable
                                   -------------------------------    --------------------------------
 Excerise         Expiration         March 31,         March 31,         March 31,         March 31,
   Price              Date             2006              2005             2006               2005
--------------    -------------    -------------     -------------    --------------     -------------
0.20                 Dec-07             780,000           880,000           780,000           880,000
5.00                 Aug-07             191,672            91,668           191,672            91,668
7.50                 Aug-07             191,672            91,668           191,672            91,668
1.38                 Jul-09             150,000                 -           150,000                 -
3.57                 Sep-10             389,999                 -           389,999                 -
                                   -------------     -------------    --------------     -------------
                                      1,703,343         1,063,336         1,703,343         1,063,336
                                   =============     =============    ==============     =============
</TABLE>

NOTE 7 - INCOME TAXES

The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Implementation of SFAS
109 did not have a material cumulative effect on prior periods nor did it result
in a change to the current year's provision.

The effective tax rate for the Company is reconcilable to statutory tax rates as
follows:

                                     March 31, 2006        December 31, 2005
                                     --------------        -----------------

U. S. Federal statutory tax rate               34%                      34%
U.S. valuation difference                     (34%)                    (34%)
Effective U. S. tax rate                         -                        -
Foreign tax valuation                            -                        -
Effective tax rate                               -                        -

Income tax expense (benefit) attributable to income from continuing operations
differed from the amounts computed by applying the U.S. Federal income tax of
34% to pretax income from continuing operations as a result of the following (in
thousands):

                                       12

<PAGE>

                               ERF WIRELESS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


                                         March 31, 2006       December 31, 2005
                                       ----------------       -----------------
Computed expected tax benefit              $     (243)           $    (1,160)
Increase in valuation allowance                   243                  1,160
                                           -----------           ------------
Income tax expense                         $        -            $        -
                                           ===========           ============


The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at March 31, 2006, and
December 31, 2005, are presented below (in thousands):

                                       March 31, 2006      December 31, 2005
                                       ---------------     ------------------
Deferred tax assets:
Net operating loss carry forwards          $   (1,663)         $    (1,420)
Less valuation allowance                        1,663                1,420
                                           -----------         ------------
Net deferred tax assets                    $        -          $         -
                                           ===========         ============

The valuation allowance for deferred tax assets as of March 31, 2006, and
December 31, 2005, was $1,663,000 and $1,420,000, respectively. As of March 31,
2006, the Company has a net operating loss carry-forward of $6,236,000, which is
available to offset future federal taxable income, if any, with expiration
beginning 2012 and ending 2025.

NOTE 8 - EARNINGS PER SHARE:

The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share amount):

<TABLE>
                                                         For the three months ended March 31, 2006
                                                   ---------------------------------------------------
                                                     Income              Shares              Per-Share
                                                   (Numerator)        (Denominator)           Amount
                                                   -----------        -------------           ------
<S>                                                  <C>                  <C>                <C>
Net loss                                             $  (715)                                $     --
Basic EPS:
  Net loss to common stockholders                       (715)              8,587               (0.08)
  Effect of dilutive securities warrants                                                          --
Diluted EPS:
                                                     -------             -------             -------
  Net loss to common stockholders
    and assumed conversions                          $  (715)              8,587             $ (0.08)
                                                     =======             =======             =======

                                                        For the three months ended March 31, 2005
                                                   ---------------------------------------------------
                                                     Income               Shares             Per-Share
                                                   (Numerator)         (Denominator)          Amount
                                                   -----------         -------------          ------
Net loss                                             $  (467)                 67)            $  --
Basic EPS:
  Net loss to common stockholders                       (467)              4,535               (0.10)
  Effect of dilutive securities warrants                  --
Diluted EPS:
                                                     -------             -------             -------
  Net loss available to common stockholders
    and assumed conversions                          $  (467)            $ 4,535             $ (0.10)
                                                     =======             =======             =======
</TABLE>

NOTE 9 - MAJOR CUSTOMERS

The Company had gross sales of approximately $862,000 and $109,000 for the three
months ended March 31, 2006 and 2005, respectively. The Company had one customer
that represented approximately 49% of the gross sales in the three months ended
March 31, 2006.

                                       13

<PAGE>

                               ERF WIRELESS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 10 - LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

<TABLE>
<S>     <C>
                                                            Terms                     Maturity Date    Interest Rate    Balance
                                       ----------------------------------------    -----------------   -------------    ---------
First National Bank in Cameron         $377 / Month including interest             March-07                7.00%               4
Taylor Economic Development Corp.      $1,119 / Month including interest           June-07                 7.00%              15
Insurance company                      $1,753 / Month including interest           August-06               8.35%              30
SkyVue USA East Central Texas, Inc     $40,000 / Quarterly plus interest           February-08             6.00%             297
Investor notes                          2 years (See below)                        Demand                  6.00%             562
Line of credit                          2 years/ Quarterly interest (See below)    February-08             6.00%           1,239
                                                                                                                        ---------
Total debt                                                                                                                 2,147
Less current maturities                                                                                                    2,007
                                                                                                                        ---------
Long-term debt                                                                                                               140
                                                                                                                        =========
</TABLE>

The current maturities of these debts are $2,007,000, $97,000 and $43,000 for
2006, 2007 and 2008, respectively.

INVESTOR NOTES

0n September 13, 2005, the Company closed a financing arrangement with Global
Capital Funding L.P. ("Global"), GCA Strategic Investment Fund Limited
("GCASIF"), HIPL Family Trust ("HIPL"), and DP Securities Inc. ("DPS")
("Global," "GCASIF," HIPL" and "DPS," collectively, the "Investors") in which it
issued to: (i) Global a convertible secured note in the principal amount of
$1,285,000 ("Global Note") and a common stock purchase warrant (the "Global
Warrant") to purchase 300,000 shares of Company common stock; (ii) GCASIF a
convertible secured note in the principal amount of $50,000 (the "GCASIF Note")
and a common stock purchase warrant (the "GCASIF Warrant") to purchase up to
13,953 shares of the Company common stock; and (iii) HIPL a convertible secured
note in the principal amount of $75,000 (the HIPL Note") and common stock
purchase warrant (the "HIPL warrant") to purchase up to 20,930 shares of the
common stock; and (iv) DPS a convertible secured note in the principal amount of
$90,000 (the "DPS Note") and a common stock purchase warrant (the "DPS Warrant")
to purchase up to 55,116 shares of common stock. The Global Note, GCASIF Note,
HIPL Note and DPS Note, collectively, "Investor Notes" and the Global Warrant,
GCASIF Warrant, and DPS Warrant, collectively, "Investor Warrants".

The Investor Notes accrue interest at a rate per annum equal to six percent and
are secured by substantially all of the Company's assets. The Investor Notes are
convertible into shares of the Company common stock at a conversion price equal
to the lesser of (i) $3.50 or (ii) 85% of the average of the three lowest VWAPs,
as reported by Bloomberg, during the ten trading days immediately preceding the
date of the related notice of conversion; provided further, however, that, until
six months following the effective date of the registration statement in no
event will the conversion price be lower than the lesser of (y) $1.50 or (z) 50%
of the VWAP, as reported by Bloomberg, on January 13, 2006, the effective date
of the registration statement. Upon expiration of such six-month period or upon
occurrence of an event of default which is not cured, the foregoing floor
calculation shall no longer be effective. The Company has registered the resale
of the shares of the Company common stock underlying the Investor Notes and the
shares issuable upon exercise of the Investor Warrants.

The Company has the ability to prepay in company common stock amounts owed under
these Investors Notes for a price equal to the greater of: (i) the outstanding
principal amount of the Investor Note, plus all accrued but unpaid interest,
including default interest, if any; and (ii) (x) the number of shares of common
stock into which the Investor Note, including all accrued but unpaid interest
and default interest, if any, is then convertible, times (y) the average VWAP of
the common stock for the five trading days immediately prior to the date that
the Investor Note is called for prepayment. The Company has the right to prepay
the notes in cash at 102% of the outstanding principal and interest in the first
year or 101% of the outstanding principal and interest in the second year. The
associated Investor Warrants are exercisable by the Investors for five years at
$3.57 per share, subject to adjustment upon issuance of shares or warrants below
market, of Company common stock.

The Investor Notes were determined to include free standing warrants and various
embedded derivative liabilities. The derivative liabilities are the conversion
feature and the redemption option (compound embedded derivative liability). At
the date of issuance (September 06, 2005, and November 21, 2005) the Investor
Notes, warrant liabilities and compound embedded derivative liabilities were


                                       14

<PAGE>

                               ERF WIRELESS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


measured at fair value using either quoted market prices of financial
instruments with similar characteristics or other valuation techniques. These
derivative liabilities will be marked-to-market each quarter with the change in
fair value recorded in the income statement. The Company uses the effective
interest method to record interest expense and related debt accretion which was
$96,631 for the year ending December 31, 2005, and will be $458,229 and $437,123
for years ending December 31, 2006 and 2007, respectively.

The following table summarizes the convertible debt activity for the period
September 06, 2005, to March 31, 2006:

<TABLE>
                                                                           Compound
                                       Investor           Warrant         Derivative
                 Description             Notes          Liabilities        Liability           Total
                                      -----------       -----------       -----------       -----------
<S>                                   <C>               <C>               <C>               <C>
Fair value issuance at inception      $   508,017       $   470,702       $   521,281       $ 1,500,000
09-06 to 09-30 fair value                  18,373         2,389,132         1,012,547         3,420,052
10-01 to 12-31 fair value                  78,258        (2,160,313)       (1,090,630)       (3,172,685)
01-01 to 03-31 fair value                  90,258          (466,128)         (276,615)         (652,485)
Payments from inception to date          (133,130)         (133,130)
                                      -----------       -----------       -----------       -----------
Fair value at March 31, 2006          $   561,776       $   233,393       $   166,583       $   961,752
                                      ===========       ===========       ===========       ===========

For inception to date through March 31, 2006, the Company recorded a net
derivative income of $592,000 and for the quarter ended March 31, 2006, a net
derivative income of $743,000. The Company in conjunction with the convertible
note as of quarter ended March 31, 2006, has recorded debt interest expense of
$131,000

ERF Wireless, Inc., also incurred deferred financing costs of $178,500 in
connection with the closing of the financing arrangement. The costs are
recognized over the life of the Investor Notes, or 24 months, by using the
straight line method. For the three months ended March 31, 2006, the Company
recorded deferred financing cost in interest expense of $18,000.
The following assumptions were used in the fair value determination of warrants
liabilities at March 31, 2006:

                                       9/6/2005         9/30/2005         12/31/2005       3/31/2006
                                   --------------------------------------------------------------------
              Assumptions              Warrants          Warrants          Warrants        Warrants
---------------------------------  --------------------------------------------------------------------
Dividend yield                              0.00%              0.00%            0.00%           0.00%
Risk-free rate for term                     3.89%              4.18%            4.35%           4.98%
Volatility                                 31.00%             31.00%           76.00%          78.00%
Maturity Date                             5 years         4.93 years       4.68 years      4.43 years
</TABLE>

A Black-Scholes methodology was used to value the warrants using a weighted
average exercise price.

SKYVUE NOTES

On August 12, 2005, the Company issued two notes to SkyVueUSA East Central
Texas, Inc., totaling $475,000 that bear interest at 6% and are secured by all
of the capital stock issued and outstanding of ERF Enterprise Network Services,
Inc.,( subsidiary). The initial payment was $115,000, with nine subsequent
quarterly payments of $40,000 plus interest. At March 31, 2006, the balance of
the note was $296,547.

LINE OF CREDIT

Effective March 10, 2006, ERF Wireless, Inc. (the "Company"), entered into a
two-year unsecured revolving credit facility with certain private investors that
provides a $2 million dollar line of credit. The terms of the two-year unsecured
revolving credit facility allow ERF Wireless to draw upon the facility as
financing requirements dictate and provide for quarterly interest payments at a
6% rate. The loan may be prepaid without penalty or repaid at maturity. In the
event that ERF Wireless draws down the full $2 million amount available under
the Revolving Note dated February 2006 ("Note") on or prior to December 31,
2006, and if ERF Wireless requires additional working capital to pursue its
business strategy and operations, Angus Capital Partners agrees to fund on a
requested basis an additional $1 million during 2006 under the same terms and
conditions as set forth in the Note.

                                       15

<PAGE>

                               ERF WIRELESS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 11 - UNCOMPLETED CONTRACTS

Costs, estimated earnings and billings on uncompleted contracts for the three
months ended March 31, 2006 and December 31, 2005, are summarized as follows (in
thousands):

                                                  March 31,          Dec. 31,
                                                    2006               2005
                                                ------------       -----------
Costs incurred on uncompleted contracts         $       449        $         -
Estimated profit                                        196                  -
                                                ------------       -----------
Gross revenue                                           645                  -
Less: billings to date                                  472                  -
                                                ------------       -----------
Costs and profit in excess of billings          $       173        $         -
                                                ============       ===========


NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES

LEASES AND LICENSE AGREEMENTS

For the three months ended March 31, 2006 and 2005, rental expenses of
approximately $67,000 and $23,000, respectively, were incurred. The Company
accounts for rent expense under leases that provide for escalating rentals over
the related lease term on a straight-line method.

The Company leases approximately 11,137 square feet of office space consisting
of 8,860 square feet at 103 Courageous Drive as its primary operations and 2,277
square feet at 2911 South Shore Blvd. as its primary corporate headquarters
office in League City, Texas. The office space lease is with South Shore Harbor
Development Ltd., with initial base rent monthly payments during months 1
through 36 of $8,464, escalating to $9,145 for months 37 through 60. The lease
commenced on October 18, 2004, and expires on August 31, 2009.

The Company leases approximately 1,552 square feet of office space at 8521-1
Blanco Road, San Antonio, Texas, for its Wireless Messaging Services Division's
initial retail outlet. The office space lease is with Weingarten Realty
Investors with initial base rent monthly payments during year one of $1,940,
escalating to $1,998 for year 2 and then to $2,056 for year 3. The lease
commenced on February 24, 2004, and expires in February 2007.

The Company leases approximately 408 square feet of office space at 100 Taylor
Street, San Antonio, Texas, for its Wireless Messaging Services Division The
office space lease is with Taylor Street Ventures LP with initial base rent
monthly payments of $547. The lease commenced on June 1, 2002, and expired on
May 31, 2005. The Company is in the process of negotiating the terms of a lease
extension on similar terms and conditions and continues to incur monthly rent
payments of $547.

The Company has a transmitter sharing agreement with Metrocall for use of shared
sites in Boerne, Devine, Hondo, New Braunfels and San Antonio, Texas. The
agreement requires monthly payments of $1,448.

The Company has a license agreement with American Towers for use of their Sequin
(Geronimo), Texas, tower site. The license agreement expires on May 31, 2007,
and requires monthly payments of $631.

The Company has a license agreement with Pinnacle Towers for use of their New
Braunfels, Texas, FM 306 tower site. The license agreement expires on October
31, 2006, and requires monthly payments of $717.

The Company leases approximately 1,552 square feet of office space at 602 West
12th Street, Taylor, Texas, for ERF Enterprise Network Services. The office
space lease is with Taylor Independent School District with initial base rent
monthly payments during year one of $3,290, escalating to $3,729 for year 2. The
lease commenced on November 1, 2005, and expires in December 2007.

                                       16

<PAGE>

                               ERF WIRELESS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Future obligations under the non-cancelable lease terms are as follows:

               Period Ending December 31,    Amount
               -------------------------- ------------
                        2006              $  107,308
                        2007                 153,907
                        2008                 104,844
                        2009                  69,896
                                          -----------
                       Total              $  435,955
                                          ===========

EMPLOYMENT AGREEMENTS

R. GREG SMITH

On August 1, 2004, we entered into an Executive Employment Agreement with R.
Greg Smith, our CEO and CFO. Mr. Smith is paid a base salary of $180,000 per
year and is eligible to receive a bonus equal to 1% of the revenues for the most
recent twelve-month period of each acquisition made by the Company during his
employment period. Mr. Smith received 63,828 shares of our Series A Convertible
Preferred Stock par value $0.01 per share, as consideration for a sign-on bonus
at a price of $0.50 per share for total consideration of $31,913.50. The
preferred stock is convertible at holder's option at one preferred share for
18.676347 shares common stock and has a 2:1 liquidation preference and each
preferred share has 20 votes. Mr. Smith is also entitled to receive up to
1,000,000 stock options under the Company's 2004 Non-Qualified Stock Option Plan
for attainment of certain future cumulative revenue milestone achievements.
These options, if any are earned, will have an exercise price of the lowest
five-day average closing price existing for the Company's common stock during
the twelve-month period immediately preceding the date of the vesting event. Mr.
Smith is subject to a lock-up agreement which prohibits Mr. Smith from selling
shares until August 1, 2006, unless agreed to by the Company in writing.

As of March 31, 2006, Greg Smith has earned 100,000 options to purchase 100,000
common shares for attainment of certain cumulative revenue milestones set forth
in his employment agreement. These options are at an exercise price of $1.38 and
expire on July 31, 2009. The income statement includes a compensation charge of
$91,596 which charge is based on Black-Scholes option pricing model.

JOHN ADRIAN BURNS

On August 12, 2005, we entered into an executive employment agreement with John
Adrian Burns as Chief Executive Officer and Chairman of ERF Enterprise Network
Services, Inc. ("ENS"). Mr. Burns is paid $180,000 per year and other normal
benefits available to all company employees. Additionally, Mr. Burns is eligible
to receive non-qualified non-transferable stock options based on the future
financial performance of ENS. These future financial performance targets are
deemed the vesting events. The options are priced at $3.72 and when attained can
be converted on a cashless basis into ERF Wireless, Inc. (Parent), common stock.
The common shares received have piggyback registration rights and expire on the
close of business of July 30, 2008. The vesting events and related incentive
options are as follows:

         o        50,000 options qualify when the annual revenue of ENS exceeds
                  $3,000,000; 75,000 options qualify when the annual revenue of
                  ENS exceeds $6,000,000; 100,000 options qualify when the
                  annual revenue of ENS exceeds $12,000,000, and 125,000 options
                  qualify when the annual revenue of ENS exceeds $20,000,000.

         o        50,000 options qualify when the adjusted annual EBIDTA of ENS
                  exceeds $500,000; 75,000 options qualify when the adjusted
                  annual EBIDTA of ENS exceeds $1,000,000; 100,000 options
                  qualify when the adjusted annual EBIDTA of ENS exceeds
                  $2,000,000; and 125,000 options qualify when the adjusted
                  annual EBIDTA of ENS exceeds $3,000,000

         o        50,000 options qualify when the adjusted annual EBIDTA of the
                  Parent exceeds $1.00; 75,000 options qualify when the adjusted
                  annual EBIDTA of the Parent exceeds $500,000; 100,000 options
                  qualify when the adjusted annual EBIDTA of the Parent exceeds
                  $1,000,000; and 1 25,000 options qualify when the adjusted
                  annual EBIDTA of the Parent exceeds $5,000,000

                                       17

<PAGE>

                               ERF WIRELESS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


JOHN ARLEY BURNS

On August 12, 2005, we entered into an executive employment agreement with John
Arley Burns as President of ENS). Mr. Burns is paid $150,000 per year and other
normal benefits available to all company employees. Additionally, Mr. Burns is
eligible to receive non-qualified non-transferable stock options based on the
future financial performance of ENS.

These future financial performance targets are deemed the vesting events. The
options are priced at $3.72 and when attained can be converted on a cashless
basis into ERF Wireless, Inc. (Parent), common stock. The common shares received
have piggyback registration rights and expire on the close of business of July
30, 2008. The vesting events and related incentive options are as follows:

         o        35,000 options qualify when the annual revenue of ENS exceeds
                  $3,000,000; 50,000 options qualify when the annual revenue of
                  the ENS exceeds $6,000,000; 75,000 options qualify when the
                  annual revenue of ENS exceeds $12,000,000; and 100,000 options
                  qualify when the annual revenue of ENS exceeds $20,000,000

         o        35,000 options qualify when the adjusted annual EBIDTA of ENS
                  exceeds $500,000; 50,000 options qualify when the adjusted
                  annual EBIDTA of ENS exceeds $1,000,000; 75,000 options
                  qualify when the adjusted annual EBIDTA of ENS exceeds
                  $2,000,000; and 100,000 options qualify when the adjusted
                  annual EBIDTA of ENS exceeds $3,000,000

BRIAN CUBLEY

In August 2004, the Company entered into an employment agreement with Brian
Cubley. Pursuant to the employment agreement Brian Cubley is to receive $80,000
until October 15, 2005, and $90,000 per year thereafter. Mr. Cubley also
received 31,914 shares of Series A Preferred Stock at $0.50 per share. Mr.
Cubley is also eligible to receive non-qualified non-transferable stock options
to purchase up to 500,000 shares of the Company's common stock based upon the
attainment of certain performance based milestones at 115% of the lowest five
day average closing price for the Company previous year. Lastly, Mr. Cubley is
entitled to a bonus for each calendar year in which the Company's Messaging
Services Division is profitable equal to 5% of the revenues of the Messaging
Services Division.

As of March 31, 2006, Brian Cubley has earned 50,000 options to purchase 50,000
common shares for attainment of certain cumulative revenue milestones set forth
in his employment agreement. These options are at an exercise price of $1.38 and
expire on July 31, 2009. The income statement includes a compensation charge of
$45,798 which charge is based on Black-Scholes option pricing model.

NOTE 13 - RELATED PARTY

In December 2005, the holders of record of the Series A Preferred Stock,
including the named trusts set forth in Item 12 and Greg Smith, entered into a
Series A Preferred Conversion Restriction Agreement, in which each agreed to
restrict the number of shares of Series A Preferred Stock that they converted
into common stock each calendar quarter to the lesser of (i) 5% all of their
respective shares of the Company's Series A Preferred Stock or (ii) 1% of the
common stock then outstanding of record on the first day of each calendar
quarter. In consideration for the execution of the Series A Preferred Conversion
Restriction Agreement, the Company granted the holders the right of first
refusal to participate in any sale of the Series A Preferred Stock between
January 1, 2006 and December 31, 2006.

In March 2005, the Company entered into a one-year professional services
agreement with Synchton Incorporated for financial and business support
services. The agreement requires Synchton to provide one or more consultants for
a total of 100 hours per month. The Company is obligated to pay Synchton $12,000
per month in cash or free trading stock. The Company at its discretion may issue
up to 50% of the monthly fee in stock at the market price on the date of
issuance; provided that if Synchton sells the stock within 30 days of issuance
the Company is obligated to pay Synchton any shortfall between the difference in
the market price on the issuance date and the market price on the sale date.
Synchton's President is Scott A. Cubley. For the period ended March 31, 2006,
total fees incurred by the Company under the agreement were $36,000.

Under various financing agreements, the Company received advances from related
family trusts that totaled $130,000 in 2006, $1,142,000 in 2005 and $750,000 in
2004. The company repaid these advances through the issuance of 87,000 shares of
convertible preferred stock in 2006, 1,761,000 shares in convertible preferred


                                       18

<PAGE>

                               ERF WIRELESS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


stock in 2005 and 1,500,000 in convertible preferred stock in 2004. Frances
Cubley, the mother of H. Dean Cubley, holds the investment and voting power over
certain of these family related trusts while Scott Cubley and Brian Cubley, the
adult sons of H. Dean Cubley, have the investment and voting power over other of
the remaining family trusts.

NOTE 14 - INDUSTRY SEGMENTS

This summary reflects the Company's current segments, as described below.

BUNDLED WIRELESS SERVICES DIVISION (BWS)

BWS provides wireless broadband products and services to commercial and
individual customers throughout the wireless industry. The company is in the
early stages of building and acquiring a seamless wireless broadband network
throughout North America to serve private entities, cities, municipalities and
the general public. All sales from external customers are located within the
United States. .

WIRELESS MESSAGING SERVICES DIVISION (WMS)

WMS principally provides wireless broadband system design and implementation,
repairs and maintains paging infrastructure equipment, manufactures and supplies
high-power infrastructure equipment to the wireless messaging industry and owns
and operates a wide-area messaging service. All sales from external customers
are located within the United States.

NETWORK OPERATING SERVICES DIVISION (NOS)

NOS provides the overall day-to-day operations, maintenance, upgrading, 24/7
monitoring and expansion of all wireless broadband networks that the Company
constructs, acquires, maintains and administers. The transactions in the NOS
segment for the three months were not material.

ENTERPRISE NETWORK SERVICES (ENS)

ENS provides product and service to operate an enterprise-class encrypted
wireless banking network business. ENS provides the CryptoVue System consisting
of software, site-based hardware devices and servers to perform network
encryption; contracts for the construction, operation, monitoring and
maintenance of fixed wireless networks for banking customers; trade names,
equipment and software, including the software architecture and design.

<TABLE>
<S>     <C>

For the three months ended March 31, 2006 (in thousands)

                                                WMS               BWS                ENS              Total
                                           ------------------------------------------------------------------
         Revenue                               $ 266               $ 25             $ 571             $ 862
         Segment loss                            178                 42               289               509
         Segment assets                          270                183               741             1,194
         Capital expenditures                      9                  6               (12)                3
         Depreciation                              3                  6                 3                12

For the three months ended March 31, 2005 (in thousands)

                                                WMS               BWS               Total
                                           --------------    ---------------    -----------
         Revenue                               $ 101                $ 8             $ 109
         Segment loss                             35                  1                36
         Segment assets                          100                  -               100
         Capital expenditures                      -                  -                 -
         Depreciation                              1                  -                 1


Reconciliation of Segment Loss                  March 31,        March 31,
  from Operations to Net Loss                     2006             2005
----------------------------------           -------------     ------------
Total segment loss from operations           $       (509)     $      (36)
Total corporate overhead                             (812)            (431)
                                             -------------     ------------
Net loss                                     $     (1,321)     $      (467)
                                             =============     ============

                                       19

<PAGE>

                               ERF WIRELESS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Reconciliation of Segment Assets        March 31,       March 31,
      to Total Assets                     2006            2005
--------------------------------      -----------     ------------
Total segment assets                  $     1,194     $       100
Total corporate assets                      1,652             147
                                      ------------    ------------
Consolidated  assets                  $     2,846     $       247
                                      ============    ============
</TABLE>


The accounting policies of the reportable segments are the same as those
described in the section titled Basis of Accounting. The Company evaluates the
performance of its operating segments based on income before net interest
expense, income taxes, depreciation and amortization expense, accounting changes
and non-recurring items.

One customer accounts for $421,000 of Enterprise Network Services Division
revenues and one customer accounts for $71,000 of Wireless Messaging Services
Division revenues at March 31, 2006.

NOTE 15 - SUPPLEMENTAL NON-CASH DISCLOSURES:

During 2006 the Company issued stock in lieu of cash as payment for the
following (in thousands):

                                                 Supplemental
                                                   Non-Cash
                                                  Disclosure
                                                --------------
               Professional fees                $         218
               Settlements                                 10
               Salary and compensation                     34
               Other services rendered                     15
               Interest expense                            36
               Prepaid other                               15
               Notes payable                              184
                                                --------------
               Total non-cash settlements       $         512
                                                ==============


NOTE 16 - STOCK OPTIONS AND WARRANTS

In 2004, the Board of Directors adopted a Non-Qualified Stock Option Plan not
approved by the Company's shareholders under which 5,000,000 shares of the
Company's common stock has been reserved for issuance. As of March 31, 2006, the
Company had granted Series A Preferred convertible to common stock in the amount
of 1,767,604 preferred shares to certain officers and employees under employment
agreements of which 273,067 were exercisable. Also the Company has granted to
certain officers and employees 185,000 stock options which are currently
exercisable. As of March 31, 2006, under the Non-Qualified Stock Option Plan,
422,831 shares were issued and exercised to certain employees and consultants
for services rendered.

The Company has adopted FASB Statement 123R "Accounting for Stock-Based
Compensation" effective December 2005, for the year ended December 31, 2006.
SFAS 123R supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees." As permitted under SFAS 123R, the Company adopted the modified
prospective method in December 2005. In accordance with the "modified
prospective" method, compensation cost is recognized beginning with the
effective date (a) based on the requirements of SFAS 123R for all share-based
payments granted after the effective date and (b) based on the requirements of
SFAS 123 for all awards granted to employees prior to the effective date of SFAS
123R that remain unvested on the effective date.

The weighted average fair value of the individual options issued and granted
during the three months ended March 31, 2006, is estimated at $2.27 on the date
of grant. The fair values were determined using a Black-Scholes option-pricing
model with the following assumptions:

                                       20

<PAGE>

                               ERF WIRELESS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

<TABLE>
<S>     <C>

                                      8/1/2004        8/12/2005        12/31/2005       1/23/2006        3/31/2006
                                   ----------------------------------------------------------------------------------
         Assumptions                   Options         Options          Options          Options          Options
-------------------------------    ----------------------------------------------------------------------------------
Dividend yield                           0.00%            0.00%            0.00%            0.00%            0.00%
Risk-free rate for term                  3.50%            4.18%            4.35%            4.45%            4.98%
Volatility                             207.00%           31.00%           76.00%           89.00%           78.00%
Remaining life                               5                3                1              2.5              3.3


Option and warrant activity was as follows for the period ended March 31, 2006:

                                                                   2006
                                                              Weighted-Average
                                             Shares            Exercise Price
                                         ------------------  ------------------
Outstanding at beginning of year                 3,105,000   $            3.31
Granted                                            232,000                2.27
Assumed through acquisitions                             -                   -
Exercised                                                -                   -
Forfeited/cancelled                                      -                   -
                                         ------------------  ------------------

Outstanding throughout the period                3,337,000   $            3.17
                                         ==================  ==================

Exercisable at March 31, 2006                   185,000.00   $            1.73
                                         ==================  ==================


Information about options and warrants outstanding was as follows at March 31,
2006:

                                         Remaining       Average                   Average
    Range of             Number         Contractual      Exercise     Number       Exercise
 Exercise Prices       Outstanding     Life in Years      Price     Exercisable     Price
----------------       -----------     -------------     --------   -----------    --------

$1.38 - $3.72           3,337,000        2.40              3.17        185,000       1.73
</TABLE>

                                       21

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

This Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) should be read in conjunction with the financial statements of
this quarterly report on Form 10-QSB.

BUSINESS STRATEGY

The Company has four operating divisions to provide solutions and services to
different segments of the wireless industry. The Company's Enterprise Networks
Services Division serves enterprise customers, private entities, cities,
unincorporated municipalities and the general public. The Company's Bundled
Wireless Services Division provides wireless broadband products and services,
including Internet, voice, data, security and video services, and is in the
early stages of building or acquiring a seamless wireless broadband network
throughout much of North America to serve private entities, cities,
municipalities and the general public. The Company's Wireless Messaging Services
Division provides wireless broadband system design and implementation,
manufactures and supplies high-power infrastructure equipment to the wireless
messaging industry and owns and operates a wide-area messaging service (one- and
two-way cellular and paging retail). The Company's Network Operation Services
Division provides the overall day-to-day operations, maintenance, upgrading,
24/7 monitoring and expansion of all wireless broadband networks that the
Company constructs, acquires, maintains and administers. Hereinafter, all
references to the Company include the operations and financial condition of the
Company and its operating divisions.

The Company's business strategy is to design, construct, secure, maintain and
monitor enterprise-class encrypted microwave broadband networks for the regional
banking industry. The primary market drivers for these new high-speed networks
are attributable to three recent events. The first driver is a change in banking
regulations that permits the imaging of checks and other documents as a
substitute means of validation, exchange and storage. These new regulations
allow banks to eliminate the transfer of paper transit items within the Federal
Reserve System but require large amounts of bandwidth to electronically transfer
the data. Many financial institutions are finding that their traditional
point-to-point wired T1 circuits (1.5 Mbps) are insufficient to meet their new
data communication needs.

The second driver is new banking requirements for better disaster recovery plans
and fault tolerant communications resulting from the problems the banking
industry encountered during the recent hurricane disasters along the Gulf and
Atlantic coasts. Financial institutions in those areas experienced unacceptable
interruptions as a result of their reliance on traditional telecommunications
networks during the recent natural disasters.

The third driver is the Gulf Opportunity (GO) Zone Act of 2005 enacted December
21, 2005, which provides a significant acceleration of cost recovery by allowing
businesses in the Gulf Coast areas of Louisiana, Mississippi and Alabama
affected by hurricane Katrina to claim a depreciation deduction in the first
year the property is used equal to 50 percent of its cost. This bonus
depreciation is available to companies of all sizes for their investments in
equipment, software and depreciable real property.

The Company's fault-tolerant network solutions for individual banks
("BranchNetTM systems") intend to provide up to 200 Mbps of encrypted microwave
data communications bandwidth with satellite failover among a financial
institution's branches spread across hundreds of miles (BranchNet). BranchNet
systems address the banking industry demands for secure, fault-tolerant
broadband networks, while significantly reducing the cost of the required
fault-tolerant bandwidth versus traditional wireline communications options
provided by the incumbent telephone carriers.

Over time, the Company also plans to expand its offering to provide wireless
broadband product and service solutions to other large vertical markets where
high bandwidth and secure communications are needed (such as hospitals, schools,
law enforcement, etc.), especially in areas where it can leverage the excess
capacity in network infrastructure already constructed and paid for by its bank
customers.

OVERVIEW

During the quarter ended March 31, 2006, the Company began realizing revenue
against its first contract for designing, constructing, maintaining and
monitoring a secure 20-Mbps enterprise class wireless banking network for a
Louisiana bank; interconnecting 12 locations in 10 cities along with an upgrade
to an existing BankNet network. This contract totaled approximately $950,000,
including a $688,000 installation contract, together with annual maintenance and
monitoring services contract over five years. This project involves


                                       22

<PAGE>

point-to-point links in excess of 30 miles with installation of two 190-foot
towers, two 120-foot towers, six 96-foot towers, two 65-foot towers and 31
Motorala industrial microwave dish radios. The project also involves
installation of 12 of our proprietary CryptoBox encryption devices at the branch
locations and at the main operations center bank. The Company expects to
complete this project in the second quarter of 2006 along with an upgrade to
another existing banking network in Louisiana that interconnects the banks 16
locations in 10 cities with its primary operation center.

The Company has completed construction of four BankNet bank networks in three
states and will complete its fifth network for a bank in Baton Rouge, Louisiana
as well as a significant upgrade to an existing bank network in the second
quarter of 2006. The Company continues to focus its initial marketing efforts at
certain Louisiana, Mississippi, Alabama, Texas and Florida banks due to the
likelihood of hurricanes and wide-scale disasters in those states as well.

The quarter ended March 31, 2006, included the following additional highlights:

         o        The Company announced the appointment of Mike Moehle as
                  Executive Vice President of Marketing, Sales and Business
                  Development, a communications industry veteran, to lead the
                  expansion efforts of its enterprise network wireless broadband
                  banking business.

         o        The Company constructed a second Network Operations Center
                  ("NOC") at its League City headquarters and expanded its
                  Taylor, Texas NOC to support increased banking network
                  business.

         o        The Company introduced its regional banking solutions to the
                  Texas community banking market at the 3rd Annual Technology in
                  Banking Conference sponsored by the Texas Bankers Association
                  ("TBA")

         o        The Company's WMS division completed the implementation of a
                  video surveillance project for a municipality east of Houston
                  and a city-wide wireless broadband network for a municipality
                  in Florida.

         o        The Company announced that it had signed an Authorized Channel
                  Partner Agreement with 5G Wireless Communications, Inc. to
                  provide its new cellular-style wireless base stations and
                  high-performance microcells.

         o        The Company announced that it has secured a two-year unsecured
                  revolving line of credit with certain private investors to
                  fund general working capital, acquisitions and project
                  financing.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2006, COMPARED TO THREE MONTHS ENDED MARCH 31, 2005
--------------------------------------------------------------------------------

The following table sets forth summarized consolidated financial information for
the three months March 31, 2006 and 2005:

<TABLE>
CONDENSED FINANCIAL INFORMATION
-------------------------------

                                                            Three Months Ended March 31,
                                                  ---------------------------------------------------
          ($ IN THOUSANDS)                          2006           2005        $ Change      % Change
                                                  -------        -------        -------       -------
<S>                                               <C>            <C>            <C>               <C>
Total sales                                       $   862        $   109        $   753           691%
Cost of goods sold                                    574             33            541          1639%
                                                  -------        -------        -------       -------
Gross profit                                          288             76            212           279%
                                                  -------        -------        -------       -------
Percent of total sales                                 33%            70%          -36%           -52%
Operating expenses                                  1,609            543          1,066           196%
                                                  -------        -------        -------       -------
Loss from operations                               (1,321)          (467)          (854)          183%
Other income/(expense)                                606             --            606
                                                  -------        -------        -------       -------
Net loss                                             (715)          (467)          (248)           53%
                                                  -------        -------        -------       -------
Unrealized holding gain/(loss)                         --             --             --            --
                                                  -------        -------        -------       -------
Deemed dividend related to beneficial
     conversion feature of preferred stock           (130)          (237)           107           -45%
                                                  -------        -------        -------       -------
Net loss attritubable to common shareholders      $  (845)       $  (704)       $  (141)           20%
                                                  =======        =======        =======       =======

For the three months March 31, 2006, the Company's business operations reflected
an increase in Wireless Messaging Services, Bundled Wireless Services and
Enterprise Network Services. For the three months ended March 31, 2006, the
Company's consolidated operations generated net sales of $862,000 compared to
prior year net sales of $109,000. The increase in net sales is primarily


                                       23

<PAGE>

attributable to an increase in product sales of $644,000 and service sales of
$118,000 from the banking network business and wireless broadband installation
attributable to two major customers. For the three months ended March 31, 2006,
the Company had a gross profit margin of 33%, compared to a gross profit
percentage of 70% for the prior year. The decrease in gross profit percentage is
primarily attributable to several factors: (i) a reclassification of rent and
maintenance to cost of goods sold of $7,000 related to paging services as
compared to prior year rent and maintenance of $9,000 classified in operating
expense; (ii) lower margin on product and service sales; and (iii) depreciation
expenses of $5,000, primarily associated with the acquisition of SkyVue USA ISP
equipment.

The Company's net loss for the three months ended March 31, 2006, included
approximately $174,000 in depreciation and amortization expenses, $486,000 in
non-cash charges, $743,000 credit in derivative income $800,000 in employment
expenses net of non-cash and $168,000 in professional services net of non-cash
charges

SALES INFORMATION

Set forth below is a table presenting summarized sales information for our
business segments for the three months ended March 31, 2006 and 2005:

      ($ IN THOUSANDS)                                              Three Months Ended March 31,
      Business Segment              2006           % of Total          2005           % of Total        $ Change        % Change
                               ---------------   --------------   ---------------    --------------   ---------------  ------------
Wireless Messaging Services    $          266              31%    $         101               93%     $         165           163%
Bundled Wireless Services                  25               3%                8                7%                17           213%
Enterprise Network Services               571              66%                -                0%               571
                               ---------------   --------------   ---------------    --------------   ---------------  ------------
Total Sales                    $          862             100%    $          109              100%    $          753           691%
                               ===============   ==============   ===============    ==============   ===============  ============

For the three months ended March 31, 2006, net sales increased to $862,000 from
$109,000 for the three months ended March 31, 2005. The overall increase of 691%
was attributable to a $571,000 increase in Enterprise Network Services, increase
of $165,000 of Wireless Messaging Services and an increase in Bundled Wireless
Services of $17,000. The $571,000 increase in sales of the Enterprise Network
Services for the three months ended March 31, 2006, was primarily attributable
to sales from product and service sales of enterprise-class encrypted wireless
banking network business from a major customer. The increase of $165,000 in
Wireless Messaging Services is primarily attributable to wireless broadband
system design and implementation from two major customers. The increase of
$17,000 in Bundled Wireless Services is primarily attributable to increased
customer base through acquisition of ISP subscriber agreements.

COST OF GOODS SOLD

The following tables set forth summarized cost of goods sold information for the
three months ended March 31, 2006 and 2005:

       ($ IN THOUSANDS)                                           Three Months Ended March 31,
       Business Segment             2006          % of Total           2005           % of Total        $ Change         % Change
                              ---------------    -------------   ----------------    -------------    --------------   -------------
Wireless Messaging Services   $          122              21%    $            27              82%     $          95            352%
Bundled Wireless Services                 17               3%                  6              18%                11            183%
Enterprise Network Services              435              76%                  -               0%               435
                              ---------------    -------------   ----------------    -------------    --------------   -------------
Total Sales                   $          574             100%    $            33             100%     $         541           1639%
                              ===============    =============   ================    =============    ==============   =============


                                             Three Months Ended March 31,
                                    ------------------------------------------
           ($ IN THOUSANDS)                 2006                    2005              $ Change              % Change
                                    -------------------    -------------------   --------------------    -----------------

Products and integration service    $              542     $               33    $               509                1542%
Rent and maintenance                                15                                           15
Depreciation                                         5                                            5
Other costs                                         12                                           12
                                    -------------------    -------------------   --------------------    -----------------
Total Operating Expenses            $              574     $               33    $               541                1639%
                                    ===================    ===================   ====================    =================
</TABLE>

For the three months ended March 31, 2006, cost of goods sold increase by
$541,000, or 1,639%, to $574,000 from $33,000 as compared to the three months
ended March 31, 2005. The increase of $541,000 in cost of goods sold is
primarily attributable to: (i) product and service cost of $509,000 associated


                                       24

<PAGE>

with Enterprise Network Services and Wireless Messaging Services due to increase
sales from two major customers; and (ii) $15,000 of rent and maintenance cost
associated with a reclassification of rent and maintenance to cost of goods sold
of $8,000 related to paging services as compared to prior year rent and
maintenance of $9,000 classified in operating expense.

OPERATIONS EXPENSES

The following table sets forth summarized operating expense information for the
three months ended March 31, 2006 and 2005:

                                              Three Months Ended March 31,
                                     -------------------------------------------
    ($ IN THOUSANDS)                  2006        2005      $ Change    % Change
                                     ------      ------      ------      ------
Employment expenses                  $  834      $  329      $  505         153%
Professional services                   396         100         296         296%
Rent and maintenance                     73          22          51         232%
Depreciation and amortization            61           6          55         917%
Other general and administrative        245          86         159         185%
                                     ------      ------      ------      ------
Total operating expenses             $1,609      $  543      $1,066         196%
                                     ======      ======      ======      ======

For the three months ended March 31, 2006, operating expenses increased by 196%
to $1,609,000, as compared to $543,000 for the three months ended March 31,
2005. The increases that occurred, as evidenced by the immediately preceding
table, are discussed below:

         o        A $505,000 increase in employment expense. The increase is
                  primarily attributable to an increase in employee head count
                  to 34 from 14 from a year ago. The increase in employees
                  mostly related to the SkyVue USA acquisition, other smaller
                  wireless company acquisitions and management resources
                  necessary for the Company's anticipated growth.

         o        A $296,000 increase in professional services. The increase is
                  primarily related to consulting expense of $58,000, accounting
                  expense of $107,000, legal expense of $32,000, investor
                  relations expense of $84,000 and settlement expense of $9,000.
                  The significant rise in professional fees is principally
                  associated with additional resources in the field of
                  consulting, accounting, and legal expenses. Additionally, the
                  Company utilizes certain consulting resources to update the
                  financial reporting systems to appropriately handle the
                  anticipated growth and implement internal controls.

         o        A $51,000 increase in rent and maintenance expenses, primarily
                  due to office lease expense for the corporate office and other
                  leases obtained through the SkyVue USA acquisition.

         o        A $55,000 increase in depreciation and amortization, due
                  principally to the SkyVue USA acquisition of amortization of
                  intangibles of $42,000.

         o        A $159,000 increase in other general and administrative
                  expense. The increase is primarily related to office supplies
                  expense of $46,000, insurance and taxes expense of $6,000,
                  utility expense of $48,000, advertising expense of $3,000 and
                  travel and entertainment expense of $22,000. The increase in
                  other and general administrative expense primarily
                  attributable to increased cost associated with the SkyVue USA
                  acquisition.

OTHER (INCOME) EXPENSE, NET

The increase in other (income) expense is primarily attributable to derivative
instruments income of $743,000. This income represents the net unrealized
(non-cash) charge during the three months ended March 31, 2006, in the fair
value of our derivative instrument liabilities related to warrants and embedded
derivatives in our debt instruments that have been bifurcated and accounted for
separately. Additionally interest associated with the debt is $131,000 during
the three months quarter ended.

NET LOSS

For the three months ended March 31, 2006, our net loss was $715,000 compared to
a loss of $467,000 for the three months ended March 31, 2005. The increase in
the loss for the three months ended March 31, 2006, as compared to the three
months ended March 31, 2005, was attributable to the factors discussed
immediately above.

                                       25

<PAGE>

NET LOSS APPLICABLE TO COMMON SHAREHOLDERS

For the three months ended March 31, 2006, our net loss was $845,000 compared to
a loss of $704,000 for the three months ended March 31, 2005. The Company's Net
Loss Applicable to common shareholders included deemed dividends on the
beneficial conversion of the 87,000 shares of Series A Preferred Stock that was
limited to the amount of consideration received totaling $130,000 in the three
months ended March 31, 2006.

CASH FLOWS

The Company's operating activities increased net cash used by operating
activities to $799,000 in the three months ended March 31, 2006, compared to net
cash used of $280,000 in the three months ended March 31, 2005. The increase in
net cash used by operating activities was primarily attributable to fund an
increase in the company's net operating loss $715,000, net of $660,000 non-cash
charges combined with derivative income $743,000 for a net credit non-cash
charge of $83,000, together combined with $716,000 of cash used by fluctuations
in working capital requirements consisting of the combination of accounts
receivable, inventory, prepaid expenses, accounts payable, accrued expenses and
deferred revenue.

The Company's investing activities used net cash of $78,000 in the three months
ended March 31, 2006, compared to use of net cash of $91,000 in the three months
ended March 31, 2005. The decrease was due primarily to a decrease in capital
expenditures compared to last year.

The Company's financing activities provided net cash proceeds of $1,428,000 in
the three months ended March 31, 2006, compared to $373,000 of cash provided in
the three months ended March 31, 2005. The cash provided in the three months
ended March 31, 2006, was primarily associated with the investor advances of
$130,000, proceeds from line of credit of $1,239,000 and proceeds received from
the company's private placement and exercised options of $95,000 from common
stock net of commissions.

LIQUIDITY AND CAPITAL RESOURCES:

At March 31, 2006, the Company's current assets totaled $1,993,000 (including
cash and cash equivalents of $1,153,000). Total current liabilities were
$3,252,000, resulting in negative working capital of $1,259,000. The Company has
funded operations to date through a combination of utilizing cash on hand,
issuing common stock to settle certain current liabilities and raising
additional capital through the sale of its securities.


During the first quarter ended March 31, 2006, the Company completed a two-year
unsecured revolving credit facility with certain shareholders providing for a $2
million line of credit to be used for funding general working capital,
acquisitions and project financing, including the Enterprise Network Solutions
being provided to the regional banking market sector. The terms of the two-year
unsecured revolving credit facility will allow us to draw upon the facility as
financing requirements dictate and provides for quarterly interest payments at
an annual 6% rate. The loan may be prepaid without penalty or repaid at
maturity. In the event that the Company draws down the full $2 million amount
available under the Revolving Note dated February 2006 on or prior to December
31, 2006, and if the Company requires additional working capital to pursue its
business strategy and operations, Angus Capital Partners agrees to fund on a
requested basis an additional $1 million during 2006 under the same terms and
conditions as set forth in the Note.

Depending on how our funds are deployed, we may need to raise additional capital
as early as the third quarter of 2006. Furthermore, we anticipate that we will
need additional capital in the future to continue to expand our business
operations, which expenditures may include the following:

         o        Acquisitions of one or more companies, networks or other
                  assets

         o        Investment in towers, radios, customer premise equipment and
                  other related equipment associated with wireless broadband
                  expansion plans

         o        Investment in back office systems and related infrastructure
                  to support the Company's wireless broadband expansion plans

         o        Investment in laboratory facilities including test and
                  simulation equipment

         o        Investment or licensing of certain intellectual property
                  related to the Company's wireless broadband expansion plans

         o        General working capital purposes

                                       26

<PAGE>

The Company operations for the three months ended March 31, 2006, was primarily
funded by investor advances of $130,000, proceeds from line of credit of
$1,239,000 and proceeds received from the Company's private placement and
exercise options of $95,000 from common stock net of commissions.

Other than the credit facility with Angus Capital Partners, we do not have any
significant credit facilities available with financial institutions or other
third parties and as such we must rely upon best efforts third-party funding
from individual accredited investors. Subsequent to quarter ended March 31,
2006, the Company commenced a best-efforts private placement of up to $2.5
million in units consisting of a $25,000 10% three year bond to a limited number
of accredited investors. The bonds are due and payable upon maturity at the end
of the three year period. Interest on the bond is payable at a rate of 10% per
annum and is semi-annually. There e can be no assurance that we will be
successful in r aising any funds from this debt offering or from any future best
efforts financing efforts. If we are unable to either obtain financing from
external sources or generate internal liquidity from anticipated future
operations, we may need to curtail acquisition plans and operations.


CONTRACTUAL OBLIGATIONS

The following table sets forth contractual obligations as of March 31, 2006:

<TABLE>
                                                  Payments Due by Period
                               ---------------------------------------------------------------------
                                           Less than 1                                   More than 5
                                Total         Year        1-3 Years      3-5 Years          Years
                               --------     --------       --------       ---------       ---------
<S>                            <C>          <C>            <C>            <C>             <C>
Contractual obligations:
  Long-term debt obligations   $ 2,147      $    30        $ 2,117        $      -        $      -
  Operating lease obligations      436          107            329               -               -
                               --------     --------       --------       ---------       ---------
Total contractual obligations  $ 2,583      $   137        $ 2,446        $      -        $      -
                               ========     ========       ========       =========       =========
</TABLE>

The Company's contractual obligations consist of certain off-balance-sheet
obligations for office space operating leases requiring future minimal
commitments under non-cancelable leases.

OFF-BALANCE SHEET ARRANGEMENTS

As of March 31, 2006, the Company did not have any significant off-balance-sheet
arrangements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

GENERAL

We have adopted various accounting policies to prepare our consolidated
financial statements in accordance with U.S. GAAP. Our most significant
accounting policies are described in Note 1 to our consolidated financial
statements included elsewhere in this report. The preparation of our
consolidated financial statements in conformity with U.S. GAAP requires us to
make estimates and assumptions that affect the amounts reported in our
consolidated financial statements and accompanying notes. Our estimates and
assumptions, including those related to bad debts, inventories, intangible
assets, sales returns and discounts, and income taxes are updated as
appropriate.

Certain of our more critical accounting policies require the application of
significant judgment by management in selecting the appropriate assumptions for
calculating financial estimates. By their nature, these judgments are subject to
an inherent degree of uncertainty. These judgments are based on our historical
experience, terms of existing contracts, and our observance of trends in the
industry, information provided by our customers, and information available from
other outside sources, as appropriate. Different, reasonable estimates could
have been used in the current period. Additionally, changes in accounting
estimates are reasonably likely to occur from period to period. Both of these
factors could have a material impact on the presentation of our financial
condition, changes in financial condition or results of operations.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant inter-company accounts and transactions have
been eliminated in consolidation.

                                       27

<PAGE>

USE OF ESTIMATES

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


REVENUE RECOGNITION

The Company's revenue is generated primarily from the sale of wireless
communications products and services, including providing reliable
enterprise-class wireless broadband services. The Company recognizes revenue
when persuasive evidence of an arrangement exists, delivery has occurred, the
sales price is fixed or determinable, and collectibility is probable.

The Company records revenues from its fixed-price, long-term contracts using the
percentage-of-completion method. Revenues are recorded based on construction
costs incurred to date as a percentage of estimated total cost at completion.
The percentage-of-completion, determined by using total costs incurred to date
as a percentage of estimated total costs at completion, reflects the actual
physical completion of the project. This method of revenue recognition is used
because management considers total cost to be the best available measure of
progress on the contracts.

The Company recognizes product sales generally at the time the product is
shipped. Concurrent with the recognition of revenue, the Company provides for
the estimated cost of product warranties and reduces revenue for estimated
product returns. Sales incentives are generally classified as a reduction of
revenue and are recognized at the later of when revenue is recognized or when
the incentive is offered. Shipping and handling costs are included in cost of
goods sold.

WARRANTY

The Company's suppliers generally warrant the products distributed by the
Company and allow returns of defective products, including those that have been
returned to the Company by its customers. The Company does not independently
warrant the products that it distributes, but it does provide warranty services
on behalf of the supplier.

FIXED ASSETS

Furniture and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. The costs
associated with normal maintenance, repair, and refurbishment of equipment are
charged to expense as incurred. The capitalized cost of equipment and vehicles
under capital leases is amortized over the lesser of the lease term or the
asset's estimated useful life, and is included in depreciation and amortization
expense in the consolidated statements of operations.

When assets are retired or otherwise disposed of, the costs and related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is recognized as income for the period. The cost of maintenance and
repairs is charged to income as incurred; significant renewals and betterments
are capitalized. Deductions are made for retirements resulting from renewals or
betterments.

LONG-LIVED ASSETS

We review our long-lived assets, to include intangible assets subject to
amortization, for recoverability whenever events or changes in circumstances
indicate that the carrying amount of such long-lived asset or group of
long-lived assets (collectively referred to as "the asset") may not be
recoverable. Such circumstances include, but are not limited to:

         o        a significant decrease in the market price of the asset;

         o        a significant change in the extent or manner in which the
                  asset is being used;

         o        a significant change in the business climate that could affect
                  the value of the asset;

         o        a current period loss combined with projection of continuing
                  loss associated with use of the asset;

                                       28

<PAGE>

         o        a current expectation that, more likely than not, the asset
                  will be sold or otherwise disposed of before the end of its
                  previously estimated useful life.

We continually evaluate whether such events and circumstances have occurred.
When such events or circumstances exist, the recoverability of the asset's
carrying value shall be determined by estimating the undiscounted future cash
flows (cash inflows less associated cash outflows) that are directly associated
with and that are expected to arise as a direct result of the use and eventual
disposition of the asset. To date, no such impairment has occurred. To the
extent such events or circumstances occur that could affect the recoverability
of our long-lived assets, we may incur charges for impairment in the future.

CONCENTRATIONS OF CREDIT RISK

Trade accounts receivable are concentrated with companies or entities in the
regional banking and Internet services industry. Accordingly, the credit risk
associated with the trade accounts receivable will fluctuate with the overall
condition of the regional banking and Internet services industries. The primary
component of accounts receivable relates to the Company's sales of banking
wireless broadband networks and Internet service revenues. As a result, such
estimates are based on the Company's historical collection experience and
accounts receivable does reflect a general or specific provision for an
allowance for doubtful accounts. During all periods presented, credit losses, to
the extent identifiable, were within management's overall expectations.

DERIVATIVE INSTRUMENTS
----------------------

In connection with the sale of debt or equity instruments, we may sell options
or warrants to purchase our common stock. In certain circumstances, these
options or warrants may be classified as derivative liabilities, rather than as
equity. Additionally, the debt or equity instruments may contain embedded
derivative instruments, such as embedded derivative features, which in certain
circumstances may be required to be bifurcated from the associated host
instrument and accounted for separately as a derivative instrument liability.

The identification of, and accounting for, derivative instruments is complex.
Our derivative instrument liabilities are re-valued at the end of each reporting
period, with changes in the fair value of the derivative liability recorded as
charges or credits to income, in the period in which the changes occur. For
options, warrants and bifurcated embedded derivative features that are accounted
for as derivative instrument liabilities, we estimate fair value using either
quoted market prices of financial instruments with similar characteristics or
other valuation techniques. The valuation techniques require assumptions related
to the remaining term of the instruments and risk-free rates of return, our
current common stock price and expected dividend yield, and the expected
volatility of our common stock price over the life of the option. Because of the
limited trading history for our common stock, we have estimated the future
volatility of our common stock price based on not only the history of our stock
price but also the experience of other entities considered comparable to us. The
identification of, and accounting for, derivative instruments and the
assumptions used to value them can significantly affect our financial
statements.

RECENT ACCOUNTING PRONOUNCEMENTS

There have been no material changes to the recent accounting pronouncements as
previously reported in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2005.

RISK FACTORS

The most significant risks and uncertainties associated with our business are
described below; however, they are not the only risks we face. If any of the
following risks actually occur, our business, financial condition, or results or
operations could be materially adversely affected, the trading of our common
stock could decline, and an investor may lose all or part of their investment.

WE HAVE A LIMITED OPERATING HISTORY WITH SIGNIFICANT LOSSES AND EXPECT LOSSES TO
CONTINUE FOR THE FORESEEABLE FUTURE.

We have incurred annual operating losses since our inception. As a result, at
March 31, 2006, we had an accumulated deficit of $7,110,000. Our gross revenues
for the three months ended March 31, 2006, were $862,000, with a loss from
operations of $715,000 and a net loss applicable to common shareholders of
$845,000.

                                       29

<PAGE>

As we pursue our business plan, we expect our operating expenses to increase
significantly, especially in the areas of sales and marketing. As a result of
these expected cost increases, we will need to generate increased revenues to
become profitable. Accordingly, we cannot assure you that we will ever become or
remain profitable. If our revenues fail to grow at anticipated rates or our
operating expenses increase without a commensurate increase in our revenues, our
financial condition will be adversely affected. Our inability to become
profitable on a quarterly or annual basis would have a materially adverse effect
on our business and financial condition. Also, the market price for our stock
could fall.

WE HAVE A LIMITED CASH AND LIQUIDITY POSITION AND WILL NEED TO RAISE ADDITIONAL
FUNDS TO FUND OPERATIONS.

As of March 31, 2006, we had cash balances of $1,153,000 and a working capital
deficit of $1,259,000. We have historically financed our operations through
private equity and debt financings. For the three months ended March 31, 2006,
we did not generate positive cash flow from our operations. Depending on how our
funds are deployed, we may need to raise additional capital as early as the
third quarter of 2006. Moreover, we anticipate that we will need additional
capital in the future to continue to expand our business operations. During the
quarter ended March 31, 2006, the Company completed a two-year unsecured
revolving credit facility with certain shareholders providing up to $3 million
line of credit to be used by ERF Wireless for funding general working capital,
acquisitions and project financing, including the expansion of the Company's
Enterprise Network Solutions being provided to the regional banking market
sector. The terms of the two-year unsecured revolving credit facility allow ERF
Wireless to draw upon the facility as financing requirements dictate and
provides for quarterly interest payments at an annual 6% rate. The loan may be
prepaid without penalty or repaid at maturity. We do not have any commitments
for equity funding at this time, and additional funding may not be available to
us on favorable terms, if at all. As such there is no assurance that we can
raise additional capital from external sources, the failure of which could cause
us to sell assets or curtail operations.

THE TERMS OF OUR DEBT OBLIGATIONS TO THE INVESTORS IN THE SEPTEMBER 2005
FINANCING SUBJECT US TO THE RISK OF FORECLOSURE OF CERTAIN OF OUR ASSETS.

To secure the payment of all obligations owed to the investors in the 2005
financings, we have granted to the investors a security interest and lien on
certain of our assets. The occurrence of an event of default under any of our
obligations would subject us to foreclosure by the investors to the extent
necessary to repay any amounts due. If a foreclosure were to happen, it would
have a material adverse effect on our financial condition. Furthermore, we may
not have sufficient funds to repay the investors when our debt obligations to
them become due. We are not required to establish a sinking fund for the
repayment of our debt to the investors. Accordingly, we may be required to
obtain funds to repay the investors either through refinancing or the issuance
of additional equity or debt securities. We may be unable to obtain the funds
needed, if any, to repay the obligations from any one or more of these other
sources on favorable economic terms or at all.

ADDITIONAL CAPITAL MAY DILUTE CURRENT STOCKHOLDERS.

In order to provide capital for the operation of our business we may enter into
additional financing arrangements. These arrangements may involve the issuance
of new common stock, preferred stock that is convertible into common stock, debt
securities that are convertible into common stock or warrants for the purchase
of common stock. Any of these items could result in a material increase in the
number of shares of common stock outstanding which would in turn result in a
dilution of the ownership interest of existing common shareholders. In addition
these new securities could contain provisions, such as priorities on
distributions and voting rights, which could affect the value of our existing
common stock.

THE MARKET PRICE OF OUR COMMON STOCK IS VERY VOLATILE AND THE VALUE OF YOUR
INVESTMENT MAY BE SUBJECT TO SUDDEN DECREASES.

The trading price for our common stock has been, and we expect it to continue to
be, volatile. For example, the closing bid price of our stock has fluctuated
between $1.38 per share and $11.75 per share since September 20, 2004. The price
at which our common stock trades depends upon a number of factors, including our
historical and anticipated operating results and general market and economic
conditions, which are beyond our control. Factors such as fluctuations in our
financial and operating results, technological innovations or new commercial
products and services by us or our competitors, could also cause the market
price of our common stock to fluctuate substantially. In addition, the stock


                                       30

<PAGE>

market has, from time to time, experienced extreme price and volume
fluctuations. These broad market fluctuations may lower the market price of our
common stock. Moreover, during periods of stock market price volatility, share
prices of many companies have often fluctuated in a manner not necessarily
related to their operating performance. Accordingly, our common stock may be
subject to greater price volatility than the stock market as a whole.

A LOW MARKET PRICE MAY SEVERELY LIMIT THE POTENTIAL MARKET FOR OUR COMMON STOCK.

Our common stock is currently trading at a price below $5.00 per share,
subjecting trading in the stock to certain SEC rules requiring additional
disclosures by broker-dealers. These rules generally apply to any non-NASDAQ
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions (a "penny stock"). Such rules require the delivery, prior to
any penny stock transaction, of a disclosure schedule explaining the penny stock
market and the risks associated therewith and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and institutional or wealthy investors. For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to the sale. The broker-dealer also must disclose the
commissions payable to the broker-dealer, current bid and offer quotations for
the penny stock and, if the broker-dealer is the sole market maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Such information must be provided to the customer orally or in
writing before or with the written confirmation of trade sent to the customer.
Monthly statements must be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks. The additional burdens imposed upon broker-dealers by such requirements
could discourage broker-dealers from effecting transactions in our common stock.

THE COMPANY'S REVENUE AND OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY FROM
QUARTER TO QUARTER, AND FLUCTUATIONS IN OPERATING RESULTS COULD CAUSE ITS STOCK
PRICE TO DECLINE.

The Company's revenue and operating results may vary significantly from quarter
to quarter due to a number of factors. In future quarters, operating results may
be below the expectations of public market analysis or investors, and the price
of our common stock may decline. For the three months ended March 31, 2006, the
Company's Wireless Messaging Services contributed almost 31% of the Company's
revenues. Factors that could cause quarterly fluctuations include:

         o        The Company's Enterprise Network Services subsidiary's ability
                  to secure new regional banking network customers for both the
                  construction and design of new broadband networks and for the
                  maintenance and monitoring of these broadband networks.

         o        The Company's Bundled Wireless Services Division's ability to
                  acquire existing rural wireless broadband networks throughout
                  North America and the ability to secure customers in the rural
                  regions in which the Company acquires these wireless broadband
                  networks.

         o        The Company's Wireless Messaging Services Division's ability
                  to keep current customers and secure new customers.

         o        The Company's Network Operations Division's ability to acquire
                  new customers through the Enterprise Network Services
                  Division, the Bundled Wireless Services Division and third
                  parties.

         o        The Company's ability to raise the necessary capital to
                  execute mergers, acquisitions and asset purchases, as needed
                  to implement the Company's strategic plan.

         o        Accordingly, the failure to obtain significant future revenue,
                  or lower than expected revenue in the future, could adversely
                  affect our stock price and liquidity.


FOR THE YEAR 2006, THE MAJORITY OF OUR REVENUE WAS GENERATED FROM SHORT-TERM
AGREEMENTS.

For the three-month period ended March 31,2006, the majority of our revenues
from customers resulted from short-term, terminable at will, arrangements. There
is no assurance that these customers will continue to conduct business with us
in the future, the failure of which could have a material adverse effect on our
business operations.

                                       31

<PAGE>

WE COMPETE WITH MANY COMPANIES THAT ARE LARGER AND BETTER FINANCED THAN WE ARE,
AND OUR GROWTH AND PROFITABILITY ARE DEPENDENT ON OUR ABILITY TO COMPETE WITH
THESE ENTITIES.

We face competition from many entities with significantly greater financial
resources, well-established brand names and larger customer bases. We may become
subject to severe price competition for our products and services as companies
seek to enter our industry or current competitors attempt to gain market share.
We expect competition to intensify in the future and expect significant
competition from traditional and new telecommunications companies including,
local, long distance, cable modem, Internet, digital subscriber line, microwave,
mobile and satellite data providers. If we are unable to make or keep our
products competitively priced and attain a larger market share in the markets in
which our products compete, our levels of sales and our ability to achieve
profitability may suffer.

A SYSTEM FAILURE COULD DELAY OR INTERRUPT OUR ABILITY TO PROVIDE PRODUCTS OR
SERVICES AND COULD INCREASE OUR COSTS AND REDUCE OUR REVENUES.

Our operations are dependant upon our ability to support a highly complex
network infrastructure. Many of our customers are particularly dependent on an
uninterrupted supply of services. Any damage or failure that causes
interruptions in our operations could result in loss of these customers. To
date, we have not experienced any significant interruptions or delays which have
affected our ability to provide products and services to our clients. Because
our headquarters and infrastructure are located in the Texas Gulf Coast area,
there is a likelihood that our operations may be affected by hurricanes or
tropical storms, tornados, or flooding. The occurrence of a natural disaster,
operational disruption or other unanticipated problem could cause interruptions
in the services we provide and significantly impair our ability to generate
revenue and achieve profitability.

THE COMPANY MUST CONTINUALLY ENHANCE ITS SERVICES TO MEET THE CHANGING NEEDS OF
ITS CUSTOMERS OR FACE THE POSSIBILITY OF LOSING FUTURE BUSINESS TO COMPETITORS.

Future success will depend upon the Company's ability to enhance existing
services and to introduce new services to meet the requirements of customers in
a rapidly developing and evolving market. Present or future services may not
satisfy the needs of the market. If the Company is unable to anticipate or
respond adequately to its customers' needs, lost business may result and
financial performance will suffer.

OUR INDUSTRY CHANGES RAPIDLY DUE TO EVOLVING TECHNOLOGY STANDARDS AND OUR FUTURE
SUCCESS WILL DEPEND ON OUR ABILITY TO CONTINUE TO MEET THE SOPHISTICATED NEEDS
OF OUR CUSTOMERS.

Our future success will depend on our ability to address the increasingly
sophisticated needs of our customers. We will have to develop and introduce
enhancements to our existing products and new products on a timely basis to keep
pace with technological developments, evolving industry standards and changing
customer requirements. We expect that we will have to respond quickly to rapid
technological change, changing customer needs, frequent new product
introductions and evolving industry standards that may render existing products
and services obsolete. As a result, our position in existing markets or
potential markets could be eroded rapidly by product advances. The life cycles
of our products are difficult to estimate. Our growth and future financial
performance will depend in part upon our ability to enhance existing
applications, develop and introduce new applications that keep pace with
technological advances, meet changing customer requirements and respond to
competitive products. We expect that our product development efforts will
continue to require substantial investments. We may not have sufficient
resources to make the necessary investments. Any of these events could have a
material adverse effect on our business, quarterly and annual operating results
and financial condition.

FAILURE TO PROTECT ITS CRYPTOVUE INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT
ITS FUTURE GROWTH AND SUCCESS.

The Company's ability to successfully protect its proprietary technology is
essential to its success. Although, the Company filed a patent application on
its CryptoVue intellectual property in March 2006, there can be no assurance
that this patent will be issued. The failure to adequately protect CryptoVue
intellectual property could adversely affect the Company's growth and success.

                                       32

<PAGE>

OUR COMPETITORS MAY DEVELOP NON-INFRINGING PRODUCTS OR TECHNOLOGIES THAT
ADVERSELY AFFECT OUR FUTURE GROWTH AND REVENUES.

It is possible that our competitors will produce proprietary technologies
similar to ours without infringing on our intellectual property rights. We also
rely on unpatented proprietary technologies. It is possible that others will
independently develop the same or similar technologies or otherwise obtain
access to the unpatented technologies upon which we rely for future growth and
revenues. Failure to meaningfully protect our trade secrets, know-how or other
proprietary information could adversely affect our future growth and revenues.

WE MAY INCUR SIGNIFICANT LITIGATION EXPENSES PROTECTING OUR INTELLECTUAL
PROPERTY OR DEFENDING OUR USE OF INTELLECTUAL PROPERTY, WHICH MAY HAVE A
MATERIAL ADVERSE EFFECT ON OUR CASH FLOW.

Significant litigation regarding intellectual property exists in our industry.
Competitors and other third parties may infringe on our intellectual property
rights. Alternatively, competitors may allege that we have infringed on their
intellectual property rights, resulting in significant litigation expenses,
which would reduce our cash flow. Any claims, even those made by third parties
who are without merit, could:

         o        be expensive and time consuming to defend, resulting in the
                  diversion of management's attention and resources;

         o        require us to cease making, licensing or using products or
                  systems that incorporate the challenged intellectual property;
                  or

         o        require us to spend significant time and money to redesign,
                  re-engineer or re-brand our products or systems if feasible.

IF THE WIRELESS BROADBAND MARKET DOES NOT EVOLVE AS WE ANTICIPATE, OUR BUSINESS
WILL BE ADVERSELY AFFECTED.

If we fail to properly assess and address the broadband wireless market or if
our products and services fail to achieve market acceptance for any reason, our
business and quarterly and annual operating results would be materially
adversely affected. Since the market for our products is still evolving, it is
difficult to assess the competitive environment or the size of the market that
may develop. In addition, technologies, customer requirements and industry
standards may change rapidly. If we cannot improve or augment our products as
rapidly as existing technologies, customer requirements and industry standards
evolve, our products or services could become obsolete. The introduction of new
or technologically superior products by competitors could also make our products
less competitive or obsolete. As a result of any of these factors, our position
in existing markets or potential markets could be eroded.

WE MAY NOT BE SUCCESSFUL IN ACQUIRING OTHER EXISTING COMPANIES AND TECHNOLOGIES,
WHICH COULD NEGATIVELY AFFECT OUR PRODUCT AND SERVICES OFFERINGS AND SALES.

Our business plan is dependent on acquiring existing companies and technologies
that expand our business, augment our market coverage, enhance our technical
capabilities, provide us with valuable customer contacts or otherwise offer
growth opportunities, and we may not be able to make such acquisitions. These
acquisitions are important to ensure that our products, services and
technologies are compatible with third-party products and technologies, to
enable us to sale or license our products and technologies to potential new
customers and into potential new markets, and to enable us to continue to enter
into new agreements with our existing customers. There can be no assurance that
we will identify the best acquisitions for our business or enter into
acquisitions of other companies on acceptable terms or at all. The failure to
make strategic acquisitions could have a material adverse effect on our business
or financial results. If we cannot make significant strategic acquisitions as
our target markets and technology evolve, the sales opportunities for our
products and technologies could deteriorate.

                                       33

<PAGE>

FUTURE ACQUISITIONS COULD PROVE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS,
DILUTE STOCKHOLDER VALUE AND STRAIN OUR RESOURCES.

As part of our business strategy, we intend to seek to acquire companies and
technologies that we believe could complement or expand our business, augment
our market coverage, enhance our technical capabilities, provide us with
valuable customer contacts or otherwise offer growth opportunities. If we fail
to achieve the anticipated benefits of any acquisitions we complete, our
business, operating results, financial condition and prospects may be impaired.
Acquisitions and investments involve numerous risks, including:

         o        difficulties in integrating operations, technologies,
                  services, accounting and personnel;

         o        difficulties in supporting and transitioning customers of our
                  acquired companies to our technology platforms and business
                  processes;

         o        diversion of financial and management resources from existing
                  operations;

         o        difficulties in obtaining regulatory approval for technologies
                  and products of acquired companies;

         o        potential loss of key employees;

         o        if we finance acquisitions by issuing convertible debt or
                  equity securities, our existing stockholders may be diluted,
                  which dilution could adversely affect the market price of our
                  stock;

         o        inability to generate sufficient revenues to offset
                  acquisition or investment costs; and

         o        potential write-offs of acquired assets.

Acquisitions also frequently result in recording of goodwill and other
intangible assets, which are subject to potential impairments in the future that
could harm our operating results. It is also possible that at some point in the
future we may decide to enter new markets, thus subjecting ourselves to new
risks associated with those markets.

INFLATION

The Company's results of operations have not been affected by inflation and
management does not expect inflation to have a significant effect on its
operations in the future.

ITEM 3. CONTROLS AND PROCEDURES

We maintain controls and procedures designed to ensure that information required
to be disclosed in the reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Securities and Exchange
Commission. Based upon their evaluation of those controls and procedures
performed as of the end of the period covered by this report, our chief
executive officer and principal financial officer concluded that our disclosure
controls and procedures were adequate.

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

                                       34

<PAGE>

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended March 31, 2006, the Company issued 50,002 shares
of its common stock, Class A Warrants to purchase 50,002 shares of common stock,
and Class B Warrants to purchase 50,002 shares of common stock for $75,000 in
funds sold during the three months ended March 31, 2006. The Class A Warrant has
an exercise price of $5.00 per share and the Class B Warrant has an exercise
price of $7.50 per share. Each warrant allows the holder to purchase one share
of common stock at the exercise price. The Company is relying upon the following
facts in its determination that the issuance of shares under the Stock Purchase
Agreement is an exempt transaction under Section 4(2) of the Securities Act for
"transactions by an issuer not involving any public offering." There was no
general solicitation or general advertising. There was an opportunity for all
purchasers to ask questions and receive answers concerning the terms and
conditions of the offering. The purchasers were accredited investors and all
have such knowledge and experience in financial and business matters as to be
capable of evaluating alone the merits and risks of the prospective investment.
All certificates for shares contained a Rule 144 legend."

IExcept as otherwise noted, the securities described in this Item were issued
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. Each such issuance was made pursuant to individual
contracts which are discrete from one another and are made only with persons who
were sophisticated in such transactions and who had knowledge of and access to
sufficient information about the Company to make an informed investment
decision. Among this information was the fact that the securities were
restricted securities.

ITEM 3. DEFAULT IN SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None

                                       35

<PAGE>
<TABLE>
<S>     <C>

ITEM 6. EXHIBITS

Exhibit 2.1       Agreement and Plan of Merger between Fleetclean Systems, Inc. and ERF Wireless, Inc. (1)
Exhibit 2.2       Articles of Merger (1)
Exhibit 3.1       Articles of incorporation of ERF Wireless, Inc. (1)
Exhibit 3.1.1     Certificate of Amendment to Articles of incorporation of ERF Wireless, Inc. (1)
Exhibit 3.2       Bylaws of ERF Wireless, Inc. (1)
Exhibit 4.1       Designation of Preferences (1)
Exhibit 4.2       Amendment to Designation of Preferences (7)
Exhibit 4.3       Amended and Restated Designation of Series A Preferred Stock (11)
Exhibit 5.1       Legal Opinion (11)
Exhibit 10.1      Greg Smith Amended and Restated Employment Agreement (5)
Exhibit 10.2      Addendum to Debt Conversion and Funding Agreement effective September 30, 2004, between
                  ERF Wireless, Inc., Eagle R.F. International and Investors. (6)
Exhibit 10.3      Asset and Liability Contribution Agreement dated March 31, 2004, between Fleetclean
                  Systems, Inc. and Fleetclean Chemicals, Inc. (2)
Exhibit 10.4      Stock Purchase Agreement dated May 15, 2004, between Systom Trust Joint Venture and
                  Kenneth A. Phillips et. al. (3)
Exhibit 10.5      Subscription Agreement dated May 11, 2004, between Fleetclean Systems, Inc. and Systom
                  Trust Joint Venture (3)
Exhibit 10.6      Acquisition Agreement dated May 15, 2004, between Kenneth A. Phillips and Fleetclean
                  Systems, Inc. (3)
Exhibit 10.7      2004 Non-Qualified Stock Compensation Plan (4)
Exhibit 10.8      Second Addendum to Debt Conversion and Funding Agreement effective July 1, 2005, between
                  ERF Wireless, Inc., Eagle R.F. International and Investors. (8)
Exhibit 10.9      Form of Common Stock Purchase Warrant Agreement, by and between ERF Wireless, Inc. and
                  Investor (9)
Exhibit 10.10     Form of Convertible Term Note, by and between the ERF Wireless, Inc. and Investor (9)
Exhibit 10.11     Form of Registration Rights Agreement, by and between the ERF Wireless, Inc., and
                  Investor (9)
Exhibit 10.12     Form of Stock Purchase Agreement, by and between ERF Wireless, Inc. and Investor.(9)
Exhibit 10.13     Asset Purchase Agreement dated August 8, 2005, by and among ERF Wireless, Inc., a Nevada
                  corporation, ERF Enterprise Network Services, Inc., a Texas corporation, and SkyVue USA
                  East Central Texas, Inc., a Texas corporation (10)
Exhibit 10.14     Form of SkyVue Note. (11)
Exhibit 10.15     Series A Preferred Conversion Restriction Agreement. (11)
Exhibit 10.16     Warrant issued in June 2004.(11)
Exhibit  10.17    Employment Agreement with John Burns.(11)
Exhibit 20.1      List of Subsidiaries(11)
Exhibit 23.1      Independent Auditors' Consent
Exhibit 31        Certification of Chief Executive officer and Chief Financial officer pursuant to Rules 13a-14
                  (a) and 15d-14 (a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32        Certification 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.
__________
(1)    Incorporated by reference from the Form 10-QSB for September 30, 2004;
(2)    Incorporated by reference from the Form 10-QSB for June 30, 2004;
(3)    Incorporated by reference from the Form 8-K for May 28, 2004;
(4)    Incorporated by reference from the Form S-8 filed December 29, 2004;
(5)    Incorporated by reference from the Form 10-KSB filed April 15, 2005;
(6)    Incorporated by reference from the Form 10-KSB/A - Amendment No. 1 filed on August 29, 2005;
(7)    Incorporated by reference from the Form 10-QSB for March 31, 2005;
(8)    Incorporated by reference from the Form 10-QSB/A - Amendment No. 1;
(9)    Incorporated by reference from the Form 8-K for September 19, 2005;
(10)   Incorporated by reference from the Form 8-K for August 12, 2005;
(11)   Incorporated by reference from the Form SB-2 filed on December 12, 2005.
(12)   Incorporated by reference from the Form 10K-SB filed on April 13, 2006.
</TABLE>

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<PAGE>

                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

ERF Wireless, Inc.


 Date:  May 22, 2006

By:    /s/ R. Greg Smith
       -----------------------
       R. Greg Smith,
       Chief Executive Officer and Chief Financial Officer
       (Principal Executive Officer and Principal Financial
       and Accounting Officer)




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