<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 June 30, 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 August 1,
2007, was 44,696,966.

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

<PAGE>
<TABLE>

PART I.  FINANCIAL INFORMATION
ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

                                         ERF WIRELESS, INC.
                                     CONSOLIDATED BALANCE SHEETS
                                JUNE 30, 2007, AND DECEMBER 31, 2006
                                 ($ in thousands except share data)


                                                                    June 30,
                                                                      2007        December 31,
                                                                   (Unaudited)       2006
                                                                    --------       --------
<S>                                                                 <C>            <C>

                                               ASSETS
Current assets
  Cash and cash equivalents                                         $    372       $    393
  Accounts receivable, net                                               441            387
  Accounts receivable, other                                              14             --
  Inventories                                                            145            132
  Cost and profit in excess of billings                                   21             69
  Prepaid expenses                                                       451            137
                                                                    --------       --------
    Total current assets                                               1,444          1,118
                                                                    --------       --------

Property and equipment
  Property and equipment                                               1,252          1,001
  Less accumulated depreciation                                         (319)          (199)
                                                                    --------       --------
    Total property and equipment                                         933            802
                                                                    --------       --------

Intangible assets, net                                                   209            299
Other assets                                                              11              5

                                                                    --------       --------
Total assets                                                        $  2,597       $  2,224
                                                                    ========       ========

                                LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
  Notes payable and current portion of long-term debt               $    754       $    519
  Current portion of long-term capital lease payable                      16             --
  Accounts payable                                                       376            506
  Accrued expenses                                                       961            281
  Derivative liabilities                                                 406            313
  Deferred liability lease                                               175            186
  Billings in excess of cost                                             361             --
  Deferred revenue                                                        13              9
                                                                    --------       --------
    Total current liabilities                                          3,062          1,814
                                                                    --------       --------

  Long-term debt, net of current portion                               2,600          2,280
  Capital leases, net of current portion                                  40             --
  Deferred liability leases                                              558            639
  Deferred revenue                                                        20             25
                                                                    --------       --------
    Total long-term  liabilities                                       3,218          2,944
                                                                    --------       --------

Commitments and contingencies

Shareholders' deficit:
  Preferred stock - $.001 par value
    Authorized  25,000,000 shares
    Issued and outstanding at June 30, 2007 and
    December 31, 2006, 3,503,129 and 3,800,649, respectively               4              4
  Common stock - $.001 par value
    Authorized 475,000,000 shares
    Issued and outstanding at June 30, 2007, and
    December 31, 2006, 40,250,983 and 24,039,733, respectively            40             24
  Additional paid in capital                                          10,568          9,065
  Accumulated deficit                                                (14,295)       (11,627)
                                                                    --------       --------
    Total shareholders' deficit                                       (3,683)        (2,534)
                                                                    --------       --------

Total liabilities and shareholders' deficit                         $  2,597       $  2,224
                                                                    ========       ========


See accompanying notes to consolidated financial statements.

                                                -2-

<PAGE>

                                                ERF WIRELESS, INC.
                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                   FOR THE PERIODS ENDED JUNE 30, 2007 AND 2006
                                                    (Unaudited)
                               ($ in thousands except share data and loss per share)


                                                     For the Three Months            For the Six Months
                                                       Ended June 30,                  Ended June 30,
                                                  -----------------------         -----------------------
                                                    2007            2006            2007            2006
                                                  -------         -------         -------         -------
Sales:
  Products                                        $   933         $   260         $   996         $   922
  Services                                          1,506             121           1,940             309
  Other                                               (15)              6              (7)             18
                                                  -------         -------         -------         -------
Total sales                                         2,424             387           2,929           1,249
                                                  -------         -------         -------         -------

Costs of goods sold:
   Products and integration services                1,279             212           1,445             754
   Rent, repairs and maintenance                       51              18              92              33
   Salary and related cost                            129              49             148              11
   Depreciation                                        45               6              87              50
   Other cost                                          17              28              31              39
                                                  -------         -------         -------         -------
Total costs of goods sold                           1,521             313           1,803             887
                                                  -------         -------         -------         -------
Gross profit                                          903              74           1,126             362
                                                  -------         -------         -------         -------
Operating expenses:
  Selling, general and administrative               1,587           1,454           2,871           3,003
  Depreciation and amortization                        67              63             134             123
                                                  -------         -------         -------         -------
Total operating expenses                            1,654           1,517           3,005           3,126
                                                  -------         -------         -------         -------
Loss from operations                                 (751)         (1,443)         (1,879)         (2,764)
                                                  -------         -------         -------         -------
Other income/(expenses):
  Interest income                                      --               3              --               4
  Interest expense                                   (418)           (169)           (662)           (306)
  Gain (loss) on sale of assets                         1              --             (10)             --
  Warrant expense                                     (33)             --             (36)             --
  Derivative (expense) income                         (98)            129             (81)            872
                                                  -------         -------         -------         -------
Total other income (expense)                         (548)            (37)           (789)            570
                                                  -------         -------         -------         -------
Net loss                                          $(1,299)        $(1,480)        $(2,668)        $(2,194)
                                                  =======         =======         =======         =======
Deemed dividend related to beneficial
  conversion feature of preferred stock                --              --              --            (130)

Net loss applicable to common shareholders        $(1,299)        $(1,480)        $(2,668)        $(2,324)
                                                  =======         =======         =======         =======
Net loss per common share:
  Basic                                           $ (0.04)        $ (0.13)        $ (0.09)        $ (0.22)
  Diluted                                         $ (0.04)        $ (0.13)        $ (0.09)        $ (0.22)

See accompanying notes to consolidated financial statements.

                                                -3-

<PAGE>

                                                ERF WIRELESS, INC.
                             CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                      FOR THE PERIODS ENDED JUNE 30, 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 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                                                    -          -         -          -           -     (2,668)      (2,668)

 New stock issued to shareholders:
  Conversion of preferred stock to common stock          5,555          5      (298)         -          (5)         -            -
  For services and compensation                          7,444          8         -          -         999          -        1,007
  For settlement of liabilities                            734          -         -          -         104          -          104
  For retirement of debt                                 2,478          3         -          -         284          -          287
  Stock based compensation and stock option expense          -          -         -          -          85          -           85
  Warrant expense                                            -          -         -          -          36          -           36

 Total shareholders' deficit
                                                      ---------  --------- ---------  ---------  ----------  ---------  -----------
    as of June 30,  2007 (Unaudited)                    40,251       $ 40     3,503        $ 4    $ 10,568   $(14,295)    $ (3,683)
                                                      =========  ========= =========  =========  ==========  =========  ===========

 See accompanying notes to consolidated financial statements.

                                                               -4-

<PAGE>

                                    ERF WIRELESS, INC.
                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                       FOR THE PERIODS ENDED JUNE 30, 2007 AND 2006,
                                        (Unaudited)
                                     ($ in thousands)


                                                                   For the Six Months Ended
                                                                    ----------------------
                                                                    June 30,      June 30,
                                                                      2007          2006
                                                                    -------       -------

Cash flows from operating activities
Net loss                                                            $(2,668)      $(2,194)
                                                                    -------       -------

Adjustments to reconcile net loss to net cash
    used by operating activities:
  Loss on sale of assets                                                 10            --
  Amortization of debt discount                                         401           231
  Depreciation and amortization                                         221           136
  Stock issued for interest expense                                      16            55
  Stock issued for services rendered                                  1,095           598
  Stock based compensation and stock option expense                      85           173
  Warrant expense                                                        36            --
  Derivative expense (income)                                            81          (872)
  Allowance for doubtful accounts                                         9            15
  (Increase) in accounts receivable, net                                (63)           (7)
  (Increase) in accounts receivable, other                              (14)           --
  (Increase) decrease in inventories                                    (13)           44
  (Increase) decrease in prepaid expenses                              (296)          207
  Decrease (increase) in cost and profit in excess of billings           48           (90)
  (Decrease) increase in accounts payable                              (130)          205
  Increase in accrued expenses                                          680            25
  (Decrease) in deferred liability lease                                (92)           --
  Increase in billings in excess of cost                                361            --
  (Decrease) in deferred revenue                                         (1)         (302)
                                                                    -------       -------
    Total Adjustment                                                  2,434           418
                                                                    -------       -------
Net cash used by operating activities                                  (234)       (1,776)
                                                                    -------       -------

Cash flows from investing activities
  Proceeds from sale of assets                                            6            --
  Purchase of property and equipment                                   (220)         (106)
  (Increase) in other assets                                             (6)           (5)
                                                                    -------       -------
Net cash used by investing activities                                  (220)         (111)
                                                                    -------       -------

Cash flows from financing activities
  Net proceeds from line of credit                                      403           839
  Proceeds from financing agreements                                     75           300
  Payment of debt obligations                                           (43)          (45)
  Payment on capital lease obligations                                   (2)           --
  Proceeds from  investor loans                                          --           130
  Proceeds from sale of common stock, net                                --            93
                                                                    -------       -------
Net cash provided by financing activities                               433         1,317
                                                                    -------       -------

Net (decrease) increase in cash                                         (21)         (570)
Cash and cash equivalents at the beginning of the period                393           602
                                                                    -------       -------
Cash and cash equivalents at the end of the period                  $   372       $    32
                                                                    =======       =======

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              $   287       $    --

Property acquired under capital lease                               $    58       $    --

</TABLE>

See accompanying notes to consolidated financial statements.

                                           -5-

<PAGE>

                               ERF WIRELESS, INC.
                          NOTES TO 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 report filed with the SEC on
Form 10-KSB dated December 31, 2006. 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.

RECLASSIFICATION

Certain amounts in the 2006 financial statements have been reclassified to
conform to the 2007 financial presentation. These reclassifications have no
impact on net loss

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.

                                      -6-

<PAGE>

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

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.

LEASES

The Company recognizes 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 rent payable as a liability.

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 $733,000 and $825,000 as of
June 30, 2007, and December 31, 2006, respectively.

ASSETS HELD UNDER CAPITAL LEASES

Assets held under capital leases are recorded at the lower of the net present
value of the minimum lease payments or the fair value of the leased asset at the
inception of the lease. Amortization expense is computed using the straight-line
method over the shorter of the estimated useful lives of the assets or the
period of the related lease.

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 June 30, 2007, and December 31, 2006,
respectively.

                                      -7-

<PAGE>

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

ADVERTISING COSTS

Advertising costs are expensed when incurred. For the periods ended June 30,
2007 and 2006, the Company expensed $26,000 and $42,000, respectively.

STOCK-BASED COMPENSATION

The Company adopted SFAS 123R in the fourth quarter of the fiscal year ending
December 31, 2005 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 requires such transactions be
accounted for using a fair-value-based method.

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:

                                 June 30,           December 31,
                                   2007                 2006
                             ----------------     ---------------
     Raw material            $            46      $           41
     Finished goods                       99                  91
                             ----------------     ---------------
                             $           145      $          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.

                                      -8-

<PAGE>

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

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.

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.

                                      -9-

<PAGE>

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

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

INCOME TAXES

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

BENEFICIAL CONVERSION

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

BASIC LOSS PER SHARE

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

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

Diluted net loss per common share is computed by dividing the net loss
applicable to common stockholders, adjusted on an "as if converted" basis, by
the weighted average number of common shares outstanding plus potential dilutive
securities. For the periods ended June 30, 2007, and June 30, 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


                                      -10-

<PAGE>

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

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):

                                           June 30,           December 31,
                                             2007                2006
                                        ---------------      --------------
Accounts receivable                     $          468       $         405
Allowance for doubtful accounts                    (27)                (18)
                                        ---------------      --------------
Accounts receivable, net                $          441       $         387
                                        ===============      ==============

NOTE 3 - PROPERTY AND EQUIPMENT

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

                                               June 30,          December 31,
                                                2007                2006
                                            --------------      --------------
Automobile                                  $          66       $          66
Operating equipment                                   733                 627
Office furniture and equipment                         91                  89
Leasehold improvements                                 47                  60
Computer equipment                                    115                 106
Building                                                8                   8
Land                                                   28                  38
Other                                                 164                   7
                                            --------------      --------------
Total property and equipment                        1,252               1,001
Less accumulated depreciation                        (319)               (199)
                                            --------------      --------------
Net property and equipment                  $         933       $         802
                                            ==============      ==============

Depreciation expense was approximately $131,000 and $24,000 for the periods
ended June 30, 2007, and June 30, 2006, respectively.

                                      -11-

<PAGE>

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

NOTE 4 - INTANGIBLE ASSETS

Intangible assets consist of the following (in thousands):

<TABLE>
                                                                 June 30, 2007
                                                   ----------------------------------------------
                                      Weighted          Gross                              Net
                                  Average Useful       Carrying       Accumulated       Carrying
                                  Life (in years)       Amount       Amortization        Amount
                                 ----------------- ------------  ------------------  ------------
<S>                                   <C>                <C>             <C>               <C>
Customer relationships                3.0                $ 296           $ 175             $ 121
Workforce in place                    3.0                  125              80                45
Non-compete agreement                 3.0                  100              64                36
Developed technology                  3.0                   20              13                 7
                                                   ------------     -----------      ------------
                                                         $ 541           $ 332             $ 209
                                                   ============     ===========      ============

                                                                December 31, 2006
                                                   ----------------------------------------------
                                      Weighted          Gross                              Net
                                  Average Useful       Carrying       Accumulated       Carrying
                                  Life (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 $90,000 and $84,000 for the six months
ended June 30, 2007 and 2006, respectively. The estimated amortization expense
for the three years will be $90,000 for 2007, $110,000 for 2008 and $9,000 in
2009.

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 June 30, 2007, the Company had 40,250,983 shares of its $.001 par value
common stock issued and outstanding.

During the six months ended June 30, 2007, the Company issued a total of
16,211,000 shares of common stock in lieu of cash for professional services of
$454,000, interest expense of $11,000, settlement expense of $186,000, other
services of $36,000, conversion of notes payable of $287,000, salary and
compensation of $320,000 and settlement of liabilities of $104,000. The Company
valued the 16,211,000 shares at the closing market price on the date of issuance
of such shares.

                                      -12-

<PAGE>

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

INVESTMENT AGREEMENT

On June 14, 2007, we entered into an Investment Agreement with Dutchess Private
Equities Fund, Ltd. ("Dutchess"). Pursuant to this investment agreement,
Dutchess shall commit to purchase up to $10,000,000 of our common stock over the
course of 36 months. The maximum amount we may raise under the Investment
Agreement is $10,000,000, provided we register enough shares to raise this
amount, although we are not obligated to request the entire $10,000,000. Over a
period of 36 months, we may periodically deliver new issue shares of our common
stock to Dutchess, which then delivers cash to us based on a price per share
tied to the current market price of our common stock. The actual number of
shares that we may issue subject to the investment agreement is not determinable
as it is based on the market price of our common stock from time to time.

The amount that we shall be entitled to request from each purchase ("Puts")
shall be equal to, at our election, either (i) up to $250,000 or (ii) 200% of
the average daily volume (U.S. market only) ("ADV") multiplied by the average of
the three daily closing prices immediately preceding the put date. The ADV shall
be computed using the ten (10) trading days prior to the put date. The put date
shall be the date that Dutchess receives a put notice of a draw down by the
Company of a portion of the line. The purchase price shall be set at 93% of the
lowest closing price of the common stock during the pricing period. The pricing
period shall be the five (5) consecutive trading days immediately after the put
notice date. There are put restrictions applied on days between the put date and
the closing date with respect to that particular Put. During this time, we shall
not be entitled to deliver another put notice. Further, we shall reserve the
right to withdraw the Put if the purchase price is less than 75% of the lowest
closing bid prices for the 10-trading day period immediately preceding each put
notice.

PREFERRED STOCK

The Company has 25,000,000 shares of Series A Preferred Stock authorized of
which 3,503,129 shares were issued and outstanding as of June 30, 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 June 30, 2007, the maximum common shares converted from Series A
Preferred shares are contractually restricted to 5% a quarter or 20% a year of
the authorized and issued common shares outstanding at December 31, 2006;
resulting in a maximum 13,085,131 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 3,558,676
common shares as of June 30, 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


                                      -13-

<PAGE>

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

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, respectively.

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 2,105,337 shares of common stock at $5.00 per share were issued by
the Company during the 2006 and 2007. Specifically, the Company sold $687,500 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 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-seven and
one-half units converted and has attributed $36,000 in 2007 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        June 30,       December 31,
        Price            Date            2007             2006
     --------------  ------------   --------------   --------------
     0.20              Dec-07             780,000          780,000
     5.00              Aug-07             141,670          141,670
     7.50              Aug-07             141,670          141,670
     3.57              Sep-10             389,999          389,999
     5.00              Aug-09           2,105,337          580,585
                                    --------------   --------------
                                        3,558,676        2,033,924
                                    ==============   ==============


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:

                                          June 30, 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):

                                      -14-

<PAGE>

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

                                     June 30, 2007        December 31, 2006
                                    ----------------      -----------------
Computed expected tax benefit          $     (907)          $    (1,779)
Increase in valuation allowance               907                 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 June 30, 2007, and
December 31, 2006, are presented below (in thousands):

                                       June 30, 2007      December 31, 2006
                                      ---------------     -----------------
Deferred tax assets:
Net operating loss carry forwards      $   (4,106)          $    (3,199)
Less valuation allowance                    4,106                 3,199
                                       -----------          ------------
Net deferred tax assets                $        -           $        -
                                       ===========          ============


Management has determined that a valuation allowance of $4,106,000 at June 30,
2007, is necessary to reduce the deferred tax assets to the amount that will
more than likely not be realized. The change in valuation allowance for 2007 was
approximately $907,000. As of June 30, 2007, the Company has a net operating
loss carry-forward of $13,422,000, which is available to offset future federal
taxable income, if any, with expiration beginning 2012 and ending 2026.


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>
                                                             For the three months ended June 30, 2007
                                                  ----------------------------------------------------------
                                                     Income                  Shares              Per-Share
                                                  (Numerator)             (Denominator)            Amount
                                                  -------------          -----------------------------------
<S>                                                 <C>                                         <C>
Net loss                                            $   (1,299)                                     $     -
Basic EPS:
  Income available to common stockholders               (1,299)               35,350                  (0.04)
  Effect of dilutive securities                              -                                            -
Diluted EPS:
  Income available to common stockholders         -------------          ------------           ------------
    and assumed conversions                         $   (1,299)               35,350                $ (0.04)
                                                  =============          ============           ============

                                                             For the three months ended June 30, 2006
                                                  ----------------------------------------------------------
                                                     Income                  Shares              Per-Share
                                                  (Numerator)             (Denominator)            Amount
                                                  -------------          -----------------------------------
Net loss                                            $   (1,480)                                     $     -
Basic EPS:
  Income available to common stockholders               (1,480)               11,220                  (0.13)
  Effect of dilutive securities                              -                                            -
Diluted EPS:
  Income available to common stockholders         -------------          ------------           ------------
    and assumed conversions                         $   (1,480)               11,220                $ (0.13)
                                                  =============          ============           ============

                                      -15-

<PAGE>

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


                                                             For the six months ended June 30, 2007
                                                  ----------------------------------------------------------
                                                     Income                  Shares              Per-Share
                                                  (Numerator)             (Denominator)            Amount
                                                  -------------          -----------------------------------
Net loss                                            $   (2,668)                                   $       -
Basic EPS:
  Income available to common stockholders               (2,668)               31,136                  (0.09)
  Effect of dilutive securities                              -                                            -
Diluted EPS:

  Income available to common stockholders         -------------          ------------           ------------
    and assumed conversions                         $   (2,668)               31,136               $  (0.09)
                                                  =============          ============           ============

                                                             For the six months ended June 30, 2006
                                                  ----------------------------------------------------------
                                                     Income                  Shares              Per-Share
                                                  (Numerator)             (Denominator)            Amount
                                                  -------------          -----------------------------------
Net loss                                            $   (2,194)                                    $       -
Basic EPS:
  Income available to common stockholders               (2,194)                9,903                  (0.22)
  Effect of dilutive securities                              -                                            -
Diluted EPS:

  Income available to common stockholders         -------------          ------------           ------------
    and assumed conversions                         $   (2,194)                9,903               $  (0.22)
                                                  =============          ============           ============

For the years ended June 30, 2007 and 2006, dilutive securities existed. The
effect of the dilutive securities for the year ended June 30, 2007, would have
been 54,831,000 shares 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 $2,929,000 and $1,249,000 for the
six months ended June 30, 2007 and 2006, respectively. The Company had one
customer that represented approximately 57% of the gross sales in the three
months ended June 30, 2007, and had two customers that represented 57% of gross
sales for the three months ended June 30, 2006.


NOTE 9 - NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASES

Notes payable, long-term debts and capital leases consist of the following as of
June 30, 2007 (in thousands):

                                                                                          Interest    Gross       Debt        Net
                                                 Terms                     Maturity Date    Rate      Balance   Discount    Balance
                                 --------------------------------------    ------------- ----------- --------  ---------  ----------
Taylor Economic Development Corp.$1,119 / Month including interest         June-07          7.00%           1         -          1
Vangard Wireless, Inc.           $200 / Month including interest           December-10      6.00%           8         -          8
Agility Capital Lease            $2,078 / Month including interest         May-10           18.82%         56         -         56
Axis Capital, Inc                $347 / Month including interest           August-08        8.60%           5         -          5
Insurance notes                  $1,993 / Month including interest         September-07     9.00%          15         -         15
Investor notes                    2 years (See below)                      Demand           6.00%         775        94        681
Line of credit                    2 years/ Quarterly interest (See below)  February-08      6.00%       2,409         -      2,409
E-bond investor notes             3 years/ Semiannual interest (See below) Various          10.00%        275        40        235
                                                                                                     ---------  --------  ----------
Total debt                                                                                            $ 3,544     $ 134      3,410
                                                                                                     =========  ========
Less current maturities                                                                                                        904
Less debt discount current maturities                                                                                         (134)
                                                                                                                          ----------
Long-term debt                                                                                                             $ 2,640
                                                                                                                          ==========


                                      -16-

<PAGE>

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


The gross maturities of these debts are $852,000, $247,000, $2,432,000 and
$12,000 for the years ended December 31, 2007, 2008, 2009 and 2010,
respectively.

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

                                                                                              Interest    Gross     Debt       Net
                                                 Terms                        Maturity Date    Rate      Balance  Discount   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 (See below)   February-08      6.00%     2,006           -    2,006
E-bond investor notes               3 years/ Semiannual interest (See below)  Various          10.00%      388          86      302
                                                                                                        --------  ---------  -------
Total debt                                                                                              $ 3,322       $ 523   2,799
                                                                                                        ========  =========
Less current maturities                                                                                                         986
Less debt discount current maturities                                                                                          (467)
                                                                                                                           ---------
Long-term debt                                                                                                              $ 2,280
                                                                                                                           =========
</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 6% 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


                                      -17-

<PAGE>

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

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
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.

The following table summarizes the Investor Notes convertible debt activity for
the period September 6, 2005, to June 30, 2007:

<TABLE>
               Description                   Investor Notes   Warrant Liabilities  Compound Derivative    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
04-01-07 to 06-30-07 change in fair value          184,473           113,377              (4,843)          293,007
Conversions from inception to date                (724,632)               --                  --          (724,632)
                                               -----------       -----------         -----------       -----------
Fair value at June 30, 2007                    $   681,377       $   131,240         $   197,501       $ 1,010,118
                                               ===========       ===========         ===========       ===========

From inception to date through June 30, 2007, the Company recorded a net
derivative income of $663,000 and for the six months ended June 30, 2007, a net
derivative loss of $86,000. The Company in conjunction with the convertible note
as of six months ended June 30, 2007, has recorded debt interest expense of
$410,000.

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 six months ended June 30, 2007, the Company
recorded deferred financing cost in interest expense of $44,000.

The following assumptions were used in the fair value determination of warrants
liabilities at June 30, 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   6/30/2007
------------------------ -----------------------------------------------------------------------------------------------------------
Dividend yield             0.00%       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%        4.89%
Volatility                31.00%      31.00%       76.00%      78.00%       95.00%     140.00%      140.00%     140.00%      200.00%
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   3.39 years
</TABLE>

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

                                      -18-

<PAGE>

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

LINE OF CREDIT

Effective March 10, 2006, 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 June 30, 2007,
the balance of the credit line was $2,409,041. On April 5, 2007, the Company
amended its two-year $3,000,000 revolving credit facility to mature on February
28, 2009, payable at a rate of 12% per annum, 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.

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, 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 December 31, 2007, unless such date is extended at the Company's
discretion. As of June 30, 2007, the Company has sold $687,500 of E-Series Bonds
and the balance due at June 30, 2007 is $275,000.

The E-Series Bonds were determined to include various embedded derivative
liabilities. The derivative liabilities are the conversion feature and the
redemption option (compound embedded derivative liability). At the date of
issuance the E-Series Bond, compound embedded derivative liabilities were
measured at fair value using either quoted market prices of financial
instruments with similar characteristics or other valuation techniques. These
derivative liabilities will be marked-to-market each quarter with the change in
fair value recorded in the income statement. The Company uses the effective
interest method to record interest expense and related debt accretion which was
$58,125 for the six months ended June 30, 2007.

The following table summarizes the E-Series convertible debt activity for the
period May 31, 2006, to June 30, 2007:

                                      -19-

<PAGE>

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

<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
04-01-07 to 06-30-07 change in fair value             49,060             (10,668)           38,392
Conversions from inception to date                  (412,500)                 --          (412,500)
                                                   ---------           ---------         ---------
Fair value at June 30, 2007                        $ 234,996           $  77,741         $ 312,737
                                                   =========           =========         =========
</TABLE>

For inception to date through June 30, 2007, the Company recorded a net
derivative income of $33,646 and for the six months ended June 30, 2007, a net
derivative income of $4,712. The Company in conjunction with the convertible
note as of six months ended June 30, 2007, has recorded debt interest expense of
$76,411.

CAPITAL LEASES

During May 2007, ERF Wireless Bundled Services, Inc., entered into a master
lease agreement with Agility Lease Fund I, LLC, to fund up to $1,000,000 in
equipment financing. Each draw under this agreement will be treated as a
separate capital lease to be repaid over 36 months with an effective interest
rate of 18%. Included in property and equipment at June 30, 2007, is $54,510
capitalized equipment, net of amortization. The equipment and one of the
Company's bank accounts are the primary collateral securing the financing with a
guarantee of repayment by ERF Wireless, Inc.

Agility and ERF Wireless Bundled Services, Inc., entered into a deposit control
account agreement. Under the terms of this agreement, the company will deposit
the monthly collections from its wireless customers into this account and
Agility will have the standby ability to withdraw funds from this account to pay
its monthly lease payment associated with the borrowings under the lease
agreement should the Company not make such payments in accordance with
agreements. This deposit account control agreement grants Agility a security
interest in this separate account.

The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum lease payments
as of June 30, 2007 (in thousands):

                      Year Ending June 30,
     --------------------------------------------------------
     2007                                                        $ 13
     2008                                                          25
     2009                                                          25
     2010                                                          10
                                                             ---------
     Total minimum lease payments                                $ 73
     Less amount representing interest                            (17)
                                                             ---------
     Present value of net minimum lease payments                   56
     Current maturities of capital lease obligations              (16)
                                                             ---------
     Long-term portion of capital lease obligations              $ 40
                                                             =========

NOTE 10 - UNCOMPLETED CONTRACTS

Costs, estimated earnings and billings on uncompleted contracts for the six
months ended June 30, 2007, and December 31, 2006, are summarized as follows (in
thousands):

                                      -20-

<PAGE>

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

                                                  June 30,        December 31,
                                                    2007              2006
                                                ------------      -----------
Costs incurred on uncompleted contracts         $     1,863       $      854
Estimated profit                                        805               62
                                                ------------      -----------
Gross revenue                                         2,668              916
Less: billings to date                                3,008              847
                                                ------------      -----------
Costs and profit in excess of billings          $      (340)      $       69
                                                ============      ===========


Such amounts are included in the accompanying balance sheets at June 30, 2007,
and December 31, 2006, and are summarized as follows (in thousands):


                                                   June 30,        December 31,
                                                    2007              2006
                                                ------------      ------------
Cost and estimated earnings in excess
of billings on uncompleted contracts            $        21       $       69

Billings in excess of costs and estimated
earnings on uncompleted contracts                      (361)              --
                                                ------------      ------------

                                                $      (340)      $       69
                                                ============      ===========


NOTE 11 - COMMITMENTS AND CONTINGENCIES

LEASES AND LICENSE AGREEMENTS

For the three months ended June 30, 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 June 30,
2007, were as follows:

     Period Ending
      December 31,            Amount
     ----------------    --------------
           2007            $   212,935
           2008                347,163
           2009                309,577
           2010                224,578
           2011                185,598
           2012                 20,696
                         --------------
          Total            $ 1,300,547
                         ==============


EMPLOYMENT AGREEMENTS

R. GREG SMITH

On August 1, 2004, the Company entered into an Executive Employment Agreement
with R. Greg Smith, our Chief Financial Officer. 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


                                      -21-

<PAGE>

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

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 and 2007, Mr.
Smith converted all 63,828 shares of his Series A Convertible Preferred Stock
into 1,192,070 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. As of December 31, 2006, Mr. Smith earned options to
purchase 100,000 shares of common stock for attainment of certain cumulative
revenue milestones set forth in his employment agreement. These options are at
an exercise price of $1.38 and expire on July 31, 2009. As of June 30, 2006, Mr.
Smith earned options to purchase an additional 150,000 shares of common stock
for attainment of certain cumulative revenue milestones set forth in his
employment agreement. These options are at an exercise price of $0.10 and expire
on July 31, 2010. 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 and the
Board of Directors is currently reviewing this contract for future periods.

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 125,000
          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


                                      -22-

<PAGE>

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


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, and the Board of Directors is currently reviewing
this contract for future periods.

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 June 30, 2007, total fees incurred by the
Company under the agreement were $63,000.

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


                                      -23-

<PAGE>

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

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.

For the six months ended June 30, 2007 (in thousands):

<TABLE>
                                                    WMS           WBS          ENS          Total
                                                 ---------------------------------------------------
<S>                                                 <C>            <C>           <C>        <C>
                         Revenue                    $ 1,838        $ 677         $ 414      $ 2,929
                         Segment (loss) income          359          (51)         (542)        (234)
                         Segment assets                 505        1,119           562        2,186
                         Capital expenditures             1          168           104          273
                         Depreciation                     7           87             7          101


For the six months ended June 30, 2006 (in thousands):

                                                    WMS           WBS          ENS          Total
                                                 -----------   ----------   -----------   ----------
                         Revenue                      $ 362         $ 48         $ 839      $ 1,249
                         Segment loss                  (433)        (144)         (646)      (1,223)
                         Segment assets                 147          188           577          912
                         Capital expenditures            11           18           (12)          17
                         Depreciation                     7           11             6           24


  Reconciliation of Segment Loss from
        Operations to Net Loss                              June 30, 2007             June 30, 2006
--------------------------------------------------          --------------            --------------
Total segment loss from operations                          $        (234)            $      (1,223)
Total corporate overhead                                           (2,434)                     (971)
                                                            --------------            --------------
Net loss                                                    $      (2,668)            $      (2,194)
                                                            ==============            ==============


  Reconciliation of Segment Assets to
              Total Assets                                June 30, 2007   June 30, 2006
--------------------------------------------------       --------------  --------------
Total segment assets                                           $ 2,186           $ 912
Total corporate assets                                             411             378
                                                         --------------  --------------
Consolidated  assets                                           $ 2,597         $ 1,290
                                                         ==============  ==============
</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


                                      -24-

<PAGE>

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


expense, income taxes, depreciation and amortization expense, accounting changes
and non-recurring items.

At June 30, 2007, one customer accounts for $146,000 of Enterprise Network
Services Division revenues and one customer accounts for $1,628,000 of Wireless
Messaging Services Division revenues..

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                            $   329
     Settlements                                      186
     Salary and compensation                          321
     Other services rendered                           36
     Interest expense                                  11
     Prepaids                                         125
     Liabilities and accrued expenses                 104
     Notes payable                                    286
                                               -----------
     Total non-cash settlements                   $ 1,398
                                               ===========

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 June 30, 2007, a balance of 389,289 common stock shares remain to be
converted from Series A preferred stock. Also the Company has granted to certain
officers and employees 375,000 stock options which are currently exercisable. As
of June 30, 2007, under the Non-Qualified Stock Option Plan, 12,148,474 shares
were issued and exercised to certain employees and consultants for services
rendered.

The weighted average fair value of the individual options granted during the six
months ended June 30, 2007, is estimated at $2.98 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   6/30/2007
                          -------------------------------------------------------------------------
     Assumptions            Options     Options     Options      Options     Options     Options
-----------------------   -------------------------------------------------------------------------
<S>                             <C>         <C>          <C>         <C>         <C>         <C>
Dividend yield                  0.00%       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%       4.89%
Volatility                    207.00%      31.00%       76.00%      89.00%      78.00%     116.00%
Remaining life                      5           3            1         2.5         3.3         2.1
</TABLE>

Option activity was as follows for the three months ended June 30, 2007:

                                      -25-

<PAGE>

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

                                                              2007
                                                        Weighted-Average
                                           Shares        Exercise Price
                                       --------------   ---------------
Outstanding at beginning of year           3,302,000     $      3.17
Granted                                           --             --
Assumed through acquisitions                      --             --
Exercised                                         --             --
Forfeited/cancelled                               --             --
                                           ---------     ----------

Outstanding throughout the period          3,302,000     $     3.17
                                           =========     ==========

Exercisable at June 30, 2007                 375,000     $     0.61
                                           =========     ==========

Information about options outstanding was as follows at June 30, 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>
      $0.10              225,000           2.08                 $ 0.10       225,000         $ 0.10
      $1.38              150,000           2.08                 $ 1.38       150,000         $ 1.38
      $2.88              750,000           2.08                 $ 2.88             -              -
      $2.88              375,000           2.08                 $ 2.88             -              -
      $3.72            1,570,000           1.08                 $ 3.72             -              -
      $2.27              232,000           1.08                 $ 2.27             -              -
                     ------------                                        ------------
                       3,302,000           1.75                 $ 2.98       375,000         $ 0.61
                     ============                                        ============
</TABLE>

NOTE 16 - SUBSEQUENT EVENTS

Subsequent to June 30, 2007, the Company issued 4,639,095 shares of common stock
associated with the following transactions:

On July 19, 2007, accredited investors acquired 1,867,636 shares of common stock
pursuant to Series A Preferred Stock Conversions.

On July 24, 2007, accredited investors acquired 579,450 shares of common stock
at $0.35 per share pursuant to a conversion of convertible notes and interest.

On July 26, 2007, an accredited investor acquired 1,867,636 shares of Rule 144
Restricted common stock at $0.35 per share pursuant to an investment of
$500,000.

During the period of July 1, 2007 through August 1, 2007, the Company issued
763,438 shares from its 2007 Stock Option Plan for services rendered.


                                      -26-

<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 and is in the process of constructing its sixth BranchNet
bank network. 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 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.

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 under
construction. 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


                                      -27-

<PAGE>

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 enters into 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

During and subsequent to the quarter ended June 30, 2007, the Company has made
significant progress with its strategic business plan as evidenced by the
completion and announcement of numerous agreements. These include:

     o    The announcement of a contract with First Federal Bank of Louisiana to
          install a BranchNet encrypted enterprise-class banking network to
          interconnect the bank's 14 locations throughout Southwestern
          Louisiana; including the construction of a 300-mile fault-tolerant,
          encrypted 60-Mb/s network backbone looping from Lake Charles up the
          western side of the state to Natchitoches, across to Alexandria, and
          then down the central portion of the state back to Lake Charles.

     o    The completion of the initial segment of US-BankNet in part of the
          state of Louisiana; providing contracting financial institutions in
          Louisiana with high-speed connectivity to key banking service
          providers, the Federal Reserve, fiber gateways and the Internet.

     o    The announcement of the Company's first US-BankNet contract with First
          Federal Bank of Louisiana to supply bandwidth transport across
          US-BankNet under a seven-year agreement with a number of renewal
          options that could extend it up to 25 years.

     o    The announcement of the Company's second US-BankNet contract with
          Iberville Bank to supply bandwidth transport across US-BankNet under a
          seven-year agreement including renewal provisions to extend it up to
          25 years.; thereby facilitating the delivery of additional digital
          services, including fast access to key banking service providers,
          redundant routing across the network, encrypted WAN IP transport and
          access to a 50-mbps Level 3 Internet Gateway.

     o    The completion of a three-year testing and certification process for
          the delivery of Wireless Internet Service Products ("WISP") securely
          across a financial institution's BranchNet system and the Company's
          and US-BankNet infrastructure; allowing for the delivery of advanced
          digital wireless products and services under the brand name WiNetTM.

     o    The announcement of a ten-year WiNet System agreement with First
          Federal Bank of Lake Charles, Louisiana utilizing the banks excess
          bandwidth and wireless infrastructure to provide wireless Internet
          products and services to the banks commercial and retail customers
          across southwest and central Louisiana.

                                      -28-

<PAGE>

     o    The completion of the design, development and assembly of the
          Fiber-to-the Home ("FTTH") headend facility and the acceptance of the
          Critical Design Review for the $2+ million contract for the El Dorado
          Golf and Beach Club in San Jose del Cabo.

     o    The announcement of a second ten-year WiNet System Agreement with
          Iberville Bank in Plaquemine, Louisiana; utilizing the banks excess
          bandwidth and wireless infrastructure to provide wireless Internet
          products and services to the banks commercial and retail customers in
          the Greater Baton Rouge area.

     o    The completion and certification of the first segment of the Company's
          US-BankNet system in the State of Texas

Additionally, on the financing front; the Company entered into an Investment
Agreement and Registration Rights Agreement with Dutchess Private Equities Fund,
Ltd. The Investment Agreement 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. Pursuant to this investment agreement, Dutchess shall
commit to purchase up to $10,000,000 of our common stock over the course of
thirty-six (36) months. The maximum amount we may raise under the Investment
Agreement is $10,000,000, provided we register enough shares to raise this
amount, although we are not obligated to request the entire $10,000,000. Over a
period of 36 months, we may periodically deliver new issue shares of our common
stock to Dutchess, which then delivers cash to us based on a price per share
tied to the current market price of our common stock. The Company determines the
timing and utilization of the equity line, if any, following the effectiveness
of a registration statement. The actual number of shares that we may issue
subject to the investment agreement is not determinable as it is based on the
market price of our common stock from time to time.

The amount that we shall be entitled to request from each purchase ("Puts")
shall be equal to, at our election, either (i) up to $250,000 or (ii) 200% of
the average daily volume (U.S. market only) ("ADV") multiplied by the average of
the 3 daily closing prices immediately preceding the Put Date. The ADV shall be
computed using the ten (10) trading days prior to the Put Date. The put date
shall be the date that Dutchess receives a put notice of a draw down by the
Company of a portion of the line. The purchase price shall be set at 93% of the
lowest closing price of the common stock during the pricing period. The pricing
period shall be the five (5) consecutive trading days immediately after the put
notice date. There are put restrictions applied on days between the put date and
the closing date with respect to that particular Put. During this time, we shall
not be entitled to deliver another put notice. Further, we shall reserve the
right to withdraw the Put if the purchase price is less than75% of the lowest
closing bid prices for the 10-trading day period immediately preceding each put
notice.

Additionally, the Company completed a $1 million Master Lease Agreement with
Agility Solutions Corp. to provide for expansion capital for its growing
wireless ISP operations.

The Company expects to complete the construction of the First Federal Bank of
Louisiana BranchNet and US-BankNet contracts and the El Dorado FTTH 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.

RESULTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JUNE 30, 2007, COMPARED TO THREE AND SIX MONTHS ENDED
--------------------------------------------------------------------------------
JUNE 30, 2006
-------------

The following table sets forth summarized consolidated financial information for
the three and six months ended June 30, 2007 and 2006:

                                      -29-

<PAGE>
<TABLE>
                                                       Three Months Ended June 30,                  Six Months Ended June 30,
                                             ------------------------------------------- -------------------------------------------
              ($ in thousands)                2007         2006       $ Change  % Change    2007        2006      $ Change  % Change
                                             ---------  -----------  ---------- -------- ---------  -----------  ---------- --------
<S>                                           <C>            <C>       <C>         <C>   <C>          <C>          <C>         <C>
Total sales                                   $ 2,424        $ 387     $ 2,037     526%  $  2,929     $  1,249     $ 1,680     135%
Cost of goods sold                              1,521          313       1,208     386%     1,803          887         916     103%
                                             ---------  -----------  ---------- -------- ---------  -----------  ---------- --------
Gross profit                                      903           74         829    1120%     1,126          362         764     211%
                                             ---------  -----------  ---------- -------- ---------  -----------  ---------- --------
Percent of total sales                            37%          19%                            38%          29%
Operating expenses                              1,654        1,517         137       9%     3,005        3,126        (121)     -4%
                                             ---------  -----------  ---------- -------- ---------  -----------  ---------- --------
Loss from operations                             (751)      (1,443)        692     -48%    (1,879)      (2,764)        885     -32%
Other income/(expense)                           (548)         (37)       (511)   1381%      (789)         570      (1,359)   -238%
                                             ---------  -----------  ---------- -------- ---------  -----------  ---------- --------
Net loss                                       (1,299)      (1,480)        181     -12%    (2,668)      (2,194)       (474)     22%
                                             ---------  -----------  ---------- -------- ---------  -----------  ---------- --------
Deemed dividend related to beneficial
     conversion feature of preferred stock          -            -           -                  -         (130)        130    -100%
                                             ---------  -----------  ---------- -------- ---------  -----------  ---------- --------
Net loss attributable to common shareholders $ (1,299)    $ (1,480)      $ 181     -12%  $ (2,668)    $ (2,324)    $  (344)     15%
                                             =========  ===========  ========== ======== =========  ===========  ========== ========

For the three months ended June 30, 2007, the Company's consolidated operations
generated net sales of $2,424,000 compared to prior-year net sales of $387,000
for the three months ended June 30, 2006. The increase in net sales is primarily
attributable to the substantial progress made to date on the $2+ million project
with the El Dorado Golf and Beach Club of San Jose del Cabo, Mexico, an increase
in recurring wireless WISP services and a slight increase in banking network
services. For the three months ended June 30, 2007, the Company had a gross
profit margin of 37%, compared to a gross profit margin of 19% for the
prior-year three-month period ended June 20, 2006. The increase in gross profit
margin is primarily attributable to several factors: (i) approximately $594,000
increase in gross margin is attributable to the El Dorado FTTH project, (ii)
approximately $196,000 increase in gross margin is attributable to the increased
WISP customer base and (iii) a $39,000 increase in gross margins for banking
network services.

For the six months ended June 30, 2007, the Company's consolidated operations
generated net sales of $2,929,000 compared to prior-year net sales of $1,680,000
for the six months ended June 30, 2006. The increase in net sales is primarily
attributable to the substantial progress made to date on the $2+ million project
with the El Dorado Golf and Beach Club of San Jose del Cabo, Mexico, an increase
in recurring wireless WISP services; partially offset by a decrease in banking
network services resulting from minimal network construction revenues in the
second quarter of 2007. For the six months ended June 30, 2007, the Company had
a gross profit margin of 38%, compared to a gross profit margin of 29% for the
prior-year six-month period ended June 20, 2006. The increased in gross profit
margin is primarily attributable to several factors: (i) approximately $470,000
increase in gross margin attributable to the El Dorado FTTH project, (ii)
approximately $402,000 increase in gross margin attributable to the increased
WISP customer base and (iii) a $108,000 decrease in gross margins for banking
network services.

The Company incurred a net loss of $1,299,000 for the three months ended June
30, 2007. The Company's net loss for the three months ended June 30, 2007,
included approximately $112,000 in depreciation and amortization expenses,
$418,000 of interest expense, $98,000 of derivative expense, $214,000 of other
general and administrative expense, $910,000 in employment expenses and $398,000
in professional services.

SALES INFORMATION

Set forth below is a table presenting summarized sales information for our
business segments for the three months ended June 30, 2007:

      ($ in thousands)                                      Three Months Ended June 30,
      Business Segment                2007     % of Total          2006     % of Total        $ Change   % Change
------------------------------    -----------  ------------   ------------  -----------    ------------ -----------
Wireless Messaging Services       $    1,765           73%    $        96          25%     $     1,669       1739%
Bundled Wireless Services                330           14%             23           6%             307       1335%
Enterprise Network Services              329           14%            268          69%              61         23%
                                  -----------  ------------   ------------  -----------    ------------ -----------
Total Sales                       $    2,424          100%    $       387         100%     $     2,037        526%
                                  ===========  ============   ============  ===========    ============ ===========

                                      -30-

<PAGE>

Set forth below is a table presenting summarized sales information for our
business segments for the six months ended June 30, 2007 and 2006:

      ($ in thousands)                                          Six Months Ended June 30,
      Business Segment                2007     % of Total          2006     % of Total        $ Change   % Change
------------------------------    -----------  ------------   ------------  -----------    ------------ -----------
Wireless Messaging Services       $    1,838           63%    $       362          29%     $     1,476        408%
Bundled Wireless Services                677           23%             48           4%             629       1310%
Enterprise Network Services              414           14%            839          67%            (425)       -51%
                                  -----------  ------------   ------------  -----------    ------------ -----------
Total Sales                       $    2,929          100%    $     1,249         100%     $     1,680        135%
                                  ===========  ============   ============  ===========    ============ ===========

For the three months ended June 30, 2007, net sales increased to $2,424,000 from
$387,000 for the three months ended June 30, 2006. The overall increase of 526%
was primarily attributable to the substantial progress made to date on the $2+
million project with the El Dorado Golf and Beach Club of San Jose del Cabo,
Mexico, an increase in recurring wireless WISP services and a slight increase in
banking network services.

For the six months ended June 30, 2007, net sales increased to $2,929,000 from
$1,249,000 for the six months ended June 30, 2006. The overall increase of 135%
was primarily attributable to the substantial progress made to date on the $2+
million project with the El Dorado Golf and Beach Club of San Jose del Cabo,
Mexico, an increase in recurring wireless WISP services; partially offset by a
decrease in banking network services resulting from minimal network construction
revenues in the second quarter of 2007.

COST OF GOODS SOLD

The following tables set forth summarized cost of goods sold information for the
three months ended June 30, 2007 and 2006:

      ($ in thousands)          Three Months Ended June 30,
      Business Segment               2007    % of Total          2006    % of Total          $ Change      % Change
                                ------------ ------------    ----------- ------------    --------------- -------------
Wireless Messaging Services     $     1,140          75%     $       65          21%     $        1,075         1654%
Bundled Wireless Services               131           9%             20           6%                111          555%
Enterprise Network Services             250          16%            228          73%                 22           10%
                                ------------ ------------    ----------- ------------    --------------- -------------
Total cost of sales             $     1,521         100%     $      313         100%     $        1,208          386%
                                ============ ============    =========== ============    =============== =============


                                           Three Months Ended June 30,
                                         ------------------------------
            ($ in thousands)                 2007          2006        $ Change    % Change
                                         -----------   -----------   -----------   ----------

Products and integration service         $    1,279    $      212    $    1,067         503%
Rent and maintenance                             51            18            33         183%
Salary and related cost                         129            49            80         163%
Depreciation                                     45             6            39         650%
Other costs                                      17            28           (11)        -39%
                                         -----------   -----------   -----------   ----------
Total cost of sales                      $    1,521    $      313    $    1,208         386%
                                         ===========   ===========   ===========   ==========


The following tables set forth summarized cost of goods sold information for the
six months ended June 30, 2007 and 2006:

      ($ in thousands)                                      Six Months Ended June 30,
                                     2007    % of Total          2006    % of Total          $ Change      % Change
                                   --------- ------------    ----------- ------------    --------------- -------------
Wireless Messaging Services     $     1,193          66%     $      187          21%     $        1,006          538%
Bundled Wireless Services               264          15%             37           4%                227          614%
Enterprise Network Services             346          19%            663          75%               (317)         -48%
                                ------------ ------------    ----------- ------------    --------------- -------------
Total cost of sales             $     1,803         100%     $      887         100%     $          916          103%
                                ============ ============    =========== ============    =============== =============

                                      -31-

<PAGE>

                                           Six Months Ended June 30,
                                         ----------------------------
            ($ in thousands)                 2007          2006        $ Change    % Change
                                         -----------   -----------   -----------   ----------

Products and integration service         $    1,445    $      754    $      691          92%
Rent and maintenance                             92            33            59         179%
Salary and related cost                         148            50            98         196%
Depreciation                                     87            11            76         691%
Other costs                                      31            39            (8)        -21%
                                         -----------   -----------   -----------   ----------
Total cost of sales                      $    1,803    $      887    $      916         103%
                                         ===========   ===========   ===========   ==========

For the three months ended June 30, 2007, cost of goods sold increased by
$1,208,000, or 386%, to $1,521,000 from $313,000 as compared to the three months
ended June 30, 2006. The increase of $1,208,000 in cost of goods sold is
primarily attributable to the associated cost of goods sold for the $2+ million
project with the El Dorado Golf and Beach Club of San Jose del Cabo, Mexico, and
the additional cost of goods sold attributable to the increased recurring WISP
revenues.

For the six months ended June 30, 2007, cost of goods sold increased by
$916,000, or 103%, to $1,803,000 from $887,000 as compared to the six months
ended June 30, 2006. The increase of $916,000 in cost of goods sold is primarily
attributable to the associated cost of goods sold for the $2+ million project
with the El Dorado Golf and Beach Club of San Jose del Cabo, Mexico, and the
additional cost of goods sold attributable to the increased recurring WISP
revenues; partially offset by a decrease in banking network services resulting
from minimal network construction revenues in the second quarter of 2007.

OPERATIONS EXPENSES

The following table sets forth summarized operating expense information for the
three and six months ended June 30, 2007 and 2006:

                                           Three Months Ended June 30,                      Six Months Ended June 30,
       ($ in thousands)             2007        2006     $ Change     % Change      2007       2006      $ Change     % Change
                                  ---------   ---------  ----------  -----------  ---------  ---------   ----------  -----------

Employment expenses                $   910     $   690      $  220          32%    $ 1,600    $ 1,525       $   75           5%
Professional services                  398         427         (29)         -7%        746        823          (77)         -9%
Rent and maintenance                    65          91         (26)        -29%        134        164          (30)        -18%
Depreciation and amortization           67          63           4           6%        134        123           11           9%
Other general and administrative       214         246         (32)        -13%        391        491         (100)        -20%
                                  ---------   ---------  ----------  -----------  ---------  ---------   ----------  -----------
Total operating expenses           $ 1,654     $ 1,517      $  137           9%    $ 3,005    $ 3,126       $ (121)         -4%
                                  =========   =========  ==========  ===========  =========  =========   ==========  ===========
</TABLE>

For the three months ended June 30, 2007, operating expenses decreased by 9% to
$1,654,000, as compared to $1,517,000 for the three months ended June 30, 2006.
The overall increase as evidenced by the immediately preceding table, are
discussed below:

     o    A $220,000 increase in employment expense. The increase is primarily
          attributable to increased staffing associated with our growing WISP
          operations and earned stock options from certain contractual
          management contracts.

     o    A $29,000 decrease in professional services.

     o    A $26,000 decrease in rent and maintenance.

     o    A $32,000 decrease in other general and administrative expense.

                                      -32-

<PAGE>

For the six months ended June 30, 2007, operating expenses decreased by 4% to
$3,005,000, as compared to $3,126,000 for the six months ended June 30, 2006.
The decreases that occurred, as evidenced by the immediately preceding table,
are discussed below:

     o    A $75,000 increase in employment expense, primarily attributable to
          increased staffing associated with our growing WISP operations.

     o    A $77,000 decrease in professional services.

     o    A $30,000 decrease in rent and maintenance.

     o    A $11,000 increase in depreciation and amortization.

     o    A $100,000 decrease in other general and administrative expense.

OTHER (INCOME) EXPENSE, NET

For the six months ended June 30, 2007, the increase in other expense is
primarily attributable to interest expense on debt obligations totaling
$661,000, of which $486,000 of interest is associated with derivative
instruments during the year. The increase is also attributable to derivative
expense of $81,000 and warrant expense of $37,000 as compared to interest
expense of $306,000 and derivative income of $872,000 for the six months ended
June 30, 2006. This expense represents the net unrealized (non-cash) charge
during the six months ended June 30, 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.

NET LOSS

For the six months ended June 30, 2007, our net loss was $2,668,000 compared to
a loss of $2,194,000 for the six months ended June 30, 2006. The increase in the
loss for the six months ended June 30, 2007, as compared to the six months ended
June 30, 2006, was attributable to the factors discussed immediately above.

NET LOSS APPLICABLE TO COMMON SHAREHOLDERS

For the six months ended June 30, 2007, our net loss was $2,668,000 compared to
a loss of $2,324,000 for the six months ended June 30, 2006. The Company's Net
Loss Applicable to common shareholders included deemed dividends on the
beneficial conversion of six months ended June 30, 2006.

CASH FLOWS

The Company's operating activities decreased net cash used by operating
activities to $234,000 in the six months ended June 30, 2007, compared to net
cash used of $1,776,000 in the six months ended June 30, 2006. The decrease in
net cash used by operating activities was primarily attributable to an increase
in non-cash expenses and stock-based compensation for services totaling
$1,954,000 and $480,000 of cash provided 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 $220,000 in the six months
ended June 30, 2007, compared to use of net cash of $111,000 in the six months
ended June 30, 2006. Spending has been consistent compared to last year capital
spending, which primarily is growing WISP capabilities to increase our customer
base.

The Company's financing activities provided net cash of $433,000 in the six
months ended June 30, 2007, compared to $1,317,000 of cash provided in the six
months ended June 30, 2006. The cash provided in the six months ended June 30,
2007, was primarily associated with the proceeds from line of credit net.

                                      -33-

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

GENERAL

At June 30, 2007, the Company's current assets totaled $1,444,000 (including
cash and cash equivalents of $372,000). Total current liabilities were
$3,062,000, resulting in negative working capital of $1,618,000. The Company has
funded operations to date through a combination of utilizing cash on hand,
issuing common stock to settle certain current liabilities, borrowings and
raising additional capital through the sale of its securities. The Company
operations for the six months ended June 30, 2007, was primarily funded by
proceeds from the Company's line of credit totaling $403,000 and convertible
debt financing of $75,000.

CURRENT DEBT FACILITY

At June 30, 2007, the Company had approximately $591,000 available on a $3
million unsecured revolving credit facility with Angus Capital Partners, which
matures in February 2009 and is not convertible into stock of the Company. The
terms of the two-year unsecured revolving credit facility will allow us to draw
upon the facility as financing requirements dictate and provides for quarterly
interest payments at an annual 12% rate. The loan may be prepaid without penalty
or repaid at maturity. In the event that 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.

DUTCHESS FACILITY

On June 14, 2007, we entered into an Investment Agreement with Dutchess whereby
Dutchess agreed to purchase up to $10,000,000 of our common stock over the
course of thirty-six (36) months. The maximum amount we may raise under the
Investment Agreement is $10,000,000. Over a period of 36 months, we may
periodically deliver new issue shares of our common stock to Dutchess, which
then delivers cash to us based on a price per share tied to the current market
price of our common stock. The Company determines the timing and utilization of
the equity line, if any, following the effectiveness of a registration
statement. The actual number of shares that we may issue subject to the
investment agreement is not determinable as it is based on the market price of
our common stock from time to time. Our ability to access this facility is
subject to certain conditions, including the maintenance of an effective
registration statement.

The amount that we would be able to request shall be equal to, at our election,
either (i) up to $250,000 or (ii) 200% of the ADV multiplied by the average of
the 3 daily closing prices immediately preceding the Put Date. The ADV shall be
computed using the ten (10) trading days prior to the put date. The put date
shall be the date that Dutchess receives a put notice of a draw down by the
Company of a portion of the line. The purchase price shall be set at 93% of the
lowest closing price of the common stock during the pricing period. The pricing
period shall be the five (5) consecutive trading days immediately after the put
notice date. There are put restrictions applied on days between the put date and
the closing date with respect to that particular put. During this time, we shall
not be entitled to deliver another put notice. Further, we shall reserve the
right to withdraw the put if the purchase price is below 75% of the lowest
closing bid price for the 10-trading day period immediately preceding each put
notice.

The calculation below assumes a put notice date of July 20, 2007. Set forth
below is a trading summary of our common stock for the period July 6, 2007
through July 27, 2007, the 10 trading days immediately prior to July 20, 2007,
and the five trading days immediately following July 20, 2007.

                                                           Closing
            Date                bid price                  Volume
      -----------------     -------------------     ------------------
        July 27, 2007             $0.93                     314,200
        July 26, 2007             $1.00                     622,300
        July 25, 2007             $0.95                     641,000
        July 24, 2007             $1.16                     575,000
        July 23, 2007             $1.23                     866,000
        July 20, 2007             $1.14                   1,310,000
        July 19, 2007             $1.43                   2,140,000


                                      -34-

<PAGE>

        July 18, 2007             $1.10                   1,130,000
        July 17, 2007             $0.92                   1,400,000
        July 16, 2007             $0.61                     506,000
        July 13, 2007             $0.55                     358,000
        July 12, 2007             $0.51                     710,000
        July 11, 2007             $0.46                     431,000
        July 10, 2007             $0.43                     201,000
        July 9, 2007              $0.43                     175,000
        July 6, 2007              $0.40                     193,000

The average daily volume for the 10 trading days prior to July 20, 2007, is
724,400 shares, 200% of this average is 1,448,800. The average of the three
daily closing bid prices immediately prior to July 20, 2007, is $1.15, resulting
in a put amount of $1,666,120. Thus, on July 20, 2007, we could have requested a
put amount of either $1,666,120 or $250,000.

The purchase price Dutchess would pay for the shares would be equal to 93% of
the lowest closing price during the five trading day period following July 20,
2007, which in this example is $0.93, resulting in a purchase price of $0.86 per
share and the issuance of 1,937,348 shares.

Assuming that (i) the volume and the trading price of our common stock remains
constant during the effective period of this registration statement and (ii) the
other draw down conditions are met, the Company could draw down $10 million
during fiscal 2007. If the Company only effects two puts per month and draws
down only $250,000 per put, the Company would be able to draw down the $10
million in less than 2 years. There is no assurance that the Company will draw
down such amounts on a monthly basis if at all and any such draw downs will
depend upon the Company's working capital needs, the price of its common stock,
and volume of trading in its common stock."

USE OF WORKING CAPITAL

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.

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, including
the Dutchess facility, 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.

                                      -35-

<PAGE>

CONTRACTUAL OBLIGATIONS

The following table sets forth contractual obligations as of June 30, 2007 (in
thousands):

<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             $ 4,498            $ 1,478            $ 3,020              $   -                $ -
  Capital lease obligations                   73                 13                 60                  -                  -
  Operating lease obligations              1,300                213                881                206                  -
                                  ---------------    ---------------    ---------------    ---------------     --------------
Total contractual obligations            $ 5,871            $ 1,704            $ 3,961              $ 206                $ -
                                  ===============    ===============    ===============    ===============     ==============
</TABLE>

The Company's contractual obligations consist of long-term debt of $3,354,000,
derivative liabilities of $407,000, unamortized debt discount of $134,000, and
interest expense of $530,000 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 June 30, 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.

                                      -36-

<PAGE>

REVENUE RECOGNITION

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

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

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

WARRANTY

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

FIXED ASSETS

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

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

LONG-LIVED ASSETS

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

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

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

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

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

     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.

                                      -37-

<PAGE>

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

CONCENTRATIONS OF CREDIT RISK

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

DERIVATIVE INSTRUMENTS

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

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

RECENT ACCOUNTING PRONOUNCEMENTS

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


                                      -38-

<PAGE>

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 Company's 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
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 Company's 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 Company's financial position, results of
operations, or cash flows.

In February 2006, the FASB issued 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


                                      -39-

<PAGE>

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 Company's 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.

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.

                                      -40-

<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

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

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

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

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

On May 1, 2007, an accredited investor acquired 381,679 shares of common stock
at $0.13 per share pursuant to a conversion of E-series bonds.

On May 25, 2007, accredited investors acquired 917,431 shares of common stock at
$0.11 per share pursuant to conversions of E-series bonds.

On May 25, 2007, an accredited investor acquired 192,308 shares of common stock
at $0.13 per share pursuant to a conversion of E-series bonds.

On May 30, 2007, accredited investors acquired 78,155 shares of common stock at
$0.12 per share pursuant to conversions of interest.

On May 30, 2007, an accredited investor acquired 11,176 shares of common stock
at $0.13 per share pursuant to a conversion of interest.

On June 6, 2007, pursuant to our lease agreement, we issued 735,294 shares of
our common stock.

On June 29, 2007, accredited investors acquired 2,104,906 shares of common stock
pursuant to Preferred A Conversions.

ITEM 3. DEFAULT IN SENIOR SECURITIES

None.

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

None.

                                      -41-

<PAGE>

ITEM 5. OTHER INFORMATION

None.

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(7)
Exhibit 5.1     Legal Opinion
Exhibit 10.1    R. 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    Amended 2004 Non-Qualified Stock Compensation Plan (15)
Exhibit 10.9    2007 Employee Stock Option Plan (16)
Exhibit 10.10   Second Addendum to Debt Conversion and Funding Agreement
                effective July 1, 2005 between ERF Wireless, Inc., Eagle R.F.
                International and Investors. (8)
Exhibit 10.11   Form of Common Stock Purchase Warrant Agreement, by and
                between ERF Wireless, Inc. and Investor (9)
Exhibit 10.12   Form of Skyvue Note (11)
Exhibit 10.13   Series A Preferred Conversion Restriction Agreement (11)
Exhibit 10.14   Warrant issued in June 2004 (11)
Exhibit 10.15   Employment Agreement with John Burns (11)
Exhibit 10.16   Employment Agreement with Arley Burns (12)
Exhibit 10.17   Amendment of Angus Capital (12)
Exhibit 10.18   Acquisition of Net Yeti (13)
Exhibit 10.19   Acquisition of Door (14)
Exhibit 10.20   Investment Agreement (16)
Exhibit 10.21   Registration Agreement (16)
Exhibit 10.22   Securities Purchase Agreement, by and between the Company
                and Global Capital Funding Group (17)
Exhibit 10.23   Registration Rights Agreement, by and between the Company
                and Global Capital Funding Group(17)
Exhibit 10.24   Convertible Note, by the Company in favor of Global
                Capital Funding Group(17)
Exhibit 10.25   Common Stock Purchase Warrant in favor of Global Capital
                Funding Group(17)
Exhibit 10.26   Securities Purchase Agreement, by and between the Company
                and GCA Strategic Investment Fund Limited, DP Securities and
                HIPL Family Trust(17)
Exhibit 10.27   Registration Rights Agreement, by and between the Company
                and GCA Strategic Investment Fund Limited, DP Securities and
                HIPL Family Trust(17)
Exhibit 10.28   Convertible Note, by the Company in favor of GCA Strategic
                Investment Fund Limited(17)
Exhibit 10.29   Convertible Note, by the Company in favor of HIPL Family Trust
                (17)

                                      -42-

<PAGE>

Exhibit 10.30   Convertible Note, by the Company in favor of CA Strategic
                Investment Fund Limited(17)
Exhibit 10.31   Common Stock Purchase Warrant in favor of GCA Strategic
                Investment Fund Limited(17)
Exhibit 10.32   Common Stock Purchase Warrant in favor of HIPL Family Trust(17)
Exhibit 10.33   Common Stock Purchase Warrant in favor of DP Securities(17)
Exhibit 20.1    List of Subsidiaries (11)
Exhibit 23.1    Independent Auditors' Consent


(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 SB-2 filed on December 12, 2005;
(12) Incorporated by reference from the Form 10-KSB for December 31, 2006;
(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;
(15) Incorporated by reference from the Form S-8 filed on May 30, 2007;
(16) Incorporate by reference from the Form 8-K filed on June 21, 2007; and
(17) Incorporated by reference from the SB-2/A filed on July 30, 2007.

                                      -43-

<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:  August 13, 2007


                                      -44-