UNITED STATES SECURITIES AND EXCHANGE COMMISSION



Washington, D.C. 20549



FORM 10-Q



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



For the quarterly period ended June 30,
2012



OR



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



ERF WIRELESS, INC.(Exact name of registrant as specified in its charter)



|Nevada                                         |  | 000-27467                |  | 76-0196431                       
|---------------------------------------------- |  | ------------------------ |  | ---------------------------------
|(State or other jurisdiction of incorporation) |  | (Commission File Number) |  | (IRS Employer Identification No.)



2911 SOUTH SHORE BOULEVARD, SUITE
100, LEAGUE CITY, TEXAS 77573(Address of principal executive offices) (Zip Code)



Registrant's telephone number, including
area code: (281) 538-2101



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 S  No £



Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes S  No £



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





|Large accelerated filer £ | Accelerated filer £        
|------------------------- | ---------------------------
|Non-accelerated filer £   | Smaller reporting company S





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



Indicate the number of shares outstanding
of each of the issuer’s classes of common stock, as of the latest practicable date. 3,567,992 common shares issued and outstanding
as of August 14, 2012.


















PART I -
FINANCIAL INFORMATION



ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS



ERF WIRELESS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2012, AND DECEMBER 31, 2011
($ in thousands except share data)





|                                                                                                                                                       |  | June 30,    |         |   | December 31, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------- | ------- | - | ------------ | -
|                                                                                                                                                       |  | 2012        |         |   | 2011         |  
|                                                                                                                                                       |  | (Unaudited) |         |   |              |  
|ASSETS                                                                                                                                                 | 
|Current assets                                                                                                                                         |  |             |         |   |              |  
|Cash and cash equivalents                                                                                                                              |  | $           | 149     |   |              | $
|Securities held for resale                                                                                                                             |  |             | 1       |   |              |  
|Accounts receivable, net                                                                                                                               |  |             | 655     |   |              |  
|Accounts receivable, other                                                                                                                             |  |             | 437     |   |              |  
|Inventories                                                                                                                                            |  |             | 411     |   |              |  
|Prepaid expenses and other current assets                                                                                                              |  |             | 130     |   |              |  
|Total current assets                                                                                                                                   |  |             | 1,783   |   |              |  
|                                                                                                                                                       |  |             |         |   |              |  
|Property and equipment                                                                                                                                 |  |             |         |   |              |  
|Property and equipment                                                                                                                                 |  |             | 10,912  |   |              |  
|Less: accumulated depreciation                                                                                                                         |  |             | (6,600  | ) |              |  
|Net property and equipment                                                                                                                             |  |             | 4,312   |   |              |  
|                                                                                                                                                       |  |             |         |   |              |  
|Goodwill                                                                                                                                               |  |             | 176     |   |              |  
|Other assets                                                                                                                                           |  |             | 32      |   |              |  
|                                                                                                                                                       |  |             |         |   |              |  
|Total assets                                                                                                                                           |  | $           | 6,303   |   |              | $
|                                                                                                                                                       |  |             |         |   |              |  
|LIABILITIES AND SHAREHOLDERS’ DEFICIT                                                                                                                  | 
|Current liabilities:                                                                                                                                   |  |             |         |   |              |  
|Notes payable and current portion of long-term debt                                                                                                    |  | $           | 1,166   |   |              | $
|Current portion of long-term capital leases                                                                                                            |  |             | 150     |   |              |  
|Accounts payable                                                                                                                                       |  |             | 1,054   |   |              |  
|Accrued expenses                                                                                                                                       |  |             | 726     |   |              |  
|Derivative liabilities                                                                                                                                 |  |             | 282     |   |              |  
|Deferred liability and revenue                                                                                                                         |  |             | 209     |   |              |  
|Total current liabilities                                                                                                                              |  |             | 3,587   |   |              |  
|                                                                                                                                                       |  |             |         |   |              |  
|Line of credit (LOC)                                                                                                                                   |  |             | 3,877   |   |              |  
|Long-term debt, net of current portion                                                                                                                 |  |             | 1,216   |   |              |  
|Long-term capital leases, net of current portion                                                                                                       |  |             | 281     |   |              |  
|Total liabilities                                                                                                                                      |  |             | 8,961   |   |              |  
|                                                                                                                                                       |  |             |         |   |              |  
|Commitments                                                                                                                                            |  |             |         |   |              |  
|                                                                                                                                                       |  |             |         |   |              |  
|Shareholders’ deficit:                                                                                                                                 |  |             |         |   |              |  
|Preferred stock  -  $0.001 par value, 25,000,000 authorized                                                                                            |  |             |         |   |              |  
|Series A designated
    10,000,000 shares Issued and outstanding at June 30, 2012 and December 31,     2011, 8,508,887 and 8,578,887,
    respectively |  |             | 9       |   |              |  
|Common stock  -  $0.001 par value                                                                                                                      |  |             |         |   |              |  
|Authorized 975,000,000 shares Issued and outstanding at June 30, 2012 and December 31, 2011,
    3,235,096 and 2,160,996,     respectively             |  |             | 3       |   |              |  
|Additional paid in capital                                                                                                                             |  |             | 50,764  |   |              |  
|Accumulated deficit                                                                                                                                    |  |             | (53,518 | ) |              |  
|Accumulated other comprehensive loss                                                                                                                   |  |             | (31     | ) |              |  
|Total ERF wireless, Inc. shareholders’ deficit                                                                                                         |  |             | (2,773  | ) |              |  
|Noncontrolling interest                                                                                                                                |  |             | 115     |   |              |  
|Total shareholders’ deficit                                                                                                                            |  |             | (2,658  | ) |              |  
|                                                                                                                                                       |  |             |         |   |              |  
|Total liabilities and shareholders' deficit                                                                                                            |  | $           | 6,303   |   |              | $



See accompanying notes to consolidated financial statements.





2











ERF WIRELESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(Unaudited)
($ in thousands except loss per share)





|                                                   |  | For the Three Months |        |   | For the Six Months |  
|-------------------------------------------------- |  | -------------------- | ------ | - | ------------------ | -
|                                                   |  | Ended June 30,       |        |   | Ended June 30,     |  
|                                                   |  | 2012                 |        |   | 2011               |  
|                                                   |  |                      |        |   |                    |  
|Sales:                                             |  |                      |        |   |                    |  
|Products                                           |  | $                    | 28     |   |                    | $
|Services                                           |  |                      | 1,659  |   |                    |  
|Total sales                                        |  |                      | 1,687  |   |                    |  
|                                                   |  |                      |        |   |                    |  
|Costs of goods sold:                               |  |                      |        |   |                    |  
|Products and integration services                  |  |                      | 430    |   |                    |  
|Rent, repairs and maintenance                      |  |                      | 173    |   |                    |  
|Depreciation                                       |  |                      | 338    |   |                    |  
|Total costs of goods sold                          |  |                      | 941    |   |                    |  
|                                                   |  |                      |        |   |                    |  
|Gross profit                                       |  |                      | 746    |   |                    |  
|Operating expenses:                                |  |                      |        |   |                    |  
|Selling, general and administrative                |  |                      | 1,741  |   |                    |  
|Depreciation and amortization                      |  |                      | 55     |   |                    |  
|Total operating expenses                           |  |                      | 1,796  |   |                    |  
|Operating loss from continuing operations          |  |                      | (1,050 | ) |                    |  
|Other income (expense):                            |  |                      |        |   |                    |  
|Interest expense, net                              |  |                      | (320   | ) |                    |  
|Gain on sale of assets                             |  |                      | –      |   |                    |  
|Derivative income                                  |  |                      | 18     |   |                    |  
|Total other (expense) income                       |  |                      | (302   | ) |                    |  
|(Loss) from continuing operations                  |  |                      | (1,352 | ) |                    |  
|Loss from discontinued operations                  |  |                      | –      |   |                    |  
|Consolidated net (loss)                            |  |                      | (1,352 | ) |                    |  
|                                                   |  |                      |        |   |                    |  
|Net income attributable to noncontrolling interest |  |                      | (3     | ) |                    |  
|Net (loss) attributable to ERF Wireless Inc.       |  |                      | (1,355 | ) |                    |  
|Other comprehensive (loss) income:                 |  |                      |        |   |                    |  
|Unrealized (loss) on securities held for resale    |  |                      | (2     | ) |                    |  
|Total other comprehensive (loss)                   |  |                      | (2     | ) |                    |  
|Total comprehensive (loss)                         |  | $                    | (1,357 | ) |                    | $
|Basic (loss) per common share:                     |  |                      |        |   |                    |  
|(Loss) from continuing operations                  |  | $                    | (0.46  | ) |                    | $
|(Loss) from discontinued operations                |  | $                    | –      |   |                    | $
|Net (loss)                                         |  | $                    | (0.46  | ) |                    | $
|                                                   |  |                      |        |   |                    |  
|Diluted (loss) income per common share:            |  |                      |        |   |                    |  
|(Loss) from continuing operations                  |  | $                    | (0.46  | ) |                    | $
|(Loss) from discontinued operations                |  | $                    | –      |   |                    | $
|Net (loss)                                         |  | $                    | (0.46  | ) |                    | $





See accompanying notes to consolidated financial statements.





3







ERF WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(Unaudited)
($ in thousands)





|                                                                              |  | 2012 |        |   | 2011 |  
|----------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | -
|                                                                              |  |      |        |   |      |  
|Cash flows from operating activities                                          |  |      |        |   |      |  
|(Loss) from continuing operations                                             |  | $    | (2,312 | ) |      | $
|(Loss) from discontinued operations                                           |  |      | –      |   |      |  
|Net (loss)                                                                    |  |      | (2,312 | ) |      |  
|                                                                              |  |      |        |   |      |  
|Adjustments to reconcile net (loss) to net cash used by operating activities: |  |      |        |   |      |  
|Gain on sale of assets                                                        |  |      | –      |   |      |  
|Amortization of debt discount                                                 |  |      | 128    |   |      |  
|Depreciation and amortization                                                 |  |      | 731    |   |      |  
|Stock issued for services rendered, interest  and compensation                |  |      | 214    |   |      |  
|Derivative income                                                             |  |      | (101   | ) |      |  
|Changes in:                                                                   |  |      |        |   |      |  
|Accounts receivable, net                                                      |  |      | (59    | ) |      |  
|Accounts receivable, other                                                    |  |      | (127   | ) |      |  
|Inventories                                                                   |  |      | (53    | ) |      |  
|Prepaid expenses and other current assets                                     |  |      | 155    |   |      |  
|Accounts payable                                                              |  |      | 360    |   |      |  
|Accrued expenses                                                              |  |      | 414    |   |      |  
|Deferred liability and revenue                                                |  |      | (1     | ) |      |  
|Total adjustment                                                              |  |      | 1,661  |   |      |  
|Net cash used by operating activities                                         |  |      | (651   | ) |      |  
|                                                                              |  |      |        |   |      |  
|Cash flows from investing activities                                          |  |      |        |   |      |  
|Purchase of property and equipment                                            |  |      | (906   | ) |      |  
|Proceeds from sale of assets                                                  |  |      | –      |   |      |  
|Change in other assets                                                        |  |      | 31     |   |      |  
|Net cash (used by) provided by investing activities                           |  |      | (875   | ) |      |  
|                                                                              |  |      |        |   |      |  
|Cash flows from financing activities                                          |  |      |        |   |      |  
|Net proceeds from line of credit                                              |  |      | 319    |   |      |  
|Proceeds from long-term debt obligations                                      |  |      | 845    |   |      |  
|Payment of long-term debt obligations                                         |  |      | (7     | ) |      |  
|Payment on capital lease obligations                                          |  |      | (73    | ) |      |  
|Net cash provided by (used by) financing activities                           |  |      | 1,084  |   |      |  
|                                                                              |  |      |        |   |      |  
|Net change in cash and cash equivalents                                       |  |      | (442   | ) |      |  
|Cash and cash equivalents at the beginning of the period                      |  |      | 591    |   |      |  
|Cash and cash equivalents at the end of the period                            |  | $    | 149    |   |      | $
|                                                                              |  |      |        |   |      |  
|Supplemental disclosure of cash flow information:                             |  |      |        |   |      |  
|Net cash paid during the period for:                                          |  |      |        |   |      |  
|Interest                                                                      |  | $    | 209    |   |      | $
|Income taxes                                                                  |  | $    | –      |   |      | $
|                                                                              |  |      |        |   |      |  
|Supplemental non-cash investing and financing activities:                     |  |      |        |   |      |  
|Conversion of debt through issuance of common stock                           |  | $    | 155    |   |      | $
|Conversion of preferred stock to common stock                                 |  | $    | 70     |   |      | $
|Conversion of LOC and interest through issuance of common stock               |  | $    | 1,275  |   |      | $
|Unrealized (loss) on securities held for resale                               |  | $    | (6     | ) |      | $
|Dividends payment                                                             |  | $    | 107    |   |      | $
|Property and equipment financed with capital lease                            |  | $    | 73     |   |      | $



See accompanying notes to consolidated financial statements.





4







ERF WIRELESS, INC.
CONSOLIDATED STATEMENTSS OF SHAREHOLDERS’ DEFICIT
FOR THE PERIOD ENDED JUNE 30, 2012 AND DECEMBER 31, 2011
($ in thousands)





|                                                                 |  | Common
    Stock |       |  | Preferred
    Stock |   |   | AdditionalPaid in |  |  | Accumulated |   |  | AccumulatedComprehensive |    |   | Noncontrolling |   |        | TotalShareholders’ | 
|---------------------------------------------------------------- |  | ---------------- | ----- |  | ------------------- | - | - | ----------------- |  |  | ----------- | - |  | ------------------------ | -- | - | -------------- | - | ------ | ------------------ | 
|                                                                 |  | Shares           |       |  | Value               |   |   | Shares            |  |  | Value       |   |  | Capital                  |    |   | Deficit        |   |        | Income             | 
|                                                                 |  |                  |       |  |                     |   |   |                   |  |  |             |   |  |                          |    |   |                |   |        |                    | 
|Total
    shareholders’ deficit as of December 31, 2010          |  |                  | 785   |  |                     | $ | 1 |                   |  |  | 4,613       |   |  | $                        | 5  |   |                | $ | 45,091 |                    | 
|                                                                 |  |                  |       |  |                     |   |   |                   |  |  |             |   |  |                          |    |   |                |   |        |                    | 
|Net loss                                                         |  |                  | –     |  |                     |   | – |                   |  |  | –           |   |  |                          | –  |   |                |   | –      |                    | 
|                                                                 |  |                  |       |  |                     |   |   |                   |  |  |             |   |  |                          |    |   |                |   |        |                    | 
|New stock issued to shareholders:                                |  |                  |       |  |                     |   |   |                   |  |  |             |   |  |                          |    |   |                |   |        |                    | 
|Conversion of preferred
    stock to common stock                |  |                  | 441   |  |                     |   | – |                   |  |  | (1,404      | ) |  |                          | (1 | ) |                |   | 1      |                    | 
|For services, compensation
    and interest                      |  |                  | 203   |  |                     |   | – |                   |  |  | –           |   |  |                          | –  |   |                |   | 1,023  |                    | 
|For retirement of debt                                           |  |                  | 88    |  |                     |   | – |                   |  |  | –           |   |  |                          | –  |   |                |   | 369    |                    | 
|Conversion of LOC and interest
    to preferred stock            |  |                  | –     |  |                     |   | – |                   |  |  | 5,370       |   |  |                          | 5  |   |                |   | 392    |                    | 
|Conversion of LOC and interest
    to common stock               |  |                  | 644   |  |                     |   | 1 |                   |  |  | –           |   |  |                          | –  |   |                |   | 2,378  |                    | 
|Dividend declared                                                |  |                  | –     |  |                     |   | – |                   |  |  | –           |   |  |                          | –  |   |                |   | (133   | )                  | 
|Unrealized loss on securties held for resale                     |  |                  | –     |  |                     |   | – |                   |  |  | –           |   |  |                          | –  |   |                |   | –      |                    | 
|                                                                 |  |                  |       |  |                     |   |   |                   |  |  |             |   |  |                          |    |   |                |   |        |                    | 
|Total
    shareholders’ deficit as of December 31, 2011          |  |                  | 2,161 |  |                     |   | 2 |                   |  |  | 8,579       |   |  |                          | 9  |   |                |   | 49,121 |                    | 
|                                                                 |  |                  |       |  |                     |   |   |                   |  |  |             |   |  |                          |    |   |                |   |        |                    | 
|Net loss                                                         |  |                  | –     |  |                     |   | – |                   |  |  | –           |   |  |                          | –  |   |                |   | –      |                    | 
|                                                                 |  |                  |       |  |                     |   |   |                   |  |  |             |   |  |                          |    |   |                |   |        |                    | 
|New stock issued to shareholders:                                |  |                  |       |  |                     |   |   |                   |  |  |             |   |  |                          |    |   |                |   |        |                    | 
|Conversion of preferred
    stock to common stock                |  |                  | 70    |  |                     |   | – |                   |  |  | (70         | ) |  |                          | –  |   |                |   | –      |                    | 
|For services, compensation,
    interest and prepaids            |  |                  | 136   |  |                     |   | – |                   |  |  | –           |   |  |                          | –  |   |                |   | 214    |                    | 
|For retirement of debt                                           |  |                  | 78    |  |                     |   | 1 |                   |  |  | –           |   |  |                          | –  |   |                |   | 154    |                    | 
|Conversion of LOC and interest
    to common stock               |  |                  | 790   |  |                     |   | – |                   |  |  | –           |   |  |                          | –  |   |                |   | 1,275  |                    | 
|Dividends payment                                                |  |                  | –     |  |                     |   | – |                   |  |  | –           |   |  |                          | –  |   |                |   | –      |                    | 
|Unrealized loss on securties held for resale                     |  |                  | –     |  |                     |   | – |                   |  |  | –           |   |  |                          | –  |   |                |   | –      |                    | 
|                                                                 |  |                  |       |  |                     |   |   |                   |  |  |             |   |  |                          |    |   |                |   |        |                    | 
|Total
    shareholders’ deficit as of June 30,  2012 (unaudited) |  |                  | 3,235 |  |                     | $ | 3 |                   |  |  | 8,509       |   |  | $                        | 9  |   |                | $ | 50,764 |                    | 



See accompanying notes to consolidated financial statements.





5







ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012(Unaudited)



NOTE 1 - BASIS OF PRESENTATION



Nature of the Company



ERF Wireless, Inc. (“Company” or “ERF Wireless”)
provides critical infrastructure wireless broadband communications products and services to a broad spectrum of customers in primarily
rural oil and gas exploration areas of North America. We provide high quality broadband services and critical communications services
to residential, oil and gas, educational, health care, and regional banks in rural areas utilizing our Company owned and operated
wireless networks. As a total comprehensive solutions provider we offer a wide array of critical communications services including
high speed broadband, voice over Internet Protocol (VOIP) telephone and facsimile service, and video security.



Historically, our revenues have been generated primarily from
wireless internet and network construction services. Our Internet revenues have resulted from our offering of broadband and basic
communications services to residential and enterprise customers. Our construction revenues typically have consisted of revenues
generated from the construction of bank , educational , and healthcare networks and other services associated with providing wireless
products and services to the regional banking, educational and healthcare industries.

Our internet revenues are recorded in “ERF Wireless Bundled
Services, Inc. (WBS)”, construction of bank, healthcare and educational networks in our “ERF Enterprise Network Services,
Inc. (ENS)” and other construction in “ERF Wireless Messaging Services, Inc. (WMS)” and wireless broadband products
and services to rural oil and gas locations are recorded in “Energy Broadband, Inc. (EBI)”. Please refer to segment
footnote 10 for additional information regarding segment operations.



Basis of Accounting



The accompanying unaudited interim consolidated 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 consolidated
financial statements and notes thereto contained in the Company's annual report for the year ended December 31, 2011 filed with
the SEC on Form 10-K. 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. Notes
to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited consolidated
financial statements for the most recent fiscal year ended December 31, 2011 as reported in form 10-K have been omitted.



Noncontrolling Interest



Non-controlling interest in Energy Broadband Inc., its majority
owned subsidiary, is included in the equity section of the consolidated balance sheets. Noncontrolling interest represents 3.63%
of the equity of the Company’s majority-owned subsidiary, Energy Broadband Inc., Noncontrolling interest is adjusted for
the noncontrolling interest holders’ proportionate share of the earnings or losses of ERF Wireless Inc., Operating losses
applicable to majority-owned Energy Broadband Inc., have periodically exceeded the noncontrolling interests in the equity capital
of the Subsidiary. Such excess losses applicable to the noncontrolling interests have been and are borne by the Company as there
is no obligation of the noncontrolling interests to fund any losses in excess of their original investment. There is also no obligation
or commitment on the part of the Company to fund operating losses of any subsidiary whether wholly-owned or majority-owned. The
Company allocates the noncontrolling interest’s share of net loss in excess of the noncontrolling interest’s initial
investment.



Reclassification



Certain amounts in the 2011 financial statements have been reclassified
to conform to the 2012 financial presentation. These reclassifications have no impact on the total comprehensive loss.



6









ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012(Unaudited)



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 as of June 30, 2012 and December 31,
2011, in thousands:





|                |  | June 30, |     |  | December 31, |  
|--------------- |  | -------- | --- |  | ------------ | -
|                |  | 2012     |     |  | 2011         |  
|Raw material    |  | $        | 41  |  |              | $
|Work in process |  |          | 123 |  |              |  
|Finished goods  |  |          | 247 |  |              |  
|                |  | $        | 411 |  |              | $



Recent Accounting Pronouncements



Management does not anticipate that the recently issued but
not yet effective accounting pronouncements will materially impact the Company’s financial condition.



NOTE 2 - ACCOUNTS RECEIVABLE



Accounts receivable consists of the following (in thousands):





|                                |  | June 30, |     |   | December 31, |  
|------------------------------- |  | -------- | --- | - | ------------ | -
|                                |  | 2012     |     |   | 2011         |  
|Accounts receivable             |  | $        | 684 |   |              | $
|Allowance for doubtful accounts |  |          | (29 | ) |              |  
|Accounts receivable, net        |  | $        | 655 |   |              | $





NOTE 3 - DEBT CONVERSION



(a) Line of Credit



For the six months ended June 30, 2012, the Company has had
several debt settlements of the unsecured revolving credit facility. See Note 8 for additional information on this facility. The
unsecured revolving credit facility provides financing for working capital requirements. During the six months ended June 30, 2012,
the Company issued 789,636 shares of its Common Stock for the settlement of $1,034,141 of debt and $240,859 in accrued interest
for a total amount of $1,275,000. The Company issued Common Stock at an average price of $1.61 per share of the ERFB common stock
the day the debt was settled.



(b) Other Debt



During the six months ended June 30, 2012, the Company issued
77,963 shares of its Common Stock for the settlement of $155,000 of debt. The Company issued Common Stock at an average price of
$1.99 per share of the ERFB common stock the day the debt was settled.



7













ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012(Unaudited)



NOTE 4 - COMMON STOCK AND PREFERRED STOCK



The total number of shares of stock of all classes which the
Company shall have the authority to issue is 1,000,000,000, of which 25,000,000 shall be shares of preferred stock with a par value
of $0.001 per share ("Preferred Stock"), and 975,000,000 shall be shares of common stock with a par value of $0.001 per
share ("Common Stock").



Common Stock



As of June 30, 2012, there were 3,235,096 shares of its $0.001
par value common stock issued and outstanding.



During the six months ended June 30, 2012, the Company issued
1,004,100 shares of common stock which was valued at the closing market price on the date of issuance of such shares, which were
issued in lieu of cash as payment for the following (in thousands):





|June 30, 2012                        |  | SupplementalNon-CashDisclosure |      
|------------------------------------ |  | ------------------------------ | -----
|Professional fees                    |  | $                              | 61   
|Services and compensation            |  |                                | 145  
|Other services rendered              |  |                                | 8    
|Total for services, and compensation |  | $                              | 214  
|                                     |  |                                |      
|Notes payable                        |  | $                              | 155  
|Line of credit and interest          |  | $                              | 1,275



Preferred Stock



The Company has 25,000,000 shares of Preferred Stock of which
10,000,000 shares had been designated as Series A Preferred Stock. 8,508,887 and 8,578,887 Series A preferred shares were issued
and outstanding at June 30, 2012 and December 31, 2011, respectively. With respect to the Series A Preferred Stock outstanding
at June 30, 2012, the Company would be required to issue 8,508,887 shares of its common stock upon conversion.During the six months ended June 30, 2012, 70,000 Series A Preferred Stock was converted into
70,000 shares of common stock.



EBI Stock Dividend



The Company will issue a stock dividend
to ERF Wireless shareholders of up to 5% of the existing common stock in Energy Broadband, the Company's wholly owned oil and gas
private subsidiary. ERF Wireless declared for each 200 shares of ERF Wireless common stock, that a shareholder owns as of September
30, 2011, the shareholder will receive one unit of Energy Broadband securities consisting of 100 Energy Broadband common shares,
one warrant to purchase 100 shares of Energy Broadband at a fixed price of $4.00 per share and one warrant to purchase an additional
100 shares of Energy Broadband at a fixed price of $6.00 per share. The Company has estimated the stock dividend to be 900,000
shares of EBI stock which may not be confirmed for up to 180 days.The stock dividend was recorded based on our historical
cost. The EBI shares were originally acquired by ERF at par of $0.001 for a total historical cost of $900. ERF acquired the warrants
from EBI on September 30, 2011 at fair value for a total cost of $132,302.



As of June 30, 2012, the Company has issued 725,611 shares of
EBI as a stock dividend valued at $107,000. The Company expects to issue in the future additional EBI shares as dividends which
will be determined by the Board of Directors.



8











ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012(Unaudited)



NOTE 5 -  STOCK PLAN



In April 2012, the Board of directors adopted a Non-Qualified
Stock Option Plan whereby 250,000 shares were reserved for issuance. As of June 30, 2011 under the 2012 Non-Qualified Stock Option
Plan, 81,501 shares were issued and outstanding to certain employees and consultants for services rendered. This plan is for key
employees, officers, directors, and consultants of ERF Wireless, Inc., which encompass Stock, Options, Stock Appreciation Rights,
or any Performance Stock Award granted by the Company.



|Non-Qualified Stock Option Plan, April 2012              |  | 2012 |        
|-------------------------------------------------------- |  | ---- | -------
|                                                         |  | Plan |        
|Shares initially reserved                                |  |      | 250,000
|                                                         |  |      |        
|Shares issued during 2012                                |  |      | 81,501 
|                                                         |  |      |        
|Remaining shares available to be issued at June 30, 2012 |  |      | 168,499
|                                                         |  |      |        
|Shares issued and outstanding as of June 30, 2012        |  |      | 81,501 



NOTE 6 - EARNINGS PER SHARE



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





|                                             |  | For the three months ended June 30, 2012 |       
|-------------------------------------------- |  | ---------------------------------------- | ------
|                                             |  | Net loss                                 |       
|                                             |  | (Numerator)                              |       
|Basic EPS:                                   |  |                                          |       
|Loss from continuing operations              |  | $                                        | (1,352
|Loss attributable to noncontrolling interest |  | $                                        | (3    
|Net loss attributable to ERF Wireless Inc.   |  | $                                        | (1,355
|Diluted EPS:                                 |  |                                          |       
|Effect of dilutive securities                |  |                                          | –     
|Loss from continuing operations              |  | $                                        | (1,352
|Loss attributable to noncontrolling interest |  | $                                        | (3    
|Net loss attributable to ERF Wireless Inc.   |  | $                                        | (1,355





|                                           |  | For the three months ended June 30, 2011 |       
|------------------------------------------ |  | ---------------------------------------- | ------
|                                           |  | Net (loss) income                        |       
|                                           |  | (Numerator)                              |       
|Basic EPS:                                 |  |                                          |       
|Loss from continuing operations            |  | $                                        | (1,150
|Loss from discontinued operations          |  | $                                        | –     
|Net loss attributable to ERF Wireless Inc. |  | $                                        | (1,150
|Diluted EPS:                               |  |                                          |       
|Effect of dilutive securities              |  |                                          | –     
|Loss from continuing operations            |  | $                                        | (1,150
|Loss from discontinued operations          |  | $                                        | –     
|Net loss attributable to ERF Wireless Inc. |  | $                                        | (1,150







9







ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012(Unaudited)







|                                             |  | For the six months ended June 30, 2012 |       
|-------------------------------------------- |  | -------------------------------------- | ------
|                                             |  | Net loss                               |       
|                                             |  | (Numerator)                            |       
|Basic EPS:                                   |  |                                        |       
|Loss from continuing operations              |  | $                                      | (2,312
|Loss attributable to noncontrolling interest |  | $                                      | (8    
|Net loss attributable to ERF Wireless Inc.   |  | $                                      | (2,320
|Diluted EPS:                                 |  |                                        |       
|Effect of dilutive securities                |  |                                        | –     
|Loss from continuing operations              |  | $                                      | (2,312
|Loss attributable to noncontrolling interest |  | $                                      | (8    
|Net loss attributable to ERF Wireless Inc.   |  | $                                      | (2,320





|                                           |  | For the six months ended June 30, 2011 |     
|------------------------------------------ |  | -------------------------------------- | ----
|                                           |  | Net (loss) income                      |     
|                                           |  | (Numerator)                            |     
|Basic EPS:                                 |  |                                        |     
|Loss from continuing operations            |  | $                                      | (913
|Loss from discontinued operations          |  | $                                      | (78 
|Net loss attributable to ERF Wireless Inc. |  | $                                      | (991
|Diluted EPS:                               |  |                                        |     
|Effect of dilutive securities              |  |                                        | –   
|Loss from continuing operations            |  | $                                      | (913
|Loss from discontinued operations          |  | $                                      | (78 
|Net loss attributable to ERF Wireless Inc. |  | $                                      | (991



For the six months ended June 30, 2012,
dilutive securities existed. Diluted earnings per share reflect the potential dilution of security that could share in the earnings
of an entity, such as convertible preferred stock, stock options, warrants or convertible securities.



The calculation of diluted earnings per share for the six months
ended June 30, 2012 does not include 250,000 shares of common stock assuming all E-Series Bond debt were converted; 8,508,887 shares
of common stock assuming all Series A Preferred Stock were converted due to their anti-dilutive effect.



NOTE 7 - MAJOR CUSTOMERS



The Company had gross sales of approximately $3,335,000 and
$2,441,000 for the six months ended June 30, 2012 and 2011, respectively. The Company had two customers that represented 36% and
16% and one customer that represented 39% of the gross sales in the six months ended June 30, 2012 and 2011, respectively.



NOTE 8 – NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL
LEASES



Notes payable, long-term debts and capital leases consist of
the following as of June 30, 2012 (in thousands):







|                              |  | Terms                                          |  |  | Maturity Date |  |  | Interest Rate |  |  | Gross Balance |       |       | Debt Discount |   |     | Balance | 
|----------------------------- |  | ---------------------------------------------- |  |  | ------------- |  |  | ------------- |  |  | ------------- | ----- | ----- | ------------- | - | --- | ------- | 
|Banc leasing, Inc.            |  | $10,660 / Month including interest             |  |  | January-15    |  |  | 11.62%        |  |  | $             | 276   |       |               | $ | –   |         | 
|Advantage leasing associates  |  | $6,086 / Month including interest              |  |  | Various       |  |  | Various       |  |  |               | 155   |       |               |   | –   |         | 
|Investor bridge loan          |  | $400,000 / Lump sum payment including interest |  |  | July-12       |  |  | 12.00%        |  |  |               | 400   |       |               |   | –   |         | 
|Premium assignment            |  | $1,495 / Month including interest              |  |  | July-12       |  |  | 7.45%         |  |  |               | 2     |       |               |   | –   |         | 
|Dakota capital line of credit |  | $178,031 / Quarterly including interest        |  |  | March-16      |  |  | 18.00%        |  |  |               | 2,000 |       |               |   | 73  |         | 
|E-bond investor notes         |  | 3 years/ Semiannual interest (See below)       |  |  | Various       |  |  | 7.50%         |  |  |               | 320   |       |               |   | 267 |         | 
|Line of credit                |  | 2 years/ Quarterly interest (See below)        |  |  | December-13   |  |  | 12.00%        |  |  |               | 3,877 |       |               |   | –   |         | 
|Total debt                    |  |                                                |  |  |               |  |  |               |  |  |               | $     | 7,030 |               |   | $   | 340     | 
|Less current maturities       |  |                                                |  |  |               |  |  |               |  |  |               |       |       |               |   |     |         | 
|Long-term debt                |  |                                                |  |  |               |  |  |               |  |  |               |       |       |               |   |     |         | 



10







ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012(Unaudited)



Line of Credit



During June 2010, the Company increased its unsecured revolving
credit facility with Angus Capital Partners, a related party, from $10.5 million to $12.0 million maturing December 31, 2013. The
terms of the unsecured revolving credit facility allow the Company to draw upon the facility as financing requirements dictate
and provide for quarterly interest payments at a 12% rate per annum. The payment of principal and interest may be paid in cash,
common shares or preferred shares at the Company’s election. At June 30, 2012, the outstanding balance on the line of credit
totaled $3,877,000 with a remaining line of credit availability of $8,123,000.



For the six months ended June 30, 2012, the Company has had
a debt settlement of the unsecured revolving credit facility. The unsecured revolving credit facility provides financing for working
capital requirements. During the six months ended June 30, 2012, the Company issued 789,636 shares of its Common Stock for the
settlement of $1,034,141 of debt and $240,859 in accrued interest for a total amount of $1,275,000. The Company issued Common Stock
at an average price of $1.61 per share of the ERFB common stock the day the debt was settled.



E-Series Bond Investor Note



Since July 2011, the Company issued to certain accredited investors
a principal amount of $545,000 of E-series bonds (the "Bonds"). At June 30, 2012, the outstanding balance of the Bonds
totaled $320,000. The Bonds are due and payable upon maturity, a three-year period from the issuance date. Interest on the Bonds
is payable at the rate of 7.5% per annum, and is payable semiannually. The Bondholder may require the Company to convert the Bond
(including any unpaid interest) into shares of common stock at any time only during the first year, but not thereafter. If the
Bonds are converted under this option, the Company will issue shares representing 100% of the Bond principal and unpaid interest
calculated through maturity. The common stock issued under this option will be valued at the five days closing price average of
the common shares for the five days prior to the notification. If the Bond is converted within the first year the Company will
issue a warrant to purchase one share of Energy Broadband Inc. common stock at a price of $4.00 for every $2.00 of Bond principal.



At the Company's discretion at any time after the first year,
the Bonds, including the interest payments calculated through the date of conversion may be redeemed in cash or in shares of our
common Stock ERF Wireless Inc., (ERFB), which shares will be valued at the average last sales price of our common stock over the
5-trading-day period preceding any payment date. If the Company chooses to issue shares of our common stock as redemption of the
Bond principal, we will issue shares representing a value equal to 125% of the Bond principal. If the Company elects to issue shares
of our common stock as payment of interest, we will issue shares representing a value equal to 100% of the interest due.



The Bonds were determined to include various embedded derivative
liabilities. The derivative liabilities are the conversion feature and the redemption option (compound embedded derivative liability).
At the date of issuance the Bond, compound embedded derivative liabilities were 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 from the accretion of the debt discount and accretes the unamortized discount upon conversion
which totaled $138,961 for the six months ended June 30, 2012. The estimated debt accretion for subsequent years is $18,711, $61,013,
$120,229 and $67,416 for years ending December 31, 2012, 2013, 2014 and 2015, respectively.



The following table summarizes the convertible debt activity
for the period January 1, 2012, thru June 30, 2012:





|Description                                         |  | E-Series Bonds |          |   | Compound Derivative |   |          | Total | 
|--------------------------------------------------- |  | -------------- | -------- | - | ------------------- | - | -------- | ----- | 
|Fair value at December 31, 2011                     |  | $              | 2,682    |   |                     | $ | 27,346   |       | 
|Fair value issuances during 2012 (principal amount) |  |                | 445,000  |   |                     |   | –        |       | 
|Fair value issuances during 2012 (debt discount)    |  |                | (379,012 | ) |                     |   | 379,012  |       | 
|01-01-12 to 03-31-12 change in fair value           |  |                | 107,270  |   |                     |   | 3,786    |       | 
|03-01-12 to 06-30-12 change in fair value           |  |                | 31,691   |   |                     |   | 5,083    |       | 
|Conversions during 2012                             |  |                | (155,000 | ) |                     |   | (133,616 | )     | 
|Fair value at June 30, 2012                         |  | $              | 52,631   |   |                     | $ | 281,611  |       | 





The Company recorded a net change in fair value of derivatives
of $8,869 and a gain on debt redemption of $109,718 for a total net derivative income of $100,849 for the six months ended June
30, 2012.



11









ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012(Unaudited)



Dakota Capital Fund LLC Equipment Line of Credit



In November 2011, the Company signed
a debt financing agreement with Dakota Capital Fund LLC of Sioux Falls, South Dakota, for financing of up to $3,000,000. The payment
terms are $178,031 per quarter including interest, at an annual rate of 18% plus 10% of positive operational cash flow as determine
on a quarterly basis for repayment of additional principal beginning July 1, 2012. The funding will primarily be utilized for equipment
to build out networks in major oil and gas exploration regions of North America. During the fourth quarter of 2011 the Company
received proceeds of $2,000,000 and has the option of additional funding of $1,000,000 for equipment purchases provided that the
Company has submitted an advance request with acceptable and sufficient information of assets to be purchased. The financing received
under this debt facility is secured by certain ERF Wireless assets and there is no prepayment penalty.At June 30, 2012,
the outstanding balance on the line of credit totaled $2,000,000 and the Company has elected not to request any additional funds
under this credit facility.



The Company issued 30,000 shares of ERF Wireless, Inc. common
stock for the consummation of the initial $2,000,000 debt financing agreement from Dakota Capital Fund LLC resulting in a debt
discount of $93,600. The Company uses the effective interest method to record interest expense from the accretion of the debt discount
and accretes the unamortized discount upon conversion which totaled $14,055 for the six months ended June 30, 2012. The estimated
debt accretion is $15,150, $33,014 and $24,611 for years ending December 31, 2012, 2013 and 2014, respectively.



Investor Bridge Loan



On March 20, 2011, the Company entered into a three-month secured
bridge financing agreement with individuals for $300,000 with and interest rate of twelve percent (12%). During the second quarter
of 2012, the Company was loaned an additional $100,000 increasing the note to $400,000 due July 1, 2012. Subsequent to June 30,
2012, the note was repaid from a new secured $1,000,000 line of credit from these same individuals bearing an interest rate of
12 percent and repayable from current operations and debt proceeds from all E-Bond sales.



Capital Leases



Banc Leasing Inc.,Included in property and equipment
at June 30, 2012, the cost of the equipment was $611,000 and the accumulated amortization was $311,000. Amortization of assets
under capital leases is included in depreciation expense. The equipment is the primary collateral securing the financing.



Advantage Leasing Inc., Included in vehicles at June
30 2012, the cost of the vehicles was $198,000 and the accumulated amortization was $37,000. Amortization of assets under capital
leases is included in depreciation expense. The vehicles are the primary collateral securing the financing.



The following is a schedule by years of future minimum lease
payments under capital leases together with the present value of the net minimum lease payments as of December 31, 2012 (in thousands):



|Year Ending  December 31,                       |  |   |     
|----------------------------------------------- |  | - | ----
|2012                                            |  | $ | 89  
|2013                                            |  |   | 201 
|2014                                            |  |   | 190 
|2015                                            |  |   | 19  
|Thereafter                                      |  |   | –   
|Total minimum lease payments                    |  |   | 499 
|Less amount representing interest               |  |   | (68 
|Present value of net minimum lease payments     |  |   | 431 
|Current maturities of capital lease obligations |  |   | (150
|Long-term portion of capital lease obligations  |  | $ | 281 



12









ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012(Unaudited)





NOTE 9 - COMMITMENTS



Leases and License Agreements



For the six months ended June 30, 2012 and 2011, rental expenses
of approximately $476,000 and $364,000, 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 occupies office and tower facilities
under several non-cancelable operating lease agreements expiring at various dates through December 2018, and requiring payment
of property taxes, insurance, maintenance and utilities.



Future minimum lease payments under non-cancelable operating
leases as of December 31, 2012 were as follows (in thousands):





|Year Ending December 31, |  |  | Amount |      
|------------------------ |  |  | ------ | -----
|2012                     |  |  | $      | 275  
|2013                     |  |  |        | 439  
|2014                     |  |  |        | 414  
|2015                     |  |  |        | 401  
|2016                     |  |  |        | 385  
|Thereafter               |  |  |        | 8    
|Total                    |  |  | $      | 1,922





Banc Leasing Inc.



During August 2007, the Company entered into a contract with
Banc Leasing Inc. to fund the Company’s US-Banknet System to provide up to $10 Million into equipment financing. The funding
is provided only after a contract is signed with financial institution. Each funding is collateralize by the equipment and normally
is repaid over a seven year period with interest established at the date of the inception of the lease. Each lease has a $1 buyout
provision. The details of the capital lease are included in Note 8.



Purchase Commitment – Mobile Broadband Trailers



On March 15, 2011, the Company entered into a settlement agreement
with the current manufacturer of mobile broadband trailers (MBT’s). Under the terms of this settlement the Company agreed
to purchase an additional 168 MBT’s and replacement inventory on a delivery schedule which commenced March 15, 2011 and terminates
October 1, 2013. The estimated value of the purchase obligation is $3,000,000.



NOTE 10 - INDUSTRY SEGMENTS



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



Energy Broadband, Inc. (EBI)



EBI provides wireless connectivity to rural oil and gas locations
primarily via Mobile Broadband Trailers (MBT’s). EBI provides wireless broadband products and services focusing primarily
on commercial customers providing high speed bandwidth to rural North America to serve the Oil and Gas sector. All sales from external
customers are located within the United States and Canada.



Wireless Bundled Services Division (WBS)



WBS 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.



Enterprise Network Services (ENS)



ENS provides product and service to operate an enterprise-class
encrypted wireless banking network business. Also, 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, healthcare and educational customers; trade names, equipment and software, including the software
architecture and design.



13







ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012(Unaudited)



Wireless Messaging Services Division (WMS)



WMS principally manufactures paging transmitter equipment, repairs
and maintains paging infrastructure equipment and supplies high-power paging transmitters to the wireless messaging industry. All
sales from external customers are located within the United States as well as certain international locations.



For the three and six months ended June 30, 2012 and 2011 (in
thousands):





|Three Months Ended June 30, 2012 |  | EBI |       |  | WBS |   |       | ENS |  |   | WMS |   |  | Total Segment |    |  | ERF Corporate |   |       | Total Consolidated | 
|-------------------------------- |  | --- | ----- |  | --- | - | ----- | --- |  | - | --- | - |  | ------------- | -- |  | ------------- | - | ----- | ------------------ | 
|Revenue                          |  | $   | 1,022 |  |     | $ | 567   |     |  | $ | 86  |   |  | $             | 12 |  |               | $ | 1,687 |                    | 
|Loss from continuing operations  |  |     | 74    |  |     |   | (143  | )   |  |   | (75 | ) |  |               | –  |  |               |   | (144  | )                  | 
|Total assets                     |  |     | 3,235 |  |     |   | 2,132 |     |  |   | 702 |   |  |               | 23 |  |               |   | 6,092 |                    | 
|Capital expenditures             |  |     | 199   |  |     |   | 215   |     |  |   | –   |   |  |               | –  |  |               |   | 414   |                    | 
|Depreciation and amortization    |  |     | 165   |  |     |   | 157   |     |  |   | 58  |   |  |               | –  |  |               |   | 380   |                    | 





|Three Months Ended June 30, 2011 |  | EBI |       |  | WBS |   |       | ENS |  |   | WMS   |   |  | Total Segment |     |   | ERF Corporate |   |       | Total Consolidated | 
|-------------------------------- |  | --- | ----- |  | --- | - | ----- | --- |  | - | ----- | - |  | ------------- | --- | - | ------------- | - | ----- | ------------------ | 
|Revenue                          |  | $   | 642   |  |     | $ | 554   |     |  | $ | 114   |   |  | $             | 1   |   |               | $ | 1,311 |                    | 
|Loss from continuing operations  |  |     | 53    |  |     |   | (141  | )   |  |   | (3    | ) |  |               | (10 | ) |               |   | (101  | )                  | 
|Total assets                     |  |     | 2,294 |  |     |   | 1,955 |     |  |   | 1,332 |   |  |               | –   |   |               |   | 5,581 |                    | 
|Capital expenditures             |  |     | 318   |  |     |   | 146   |     |  |   | 106   |   |  |               | –   |   |               |   | 570   |                    | 
|Depreciation and amortization    |  |     | 88    |  |     |   | 239   |     |  |   | 53    |   |  |               | –   |   |               |   | 380   |                    | 









|Six Months Ended June 30, 2012  |  | EBI |       |  | WBS |   |       | ENS |  |   | WMS  |   |  | Total Segment |    |   | ERF Corporate |   |       | Total Consolidated | 
|------------------------------- |  | --- | ----- |  | --- | - | ----- | --- |  | - | ---- | - |  | ------------- | -- | - | ------------- | - | ----- | ------------------ | 
|Revenue                         |  | $   | 2,035 |  |     | $ | 1,126 |     |  | $ | 151  |   |  | $             | 23 |   |               | $ | 3,335 |                    | 
|Loss from continuing operations |  |     | 234   |  |     |   | (186  | )   |  |   | (167 | ) |  |               | (5 | ) |               |   | (124  | )                  | 
|Total assets                    |  |     | 3,235 |  |     |   | 2,132 |     |  |   | 702  |   |  |               | 23 |   |               |   | 6,092 |                    | 
|Capital expenditures            |  |     | 530   |  |     |   | 440   |     |  |   | –    |   |  |               | –  |   |               |   | 970   |                    | 
|Depreciation and amortization   |  |     | 319   |  |     |   | 269   |     |  |   | 117  |   |  |               | –  |   |               |   | 705   |                    | 





|Six Months Ended June 30, 2011  |  | EBI |       |  | WBS |   |       | ENS |  |   | WMS   |   |  | Total Segment |     |   | ERF Corporate |   |       | Total Consolidated | 
|------------------------------- |  | --- | ----- |  | --- | - | ----- | --- |  | - | ----- | - |  | ------------- | --- | - | ------------- | - | ----- | ------------------ | 
|Revenue                         |  | $   | 1,178 |  |     | $ | 1,098 |     |  | $ | 161   |   |  | $             | 4   |   |               | $ | 2,441 |                    | 
|Loss from continuing operations |  |     | 87    |  |     |   | (262  | )   |  |   | (34   | ) |  |               | (18 | ) |               |   | (227  | )                  | 
|Total assets                    |  |     | 2,294 |  |     |   | 1,955 |     |  |   | 1,332 |   |  |               | –   |   |               |   | 5,581 |                    | 
|Capital expenditures            |  |     | 908   |  |     |   | 268   |     |  |   | 106   |   |  |               | –   |   |               |   | 1,282 |                    | 
|Depreciation and amortization   |  |     | 171   |  |     |   | 494   |     |  |   | 106   |   |  |               | –   |   |               |   | 771   |                    | 









|Reconciliation of Segment Assets to Total Assets |  | June 30, 2012 |       |  | December 31, 2011 |  
|------------------------------------------------ |  | ------------- | ----- |  | ----------------- | -
|Total segment assets                             |  | $             | 6,092 |  |                   | $
|Total corporate assets                           |  |               | 211   |  |                   |  
|Total assets                                     |  | $             | 6,303 |  |                   | $





The Company evaluates the performance of its operating segments
based on income before net interest expense, income taxes, accounting changes and non-recurring items.



For the six months ended June 30, 2012, two customers accounted
for $1,211,000 and $524,000 of EBI revenues each.



14







ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012(Unaudited)





NOTE 11 - SUBSEQUENT EVENTS



Subsequent to June 30, 2012, the Company issued 332,896 shares
of common stock for debt and conversion of preferred stock.



Subsequent to June 30, 2012, the Company
entered into a new secured $1,000,000 line of credit bearing an interest rate of 12 percent and repayable from current operations
and debt proceeds from all E-Bond sales.















15











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



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



OUR MARKETS AND BUSINESS STRATEGY



Historically, our revenues have been generated primarily from
Internet and construction services. Our Internet revenues result from our offering of broadband and basic communications services
to residential and enterprise customers. Our construction revenues result from the construction of bank networks and other services
associated with providing wireless products and services to the regional banking industry. During the six months ended June 30,
2012, approximately 34% of our revenues were generated from internet services, 61% of our revenues were generated from providing
broadband services to the energy industry and 5% of our revenues were generated from construction services. We expect that our
internet services will continue to decline as a percentage of the total consolidated revenues in 2012 and that the most growth
during fiscal 2012 will continue to come from devoting significant capital resources to developing the oil and gas market utilizing
wireless services.



During the second quarter of fiscal 2012, the Company continued
to make substantial progress with its strategic business plan as evidenced by the completion and announcement of numerous significant
activities. These include:





| | · | The Company’s financial results reflect the Company’s continued focus on aggressively expanding our turnkey communications services to the oil and gas industry during a period of continued brisk oil and gas drilling activity in North America. These results include but are not limited to the following attributes:                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | · | The Company announced the appointment of Mr. Tom Wiedebush as Chief Operating Officer (COO) to take over all of the day-to-day high-level operational management responsibilities previously conducted by its Chief Executive Officer.  Mr. Wiedebush joined the ERF Board of Directors in December 2011 bringing more than 35 years of experience as a banking executive to ERF Wireless.  Mr. Wiedebush's background includes serving as Chief Operating Officer of Stearns Financial Services, a $1 billion diversified financial organization, and as Group Executive - Western Region of Marquette Banks, a $6 billion bank with operations in eight states.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | · | The Company announced that it has recently initiated expansion of its existing terrestrial broadband networks through a combination of construction and contractual agreements into major oil and gas drilling areas in the states of Kansas, Nebraska and Montana; allowing our Energy Broadband subsidiary to meet the communications needs of existing Fortune 200 customers increased drilling in these markets.  Additionally, the Company is in the process of building a new terrestrial broadband network in the Bakken Shale area of North Dakota as well as has significantly expanded its existing networks in Texas, New Mexico and Oklahoma.        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | · | The Company announced that it has recently integrated several additions into the communications services that Energy Broadband provides its oil and gas customers in remote locations throughout North America; including wide acceptance of a wireless Intercom system produced by Energy Broadband that provides all of the on-site drilling personnel with a local wireless telephone communication system to their respective trailers and the rig floor.  Additionally, Energy Broadband provides voice services to the outside world via VoIP technology that now includes E911 service in many areas.                                                     





16







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.



Service revenue is principally derived from wireless broadband
services, including internet, voice, and data and monitoring service. Subscriber fees are recorded as revenues in the period during
which the service is provided.



RESULTS OF OPERATIONS



THREE AND SIX MONTHS ENDED JUNE 30, 2012, COMPARED TO
THREE AND SIX MONTHS ENDED JUNE 30, 2011



The following table sets forth summarized consolidated financial
information for the three and six months ended June 30, 2012 and 2011:





|                                                   |  | Three Months Ended June 30, |        |   | Six Months Ended June 30, |  
|-------------------------------------------------- |  | --------------------------- | ------ | - | ------------------------- | -
|($ in thousands)                                   |  | 2012                        |        |   | 2011                      |  
|Total sales                                        |  | $                           | 1,687  |   |                           | $
|Cost of goods sold                                 |  |                             | 941    |   |                           |  
|Gross profit                                       |  |                             | 746    |   |                           |  
|Percent of total sales                             |  |                             | 44%    |   |                           |  
|Operating expenses                                 |  |                             | 1,796  |   |                           |  
|Loss from operations                               |  |                             | (1,050 | ) |                           |  
|Other income/(expense)                             |  |                             | (302   | ) |                           |  
|Loss from continuing operations                    |  |                             | (1,352 | ) |                           |  
|Loss from discontinued operations                  |  |                             | –      |   |                           |  
|Net income attributable to noncontrolling interest |  |                             | (3     | ) |                           |  
|Other comprehensive loss                           |  |                             | (2     | ) |                           |  
|Total comprehensive (loss)                         |  | $                           | (1,357 | ) |                           | $







For the three months ended June 30, 2012, the Company's business
operations reflected an increase in sales for Energy Broadband, Inc. (“EBI”), Wireless Bundled Services (“WBS”),
Wireless Messaging Services (“WMS”) and offset with a decrease in Enterprise Network Services (“ENS”).
For the three months ended June 30, 2012, the Company's consolidated operations generated net sales of $1,687,000 compared to prior-year
net sales of $1,311,000 for the quarter ended June 30, 2011. The $376,000 increase in net sales is primarily attributable to $380,000
increased sales in EBI from deployment of our Mobile Broadband Trailers (MBT’s) in the oil and gas regions, $13,000 increased
sales in WBS, $11,000 increased sales in WMS and offset with a $28,000 decreased sales in ENS. Service sales increased $446,000
and product sales decreased $70,000. For the three months ended June 30, 2012, the Company had a gross profit margin of 44%, compared
to a gross profit margin 38% for the prior year. The $245,000 increase in gross profit margin is primarily attributed to the following
factors; (i) approximately $188,000 increase in gross margin in EBI attributable to increased sales associated with deployment
of MBT’s in oil and gas regions, (ii) $61,000 increase in gross margins in WBS primarily related to decrease third party
service cost, $2,000 increase in gross margin in WMS and (iii) offset with a $6,000 decrease in gross margins in ENS.





17







For the six months ended June 30, 2012, the Company's business
operations reflected an increase in sales for EBI, WBS, WMS and offset with a decrease in ENS. For the six months ended June 30,
2012, the Company's consolidated operations generated net sales of $3,335,000 compared to prior-year net sales of $2,441,000 for
the six months ended June 30, 2011. The $894,000 increase in net sales is primarily attributable to $857,000 increased sales in
EBI from deployment of our Mobile Broadband Trailers (MBT’s) in the oil and gas regions, $28,000 increased sales in WBS,
$19,000 increased sales in WMS and offset with a $10,000 decreased sales in ENS. Service sales increased $977,000 and product sales
decreased $83,000. For the six months ended June 30, 2012, the Company had a gross profit margin of 47%, compared to a gross profit
margin 37% for the prior year. The $657,000 increase in gross profit margin is primarily attributed to the following factors; (i)
approximately $440,000 increase in gross margin in EBI attributable to increased sales associated with deployment of MBT’s
in oil and gas regions, (ii) $223,000 increase in gross margins in WBS primarily related to decrease third party service cost,
$2,000 increase in gross margin in WMS and (iii) offset with a $8,000 decrease in gross margins in ENS.



The Company incurred a total comprehensive net loss of $2,326,000
for the six months ended June 30, 2012, compared to a comprehensive net loss of $994,000 from the six months ended June 30, 2011.
The Company's principal components of the total comprehensive loss for the six months ended June 30, 2012 included approximately
$731,000 in depreciation expenses, $679,000 of interest expense, $577,000 of other general and administrative expense, $1,855,000
in employment expenses and $561,000 in professional services expense.



SALES INFORMATION



Set forth below is tables presenting summarized
sales information for our business segments for the three and six months ended June 30, 2012 and 2011:





|($ in thousands)            |  | Three Months Ended June 30, |      
|--------------------------- |  | --------------------------- | -----
|Business Segment            |  | 2012                        |      
|Energy Broadband, Inc.      |  | $                           | 1,022
|Wireless Bundled Services   |  |                             | 567  
|Enterprise Network Services |  |                             | 86   
|Wireless Messaging Services |  |                             | 12   
|Total Sales                 |  | $                           | 1,687











|($ in thousands)            |  | Six Months Ended June 30, |      
|--------------------------- |  | ------------------------- | -----
|Business Segment            |  | 2012                      |      
|Energy Broadband, Inc.      |  | $                         | 2,035
|Wireless Bundled Services   |  |                           | 1,126
|Enterprise Network Services |  |                           | 151  
|Wireless Messaging Services |  |                           | 23   
|Total Sales                 |  | $                         | 3,335





For the three months ended June 30, 2012, net sales increased
to $1,687,000 from $1,311,000 for the three months ended June 30, 2011. The overall increase of 29% was attributable to increased
sales of $380,000 of Energy Broadband, Inc., increased sales of $13,000 of Wireless Bundled Services, increased sales in Wireless
Messaging Services of $11,000, offset with decreased sales in Enterprise Network Services of $28,000. The $376,000 increase in
net sales is primarily attributable to $380,000 increased sales in EBI are from deployment of our Mobile Broadband Trailers (MBT’s)
in the oil and gas regions.



For the six months ended June 30, 2012, net sales increased
to $3,335,000 from $2,441,000 for the six months ended June 30, 2011. The overall increase of 37% was attributable to increased
sales of $857,000 of Energy Broadband, Inc., increased sales of $28,000 of Wireless Bundled Services, increased sales in Wireless
Messaging Services of $19,000, offset with decreased sales in Enterprise Network Services of $10,000. The $894,000 increase in
net sales is primarily attributable to $857,000 increased sales in EBI are from deployment of our Mobile Broadband Trailers (MBT’s)
in the oil and gas regions.





18







COST OF GOODS SOLD



The following tables set forth summarized cost of goods sold
information for the three months ended June 30, 2012 and 2011:





|($ in thousands)            |  | Three Months Ended June 30, |    
|--------------------------- |  | --------------------------- | ---
|Business Segment            |  | 2012                        |    
|Energy Broadband, Inc.      |  | $                           | 558
|Wireless Bundled Services   |  |                             | 286
|Enterprise Network Services |  |                             | 89 
|Wireless Messaging Services |  |                             | 8  
|Total cost of sales         |  | $                           | 941







|                                 |  | Three Months EndedJune 30, |     |  |      |   |     |          | 
|-------------------------------- |  | -------------------------- | --- |  | ---- | - | --- | -------- | 
|($ in thousands)                 |  | 2012                       |     |  | 2011 |   |     | $ Change | 
|                                 |  |                            |     |  |      |   |     |          | 
|Products and integration service |  | $                          | 430 |  |      | $ | 352 |          | 
|Rent and maintenance             |  |                            | 173 |  |      |   | 124 |          | 
|Depreciation                     |  |                            | 338 |  |      |   | 334 |          | 
|Total cost of sales              |  | $                          | 941 |  |      | $ | 810 |          | 





For the three months ended June 30, 2012, cost of goods sold
increased by $131,000, or 16%, to $941,000 from $810,000 as compared to the three months ended June 30, 2011. The increase of $131,000
in cost of goods sold is primarily attributable to an increased cost of $193,000 in EBI due to increased depreciation and tower
rents for deployment of our Mobile Broadband Trailers (MBT’s) in oil and gas regions, increased cost in WMS of $8,000, offset
with decreased cost in WBS of $47,000 due to a decreasing third party services and depreciation and a decreased cost $23,000 in
ENS.



The following tables set forth summarized cost of goods sold
information for the six months ended June 30, 2012 and 2011:





|($ in thousands)            |  | Six Months Ended June 30, |      
|--------------------------- |  | ------------------------- | -----
|Business Segment            |  | 2012                      |      
|Energy Broadband, Inc.      |  | $                         | 1,104
|Wireless Bundled Services   |  |                           | 466  
|Enterprise Network Services |  |                           | 185  
|Wireless Messaging Services |  |                           | 15   
|Total cost of sales         |  | $                         | 1,770









|                                 |  | Six Months EndedJune 30, |       |  |      |   |       |          | 
|-------------------------------- |  | ------------------------ | ----- |  | ---- | - | ----- | -------- | 
|($ in thousands)                 |  | 2012                     |       |  | 2011 |   |       | $ Change | 
|                                 |  |                          |       |  |      |   |       |          | 
|Products and integration service |  | $                        | 846   |  |      | $ | 657   |          | 
|Rent and maintenance             |  |                          | 300   |  |      |   | 200   |          | 
|Depreciation                     |  |                          | 624   |  |      |   | 676   |          | 
|Total cost of sales              |  | $                        | 1,770 |  |      | $ | 1,533 |          | 







For the six months ended June 30, 2012, cost of goods sold increased
by $237,000, or 15%, to $1,770,000 from $1,533,000 as compared to the six months ended June 30, 2011. The increase of $237,000
in cost of goods sold is primarily attributable to an increased cost of $418,000 in EBI due to increased depreciation and tower
rents for deployment of our Mobile Broadband Trailers (MBT’s) in oil and gas regions, increased cost in WMS of $15,000, offset
with decreased cost in WBS of $194,000 due to a decreasing third party services and depreciation and a decreased cost $2,000 in
ENS.



19







OPERATING EXPENSES



The following table sets forth summarized operating expense
information for the three months and six months ended June 30, 2012 and 2011:





|                                 |  | Three Months Ended June 30, |       |  | Six Months Ended June 30, |  
|-------------------------------- |  | --------------------------- | ----- |  | ------------------------- | -
|($ in thousands)                 |  | 2012                        |       |  | 2011                      |  
|                                 |  |                             |       |  |                           |  
|Employment expenses              |  | $                           | 1,013 |  |                           | $
|Professional services            |  |                             | 336   |  |                           |  
|Rent and maintenance             |  |                             | 95    |  |                           |  
|Depreciation                     |  |                             | 55    |  |                           |  
|Other general and administrative |  |                             | 297   |  |                           |  
|Total operating expenses         |  | $                           | 1,796 |  |                           | $



For the three months ended June 30, 2012, operating expenses
increased by 20% to $1,796,000, as compared to $1,493,000 for the three months ended June 30, 2011. The increases that occurred,
as evidenced by the immediately preceding table, are discussed below:





| | · | A $267,000 increase in employment expense. The increase is attributable to increased employee headcount to 68 at June 30, 2012 from 51 at June 30, 2011;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                         
| | · | A $18,000 increase in professional services;                                                                                                            
| |   |                                                                                                                                                         
| | · | A $22,000 decrease in rent and maintenance; The decrease rent was due to consolidation of operations                                                    
| |   |                                                                                                                                                         
| | · | A $7,000 decrease in depreciation; and                                                                                                                  
| |   |                                                                                                                                                         
| | · | A $47,000 increase in other general and administrative expense. The increase was attributable to travel, utility and transportation cost.               





For the six months ended June 30, 2012, operating expenses increased
by 24% to $3,299,000, as compared to $2,657,000 for the six months ended June 30, 2011. The increases that occurred, as evidenced
by the immediately preceding table, are discussed below:





| | · | A $523,000 increase in employment expense. The increase is attributable to increased
employee headcount to 68 at June 30, 2012 from 51 at June 30, 2011;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                         
| | · | A $35,000 increase in professional services;                                                                                                            
| |   |                                                                                                                                                         
| | · | A $7,000 increase in rent and maintenance;                                                                                                              
| |   |                                                                                                                                                         
| | · | A $24,000 decrease in depreciation. The decrease is primarily due to fully depreciated
assets; and                                                      
| |   |                                                                                                                                                         
| | · | A $101,000 increase in other general and administrative expense. The increase was attributable
to travel, utility and transportation cost.              





OTHER (INCOME) EXPENSE, NET



For the three months ended June 30, 2012, the increase in other
expense is primarily attributable to an increase in our interest expense, net on debt obligations totaling $320,000 and offset
with a increase in our net derivative income of $18,000 as compared to interest expense, net of $165,000 offset with derivative
income of $7,000 for the three months ended June 30, 2011. The derivative expense/income represents the net unrealized (non-cash)
charge during the three months ended June 30, 2012 and 2011, 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.



For the six months ended June 30, 2012, the increase in other
expense is primarily attributable to an increase in our interest expense, net on debt obligations totaling $679,000 and offset
with a increase in our net derivative income of $101,000 as compared to interest expense, net of $360,000 offset with derivative
income of $13,000 and a gain on sale of assets of $1,183,000 for the six months ended June 30, 2011. The derivative expense/income
represents the net unrealized (non-cash) charge during the six months ended June 30, 2012 and 2011, 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.





20







COMPREHENSIVE LOSS



For the six months ended June 30, 2012, our total comprehensive
loss was $2,326,000 compared to comprehensive loss of $994,000 for the six months ended June 30, 2011. The increased comprehensive
loss for the six months ended June 30, 2012, as compared to the comprehensive loss for six months ended June 30, 2011 is primarily
attributable to the factors describe in the preceding tables.



CASH FLOWS



The Company's operating activities decreased net cash used by
operating activities to $651,000 in the six months ended June 30, 2012, compared to net cash used of $1,276,000 in the six months
ended June 30, 2011. The decrease in net cash used by operating activities was primarily attributable to an increase in accounts
payable and accrued liabilities compared to prior year.



The Company's investing activities used net cash of $875,000
in the six months ended June 30, 2012, compared to net cash provided of $1,381,000 in the six months ended June 30, 2011. The decrease
in cash provided by investing activities is primarily attributable to the expansion of oil and gas networks to utilize our MBTs
to provide service to our customers and the cash received from the sale of non-core assets of our North and Central Texas network
during the February 2011.



The Company's financing activities provided net cash of $1,084,000
in the six months ended June 30, 2012, compared to $40,000 of cash used in the six months ended June 30, 2011. The cash provided
in the three months ended June 30, 2012, was primarily associated with proceeds from debt financing and the line of credit, net.



LIQUIDITY AND CAPITAL RESOURCES



At June 30, 2012, the Company's current assets totaled $1,783,000
(including cash and cash equivalents of $149,000); total current liabilities were $3,587,000, resulting in negative working capital
of $1,804,000. The Company has funded operations to date primarily through a combination of utilizing cash on hand, borrowings
and raising additional capital through the sale of its securities. The Company’s operation for the six months ended June
30, 2012, was primarily funded by proceeds from the Company's line of credit, net totaling $319,000, debt of $400,000 and convertible
debt financing of $445,000.



CURRENT DEBT FACILITY



In June 2010, the Company increased its unsecured revolving
credit facility with Angus Capital Partners a related party from $10.5 million to $12.0 million maturing December 31, 2013. At
June 30, 2012, the Company had approximately $8,123,000 available on a $12.0 million unsecured revolving credit facility with Angus
Capital Partners, with an outstanding balance of $3,877,000. The terms of the 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 12% rate.
The loan may be prepaid without penalty or repaid at maturity.



In November 2011, the Company signed a debt financing agreement
with Dakota Capital Fund LLC of Sioux Falls, South Dakota, for financing of up to $3,000,000. At June 30, 2012, the Company had
approximately $1,000,000 available on a $3.0 million secured equipment credit facility with Dakota Capital Fund LLC, with an outstanding
balance of $2,000,000. The terms of the secured credit facility will allow ERF to draw upon the facility for equipment purchases
provided that the Company has submitted an advance request with acceptable and sufficient information of assets to be purchased.
The payment terms are $178,031 per quarter including interest, at an annual rate of 18% plus 10% of positive operational cash flow
as determined from the Company’s publically filed 10Q’s and 10K’s for repayment of additional principal beginning
July 1, 2012.



ISSUANCE OF COMMON STOCK



During the three months ended June 30, 2012, we issued to various
accredited investors (i) 648,054 shares for services rendered and debt conversions. We relied on Section 4(2) of the Securities
Act in effecting these transactions. During the six months ended June 30, 2012, we issued 81,501 shares of common stock to employees
and business consultants, for aggregate consideration of $140,458 of services rendered, pursuant to a registration statement on
form S-8.



During the six months ended June 30, 2012, we issued to various
accredited investors (i) 922,599 shares for services rendered and debt conversions, and (ii) 70,000 shares upon conversion of Series
A Preferred Stock. We relied on Section 4(2) of the Securities Act in effecting these transactions. During the six months ended
June 30, 2012, we issued 81,501 shares of common stock to employees and business consultants, for aggregate consideration of $140,458
of services rendered, pursuant to a registration statement on form S-8.

Subsequent to June 30, 2012, the Company entered into a new
secured $1,000,000 line of credit bearing an interest rate of 12 percent and repayable from current operations and debt proceeds
from all E-Bond sales.





21







USE OF WORKING CAPITAL



We believe our cash and available credit facilities afford us
adequate liquidity for the balance through June 30, 2013. We anticipate that we will need additional capital in the future to continue
to expand our business operations, which expenditures may include acquisitions and capital expenditures. We have historically financed
our operations through private equity and debt financings. We do not have any commitments for significant 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 curtail operations.



OFF-BALANCE SHEET ARRANGEMENTS



As of June 30, 2012, the Company did not have any significant
off-balance-sheet arrangements other than certain office and tower facility operating leases requiring minimal commitments under
non-cancelable leases disclosed in the 10K.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES



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.



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:





| | · | a significant decrease in the market price of the asset;                                                                                                 
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                          
| | · | a significant change in the extent or manner in which the asset is being used;                                                                           
| |   |                                                                                                                                                          
| | · | a significant change in the business climate that could affect the value of the asset;                                                                   
| |   |                                                                                                                                                          
| | · | a current period loss combined with projection of continuing loss associated with use
of the asset;                                                      
| |   |                                                                                                                                                          
| | · | 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 theasset'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.



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.



22







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.



Recent Accounting Pronouncements



Management does not anticipate that the recently issued but
not yet effective accounting pronouncements will materially impact the Company’s financial condition.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK



As a smaller reporting company, as defined in rule 12b-2 of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are not required to provide the information
mandated by this item.



ITEM 4. 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 effective.



There were no changes in the Company's internal controls over
financial reporting 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.





23







PART II - OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



We are not a party to any material legal
proceedings.



During 2011, the Company and Schlumberger were unable to resolve
these financial issues regarding 2009 exclusive reseller agreement through mediation and the Company has availed itself of binding
arbitration as mandated in the contract. The binding arbitration process has been initiated in 2011 and has continued in 2012.



ITEM 1A. RISK FACTORS



See Risk Factors in item 1A of the Company form 10-K of Fiscal
year ended December 31, 2011.



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



The following transactions were completed pursuant to either
Section 4(2) of the Securities Act or Regulation D of the Securities Act. With respect to issuances made pursuant to Section 4(2)
of the Securities Act, the transactions did not involve any public offering and were sold to a limited group of persons. Each recipient
either received adequate information about ERF Wireless or had access, through employment or other relationships, to such information,
and ERF Wireless determined that each recipient had such knowledge and experience in financial and business matters that they were
able to evaluate the merits and risks of an investment in the Company.



With respect to issuances made pursuant to Regulation D of the
Securities Act, ERF Wireless determined that each purchaser was an "accredited investor" as defined in Rule 501(a) under
the Securities Act, or if such investor was not an accredited investor, that such investor received the information required by
Regulation D.



Except as otherwise noted, all sales of the Company's securities
were made by officers of the Company who received no commission or other remuneration for the solicitation of any person in connection
with the respective sales of securities described above. The recipients of securities represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and other instruments issued in such transactions.



Common Stock Issued for Debt Conversions, Interest and Services



In April 2012, 256,494 shares of common stock at average price
of $1.56 were issued for LOC and interest conversions.



In May 2012, 102,854 shares of common stock at average price
of $0.97 were issued for LOC, interest and debt conversions.



In June 2012, 266,706 shares of common stock at average price
of $1.38 were issued for LOC, interest, debt conversions and services.



ITEM 3. DEFAULT IN SENIOR SECURITIES



None.



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



None.



ITEM 5. OTHER INFORMATION



None.



24







ITEM 6. EXHIBITS





|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         
|101.INS    | XBRL Instance Document*                                                                                                                                                               
|101.SCH    | XBRL Schema Document*                                                                                                                                                                 
|101.CAL    | XBRL Calculation Linkbase Document*                                                                                                                                                   
|101.DEF    | XBRL Definition Linkbase Document*                                                                                                                                                    
|101.LAB    | XBRL Label Linkbase Document*                                                                                                                                                         
|101.PRE    | XBRL Presentation Linkbase Document*                                                                                                                                                  







*Pursuant to Rule 405(a)(2) of Regulation
S-T, the Company will furnish the XBRL Interactive Data Files with detailed footnote tagging as Exhibit 101 in an amendment to
this Form 10-Q within the permitted 30-day grace period granted for the first quarterly period in which detailed footnote tagging
is required.







25







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:	August 17, 2012 | By:               
|                      |                   













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