UNITED
STATES SECURITIES AND EXCHANGE COMMISSION




Washington,
D.C. 20549




FORM
10-Q




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


EXCHANGE
ACT OF 1934




For the
quarterly period ended March 31, 2008




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 [ X ]  No [  ]




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




The
number of shares of common stock of the registrant outstanding at May 6, 2008,
was 77,088,238.




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













PART
I – FINANCIAL INFORMATION





ITEM
1.  CONSOLIDATED FINANCIAL STATEMENTS





ERF
WIRELESS, INC.


CONSOLIDATED
BALANCE SHEETS


MARCH 31,
2008, AND DECEMBER 31, 2007


($ in
thousands except share data)




March
      31,
              
              
              December
      31,2008
              
              
              2007(unaudited)ASSETSCurrent
      assetsCash
      and cash equivalents
              
              $
              1,058
              
              
              $
              2,211Accounts
      receivable, net
              
              
              517
              
              
              
              365Accounts
      receivable other
              
              
              144
              
              
              
              114Inventories
              
              
              155
              
              
              
              118Cost
      and profit in excess of billings
              
              
              579
              
              
              
              410Prepaid
      expenses and other current assets
              
              
              486
              
              
              
              523Total
      current assets
              
              
              2,939
              
              
              
              3,741Property
      and equipmentProperty
      and equipment
              
              
              4,238
              
              
              
              3,246Less
      accumulated depreciation
              
              
              (802
              )
              
              
              (564
              )Net
      property and equipment
              
              
              3,436
              
              
              
              2,682Goodwill
              
              
              436
              
              
              
              260Intangible
      assets, net
              
              
              1,557
              
              
              
              1,541Other
      assets
              
              
              171
              
              
              
              142Total
      assets
              
              $
              8,539
              
              
              $
              8,366LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Notes
      payable and current portion of long-term debt
              
              $
              493
              
              
              $
              513Current
      portion of long-term capital lease payable
              
              
              524
              
              
              
              403Accounts
      payable
              
              
              1,230
              
              
              
              1,089Deferred
      revenue
              
              
              8
              
              
              
              16Accrued
      expenses
              
              
              736
              
              
              
              929Derivative
      liabilities
              
              
              250
              
              
              
              403Deferred
      liability lease
              
              
              164
              
              
              
              164Total
      current liabilities
              
              
              3,405
              
              
              
              3,517Long-term
      debt, net of current portion
              
              
              2,932
              
              
              
              2,885Capital
      leases, net of current portion
              
              
              1,356
              
              
              
              1,009Deferred
      liability lease
              
              
              435
              
              
              
              476Deferred
      revenue
              
              
              14
              
              
              
              10Total
      long-term  liabilities
              
              
              4,737
              
              
              
              4,380Commitments
      and contingenciesShareholders’
      equity:Preferred
      stock  -  $.001 par valueAuthorized  25,000,000
      sharesIssued
      and outstanding at March 31, 2008 andDecember
      31, 2007, 2,845,456 and 3,311,534,
      respectively
              
              
              3
              
              
              
              3Common
      stock  -  $.001 par valueAuthorized
      475,000,000 sharesIssued
      and outstanding at March 31, 2008, andDecember
      31, 2007, 72,621,177 and 61,541,358,
      respectively
              
              
              73
              
              
              
              62Additional
      paid in capital
              
              
              20,556
              
              
              
              19,098Accumulated
      deficit
              
              
              (20,235
              )
              
              
              (18,694
              )Total
      shareholders’ equity
              
              
              397
              
              
              
              469Total
      liabilities and shareholders' equity
              
              $
              8,539
              
              
              $
              8,366


2





ERF
WIRELESS, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


FOR THE
THREE MONTHS ENDED MARCH 31, 2008 AND 2007


(Unaudited)


($ in
thousands except share data and loss per share)






2008
              
              
              2007Sales:Products
              
              $
              437
              
              
              $
              63Services
              
              
              1,219
              
              
              
              434Other
              
              
              19
              
              
              
              8Total
      sales
              
              
              1,675
              
              
              
              505Costs
      of goods sold:Products
      and integration services
              
              
              360
              
              
              
              166Rent,
      repairs and maintenance
              
              
              91
              
              
              
              42Salary
      and related cost
              
              
              49
              
              
              
              41Depreciation
              
              
              196
              
              
              
              19Other
      cost
              
              
              139
              
              
              
              15Total
      costs of goods sold
              
              
              835
              
              
              
              283Gross
      profit
              
              
              840
              
              
              
              222Operating
      expenses:Selling,
      general and administrative
              
              
              2,103
              
              
              
              1,283Depreciation
      and amortization
              
              
              230
              
              
              
              67Total
      operating expenses
              
              
              2,333
              
              
              
              1,350Loss
      from operations
              
              
              (1,493
              )
              
              
              (1,128
              )Other
      income/(expenses):Interest
      expense, net
              
              
              (184
              )
              
              
              (245
              )Other
      income (expense)
              
              
              6
              
              
              
              (10
              )Derivative
      income
              
              
              130
              
              
              
              14Total
      other income (expense)
              
              
              (48
              )
              
              
              (241
              )Net
      loss
              
              $
              (1,541
              )
              
              $
              (1,369
              )Net
      loss per common share:Basic
              
              $
              (0.02
              )
              
              $
              (0.05
              )Diluted
              
              $
              (0.02
              )
              
              $
              (0.05
              )See
      accompanying notes to consolidated financial statements.











3





ERF
WIRELESS, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR THE
THREE MONTHS ENDED MARCH 31, 2008 AND 2007


(Unaudited)


($ in
thousands)





2008
              
              
              2007Cash
      flows from operating activitiesNet
      loss
              
              $
              (1,541
              )
              
              $
              (1,369
              )Adjustments
      to reconcile net loss to net cashused
      by operating activities:Loss
      on sale of assets
              
              
              -
              
              
              
              10Amortization
      of debt discount
              
              
              9
              
              
              
              190Depreciation
      and amortization
              
              
              427
              
              
              
              108Stock
      issued for services rendered
              
              
              649
              
              
              
              457Warrant
      expense
              
              
              23
              
              
              
              3Derivative
      (income)
              
              
              (153
              )
              
              
              (17
              )Bad
      debt expense
              
              
              63
              
              
              
              -(Increase)
      decrease in accounts receivable, net
              
              
              (213
              )
              
              
              220(Increase)
      in accounts receivable other
              
              
              (30
              )
              
              
              -(Increase)
      in inventories
              
              
              (37
              )
              
              
              (4
              )Decrease
      (increase) in prepaid expenses
              
              
              37
              
              
              
              (258
              )(Increase)
      decrease in cost and profit in excess of billings
              
              
              (169
              )
              
              
              55Increase
      (decrease) in accounts payable
              
              
              141
              
              
              
              (20
              )(Decrease)
      increase in accrued expenses
              
              
              (196
              )
              
              
              139(Decrease)
      in deferred liability lease
              
              
              (41
              )
              
              
              (47
              )(Decrease)
      in deferred revenue
              
              
              (4
              )
              
              
              (1
              )Total
      Adjustment
              
              
              506
              
              
              
              835Net
      cash used by operating activities
              
              
              (1,035
              )
              
              
              (534
              )Cash
      flows from investing activitiesProceeds
      from sale of assets
              
              
              -
              
              
              
              6Purchase
      of property and equipment
              
              
              (63
              )
              
              
              (71
              )Business
      acquisitions, net of cash acquired
              
              
              (171
              )
              
              
              -(Increase)
      in other assets
              
              
              (29
              )
              
              
              -Net
      cash used by investing activities
              
              
              (263
              )
              
              
              (65
              )Cash
      flows from financing activitiesNet
      proceeds from line of credit
              
              
              38
              
              
              
              207Proceeds
      from financing agreements
              
              
              25
              
              
              
              75Payment
      of debt obligations
              
              
              (70
              )
              
              
              (20
              )Payment
      on capital lease obligations
              
              
              (120
              )
              
              
              -Proceeds
      from sale of common stock, net
              
              
              272
              
              
              
              -Net
      cash provided by financing activities
              
              
              145
              
              
              
              262Net
      (decrease) in cash
              
              
              (1,153
              )
              
              
              (337
              )Cash
      and cash equivalents at the beginning of the period
              
              
              2,211
              
              
              
              393Cash
      and cash equivalents at the end of the period
              
              $
              1,058
              
              
              $
              56Supplemental
      disclosure of cash flow information:Net
      cash paid during the year for:Interest
              
              $
              79
              
              
              $
              1Income
      taxes
              
              $
              -
              
              
              $
              -Supplemental
      non-cash investing and financing activities:Conversion
      of debt through issuance of common stock
              
              $
              125
              
              
              $
              97Issuance
      of shares for asset acquisition
              
              $
              400
              
              
              $
              -Property
      acquired under capital lease
              
              $
              588
              
              
              $
              -See
      accompanying notes to consolidated financial statements.





4
 ERF
WIRELESS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)




NOTE
1 - BASIS OF PRESENTATION




NATURE
OF THE COMPANY




ERF
Wireless, Inc. (the Company), provides wireless communications products and
services including the Company's core focus of providing enterprise-class
wireless broadband services. The Company has formed four operating divisions to
provide solutions and services to different segments of the wireless industry.
The Company's Enterprise Network Services Division was formed to serve
enterprise customers, private entities, cities, unincorporated municipalities
and the general public. The Company's Wireless Bundled Services Division was
formed to provide wireless broadband products and services, including Internet,
voice, data, security, and is in the early stages of building or acquiring
wireless broadband networks to serve private entities, cities, municipalities
and the general public. The Company's Wireless Messaging Services Division
manufactures and supplies high-power infrastructure equipment for the wireless
messaging industry and owns and operates a wide-area wireless messaging service
(paging retail). The Company's Network Operations Services Division provides the
overall day-to-day 24/7 monitoring of all wireless broadband networks that the
Company constructs, acquires, maintains and administers. Please refer to segment
footnote 12 for additional information regarding Company operating
divisions.




BASIS
OF ACCOUNTING




The
accompanying unaudited interim financial statements of the Company have been
prepared in accordance with accounting principles generally accepted in the
United States of America and the rules of the Securities and Exchange Commission
("SEC") and should be read in conjunction with the audited financial statements
and notes thereto contained in the Company's annual report filed with the SEC on
Form 10-KSB dated December 31, 2007. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position and the results of operations for the interim
periods presented have been reflected herein. The results of operations for
interim periods are not necessarily indicative of the results to be expected for
the full year.




PRINCIPLES
OF CONSOLIDATION




The
consolidated financial statements include the accounts of the company and its
subsidiaries. All significant inter-company transactions and balances have been
eliminated in consolidation. The consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America.




INVENTORIES




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





March
      31,
              
              
              December
      31,2008
              
              
              2007Raw
      material
              
              $
              69
              
              
              $
              49Finished
      goods
              
              
              86
              
              
              
              69$
              155
              
              
              $
              118




The
Company has pledged substantially all the inventory of WBS of $62,000 and
$39,000 as collateral against outstanding notes as of March 31, 2008, and
December 31, 2007, respectively.







INCOME
TAXES




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




BASIC
LOSS PER SHARE




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


5
 ERF
WIRELESS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)




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




Diluted
net loss per common share is computed by dividing the net loss applicable to
common stockholders, adjusted on an "as if converted" basis, by the weighted
average number of common shares outstanding plus potential dilutive securities.
For the periods ended March 31, 2008, and December 31, 2007, potential dilutive
securities had an anti-dilutive effect and were not included in the calculation
of diluted net loss per common share.




RECENT
ACCOUNTING PRONOUNCEMENTS




In
December 2007, the FASB issued SFAS No. 141R, Business Combinations.
SFAS 141R establishes principles and requirements for how the acquirer of a
business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling interest in
the acquiree. SFAS No. 141R also provides guidance for recognizing and measuring
the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statement to evaluate
the nature and financial effects of the business combination. SFAS 141R is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. We expect SFAS No. 141R will have an impact on
our consolidated financial statements when effective, but the nature and
magnitude of the specific effects will depend upon the nature, terms and size of
the acquisitions we consummate after the effective date.




NOTE
2 - ACCOUNTS RECEIVABLE




Accounts
receivable net consists of the following (in thousands):





March
      31,
              
              
              December
      31,2008
              
              
              2007Accounts
      receivable
              
              $
              628
              
              
              $
              412Allowance
      for doubtful accounts
              
              
              (111
              )
              
              
              (47
              )Accounts
      receivable, net
              
              $
              517
              
              
              $
              365




The
Company has pledged substantially all the accounts receivables of WBS as
collateral against outstanding notes and capital leases.




NOTE
3 - PROPERTY AND EQUIPMENT




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





March
      31,
              
              
              December
      31,2008
              
              
              2007Automobiles
              
              $
              175
              
              
              $
              157Operating
      equipment
              
              
              2,648
              
              
              
              2,123Office
      furniture and equipment
              
              
              170
              
              
              
              137Leasehold
      improvements
              
              
              47
              
              
              
              47Computer
      equipment
              
              
              232
              
              
              
              214Building
              
              
              8
              
              
              
              8Land
              
              
              28
              
              
              
              28Other
              
              
              930
              
              
              
              532Total
      property and equipment
              
              
              4,238
              
              
              
              3,246Less
      accumulated depreciation
              
              
              (802
              )
              
              
              (564
              )Net
      property and equipment
              
              $
              3,436
              
              
              $
              2,682




Depreciation
expense was approximately $237,000 and $64,000 for the periods ended March 31,
2008, and March 31, 2007, respectively.




The
Company has pledged substantially all the operating equipment and some furniture
and vehicles as collateral against outstanding notes and capital
leases.


6
 ERF
WIRELESS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)




NOTE
4 - GOODWILL




On
January 11, 2008, ERFW completed the purchase of assets from Crosswind, Inc.,
and as part of the acquisition the Company acquired goodwill which was valued at
$176,000, which is not subject to amortization.




NOTE
5 - INTANGIBLE ASSETS




Intangible
assets consist of the following (in thousands):





March
      31, 2008Weighted
                AverageUseful
                Life (in years)
              
              Gross
                Carrying
                Amount
              
              Accumulated
      Amortization
              
              Net
      Carrying
                AmountCustomer
      relationships
              3.0
              
              $
              2,028
              
              $
              498
              
              $
              1,530Workforce
      in place
              3.0
              
              
              125
              
              
              111
              
              
              14Non-compete
      agreement
              3.0
              
              
              100
              
              
              89
              
              
              11Developed
      technology
              3.0
              
              
              20
              
              
              18
              
              
              2$
              2,273
              
              $
              716
              
              $
              1,557December
      31, 2007Weighted
                Average
      Useful
                Life
      (in years)
              
              Gross
                Carrying
                Amount
              
              Accumulated
      Amortization
              
              Net
      Carrying
                Amount$Customer
      relationships
              3.0
              
              
              1,822
              
              $
              329
              
              $
              1,493Workforce
      in place
              3.0
              
              
              125
              
              
              101
              
              
              24Non-compete
      agreement
              3.0
              
              
              100
              
              
              80
              
              
              20Developed
      technology
              3.0
              
              
              20
              
              
              16
              
              
              4$
              2,067
              
              $
              526
              
              $
              1,541




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




On
January 11, 2008, ERFW completed the purchase of assets from Crosswind, Inc.,
and as part of the acquisition the Company acquired a customer list which was
valued at $206,000 and is being amortized over three years. Please see note 16
for additional details.




Total
amortization of intangibles was approximately $189,000 and $45,000 for the three
months ended March 31, 2008 and 2007, respectively. The estimated amortization
expense for the three next years will be $634,000 for 2008, $586,000 for 2009
and $482,000 in 2010.




NOTE
6 - COMMON STOCK, PREFERRED STOCK AND WARRANTS




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




COMMON
STOCK




As of
March 31, 2008, the Company had 72,621,177 shares of its $.001 par value common
stock issued and outstanding.




During
the three months ended March 31, 2008, the Company issued a total of 1,754,567
shares of common stock in lieu of cash for professional services of $222,000,
settlement expense of $9,000, other services of $47,000, conversion of notes
payable of $125,000, salary and compensation of $371,000 and acquisition of
assets of $400,000. The Company valued the 1,754,567 shares at the closing
market price on the date of issuance of such shares.


7
 ERF
WIRELESS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)




PREFERRED
STOCK




The
Company has 25,000,000 shares of Series A Preferred Stock authorized of which
2,845,456 shares were issued and outstanding as of March 31, 2008. The Series A
Preferred Stock is convertible at holder's option at one preferred share for
18.676347 shares Common Stock and has a 2:1 liquidation preference. The holder
of Series A Preferred Stock is required to give a 65-day notice of conversion to
the company. With respect to the Series A Preferred Stock outstanding at March
31, 2008, the Company would be required to issue 53,142,724 shares of its Common
Stock, subject to certain contractually imposed conversion restrictions as
described herein. During the 4th quarter 2005, all of the Series A holders
entered into a Series A Conversion Restriction Agreement whereby all Series A
holders, as a group, are prohibited from converting more than 5% of the total
outstanding (as of September 30, 2005) Series A holdings in any one calendar
quarter.




WARRANTS




The
Company had warrants outstanding to third parties purchase 4,367,783 common
shares as of March 31, 2008.




Warrants
for 880,000 shares were issued by the Company in June 2003. Specifically, the
Company sold 120,000 shares of Common Stock for $25,000 to an accredited
investor of the Securities Act and issued such a warrant to purchase 880,000
shares of Common Stock at an exercise price of $0.20 per share expiring December
31, 2007. The Investor has exercised all warrants as of December 31,
2007.




Warrants
for 208,339 shares of common stock at $5.00 per share and warrants for 208,339
shares at $7.50 per share were issued by the Company during 2005 and 2006.
Specifically, the Company sold 208,312 shares of Common Stock for $312,500 to
accredited investors of the Securities Act and issued such warrants to purchase
208,339 shares of Common Stock at $5.00 per share and 208,339 shares of common
stock at $7.50 per share expiring August 2007. These warrants have been extended
to June 30, 2008.  The Company attributed no value to these warrants
in the quarters in which they were issued. During the 4th quarter of 2006
management offered the Private Placement Memorandum Holders an opportunity to
exchange their stock for E-Series Bonds of which several investors agreed to in
aggregate in the amount of $100,000 resulting in canceling 66,667 of the $7.50
warrants and $5.00 warrants reducing the outstanding class warrants from 208,339
to 141,670.




Warrants
for 389,999 at $3.57 per share were issued by the Company in September 2005 and
November 2005. Specifically, the Company issued convertible notes for $1,500,000
to accredited investors of the Securities Act and issued such warrants to
purchase 389,999 shares of Common Stock at $3.57 per share, subject to
adjustment upon issuance of shares or warrants below market, expiring September
2010. See Note 9 for valuation and marked-to-market activity.




Warrants
for 3,694,444 shares of common stock at $5.00 per share were issued by the
Company during 2006 thru 2008. Specifically, the Company sold $1,025,000 of
E-series bonds to accredited investors of the Securities Act. According to the
agreement if the Bondholder converts within one year from investment; the
conversion includes a warrant to purchase one additional share of common stock
at a price of $5.00 for every share of common stock that has been received from
the conversion of the Bond principal, expiring at various dates from October
2011 thru March 2013. The Company has had thirty four units converted and has
attributed $255,000 to warrant expense using the Black Scholes option price
model in the quarter in which the unit was converted. As of March 31, 2008, the
Company has attributed $23,000 in warrant expense.  See Note 9 for
valuation and marked-to-market activity.




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





Options/WarrantsIssued
      & OutstandingMarch
      31,
              
              March
      31,Exercise
      Price
              
              Expiration
      Date
              
              2008
              
              20070.20
              
              Dec-07
              
              -
              
              780,0005.00
              
              Jun-08
              
              141,670
              
              141,6707.50
              
              Jun-08
              
              141,670
              
              141,6703.57
              
              Sep-10
              
              389,999
              
              389,9995.00
              
              Oct-11
      thru Mar-13
              
              3,694,444
              
              613,9184,367,783
              
              2,067,257


8
 ERF
WIRELESS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
7 - 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 March 31, 2008Income
              
              
              Shares
              
              
              Per-Share(Numerator)
              
              
              (Denominator)
              
              AmountNet
      loss
              
              $
              (1,541
              )
              
              
              65,651
              
              
              
              (0.02
              )Basic
      EPS:loss
      available to common stockholders
              
              
              (1,541
              )
              
              
              65,651
              
              
              
              (0.02
              )Effect
      of dilutive securities
              
              
              -
              
              
              
              
              
              
              
              -Diluted
      EPS:loss
      available to common stockholders
              
              $
              (1,541
              )
              
              
              65,651
              
              
              $
              (0.02
              )and
      assumed conversionsFor
      the three months ended March 31, 2007Income
              
              
              Shares
              
              
              Per-Share(Numerator)
              
              
              (Denominator)
              
              AmountNet
      loss
              
              $
              (1,369
              )
              
              
              26,922
              
              
              
              (0.05
              )Basic
      EPS:loss
      available to common stockholders
              
              
              (1,369
              )
              
              
              26,922
              
              
              
              (0.05
              )Effect
      of dilutive securities
              
              
              -
              
              
              
              
              
              
              
              -Diluted
      EPS:loss
      available to common stockholders
                and assumed conversions
              
              $
              (1,369
              )
              
              
              26,922
              
              
              $
              (0.05
              )




For the
year to date ended March 31, 2008 and 2007, dilutive securities existed. The
effect of the dilutive securities for the year to date ended March 31, 2008,
would have been 84,449,585 shares of common stock issued assuming all debt
instruments were converted, all Series A preferred stock converted and all
options and warrants were exercised.




NOTE
8 - MAJOR CUSTOMERS




The
Company had gross sales of approximately $1,675,000 and $505,000 for the three
months ended March 31, 2008 and 2007, respectively. The Company had two
customers that represented approximately 27% and 13% of the gross sales in the
three months ended March 31, 2008, and had one customer that represented 14% of
gross sales for the three months ended March 31, 2007.




NOTE
9 – NOTES PAYABLE AND LONG-TERM DEBT




Notes
payable and long-term debts consist of the following as of March 31, 2008 (in
thousands):





Terms
              Maturity
      Date
              
              Interest
      Rate
              
              
              Gross
      Balance
              
              
              Debt
      Discount
              
              
              Net
      BalanceBancleasing,
      Inc.
              $10,660
      / Month including interest
              October-14
              
              
              11.62
              %
              
              $
              601
              
              
              $
              -
              
              
              $
              601Agility
      Capital Lease
              $52,151
      / Month including interest
              Various
              
              
              18.82
              %
              
              
              1,274
              
              
              
              -
              
              
              
              1,274Balboa
      Lease
              $225
      / Month including interest
              June-10
              
              
              27.74
              %
              
              
              5
              
              
              
              -
              
              
              
              5Shane
      Griffths, Crosswind
              $13,911
      / Month including interest
              December-10
              
              
              7.50
              %
              
              
              150
              
              
              
              -
              
              
              
              150Axis
      Capital, Inc
              $347
      / Month including interest
              August-08
              
              
              8.60
              %
              
              
              2
              
              
              
              -
              
              
              
              2Vangard
      Wireless, Inc.
              $200
      / Month including interest
              December-10
              
              
              6.00
              %
              
              
              6
              
              
              
              -
              
              
              
              6Liberty
      Finance
              $517
      / Month including interest
              September-09
              
              
              13.97
              %
              
              
              9
              
              
              
              -
              
              
              
              9Chase
      Bank
              $449
      / Month including interest
              November-09
              
              
              5.89
              %
              
              
              9
              
              
              
              -
              
              
              
              9Blanco
      National Bank
              $3,913
      / Month including interest
              August-10
              
              
              9.50
              %
              
              
              94
              
              
              
              -
              
              
              
              94Robert
      McClung, Momentum
              $23,476
      / Quarterly including interest
              October-10
              
              
              7.50
              %
              
              
              231
              
              
              
              -
              
              
              
              231George
      Kemper, TSTAR
              $38,254
      / Quarterly including interest
              April-10
              
              
              7.50
              %
              
              
              318
              
              
              
              -
              
              
              
              318Premium
      Assignment, Insurance notes
              $421
      / Month including interest
              September-08
              
              
              9.48
              %
              
              
              9
              
              
              
              -
              
              
              
              9Line
      of credit
              2
      years/ Quarterly interest (See below)
              February-09
              
              
              6.00
              %
              
              
              2,447
              
              
              
              -
              
              
              
              2,447E-bond
      investor notes
              3
      years/ Semiannual interest (See below)
              Various
              
              
              10.00
              %
              
              
              175
              
              
              
              25
              
              
              
              150Total
      debt
              
              
              
              
              
              
              
              $
              5,330
              
              
              $
              25
              
              
              
              5,305Less
      current maturities
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,017Less
      debt discount current maturities
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (25
              )Long-term
      debt
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              4,313




The gross
maturities of these debts are $783,000, $3,348,000, $739,000, $105,000, $94,000
and $236,000 for the years ended December 31, 2008, 2009, 2010, 2011 and 2012,
and thereafter, respectively.


9
 ERF
WIRELESS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


INVESTOR
NOTES




0n
September 13, 2005, the Company closed a financing arrangement with Global
Capital Funding L.P. ("Global"), GCA Strategic Investment Fund Limited
("GCASIF"), HIPL Family Trust ("HIPL"), and DP Securities Inc. ("DPS")
("Global," "GCASIF," HIPL" and "DPS," collectively, the "Investors") in which it
issued to: (i) Global, a convertible secured note in the principal amount of
$1,285,000 ("Global Note") and a common stock purchase warrant (the "Global
Warrant") to purchase 300,000 shares of Company common stock; (ii) GCASIF, a
convertible secured note in the principal amount of $50,000 (the "GCASIF Note")
and a common stock purchase warrant (the "GCASIF Warrant") to purchase up to
13,953 shares of the Company common stock; and (iii) HIPL, a convertible secured
note in the principal amount of $66,750 (the HIPL Note") and common stock
purchase warrant (the "HIPL warrant") to purchase up to 20,930 shares of the
common stock; and (iv) DPS a convertible secured note in the principal amount of
$98,250 (the "DPS Note") and a common stock purchase warrant (the "DPS Warrant")
to purchase up to 55,116 shares of common stock. The Global Note, GCASIF Note,
HIPL Note and DPS Note, collectively, "Investor Notes" and the Global Warrant,
GCASIF Warrant, and DPS Warrant, collectively, "Investor Warrants".These notes have been
repaid as of December 31, 2007, and the warrants remain outstanding. The
warrants are exercisable at $5.00 per share and expire in September
2010.




The
Investor Notes were determined to include free standing warrants and various
embedded derivative liabilities. The derivative liabilities are the conversion
feature and the redemption option (compound embedded derivative liability). At
the date of issuance (September 06, 2005, and November 21, 2005) the Investor
Notes, warrant liabilities and compound embedded derivative liabilities were
measured at fair value using either quoted market prices of financial
instruments with similar characteristics or other valuation techniques. These
derivative liabilities will be marked-to-market each quarter with the change in
fair value recorded in the income statement. The Company uses the effective
interest method to record interest expense and related debt accretion which was
$96,631 for the year ended December 31, 2005, $458,229 for the year ended
December 31, 2006 and $437,123 for year ending December 31, 2007,
respectively.




The
following table summarizes the convertible debt activity for the period
September 6, 2005, to March 31, 2008:





Description
              
              Investor
      Notes
              
              
              Warrant
                Liabilities
              
              
              Compound
                Derivative
              
              
              TotalFair
      value issuance at inception
              
              $
              508,018
              
              
              $
              470,702
              
              
              $
              521,281
              
              
              $
              1,500,00109-06-05
      to 09-30-05 change in fair value
              
              
              18,373
              
              
              
              2,389,132
              
              
              
              1,012,547
              
              
              
              3,420,05210-01-05
      to 12-31-05 change in fair value
              
              
              78,258
              
              
              
              (2,160,313
              )
              
              
              (1,090,630
              )
              
              
              (3,172,685
              )01-01-06
      to 03-31-06 change in fair value
              
              
              90,258
              
              
              
              (466,128
              )
              
              
              (276,615
              )
              
              
              (652,485
              )04-01-06
      to 06-30-06 change in fair value
              
              
              104,943
              
              
              
              (149,288
              )
              
              
              32,006
              
              
              
              (12,339
              )07-01-06
      to 09-30-06 change in fair value
              
              
              122,182
              
              
              
              73,005
              
              
              
              32,395
              
              
              
              227,58210-01-06
      to 12-31-06 change in fair value
              
              
              140,846
              
              
              
              (118,744
              )
              
              
              (26,162
              )
              
              
              (4,060
              )01-01-07
      to 03-31-07 change in fair value
              
              
              158,659
              
              
              
              (20,503
              )
              
              
              (2,478
              )
              
              
              135,67804-01-07
      to 06-30-07 change in fair value
              
              
              184,473
              
              
              
              113,377
              
              
              
              (4,843
              )
              
              
              293,00707-01-07
      to 09-30-07 change in fair value
              
              
              93,990
              
              
              
              116,109
              
              
              
              (197,501
              )
              
              
              12,59810-01-07
      to 12-31-07 change in fair value
              
              
              -
              
              
              
              52,413
              
              
              
              -
              
              
              
              52,41301-01-08
      to 03-31-08 change in fair value
              
              
              -
              
              
              
              (113,802
              )
              
              
              -
              
              
              
              (113,802
              )Conversions
      from inception to date
              
              
              (1,500,000
              )
              
              
              -
              
              
              
              -
              
              
              
              (1,500,000
              )Fair
      value at March 31, 2008
              
              $
              0
              
              
              $
              185,960
              
              
              $
              -
              
              
              $
              185,960





From
inception to date through March 31, 2008, the Company recorded a net derivative
income of $609,000 and for the three months ended March 31, 2008, a net
derivative income of $114,000.




The
following assumptions were used in the fair value determination of warrants
liabilities at March 31, 2008:





WarrantsAssumptions
              
              3/31/2007
              6/30/2007
              9/30/2007
              12/31/2007
              3/31/2008Dividend
      yield
              
              0.00%
              0.00%
              0.00%
              0.00%
              0.00%Risk-free
      rate for term
              
              4.51%
              4.89%
              4.03%
              3.07%
              1.62%Volatility
              
              140.00%
              200.00%
              177.00%
              180.00%
              180.00%Maturity
      date
              
              3.44
      years
              3.39
      years
              2.93
      years
              2.68
      years
              2.43
      years




A
Black-Scholes methodology was used to value the warrants.


10
 ERF
WIRELESS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)




LINE
OF CREDIT




During
2007, the Company, amended its two-year unsecured revolving credit facility with
certain private investors that provides a $3 million dollar line of credit. The
terms of the secured revolving credit facility allow ERF Wireless to draw upon
the facility as financing requirements dictate and provide for quarterly
interest payments at a 12% rate. The loan has been extended from February 28,
2009 to now due December 31, 2009 and may be prepaid without penalty or repaid
at maturity. At March 31, 2008, the balance of the credit line was $2,447,295.
The lender has agreed to fund up to an additional $1 million during 2008 under
the same terms and conditions.




E-SERIES
BOND INVESTOR NOTE




On May 1,
2006, the Company has offered a Private Placement Memorandum to certain
Accredited Investors whereby the Company is selling one hundred units of
E-Series bonds (the "Bonds") at $25,000 per unit for a total maximum offering of
$2,500,000. The Bonds are due and payable upon maturity at the end of the
three-year period after the issuance date. Interest on the Bonds is payable at
the rate of 10% per annum, and is payable semiannually. The Bondholder may
require ERF Wireless to convert the Bond (including any unpaid interest) into
shares of the Company's common stock at any time only during the first year. If
the Bonds are converted under this option, the Company will issue shares
representing 100% of the Bond principal and unpaid interest due up to the date
the stock is issued. Shares issued under this option will be valued at the
lesser of $1.50 or the 20-day trailing average per share closing price of ERFW
common stock for the 20 days immediately preceding the notice of conversion.
This first year conversion includes a warrant to purchase one additional share
of common stock at a price of $5.00 for every share of common stock that has
been received from the conversion of the Bond principal.




At the
Company's discretion at any time after the first year, the Bonds, including the
interest payments may be repaid in cash or in shares of our common stock, which
will be valued at the average last sales price of our common stock over the
60-trading-day period preceding any payment date. If the Company chooses to
issue shares of our common stock as repayment of the Bond as payment of
interest, we will issue shares representing 125% of the Bond principal. If the
Company's choose to issue shares of our common stock as payment of interest, we
will issue shares representing 100% of the interest due. If the Company chooses
to pay cash for either the Bond repayment or any interest payment, we will pay
cash representing 100% of the amounts owed. ERF Wireless may redeem the Bonds at
any time after the first year following their purchase but not before. The
offering was extended through June 30, 2008, unless such date is extended at the
Company's discretion. As of March 31, 2008, the Company has sold $1,025,000 of
E-Series Bonds and the balance due at March 31, 2008, is $175,000.




The
E-Series 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 E-Series 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 and related debt accretion which was
$9,146 for the three months ended March 31, 2008, and the estimated debt
accretion for 2008 is $33,898.




The
following table summarizes the convertible debt activity for the period May 31,
2006, to March 31, 2008:





Description
              
              E-Series
      Bonds
              
              
              Compound
                Derivative
                Liability
              
              
              TotalFair
      value issuance at inception
              
              $
              891,174
              
              
              $
              133,826
              
              
              $
              1,025,00005-31-06
      to 06-30-06 change in fair value
              
              
              763
              
              
              
              (11,750
              )
              
              
              (10,987
              )07-01-06
      to 09-30-06 change in fair value
              
              
              5,847
              
              
              
              (3,971
              )
              
              
              1,87610-01-06
      to 12-31-06 change in fair value
              
              
              6,648
              
              
              
              (13,213
              )
              
              
              (6,565
              )01-01-07
      to 03-31-07 change in fair value
              
              
              9,065
              
              
              
              5,956
              
              
              
              15,02104-01-07
      to 06-30-07 change in fair value
              
              
              49,060
              
              
              
              (10,668
              )
              
              
              38,39207-01-07
      to 09-30-07 change in fair value
              
              
              2,965
              
              
              
              4,536
              
              
              
              7,50110-01-07
      to 12-31-07 change in fair value
              
              
              25,580
              
              
              
              (1,274
              )
              
              
              24,30601-01-08
      to 03-31-08 change in fair value
              
              
              9,146
              
              
              
              (39,397
              )
              
              
              (30,251
              )Conversions
      from inception to date
              
              
              (850,000
              )
              
              
              -
              
              
              
              (850,000
              )Fair
      value at March 31, 2008
              
              $
              150,248
              
              
              $
              64,045
              
              
              $
              214,293




From
inception to date through March 31, 2008, the Company recorded a net derivative
income of $69,781 and for the three months ended March 31, 2008, a net
derivative income of $39,397.


11
 ERF
WIRELESS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)




SHAYNE
GRIFFTHS, CROSSWIND, INC.




On
January 11, 2008, the Company issued a note to Crosswind, Inc., totaling
$150,000 bearing interest at 7.5% and are secured by the equipment acquired,
payable in twelve quarterly payments of $13,911 plus interest.




CAPITAL
LEASES




Agility Lease Fund, LLCIncluded in property and equipment at March 31, 2008, is $1,284,000
capitalized equipment, net of amortization. The equipment and one of the
Company's bank accounts are the primary collateral securing the financing with a
guarantee of repayment by ERF Wireless, Inc.




Banc Leasing Inc.,Included in
property and equipment at March 31, 2008, is $610,900 capitalized equipment, net
of amortization. The equipment is 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
March 31, 2008 (in thousands):




2008
              
              $
              5942009
              
              
              7692010
              
              
              5802011
              
              
              1492012
              
              
              128Thereafter
              
              
              267Total
      minimum lease payments
              
              
              2,487Less
      amount representing interest
              
              
              (607
              )Present
      value of net minimum lease payments
              
              
              1,880Current
      maturities of capital lease obligations
              
              
              (524
              )Long-term
      portion of capital lease obligations
              
              $
              1,356









NOTE
10 – UNCOMPLETED CONTRACTS




Costs,
estimated earnings and billings on uncompleted contracts for the three months
ended March 31, 2008, and December 31, 2007, are summarized as follows (in
thousands):




March
      31,
              
              
              December
      31,2008
              
              
              2007Costs
      incurred on uncompleted contracts
              
              $
              2,584
              
              
              $
              2,284Estimated
      profit
              
              
              644
              
              
              
              429Gross
      revenue
              
              
              3,228
              
              
              
              2,713Less:
      billings to date
              
              
              2,649
              
              
              
              2,303Costs
      and profit in excess of billings
              
              $
              579
              
              
              $
              410


12
 ERF
WIRELESS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)




Such
amounts are included in the accompanying balance sheets at March 31, 2008, and
December 31, 2007, and are summarized as follows (in thousands):




March
      31,
              
              
              December
      31,2008
              
              
              2007Cost
      and estimated earnings in excess of billings on uncompleted
      contracts
              
              $
              579
              
              
              $
              410Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
              
              
              -
              
              
              
              -$
              579
              
              
              $
              410




NOTE
11 - COMMITMENTS AND CONTINGENCIES




LEASES
AND LICENSE AGREEMENTS




For the
three months ended March 31, 2008 and 2007, rental expenses of approximately
$145,000 and $97,000, 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 September 2013, and requiring payment of property taxes,
insurance, maintenance and utilities.




Future
minimum lease payments under non-cancelable operating leases at March 31, 2008,
were as follows:





Period
      Ending December 31,
              
              Amount
      ($000)2008
              
              $
              3572009
              
              
              4162010
              
              
              3162011
              
              
              2252012
              
              
              52Thereafter
              
              
              11Total
              
              $
              1,377




NOTE
12 - INDUSTRY SEGMENTS




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




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.




WIRELESS
MESSAGING SERVICES DIVISION (WMS)




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




NETWORK
OPERATING SERVICES DIVISION (NOS)




NOS
provides the overall day-to-day 24/7 monitoring of all wireless broadband
networks that the Company constructs, acquires, maintains and administers. The
transactions in the NOS segment for the three months ended March 31, 2008 and
2007, were not material.


13
 ERF
WIRELESS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)




ENTERPRISE
NETWORK SERVICES (ENS)




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





For
      the three months ended March 31, 2008 (in thousands)WMS
              
              
              WBS
              
              
              ENS
              
              
              TotalRevenue
              
              $
              496
              
              
              $
              1,081
              
              
              $
              98
              
              
              $
              1,675Segment
      (loss) income
              
              
              237
              
              
              
              (370
              )
              
              
              (461
              )
              
              
              (594
              )Segment
      assets
              
              
              525
              
              
              
              5,368
              
              
              
              1,637
              
              
              
              7,530Capital
      expenditures
              
              
              -
              
              
              
              485
              
              
              
              473
              
              
              
              958Depreciation
      and amortization
              
              
              3
              
              
              
              360
              
              
              
              46
              
              
              
              409For
      the three months ended March 31, 2007 (in thousands)WMS
              
              
              WBS
              
              
              ENS
              
              
              TotalRevenue
              
              $
              73
              
              
              $
              347
              
              
              $
              85
              
              
              $
              505Segment
      loss
              
              
              (105
              )
              
              
              27
              
              
              
              (309
              )
              
              
              (387
              )Segment
      assets
              
              
              105
              
              
              
              994
              
              
              
              464
              
              
              
              1,563Capital
      expenditures
              
              
              -
              
              
              
              67
              
              
              
              4
              
              
              
              71Depreciation
      and amortization
              
              
              4
              
              
              
              45
              
              
              
              45
              
              
              
              94








Reconciliation
      of Segment Loss from Operations to Net Loss
              
              March
      31, 2008
              
              
              March
      31, 2007Total
      segment loss from operations
              
              $
              (594
              )
              
              $
              (387
              )Total
      corporate overhead
              
              
              (947
              )
              
              
              (982
              )Net
      loss
              
              $
              (1,541
              )
              
              $
              (1,369
              )






Reconciliation
      of Segment Assets to Total Assets
              
              March
      31, 2008
              
              
              December
      31, 2007Total
      segment assets
              
              $
              7,530
              
              
              $
              6,076Total
      corporate assets
              
              
              1,009
              
              
              
              2,290Consolidated  assets
              
              $
              8,539
              
              
              $
              8,366




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




For the
quarter ended March 31, 2008, one customer accounts for $224,000 of Enterprise
Network Services Division revenues and one customer accounts for $453,000 of
Wireless Messaging Services Division revenues. One customer accounts for $73,000
of Enterprise Network Services Division revenues at March 31,
2007.


14
 ERF
WIRELESS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)




NOTE
13 - SUPPLEMENTAL NON-CASH DISCLOSURES:




During
2008, the Company issued stock in lieu of cash as payment for the following (in
thousands):





March
      31, 2008
              
              Supplemental
      Non-Cash DisclosureProfessional
      fees
              
              $
              222Settlements
              
              
              9Salary
      and compensation
              
              
              371Other
      services rendered
              
              
              47Total
      for services, interest, liabilities and compensation
              
              $
              649Notes
      payable
              
              $
              125Acquisition
              
              $
              400




Supplemental schedule of
assets acquired reconciling cash paid:




On
January 11, 2008, ERF Wireless, Inc. (ERFW) completed the purchase of assets
from Crosswind Enterprises, Inc.  The schedule below reflects the fair
value of assets acquired, liabilities assumed, common stock issued and note
payable issued.




Fair
      Value of assets acquired
              
              
              724Liabilities
      assumed
              
              
              (3
              )Common
      stock issued for acquisition
              
              
              (400
              )Note
      Payable issued for acquisition
              
              
              (150
              )Cash
      paid for acquisition
              
              $
              171




NOTE
14 - EMPLOYEE STOCK OPTIONS




In 2004,
the Board of Directors adopted a Non-Qualified Stock Option Plan under which
5,000,000 shares of the Company's common stock were reserved for issuance. In
March 2007, the Board of Directors adopted a Non-Qualified Stock Option Plan
under which an additional 10,000,000 shares were reserved for issuance. There
were 95,742 Series A preferred stock convertible to 1,788,111 common stock
shares granted to certain Officers and employees under employment agreements. As
of March 31, 2008, 299,923 common stock shares remain to be converted from
Series A preferred stock. Also the Company has granted to certain officers and
employees 375,000 stock options which are currently exercisable. As of March 31,
2008, under all Non-Qualified Stock Option Plans, 13,593,039 shares were issued
and exercised by certain employees and consultants for services
rendered.




Option
activity was as follows for the three months ended March 31, 2008:





2008Shares
              
              
              Weighted-Average
      Exercise PriceOutstanding
      at beginning of year
              
              
              3,302,000
              
              
              $
              3.21Granted
              
              
              -
              
              
              
              -Assumed
      through acquisitions
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -Forfeited/cancelled
              
              
              -
              
              
              
              -Outstanding
      throughout the period
              
              
              3,302,000
              
              
              $
              2.98Exercisable
      at March 31, 2008
              
              
              375,000
              
              
              $
              0.61




The
weighted average fair value of the individual options granted during the three
months ended March 31, 2008, is estimated at $2.98 on the date of grant.
Information about options outstanding was as follows at March 31,
2008:




Remaining
              
              Average
              
              
              
              AverageClass
              
              Number
              
              Average
      Contractual
              
              Exercise
              
              Number
              
              ExerciseExercise
      Price
              
              Outstanding
              
              Life
      in Years
              
              Price
              
              Exercisable
              
              Price$0.10
              
              225,000
              
              1.33
              
              $        0.10
              
              225,000
              
              $        0.10$1.38
              
              150,000
              
              1.33
              
              $        1.38
              
              150,000
              
              $        1.38$2.88
              
              750,000
              
              1.33
              
              $        2.88
              
              -
              
              -$2.88
              
              375,000
              
              1.33
              
              $        2.88
              
              -
              
              -$3.72
              
              1,570,000
              
              0.33
              
              $        3.72
              
              -
              
              -$2.27
              
              232,000
              
              0.33
              
              $        2.27
              
              -
              
              -3,302,000
              
              1.00
              
              $        2.98
              
              375,000
              
              $        0.61


15
 ERF
WIRELESS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
15 – BUSINESS COMBINATIONS





CROSSWIND
ENTERPRISES, INC., ACQUISITION




PURCHASE
PRICE




On
January 11, 2008, ERF Wireless, Inc (ERFW) completed the purchase of assets from
Crosswind Enterprises Inc. under the Asset Purchase Agreement dated January 11,
2008. Under the Asset Purchase Agreement, ERFW acquired the wireless internet
service provider ("WISP"), which includes all of the current customers,
equipment and network infrastructure equipment. The acquisition will also
increase the Company's footprint in west Texas and into eastern New Mexico and
may lead to additional synergy with expansion of the WiNet and US-BankNet
System. At the time of the transaction, there were no material relationships
between the seller and ERFW or any of its affiliates, or any director or officer
of ERFW, or any associate of any such officer or director. ERFW paid $650,000 in
cash, notes and securities and assumed $2,880 in current liabilities and assume
$71,498 in note payables.




The
purchase price allocation is as follows (in thousands):




Accounts
      receivable
              
              
              2Property
      and equipment
              
              
              340Goodwill
              
              
              176Identifiable
      intangible assets
              
              
              206Accounts
      payable and accrued expenses
              
              
              (3
              )Note
      payable
              
              
              (71
              )Total
      adjusted purchase price
              
              $
              650









NOTE
16 - SUBSEQUENT EVENTS




During
the 2nd quarter
2008, the Company issued shares in the amount of 653,754 for services and
liabilities and issued shares in the amount of 3,637,637 for conversion of
preferred stock to common stock.










16







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




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




The
Company continues to focus its initial marketing efforts at certain Louisiana,
Mississippi, Alabama, New Mexico, Georgia, Texas and Florida banks due to the
likelihood of hurricanes and wide-scale disasters in those states. The Company's
business strategy is to design, construct, secure, maintain and monitor
enterprise-class encrypted microwave broadband networks for the regional banking
industry.




The
Company's fault-tolerant network solutions for individual banks ("BranchNetTM
systems") is currently providing 20 to 30 Mbps of encrypted microwave data
communications bandwidth to six banks in three states. BranchNet provides high
speed communications among a financial institution's branches spread across
hundreds of miles.  The BranchNet systems address the banking industry
demands for secure, fault-tolerant broadband networks, while significantly
reducing the cost of the required fault-tolerant bandwidth versus traditional
wireline communications options provided by the incumbent telephone
carriers.




In
addition, the Company is currently building its own nationwide fiber, satellite
and encrypted wireless network for the banking industry called US BankNet. The
Company leases fiber for long-haul data transmissions, builds encrypted wireless
infrastructure for the "last mile", and incorporates satellite failover for
redundancy.




The
Company's strategic plan is to develop US BankNet in a series of steps. First,
it sells an individual financial institution ("FI") a private encrypted wireless
network ("BranchNet") to replace the FI's wireline data communications wide area
network (WAN) to its branches. Six such networks have already been completed for
FIs in Texas, Louisiana and Missouri. The Company is interconnecting individual
FI networks into Company-owned statewide networks to provide them with
high-speed access to banking service providers, disaster recovery centers,
correspondent banks, the Internet and the Federal Reserve. All of the Company's
Louisiana-based FI customers and the Louisiana State Police are participating in
the Company's first statewide network, Louisiana BankNet. As statewide networks
are completed, the Company plans to aggregate them into regional networks (i.e.
"Southern BankNet") and finally aggregate the regional networks into its
nationwide network, US BankNet.




In the
U.S. there are 2,426 community banks and 431 credit unions that meet the size
criteria of the Company's wireless broadband T1 replacement model. This market
segment of banks and credit unions have between 5 and 19 branches with the
primary target group averaging 12 branches. This represents a large potential
market. There are an additional 492 large banks with 20 or more branches with an
average of 135 branches representing an additional large market potential. To
penetrate this market, the Company is negotiating with a Fortune 50 company to
sell and support the Company's products in this segment of the market. The
Company is also in negotiations with selected large core banking service
providers to market and sell the Company's products to their respective customer
bases.





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


17




The
Company has recently acquired twelve wireless broadband networks (“WISPs”) in
key underserved regions to both provide local maintenance service for its
BranchNet bank customers as well as to produce long term recurring revenue. The
Company anticipates that it will expand its WISP footprint by both organic
growth and acquisition in areas where its banking network subsidiary has sold
BranchNet networks so that the Company can capitalize on the wireless network
infrastructure it constructs for its bank customers. For example, the Company
continues to negotiate multi-bank agreements to use the bank's network backbone
on a revenue sharing basis to sell wireless broadband services to schools,
hospitals, businesses, municipal entities and residential customers in the
region covered by that bank's BranchNet network with little or no additional
infrastructure cost to the Company.




RECENT
EVENTS




During
the quarter ended March 31, 2008, the Company has continued to execute its
expansion plans of construction and operation of the nationwide wireless BankNet
network, acquisition of strategic WISP networks with customers, expansion of the
sales staff and continued construction of various bank wireless networks. A
summary of the achievements is as follows:




·
            The
      Company recruited and announced that Mike Jones has agreed to join the ERF
      Wireless Board of Directors.  Jones, a 28-year veteran of the
      telecommunications industry, was previously chief technology officer at
      Broadwing, a leading telecommunications company that was recently acquired
      by Level 3Communications for approximately $1.4 billion
      dollars.




·
            The
      Company announced the appointment of Gary Busby as Senior VP of Sales and
      Marketing for wireless broadband products and services.  Busby
      has a +20 year career in the communications industry including with such
      leading providers as GTE, AT&T and Corban
  Networks.




·
            Completion
      of the El Dorado Golf and Beach Club of San Jose del Cabo, Mexico project
      which provides a complete Fiber-to-the-Home (FTTH) voice, video and data
      system for the entire development that includes the operations of the
      private club, as well as all of the multi-million dollar homes in this
      exclusive gated community.




·
            Signed
      a US-BankNet contract with Classic Bank of Cameron, Texas. This new
      contract is a long-term contract to supply encrypted bandwidth transport
      across the Texas portion of US-BankNet, the company's fault-tolerant,
      encrypted enterprise-class wireless financial network. This represents the
      first US-BankNet contract signed by one of the 1,300 Texas financial
      institutions targeted by ERF Wireless to use US-BankNet and is in addition
      to the multiple Louisiana banks already contracted to utilize the
      Louisiana portion of US-BankNet.




·
            Commencement
      of two new bank wireless construction projects and the continued
      development of two existing bank
projects.




·
            The
      Company’s banking network subsidiary introduced the Company’s patented
      CryptoVue Network Security Appliance to leading healthcare information
      technology companies at the 2008 Annual HIMMS conference as a part of the
      Company’s overall objective to market CryptoVue to a broad range of
      industry applications in addition to it’s already proven application in
      the banking industry.




·
            The
      Company initiated its first step to introduce the next generation of
      banking communications technology to a National Market by attending the
      2008 Independent Community Bankers Association (ICBA) Tech World
      Conference.




·
            Acquisition
      of Crosswind Enterprises, Inc. This WISP transaction is the twelfth such
      acquisition by ERF Wireless of a Texas-based wireless Internet service
      provider. The acquisition includes all of the current customers and
      network infrastructure equipment of Crosswind, including approximately 16
      tower locations strategically located in West Texas and extending into
      eastern New Mexico, and is adjacent to the existing ERF Wireless West
      Texas network which includes 59 tower locations operated out of Lubbock,
      Texas.


18




RESULTS
OF OPERATIONS




THREE MONTHS ENDED MARCH 31,
2008, COMPARED TO THREE MONTHS ENDED MARCH 31, 2007




The
following table sets forth summarized consolidated financial information for the
three months ended March 31, 2008 and 2007:





Three
      Months Ended March 31,($
      in thousands)
              
              2008
              
              
              2007
              
              
              $
      Change
              
              
              %
      ChangeTotal
      sales
              
              $
              1,675
              
              
              $
              505
              
              
              $
              1,170
              
              
              
              232
              %Cost
      of goods sold
              
              
              835
              
              
              
              283
              
              
              
              552
              
              
              
              195
              %Gross
      profit
              
              
              840
              
              
              
              222
              
              
              
              618
              
              
              
              278
              %Percent
      of total sales
              
              
              50
              %
              
              
              44
              %Operating
      expenses
              
              
              2,333
              
              
              
              1,350
              
              
              
              983
              
              
              
              73
              %Loss
      from operations
              
              
              (1,493
              )
              
              
              (1,128
              )
              
              
              (365
              )
              
              
              32
              %Other
      income/(expense)
              
              
              (48
              )
              
              
              (241
              )
              
              
              193
              
              
              
              -80
              %Net
      loss
              
              
              (1,541
              )
              
              
              (1,369
              )
              
              
              (172
              )
              
              
              13
              %




For the
three months ended March 31, 2008, the Company's business operations reflected
an overall increase in sales for Wireless Messaging Services, Wireless Bundled
Services and Enterprise Network Services. For the three months ended March 31,
2008, the Company's consolidated operations generated net sales of $1,675,000
compared to prior year net sales of $505,000. The increase in net sales is
primarily attributable to additional change orders completed to date on the El
Dorado Golf and Beach Club of San Jose del Cabo, Mexico project, whereby product
sales increase of $374,000 and increase in service sales of $785,000 due to
increased recurring revenue primarily from the recent WISP acquisitions. For the
three months ended March 31, 2008, the Company had a gross profit margin of 50%,
compared to a gross profit margin of 44% for the prior year. The increased in
gross profit margin is primarily attributable to several factors: (i) Increased
WISP customer base in recurring revenue with consistent margins on wireless
broadband services and (ii) consistent margins in our Wireless Messaging
Services on the El Dorado Golf and Beach Club of San Jose del Cabo, Mexico
project.





The
Company incurred a net loss of $1,541,000 for the three months ended March 31,
2008. The Company's principal components of the net loss for the three months
ended March 31, 2008, included approximately $230,000 in depreciation and
amortization expenses, $193,000 of interest expense, and $418,000 of other
general and administrative expense, $1,101,000 in employment expenses and
$494,000 in professional services expense, offset by $130,000 of derivative
income.




SALES
INFORMATION




Set forth
below is a table presenting summarized sales information for our business
segments for the three months ended March 31, 2008 and 2007:





($
      in thousands)
              
              Three
      Months Ended March 31,Business
      Segment
              
              
              2008
              
              %
      of Total
              
              
              2007
              
              %
      of Total
              
              
              $
      Change
              
              %
      ChangeWireless
      Messaging Services
              
              $
              496
              
              30%
              
              $
              73
              
              14%
              
              $
              423
              
              579%Wireless
      Bundled Services
              
              
              1,081
              
              64%
              
              
              347
              
              69%
              
              
              734
              
              212%Enterprise
      Network Services
              
              
              98
              
              6%
              
              
              85
              
              17%
              
              
              13
              
              15%Total
      Sales
              
              $
              1,675
              
              100%
              
              $
              505
              
              100%
              
              $
              1,170
              
              232%




For the
three months ended March 31, 2008, net sales increased to $1,675,000 from
$505,000 for the three months ended March 31, 2007. The overall increase of 232%
was attributable to an increase of $423,000 of Wireless Messaging Services, an
increase in Wireless Bundled Services of $734,000 and an increase in Enterprise
Network Services of $13,000. The $423,000 increase was primarily attributable to
change orders completed to date on the El Dorado Golf and Beach Club of San Jose
del Cabo, Mexico project and an increase in recurring wireless WISP services
through recent WISP asset acquisitions in 4th quarter
2007 and 1st quarter
2008 including approximately 5,000 customers.


19




COST
OF GOODS SOLD




The
following tables set forth summarized cost of goods sold information for the
three months ended March 31, 2008 and 2007:




($
      in thousands)
              
              Three
      Months Ended March 31,Business
      Segment
              
              
              2008
              
              %
      of Total
              
              
              2007
              
              %
      of Total
              
              
              $
      Change
              
              %
      ChangeWireless
      Messaging Services
              
              $
              184
              
              22%
              
              $
              53
              
              19%
              
              $
              131
              
              247%Wireless
      Bundled Services
              
              
              485
              
              58%
              
              
              133
              
              47%
              
              
              352
              
              265%Enterprise
      Network Services
              
              
              166
              
              20%
              
              
              97
              
              34%
              
              
              69
              
              71%Total
      Cost of Goods
              
              $
              835
              
              100%
              
              $
              283
              
              100%
              
              $
              552
              
              195%


Three
      Months Ended March 31,($
      in thousands)
              
              2008
              
              
              2007
              
              
              $
      Change
              
              
              %
      ChangeProducts
      and integration service
              
              $
              360
              
              
              $
              166
              
              
              $
              194
              
              
              
              117
              %Rent
      and maintenance
              
              
              91
              
              
              
              42
              
              
              
              49
              
              
              
              117
              %Salary
      and related costs
              
              
              49
              
              
              
              41
              
              
              
              8
              
              
              
              20
              %Depreciation
              
              
              196
              
              
              
              19
              
              
              
              177
              
              
              
              932
              %Other
      costs
              
              
              139
              
              
              
              15
              
              
              
              124
              
              
              
              827
              %Total
      Operating Expenses
              
              $
              835
              
              
              $
              283
              
              
              $
              552
              
              
              
              195
              %




For the
three months ended March 31, 2008, cost of goods sold increased by $552,000, or
195%, to $835,000 from $283,000 as compared to the three months ended March 31,
2007. The increase of $552,000 in cost of goods sold is primarily attributable
to product and service cost of $194,000 associated with completion and testing
of bank wireless installations; an increase of $124,000 of other cost is
primarily attributable to travel cost due to El Dorado Golf and Beach Club
project in Mexico and broadband utility cost due to growth of our WISP customer
base; $177,000 primarily attributable to depreciation expense associated with
recent acquisitions and growth of our wireless network area to increase our WISP
customer base and $49,000 is primarily attributable to rent and maintenance cost
associated with acquisitions and growth of  our wireless network area
to increase our WISP customer base.





OPERATIONS
EXPENSES




The
following table sets forth summarized operating expense information for the
three months ended March 31, 2008 and 2007:





Three
      Months Ended March 31,($
      in thousands)
              
              2008
              
              
              2007
              
              
              $
      Change
              
              
              %
      ChangeEmployment
      expenses
              
              $
              1,101
              
              
              $
              690
              
              
              $
              411
              
              
              
              60
              %Professional
      services
              
              
              494
              
              
              
              348
              
              
              
              146
              
              
              
              42
              %Rent
      and maintenance
              
              
              90
              
              
              
              68
              
              
              
              22
              
              
              
              32
              %Depreciation
      and amortization
              
              
              230
              
              
              
              67
              
              
              
              163
              
              
              
              243
              %Other
      general and administrative
              
              
              418
              
              
              
              177
              
              
              
              241
              
              
              
              136
              %Total
      operating expenses
              
              $
              2,333
              
              
              $
              1,350
              
              
              $
              983
              
              
              
              73
              %




For the
three months ended March 31, 2008, operating expenses increased by 73% to
$2,333,000, as compared to $1,350,000 for the three months ended March 31, 2007.
The increases that occurred, as evidenced by the immediately preceding table,
are discussed below:




·
            A $411,000 increase in employment
      expense. The increase is primarily attributable to growth of the company
      through recent acquisitions;




·
            A $146,000 increase in
      professional services. The increase is primarily related to accounting
      expenses related to recent acquisitions and
  audits;




·
            A $22,000 increase in rent and
      maintenance. The increase is primarily attributable to growth of the
      company through recent
acquisitions;


20




·
            A $163,000 increase in
      depreciation and amortization; The increase is primarily attributable to
      growth of the company through recent acquisitions;
    and




·
            A
      $241,000 increase in other general and administrative
    expense.




OTHER
(INCOME) EXPENSE, NET




For the
three months ended March 31, 2008, the decrease in other (income) expense is
primarily attributable to derivative instrument liability income of $130,000 and
interest expense of $184,000 as compared to $14,000 and $245,000, respectively
for the three months ended March 31, 2007. The derivative income represents
the net unrealized (non-cash) charge during the three months ended March 31,
2008, 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.




NET
LOSS




For the
three months ended March 31, 2008, our net loss was $1,541,000 compared to a
loss of $1,369,000 for the three months ended March 31, 2007. The increase in
the loss for the three months ended March 31, 2008, as compared to the three
months ended March 31, 2007, is primarily attributable to increase in
employment, professional services, depreciation and amortization and general and
administrative.




CASH
FLOWS




The
Company's operating activities increased net cash used by operating activities
to $1,035,000 in the three months ended March 31, 2008, compared to net cash
used of $534,000 in the three months ended March 31, 2007. The increase in net
cash used by operating activities was primarily attributable to fund an increase
in the company's net operating loss $1,541,000, net of $1,171,000 non-cash
charges combined with derivative income $130,000 to equal net non-cash charge of
$1,018,000, combined together with $512,000 of cash used by fluctuations in
working capital requirements consisting of the combination of accounts
receivable, inventory, prepaid expenses, accounts payable, accrued expenses,
cost and profit in excess of billings, deferred liability lease and deferred
revenue.




The
Company's investing activities used net cash of $263,000 in the three months
ended March 31, 2008, compared to use of net cash of $65,000 in the three months
ended March 31, 2007. The increase in investing activities is primarily growing
WISP capabilities through asset acquisition and expansion of our infrastructure
in Texas, New Mexico and Louisiana.




The
Company's financing activities provided net cash of $145,000 in the three months
ended March 31, 2008, compared to $262,000 of cash provided in the three months
ended March 31, 2007. The cash provided in the three months ended March 31,
2008, was primarily associated with the proceeds from equity financings and the
line of credit, net.




LIQUIDITY
AND CAPITAL RESOURCES




At March
31, 2008, the Company's current assets totaled $2,939,000 (including cash and
cash equivalents of $1,058,000). Total current liabilities were $3,405,000,
resulting in negative working capital of $466,000. The Company has funded
operations to date through a combination of utilizing cash on hand, issuing
common stock to settle certain current liabilities, borrowings and raising
additional capital through the sale of its securities. The Company operations
for the three months ended March 31, 2008, was primarily funded by proceeds from
the Company's line of credit totaling $38,000, sale of restricted common stock,
net to accredited investors of $272,000, and convertible debt financing of
$25,000.




CURRENT
DEBT FACILITY




At March
31, 2008, the Company had approximately $1,553,000 available on a $4 million
unsecured revolving credit facility with Angus Capital Partners, which matures
in February 2009. The terms of the two-year unsecured revolving credit facility
will allow us to draw upon the facility as financing requirements dictate and
provides for quarterly interest payments at an annual 12% rate. The loan may be
prepaid without penalty or repaid at maturity.




ISSUANCE
OF COMMON STOCK




During
the three months ended March 31, 2008, we issued to various accredited investors
an aggregate of 621,000 shares of restricted common stock for net consideration
of $272,000. We relied on Section 4(2) of the Act in effecting this
transaction.




21




During
the three months ended March 31, 2008, we issued 855,929 shares of common stock
to employees and business consultants, for aggregate consideration of $628,619
of services rendered, pursuant to a registration statement on form
S-8.




DUTCHESS
FACILITY




On June
14, 2007, we entered into an Investment Agreement with Dutchess whereby Dutchess
agreed to purchase up to $10,000,000 of our common stock over the course of
thirty-six (36) months.  The Company filed a Registration Statement
with the SEC covering an issuance of 10,000,000 of common stock under the equity
line agreement. The Company has received comments from the SEC and intends to
refile a pre-effective amendment to the registration with updated audited
financial statements during 2008.




USE
OF WORKING CAPITAL




We
believe our cash, anticipated cash flow from operations and available credit
facilities afford us adequate liquidity for the balance of fiscal 2008, although
we expect to raise additional capital during this period to fund our anticipated
growth for our banking and WISP network businesses if acceptable terms are
available. Furthermore, we anticipate that we will need additional capital in
the future to continue to expand our business operations, which expenditures may
include the following:




·
            Acquisitions
      of one or more companies, networks or other
  assets:




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




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




·
            Investment
      in laboratory facilities including test and simulation
      equipment:




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




·
            General
      working capital purposes.




We have
historically financed our operations through private equity and debt financings.
We do not have any commitments for equity funding at this time, and additional
funding may not be available to us on favorable terms, if at all. As such there
is no assurance that we can raise additional capital from external sources, the
failure of which could cause us to sell assets or curtail
operations.




CONTRACTUAL
OBLIGATIONS




The
following table sets forth contractual obligations as of March 31,
2008:





Payments
      Due by PeriodTotal
              
              
              Less
      than 1
                Year
              
              
              1-3
      Years
              
              
              3-5
      Years
              
              
              More
      than 5
                YearsContractual
      obligations:Long-term
      debt obligations
              
              $
              4,212
              
              
              $
              987
              
              
              $
              3,225
              
              
              $
              -
              
              
              $
              -Capital
      lease obligations
              
              
              2,487
              
              
              
              594
              
              
              
              1,498
              
              
              
              384
              
              
              
              11Operating
      lease obligations
              
              
              1,377
              
              
              
              357
              
              
              
              956
              
              
              
              64
              
              
              
              -Total
      contractual obligations
              
              $
              8,076
              
              
              $
              1,938
              
              
              $
              5,679
              
              
              $
              448
              
              
              $
              11




The
Company's contractual obligations consist of long-term debt of $3,425,000,
derivative liabilities of $250,000 unamortized debt discount of $25,000 and
interest expense of $512,000 as set forth in Note 9 to the company's financial
statements, Notes Payable and Long-Term Debt, and certain obligations for
operating leases requiring future minimal commitments under non-cancelable
leases set forth in Note 11 - Commitments and Contingencies.




OFF-BALANCE
SHEET ARRANGEMENTS




As of
March 31, 2008, 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 table
above.


22




CRITICAL
ACCOUNTING POLICIES AND ESTIMATES




GENERAL




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




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




PRINCIPLES
OF CONSOLIDATION




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




USE
OF ESTIMATES




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




DEFERRED
SYNDICATION COSTS




Deferred
syndication costs consist of those expenditures incurred that are directly
attributable to fundraising and the collection thereto. Upon successful
collection of the funds, all expenses incurred will be reclassified to
additional paid in capital and treated as syndication costs; netted against the
funds raised.




REVENUE
RECOGNITION




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




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




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




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.


23




WARRANTY




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




FIXED
ASSETS




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




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




GOODWILL





Goodwill
represents the excess of the cost of companies acquired over the fair value of
their net assets at the dates of acquisition. Under current accounting
pronouncement, the company is required to annually assess the carrying value of
goodwill associated with each of its distinct business units that comprise its
business segments of the company to determine if impairment in value has
occurred.




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




CONCENTRATIONS
OF CREDIT RISK




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


24




DERIVATIVE
INSTRUMENTS




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




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




RECENT
ACCOUNTING PRONOUNCEMENTS




In December 2007, the FASB issued
SFAS No. 141R,Business
Combinations.
SFAS 141R establishes principles and requirements for how the acquirer of a
business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling interest in
the acquiree. SFAS No. 141R also provides guidance for recognizing and measuring
the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statement to evaluate
the nature and financial effects of the business combination. SFAS 141R is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. We expect SFAS No. 141R will have an impact on
our consolidated financial statements when effective, but the nature and
magnitude of the specific effects will depend upon the nature, terms and size of
the acquisitions we consummate after the effective date. We are still assessing
the impact of this standard on our future consolidated financial
statements.




INFLATION




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




ITEM
3. CONTROLS AND PROCEDURES




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




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


25




PART
II - OTHER INFORMATION




ITEM
1. LEGAL PROCEEDINGS




None.




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.




On
January 7, 2008, an accredited investor acquired 50,000 shares of common stock
at $1.06 per share.




On
February 6, 2008, accredited investors acquired 52,615 shares of common stock at
$0.65 per share.




On March
14, 2008, accredited investors acquired 518,987 shares of common stock at $0.40
per share.




On March
31, 2008, accredited investors acquired 196,850 shares of common stock at $0.38
per share pursuant to a conversion of E-series bonds.




On March
31, 2008, accredited investors acquired 191,571 shares of common stock at $0.13
per share pursuant to a conversion of E-series bonds.




On March
31, 2008, accredited investors acquired 40,783 shares of common stock at $0.61
per share pursuant to a conversion of E-series bonds.




On
January 10, 2008, an accredited investor acquired 2,457,716 shares of common
stock pursuant to Preferred A Conversions.




On March
14, 2008, an accredited investor acquired 28,803 shares of common stock pursuant
to Preferred A Conversions.




On March
25, 2008, an accredited investor acquired 6,217,131 shares of common stock
pursuant to Preferred A Conversions.




ITEM
3. DEFAULT IN SENIOR SECURITIES




None.




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




None.


26




ITEM
5. OTHER INFORMATION




None.







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 2002Exhibit
      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














27


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.By:     /s/H. Dean
      CubleyH.
      Dean CubleyChief
      Executive OfficerDate:     May
      15, 2008














28