<PAGE>
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-QSB

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

                  For the quarterly period ended March 31, 2007

                                       OR

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

                        COMMISSION FILE NUMBER: 000-27467

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

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to filing
requirements for the past 90 days. Yes [ X ] No [ ]

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

The number of shares of common stock of the registrant outstanding at May 16,
2007, was 35,026,812.

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

                                        1


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<TABLE>

PART I - FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

                                         ERF WIRELESS, INC.
                                     CONSOLIDATED BALANCE SHEETS
                                MARCH 31, 2007, AND DECEMBER 31, 2006
                                 ($ in thousands except share data)

                                                                    MARCH 31,     DECEMBER 31,
                                                                      2007           2006
                                                                  (UNAUDITED)
                                                                    --------       --------
<S>                                                                 <C>            <C>
                                          ASSETS

Current assets
  Cash and cash equivalents                                         $     56       $    393
  Accounts receivable, net                                               167            387
  Inventories                                                            136            132
  Cost and profit in excess of billings                                   14             69
  Prepaid expenses                                                       373            137
                                                                    --------       --------
    TOTAL CURRENT ASSETS                                                 746          1,118
                                                                    --------       --------

PROPERTY AND EQUIPMENT
  Property and equipment                                               1,044          1,001
  Less accumulated depreciation                                         (252)          (199)
                                                                    --------       --------
    TOTAL PROPERTY AND EQUIPMENT                                         792            802
                                                                    --------       --------

INTANGIBLE ASSETS, NET                                                   254            299
OTHER ASSETS                                                               5              5

                                                                    --------       --------
TOTAL ASSETS                                                        $  1,797       $  2,224
                                                                    ========       ========

                           LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES:
  Accounts payable                                                  $    486       $    506
  Accrued expenses                                                       420            281
  Derivative liabilities                                                 309            313
  Notes payable and current portion of long-term debt                    562            519
  Deferred liability leases                                              180            186
  Deferred revenue                                                         9              9
                                                                    --------       --------
    TOTAL CURRENT LIABILITIES                                          1,966          1,814
                                                                    --------       --------

  Notes payable long-term  debt                                        2,557          2,280
  Deferred liability leases                                              598            639
  Deferred revenue                                                        24             25
                                                                    --------       --------
    TOTAL LONG-TERM  LIABILITIES                                       3,179          2,944
                                                                    --------       --------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' DEFICIT:
  Preferred stock - $.001 par value
    Authorized 25,000,000 shares
    Issued and outstanding at March 31, 2007, and
    December 31, 2006, 3,615,928 and 3,800,649, respectively               4              4
  Common stock - $.001 par value
    Authorized 475,000,000 shares
    Issued and outstanding at March 31, 2007, and
    December 31, 2006, 31,284,245 and 24,039,733, respectively            31             24
  Additional paid in capital                                           9,613          9,065
  Accumulated deficit                                                (12,996)       (11,627)
                                                                    --------       --------
    TOTAL SHAREHOLDERS' DEFICIT                                       (3,348)        (2,534)
                                                                    --------       --------

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT                         $  1,797       $  2,224
                                                                    ========       ========

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                            2



<PAGE>

                               ERF WIRELESS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
               FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
                                   (Unaudited)
              ($ in thousands except share data and loss per share)



                                                          2007              2006
                                                        -------          -------

SALES:
  Products                                              $    63         $   662
  Services                                                  434             187
  Other                                                       8              13
                                                        -------         -------
TOTAL SALES                                                 505             862
                                                        -------         -------

COSTS OF GOODS SOLD:
  Products and integration services                         166             542
  Rent, repairs and maintenance                              42              15
  Salary and related cost                                    19               5
  Depreciation                                               41              --
  Other cost                                                 15              12
                                                        -------         -------
TOTAL COSTS OF GOODS SOLD                                   283             574
                                                        -------         -------
GROSS PROFIT                                                222             288
                                                        -------         -------

OPERATING EXPENSES:
  Selling, general and administrative                     1,283           1,548
  Depreciation and amortization                              67              61
                                                        -------         -------
TOTAL OPERATING EXPENSES                                  1,350           1,609
                                                        -------         -------

LOSS FROM OPERATIONS                                     (1,128)         (1,321)
                                                        -------         -------

OTHER INCOME/(EXPENSES):
  Interest income                                             1               1
  Interest expense                                         (246)           (138)
  Loss on sale of assets                                    (10)             --
  Warrant expense                                            (3)             --
  Derivative income                                          17             743
                                                        -------         -------
TOTAL OTHER INCOME (EXPENSE)                               (241)            606
                                                        -------         -------

NET LOSS                                                $(1,369)        $  (715)
                                                        =======         =======

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

                                                        -------         -------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS              $(1,369)        $  (845)
                                                        =======         =======

NET LOSS PER COMMON SHARE:
  Basic                                                 $ (0.05)        $ (0.08)
  Diluted                                               $ (0.05)        $ (0.08)

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       3



<PAGE>

                                                        ERF WIRELESS, INC.
                                         CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
                              FOR THE PERIODS ENDED MARCH 31, 2007 (UNAUDITED), AND DECEMBER 31, 2006
                                                         ($ in thousands)



                                            COMMON STOCK             PREFERRED STOCK       ADDITIONAL                     TOTAL
                                       ---------------------     ----------------------     PAID IN       RETAINED     SHAREHOLDERS'
                                        SHARES       VALUE        SHARES        VALUE       CAPITAL       EARNINGS      DEFICIT
                                       --------     --------     --------      --------     --------      --------      --------
TOTAL SHAREHOLDERS' DEFICIT               7,645     $      8        4,174      $      4     $  5,491      $ (6,265)     $   (762)
   AS OF DECEMBER 31, 2005

Net loss                                     --           --           --            --           --        (5,232)       (5,232)

New stock issued to shareholders:
  Conversion of preferred stock to
    common stock                          8,583            8         (460)           --           (8)           --            --
  For services, compensation and
    liabilities                           2,743            2           --            --        1,512            --         1,514
  For retirement of debt                  4,152            5           --            --        1,144            --         1,149
  Asset acquisition                         750            1           --            --          299            --           300
  For retirement of debt and
   conversion of convertible
   preferred stock of employment
   contracts                                 --           --           87            --          130            --           130
  Beneficial conversion value -
   deemed dividend on
   preferred stock                           --           --           --            --          130          (130)           --
  Stock based compensation and
   stock option expense                      --           --           --            --          173            --           173
  Warrant options expense                    --           --           --            --           76            --            76
  Proceeds from sale of common
   stock, net                               167           --           --            --          118            --           118
                                       --------     --------     --------      --------     --------      --------      --------

TOTAL SHAREHOLDERS' DEFICIT
   AS OF DECEMBER 31, 2006               24,040           24        3,801             4        9,065       (11,627)       (2,534)


Net loss                                     --           --           --            --           --        (1,369)       (1,369)

New stock issued to shareholders:
  Conversion of preferred stock
   to common stock                        3,450            3         (185)           --           (3)           --            --
  For services and compensation           2,738            3           --            --          401            --           404
  For settlement of liabilities             242           --           --            --           51            --            51
  For retirement of debt                    814            1           --            --           96            --            97
  Warrant options expense                    --           --           --            --            3            --             3
                                       --------     --------     --------      --------     --------      --------      --------
TOTAL SHAREHOLDERS' DEFICIT
   AS OF MARCH 31, 2007                  31,284     $     31        3,616      $      4     $  9,613      $(12,996)     $ (3,348)
                                       ========     ========     ========      ========     ========      ========      ========

 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                                4


<PAGE>

                                    ERF WIRELESS, INC.
                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                    FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006,
                                        (Unaudited)
                                     ($ in thousands)

                                                                   MARCH 31,     MARCH 31,
                                                                    2007           2006
                                                                   -------       -------

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                           $(1,369)      $  (715)
                                                                   -------       -------

Adjustments to reconcile net loss to net cash used
    by operating activities:
 Loss on sale of assets                                                 10            --
 Amortization of debt discount                                         190           108
 Depreciation and amortization                                         108            66
 Stock issued for interest expense                                       1            36
 Stock issued for services rendered                                    456           277
 Stock based compensation and stock option expense                      --           173
 Warrant expense                                                         3            --
 Derivative income                                                     (17)         (743)
 Allowance for doubtful accounts                                        --            --
 Decrease (increase) in accounts receivable, net                        220         (167)
 (Increase) decrease in inventories                                     (4)           54
 (Increase) decrease in prepaid expenses                              (258)           90
 Decrease (increase) in cost and profit in excess of billings           55          (173)
 (Decrease) increase in accounts payable                               (20)          452
 Increase in accrued expenses                                          139            43
 (Decrease) in deferred liability lease                                (47)           --
 (Decrease) in deferred revenue                                         (1)         (300)
                                                                   -------       -------
    Total Adjustment                                                   835           (84)
                                                                   -------       -------
NET CASH USED BY OPERATING ACTIVITIES                                 (534)         (799)
                                                                   -------       -------

CASH FLOWS FROM INVESTING ACTIVITIES
 Proceeds from sale of assets                                            6            --
 Purchase of property and equipment                                    (71)          (78)
                                                                   -------       -------
NET CASH USED BY INVESTING ACTIVITIES                                  (65)          (78)
                                                                   -------       -------

CASH FLOWS FROM FINANCING ACTIVITIES
 Net proceeds from line of credit                                      207            --
 Proceeds from financing agreements                                     75         1,239
 Payment of debt obligations                                           (20)          (11)
 Proceeds from investor loans                                           --           130
 Proceeds from sale of common stock, net                                --            70
                                                                   -------       -------
NET CASH PROVIDED BY FINANCING ACTIVITIES                              262         1,428
                                                                   -------       -------

NET (DECREASE) INCREASE IN CASH                                       (337)          551
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD               393           602
                                                                   -------       -------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD                 $    56       $ 1,153
                                                                   =======       =======

Supplemental disclosure of cash flow information:
Net cash paid during the year for:
  Interest                                                         $     1       $     2
  Income taxes                                                     $    --       $    --

Supplemental non-cash investing and financing activities:
   Conversion of debt through issuance of common stock             $    97            --

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

                                       5



<PAGE>

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


NOTE 1 - BASIS OF PRESENTATION

NATURE OF THE COMPANY

ERF Wireless, Inc. (the Company), provides wireless communications products and
services including the Company's core focus of providing enterprise-class
wireless broadband services. The Company has formed four operating divisions to
provide solutions and services to different segments of the wireless industry.
The Company's Enterprise Network Services Division was formed to serve
enterprise customers, private entities, cities, unincorporated municipalities
and the general public. The Company's Wireless Bundled Services Division was
formed to provide wireless broadband products and services, including Internet,
voice, data, security and video services, and is in the early stages of building
or acquiring a seamless wireless broadband network throughout North America to
serve private entities, cities, municipalities and the general public. The
Company's Wireless Messaging Services Division provides wireless broadband
system design and implementation, manufactures and supplies high-power
infrastructure equipment for the wireless messaging industry and owns and
operates a wide-area wireless messaging service (one- and two-way cellular and
paging retail). The Company's Network Operations Services Division provides the
overall day-to-day operations, maintenance, upgrading, 24/7 monitoring and
expansion of all wireless broadband networks that the Company constructs,
acquires, maintains and administers. Please refer to segment footnote 13 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 filing dated December 31,
2006, filed with the SEC on Form 10-KSB. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position and the results of operations for the interim
periods presented have been reflected herein. The results of operations for
interim periods are not necessarily indicative of the results to be expected for
the full year.

PRINCIPLES OF CONSOLIDATION

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.

USE OF ESTIMATES

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

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and all highly liquid financial
instruments with original purchased maturities of three months or less. At
various times during the year, the Company maintained cash balances in excess of
FDIC insurable limits. Management feels this risk is mitigated due to the
longstanding reputation of these banks.

CREDIT RISK

In the normal course of business, the Company extends unsecured credit to the
majority of its customers. The company controls credit risk associated with its
receivables through credit checks, approvals, and monitoring procedures.
Generally, the company requires no collateral from its customers.

                                       6



<PAGE>

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

LEASES

We recognize lease expense on a straight-line basis over the minimum lease terms
which expire at various dates through 2012. These leases are for office and
radio tower facilities and are classified as operating leases. For leases that
contain predetermined, fixed escalations of the minimum rentals, we recognize
the rent expense on a straight-line basis and record the difference between the
rent expense and the rental amount payable in liabilities.

Leasehold improvements made at the inception of the lease are amortized over the
shorter of the asset life or the initial lease term as described above.
Leasehold improvements made during the lease term are also amortized over the
shorter of the asset life or the remaining lease term.

On December 15, 2006 the Company entered into an agreement with Southwest
Enhanced Network Services, LP, a wireless broadband Company, to assume multiple
tower and office leases in the greater Lubbock, Texas area. As part of the
agreement ERF Wireless received $825,000 in cash to offset certain of the future
operating lease costs. The $825,000 is recorded as a deferred lease liability
and recognized as a reduction to rent expense on a straight-line basis over the
lease term as described above. The Company had deferred lease liability in
current and long-term liabilities of approximately $778,000 and $825,000 as of
March 31, 2007, and December 31, 2006, respectively.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company uses the allowance method to account for uncollectible accounts
receivable. The Company's estimate is based on historical collection experience
and a review of the current status of accounts receivable. The company reviews
its accounts receivable balances by customer for accounts greater than 90 days
old and makes a determination regarding the collectibility of the accounts based
on specific circumstances and the payment history that exists with such
customers. The company also takes into account its prior experience, the
customer's ability to pay and an assessment of the current economic conditions
in determining the net realizable value of its receivables. The company also
reviews its allowances for doubtful accounts in aggregate for adequacy following
this assessment. Accordingly, the company believes that its allowances for
doubtful accounts fairly represent the underlying collectibility risks
associated with its accounts receivable.

DEFERRED REVENUES

Revenues that are billed in advance of services being completed are deferred
until the conclusion of the period of the service for which the advance billing
relates. Deferred revenues are included on the balance sheet in current and
long-term liabilities until the service is performed and then recognized in the
period in which the service is completed. The Company's deferred revenues
consist of billings in advance of services being rendered for its wireless
broadband, banking network monitoring and maintenance and wireless messaging
customers and, accordingly, are deferred and recognized monthly as earned. The
Company had deferred revenues in current and long-term liabilities of
approximately $33,000 and $34,000 as of March 31, 2007, and December 31, 2006,
respectively.

ADVERTISING COSTS

Advertising costs are expensed when incurred. For the periods ended March 31,
2007 and 2006, the Company expensed $12,000 and $19,000, respectively.

STOCK-BASED COMPENSATION

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

                                       7



<PAGE>

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

DERIVATIVE INSTRUMENTS

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

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

INVENTORIES

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

                           March 31,          December 31,
                             2007                 2006
                        ----------------     ---------------
         Raw material    $           42      $           41
         Finished goods              94                  91
                        ----------------     ---------------
                        $           136      $          132
                        ================     ===============

PROPERTY AND EQUIPMENT

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

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

INTANGIBLE ASSETS

Intangible assets are amortized using methods that approximate the benefit
provided by the utilization of the assets. The Company continually evaluates the
amortization period and carrying basis of intangible assets to determine whether
subsequent events and circumstances warrant a revised estimated useful life or
impairment in value. To date, no such impairment has occurred. To the extent
such events or circumstances occur that could affect the recoverability of our
Intangibles assets, we may incur charges for impairment in the future.

LONG-LIVED ASSETS

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

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

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

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

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

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

                                       8



<PAGE>

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

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

REVENUE RECOGNITION

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

The Company records revenues from its fixed-price, long-term contracts using the
percentage-of-completion method. Revenues are recorded based on construction
costs incurred to date as a percentage of estimated total cost at completion.
The percentage-of-completion, determined by using total costs incurred to date
as a percentage of estimated total costs at completion, reflects the actual
physical completion of the project. If the current projected costs on a fixed
fee contract exceed projected revenue, the entire amount of the loss is
recognized in the period such loss is identified. 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.

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

INCOME TAXES

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

BENEFICIAL CONVERSION

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

BASIC LOSS PER SHARE

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

                                       9



<PAGE>

                               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, 2007, and March 31, 2006, 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 November 2004, the FASB ratified the consensus reached by the Emerging Issues
Task Force ("EITF"), on Issue NO. 03-13. "Applying the Conditions in Paragraph
42 of FASB Statement No. 144 on Determining Whether to Report Discontinued
Operations". The Issue provides a model to assist in evaluating (a) which cash
flows should be considered in the determination of whether cash flows of the
disposal component have been or will be eliminated from the ongoing operations
of the entity and (b) the types of continuing involvement that constitute
significant continuing involvement in the operations of the disposal component.
Should significant continuing ongoing involvement exist, then the disposal
component shall be reported in the results of continuing operations or the
consolidated statements of operations and cash flows. We are currently
evaluating the premises of EITF No. 03-13 and will adopt it as required.

In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in GAAP, and expands disclosures about fair
value measurements. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007. Management is currently
evaluating the impact SFAS No. 157 will have on the Company's financial
position, results of operations, and cash flows.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment of FASB
statement No. 115." This Statement permits all entities to choose, at specified
election dates, to measure eligible items at fair value (the "fair value
option"). A business entity shall report unrealized gains and losses on items
for which the fair value option has been elected in earnings (or another
performance indicator if the business entity does not report earnings) at each
subsequent reporting date. Upfront costs and fees related to items for which the
fair value option is elected shall be recognized in earnings as incurred and not
deferred. If an entity elects the fair value option for a held-to-maturity or
available-for-sale security in conjunction with the adoption of this Statement,
that security shall be reported as a trading security under Statement 115, but
the accounting for a transfer to the trading category under paragraph 15(b) of
Statement 115 does not apply. Electing the fair value option for an existing
held-to-maturity security will not call into question the intent of an entity to
hold other debt securities to maturity in the future. This statement is
effective as of the first fiscal year that begins after November 15, 2007. The
Company is currently analyzing the effects SFAS 159 will have on the Company's
financial condition and results of operations.

NOTE 2 - ACCOUNTS RECEIVABLE

Accounts receivable consists of the following (in thousands):

                                           March 31,          December 31,
                                             2007                2006
                                        ---------------      --------------
Accounts receivable                     $          185       $         405
Allowance for doubtful accounts                    (18)                (18)
                                        ---------------      --------------
Accounts receivable, net                $          167       $         387
                                        ===============      ==============

                                       10



<PAGE>

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

NOTE 3 - PROPERTY AND EQUIPMENT

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

                                              March 31,          December 31,
                                                2007                2006
                                            --------------      --------------
Automobile                                  $          66       $         66
Operating equipment                                   689                 627
Office furniture and equipment                         89                  89
Leasehold improvements                                 46                  60
Computer equipment                                    108                 106
Building                                                8                   8
Land                                                   28                  38
Other                                                  10                   7
                                            --------------      --------------
  Total property and equipment                      1,044               1,001
    Less accumulated depreciation                    (252)               (199)
                                            --------------      --------------
  Net property and equipment                $         792       $         802
                                            ==============      ==============

Depreciation expense was approximately $64,000 and $24,000 for the periods ended
March 31, 2007 and March 31, 2006, respectively.

NOTE 4 - INTANGIBLE ASSETS

Intangible assets consist of the following (in thousands):
<TABLE>
                                                                   March 31, 2007
                                                  ----------------------------------------------
                               Weighted Average   Gross Carrying                          Net
                                Useful Life         Carrying         Accumulated       Carrying
                                 (in years)          Amount         Amortization        Amount
                                 --------------  ---------------  ---------------    ------------
<S>                                   <C>          <C>              <C>              <C>
Customer relationships                3.0          $       296      $      151       $       145
Workforce in place                    3.0                  125              69                56
Non-compete agreement                 3.0                  100              56                44
Developed technology                  3.0                   20              11                 9
                                                   ------------     -----------      ------------
                                                   $       541      $      287       $       254
                                                   ============     ===========      ============


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

Customer relationships                3.0          $       296      $      126       $       170
Workforce in place                    3.0                  125              59                66
Non-compete agreement                 3.0                  100              47                53
Developed technology                  3.0                   20              10                10
                                                   ------------     -----------      ------------
                                                   $       541      $      242       $       299
                                                   ============     ===========      ============
</TABLE>

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

Total amortization of intangibles was $45,000 and $42,000 for the three months
ended March 31, 2007 and 2006, respectively. The estimated amortization expense
for the three years will be $180,000 for 2007, $110,000 for 2008 and $9,000 in
2009.

                                       11



<PAGE>

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

NOTE 5 - 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, 2007, the Company had 31,284,245 shares of its $.001 par value
common stock issued and outstanding.

During the three months ended March 31, 2007, the Company issued a total of
3,845,000 shares of common stock in lieu of cash for professional services of
$146,000, interest expense of $1,000, settlement expense of $80,000, other
services of $21,000, conversion of notes payable of $97,000, salary and
compensation of $156,000 and settlement of liabilities of $51,000. The Company
valued the 3,845,000 shares at the closing market price on the date of issuance
of such shares.

PREFERRED STOCK

The Company has 25,000,000 shares of Series A Preferred Stock authorized of
which 3,615,928 shares were issued and outstanding as of March 31, 2007. 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, 2007, , the maximum common shares converted from Series
A Preferred shares are contractually restricted to five percent a quarter or
twenty percent a year of the authorized and issued common shares outstanding at
December 31, 2006; resulting in a maximum 14,196,448 shares of common stock
issuable upon conversion of Series A Preferred Stock during calendar 2007.

WARRANTS

The Company had warrants outstanding to third parties to purchase 2,067,257
common shares as of March 31, 2007.

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 Company attributed no value to these warrants in the June
2003 period in which they were issued, given that the warrants had an exercise
price of $0.20 per share as compared to the market value of $0.01 per share in
June 2003 on a total volume of 300 shares traded in the open market in June
2003. In January 2006, the Company and the holders of the warrants agreed to (i)
limit the amount of shares that can be sold upon exercise and (ii) purchase a
certain amount of shares of originally issued common stock within 60 days
(subject to extension) of the effective date of the February 2006 resale
registration statement. The Investor exercised 100,000 warrants leaving a
remaining balance of 780,000 warrants to be exercised.

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. 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 613,918 shares of common stock at $5.00 per share were issued by
the Company during the year end 2006 and 1st quarter 2007. Specifically, the
Company sold $587,500 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

                                       12



<PAGE>

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. The
Company has had twenty-five units converted and has attributed $3,000 in 2007
and $76,000 in 2006 to warrant expense using the Black Scholes option price
model in the quarter in which the unit was converted.

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

                                     Options/Warrants
                                   Issued & Outstanding
                               ------------------------------
  Exercise       Expiration        March 31,        March 31,
    Price           Date             2007            2006
--------------  ------------   --------------  --------------
0.20              Dec-07             780,000         780,000
5.00              Aug-07             141,670         191,672
7.50              Aug-07             141,670         191,672
3.57              Sep-10             389,999         389,999
5.00              Aug-09             613,918               -
                               --------------  --------------
                                   2,067,257       1,553,343
                               ==============  ==============


NOTE 6 - INCOME TAXES

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

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

                                      March 31, 2007        December 31, 2006
                                    --------------------  ---------------------

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


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

                                        March 31, 2007       December 31, 2006
                                       ----------------     ------------------
Computed expected tax benefit            $     (466)           $    (1,779)
Increase in valuation allowance                 466                  1,779
                                         -----------           ------------
Income tax expense                       $        -            $         -
                                         ===========           ============

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at March 31, 2007, and
December 31, 2006, are presented below (in thousands):

                                          March 31, 2007     December 31, 2006
                                        ----------------     ------------------
Deferred tax assets:
  Net operating loss carry forwards       $    (3,665)         $     (3,199)
  Less valuation allowance                      3,665                 3,199
                                          -----------          ------------
Net deferred tax assets                   $        -           $         -
                                          ===========          ============

Management has determined that a valuation allowance of $3,665,000 at March 31,
2007 is necessary to reduce the deferred tax assets to the amount that will more
than likely than not be realized. The change in valuation allowance for 2007 was
approximately $466,000. As of March 31, 2007, the Company has a net operating
loss carry-forward of $10,754,000, which is available to offset future federal
taxable income, if any, with expiration beginning 2012 and ending 2026.

                                       13



<PAGE>

                               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):
<TABLE>
<S>     <C>
                                                For the three months ended March 31, 2007
                                              ---------------------------------------------
                                                Income           Shares           Per-Share
                                              (Numerator)     (Denominator)        Amount
                                              -----------     -------------       ---------
Net loss                                       $(1,369)              --           $    --
Basic EPS:
  Income available to common stockholders       (1,369)          26,922            (0.05)
  Effect of dilutive securities warrants
Diluted EPS:
                                               -------          -------           -------
  Income available to common stockholders
and assumed conversions                        $(1,369)          26,922           $(0.05)
                                               =======          =======           =======


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

For the years ended March 31, 2007 and 2006, dilutive securities existed. The
effect of the dilutive securities for the year ended March 31, 2007, would have
been 32,098,122shares of common stock issued assuming all debt instruments were
converted during calendar 2007 pursuant to the contractually imposed conversion
restriction limitations, Series A preferred stock converted and all options and
warrants were exercised.

NOTE 8 - MAJOR CUSTOMERS

The Company had gross sales of approximately $505,000 and $862,000 for the three
months ended March 31, 2007 and 2006, respectively. The Company had one customer
that represented approximately 14% of the gross sales in the three months ended
March 31, 2007 and had one customer that represented 49% 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, 2007
(in thousands):

<TABLE>
<S>     <C>
                                                                                     Interest   Gross       Debt
                                                   Terms              Maturity Date    Rate    Balance     Discount   Net Balance
                                   ---------------------------------- ------------- ---------- --------  ----------   ------------
Taylor Economic Development Corp.  $1,119 / Month including interest  June-07          7.00%          2           -             2
Vangard Wireless, Inc.             $200 / Month including interest    December-10      6.00%          8           -             8
Axis Capital, Inc                  $347 / Month including interest    August-08        8.60%          5           -             5
Insurance notes                    $1,993 / Month including interest  September-07     9.00%         18           -            18
Investor notes                      2 years (See below)               Demand           6.00%        790         278           512
Line of credit                      2 years/ Quarterly interest       February-08      6.00%      2,213           -         2,213
                                      (See below)
E-bond investor notes               3 years/ Semiannual interest      Various          10.00%       450          89           361
                                      (See below)                                              --------- -----------  ------------
Total debt                                                                                     $  3,486  $      367         3,119
                                                                                               ========= ===========          876
Less current maturities                                                                                                      (314)
Less debt discount current maturities                                                                                 ------------
                                                                                                                      $     2,557
Long-term debt                                                                                                        ============

The gross maturities of these debts are $876,000, $393,000, $2,215,000 and
$2,000 for the years ended December 31, 2007, 2008, 2009 and 2010, respectively.

                                       14



<PAGE>

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

Notes payable and long-term debts consist of the following as of December 31,
2006 (in thousands):

                                                                                     Interest   Gross     Debt
                                                   Terms              Maturity Date    Rate    Balance   Discount   Net Balance
                                  ---------------------------------- ------------- ---------- --------  ----------  ------------
Taylor Economic Development Corp. $1,119 / Month including interest    June-07        7.00%         5           -             5
Vangard Wireless, Inc.            $200 / Month including interest      December-10    6.00%         9           -             9
Axis Capital, Inc                 $347 / Month including interest      August-08      8.60%         6           -             6
Insurance notes                   $1,993 / Month including interest    September-07   9.00%        34           -            34
Investor notes                     2 years (See below)                 Demand         6.00%       874         437           437
Line of credit                     2 years/ Quarterly interest         February-08    6.00%     2,006           -         2,006
                                     (See below)
E-bond investor notes              3 years/ Semiannual interest        Various        10.00%      388          86           302
                                     (See below)                                              --------   ---------  ------------
Total debt                                                                                    $ 3,322    $    523         2,799
                                                                                              ========   =========          986
Less current maturities                                                                                                    (467)
Less debt discount current maturities                                                                                -----------
                                                                                                                     $    2,280
Long-term debt                                                                                                       ===========
</TABLE>

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".

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

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

The Investor Notes were determined to include free standing warrants and various
embedded derivative liabilities. The derivative liabilities are the conversion
feature and the redemption option (compound embedded derivative liability). At
the date of issuance (September 06, 2005, and November 21, 2005) the Investor
Notes, warrant liabilities and compound embedded derivative liabilities were
measured at fair value using either quoted market prices of financial

                                       15



<PAGE>

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

instruments with similar characteristics or other valuation techniques. These
derivative liabilities are 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 will be $437,123 for year ending December 31, 2007, respectively.

The following table summarizes the Investor Notes convertible debt activity for
the period September 6, 2005, to March 31, 2007:

<TABLE>
                                                                                   Compound
                                                                  Warrant         Derivative
               Description                   Investor Notes     Liabilities       Liability             Total
                                             ---------------  ---------------    --------------    --------------
<S>                                            <C>               <C>               <C>               <C>
Fair value issuance at inception               $   508,017       $   470,702       $   521,281       $ 1,500,000
09-06-05 to 09-30-05 change in fair value           18,373         2,389,132         1,012,547         3,420,052
10-01-05 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           227,582
10-01-06 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)          135,678
Conversions from inception to date                (710,180)               --                --          (710,180)
                                               -----------       -----------       -----------       -----------
Fair value at March 31, 2007                   $   511,356       $    17,863       $   202,344       $   731,563
                                               ===========       ===========       ===========       ===========

From inception to date through March 31, 2007, the Company recorded a net
derivative income of $772,000 and for the three months ended March 31, 2007, a
net derivative income of $23,000. The Company in conjunction with the
convertible note as of three months ended March 31, 2007, has recorded debt
interest expense of $193,000

ERF Wireless, Inc., also incurred deferred financing costs of $178,500 in
connection with the closing of the financing arrangement. The costs are
recognized over the life of the Investor Notes, or 24 months, by using the
straight line method. For the twelve months ended March 31, 2007, the Company
recorded deferred financing cost in interest expense of $22,000.

The following assumptions were used in the fair value determination of warrants
liabilities at March 31, 2007:

                                                                              Warrants
                                 ---------------------------------------------------------------------------------------------------
         Assumptions               9/6/2005    9/30/2005   12/31/2005   3/31/2006   6/30/2006    9/30/2006   12/31/2006   3/31/2007
-------------------------------  ---------------------------------------------------------------------------------------------------
Dividend yield                          0.00%       0.00%        0.00%       0.00%        0.00%       0.00%        0.00%       0.00%
Risk-free rate for term                 3.89%       4.18%        4.35%       4.44%        5.10%       4.62%        4.74%       4.51%
Volatility                             31.00%      31.00%       76.00%      78.00%       95.00%     140.00%      140.00%     140.00%
Maturity date                         5 years  4.93 years   4.68 years  4.44 years   4.19 years  3.93 years   3.68 years  3.44 years
</TABLE>


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

LINE OF CREDIT

Effective March 10, 2006, ERF Wireless, Inc. (the "Company"), entered into a
two-year unsecured revolving credit facility with certain private investors that
provides a $2 million dollar line of credit. The terms of the two-year unsecured
revolving credit facility allow ERF Wireless to draw upon the facility as
financing requirements dictate and provide for quarterly interest payments at a
6% rate. The loan may be prepaid without penalty or repaid at maturity. At March
31, 2007, the balance of the credit line was $2,213,041. On April 5, 2007, the
Company amended its two-year $3,000,000 revolving credit facility to mature on
February 28, 2009 and granted the lender a security interest in all the assets
of the Door. The amendment also included a provision that in the event the
Company draws down the full $3 million amount available under the revolving
credit facility on or prior to December 31, 2007, and the Company requires
additional working capital to pursue its business strategy and operations and
has not closed on alternative debt or equity financing aggregating at least $1
million, the lender has agreed to fund up to an additional $1 million during
2007 under the same terms and conditions.

                                       16



<PAGE>

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

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 will terminate on June 30, 2007, unless such date is extended at
the Company's discretion. As of March 31, 2007 the Company has sold $687,500 of
E-Series Bonds and the balance due at December 31, 2006 is $360,936.

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
$9,065 for the three months ended March 31, 2007.

The following table summarizes the E-Series convertible debt activity for the
period May 31, 2006, to March 31, 2007:

<TABLE>
                                                                 Compound
                                                                Derivative
                 Description                  E-Series Bonds    Liability         Total
                                              --------------  -------------   ------------
<S>                                            <C>             <C>             <C>
Fair value issuance at inception               $ 576,113       $ 111,387       $ 687,500
05-31-06 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)          1,876
10-01-06 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          15,021
Conversions from inception to date              (237,500)             --        (237,500)
                                               ---------       ---------       ---------
Fair value at March 31, 2007                   $ 360,936       $  88,409       $ 449,345
                                               =========       =========       =========
</TABLE>

For inception to date through March 31, 2007, the Company recorded a net
derivative income of $23,000 and for the three months ended March 31, 2007, a
net derivative loss of $6,000. The Company in conjunction with the convertible
note as of three months ended March 31, 2007, has recorded debt interest expense
of $17,000.

                                       17



<PAGE>

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

NOTE 10 - UNCOMPLETED CONTRACTS

Costs, estimated earnings and billings on uncompleted contracts for the three
months ended March 31, 2007 and December 31, 2006, are summarized as follows (in
thousands):

                                               March 31,       December 31,
                                                 2007              2006
                                             ------------      ------------
Costs incurred on uncompleted contracts      $       950       $       854
Estimated profit                                      24                62
                                             ------------      ------------
Gross revenue                                        974               916
Less: billings to date                               960               847
                                             ------------      ------------
Costs and profit in excess of billings       $        14       $        69
                                             ============      ============


NOTE 11 - COMMITMENTS AND CONTINGENCIES

LEASES AND LICENSE AGREEMENTS

For the three months ended March 31, 2007 and 2006, rental expenses of
approximately $97,000 and $67,000, 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 2012, and requiring payment of
property taxes, insurance, maintenance and utilities.

Future minimum lease payments under non-cancelable operating leases at March 31,
2007 were as follows:

               Period Ending December 3Amount
               ----------------------------------
                     2007              $ 310,867
                     2008                347,163
                     2009                309,577
                     2010                224,578
                     2011                185,598
                     2012                 20,696
                                   --------------
                    Total            $ 1,398,479
                                   ==============

EMPLOYMENT AGREEMENTS

R. GREG SMITH

On August 1, 2004, the Company entered into an Executive Employment Agreement
with R. Greg Smith, our CFO. Mr. Smith is paid a base salary of $180,000 per
year and is eligible to receive a bonus equal to 1% of the revenues for the most
recent twelve-month period of each acquisition made by the Company during his
employment period. Mr. Smith received 63,828 shares of our Series A Convertible
Preferred Stock par value $0.01 per share, as consideration for a sign-on bonus
at a price of $0.50 per share for total consideration of $31,913.50. The
preferred stock is convertible at holder's option at one preferred share for
18.676347 shares common stock and has a 2:1 liquidation preference and each
preferred share has 20 votes. During 2006, Mr. Smith converted 52,623 shares of
his Series A Convertible Preferred Stock into 982,820 shares of the Company's
common stock. Mr. Smith is also entitled to receive up to 1,000,000 stock
options under the Company's 2004 Non-Qualified Stock Option Plan for attainment
of certain future cumulative revenue milestone achievements. These options, if
any are earned, will vest when granted and have an exercise price of the lowest
five-day average closing price existing for the Company's common stock during
the twelve-month period immediately preceding the date of the vesting event. Mr.
Smith is subject to a lock-up agreement which prohibits Mr. Smith from selling
shares until August 1, 2006, unless agreed to by the Company in writing. During
2006, Mr. Smith's employment contract was renewed for one additional year by the
Board of Directors through August 1, 2007.

                                       18



<PAGE>

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

JOHN ADRIAN BURNS

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

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

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

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

JOHN ARLEY BURNS

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

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

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

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

BRIAN CUBLEY

In August 2004, the Company entered into an employment agreement with Brian
Cubley. Pursuant to the employment agreement Brian Cubley is to receive $80,000
until October 15, 2005, and $90,000 per year thereafter. Mr. Cubley also
received 31,914 shares of Series A Preferred Stock at $0.50 per share. Mr.
Cubley is also eligible to receive non-qualified non-transferable stock options
to purchase up to 500,000 shares of the Company's common stock based upon the
attainment of certain performance based milestones at 115% of the lowest five
day average closing price for the Company previous year. Lastly, Mr. Cubley is
entitled to a bonus for each calendar year in which the Company's Messaging
Services Division is profitable equal to 5% of the revenues of the Messaging
Services Division. As of August 1, 2006, Brian Cubley's employment contract was
renewed through July 31, 2007.

                                       19



<PAGE>

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

NOTE 12 - RELATED PARTY

In March 2005, the Company entered into an annual professional services
agreement with Synchton Incorporated for financial and business support
services. The agreement requires Synchton to provide one or more consultants for
a total of 100 hours per month. This agreement is automatically renewable on
each anniversary date and can be terminated by the Company prior to the renewal
date. The Company is obligated to pay Synchton $12,000 per month in cash or free
trading stock. The Company at its discretion may issue up to 50% of the monthly
fee in stock at the market price on the date of issuance; provided that if
Synchton sells the stock within 30 days of issuance the Company is obligated to
pay Synchton any shortfall between the difference in the market price on the
issuance date and the market price on the sale date. Synchton's president is
Scott A. Cubley. For the period ended March 31, 2007, total fees incurred by the
Company under the agreement were $36,000.

NOTE 13 - 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 operations, maintenance, upgrading, 24/7
monitoring and expansion of all wireless broadband networks that the Company
constructs, acquires, maintains and administers. The transactions in the NOS
segment for the nine months were not material.

ENTERPRISE NETWORK SERVICES (ENS)

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

                                       20



<PAGE>

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

For the three months ended March 31, 2007 (in thousands)
<TABLE>

                                    WMS           WBS          ENS          Total
                                 -----------   ----------   -----------   ----------
<S>                                <C>          <C>           <C>           <C>
         Revenue                   $     73     $    347      $     85      $   505
         Segment loss                  (105)          27          (309)        (387)
         Segment assets                 105          994           464        1,563
         Capital expenditures             -           67             4           71
         Depreciation                     4           42             3           49

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

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


Reconciliation of Segment Loss from          March 31,        March 31,
   Operations to Net Loss                      2007             2006
-------------------------------------------------------------------------
  Total segment loss from operations        $      (387)    $      (509)
Total corporate overhead                           (741)           (812)
                                            -------------   -------------
Net loss                                    $    (1,128)    $    (1,321)
                                            =============   =============


Reconciliation of Segment Assets          March 31,      March 31,
   to Total Assets                         2007            2006
------------------------------------------------------------------
Total segment assets                    $   1,563       $   1,194
Total corporate assets                        234           1,652
                                        ----------      ----------
Consolidated  assets                    $   1,797       $   2,846
                                        ==========      ==========
</TABLE>

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

One customer accounts for $73,000 of Enterprise Network Services Division
revenues at March 31, 2007.

NOTE 14 - SUPPLEMENTAL NON-CASH DISCLOSURES:

During 2007, the Company issued stock in lieu of cash as payment for the
following (in thousands):

                                                    Supplemental
                                                      Non-Cash
                                                     Disclosure
                                                     ----------
          Professional fees                         $      146
          Settlements                                       80
          Salary and compensation                          156
          Other services rendered                           21
          Interest expense                                   1
          Liabilities and accrued expenses                  51
          Notes payable                                     97
                                                    -----------
          Total non-cash settlements                $      552
                                                    ===========

                                       21



<PAGE>

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

NOTE 15 - 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 shares reserved for issuance increased to 10,000,000 shares.
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, 2007, 628,328 common stock shares remain to be converted from
Series A preferred stock. Also the Company has granted to certain officers and
employees 150,000 stock options which are currently exercisable. As of March 31,
2007, under the Non-Qualified Stock Option Plan, 8,934,123 shares were issued
and exercised to certain employees and consultants for services rendered.

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

The weighted average fair value of the individual options granted during the
three months ended March 31, 2007, is estimated at $1.45 on the date of grant.
The fair values were determined using a Black-Scholes option-pricing model with
the following assumptions:

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

Option activity was as follows for the three months ended March 31, 2007:

                                                      2007
                                     --------------------------------
                                                      Weighted-Average
                                        Shares         Exercise Price
                                     --------------    --------------
Outstanding at beginning of year         2,852,000     $         3.21
Granted                                          -                  -
Assumed through acquisitions                     -                  -
Exercised                                        -                  -
Forfeited/cancelled                              -                  -
                                     --------------    ---------------

Outstanding throughout the period        2,852,000     $         3.21
                                     ==============    ===============

Exercisable at March 31, 2007              150,000     $         1.38
                                     ==============    ===============

Information about options outstanding was as follows at March 31, 2007:
<TABLE>

                                         Remaining          Average                       Average
      Class            Number        Average Contractual    Exercise       Number        Exercise
  Exercise Price      Outstanding      Life in Years         Price        Exercisable      Price
-------------------  -----------------------------------  -------------  ---------------------------
<S>   <C>                <C>               <C>                  <C>          <C>             <C>
      $1.38              150,000           2.33                 $ 1.38       150,000         $ 1.38
      $2.88              900,000           2.33                 $ 2.88             -              -
      $3.72            1,570,000           1.33                 $ 3.72             -              -
      $2.27              232,000           1.33                 $ 2.27             -              -
                     ------------                                        ------------
                       2,852,000           1.83                 $ 3.21       150,000       $   1.38
                     ============                                        ============
</TABLE>
                                       22

NOTE 16 - SUBSEQUENT EVENTS

Subsequent to the quarter ended March 31, 2007, the Company entered into a Term
Sheet with Dutchess Private Equities Fund, Ltd, ("Dutchess"), for a $10 million
Equity Line of Credit with a term of 3 years. The Equity Line provides for
Dutchess to purchase up to $10 million of the Company's stock over the course of
36 months after a registration statement has been declared effective by the U.S.
Securities and Exchange Commission. The Purchase Price of the securities is 93%
of the market price of the Company's stock based on the lowest closing bid price
of the Company's stock during the 5 consecutive trading days immediately after
the Put Date or notice of draw down by the Company. The Company plans to
complete the Subscription Agreement and Registration Rights Agreement related to
this Equity Line and file a SB-2 Registration Statement during the Company's
second quarter of 2007. The Equity Line of Credit has no upfront commitment fee
shares, no warrants, no fees per draw down, no due diligence fees and no
inactivity fees for utilization of the line.


<PAGE>

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-QSB, 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 cellular and 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 operations, maintenance, upgrading, 24/7 monitoring and expansion of
all wireless broadband networks that the Company constructs, acquires, maintains
and administers. Hereinafter, all references to the Company include the
operations and financial condition of the Company and its operating divisions.

The Company has completed construction of five BankNet bank networks in three
states as well as a significant upgrade to an existing bank network in the
second quarter of 2006. The Company continues to focus its initial marketing
efforts at certain Louisiana, Mississippi, Alabama, Georgia, Texas and Florida
banks due to the likelihood of hurricanes and wide-scale disasters in those
states as well. The Company's business strategy is to design, construct, secure,
maintain and monitor enterprise-class encrypted microwave broadband networks for
the regional banking industry. The primary market drivers for these new
high-speed networks are attributable to three recent events.

 The first driver is a change in banking regulations that permits the imaging of
checks and other documents as a substitute means of validation, exchange and
storage. These new regulations allow banks to eliminate the transfer of paper
transit items within the Federal Reserve System but require large amounts of
bandwidth to electronically transfer the data. Many financial institutions are
finding that their traditional point-to-point wired T1 circuits (1.5 Mbps) are
insufficient to meet their new data communication needs.

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

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

The Company's fault-tolerant network solutions for individual banks
("BranchNet(TM) systems") intend to provide up to 300 Mbps of encrypted
microwave data communications bandwidth with satellite failover among a
financial institution's branches spread across hundreds of miles (BranchNet).
BranchNet systems address the banking industry demands for secure,
fault-tolerant broadband networks, while significantly reducing the cost of the
required fault-tolerant bandwidth versus traditional wireline communications
options provided by the incumbent telephone carriers.

Over the next five years, the Company plans to fulfill its vision to develop,
own and operate a 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.

                                       23



<PAGE>

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. Five such networks have already been
completed for FIs in Texas, Louisiana and Missouri, and a sixth is underway. The
Company plans to interconnect 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. Three of the Company's Louisiana-based FI customers and the
Louisiana State Police are participating in the Company's first statewide
network, Louisiana BankNet, with construction commenced in April 2007. As
statewide networks are completed, the Company plans to aggregate them into
regional networks (i.e. "Southern BankNet") and 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.

The Company has recently acquired several small wireless broadband networks in
key underserved regions. The Company anticipates that it will expand 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 is negotiating agreements with its bank customers 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

Subsequent to the quarter ended March 31, 2007, the Company has entered into and
announced agreements in expected to be in excess of $2 million in revenue.
These include:

     o    a Voice over IP agreement with Jeff Davis Bank valued in excess of
          $225,000 and

     o    an agreement in excess of $2 million with the El Dorado Golf and Beach
          Club of San Jose del Cabo, Mexico to provide a complete
          Fiber-to-the-Home (FTTH) network with 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.

The Company expects to complete the construction of both the Jeff Davis VoIP
network and the El Dorado network during the balance of calendar 2007 and,
accordingly, will be recognizing the associated revenues for these projects on a
percentage of completion method of accounting in subsequent quarters of 2007.


                                       24


<PAGE>

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2007, COMPARED TO THREE MONTHS ENDED MARCH 31, 2006
--------------------------------------------------------------------------------

The following table sets forth summarized consolidated financial information for
the three months ended March 31, 2007 and 2006:

<TABLE>
                                                         Three Months Ended March 31,
                                               --------------------------------------------------
              ($ IN THOUSANDS)                   2007         2006        $ Change    % Change
                                               ----------  -----------  ----------   ----------
<S>                                                <C>          <C>        <C>             <C>
Total sales                                    $     505   $      862   $    (357)        -41%
Cost of goods sold                                   283          574        (291)        -51%
                                               ----------  -----------  ----------   ----------
Gross profit                                         222          288         (66)        -23%
                                               ----------  -----------  ----------   ----------
Percent of total sales                               44%          33%
Operating expenses                                 1,350        1,609        (259)        -16%
                                               ----------  -----------  ----------   ----------
Loss from operations                              (1,128)      (1,321)        193         -15%
Other income/(expense)                              (241)         606        (847)       -140%
                                               ----------  -----------  ----------   ----------
Net loss                                          (1,369)        (715)       (654)         91%
                                               ----------  -----------  ----------   ----------
Deemed dividend related to beneficial
     conversion feature of preferred stock             -         (130)        130        -100%
                                               ----------  -----------  ----------   ----------
Net loss attributable to common shareholders   $  (1,369)  $     (845)  $    (524)         62%
                                               ==========  ===========  ==========   ==========

For the three months ended March 31, 2007, the Company's business operations
reflected an overall decrease in sales for Wireless Messaging Services and
Enterprise Network Services, which was offset with increased sales in Wireless
Bundled Services. For the three months ended March 31, 2007, the Company's
consolidated operations generated net sales of $505,000 compared to prior year
net sales of $862,000. The decrease in net sales is primarily attributable to a
decrease in product sales of $599,000 from the wireless banking network
installations, and offset with an increase in service sales of $247,000 due to
increased recurring revenue primarily from the recent acquisition. For the three
months ended March 31, 2007, the Company had a gross profit margin of 44%,
compared to a gross profit margin of 33% for the prior year. The increased in
gross profit margin is primarily attributable to several factors: (i) Increased
customer base in recurring revenue with consistent margins on wireless broadband
services and (ii) deferred lease liability amortized over five years to offset
tower rental expense from Wireless Bundled Services.

The Company incurred a net loss of $1,369,000 for the three months ended March
31, 2007. The Company's net loss for the three months ended March 31, 2007,
included approximately $108,000 in depreciation and amortization expenses,
$190,000 of interest amortization, $17,000 of derivative income, $155,000 of
other general and administrative net of non-cash charges, $534,000 in employment
expenses net of non-cash charges and $202,000 in professional services net of
non-cash charges.

SALES INFORMATION

Set forth below is a table presenting summarized sales information for our
business segments for the three months ended March 31, 2007 and 2006:

      ($ IN THOUSANDS)                                      Three Months Ended March 31,
      Business Segment                2007     % of Total          2006     % of Total        $ Change   % Change
                                  -----------  ------------   ------------  -----------    ------------ -----------
Wireless Messaging Services       $       73           14%     $      266          31%     $      (193)       -73%
Wireless Bundled Services                347           69%             25           3%             322       1288%
Enterprise Network Services               85           17%            571          66%            (486)       -85%
                                  -----------  ------------   ------------  -----------    ------------ -----------
Total Sales                       $      505          100%    $       862         100%     $      (357)       -41%
                                  ===========  ============   ============  ===========    ============ ===========

For the three months ended March 31, 2007, net sales decreased to $505,000 from
$862,000 for the three months ended March 31, 2006. The overall decrease of 41%
was attributable to a $486,000 decrease in Enterprise Network Services, decrease
of $193,000 of Wireless Messaging Services and an increase in Wireless Bundled
Services of $322,000. The $486,000 decrease in sales of the Enterprise Network
Services for the three months ended March 31, 2007, was primarily attributable
to decrease sales from products of enterprise-class encrypted wireless banking
network installations. The decrease of $193,000 in Wireless Messaging Services
is primarily attributable to product sales in the wireless broadband system
designs. The increase of $322,000 in Wireless Bundled Services is primarily
attributable to increased customer base through growth of ISP subscribers.

                                       25



<PAGE>

COST OF GOODS SOLD

The following tables set forth summarized cost of goods sold information for the
three months ended March 31, 2007 and 2006:

      ($ IN THOUSANDS)                                      Three Months Ended March 31,
      Business Segment               2007    % of Total          2006    % of Total          $ Change      % Change
                                ------------ ------------    ----------- ------------    --------------- -------------
Wireless Messaging Services      $       53          19%     $      122          21%     $          (69)         -57%
Wireless Bundled Services               133          47%             17           3%                116          682%
Enterprise Network Services              97          34%            435          76%               (338)         -78%
                                ------------ ------------    ----------- ------------    --------------- -------------
Total Cost of Goods             $       283         100%     $      574         100%     $         (291)         -51%
                                ============ ============    =========== ============    =============== =============


                                               Three Months Ended March 31,
                                         ---------------------------------------
            ($ IN THOUSANDS)                 2007          2006        $ Change    % Change
                                         -----------   -----------   -----------   ----------

Products and integration service         $      166    $      542    $     (376)        -69%
Rent and maintenance                             42            15            27         180%
Salary and related costs                         19             -            19           0%
Depreciation                                     41             5            36         720%
Other costs                                      15            12             3          25%
                                         -----------   -----------   -----------   ----------
Total Operating Expenses                 $      283    $      574    $     (291)        -51%
                                         ===========   ===========   ===========   ==========
</TABLE>

For the three months ended March 31, 2007, cost of goods sold decreased by
$292,000, or 51%, to $283,000 from $574,000 as compared to the three months
ended March 31, 2006. The decrease of $291,000 in cost of goods sold is
primarily attributable to product and service cost of $376,000 associated with
Enterprise Network Services due to decrease sales in construction and
integration; and offset with an increase of $19,000 of salary and related cost
is primarily attributable to direct labor cost associated with Enterprise
Network Services construction and integration of banking networks; $36,000
primarily attributable to depreciation expense associated with acquisitions and
extending our wireless network area to increase our ISP customer base and
$27,000 is primarily attributable to rent and maintenance cost associated with
acquisitions and extending our wireless network area to increase our ISP
customer base.

OPERATIONS EXPENSES

The following table sets forth summarized operating expense information for the
three months ended March 31, 2007 and 2006:

                                            Three Months Ended March 31,
       ($ IN THOUSANDS)             2007        2006      $ Change     % Change
                                  ---------   ---------  ----------  -----------

Employment expenses                $   690     $   834    $   (144)        -17%
Professional services                  348         396         (48)        -12%
Rent and maintenance                    68          73          (5)         -7%
Depreciation and amortization           67          61           6          10%
Other general and administrative       177         245         (68)        -28%
                                  ---------   ---------  ----------  -----------
Total operating expenses           $ 1,350     $ 1,609    $   (259)        -16%
                                  =========   =========  ==========  ===========

For the three months ended March 31, 2007, operating expenses decreased by 16%
to $1,350,000, as compared to $1,609,000 for the three months ended March 31,
2006. The decreases that occurred, as evidenced by the immediately preceding
table, are discussed below:

     o    A $144,000 decrease in employment expense. The decrease is primarily
          attributable to prior year stock employment agreement bonuses of
          $173,000.

     o    A $48,000 decrease in professional services. The decrease is primarily
          related to accounting expense of $26,000, legal expense of $53,000,
          consulting expense of $37,000, investor relations expense of $17,000,
          and offset with a $72,000 increase in settlement expense. The decrease
          in professional fees is principally associated with less complex debt
          registration this quarter that utilizes legal and accounting as
          compared to prior year.

                                       26



<PAGE>

     o    A $68,000 decrease in other general and administrative expense. The
          decrease is primarily related to supplies expense of $30,000, and
          utility expense of $30,000, and advertising expense of $7,000. The
          decrease in other and general administrative expense primarily
          attributable to a consolidation of corporate functions with regard to
          utility costs.

OTHER (INCOME) EXPENSE, NET

For the three months ended March 31, 2007 the decrease in other (income) expense
is primarily attributable to derivative instruments income of $17,000 as
compared to $743,000 for the three months ended March 31, 2006. This income
represents the net unrealized (non-cash) charge during the three months ended
March 31, 2007 in the fair value of our derivative instrument liabilities
related to warrants and embedded derivatives in our debt instruments that have
been bifurcated and accounted for separately. Additionally interest associated
with the derivative instruments accounted for $210,000 during the year.

NET LOSS

For the three months ended March 31, 2007, our net loss was $1,369,000 compared
to a loss of $715,000 for the three months ended March 31, 2006. The increase in
the loss for the three months ended March 31, 2007 as compared to the three
months ended March 31, 2006, was attributable to the factors discussed
immediately above.

NET LOSS APPLICABLE TO COMMON SHAREHOLDERS

For the three months ended March 31, 2007, our net loss was $1,369,000 compared
to a loss of $845,000 for the three months ended March 31, 2006. The Company's
Net Loss Applicable to common shareholders included deemed dividends on the
beneficial conversion of the 87,000 shares of Series A Preferred Stock that was
limited to the amount of consideration received totaling $130,000 in the three
months ended March 31, 2006.

CASH FLOWS

The Company's operating activities increased net cash used by operating
activities to $534,000 in the three months ended March 31, 2007, compared to net
cash used of $799,000 in the three months ended March 31, 2006. The decrease in
net cash used by operating activities was primarily attributable to fund an
increase in the company's net operating loss $1,369,000, net of $768,000
non-cash charges combined with derivative income $17,000 to equal net non-cash
charge of $751,000, combined together with $84,000 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 $65,000 in the three months
ended March 31, 2007, compared to use of net cash of $78,000 in the three months
ended March 31, 2006. Spending has been consistent compared to last year capital
spending, which primarily is growing ISP capabilities to increase our customer
base.

The Company's financing activities provided net cash of $262,000 in the three
months ended March 31, 2007, compared to $1,428,000 of cash provided in the
three months ended March 31, 2006. The cash provided in the three months ended
March 31, 2007, was primarily associated with the proceeds from line of credit
net and other financing arrangements net of $282,000.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2007, the Company's current assets totaled $746,000 (including cash
and cash equivalents of $56,000). Total current liabilities were $1,966,000,
resulting in negative working capital of $1,220,000. 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.

At March 31, 2007, the Company had approximately $787,000 available on a $3
million unsecured revolving credit facility maturing 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 6% rate. The loan may be prepaid without penalty
or repaid at maturity. In the event that the Company draws down the full $3
million amount available under the revolving credit facility on or prior to

                                       27



<PAGE>

December 31, 2007, and the Company requires additional working capital to pursue
its business strategy and operations and has not closed on alternative debt or
equity financing aggregating at least $1 million, the lender has agreed to fund
up to an additional $1 million during 2007 under the same terms and conditions.

We believe our cash, anticipated cash flow from operations and available credit
facilities afford us adequate liquidity for the next 12 months, 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:

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

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

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

     o    Investment in laboratory facilities including test and simulation
          equipment

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

     o    General working capital purposes

The Company operations for the three months ended March 31, 2007, was primarily
funded by proceeds from the Company's line of credit, net totaling $207,000.and
convertible debt financing of $75,000.

Subsequent to the quarter ended March 31, 2007, the Company entered into a Term
Sheet with Dutchess Private Equities Fund, Ltd, ("Dutchess"), for a $10 million
Equity Line of Credit with a term of 3 years. The Equity Line provides for
Dutchess to purchase up to $10 million of the Company's stock over the course of
36 months after a registration statement has been declared effective by the U.S.
Securities and Exchange Commission. The Purchase Price of the securities is 93%
of the market price of the Company's stock based on the lowest closing bid price
of the Company's stock during the 5 consecutive trading days immediately after
the Put Date or notice of draw down by the Company. The Company plans to
complete the Subscription Agreement and Registration Rights Agreement related to
this Equity Line and file a SB-2 Registration Statement during the Company's
second quarter of 2007. The Equity Line of Credit has no upfront commitment fee
shares, no warrants, no fees per draw down, no due diligence fees and no
inactivity fees for utilization of the line.

Other than the credit facility with Angus Capital Partners, we do not have any
significant credit facilities available with financial institutions or other
third parties and as such we must rely upon best efforts third-party funding
from individual accredited investors. The Company will use its best efforts to
raise additional funds through the sale of debt or equity securities to meet
future working capital requirements.

There can be no assurance that we will be successful in raising any funds from
any of these debt or equity offerings or from any future best efforts financing
efforts. If we are unable to either obtain financing from external sources or
generate internal liquidity from anticipated future operations, we may need to
curtail acquisition plans and operations.

CONTRACTUAL OBLIGATIONS

The following table sets forth contractual obligations as of March 31, 2007:

<TABLE>
                                                                     Payments Due by Period
                               ---------------------------------------------------------------------------------------------------
                                     Total          Less than 1 Year       1-3 Years           3-5 Years         More than 5 Years
                               ----------------     ---------------      --------------      --------------      -----------------
<S>                            <C>                  <C>                  <C>                 <C>                 <C>
CONTRACTUAL OBLIGATIONS:
  Long-term debt obligations   $         4,166      $        1,356       $       2,810       $           -       $            -
  Operating lease obligations            1,398                 311                 881                 206                    -
                               ----------------     ---------------      --------------      --------------      ---------------
TOTAL CONTRACTUAL OBLIGATIONS  $         5,564      $        1,667       $       3,691       $         206       $            -
                               ================     ===============      ==============      ==============      ===============
</TABLE>
                                       28



<PAGE>

The Company's contractual obligations consist of long-term debt of $3,119,000,
derivative liabilities of $309,000 unamortized debt discount of $367,000 and
interest expense of $371,000 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, 2007, 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.

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.

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.

                                       29



<PAGE>

WARRANTY

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

FIXED ASSETS

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

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

LONG-LIVED ASSETS

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

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

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

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

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

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

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

CONCENTRATIONS OF CREDIT RISK

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

DERIVATIVE INSTRUMENTS

In connection with the sale of debt or equity instruments, we may sell options
or warrants to purchase our common stock. In certain circumstances, these
options or warrants may be classified as derivative liabilities, rather than as
equity. Additionally, the debt or equity instruments may contain embedded

                                       30



<PAGE>

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 November 2004, the FASB ratified the consensus reached by the Emerging Issues
Task Force ("EITF"), on Issue NO. 03-13. "Applying the Conditions in Paragraph
42 of FASB Statement No. 144 on Determining Whether to Report Discontinued
Operations". The Issue provides a model to assist in evaluating (a) which cash
flows should be considered in the determination of whether cash flows of the
disposal component have been or will be eliminated from the ongoing operations
of the entity and (b) the types of continuing involvement that constitute
significant continuing involvement in the operations of the disposal component.
Should significant continuing ongoing involvement exist, then the disposal
component shall be reported in the results of continuing operations or the
consolidated statements of operations and cash flows. We are currently
evaluating the premises of EITF No. 03-13 and will adopt it as required.

In July 2006, the FASB issued FASB Interpretation ("FIN") No. 48 Accounting for
Uncertainly in Income Taxes - An Interpretation of FASB Statement No. 109. FIN
48 prescribes detailed guidance for the financial statement recognition,
measurement, and disclosure of uncertain tax positions recognized in an
enterprise's financial statements in accordance with SFAS No. 109, Accounting
for Income Taxes. Tax positions must meet a more-likely-than-not recognition
threshold at the effective date to be recognized upon the adoption of FIN 48 and
in subsequent periods. FIN 48 will be effective for fiscal years beginning after
December 15, 2006, and the provisions of FIN 48 will be applied to all positions
upon the adoption of the Interpretation. The cumulative effect of this applying
the provisions of this Interpretation will be reported as an adjustment to the
opening balance of retained earnings for that fiscal year. As of January 1,
2007, Management has adopted FIN 48 and does not believe that its adoption will
have a material effect on the Companies' financial position, results of
operations, or cash flows.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering
the Effects of Prior Year Misstatements when quantifying Misstatements in
Current Year Financial Statements ("SAB 108"). SAB 108 requires companies to
evaluate the materiality of identified unadjusted errors on each financial
statement and related financial statement disclosure using both the rollover
approach and the iron curtain approach, as those terms are defined in SAB 108.
The rollover approach quantifies misstatements based on the amount of the error
in the current year financial statement, whereas the iron curtain approach
quantifies misstatements based on the effects of correcting the misstatement
existing in the balance sheet at the end of the current year, irrespective of
the misstatement's year(s) of origin. Financial statements would require
adjustment when either approach results in quantifying a misstatement that is
material. Correcting prior year financial statements for immaterial errors would
not require previously filed reports to be amended. If a Company determines that
an adjustment to prior year financial statements is required upon adoption of
SAB 108 and does not elect to restate its previous financial statements, then it
must recognize the cumulative effect of applying SAB 108 in fiscal 2006
beginning balances of the affected assets and liabilities with a corresponding
adjustment to the fiscal 2006 opening balance in retained earnings. SAB 108 is
effective for interim periods of the first fiscal year ending after November 15,
2006. The Company has adopted this interpretation which did not impact its
financial position or results of operations.

On October 10, 2006, the FASB issued FSP No. FAS 123(R)-5, titled AMENDING
GUIDANCE FOR ACCOUNTING FOR MODIFICATIONS OF INSTRUMENTS IN CONNECTION WITH
EQUITY RESTRUCTURING ("FSP FAS 123(R)-5"). FSP FAS 123(R)-5 addresses whether a
modification of an instrument in connection with an equity restructuring should
be considered a modification for purposes of applying FSP FAS 123(R)-1. It
stipulates that for instruments that were originally issued as employee
compensation and then modified solely to reflect an equity restructuring that

                                       31



<PAGE>

occurs when the holders are no longer employees, that there is no change in the
recognition or measurement of those instruments if (a) there is no increase in
fair value of the award and (b) all holders of the same class of instruments are
treated in the same manner. The guidance in FSP FAS 123(R)-5 is effective in the
first reporting period beginning after October 10, 2006. Early application is
permitted in periods for which financial statements have not been issued.
Management has adopted FSP FAS 123(R)-5 and believes that its adoption does not
have a material effect on the Companies' financial position, results of
operations, or cash flows.

FSP FAS 123(R)-6 was issued to make several technical corrections to SFAS
123(R). These include exemption for non-public entities from disclosing the
aggregate intrinsic value of outstanding fully vested share options, revision to
the computation of the minimum compensation cost that must be recognized,
indication that at the date the illustrative awards were no longer probable of
vesting, any previously recognized compensation cost should have been reversed,
and changes to the definition of short-term inducement to exclude an offer to
settle an award. The guidance in FSP FAS 123(R)-6 is effective in the first
reporting period beginning after October 20, 2006. Early application is
permitted in periods for which financial statements have not yet been issued.
Management has adopted FSP FAS 123(R)-6 and believes that its adoption does not
have a material effect on the Companies' financial position, results of
operations, or cash flows.

In February 2006, the FASB issued SFAS No. 155, "" ("SFAS No. 155") which amends
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133") and SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities" ("SFAS No. 140"). SFAS No.
155 simplifies the accounting for certain derivatives embedded in other
financial instruments by allowing them to be accounted for as a whole if the
holder elects to account for the whole instrument on a fair value basis. SFAS
No. 155 also clarifies and amends certain other provisions of SFAS No. 133 and
SFAS No. 140. SFAS No. 155 is effective for all financial instruments acquired,
issued or subject to a re-measurement event occurring in fiscal years beginning
after September 15, 2006. Earlier adoption is permitted, provided the company
has not yet issued financial statements, including for interim periods, for that
fiscal year. Management is currently evaluating the impact of SFAS No 155 on the
financials statements but does not believe that its adoption will have a
material effect on the Companies' financial position, results of operations, or
cash flows.

In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in GAAP, and expands disclosures about fair
value measurements. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007. Management is currently
evaluating the impact SFAS No. 157 will have on the Company's financial
position, results of operations, and cash flows.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment of FASB
statement No. 115." This Statement permits all entities to choose, at specified
election dates, to measure eligible items at fair value (the "fair value
option"). A business entity shall report unrealized gains and losses on items
for which the fair value option has been elected in earnings (or another
performance indicator if the business entity does not report earnings) at each
subsequent reporting date. Upfront costs and fees related to items for which the
fair value option is elected shall be recognized in earnings as incurred and not
deferred. If an entity elects the fair value option for a held-to-maturity or
available-for-sale security in conjunction with the adoption of this Statement,
that security shall be reported as a trading security under Statement 115, but
the accounting for a transfer to the trading category under paragraph 15(b) of
Statement 115 does not apply. Electing the fair value option for an existing
held-to-maturity security will not call into question the intent of an entity to
hold other debt securities to maturity in the future. This statement is
effective as of the first fiscal year that begins after November 15, 2007. The
Company is currently analyzing the effects SFAS 159 will have on the Company's
financial condition and results of operations.

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.

                                       32



<PAGE>

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.

                                       33



<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

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

Set forth below is certain information concerning issuances of common stock that
were not registered under the Securities Act that occurred, but were not
reported, in the 1st quarter ended March 31, 2007. During the 1st quarter of
fiscal 2007, we converted the principal amount of $12,500 of Series E Bonds and
issued 33,333 shares of common stock and issued three year warrants to purchase
33,333 shares of common stock at $5 per share. The issuances referenced above
were consummated pursuant to Section 4(2) of the Securities Act and the rules
and regulations promulgated thereunder on the basis that such transactions did
not involve a public offering and the offerees were sophisticated, accredited
investors with access to the kind of information that registration would
provide. The recipients of these 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.

ITEM 3. DEFAULT IN SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

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

ITEM 6. EXHIBITS

    Exhibit 2.1       Agreement and Plan of Merger between Fleetclean Systems, Inc. and ERF Wireless, Inc. (1)
    Exhibit 2.2       Articles of Merger (1)
    Exhibit 3.1       Articles of incorporation of ERF Wireless, Inc. (1)
    Exhibit 3.1.1     Certificate of Amendment to Articles of incorporation of ERF Wireless, Inc. (1)
    Exhibit 3.2       Bylaws of ERF Wireless, Inc. (1)
    Exhibit 4.1       Designation of Preferences (1)
    Exhibit 4.2       Amendment to Designation of Preferences (7)
    Exhibit 4.3       Amended and Restated Designation of Series A Preferred Stock (11)
    Exhibit 10.1      Greg Smith Amended and Restated Employment Agreement (5)
    Exhibit 10.2      Addendum to Debt Conversion and Funding Agreement effective September 30, 2004 between
                      ERF Wireless, Inc., Eagle R.F. International and Investors. (6)
    Exhibit 10.3      Asset and Liability Contribution Agreement dated March 31, 2004 between Fleetclean
                      Systems, Inc. and Fleetclean Chemicals, Inc. (2)
    Exhibit 10.4      Stock Purchase Agreement dated May 15, 2004 between Systom Trust Joint Venture and
                      Kenneth A. Phillips et. al. (3)
    Exhibit 10.5      Subscription Agreement dated May 11, 2004 between Fleetclean Systems, Inc. and Systom
                      Trust Joint Venture (3)
    Exhibit 10.6      Acquisition Agreement dated May 15, 2004 between Kenneth A. Phillips and Fleetclean
                      Systems, Inc. (3)
    Exhibit 10.7      2004 Non-Qualified Stock Compensation Plan (4)
    Exhibit 10.8      Second Addendum to Debt Conversion and Funding Agreement effective July 1, 2005 between
                      ERF Wireless, Inc., Eagle R.F. International and Investors. (8)
    Exhibit 10.9      Form of Common Stock Purchase Warrant Agreement, by and between ERF Wireless, Inc. and
                      Investor (9)
    Exhibit 10.10     Form of Convertible Term Note, by and between the ERF Wireless, Inc. and Investor (9)
    Exhibit 10.11     Form of Registration Rights Agreement, by and between the ERF Wireless, Inc., and
                      Investor (9)
    Exhibit 10.12     Form of Stock Purchase Agreement, by and between ERF Wireless, Inc. and Investor.(9)
    Exhibit 10.13     Asset Purchase Agreement dated August 8, 2005, by and among ERF Wireless, Inc., a Nevada
                      corporation, ERF Enterprise Network Services, Inc., a Texas corporation, and Skyvue USA
                      East Central Texas, Inc., a Texas corporation (10)
    Exhibit 10.14     Form of Skyvue Note (11)
    Exhibit 10.15     Series A Preferred Conversion Restriction Agreement (11)
    Exhibit 10.16     Warrant issued in June 2004(11)
    Exhibit 10.17     Employment Agreement with John Burns(11)
    Exhibit 10.18     Employment Agreement with Arley Burns(12)
    Exhibit 10.19     Amendment of Angus Capital (12)
    Exhibit 10.20     Acquisition of Net Yeti (13)
    Exhibit 10.21     Acquisition of Door (14)
    Exhibit 20.1      List of Subsidiaries(11)
    Exhibit 31        Certification of Chief Executive officer and Chief Financial officer pursuant to Rules
                      13a-14 (a) and 15d-14 (a), as adopted pursuant to section 302 of the Sarbanes-Oxley
                      Act of 2002 (12)
    Exhibit 32        Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.
                      Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (12)

    (1)    Incorporated by reference from the Form 10-QSB for September 30, 2004;
    (2)    Incorporated by reference from the Form 10-QSB for June 30, 2004;
    (3)    Incorporated by reference from the Form 8-K for May 28, 2004;
    (4)    Incorporated by reference from the Form S-8 filed December 29, 2004;
    (5)    Incorporated by reference from the Form 10-KSB filed April 15, 2005;
    (6)    Incorporated by reference from the Form 10-KSB/A - Amendment No. 1 filed on August 29, 2005;
    (7)    Incorporated by reference from the Form 10-QSB for March 31, 2005;
    (8)    Incorporated by reference from the Form 10-QSB/A - Amendment No. 1;
    (9)    Incorporated by reference from the Form 8-K for September 19, 2005;
    (10)   Incorporated by reference from the Form 8-K for August 12, 2005;
    (11)   Incorporated by reference from the Form SB-2 filed on December 12, 2005.
    (12)   Filed herewith
    (13)   Incorporated by reference from the Form 8-K filed on October 20, 2006.
    (14)   Incorporated by reference from the Form 8-K filed on December 21, 2006.
</TABLE>

                                       35



<PAGE>

                                   SIGNATURES

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

ERF WIRELESS, INC.


                                          By: /s/  H. Dean Cubley
                                              ------------------------------
                                              Name:  H. Dean Cubley
                                              Title: Chief Executive Officer
                                              Date:  May 21, 2007



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